It is a strange San Diego tragedy that each generation of power brokers has fallen into disrepute. After Nixon resigned the presidency in 1974, Smith went to jail for bank fraud; in 1979 a superior court jury convicted him of income tax evasion and grand theft related to his operation of the United States National Bank, and he served six months in a halfway house. When the real estate boom of the 1980s collapsed. Luce took his S2.1 million “golden parachute” and retired to self-exile on his Point Loma estate. What was left of the bank went into receivership, ending yet another era of fraud and corruption, covered up by the city’s media establishment until it was too large to ignore.
The current crop of wealthy and powerful are more diffuse, but insiders say they have learned the levers of influence well. Unlike San Diego’s political barons of the past, many of the new crop, be they lawyers or financial consultants, do not live in the city or have regular businesses here, instead, their base is Wall Street. They travel from city to city, profiting from the brisk business in public finance, taxpayer debt, that has sprung up across the country in the last two decades as state legislators loosened restrictions on the types of debt instruments available to city and county governments.
In its worst, most abused form, the play in municipal debt can cause a government to collapse into bankruptcy, as did Orange County in December 1994, after its treasurer, with the cooperation of the board of supervisors, began to speculate using so-called financial derivatives. When the market turned against the county’s interest rate position, losses soared from $873 million in June 1994 to $1.36 billion the following November. The treasurer’s consultations with a soothsayer to guide his investing strategy were of little benefit. If localities are lucky, as San Diego has been so far, smaller scandals emerge, such as-last year’s petty revelations that San Diego County’s pension fund board members for years had been traveling free of charge to destinations as far afield as South Africa, compliments of financial advisors eager to reap their 10 percent management fees for the billions of dollars invested each year by the board on behalf of retirees and widows.
But some insiders warn that San Diego’s luck may be running out. Many of these critics are highly placed public officials, both elected and appointed. Most refuse to reveal themselves publicly, fearing retribution from, among others, editorial writers at the San Diego Union-Tribune, who, in telephone conversations during December 1995, allegedly threatened the political futures of these officials. Still, these critics are unanimous in their opinions that the current mountain of debt being accrued by the city council without public vote is a dangerous and unprecedented development in the city’s history.
According to the critics, the city council is “out of control,” unchecked by local law enforcement or the judiciary, on a “spending binge” that may drive the city to the brink of insolvency. At the very least, they say, once the debt is in place, taxes and fees of all sorts will have to rise to pay it off. “There’s just no way around it,” says one knowledgeable source. “They want to encumber this city to the hilt and then leave town.”
Motives are varied, most agree. Some seem obvious. Chargers owner Alex Spanos and his son Dean, who have funneled thousands of dollars to city council incumbents, want a new stadium and training complex without having to pay the full freight.
But others do not have such straightforward reasons for the rush into debt. As an example, many critics point to Mayor Susan Golding, the architect of many aspects of the spending plans. She has repeatedly argued that the council has no “legal obligation” to submit the debt plans for voter approval. In a February 19 story in the Union-Tribune, Golding is also quoted as saying, “Most voters tell me that they have other things to do, and they don’t want everything to be put on the ballot.” In addition, her critics say, the mayor has led the council to file the city-paid lawsuit against the group seeking a public vote on the stadium measure. (Mayor Golding did not return calls for this story.)
Among Golding’s chief reasons for encouraging the spending plans, the critics say, is the fact that some of her closest associates and campaign contributors have a monetary stake in the resulting finders fees and consulting and contracting agreements. That would boost campaign contributions to Golding, these critics say, and guarantee her a loyal corps of supporters when she runs for higher office, beginning as early as next year.
But these critics don’t place all responsibility on Golding. “It’s a wide web, and it’s made up of a lot of people,” says one. “She’s managed to crawl her way into the center for now, but she’s obviously not indispensable. The Union-Tribune is obviously more important to making sure that the deals get done, that public opinion stays as favorable as possible, so that’s one example of the caliber of players. I can’t guess their motive, but they sure don’t like to talk about the debt problem. In any case, Golding and her people have done a pretty good job of taking advantage of the situation.”
One anonymous critic points to an important meeting early this year involving one of the mayor’s closest confidants. Depending on who is doing the remembering, small details vary. But there is no confusion about who attended the meeting or about the subject at hand. Mark Young, a marketing executive for the Wall Street investment firm of Dillon Reed, was there, as was Golding confidant Joel Macintire “Mac” Strobl.
According to the talk on Wall Street, the San Diego City Council was secretly planning to issue more than a billion dollars’ worth of taxpayer-backed securities in various forms — from so-called lease revenue bonds to commercial paper to something called arbitrage bonds. Says one person aware of the meeting, “You can just smell the money.”
As the public would find out much later, the city council had for months been working on its plan to pass Proposition B. Sources inside city hall say the council and various city officials, including deputy city attorneys, conspired to violate state laws requiring public discussion of the plan. “They hid everything from view. They met in closed session and in cocktail lounges, bars, on their many road trips. Frankly speaking, these guys are crooks.” The motive? Generous campaign contributions and other freebies granted to city council members and other city hall insiders in exchange for their support of the scheme. The result? Proposition B.
“San Diego and its taxpayers are virgins ripe for picking,” says one veteran of the murky world of the municipal bond market. “Plenty of tax money coming in from compliant taxpayers, plenty of room to raise new taxes if you can’t quite handle all the new debt, and one of the most corrupt smalltown city establishments in the country. Oh, yes, they on Wall Street are very, very interested in San Diego.”
Dozens of bond dealers have staked out city hall, hired lobbyists and lawyers, and are said to have begun — directly and indirectly — bestowing campaign money, gifts, meals, travel tickets, and jobs on council members, city staff, other elected officials, and their friends. “You never find all the meals and gifts on those reporting forms they file. They just ‘forget’ to put it all down,” says one ex-broker. “We just quietly pick up the tab. And there isn’t a line to put down the lobbying business you send to the friend or spouse or political ally of someone on the council. Then the council meets in secret and picks you out of the pack. It’s neat. ”
Such was the climate in which Mark Young had somehow managed to arrange his meeting with Peter Hall, head of the city’s downtown redevelopment arm. But Young had come to the meeting with what some of his competitors called his “secret weapon,” Mac Strobl.
For years, Strobl had been president and owner of a lobbying firm called TCS Governmental Consulting. Young had previously worked for another bond house pitching business to the county, and Strobl had been his lobbyist. Strobl was also a well-connected Republican and a Golding partisan and surrogate, leading the early public attacks on her erstwhile mayoral foe Peter Navarro.
Strobl, now 50, got his first real taste of San Diego politics in 1976, when he was appointed by the city council to the seat of 7th District councilman Jim Ellis, who had been elected to the state assembly. In return, Strobl promised not to run for the seat in the next year’s election. Instead, he got a job as a “governmental affairs specialist" at the Economic Development Corporation, a city- and county-subsidized group commissioned to attract industry to the area.
Seven years later, after serving under three executive directors and without a prospect of being promoted, Strobl moved on to work with Tom Stickel and his new subsidiary, TCS Governmental Consulting. Asked by a reporter why the top EDC job had eluded him, Strobl is quoted as saying, “Sometimes I suspect you’re too close to the trees to see the forest. I was brought in for expertise in governmental affairs, and it wasn’t easy to get beyond that area of expertise."
Tom Stickel ran a small conglomerate of companies handling mostly insurance, real estate, and mortgages under a holding company he founded in 1983 called TCS Enterprises. Strobl’s job in the mix was to attract and lobby for corporate clients who wanted to influence local and state governments.
On its face, the lobbying job at TCS looked like a no-brainer. Stickel had made a career of befriending local Republicans and even a few Democrats. His associates at his job included former state savings and loan commissioner Lawrence Taggart, who ran TCS Financial; Republican Party kingpin and ex-congressman Clare Burgener, who ran much of the county Republican political operation out of his office at TCS, where he was a director of Stickel’s holding company; and ex-San Diego Gas & Electric governmental affairs vice president Frank Devore, who was also a TCS director.
And Stickel himself was a generous donor to Republican causes. His beneficiaries included Governor Pete Wilson, for whom he raised hundreds of thousands of dollars. In 1986 another recipient of Stickd’s political beneficence was then-deputy district attorney Charles Wickersham, who was running for an open seat on the superior court bench. The donation would raise questions later.
Strobl’s client list at TCS included an outfit called the Committee on Unitary Tax (CUT), a group composed mainly of foreign-based companies that wanted state tax breaks, and a developer who sought to buy 300 acres of land owned by the City of San Diego without going through a public auction.
That August 1986 deal involved selling the land to the City of Escondido, where it was located; Escondido then proposed to resell the property to the Lomas Serenas Co. for the construction of homes, hotels, and a municipal golf course. The transaction and Strobl’s role in it drew the fire of then-councilwoman Abbe Wolfsheimer, who charged that she had come across a letter showing that Strobl and another lobbyist, attorney Paul Robinson, had secretly met and “conspired” with two top city administrators, then-deputy city manager John Fowler and then-city property department head Jim Spotts, to manipulate information and reports furnished to the council. Despite Wolfsheimer’s objections, the council voted to proceed with the arrangement favored by Strobl, who denied any unlawful or inappropriate activity.
Today, Strobl ridicules Wolfsheimer’s criticism. “It was absolutely foolish. It was stupid. It was ridiculous. There wasn’t any substance to it. It was a typical, off-the-wall Abbe Wolfsheimer stunt. If she bothered to read the letter, our own letter said that what we were seeking we didn’t accomplish. Even if we had, it wouldn’t have sold out the city. But it didn’t matter how you care to interpret it. We didn’t succeed.” Strobl had several other brushes with notoriety, including a UPI report that TCS Governmental Consulting had failed to file quarterly disclosure forms required by city law. The story reported that Strobl explained “his firm does not lobby: it provides information to city officials and administers contracts his clients have with the city.” The wire service went on to report that “Strobl said lobbying and informational contacts are separated by a ’fine line. But we facilitate things and work with the management process. That’s not lobbying.’ ” Today, Strobl hews to the same position, pointing out that TCS is not required to file disclosure statements for any quarter in which it does not actually “lobby” under the narrow definition of city law.
In the spring of 1992, Strobl came to provide crucial support for a then-struggling Susan Golding in her campaign against Peter Navarro. In 1991 Strobl, along with Bob Lichter, at the time the president of the John Burnham real estate company, had led a successful court fight to keep a controversial Navarro-sponsored controlled-growth initiative off the ballot. But polls showed Navarro’s environmental message had hit a resonant chord among voters.
In March 1992, two months before the mayoral primary, Navarro claimed that the Coalition for San Diego Business, a pro-business advocacy group established by Lichter and Strobl, was actually a front for Golding’s campaign. Navarro’s charges were condemned by the San Diego Union and the Tribune, which began to hound Navarro in print.
Golding, Lichter (Golding’s chief campaign fundraiser), and Strobl denied the accusation of illegal influence-peddling and campaign-giving. Quoted in a San Diego Business Journal story, Strobl characterized the nonprofit coalition as “kind of an umbrella organization for business interests and business organizations.” The group, the newspaper reported, “will offer its opinion and expertise, [Strobl] said, on public policy decisions. And it hopes to meet with the new mayor — whoever that person may be — after he or she takes office later this year.” With the help of hundreds of thousands of dollars raised by Lichter and his allies, Golding beat Navarro handily, and Strobl was quickly taken into the mayor’s inner circle. Among other rewards, she appointed him to an informal committee of Golding insiders examining the city manager’s spending priorities and recommending programs to fund and to cut, but while Golding’s career prospered, things did not go so well for TCS Enterprises and its Strobl-run lobbying arm, TCS Governmental Consulting. The holding company had always seemed an odd mishmash of specialties, and there was controversy about the role of Larry Taggart, the ex-savings and loan boss in the administration of Republican governor George Deukmejian.
On December 7, 1984, Taggart, while still the state’s savings and loan commissioner, had allegedly granted a special regulatory favor to Charles Keating, allowing Keating’s Lincoln Savings to put as much as $900 million into so-called direct real estate investments, a decision that later caused Lincoln to lose millions of dollars. The move, Taggart later told the House Banking Committee investigating Keating’s role in the national S&L scandal, was intended to beat a December 10 deadline set by the federal government prohibiting such investments by federally insured savings and loans.
Less than a month later, Taggart resigned his post and went to work for Stickel at TCS Enterprises. Three weeks after that, disclosure documents showed, Lincoln Savings invested $2.89 million in ICS. A 1990 article in the San Francisco Chronicle aim alleged that Taggart received a $50,000 check from Stickel three days after he left state service to go to work for TCS, a violation of state conflict-of-interest laws.
Reported the newspaper, “The contract between Lincoln and TCS Enterprises, a consulting firm Taggart joined immediately after leaving government, strongly suggests that he was talking with Lincoln about a paid position while he was still commissioner. It also contradicts earlier sworn statements that Lincoln agents were not aware of TCS until after Taggart left his post on Jan. 1, 1985.” The paper reported, “Taggart recalled being approached by Lincoln representatives during his last days in office but said he declined to talk with them."
The Chronicle also discovered appointment logs showing that Clare Burgener, the ex-San Diego congressman who was a TCS director and maintained an office at the firm, had met with Keating. “Keating’s appointment logs show that on Dec. 27, 1984 — during Taggart’s last week as California’s top thrift regulator — he was scheduled to meet with former Representative Burgener,” the paper reported.
“However, Burgener said yesterday that ‘to my knowledge, I never had an appointment’ with Keating, and ‘it beats me’ how Keating’s schedule listed him. ‘I’ve never met the man in my whole life,’ he said, although he does recall knowing Keating’s brother while both were Republicans in Congress.”
At the time, the paper said, Burgener owned 1 percent of TCS’s preferred stock and was paid $1000 a month salary by TCS, according to a Securities Exchange Commission filing.
Though hearings were held by both state legislative and congressional committees, and a state bar launched an investigation of Taggart, who was also an attorney, in March 1993, according to a savings and loan industry newsletter, Taggart was never officially sanctioned or indicted for criminal acts. He subsequently left TCS and become an independent consultant. In 1994 a house he owned on San Antonio Street in Point Loma went into foreclosure, and he currently has no telephone listing in the San Diego area.
Charles Keating was eventually convicted in 1991 of 17 charges of aiding in the sale of securities through false statements. The securities were junk bonds in the American Continental Corp., Lincoln’s parent company, and were sold to investors without disclosure of the company’s losses and lack of security. Keating was convicted separately in federal court of 73 charges of looting Lincoln and defrauding investors and was sentenced to 12x/i years in prison. Lincoln’s collapse in 1989, the biggest failure of a savings and loan in U.S. history, had cost taxpayers $2.6 billion to pay off depositors and cost about 17,000 small investors, many of them retirees who had mistakenly thought the money was federally insured, $190 million.
But the Keating scandal wasn’t the only problem Stickel had to deal with at TCS. By the early 1990s, the San Diego economy had taken a nosedive, and the company was suffering financially. In July 1992, as Golding was gearing up for her mayoral runoff against Peter Navarro, Stickel announced he was selling two million shares in the firm, along with an option for a million more, to Mario Rosas, said to be a Mexican investor.
Two months later, in September 1992, Stickel surrendered chairmanship of TCS to Rosas. Although he personally retained 20 percent of the company, Stickel admitted to a reporter that “we have had a difficult year.” He sued Rosas in 1995, alleging that the Mexican financier behind the 1992 buyout had failed to make payments on a $1 million promissory note connected with the deal. Late last summer, yet another investor stepped forward to bail the company out, announcing plans to change its name from TCS Enterprises to USA Golf and buy up financially troubled golf courses.
By April 1994, according to a report filed by the company, Stickel still controlled 500,000 shares of TCS stock. Meanwhile, he had gone on to start a new investment enterprise in May 1994, this time with Dale Hanson, who abruptly announced he was quitting his $110,000-a-year job as head of the $80 billion California state employees retirement system, commonly known as CALPERS.
The pair said that they, along with Byron Georgiou, a 1992 Democratic candidate for Congress who was in the cabinet of former governor Jerry Brown and who is a business partner of Jack Ford, son of the ex-president, would help invest pension fund cash in real estate deals.
Hanson, who told the New York Times he and Stickel were old friends who shared a common interest in “hunting and fishing,” had the year before nominated Stickel, a Pete Wilson fundraiser, to the board of Catellus Development, a large real estate concern based in San Francisco. Catellus owned much of the former Santa Fe railroad land throughout the state. The state pension fund owns a large part of the company.
Sharing the same office with the Stickel-Hanson enterprise on the 31st floor of downtown’s Symphony Towers is Mac Strobl’s TCS Governmental Consulting. But if things were going well for his office mate Shekel, Strobl’s lobbying business hadn't exactly taken off. According to a 1995 disclosure document filed by TCS Enterprises with the federal Securities and Exchange Commission, TCS Governmental Consulting was losing so much money by early 1994 that TCS Enterprises decided to unload 80 percent of the subsidiary to Strobl in October 1994. “The subsidiary experienced losses over the last several years due to the general economic downturn in Southern California,” according to the filing.
“It is the belief of all involved parties that the operation may be able to streamline operations and reduce expenses,” the filing went on. “The stock was sold at book value in exchange for a long-term note with quarterly interest payments at prime due beginning January 1, 1996. The principal and any accrued interest are due in full November 1, 1999. The note is secured by a pledge of the shares in TCS Governmental Consulting, Inc., sold by the company to Joel M. Strobl." The filing did not reveal the price of the transaction.
Not long after that disclosure, in September 1995 Golding put Strobl on the city payroll as chief of “intergovernmental relations” at an annual salary of what he says is “about $80,000.” The job requires Strobl to act as a lobbyist on behalf of the city before the state legislature, congress, and local government agencies like the county. But following his appointment by Golding, Strobl did not sell TCS Governmental Consulting to a third party. Instead, Strobl says, he stepped down as president of the company and turned over day-to-day operations to his wife, to whom he says he sold his interest in the firm. Because Strobl still retains half-ownership of his wife’s interest in TCS under the state’s community property laws, the company’s work on behalf of clients attempting to do business with the city, such as Dillon Reed, has raised questions of conflict of interest.
"We're an investment banking firm that competes to do business in San Diego and throughout California,” says WW Dillon Reed’s Mark Young during an interview earlier this month. The meeting with Strobl and Peter Hall of the city’s redevelopment arm, according to Young, was devoted to gathering information on the city’s upcoming financing deals. “It’s like any other business. We go out and meet people, find their needs, come up with financing plans for them.” During the meeting. Young says, he was “just inquiring about what was going on in the community, to find out what CCDC is doing so that we can learn about what their financing objectives are so that we can be responsive to them. It’s just a matter of getting to know people in the community and knowing what the needs are.”
Young acknowledges that Proposition B and the city council’s plans to increase the city’s debt load spurred the meeting with Hall and his top assistant, Frank Alessi. “They have a role with respect to the library financing. They, as a public agency, are going to be making an investment in that. They seemed to be like good people to go and talk to, to find out what their issues, concerns, desires are for that financing. And that’s just one. You know, the city’s going to be involved on the convention center expansion, there’s probably three or four different public agencies that are going to have an interest in that financing. So to be able to be as responsive as possible, you want to meet with each one of those agencies and find out what their objectives and concerns are.”
When first asked about who besides Alessi and Hall was at the meeting, Young is not as forthcoming. “I don’t need to tell you everybody that I meet with when I’m down in San Diego.” Asked whether he had been accompanied by any consultants at the meeting, he replies, “I’d rather not comment on that.”
When queried specifically about Strobl, Young says, “When I was at DLJ, Mac’s firm was hired at DLJ, and when I came to Dillon Reed, TCS was hired.” He confirms that TCS remains Dillon Reed’s San Diego lobbyist and, when asked directly, acknowledges that Strobl attended at least one meeting with Hall and Alessi. “Yes. His company, TCS Governmental C Consulting, was a consultant that was retained by DU, and subsequent to coming to Dillon Reed, TCS has served in the capacity of a governmental consulting firm for us They are retained by Dillon Reed to assist in public finance transactions in the San Diego region.” Young adds that Doug Byrns, a contract employee of TCS, is currently the Dillon Reed representative in San Diego.
As to the part played in the meeting by Strobl, Young says, “When he was at TCS, his role was to help facilitate meeting with different folks in the community.” Young remembers that the meeting with Hall and Alessi took place before Strobl went on the city payroll. “Yes. It was months ago. I can’t remember the exact date.” Strobl and his firm, says Young, acted as “someone in the region who keeps the ear to the track, to make sure to let us know issues that are important in the community, to tell us of upcoming projects, and to help facilitate and give us direction as to the appropriate people we should be meeting to get to know what the issues are so that we can be responsive when we compete through the traditional competitive RFP |request for proposal) process.”
Young, a veteran of the municipal financing business, hastens to add that most of his competitors employ similar contact people, commonly referred to as "rainmakers” among the big securities firms. “I would check everybody who has done business in San Diego.”
Observers say the passage of Proposition B will only add to the rush of securities dealers attempting to influence city officials, especially since the usual competitive bidding process mandated by the city charter would be circumvented. The measure would allow the city council to issue a special kind of debt, commercial paper, for up to seven years. “Commercial paper programs, typically, you would hire an investment banking team to run that,” notes Young. “You probably wouldn’t go through a competitive hid process.” .
Frank Alessi, Hall’s top financial assistant, who also attended the meeting with Young, tells the tale of the get-together somewhat differently. For one, Alessi recalls that Strobl was already on the city payroll. “We met over here. I’d have to go back to look and see when it was. I don’t know if it was a month ago, two months ago.” As Alessi remembers, Strobl “met with Peter and myself and the underwriter.” Asked whether Strobl gave the impression he was representing Dillon Reed, Alessi says, “Not necessarily, no. He may know people at Dillon Reed, I don’t know. People know each other from past experiences.” Alessi also notes that if a city official were to lobby another city official on behalf of a private client, “there would be a conflict there. You couldn’t hire a city councilperson to be your lobbyist or something like that.”
Strobl’s own recollection of the meeting with Hall, Alessi, and Young differs slightly from the others’. He remembers it as a lunch in February, three months after he started work at city hall. "See, Dillon Reed was one of my clients before I joined the city, and one of the things that I had agreed to do as part of phasing out of that responsibility was to set up a series of meetings for Doug Byrns to get introduced as the individual who took my place.
"We had tried to set up a meeting with Peter for a couple of occasions going back to last year, and we hadn’t been able to do it,” Strobl continues. “We were finally able to find a mutually acceptable date to get the individuals that I have worked with at Dillon Reed when I had my consulting business (to come] down to San Diego to meet with Doug and Peter. And so we finally got that taken care of as kind of the last thing I needed to do to pass the baton, so to speak."
Regarding the specific subject matter of the meeting, Strobl recalls “we did talk to CCDC during that meeting about the way in which the city’s library financing might go and whether or not there’d be a business opportunity there, but that’s really about the only thing that was discussed that even dealt with the specific potential business in the future that they might want to look at, and I didn’t pay much attention to it because it wasn’t going to involve me.” Strobl denies knowing anything about Proposition B, much less talking about it at the meeting with Hall. “That’s not my department, that’s financial management’s business.”
Nothing that happened during the meeting created a conflict of interest, he says, because he stopped working for TCS Governmental Consulting in October when he sold the company to his wife. “It’s like owning stock in anything. I actually don’t own it directly, but through community property I do. But I receive no compensation from that company and haven’t since the first of October and am not involved in any of its ongoing operations.”
Strobl also says he did nothing to lobby the city’s Peter Hall on behalf of the firm. “Dillon Reed’s a client. What we do for Dillon Reed is primary information. It’s keeping them abreast on what’s transpiring on various public funding opportunities throughout the county—with the county, the school district, the city, MTDB, and SANDAG. They are the ones that decide whether they want to respond and compete for any of those opportunities.
"Civil law enforcement has broken down in San Diego,” says H• one local prosecutor, frustrated by what he says is the “no-ethics, no-morals” climate pervading almost every level of the city’s prosecutorial establishment and superior court bench when it comes to white-collar political crime. “Three strikes for a murderer is great. Send him to the gas chamber. That’s what gets you on the TV news. But if you’re a big developer or a Wall Street bond house and want to launder campaign money, go ahead and do what you please, because all you’re going to get is a slap on the wrist.”
Experienced observers say such appears to be the case in the city’s latest money-laundering scandal. One of the city’s largest private landowners and developers, the H.G. Fenton Material Co., was accused of laundering more than $10,000 worth of city council campaign contributions through 53 separate donations by company employees between 1989 and 1993. The firm wanted the city council to approve a development plan on 500 acres in Mira Mesa. But no one went to jail. In a settlement announced February 13 between the city attorney and Fenton, the company simply paid a $90,000 fine and promised not to sin again.
No city council members were held liable. All denied any knowledge of how they had come to be the recipients of such generosity. “That’s laughable,” says the prosecutor, who notes that most council members employ professional political fundraisers to repeatedly call any and all likely contributors, especially those who regularly depend on the council for such things as favorable leases, zoning changes, and bond underwriting. For their work, the fundraisers receive as much as 25 percent of the take. Targets of these fundraising calls are told they or their employees should make sure to attend the many fundraising events being held for the incumbents or face the consequences.
“They really twist your arm,” says one local contractor who claims to have lost out on major city sewer construction contracts and other city contracts because he has decided not to play along. “Damn those guys anyway. They’ve managed to rig almost everything over there. They almost never go out to a straight bid anymore. It’s almost always a so-called request for proposal or ‘negotiated contract’ or ‘design-build award.’ Those are fancy words for ‘It’s fixed.’ They give the deal to their friends. So local contractors, who don’t have that much free cash as it is, can’t afford to buy off the politicians. Didn’t you ever wonder why the big out-of-town guys get all the work? Believe me. I’ve tried to get people over at the D.A. to listen to this stuff, but they won’t give me the time of day.” District attorney Paul Pfingst declined to respond to requests from a reporter for comment on any aspect of this story because, he said, the reporter had been impolite to his public relations woman.
Ironically, even the supposed watchdogs of the public trust are players in the campaign fundraising derby. Both District attorney Pfingst and presumptive city attorney Casey Gwinn, running unopposed on next week’s ballot, racked up huge campaign debts in their race for district attorney last year. Disclosure filings show both are constantly raising funds, both for themselves and their political friends.
Two weeks ago, in yet another example of political money connected to the city’s growing bond debt, Gwinn and Pfingst even held a joint fundraiser for city councilman Juan Vargas, who is running in the Democratic primary against incumbent Bob Filner. Some of the most influential lawyers and lobbyists in town, many of whom conduct lobbying for clients and negotiate behind-the-scenes deals with both the city and county, were invited to the March 8 event, held the day after the federal cutoff date for reporting the identity of contributors before the election. The sources of money derived from the fundraiser will be revealed only after election day.
“This is a huge conflict of interest for Pfingst," says a local attorney who sought anonymity as a condition of speaking out. “Here he is endorsing Vargas, who sits on a city council famous for taking legal shortcuts, to say it nicely. So what does Pfingst do if he gets a complaint from a citizen regarding Vargas or any of the others? Does he sit on it? Or turn it over to the state attorney general? He makes the choice. And I think he’s put himself in a real dubious position there.”
According to campaign disclosure filings, during the four months between March 17 and July 17, 1994, Gwinn loaned his campaign for district attorney a total of $70,000, which, according to the most recent filing, he still owes to himself. Thus, contributions collected by his district attorney campaign committee can be used to pay off that loan and will end up in Gwinn’s pocket.
In addition to that fund, Gwinn has established a separate account for his city attorney race, collecting contributions from attorneys who have business pending before the city.
In fact Gwinn recently has become chief spokesman for the city’s lawsuit against the group in favor of the stadium expansion vote. The law firm handling the case for the city. Luce, Forward, Hamilton and Scripps, received a no-bid $250,000 contract after the city council met in closed session. Although Gwinn denies having any role in the selection of the firm, he received at least $1850 in campaign contributions from members of the firm in the weeks preceding award of the contract.
A campaign staffer returned a call placed to Gwinn seeking comment for this story. The aide said Gwinn would respond to questions related to the fundraiser as well as other issues involving his conduct, but he never called back. Instead, Gwinn forwarded a written statement: “I have never been accurately quoted or portrayed in your periodical. Based on past performance, I have no confidence you’re interested in reporting the truth. You have consistently printed inaccurate and unsubstantiated smears against me. Therefore; I decline further comment at this time."
In San Diego, even judges aren’t immune from exposing themselves to possible conflicts of interest by accepting support from the city’s political and financial establishment. Superior Court Judge Charles Wickersham, who, on February 16, ruled in favor of the city council’s “no-vote” stadium stance, has taken campaign contributions from Thomas C. Stickel, Republican activist and financier and office mate of Mac Strobl. Stickel is also on the board of directors of San Diego Gas & Electric, which has a major interest in the outcome of the stadium financing issue.
Ruling in favor of the city, Wickersham abruptly dismissed — without a hearing— a taxpayer challenge to the merits of a no-bid construction contract awarded by the city council to expand the stadium. And he automatically “validated" an allegedly “sham” corporation the council wishes to use to sell the stadium bonds. “The guy never held a hearing, he never took a note,” says one source close to the case. “Fie didn’t want to hear anything. He just made up the law as he went along. It was shameful. And the contract stinks to high heaven.” Wickersham’s ruling is now under appeal, and some cynics say they detect ulterior reasons for the decision.
Critics point out that the way in which Wickersham became a judge ten years ago raises questions regarding possible ethical conflicts of interest. As an ex-deputy district attorney who once prosecuted former mayor Roger Hedgecock, Wickersham was not appointed to the bench. Instead, he ran for an open seat in November 1986 against municipal court Judge Mac Amos, who had been appointed to his seat in the 1970s by Democratic governor Jerry Brown.
During the bitter campaign, Wickersham cast himself as the law-and-order judge against what he claimed was the more liberal Amos, even though Amos received a higher qualification rating from the local bar — “well-qualified” versus Wickersham’s lower “qualified.” Wickersham claimed that the rating process was hastily done and “political” in nature, a charge denied by then-bar president John M. Seitman.
But if local lawyers were not impressed, the San Diego Union more than made up for their lack of ardor. In a series of editorials, the paper trashed Amos’s alleged liberal affinities. Other observers claim that reporters for the paper played along with their editorial department and cast their coverage the way Wickersham wanted it slanted, highlighting the endorsements the deputy prosecutor had gotten from police unions. Both Amos and Wickersham, according to a Los Angeles Times story, said the Union-Tribune’s all-out support of Wickersham had been instrumental in the result.
Today, critics point out that the Union-Tribune has made no secret about its desire that the stadium plan be withheld from voters. Before Wickersham’s ruling, the paper called on the judge to render a verdict against the taxpayers who argued that a ballot was required by the city charter. Then, in a February 21 editorial just days after Wickersham’s ruling, the paper congratulated the judge for injecting “a badly needed dose of legal common sense into this highly critical case.” In yet another editorial, March 10, the paper argued, wrongly, that the method of financing the stadium would “not encumber the public” and went on to proclaim that the expansion project, which includes a new pressroom, including a private bar and restaurant, would “provide us with one of the finest football stadiums in the country."
The paper went on to attack personally the three who are attempting to get the stadium issue on the ballot. “Wickersham doesn’t need a phone call from Herb Klein or Helen Copley or Karin Winner," says one local attorney familiar with the judge's history on the bench. “The U-T can telegraph Wickersham his rulings via the editorial page. It’s a travesty.”
In addition to the Union-Tribune contributions, campaign disclosure filings show that Wickersham collected support from some local businessmen who remain influential players at city hall today. The race was expensive. Wickersham told the Los Angeles Times that he spent “between $18,000 and $20,000” in comparison to Amos’s estimated $10,000 to $12,000.
Only partial campaign disclosure forms for Wickersham remain on file with the county Registrar of Voters, so there is no complete accounting of the money raised by the then-prosecutor through the November general election. In particular, there is no official evidence of a $2000 donation used for a last-minute attack campaign against Amos, referred to in newspaper accounts at the time.
However, existing records from the primary election show that in addition to at least $100 from Shekel, Wickersham received early in the campaign seasons at least $250 from Len Frank, an executive of the Pardee Development Co.; $100 from Anne Evans, owner of the Bahia Hotel and major supporter of Mayor Golding; $250 from developer William Patrick Kruer; $250 from Malin Burnham, chairman of John Burnham & Co.; and $100 from Tom Hawthorne.
Although at no time during the proceedings did Wickersham ever disclose a connection with Stickel and his associates, observers note that Stickel currently serves on the board of San Diego Gas & Electric, which stands to profit handsomely from the city’s stadium deal with Chargers’ owner Alex Spanos.
A taxpayer-funded $17 million Charger training facility is to be built not far from the stadium on SDG&E land now in escrow.
If the city’s legal position were overturned in court and voters were to reject the stadium financing scheme, the utility could lose millions. “You see how this stuff is all interconnected?” says the prosecutor. “Just follow the money.”
Wickersham did not respond to repeated requests for comment regarding the issues raised in this story.
There is no doubt that the bond business has funneled volumes of cash into the city council,” says a local prosecutor. “The money comes in various ways. Big corporate law firms are the most efficient. The employees are told to give money. They are reimbursed, not directly, but through carefully calculated year-end bonuses. It’s not written down, of course, so you can’t find a smoking gun. But later, when the council member gets a call from the head partner of the firm, they both know what’s going down. And then the message goes out to the city staff: Make sure the goddamned contract goes to the right guy. And, of course, they meet regularly in secret sessions.”
“The nice thing about San Diego,” notes a San Francisco political consultant, “is that the guys and dolls on the council there go cheap. Hell, you say the mayor only raised about $300,000? That’s chicken feed. The L.A. mayor spent $20 million in his first campaign. For this year’s re-election, he raised $2 million in just one night last week. So obviously, in San Diego you get more influence for your buck.”
One result of what an observer calls the “ever-flowing river of mother’s milk” — campaign cash — is to assure that council incumbents rarely face well-funded challengers who might question their insider dealings. “Nobody is going to give money to a non-incumbent,” laughs one Sacramento-based fundraising consultant familiar with San Diego politics. “The incumbents generally stay bought and can be led around by the nose. They are always approving more and bigger debt, to build this or that pork-barrel project. Of course they don’t want the good citizens of San Diego to vote on any of these goodies. If, per chance, any of this debt were rejected by voters, there would be fewer opportunities to hand out contracts to their favorite moneybags.”
As an example, critics point to the way Proposition B itself was quietly shepherded through city hall, with virtually no public hearings, before being placed on the March ballot. “They didn’t want anybody to know about this,” says a city hall insider. “Susan Golding just decided it would be in her interest if they got this thing passed, so they could sell a whole lot of new debt.” The measure was heard by the Golding-led city council rules committee and then put on the ballot by the full council without any discussion at all. The Union-Tribune also failed to cover the fact that the measure was being considered.
The insider says this was not an accident and that Strobl played a role in laying the groundwork, a charge he denies. “They worked it out in secret so that no criticism would surface," the insider says. “That way, nobody would have time to write an opposing ballot argument.” That part of the plan failed, however, when Bruce Henderson and Richard Rider, who are leading the battle to put the stadium financing plan before voters, found out about the measure and discovered what they say are serious flaws.
It wasn’t until the first week of January, two weeks before the deadline for ballot arguments, that they learned about Proposition B. However, they were able to conduct research and talk to an array of municipal finance experts, all of whom warned that the measure was potentially dangerous. Rider, Henderson, and four others subsequently signed the argument against the proposal, submitted on the last hour of the January 15 due date.
At stake is at least $300 million in new debt and substantial lending fees for the Wall Street specialists. If voters approve the proposition, city officials plan to enter the market for so-called commercial paper, or short-term debt. The money would be used to help pay for the city’s sewer expansion program, which critics such as Henderson have called a wasteful boondoggle designed to enrich consultants and contractors.
Alone among her peers, city councilwoman Judy McCarty voices public reservations about Proposition B. “As far as Prop B goes, I don’t know,” she says. “I’m a little hesitant, I haven’t made a final decision. If we’re going to borrow the money, it sure makes sense to borrow it at a lower interest rate. The question is, will the council have the guts not to just keep voting to go out and keep borrowing money? That’s the problem, but that’s a council problem, that's not a Prop B problem.”
“What we are doing is sort of setting up a revolving line of credit,” says the city’s Shari Sacks, supervising economist for the city’s financial management division, during an interview in January. Sacks during an interview in January. “The reason that would be good for a large capital program such as the sewer improvements, which we’ve been mandated to do by the federal government, is that should some contingency arise, it allows immediate access to the funds we need to do that. There’s nothing unusual or tricky about it.
Under Proposition B, the city would be allowed to bypass voters to issue commercial paper, what the city describes on the ballot as short-term debt. But Sacks acknowledges that the actual result is more complicated. “These things can be rolled over indefinitely. There’s no fixed period of time. Commercial paper is different than, say, just your basic short-term issuance. Commercial paper is an ongoing line of revolving credit, like running up the tab on your Visa. You eventually pay it back and start all over again, or you just carry a big balance.”
Why is so much money needed in such a hurry? And why should voters surrender to the city council their right to use their Visa card? “We’re talking about a capital program of over a billion dollars,” Sacks notes, all supported by rapidly increasing sewer fees. “The sewer capital plan that is being undertaken is $1.3 billion or $ 1.4 billion. The use of this technique in and of itself would not raise sewer fees. What raises sewer fees is the need to build certain facilities. We need flexibility to manage all that.”
Other financial experts, however, say voters should always be wary of new municipal debt schemes. Amy Doppelt of Fitch Financial Service in New York, which analyzes billions of dollars each year in new municipal debt, says that such short-term debt is often used by cities to launch building projects before the actual budget is complete and officials know the full cost to taxpayers. That is what is often meant by the term “flexibility,” she says.
“They borrow short-term so they can fund a feasibility study, and then land acquisition, and then sell more to fund some more land acquisition and some more design work, and the next thing you know, you have $40 million or $50 million in commercial paper outstanding, and you re-fund that with long-term debt,” says Doppelt.
“If you go back to the original date at which they were looking to just acquire the land, they probably didn’t have a good handle on how much long-term debt they would need to sell,” she adds. “They can sort of do this gradual buildup in commercial paper and then take it out with long-term debt once they have a real good handle on what the full project cost will be.”
Such a scenario is what worries Bruce Henderson, a former city councilman, current Republican assembly candidate, and longtime critic of the city’s sewer expansion program. “That is exactly the problem with the whole metropolitan wastewater program,” says Henderson. “They’ve been building up this huge indebtedness, and they’re not going to the people with it. They do it a bit at a time, run up the costs, and what happens in the end is that you’ve got this big water-reclamation plan that, if you’d gone to the people with it in the first place with the ultimate price tag, would never have been built.”
Doppelt, who notes she has not evaluated the specifics of San Diego’s Proposition B and “isn’t in the business to tell voters how to vote,” says that commercial paper programs can sometimes tempt city money managers to make mistakes that could cost taxpayers millions. “If you’re trying to keep [borrowing) costs as low as possible, and you’re only looking for today, yeah, you’d issue everything in short-term and just hope that when you do have to pay it all back, rates are low. But that obviously leaves you in a very vulnerable position.
“That’s why we tend to say to issuers, it’s fine to do it with a small portion or a reasonable portion of your funds. But if you know you’re going to need this money long-term, and you know what the costs are, there should be some match there.”
She adds that, as a general guideline, such short-term debt should be just 10 to 20 percent of a city’s overall debt mix. “Anything in that range, in a variable-rate debt instrument, is an acceptable strategy as far as we’re concerned.”
Proposition B, however, allows the city council to make as much as 25 percent of its debt “short-term,” causing critics to worry that the council, which has no financial experts among its members, might — inadvertently or otherwise — plunge the city into a financial crisis.
“You get into interim financing,” argues Henderson, “and it looks great on paper, because on paper it says that the time will come when strategically you move all this debt into long-term debt. But suddenly that doesn’t come at a time that it’s convenient for you, and you can’t refinance it, and suddenly you find yourself in bankruptcy court.”
Interviewed in January, Doppelt also questioned the costs to taxpayers of Prop. B and an influx of short-term debt. “The interest rate is lower, but there are more fees involved, in that you have to pay a liquidity facility or a letter of credit. And let’s say February 1, $50 million of commercial paper were coming due and for some reason, let’s say there was a big fire in San Diego; nobody wanted to buy your commercial paper. The city wouldn’t necessarily have $50 million in cash sitting around to redeem commercial paper with, which is why they get a liquidity facility or a letter of credit. So you have to pay a fee to a bank to provide that.”
An additional caveat, says another employee of Fitch, is that cities can feel tempted to borrow short-term for “working capital” to tide them over if they have secretly exceeded their budget. Com -plains Henderson, “You shouldn’t give the city council this tool. The reason you shouldn’t be giving it to them is because they’ve already demonstrated that they are going to do everything they can to end-run the taxpayers’ unambiguous demand that they put bonded indebtedness on the ballot.”
To this Sacks replies, “This city is a very conservative city. We don’t do derivatives. We don’t do anything wild and exotic. We are very prudent, careful managers. So to say otherwise isn’t the truth. We are not going to go out of control just because Proposition B passes. Trust me on that.”
City Council 's stadium secrets
Below is a list of the secret meetings the city council has held regarding the two lawsuits it has filed against a group of taxpayers who are seeking a public vote on the council’s taxpayer-backed $66 million stadium financing plan.
Under state law, the council may go into secret session to discuss the specifics of “pending litigation" — in this case two lawsuits the city has filed against the group of taxpayers. But under the law, the definition of what can be discussed in secret is limited strictly to the legal details of the lawsuit noticed for discussion.
Inside sources claim the council has broken the state’s public meeting law by repeatedly talking about wider issues regarding the stadium expansion, including how councilmembers are being treated in the media, the stadium’s structural integrity, whether the cost of the project is greater than that made public, and how to pay for the lawsuits against the taxpayers.
On January 9. for instance, the council met in one of its frequent secret sessions to discuss the stadium. Hours later, city manager Jack McGrory announced that the downtown law firm of Luce, Forward, Hamilton & Scripps had been hired to prosecute the case against the taxpayer group. The council took no public vote to authorize the expenditure — which could be as great as $250,000 — nor is there a public record of what occurred during the meeting.
“Imagine spending that kind of money to sue your own taxpayers to keep them from voting on a big bond issue. But that’s what they did," notes the source. “They don’t want to have a discussion like that on the record, so they cloak it in ’pending litigation.’ It’s a raw violation of the law. but who’s going to go after them? The watchdogs are all bought.”
Date Hour Length of meeting
11-21-95 9 am 1.0 hr.
11-28-95 9 am 0.5 hr.
12-5-95 9 am 0.7 hr.
12-11-95 8:30 am <
1-9-96 9 am 1.2 hr.
2-6-96 9 am 1.0 hr.
2-13-96 9 am 0.5 hr.
2-20-96 9 am 0.7 hr.
3-5-96 9 am 1.0 hr.
Source: closed session notices. City of San Diego