City Housing Chief Broke Contracting Rules

The executive director of the Los Angeles City Housing Authority, Leila Gonzalez-Correa, has violated federal contracting regulations on at least six occasions while awarding government business to her acquaintances and to political supporters of Mayor Tom Bradley, The Times has found.

City records show that over the last two years the Housing Authority chief broke the rules in five instances by neglecting to seek competitive bids for contracts exceeding $10,000. In the other case, she did not seek less-formal bids required for contracts under $10,000.

In addition, records show, Gonzalez-Correa paid for contracting services without the approval of the Housing Authority Board of Commissioners in violation of her agency’s own purchasing policy.

The violations involved unauthorized payments to associates of Gonzalez-Correa and supporters of the mayor for consulting work on insurance, legal and financial matters.

Members of the Board of Commissioners said they had no knowledge of the contracting irregularities until they were raised during interviews with a reporter.

‘Extremely Distasteful’

“It’s distressing, it’s upsetting,” said Acting Chairman Louis Janicich, reacting to the procurement violations. “It is extremely distasteful to have something like this happen.”

“This is what got us into trouble with Homer Smith,” said City Councilwoman Joan Milke Flores, referring to the former executive director who resigned in late 1985 amid criticism of poor contracting practices and mismanagement. “If your own commission doesn’t know it, then we’re really in trouble.”

Flores described the current violations as “an abuse” of government funds.

Gonzalez-Correa admitted in an interview that in some cases she had disregarded procurement procedures, but said no money has been misspent or wasted. A former staff lawyer for the U.S. Department of Housing and Urban Development in Dallas, Gonzalez-Correa contended that she was “set up” by Housing Authority officials who had neglected to caution her about contracting regulations and the agency’s past troubles.

“I should have been more careful. . . ,” Gonzalez-Correa said. “I do not consider that what I’ve done here in this Housing Authority can be compared at all with what Homer Smith did. And, in retrospect, I should have read what happened to him so that I would make sure that those things were not repeated.”

Recruited in 1986

Gonzalez-Correa, recruited by Bradley and his Housing Commission in October, 1986, to clean up previous contracting troubles, runs the largest public housing agency west of the Mississippi. She is paid $100,000 a year to manage the agency’s $135-million budget and a staff of 750 employees. As executive director, Gonzalez-Correa serves as landlord to more than 31,000 low-income residents who live in the city’s 21 public housing projects, many of them dilapidated and plagued by gang violence, drug activity and slum conditions.

The city attorney’s office, which provides legal advice to the Housing Authority, has been frustrated by Gonzalez-Correa’s unwillingness to adhere to procurement procedures and seek guidance before issuing contracts, said City Atty. James K. Hahn.

“I don’t like the fact that we give somebody advice and they don’t follow it,” Hahn said in an interview, referring to Gonzalez-Correa. “We’re not the enforcers. We’re their legal advisers. Clearly what we hope happens in those situations where we raise red flags that the staff is not following the rules is that the board . . . holds the executive director’s feet to the fire.”

Symptom of Feud

The failure of Gonzalez-Correa to notify the seven commissioners--who are appointed by Bradley to oversee the Housing Authority--is one symptom of a longstanding feud between the executive director and her governing board. Board members are expected to hear a report on the contracting violations at their regular meeting today. Several commissioners said they are still in the dark about the agency’s spending practices.

“How could we know?” asked Commissioner Ozie B. Gonzaque. “We are not given information on this. The executive director feels that it’s none of the board’s business. . . . The board looks like a bunch of bungling idiots. I resent that.”

Three commissioners, who asked that they not be identified, said in separate interviews that they had complained to Bradley about Gonzalez-Correa’s refusal to bring important matters before the board. On each occasion, they said, Bradley expressed his support for Gonzalez-Correa. Earlier this month, however, Bradley asked Gonzalez-Correa and her staff to report on all contracts exceeding $10,000 that were awarded without competitive bids.

Declines Interviews

Bradley declined several requests to be interviewed on the subject.

At their meeting today, the commissioners are expected to hear details of many of the violations, including perhaps the most serious--a contracting arrangement that steered $17,000 in consulting fees to a Los Angeles firm, LFC Insurance Brokers Inc. The firm was paid to advise the Housing Authority on how to set up a workers’ compensation self-insurance program, then was hired as the contractor best suited to provide excess coverage as part of the same insurance plan.

Excess coverage is necessary to cover employee disability claims growing out of catastrophic accidents involving, for example, a lifetime job-related injury. Most claims are for non-catastrophic disabilities, for which the Housing Authority is now self-insured. The authority expects to save more than $1 million a year in insurance costs.

LFC’s dual role as a consultant and a contractor for the Housing Authority raises numerous questions, said Dov Lesel, the deputy city attorney who serves as the Housing Authority’s legal counsel.

“At best, it’s a conflict of interest,” Lesel said. “At worst, there may be evidence of self-enriching. The appearance doesn’t look good. When you write a competitive bid, the biggest danger is you don’t tailor it so one company is guaranteed the contract.”

The consulting fees were paid to LFC in amounts of $9,500 and $7,500 in late 1987 and early 1988 through blanket purchase orders, records show. They also show that LFC was the only company invited to apply for the consulting contract. Similarly, LFC was the only insurance broker to submit bids for, and then obtain, the excess workers’ compensation policy.

Had the commissioners known about the consulting agreement, two board members said, they would have sought another insurance broker to avoid any appearance of a conflict.

“I assumed the board knew,” Gonzalez-Correa said. “That is wrong. Totally wrong. . . . I’m sorry that we’ve been placed in this position because it’s not defensible.”

LFC Vice President Michael P. Checca said his firm simply followed “the marching orders” of Gonzalez-Correa and her Housing Authority staff to reduce the agency’s workers’ compensation premiums.

The Sole Bidder

On two other occasions, LFC was the sole bidder on Housing Authority insurance business--for its police and auto liability policies, together worth more than $400,000 in premiums, records show. In all, LFC has received $1.8 million in Housing Authority insurance business over the last two years.

The firm and its employees have contributed $66,400 to the mayor’s political campaigns since 1983. Its president, Mary Anne Chalker, is a longtime Bradley backer. Two other supporters of the mayor also have obtained business from the Housing Authority in violation of federal and agency regulations, records show. One involved the accounting firm of Deloitte Haskins Sells, which has contributed $3,500 to the Bradley campaign since 1986. The other is Yvonne Brathwaite Burke, a longtime political ally of the mayor.

When Gonzalez-Correa disclosed last month that she had hired Deloitte Haskins Sells at a cost of $9,500 to study the agency’s spending procedures, several commissioners became visibly upset, mostly because of the advice the company offered. The firm asserted that commissioners should allow Gonzalez-Correa even more latitude in administering contracts. Gonzalez-Correa issued the contract to Deloitte Haskins Sells “without any evidence” of a competitive bid, the city attorney’s office said in a Jan. 20 letter.

$35,000 in Fees

Burke, a former member of Congress and the California Assembly, earned $35,000 in legal fees for providing advice on a refinancing transaction. Gonzalez-Correa acknowledged that she retained Burke on the advice of Commissioner Dori Pye without seeking bids from other attorneys. Burke, also without board approval, is being paid $200 an hour to lobby politicians and community officials for Gonzalez-Correa’s controversial plan to sell the Jordan Downs public housing project to a private developer.

Gonzalez-Correa denied offering special treatment to friends of the Bradley Administration or to her acquaintances.

“I bring professionals here to the Housing Authority,” she said. “I don’t bring cronies. . . . I try to make the best deals for the Housing Authority.”

The other three contracting violations involved acquaintances of Gonzalez-Correa who were hired without having to compete with other firms, records show.

Joe Rocha, who served as controller under Gonzalez-Correa at the El Paso Housing Authority, has been paid $83,227 in consulting fees for financial advice and services. Of the total, Gonzalez-Correa paid Rocha $25,735 without competitive bids and without the board’s approval; he got $41,042 with board authorization--and was paid $16,450 after the board had instructed Gonzalez-Correa to stop using his services, purchase orders show.

“She was specifically directed not to bring him back without board approval,” Janicich said. “I did not know. It was never discussed with me.”

‘It Was Incorrect’

Although Rocha said he made about 40 trips to Los Angeles at her request, Gonzalez-Correa said she was startled that Rocha had received so much money. “It was incorrect and we should have gone (to the commissioners),” Gonzalez-Correa said. “That’s why I am going to look into these because I really don’t know how we could have exceeded this amount of money.”

Records show that another former Texas co-worker, Carlos Garcia, received $44,979 to conduct training seminars for Housing Authority employees. Gonzalez-Correa said she called other training experts to compare Garcia’s cost estimates, but no formal bids were solicited as required by federal regulations.

A third acquaintance, Washington attorney Jane Lang, has received $24,666 in legal fees. These payments were neither approved by the Board of Commissioners nor did Gonzalez-Correa invite other lawyers to compete for the legal work, records show. Again, Gonzalez-Correa said she was unaware of the amount of Lang’s fees, even though she confers with the attorney often.

“Now there is something good that has happened from this investigation (by The Times),” Gonzalez-Correa said. “Somebody should have been bringing this to my attention. And I recognize that I am responsible. So now we’re taking measures to see that this doesn’t occur again.”

Complains of Enforcement

Gonzalez-Correa said she has had difficulty adhering to the rules that govern the Housing Authority. As the head of public housing agencies in El Paso and Austin, Gonzalez-Correa said, she hired and fired at will and seldom used competitive bids. She complained that the city attorney’s office enforces contracting regulations too strictly.

City Atty. Hahn responded in an interview: “Maybe she did do these things in Texas, I don’t know. But we know how they should be done in California and she is going to have to adjust to us. We are not going to adjust to her. I don’t know if that has sunk in yet.”

Times researcher Cecilia Rasmussen contributed to this article.

WINNING THE INSURANCE BUSINESS

LFC Insurance Brokers of Los Angeles benefited at several stages in dealing with the Housing Authority self-insurance program. Here, step by step, is how LFC first became a consultant, then set the conditions for a bid that was won by an LFC associate, then became the agency’s sole insurance broker.

JULY, 1987--LFC President Mary Anne Chalker and Vice President Michael P. Checca meet with Housing Authority Executive Director Leila Gonzalez-Correa to discuss starting a self-insurance program to reduce the $2.3 million in workers’ compensation insurance premiums the agency spent during the previous year.

AUGUST, 1987--Checca tells the Housing Authority that LFC can help obtain a “Certificate of Consent to Self-Insure” from the California Department of Industrial Relations. He quotes a fee of $9,500 based on 76 hours of work at $125 per hour.

JANUARY, 1988--Representatives of the Housing Authority, LFC and Athens Adminstrators Inc., a Concord, Calif., firm, meet to discuss the self-insurance plan. Athens, whose parent firm has shared insurance clients with LFC for years, is invited to participate in the plan by LFC. At this meeting, the Housing Authority designates LFC to solicit bids for the excess workers’ compensation insurance portion of the plan.

MARCH, 1988--In a letter applying for the self-insurance certificate, Checca notifies state insurance authorities that “the Housing Authority has designated Mr. Peter Brown of Athens Administrators as their third-party administrator of claims.”

APRIL, 1988--The state grants the Housing Authority a certificate to self-insure for workers’ compensation.

MAY, 1988--LFC obtains a second Housing Authority agreement for $7,500 to “provide consultant services for selection of workers’ compensation third-party administrator.” The fee is based on 50 hours of work at $150 per hour.

JUNE, 1988--LFC draws up a competitive bid to solicit a contract for a third-party administrator to handle the Housing Authority’s workers’ compensation claims. The bid is distributed among insurance firms.

JULY, 1988--Three companies respond to the competitive bid--Athens Administrators, Fimbres Adjusters Inc. and Claims Administration Systems Inc. An evaluation panel consisting of Checca and four city officials unanimously selects Athens Administrators as the best proposal.

AUGUST, 1988--Housing Authority commissioners vote to grant the $40,000 contract to Athens Administrators to handle the workers’ compensation program. The contract requires Athens to open an office in Los Angeles by March 1, 1989, to which the company agrees, and enters negotiations to pay LFC $25,000 a year for the leased space and secretarial services.

SEPTEMBER, 1988--The Housing Authority retains LFC in yet another capacity--as exclusive broker to obtain the excess insurance to cover catastrophe claims. The city attorney’s office raises concerns that the Housing Authority failed to seek competitive bids from other brokers before selecting LFC.

OCTOBER, 1988--Commissioners award LFC a catastrophe policy costing $36,280, and the company receives a broker’s commission on the sale. At the time, board members said, they were unaware that the Housing Authority had paid LFC $17,000 in consulting fees to set up the workers’ compensation insurance program.