Contracts Steered to Their Own Firms : Irwindale City Business: Officials Profit

Irwindale officials are steering millions of dollars in city contracts to private businesses that they either own or have a substantial interest in, a Times investigation has found.

In a wide-ranging practice that raises serious questions of conflict of interest, the Irwindale city engineer and city financial adviser have used their official positions to enrich businesses in which they are owners or executives.

In addition, city redevelopment agency consultant Fred Lyte, who helped negotiate the Los Angeles Raiders stadium deal, appears to have violated a provision in his contract designed to overcome conflicts of interest.

The provision--written into Lyte’s contract after a 1983 opinion from the state attorney general’s office--forbids the consultant from recommending to the City Council a project in which he has a financial interest.

City Atty. and City Manager Charles Martin said in an interview that Lyte violated the terms of his contract when he went before the City Council on two occasions last month and urged approval of an agreement with the Raiders.

Martin said Lyte may have to forfeit the $2 million in consulting fees he stands to receive upon the construction of the 65,000-seat stadium.

Lyte concedes that he urged the council to approve the Raiders deal but said that was only a technical violation of his contract.

Top Irwindale officials, pointing to the city’s redevelopment track record, have no apologies for the way they do business.

“It’s novel and it’s unconventional, but it works,” Martin said.

During the last two years alone, according to city records, City Engineer Carlos Alvarado has recommended awarding nearly $300,000 in city work to a private engineering consulting firm that he founded and owns. In each instance, the City Council backed his recommendations.

City records and interviews also show that Financial Adviser Abraham DeDios was part of a small team of city officials who in 1985 recommended awarding a $3-million contract to the Benchmark Group--a construction company owned by DeDios’ brother, Manuel--to build a senior citizens center and Chamber of Commerce offices. The City Council readily approved the contract.

At the time, Abraham DeDios, 42, was a salaried employee of Benchmark. DeDios, who also serves as the Irwindale city treasurer, is still listed with the state contractors license board as vice president of Benchmark. The firm was recently awarded a $511,000 contract to construct 20 homes subsidized by the Irwindale Redevelopment Agency.

The state political reform act prohibits a public official from using an official position to “influence a governmental decision in which he knows or has reason to know that he has a financial interest.” The act defines a public official as “an employee or consultant of a state or local government agency.”

Martin conceded the “questionable nature” of well-paid city officials moonlighting as consultants and directing city business their way. But he denied that the practice constituted a conflict of interest or is illegal.

Compared to Company Town

He compared Irwindale--an industrial city of 1,040 residents in the east San Gabriel Valley--to a company town unencumbered by the rules that govern most municipalities.

“It’s a new theory that I’ve developed--government by consultants,” Martin said. “It’s exotic and different and, of course, the world can’t stand for anyone to be different.”

Interviews with city officials and a review of payroll records and consulting contracts show a pattern of questionable practices and apparent conflicts of interests over the last three years that extend to Irwindale’s recent deal with the Los Angeles Raiders to build a stadium and team headquarters.

DeDios, whose job as financial adviser gives him oversight in all bond matters, counseled the city to use the bond underwriting firm of Miller & Schroeder Inc. to market $90 million in industrial development revenue bonds for the Raiders stadium and $102 million in Capital Improvement Revenue Bonds for other public projects.

DeDios did not remove himself from the selection process that ultimately chose Miller & Schroeder even though his brother, Manuel, is a director of public finance for the Minneapolis-headquartered bond underwriting firm.

Miller & Schroeder representatives say their relationship with Irwindale began long before Manuel DeDios took a job with the company last year. They said DeDios, a 48-year-old native of Hawaii, was hired to open an island office for Miller & Schroeder and that he distanced himself from negotiations to finance the stadium. But city officials say DeDios was present for two meetings with the Raiders to discuss bond financing for the stadium.

Not only did Abraham DeDios oversee the selection of his brother’s firm but he made $200,000 in consulting fees from the city for his advice. That fee is considerably higher than the fees charged by other bond advisers for comparable work, according to industry experts.

These experts questioned why DeDios, who provides financial advice to the city on a contractual basis for $42,000 a year, would be compensated additionally for what appears to be his routine city work. One expert characterized the $680,000 in consulting fees charged by DeDios and a coterie of consultants in the Raiders deal as “extraordinarily high.”

In each instance, the consulting contracts were approved by the Irwindale City Council, whose five members represent the major families who have run political affairs in this city since its incorporation in 1957.

A few Irwindale officials are privately critical of these consulting contracts and of what they regard as “double dipping” by Alvarado and DeDios. Council members have turned a blind eye to the practice because consulting work and city jobs have been given to their family members, the critics say.

They point to the $50,000 a year paid to Mayor Art Tapia’s brother, Joseph, and his partner to maintain the small grounds and park surrounding City Hall.

Martin acknowledged urging approval of the contracts and giving secretarial jobs as a way of currying favor with such powerful figures as Antonia Diaz, the matriarch of the city’s most influential family. Martin said the grandmother has charged into City Hall on more than one occasion and threatened to recall council members who support Martin if a certain job was not filled by a Diaz family member.

“My biggest problems in this job are the smallest problems,” said Martin, 63, a gravelly voiced man with a biting wit who has administered Irwindale as city attorney for the last 20 years and as city manager since 1973.

“I can put together a $50-million deal in five minutes. But hire the wrong person from the wrong family and I’m in deep trouble.”

Diaz, refusing to discuss specifics, said, “My goodness gracious, people are saying that about me? I’m just a plain citizen.”

Martin and others point with justifiable pride to an incredible record of wooing industry and corporate headquarters to their dusty city 20 miles east of Los Angeles. On the strength of tax revenues generated by industrial parks, technology centers and banking headquarters, city and redevelopment agency coffers have swelled from $25,000 a decade ago to $25 million today.

It is a success story that largely went unnoticed until city consultants struck an improbable deal with Raiders owner Al Davis last month to carve a stadium out of an abandoned rock and gravel quarry along the 210 Freeway.

But Irwindale has never quite ceased being a small town where the major families feud in public and openly compete for political plums and where the City Council is made up of a retired welder, a retired food stand operator, a retired barber and two schoolteachers. Rarely does an election goes by in which voter fraud is not alleged.

Because of its modest city staff, Irwindale has had to farm out much of its administration and redevelopment work to a tight-knit group of consultants.

These consultants, many of whom are close friends, include Lyte, the DeDios brothers and Michael Montgomery, the former state chairman of the Republican Party and currently a member of the state Fair Political Practices Commission. Martin, who is also the executive director of the redevelopment agency and acting city clerk, also has served as legal consultant for several major bond issues in the city.

Martin credits the team’s vision and indefatigable work habits with transforming Irwindale. He defends any allegations of questionable practices by pointing to the city’s success.

Cites City Record

“I understand the criticism of ‘friends rewarding friends,’ but I don’t accept it because of the excellent job we’ve done,” he said. “No city, big or small, can match our record.”

But Irwindale’s reason for success--consultants who work with dispatch and very little debate while competitors dally--is also its Achilles’ heel. In one project after another, the same consultants representing the same firms are taking home huge fees.

Lyte, who is paid a 3% commission on all construction in the city that requires building permits, has made more than $4 million from Irwindale since 1978. He has given back nearly $200,000 to a scholarship fund for Irwindale youths, city records show.

Abraham DeDios, in addition to his city salary, has made just over a $1 million in consulting fees since 1979 for advice on six bond issues. In addition to his $113,000 yearly salary, Martin has made $900,000 in that same period as a “project coordinator” for the bonds. City records show that he has given back $100,000 to the scholarship fund.

In virtually every bond issue, the city has chosen to market its bonds through Miller & Schroeder, which has an office in Solona Beach. Last year, Irwindale issued more money in redevelopment bonds than any other city in the state except for Oakland and San Jose, according to an industry newsletter.

This redevelopment activity has meant a boon for Miller & Schroeder. Since 1979, the firm has made about $7 million in fees and gross revenues through purchasing and marketing highly rated Irwindale bonds, according to figures supplied by DeDios. Some of that money has gone to pay other underwriters.

“This would be a perfect story of a town made rich that turns its wealth over to its citizens in the form of scholarships and grants if only the consultants were groveling in the dust and eating three-day-old hamburgers,” Martin said. “But they’re not.

Thinks Money Is Earned

“Fred (Lyte) makes a lot of money. I make a lot of money. And so does Carlos (Alvarado) and Abe (DeDios),” Martin continued. “But look at what we’ve done.”

But Martin said he has taken to heart charges of excessive consulting fees and has asked the City Council on three separate occasions to appoint someone to replace him as project coordinator for the bonds. He said the council has refused to do so each time.

Martin said it was a desire to ease his workload in the Raiders bond issue and to beat back legal and legislative challenges to the stadium deal that prompted him to hire his friend Michael Montgomery. A former South Pasadena councilman, Montgomery resigned as executive director of the Irwindale redevelopment agency in 1980. Martin said there were allegations that Montgomery’s fees were excessive and that he steered contracts to friends. Montgomery, who denies these allegations, stands to make $150,000 for his work on the Raiders bond deal.

“Michael and I have been good friends and good enemies,” Martin said. “We’ve blown hot and cold over the years but never have I ceased to recognize him as one of the best redevelopment attorneys around.”

While excessive consulting fees have focused attention on Irwindale, it is the practice of city officials moonlighting as consultants that raises perhaps the most disturbing questions.

For example, City Engineer Alvarado works under a contract that sets his city salary at $63,000 a year. Alvarado said he was appointed to the post in 1978, the same year he began doing engineering consulting work for the city on the side. Over the last two years, his six-person firm, CE Consultants, has averaged $12,500 a month in city work for such projects as designing sewers, roads and storm drains.

Alvarado, a licensed civil engineer, said he saw no conflict of interest in recommending his own firm for city work. He pointed out that in each instance the City Council approved the work and that he had saved the city considerable money by charging 7% of the total project as opposed to the prevailing rate of 9%.

“I have discussed it with Charlie (Martin) and asked him ‘if you think I’m doing something wrong, tell me,’ ” Alvarado said. “He has told me there is no conflict of interest.”

Martin says Irwindale is not required to submit projects for bids because residents have voted it a “charter city,” a designation that affords municipalities leeway in awarding contracts and undertaking public projects. But Alvarado acknowledged that except for when his own firm was involved he always sought bids.

“Getting more than one bid is the only way to do business,” Alvarado said. “It’s the only way you can be sure that the city is getting its money’s worth.”

Three years ago, according to city records, Irwindale decided to build a senior citizens center and Chamber of Commerce offices, intending to finance the construction out of its general fund. But a few weeks after the project was approved in concept, Martin received a letter from Miller & Schroeder Vice President Jeffrey Kinsell outlining another method of financing.

Kinsell wrote that the city could earn millions of dollars in interest if it invested the general fund money and instead obtained tax-exempt Certificates of Participation to finance the project. (These certificates are a close cousin to bonds.)

Martin and Financial Adviser DeDios were persuaded by Kinsell’s projections. Martin said it was a chance to do the project without cost. And when it came time to choose a builder, Martin and DeDios also agreed on the Benchmark Group, the Diamond Bar firm owned by DeDios’ brother, Manuel.

Denies Nepotism

Abraham DeDios said he offered only general advice concerning Benchmark’s worthiness. But he did concede that he was involved in selecting Benchmark and that, at the time, he was on the firm’s payroll and listed as its vice president.

“I was involved. Maybe someone would argue that I’m merely trying to promote Benchmark’s activities because it’s my brother,” he said. “But I didn’t receive any compensation for the deal nor did I ask for any compensation.

“The city picked Manny because they know him and they know that he will deliver an excellent product.”

Yet the final product--a Spanish-motif senior citizens center and Chamber of Commerce office--was delayed several months because of poor framing work. Manuel DeDios said he ended up losing $200,000 on the project. Even today, a year after its completion, the doors do not shut properly. “It could have been done a lot better,” one city official said.

Despite the problems, Martin recently persuaded a divided City Council to award a $511,000 housing construction contract to the Benchmark Group and a $30,000 contract to an affiliate redevelopment firm, Municipal Services Inc. This time the job went to bid.

“(Benchmark’s) bid was the lowest by $10,000 per house and I liked their design better,” Martin explained. “Besides, I’ve worked with Manny and his brother, Abe, for 10 years. I trust them.”

Unlike other city dealings, the agreement with the Raiders to build a $115-million stadium and team headquarters was negotiated under media and public scrutiny. Even so, questions still abound about the role and fees of city consultants.

In 1983, a proposed contract between consultant Lyte and Azusa came under the review of the Fair Political Practices Commission. Acting on a request by the commission, the state attorney general’s office ruled that a conflict of interest exists when a redevelopment consultant is paid a commission for a project and has recommended approval of that project to a City Council.

As a result, Martin amended Lyte’s contract with Irwindale to forbid the consultant from recommending any project to the City Council. Martin said he “cringed” when Lyte proceeded to do just that during two City Council meetings last month in which the Raiders deal was eventually approved.

Lyte said he violated only a “technicality.” Martin disagreed, saying Lyte “violated his contract.”

“If the attorney general’s office or someone else brings some action against Fred, I would find it very difficult to state that he made no pitch to the council,” Martin said.

Several municipal banking experts contacted by The Times described as “outrageous” the $200,000 fees that Irwindale will pay Abraham DeDios and Los Angeles bond counsel Sabo & Dietsch each for packaging the stadium bonds and guaranteeing their worthiness.

Martin justified the fees by saying that the consultants will not receive compensation if the bonds are not sold and could be personally liable for the $90-million issue if a problem arises and they are found to be negligent.

But Peirre Lorenger, deputy administrator of finance and audit for the Community Redevelopment Agency of the City of Los Angeles, said the consulting fees were way beyond industry norms. He said the most he has paid a bond counsel for a complex issue was $110,000. He said financial advisers performing work comparable to that done by DeDios can earn up to $40,000.

Lorenger said he was even more disturbed by DeDios’ two roles, one as a city official and the other as a paid consultant. And he said it was “unheard of” for a financial adviser to recommend awarding work to a bond underwriting firm that employs a family member.

“I think it’s highly inappropriate,” he said. “It sounds like a great conflict of interest.”

But Martin, DeDios and representatives of Miller & Schroeder defended the contract to underwrite the stadium bonds. DeDios said he recommended Miller & Schroeder because of the firm’s proven relationship with the city, a relationship that began long before his brother took a job with the firm.

“Miller & Schroeder has always presented us with the best deal. They’re very flexible, they charge low discounts and they hustle,” DeDios said. “My brother working for them has nothing to do with my decision. My responsibility is to look after the best interests of the city.”