Frederick P. Lyte, who has earned more than $3 million since 1976 as Irwindale's development consultant, has signed a new, potentially lucrative contract with the city redevelopment agency that contains an unusual clause: He cannot talk to the City Council about his projects.
Under the contract, which appears to be unique in the San Gabriel Valley, Lyte would earn 3% of the building permit valuation of projects he registers.
City Atty. Charles Martin said the provision limiting Lyte's contact with the council was inserted to overcome a conflict-of-interest problem. The attorney general's office, responding to a proposed Lyte contract with the city of Azusa in 1983, ruled that there is a conflict of interest when redevelopment consultants are paid commissions because their recommendations might be influenced by financial gain.
Martin said the new contract avoids the problem by dispensing with Lyte's advice. Lyte could be paid--by his own estimate--hundreds of thousands of dollars a year, but will not be allowed to make recommendations on the projects to the council, which serves as the city's redevelopment board, nor participate in processing agreements.
For the first half of this year, Lyte worked for the city's redevelopment agency for a fee of $4,100 a month, doing the same job his new contract calls for him to do. Before that, he was employed under a contract that paid him a commission for the business he brought to the city, but did not limit his contact with the council.
Martin said Lyte's role has always been to attract businesses, and he can do that job without making recommendations to the five council members.
In a good year, Lyte said that he might be involved in projects that produce $10 million to $15 million in building permits. His fees, based on those amounts, would range from $300,000 to $450,000.
Lyte said his role in Irwindale includes bringing land owners and developers together, arranging land swaps, suggesting financing and recommending the direction that a development should take. He said his work requires knowledge and effort and entails more than just contacting developers. "I have to get involved and work on it," he said.
If his work on a project yields no result, Lyte said that he takes the risk that he will earn nothing. As to the prospect of large fees, he asked, "If I could make you $500 million, wouldn't you pay me $5 million?"
Lyte's contract, dated June 27, says he "shall endeavor to persuade commercial and industrial business operations to buy and develop property (in Irwindale)."
Under the contract, Lyte need not originate a project in order to be paid for it. And it does not specify the extent of work he must do in order to be paid. He must merely notify Martin, who also serves as executive director of the redevelopment agency, that he has undertaken negotiations with a prospective builder for a specific site. Once Martin confirms that there have been negotiations for a specific site, Lyte is in line for payment if the project goes forward.
The agreement specifies that Lyte will receive one-fourth of his fee when the building permit is issued and the remainder when the completion certificate and occupancy permit are issued. The contract provides that 10% of the full fee will be deducted and paid to the Irwindale Scholarship Foundation.
Lyte said he had voluntarily donated $350,000 from his earlier fees to the scholarship foundation.
Lyte has earned well beyond $3 million since going to work for Irwindale, a largely industrial city with 1,052 residents, in 1976. Lyte said $3,340,000 came from fees earned by bringing in $334 million worth of business. He got $2 million for helping bring the Miller Brewing Co. to Irwindale from Azusa.
Councilman Michael Miranda said the city hired Lyte on a commission basis because the redevelopment agency had no money to pay him a salary. The theory was that he would be paid only if he could deliver projects. His fee amounted to 1% of the value of the developments he attracted.
Miranda said the arrangement obviously benefited Lyte, but the city also has gained. "We've gotten terrific results," he said, noting that the city's assessed valuation rose from $140 million 10 years ago to $530 million last year. The gain has helped give the redevelopment agency an income from property taxes of more than $5 million a year.
Lyte said the change in fee from 1% to 3% would actually result in about the same dollar amount because the 1% was of the total projects including equipment and the 3% is of the value of the building only.
Mayor Pat Miranda said he thinks the City Council might want to take another look at its agreement with Lyte. "Maybe we should find out what other cities do," he said.
The Times contacted several executive directors of redevelopment agencies in the San Gabriel Valley and could find none that pay development consultants on a commission basis. Nor did they know of any redevelopment agency except Irwindale's with that kind of arrangement.
Even the City of Industry, which has paid large fees to financial and legal consultants on redevelopment projects, does not pay commissions or finder's fees to people who initiate or promote projects.
"We've never had a need to do that," said Industry City Atty. Graham Ritchie.
The state attorney general's office looked at the conflict of interest involved in paying redevelopment consultants on a commission basis in 1983 after the city of Azusa proposed hiring Lyte, Martin and another consultant under a contract tied to the amount of new business they generated. The attorney general's opinion noted that officials might be tempted to recommend commercial development of a lot instead of using it for a park if they stood to gain financially.
The opinion concluded that such contracts violate the Government Code because the officials' "personal interests in compensation are likely to conflict with the faithful performance of their duties."
The proposed Azusa contract aroused a furor in that city and was never put into effect.
Martin said he believes Lyte's new contract meets the objections raised by the attorney general's opinion. John T. Murphy, the deputy attorney general who wrote the opinion, said he has not seen the contract and could not comment.
Lyte's new contract specifically excludes payment for involvement with several projects already under way in the city, including a proposed $260 million waste-to-energy plant, a proposed restaurant and the first $20 million in building permit values on a 22-acre industrial development at Arrow Highway and Irwindale Avenue. Also excluded are any projects with a valuation under $100,000.