Unorthodox Funding Raises Questions : City Hall: Corporations and foundations are helping pay one of the mayor’s key advisers and his staff. Officials praise the arrangement but others fear the possibility of conflicts of interest.

Private foundations and major corporations have contributed about $260,000 in the last five months to an unusual, special fund that is underwriting the activities of one of Mayor Richard Riordan’s key City Hall advisers.

The collections are part of a planned $634,000 fund-raising effort to support the work of UCLA management expert and Riordan adviser William Ouchi and several assistants and consultants who are working from the mayor’s City Hall suite on strategies to streamline government and make the city more business-friendly.

“We think it’s a tremendous idea and totally appropriate,” said Karen Rotschafer, counsel to the mayor. “We get the internationally renowned expertise of an academic working with us in examining how the city is working and how it might work better . . . without having to pay for it.”

But it also is a novel arrangement, not fully contemplated by current conflict-of-interest laws--one that highlights the potential for clashes between the new business-oriented mayor’s push for public-private partnerships and a new era of ethics sensitivities and regulation.

In Ouchi’s case, tens of thousands of dollars have been donated by entities with business and regulatory ties to City Hall to help pick up the salaries of the UCLA professor, an assistant, a secretary and several urban policy consultants, and to lease Ouchi’s cellular car phone.

“We have no reason to believe (the Administration’s) intentions are not good,” said Xandra Kayden, a visiting scholar at the Claremont Graduate School and former executive director of the citizens panel that drafted City Hall’s new ethics laws. “But there’s a gray area here that has not been addressed. It goes beyond what has been envisioned by ethics laws” and demands careful attention to ensure there is a real separation between public and private interests, Kayden said.

Ouchi is conducting a 15-month, on the job research project designed to produce a series of major recommendations for Riordan on streamlining the city’s permit processes, managing city revenues better, contracting out for city services and finding ways to produce more affordable housing. He is spending most of his time at City Hall, but still draws a partial salary and remains on the faculty of UCLA’s Graduate School of Management.

Details on the contributors and the scope of the fund-raising effort are emerging as the city Ethics Commission and Riordan’s staff have begun grappling with new policies to address the Administration’s stepped-up efforts to tap the private sector for donations, advice and even volunteer advisers. In addition to Ouchi, attorney-developer Ted Stein is serving as a volunteer senior policy adviser in the mayor’s office, and Riordan has called on friends and associates in the business world for advice.

“There are people who are volunteering, and we don’t want to inhibit (that),” said Ethics Commission President Dennis Curtis, a USC law professor. “At the same time, we want to identify any possible conflicts. We are working with the mayor’s office (and) right now we’re in the very preliminary stages.”

One of Riordan’s most influential policy advisers, Ouchi works from an office down the hall from Riordan, next to Deputy Mayor Robin Kramer. In a sign of Ouchi’s stature and closeness to Riordan, the professor initially worked out of the mayor’s private office while his was being remodeled.

Ouchi emphasized in an interview that he has no decision-making role in the mayor’s office. Raising funds from corporations and foundations to pay for his City Hall work is not an ideal situation, he said. But it became a financial necessity, partly because he wanted to retain his UCLA faculty standing during the research effort, Ouchi said.

The fund-raising effort--dubbed the “Fund for a New Los Angeles”--is being administered by the California Community Foundation, a nonprofit charitable group. Solicitations are being made primarily by Jeffrey Glassman, an attorney at Riordan & McKinzie, the mayor’s former firm. Ouchi said he has met with some donors to generally discuss his project but has avoided participating in solicitations.

A donation of $50,000 was made to the Ouchi project by Arco, a major civic and charity donor that also seeks city permits for gas stations and mini-marts, and by First Interstate Bank, which does banking business with the city. A private foundation run by affordable-housing developer Jona Goldrich, whose firm had been involved in a number of city-subsidized projects, donated $5,000.

Other contributions have included $50,000 each from the Weingart Foundation and the Wallis Foundation, long-established charitable organizations; $25,000 from a foundation set up by fallen junk bond wizard Michael Milken and his relatives; nearly $32,000 in excess campaign funds from one of Riordan’s political committees; $5,000 from Mattel Corp., and $15,000 from the Bank of America, which handles much of the city’s banking business.

Some key corporate donors said they supported Ouchi’s efforts because city government has made it increasingly difficult to do business in Los Angeles, not because they hoped to curry favor with the mayor’s office or get anything specific in return.

Glassman said he would not seek any donation “if I thought it would create a conflict of interest or I thought the contribution was intended to buy influence.”

Rotschafer, the mayor’s counsel, emphasized that the funds “are not raised by our office, nor are they raised by Dr. Ouchi. . . . He’s at a double arm’s length away from the source of the funds.”

She said discussions are continuing with the Ethics Commission, but she sees little need for additional ethics regulation of an arrangement like Ouchi’s.

However, Cecilia Gallardo, a spokeswoman for the watchdog group California Common Cause, said some greater controls may be needed to reassure the public about donors’ motivations. “Are they merely being good corporate citizens? Or do they have a vested interest in the outcome of these policies?” she asked. “These questions are probably being raised in the minds of the public.”