Surprise Witness Broke With Hedgecock Over County Project

The once-close political alliance between Roger Hedgecock and Harvey Schuster, the surprise witness scheduled to testify today or Tuesday for the prosecution in the mayor’s perjury and conspiracy trial, was ripped apart in August, 1982, when the San Diego County Board of Supervisors rejected Schuster’s proposal to develop the parking lots adjacent to the County Administration Center.

Sources close to both men, as well as those who played a critical role in deciding the winner of the high-stakes competition to develop the county’s valuable bay front property, recalled that Schuster was incensed when Hedgecock and other board members rejected his $200-million Bay Centre plan. Schuster immediately severed his relationship with Hedgecock.

The feud has festered ever since that falling out and is likely to reach a crescendo when Schuster takes the witness stand, presumably to give testimony damaging to Hedgecock.

Michael Pancer, Hedgecock’s attorney, said last week in an interview with The Times that he expected Schuster to testify about Hedgecock’s knowledge of the alleged role played by former financier J. David (Jerry) Dominelli in bankrolling the political consulting firm that ran Hedgecock’s first mayoral campaign.

Schuster declined to be interviewed for this story.

Hedgecock, who in 1982 was a county supervisor, was the driving force behind the movement to build an ambitious development where the parking lots now stand. That year, along with Supervisor Paul Fordem, Hedgecock participated on the sale and lease committee that reviewed the credentials and plans of the prospective developers.

Schuster, sources said in interviews late last week, was supremely confident that he would be chosen by the supervisors to develop his project. Speaking on condition that they not be named, they said Schuster, for reasons they claimed not to know, was counting on his longtime political alliance with Hedgecock to be a key factor when the supervisors made their decision.

Bay Centre, which Schuster hoped to build in a partnership with Watt Industries, was not chosen as a finalist when the sales and lease committee made its recommendations to the board. ZRD Development Inc., then in a partnership with Marriott Corp., submitted a $240-million proposal that ultimately was accepted by the supervisors.

(ZRD’s plans have since been scaled back considerably, with the latest proposal approved by the board calling for a $120-million project dominated by office buildings.)

Shortly after Hedgecock and the sales and lease committee rejected Bay Centre, sources close to Schuster and Hedgecock said, Schuster withdrew from the burgeoning campaign organization that would carry Hedgecock to victory in his first mayoral election. Jean Kauth, Schuster’s close friend and business associate, severed her ties with Hedgecock a few months later in a dispute over her diminished role in the mayoral campaign.

“I always felt that one of Harvey’s motives for attaching himself to Roger was to get him to use his influence on behalf of his proposal,” said Diane Barlow, who in 1982 was an aide in Hedgecock’s supervisorial office. Barlow, who stayed on to work for Patrick Boarman, the mayor’s successor on the county board, will begin work next week for newly elected Supervisor George Bailey.

“After the decision (on the parking lot development), their relationship cooled, for whatever reason, and I don’t know what their status has been since then,” Barlow said.

Kathi Howard, an aide in the mayor’s office who was Hedgecock’s appointments secretary at the county, recalled that “Harvey drifted out of things (involving Hedgecock) at the same time the county project was decided. I wasn’t privy to inside things, though, so I don’t know if that was the direct reason.”

Schuster, 51, a native of New York City, moved to Rancho Santa Fe in 1972 after a highly successful career in the East as a financial consultant. According to documents submitted with his Bay Centre proposal, Schuster earned a considerable fortune as a pioneer stockholder in Aqua-Tec, the manufacturer of Water-Pik products. In 1968, his Schuster Fund was, the documents said, among the top 20 of the nation’s 490 mutual funds. Schuster is now president of a Sorrento Valley investment firm.

Shortly after moving here, current and former Hedgecock aides said, Schuster met the supervisor to discuss what they described as a “routine county matter.” Before submitting plans for Bay Centre, Schuster had built town houses in La Jolla and office buildings in Sorrento Valley, both within Hedgecock’s supervisorial district.

The two men became friends, sources said. Schuster assisted in Hedgecock’s final supervisorial campaign. After his election, Hedgecock appointed Schuster to the county Cable Television Review Commission and named Schuster’s close friend Kauth to the powerful San Diego Stadium Authority, on which she continues to serve. (Kauth, who testified in the grand jury’s probe of Hedgecock, said last week she was too ill to be interviewed for this story.)

Schuster formed California Investment Counsel, his investment firm, and controlled 80% of its voting stock when Bay Centre was proposed. Kauth was the firm’s executive vice president, chief administrative officer, secretary and director, according to documents submitted to the county.

Late in 1981, as Hedgecock and other county officials began talking of developing the county building’s parking lots, Schuster started recruiting partners to support his bid to build the project.

“My recollection was that there was real confidence on Harvey’s part,” said Timothy Cohelan, an attorney with the firm of Cohelan, Khoury & Flaherty, who was hired by Schuster as a consultant on Bay Centre.

Relationship Well Known

“There was a lot of time spent discussing the possible outcome (of the county’s decision on a developer), but I don’t know if Roger’s name came up any more often than others,” Cohelan said. “We all assumed that the other board members would know of their (Schuster and Hedgecock’s) relationship, so it wouldn’t be a factor.

“Schuster had pulled together some very talented people and had a very creative proposal, and that’s where the real confidence came from.”

With Watt Industries as a joint venture partner, Schuster in the spring of 1983 unveiled his $200-million plan for the parking lots. It included a 500-room Hilton Hotel and a second hotel to be built in conjunction with a 10,000-square-foot office center.

The hotel-office was to be run by Princess Cruises, which promised to begin operating its cruise ships out of San Diego if the development was approved. (At the time, the cruise ship line had not finalized its plans to locate here.)

In addition, Schuster’s proposal included construction of a tourist-oriented ocean aquarium to be managed by Scripps Institute. The developer promised annual revenues of $5 million to $6 million to the county, considerably more than the $4 million anticipated by ZRD.

But while Schuster’s plan was long on glitter and promises, it was apparently short on substance. “All four plans were high in quality, but Bay Centre was the easiest to eliminate,” Ben Clay, the top county executive involved in choosing the parking lot developer, said last week. (Clay resigned that position in early 1983 to accept a job with Torrey Enterprises.)

Clay said Schuster’s financial projections of revenues to the county in the first decade of the development included an error of $13 million, “which was a pretty bad mistake on a basic item.”

Hedgecock, in public comments to the board, called Schuster’s project the “least feasible financially,” of the four proposals.

County officials also were concerned with Schuster’s lack of experience in developing projects of such a large scope, his inclusion of Watt Industries notwithstanding. “Schuster was the driving force behind the proposal, although Watt put up a lot of money, so it was his credentials that we were concerned about,” Clay said.

“There were at least two of the other three developers involved who had far more experience in the type of mixed-use project we had in mind.”

Fordem said last week that he remembered Schuster as “a capable man who had been extremely successful in his own world. But he never had participated in anything of this scope. I felt we needed the most experience we could get and I was also concerned about his financial statements. To my recollection, Roger and I never disagreed on those points. He (Hedgecock) never pushed for Schuster to get the project.”

After investing more than $250,000 and six months of energy in his proposal, Schuster was personally devastated and angered when it was rejected, observers said.

“He was a very aggressive man and this project was extremely important to him,” Fordem said. “I know he was deeply disappointed, and I haven’t heard much from him since.”

“He was especially angry--probably more so than the other losers--but I understood his frustrations,” Clay said. “It goes with the territory but you’re still going to be very disappointed when you put so much energy into a project of that size and don’t get to build it.

“I know he was very disappointed when it fell through--we all were,” Cohelan said. “And I know he and Roger had their falling out right after the decision. I’m just not sure if that was the only factor involved.”