Developer Required Political Gifts From Its Subcontractors
A prominent San Fernando Valley development company has required its subcontractors to make political contributions as a condition of doing business with it, a highly unusual and, some critics say, unethical practice.
Lycon Group of Sherman Oaks, one of Southern California’s largest apartment builders, has written a “contribution schedule” into its contracts for subcontractors. The schedule required payments of $50 to $25,000, depending on the size of the job, according to a Lycon Group contract obtained by The Times and interviews with subcontractors.
Lycon Group deducted the contributions from its payments to subcontractors and apparently deposited the money in an account for a political action committee the company created two years ago. So far, the committee has paid out just a fraction of the funds it has raised, with the money going to two Los Angeles city councilmen and a state legislator, according to campaign disclosure statements.
Lycon Group officials refused to comment on the practice. The firm is the 22nd largest developer in Southern California, according to a 1989 Los Angeles Times survey, with a reported $146 million in residential sales.
Numerous campaign law experts and officials with the California Building Industry expressed surprise when told of the firm’s arrangement. One building industry representative called it innovative and a subcontractor who favored the practice said it “is good for the industry.”
Others said the practice was coercive, and several subcontractors questioned whether it was ethical.
“Their lawyers will say that I didn’t have to sign the contract, and no one put a gun to my head,” said Andrew Cooper, owner of a Burbank concrete company, who has stopped doing business with Lycon Group after two years in part because of the PAC donation requirement.
“But it’s hard to turn down so much business when you have workers to keep employed and payroll to meet. I’m not proud of the fact I acceded to this,” Cooper said.
Michael Josephson, a consultant to Mayor Tom Bradley’s recently appointed city ethics panel, said Lycon Group’s method “is in effect coercing people to be involved in a political process that ought to be entirely and totally voluntary.”
‘Uncharted Fields’
“If it is legal, there will be nothing to stop it from proliferating,” said Josephson, president of the Joseph and Edna Josephson Institute, a nonprofit government ethics center based in Marina del Rey. “These guys have founded uncharted fields. Obviously they are being very up front about it, and that is worthy of some degree of credit. But you can still be very open and very wrong.”
The Lycon PAC registered in May, 1987, as a statewide organization to give money to “candidates and ballot measures that support real estate and construction industries,” according to campaign disclosure statements. Subcontractors said in interviews that the contribution requirement began at that time.
According to the Lycon PAC contribution schedule, a subcontractor hired for a job that paid $5,001 to $10,000 had to contribute $50, one who got a job for $10,001 to $20,000 had to pay $150 and so on. On the high end, a contract for $2 million required a contribution of $25,000.
“From a legal standpoint, the question that would interest me is whether this is a ruse,” said Daniel Lowenstein, a professor of election law at UCLA and former chairman of the Fair Political Practices Commission. “I would assume that the subcontractors add the contribution to their bill. So really it may just be a way for the developer to contribute to his own PAC in the name of all those other people. It does raise questions. It may not be a bona fide PAC.”
Several contractors said they simply increased the costs of their bids to cover the contributions. Lycon Group’s method of collecting was to then withhold the contribution from the company’s payment to contractors.
No Legal Opinion
Officials with the state Fair Political Practices Commission and the Los Angeles city attorney’s office said they could not give a legal opinion on Lycon Group’s policy without conducting a detailed review.
Sandra Michioku, a spokeswoman for the FPPC, said the Lycon Group’s practice does not appear to violate the state Political Reform Act. “There isn’t anything in the act that governs the conditions of obtaining contributions,” she said.
City Councilman Michael Woo, chairman of the City Council’s Governmental Operations Committee, which is considering a number of ethics reforms for city government policies, said he would be concerned if the practice became widespread.
“It is commonplace for developers to make informal verbal requests and that does not tend to be as onerous,” Woo said. “But I would not want to see this become part of the everyday work environment. It’s already probably a serious problem that developers feel they have to be active with campaign contributions to process politically sensitive projects.
“I’m concerned that the web of political contribution involvement may spread beyond the developers and become mandatory for subcontractors who are seeking to work in the city of L.A.”
Money Not Spent
The latest Lycon PAC campaign disclosure statement showed a balance of $130,653 as of Dec. 31, 1988. Listed as contributors were businesses associated with construction, such as roofing, masonry, plastering and painting.
The Lycon PAC has contributed $6,500 to candidates since the organization was established, records show. The largest beneficiary was Woo, who received $4,000 from the Lycon PAC in 1987 to retire a campaign debt. Woo said this week that he was not aware of the company’s method of raising funds when the donation was made.
The other Lycon PAC recipients were City Councilman Marvin Braude, who received $500 in 1987 and Assemblywoman Marian La Follette (R-Northridge), who received $2,000 in 1988. Donations since Dec. 31 will appear on the group’s next disclosure statement, which is to be filed by July 31.
Don V. Collin, chief attorney for the California Building Industry Assn., a lobbying organization for developers statewide, said he had “never heard” of a developer contractually requiring subcontractors to make political contributions.
“I would prefer to call this innovative . . . and have no opinion on the legal ramifications,” Collin said. “When a builder forms a PAC they usually have a function and peddle tickets to the sub-trades and suppliers--golf tournaments tend to be the ones I hear about most often.”
PAC Supporters
Some subcontractors, however, welcome the Lycon Group’s arrangement and view it as a convenient way to contribute to an organization that supports politicians who further the interests of the building industries.
“I would say this is a good cause,” said Eric Shemp, whose Northridge firm, ECS Plastering, donated $1,000 to the Lycon PAC in 1988. “They want to keep building and keep the economy strong and that’s what I want, too. That is what feeds my family.”
Dale Francescon, of Westlake Village, the treasurer of the Lycon PAC and a Lycon Group officer, as well as the two other officials named as “authorized officers” on the firm’s contract agreement, did not return repeated phone calls from The Times or respond to messages left at their homes or offices over a six-day period. The two others are William S. Lyons Jr. of Hidden Hills and Robert J. Francescon of Chatsworth.
In May, Los Angeles City Clerk Elias Martinez began auditing thousands of dollars in political donations from officers, employees and family members of law firms and large development companies, including the Lycon Group, to determine whether the multiple contributions violated city law. Martinez said Thursday that the audit is not completed.
A Times computer study of political contributions to city officials by the Lycon Group shows that the firm’s officers, the officers’ family members and the Lycon PAC have donated about $27,000 to Woo, Braude and City Councilman Zev Yaroslavsky since September, 1987.
