Newport Beach Mayor Mike Henn has long championed the revitalization of struggling Lido Village.
He led the city's efforts to improve the commercial area's streetscape, redesign streets and parking, and bring more shoppers through its stores. When residents or council members suggested they slow down or focus on other struggling parts of town, such as Mariner's Mile, Henn insisted that Lido Village remain the top priority.
"It's good for all the residents of Newport Beach," Henn said in an interview. "It's a critical issue to move forward."
Henn's council district includes Lido Village — a gateway area to the Balboa Peninsula — so his advocacy to improve the area and please his constituents should come as no surprise. But he is also personally invested in the zone's success.
As a business consultant, Henn is paid more than $100,000 a year by a shop owner in one of the village's distressed retail centers, according to disclosure forms he filed with the state.
Conflict-of-interest experts, however, say Henn should have avoided voting on or discussing the issue on the City Council because improving the retail center could directly benefit his client and indirectly help him.
"It's just too close of a financial connection to participate," said Bob Stern, president of the L.A.-based Center for Governmental Studies nonprofit and co-author of the state's Political Reform Act, adding that his point of view should not be considered a legal opinion.
While some say that it's important for politicians to avoid even the appearance of a conflict of interest, Henn did take steps to make sure he was on the right side of the law, according to interviews and records reviewed by the Daily Pilot.
The mayor, who is viewed as a cautious businessman and politician, sought out legal advice on more than one occasion to determine whether he could participate in matters relating to Lido Village. The city attorney, as well as one of the attorney's predecessors, told Henn that it was OK to participate in and vote on issues related to the shopping center.
"I am quite confident I do not have a conflict of interest," said Henn, who declined to elaborate in subsequent interviews.
How Henn is connected to Lido Village
Henn's "principal client" for his business consultancy is Lilah Stangeland, a San Marino resident and the owner of Via Lido Drugs, the pharmacy and gift shop in Lido Village. On his annual state financial disclosure form, Henn reported that Stangeland has paid him since at least 2004. He lists no other clients on the Form 700.
Henn said he oversees Stangeland's financial affairs: from real estate holdings to ownership in small businesses and other investments. He is also the president of a nonprofit foundation in Stangeland's and her late husband's name.
Roger Stangeland, Lilah's late husband, in the 1980s and early 1990s was Henn's mentor at Vons Cos., where Henn became the chief financial officer at what was then the largest supermarket chain in Southern California. Roger was chairman of the board.
Roger brought Henn "out here" from Chicago to work at Vons, Stangeland said.
Stangeland, like Henn, came from the Midwest. Since Roger died in 2004, Henn has managed the Stangeland investments.
"I don't interfere with what he's doing with his [city] business," Lilah Stangeland said in an interview, adding that she hopes the Lido Village revitalization "is done in a matter that's bettering my business."
Stangeland's stake in Lido Village is multilayered. Her family trust owns a holding company that controls Via Lido Drugs and two other small pharmacies, one of which is also in Newport. She and her daughter, Cyndi Olsen, are the two directors of Via Lido Drugs, according to public records.
As a consultant, Henn said he reviews Via Lido Drugs' financial statements on a regular basis.
The Fair Political Practices Commission examined Henn's relationship with Stangeland in 2007, when he asked for advice about regulating drug and alcohol group rehabilitation homes that dealt with Stangeland's Lido pharmacy.
In the rehab-homes matter, the FPPC found that both Stangeland and Via Lido Drugs qualified as "sources of income." The commission concluded that Henn "may not participate in any decision that would have a reasonably foreseeable material financial effect on her."
Each time Henn exerts his influence could be considered a violation if the commission chose to investigate and found he had a legal conflict, said FPPC Director Roman Porter.
"A conflict of interest extends beyond just a vote," he said. "It applies to instances where someone participates in the decision-making or influences the decision-making."
The threshold for a conflict in Henn's case, an FPPC letter outlined, is if Stangeland would see her income, investments or assets (besides real estate) affected by $1,000 or more, or if Via Lido Drugs sees a $20,000 change in its annual gross revenue.
That left open the question of how the rehab-homes vote would affect Stangeland's economic interests, or the finances of Via Lido Drugs. Before the vote, Via Lido Drugs ceased doing business with the group homes, so one of the city's special counsels at the time advised Henn he could vote.
In 2009, Henn went back to the city attorney — this time David Hunt — to ask about whether he could participate in decisions about revitalizing Lido. Henn told Hunt that he had essentially the same relationship with Stangeland that he did in 2007. This July, Hunt re-confirmed their ties.
The legal question again hinged on how the city's actions could impact Stangeland's finances and the finances of Via Lido Drugs, experts and Hunt said.
The law is designed to ensure a "public official is putting the public's interest first, and not putting personal financial relationships or personal friendships first," said JoAnne Speers, ethics program director for the Institute for Local Government, a Sacramento-based good-government advocacy group.
Hunt argues that an exception in state regulations absolves Henn. It says that affecting the value of leased real estate — the drug store's building, in this case — cannot trigger a conflict of interest. Hunt contends it's not necessary to consider potential effects on Via Lido Drugs' sales.
"It's all tied back into their lease," he said.
Stangeland has owned the store since 1996, and it has about 10 years left on the lease, said company President Olsen.
An opinion from the city attorney, though, doesn't shield a public official from state law. Hunt recommended that Henn contact the FPPC again if he was unsure. The commission hasn't received a formal request from Henn.
A different situation
As it did in 2007, the FPPC would today carry Henn and Stangeland's relationship through an eight-step analysis. It would attempt to determine if Henn's advocacy and votes on revitalization would affect her or Via Lido Drugs' finances.
Stern, from the Center for Governmental Studies, said any analysis should consider increased foot traffic and heightened sales potential.
Via Lido Drugs sells items for both residents and visitors: sand toys, home furnishings, greeting cards and small gifts, in addition to pharmaceuticals. Since the Pavilions closed this summer, it is now the most prominent retailer in the village.
After reviewing facts supplied by Henn to attorneys and the FPPC, Stern said, "My advice to him would be: 'Don't take the chance of a conflict or the perception [of one].' "
Retailers like Via Lido Drugs would most likely see a boost in sales once the area is revitalized, according to the city's real estate market consultant. But it is unknown whether that would trigger the $1,000 or $20,000 thresholds.
Revamping the parking, infrastructure, vehicle circulation and appearance of the area would help Lido Village realize its market potential, said Richard Gollis, principal of The Concord Group, which helped develop a plan for the area.
"It raises the sales potential of everybody in the location," he said. "It ought to improve everybody."
A top priority
Stagnating retail activity was the reason Henn gave in January 2010 to begin revamping Lido Village.
Residents who live nearby for years had been complaining about the area's high retail vacancies and deteriorating buildings. The village has two main shopping centers: Via Lido Plaza, home of Via Lido Drugs and, until recently, Pavilions; and the bayfront Lido Marina Village. Both have suffered empty storefronts; Lido Marina Village came to symbolize the area's neglect.
Henn began to push for the city to take action.
"We have just allowed Lido Marina Village to stagnate," Henn said at a goal-setting session for the City Council. "We have to do something to stimulate true progress. I know we're in tough economic times, but maybe it would help if the city can articulate a vision [for the area]."
Since then, Henn has shepherded it to the top of the list of neighborhoods to be revitalized. The city has budgeted at least $165,000 for the project.
Others have argued their part of town is in greater need. Councilman Rush Hill initially thought Mariner's Mile should be revitalized first, he said in an interview. But he eventually was swayed to vote for Lido. Hill and Henn sit on the ad-hoc Neighborhood Revitalization Committee, which sometimes meets behind closed doors.
Henn has argued the city needs to finalize its plans for the old City Hall site, which takes up about four of the village's 17 acres. The city plans to vacate the property in late 2012, when it finishes its new Civic Center across town.
Councilman Steve Rosansky said the city should slow down its analysis of the City Hall site, but Henn said it would be problematic to hold up the planning process. One of the village land owners wants to redevelop, Henn said repeatedly, and needs the city to cooperate quickly.
"We do not have the luxury of unlimited time to do this, because property owners need to move on," Henn said at a November council meeting.
The property owner to which he was mainly referring was Fritz Duda, Henn's longtime friend and business associate, as well as the landlord of Via Lido Drugs.
Another close connection
Henn, Duda and Roger Stangeland served on the Vons Cos. board of directors together in the 1990s. Since then, Henn said he and Duda have remained friends, but their only business tie is through the Via Lido Drugs lease. The Stangeland Trust owned part of Duda's retail center until about three years ago, when it sold its interest, Henn said.
When Pavilions, Duda's anchor tenant, moved out this summer, it left a 35,000-square-food space vacant. Based on the listed rent for smaller properties in Via Lido Plaza, Duda could be losing $70,000 to $90,000 per month. He is working to redevelop the center, which is more than 60 years old, so he can attract a new tenant.
It's unclear if the Vons-owned Pavilions had to pay to break its lease. Representatives from the Fritz Duda Co. did not return calls seeking comment.
"My concern is that we arrive at an agreement that allows the Duda Co. to move forward with what they need to do to nail down a tenant, nail down a design," Henn said at a council meeting in January.
As the council debated about what to do with its neighboring four acres of public land, a representative from the Duda Co. endorsed a proposal with condominiums and no competing retail shops.
Councilman Ed Selich said bluntly at a January study session what Henn had implied: "The key use issue right now is that we're not going to have retail there."
Selich: "I mean, that's the key issue for Duda."
Not all council members agreed, and Hill said he didn't want to preclude retail because it could complement residential development on the city's site. Henn, now acting as mayor, quashed the conversation.
"OK, the mayor is losing control of his first meeting here," he said, announcing there would be just one more comment before ending the discussion.
Henn regained control. The council voted unanimously for a plan that didn't include — or explicitly exclude — competing retail development. It later voted to make Lido the first area for revitalization, thus devoting city funds and staff time.
In an unexplained move, Henn stepped down in July as the council point-person for the Lido Village revitalization. The Daily Pilot, in the preceding weeks, questioned his relationship to Stangeland. Now Hill, not Henn, meets with residents and business owners drafting plans to improve the area.