City Attorney’s Dual Role in Lancaster Comes Under Scrutiny : Legal counsel: Critics say a law firm’s work in redevelopment issues and as a bond consultant constitutes a conflict of interest.

Attorney David McEwen has what some critics call a pretty sweet deal with the city of Lancaster.

As the city’s attorney, McEwen and his law firm earn several hundred thousand dollars a year performing legal chores for the city. As its separate counsel for redevelopment programs, McEwen and his firm are paid several hundred thousand dollars a year more.

And when the city moves to finance large projects by issuing bonds or taking on other debt, McEwen and his law firm get paid again, this time as bond counsel taking a cut of the proceeds. Thus, the more such projects he helps the city pursue as its attorney, the more he earns as bond counsel. The practice has been common in small city government for years.

But now, with the city preparing to embark on some of its costliest financing ventures ever, critics are saying McEwen’s dual service as attorney and bond counsel creates a conflict of interest, both legally and ethically. And the state Fair Political Practices Commission has raised doubts about the propriety of such arrangements.

McEwen, who flies an airplane from his Newport Beach office to meetings in Lancaster, maintains that his arrangements in Lancaster are perfectly legal. And he argues that cities are actually better served by having the same attorney handle the different tasks than if the work were divided.

The stakes are high not only in Lancaster but also in other cities with similar arrangements with either McEwen’s firm or others that act as bond counsel and city attorney or redevelopment attorney.

McEwen’s law firm of Stradling, Yocca, Carlson & Rauth has handled every one of Lancaster’s 56 “financings,” such as bond issues and notes, since 1980. In this time, the firm has earned more than $1.6 million for bond counsel work alone--an average of $133,000 a year.

But in February, 1991, the political practices commission issued a controversial “advice letter” to Orange, another city represented by McEwen’s firm, saying it was illegal for attorneys from the firm to act as Orange’s redevelopment attorney and bond counsel. Advice letters provide non-binding guidance that is generally followed by cities.

In the wake of that letter, a rival law firm accused McEwen last December of having a conflict because of his dual role in Lancaster. The legal challenge alleged that Lancaster was illegally attempting to build two overpasses with $25 million in bonds backed by funds usually earmarked for low-cost housing.

But some city attorneys across the state question whether the 1991 letter has any effect. They note that the commission had issued an advice letter in 1979 saying an attorney for a city could serve in both roles without posing a conflict.

Thus far, the commission has not clarified which letter reflects current policy. But commission spokeswoman Carol Thorp said the political watchdog agency’s attorneys plan to draft a formal regulation on the matter by October. She would not say whether the regulation would permit or outlaw such dual roles for attorneys.

Meanwhile, Lancaster City Manager Jim Gilley, after learning of the commission’s 1991 letter on Friday, said the city probably will ask the state Fair Political Practices Commission whether McEwen can hold both jobs for the city.

McEwen and his law firm were originally hired by Lancaster as its redevelopment agency attorney and bond counsel in March, 1979, about 18 months after the city incorporated. Then in 1987, the city chose McEwen’s firm as its city attorney, and he has filled all three jobs ever since.

Larger cities often are represented by full-time, in-house city attorneys who are city employees and are paid a salary regardless of how much work they do. But most of California’s more than 450 cities are smaller and often contract with private attorneys whose pay is based on the time or volume of their labor.

McEwen says he and other contract attorneys know they stand to earn extra money when they make recommendations to the cities they represent, either on lawsuits or the issuance of bonds. McEwen maintains his decisions are motivated by the city’s interests, not personal profit.

However, some council critics say the dual role of attorney and bond counsel creates a situation where attorneys could take financial advantage of their clients. State law generally bars public officials from taking official actions that affect their own income.

In addition, apart from citing the commission’s 1991 advice letter, the critics argue that cities would be better off getting an independent assessment of their financings.

Murray O. Kane, a partner in the Los Angeles law firm of Kane, Ballmer & Berkman, which represents about 25 redevelopment agencies, including the city of Los Angeles’, said the firm always has avoided bond counsel work because it believed the dual role would be wrong.

It was Kane’s law firm that raised the conflict of interest issue regarding McEwen when it challenged Lancaster’s overpass proposal in court last December. Although Kane’s firm argues that the plan would improperly use housing funds, city officials counter that highway overpasses are just one part of a larger plan that will encourage housing.

The conflict of interest issue comes as the city is preparing to issue at least $75 million in bonds or notes on just two projects--$25 million for the overpasses and about $50 million for a series of public facilities, such as fire stations. Those bond issues alone could result in at least $100,000 in fees for McEwen’s firm.

McEwen, for his part, downplayed the controversy.

In April, in response to critics who attacked McEwen’s arrangement with the city, the City Council directed him to ask the commission for formal advice. But McEwen did not request an opinion and said Friday that he did not plan to do so.

Instead, on June 1 McEwen provided the council with a copy of the 1979 letter from the state Fair Political Practices Commission, which declared dual roles, such as his, compatible. Gilley said he only learned of the 1991 letter after a reporter provided him with a copy Friday.

As for the 1991 letter, McEwen twice told The Times that it did not bar attorneys from serving in dual roles for cities. Then, after excerpts were read to him, McEwen said he disagreed with the commission’s position and predicted it would not withstand a legal challenge.

However, since receiving the commission’s 1991 letter, the city of Orange has held its first open competition for bond counsel services since hiring McEwen’s firm several years ago. The city recently selected a new firm to handle a bond issue.

Citing a view expressed in the 1979 letter, McEwen maintains that the money he earns as bond counsel should be exempt from conflict of interest provisions as are government salaries.

McEwen’s firm is paid $48,000 a year for his services as Lancaster’s attorney. But the firm also gets $125 an hour for added tasks, such as handling litigation and consulting on redevelopment issues. It also receives varying percentages of bond issues when acting as bond counsel.

McEwen’s firm handles redevelopment chores for more than 30 cities, and acts as bond counsel in many of them. The city can draw on the expertise of the firm’s other attorneys if needed. As a partner, McEwen is a part owner of the firm, but he has refused to say how much he personally earns from his work for Lancaster.

In total, the city paid McEwen’s law firm nearly $880,000 from mid-1990 to mid-1991, and nearly $700,000 in the past 11 months. McEwen says his firm’s fees are reasonable. But since retaining McEwen, Lancaster has never solicited bids that could result in lower fees for its redevelopment or bond counsel work. Such bidding is common practice in other municipalities, say private attorneys who represent cities.

Lancaster has been quite active in the financing market, raising more than $503 million with 56 bond issues since 1980.

An Attorney’s Role in a City Bond Issue

* Lancaster is planning to spend $25 million to build two overpasses to elevate streets over a railroad track. To pay for the project, the city will issue bonds that will be repaid through a complicated arrangement that involves funds that are intended for the construction of low- to moderate-income housing.

* As the attorney for the city of Lancaster and its redevelopment agency, David McEwen helped formulate the project and assemble its unusual package of funding, which includes a $25-million bond issue.

* McEwen will be paid $125 an hour to defend the plan in Lancaster Superior Court against a court challenge.

* If the city prevails in court and the project goes ahead, McEwen also stands to earn at least $50,000 more in his capacity as the city’s bond counsel.

* McEwen and his law firm have served as counsel for all 56 bond financing measures issued by the city since 1980.