L.A. bond issue raises concerns

By Steve Hymon

Nov. 14, 2006 12 AM PT

Times Staff Writer

In approving a $500-million bond issuance to fund the construction of a new police headquarters, the Los Angeles City Council last week shunned an open competition for underwriting firms and instead embraced a plan to benefit local firms.

Several days later, that decision was still cause for concern among some officials, who believe the method could cost taxpayers millions of additional dollars. The new LAPD building is already over budget, and costs would probably rise further if construction doesn’t start early next year as planned.

City Administrative Officer Bill Fujioka declined comment Monday but referred a reporter to his comments before the council last week, when he said that the deal may cost the city at least $21 million and that he wanted “the city to benefit, not the underwriters.”

Controller Laura Chick, while sympathetic to the goal of helping local businesses, was also critical.

“I think there were some good intentions and good goals involved in this whole bond process, but the means don’t always justify the ends,” said Chick, who long has been highly critical of the city’s contracting procedures. “The process was flawed.”

The deal last week received attention in City Hall because it was the second year in a row that the council -- acting on motions by Councilman Tony Cardenas -- had steered business to De La Rosa & Co. of Los Angeles and Siebert Brandford Shank & Co. of Oakland.

The bond debate reflected an ongoing conflict over the two ways to select an underwriting firm. A so-called negotiated contract allows officials to consider policy goals, such as local participation and the expertise of a firm. Competitive deals require the work to go to the firm offering the best interest rate for the city.

Cardenas said in an interview Monday that he intervened in the bond deal because bureaucrats ignored the council’s wishes to give more city business to locals. He also said he had heard suggestions in City Hall that he had financial interest in the firms -- which he adamantly denied.

“This is about the council taking a stand and doing the work that they are chartered to do and letting the staff know that if they don’t do the work, unfortunately, the council is going to do the work for them,” Cardenas said. “It is our responsibility to determine what bonds are sold and what method is going to be used.”

The council’s action also defied Mayor Antonio Villaraigosa, who had asked for $200 million in bonds to be sold on a competitive basis while studying how to sell the remaining $300 million, possibly to local and minority firms. Both De La Rosa and Siebert Brandford Shank are minority-owned.

“It is always the policy of my office to ensure open, fair competition,” Villaraigosa wrote in a letter to the council. “It is also the policy of my office to ensure that we are good fiscal stewards of city resources.”

Nevertheless, Villaraigosa signed the council actions into law.

In the case of the $500-million bond issue for police headquarters -- which includes money for the acquisition of another city building -- Fujioka issued a report in late October saying that all of it should be sold on a competitive basis.

In committee, Cardenas and Councilman Bernard C. Parks, however, said they wanted some of the bond deal to be on a negotiated basis to benefit local firms.

The dispute came to a head in Wednesday’s council meeting, when Cardenas and Fujioka sparred over the deal.

Fujioka said the city policy required a competitive bid unless he or the city attorney found that it wasn’t practical or beneficial.

When Cardenas pressed him on issuing such a finding, Fujioka responded: “Please don’t ask us to do it” in the council meeting “without actual facts. I need to have the time to look at this and say without any question this is safe for the city.”

Ultimately, Cardenas introduced two motions. The first said that the entire deal would be negotiated and that the underwriters would come from a group of six qualified firms already approved to do business with the Department of Water and Power.

The second motion said that 30% of the bond would go to the local firm on that list and another 30% to a firm based in California.

Only two firms fit that description: De La Rosa and Siebert Brandford Shank. The others -- Goldman Sachs, JP Morgan, Merrill Lynch and Lehman Bros. -- have local offices but are based elsewhere.

Both Cardenas’ motions passed unanimously -- among those who voted.

Councilman Jack Weiss said Monday that he didn’t vote because it was clear that the council was going to follow Cardenas’ lead, but that he didn’t want to cast a no vote that would slow down the police construction project.

“I’ve been here 5 1/2 years and I have never -- I mean never -- seen the city’s chief financial officer so impassioned in recommending against the council’s course of action,” Weiss said. “I think it is probable that the negotiated route will cost taxpayers more money than the competitive route.”

The debate echoed a council action in September 2005, when Cardenas persuaded his colleagues to force the DWP to rework two bond sales totaling about $1.8 billion to give a greater share to De La Rosa and Siebert Brandford Shank.

That action delayed the bond sale until this year, after interest rates increased, costing taxpayers an additional $10 million, Fujioka reported. Cardenas, however, said problems with the DWP’s accountant caused the delay.

“The last time,” Cardenas said, referring to the DWP bonds, “the lion’s share of the business went to out-of-state companies.”

“This time,” he added, “I chose to flavor it my way since the city administrative office wasn’t willing to do the work.”

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Times staff writer Patrick McGreevy contributed to this report.