Firm Hired by CRA Allegedly Underpaid for Project Work

A development firm hired by the Los Angeles Community Redevelopment Agency to rehabilitate two abandoned buildings to provide housing for the poor faces criminal charges for allegedly underpaying 114 workers on the job by a total of nearly $400,000.

City Atty. James K. Hahn has filed 114 misdemeanor counts against the developer, L.A. Sheridan Manor Limited Partnership, alleging that the firm paid workers as little as one-fourth the wages required under the CRA contract, then concealed the violations.

Deputy City Atty. Michael Guarino said it is the first criminal complaint filed against a developer working under contract with the CRA.

The state labor commissioner’s office also is conducting a criminal investigation into the project, according to documents obtained by The Times.

Named in Hahn’s complaint as principals in Sheridan Manor are Harold Washington, 69, of Los Angeles; Jerome Steinbaum, 66, of Beverly Hills, and Lanz Alexander, 35, of Sepulveda.

The CRA has accused Sheridan Manor of underpaying workers by at least $500,000 and says the firm owes an additional $100,000 in fines for allegedly impeding agency investigators.

None of the three men charged in Hahn’s complaint have entered pleas, and no arraignment date has been set. Washington and Steinbaum acknowledge that some underpayments occurred but say they did not knowingly break any laws. Alexander, through an attorney, denied any wrongdoing.

Deputy CRA administrator John Maguire said agency officials have known about the alleged violations since August, 1989. The agency, however, did not refer the case to authorities until Aug. 23, 1990--one week after the CRA board voted to approve a $1.1-million low-interest loan and a related financing package intended to help Sheridan Manor pay for cost overruns.

The loan terms--4% simple interest with no payments due the first five years--were “very advantageous,” said a CRA loan expert who spoke on condition of anonymity. A more common CRA rate would be about 9%, he said.

The related financing package approved by the CRA board authorized Sheridan Manor to borrow an additional $3.2 million at below-market rates against the properties.

The loan deal needed only final approval from the City Council, but CRA officials have now put it on hold pending disposition of the wage violations.

Under its contract with the CRA, Sheridan Manor is rehabilitating two abandoned apartment buildings it owns--a 91-unit facility called Tuelyn Terrace at 125 S. Western Ave., and a 71-unit complex known as Saint James Square at 1833 W. 5th St. Work started in 1988 and is nearly completed.

The original contract called for CRA to lend the partnership $600,000 for the project--an amount that would grow to $2 million if the new loan goes through. In return, the developer has pledged to rent the apartments at specified low rates to low-income tenants.

Two weeks ago, 11 men who said they were underpaid for work on the project attended a pretrial hearing on the criminal charges. The workers, mostly Latino immigrants who speak little English, said in interviews that they were paid as little as $5 an hour, much of it in cash. Among them were Orlando Guzman, whom the CRA contends was underpaid more than $24,000, and Juan Carlos Turcios, allegedly underpaid by $23,000.

The CRA requires developers that receive agency contracts to pay workers “prevailing wages” in accordance with rates set by the state labor code. The wage guidelines--about $24 an hour for unskilled laborers and more for trained craftsmen--are designed to protect workers on redevelopment projects from substandard wages, protect the public from shoddy workmanship and protect legitimate businesses from being undercut in competitive bidding for contracts.

Each violation of the prevailing wage clause of the CRA contracts is a misdemeanor punishable by a fine of $1,000 and a year in jail. Each Sheridan Manor defendant potentially faces as much as $250,000 in fines, according to Deputy City Atty. Guarino.

In interviews, Steinbaum and a lawyer for Alexander contend the two men were financial backers of the project who played no role in paying workers. Washington said he is not a partner in Sheridan Manor, but that as the group’s on-site developer, he did not know that unskilled workers had to be paid the prevailing wage.

CRA officials say that the contract is clear on the prevailing-wage requirement, and furthermore, Sheridan Manor officials and their contractors were briefed shortly after the contract was approved in March, 1988, about the need to pay prevailing wages.

Hahn, who filed the charges Oct. 30 in Municipal Court, also is seeking to recover $385,000 in restitution for workers and $100,000 in penalties from the defendants.

Guarino said that the violations are subject to a one-year statute of limitations, and Sheridan Manor therefore cannot be held accountable for violations he believes occurred during the first 20 months of the project. “I’m reluctant to criticize the CRA, but it’s very unfortunate that we didn’t get this case sooner,” he said.

CRA officials defended their handling of the case and their simultaneous efforts to secure the loan package for Sheridan Manor, saying the developer cannot receive any money until it pays fines and restitution to workers in amounts to be determined. Maguire said the CRA was patient with the developer because cost overruns and wage violations are “not uncommon,” and because the agency did not want to jeopardize efforts to create affordable housing.

CRA officials said they began actively investigating Sheridan Manor by January, 1990, but that the investigation was hampered by the developers’ refusal to provide the required monthly payroll records. They also contend that Sheridan Manor persistently barred agency investigators from job sites.

Washington said his policy was not to permit investigators on the site unless he was present.

Although the CRA never took official action to sanction Sheridan Manor, CRA Equal Opportunity Director Freddi Condos in April actually declared the project in default and asked her superiors to pursue “whatever legal remedies are appropriate.”

When no action was taken by July, Condos complained in a memo that, “Quite frankly, nothing is being done with the exception of lip service.”

Meanwhile, Maguire and other top agency officials were helping the developers secure approval of the loan.

In July, six weeks before the CRA board approved the loan, Steinbaum wrote CRA Administrator John J. Tuite asking him to call off the investigators, wipe away fines and restitution and provide more CRA money to cover the partnership’s cost overruns.

“This all started partially as a civic endeavor,” Steinbaum told Tuite. “I feel I have certainly contributed more than anyone could expect.”

Tuite replied that he could not waive any labor violations, but he expressed “sympathy” for Steinbaum’s problems.

Washington is a prominent developer long active in Republican politics. Five years before he and his associates got the contract, Washington lobbied for the job of rehabilitating the two buildings, which then belonged to the U.S. Department of Housing and Urban Development. He enlisted the aid not only of Tuite, but of Mayor Tom Bradley and former HUD Secretary Samuel R. Pierce.

Before being appointed by the mayor to the top CRA post in 1986, Tuite served for more than a year as a paid consultant to Washington on the Sheridan Manor project, and before that he worked for Pierce as HUD’s manager of the regional office in Los Angeles.

In 1984, at Washington’s request, the mayor wrote Pierce asking that HUD relinquish the buildings so they could be turned over to a private developer.

When the CRA put the contracts out to bid in 1986, Washington’s group won.

Tuite and Bradley say they played no part in Sheridan Manor’s attempts to get the loan or fend off the wage violations inquiry.

Washington insists he never asked the mayor or Tuite for favors.

“But,” he said, “any (development) job any person gets in this city has to be because they know two people--the city councilman and the mayor. If they don’t, it’s rough.”