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Did Stein `Pay to Play'
at Start of Civic Career?
May 30, 2004
Sixteen years ago, Ted Stein was an up-and-coming real estate developer from Encino with an interest in public policy and a yearning to get involved in Los Angeles city government.
Daniel P. Garcia, who was president of the city Planning Commission and a trusted advisor to then-Mayor Tom Bradley, gave his friend the boost he needed, recommending Stein for a seat on the commission, thereby launching the developer on an extraordinary rise to civic power.
What neither man revealed at the time - or has since - is that Stein had arranged an apparently lucrative real estate deal for Garcia two years earlier.
Stein helped Garcia develop a 30-unit apartment complex in Glendale for no money down - a real estate investment that was Garcia's most valuable holding and netted him, by one estimate, $170,000 when he sold the property several years later.
At the same time, Garcia voted twice as Planning Commission president in favor of Stein building projects in Los Angeles, records show.
Stein joined Garcia as a fixture in the city's most elite governing class, a group of largely unknown political appointees who serve on commissions that oversee city agencies and hand out untold millions in government contracts no matter who is in the mayor's office.
Stein resigned from his latest post as president of the Airport Commission last month after The Times disclosed that county and federal prosecutors were investigating him as a figure in a "pay to play" probe at City Hall. Stein has denied demanding political contributions from contractors.
A Times investigation shows that Stein may have engaged in his own form of pay to play at the start of his civic career.
Both Stein and Garcia deny a quid pro quo. Stein said he arranged the real estate venture for the former Planning Commission president because he was his best friend. Garcia said he recommended Stein for the Planning Commission because he was capable and hardworking.
Garcia, now a senior vice president of the Kaiser Foundation Health Plan and Hospitals, at first acknowledged that he had erred in not disqualifying himself from voting on Stein projects.
"If it happened that way, then I made a mistake," said Garcia, who is in charge of, among other things, business ethics at Kaiser. "My reputation being destroyed over something like this? It makes me sick. It makes me feel like I want to die."
During subsequent interviews, however, Garcia changed his position, asserting that Stein's role in the Glendale investment was so small that it did not require public disclosure.
"Would I do it again today? No ... simply because I don't like to have to go through these questions," said Garcia, a decorated Vietnam War veteran who was widely seen as a skillful and principled referee on the Planning Commission between polarized forces of growth and no growth.
"But in my mind, I had never entered into a partnership with Ted," he said. "I was not a business associate of Ted's. I followed his suggestion and entered into a partnership that developed an apartment complex. I was not actively engaged in it, and then I sold it. And it was not in the city of Los Angeles. So, as far as I was thinking at the time, I don't think ... there would be a conflict."
Records and interviews show that Stein played a substantial role in the Garcia deal. The developer introduced Garcia to the bank that owned the Glendale property, built the apartment house for a fee, helped manage it and once even represented the Garcia partnership in court in a tenant dispute.
An analysis of the deal by one expert suggests that it put tens of thousands of dollars into Garcia's pocket.
Based on a review of public and some private documents furnished by Garcia, David Dale-Johnson, an associate professor of real estate finance at USC, estimated Garcia's likely share of after-tax profits at $170,000.
"On the face of it, even with the risk, it appears to have been a very nice deal, given there was no initial cash investment," Dale-Johnson said.
Garcia, who said he retained only sketchy records of the transaction, estimated that he may have made $60,000 - or even lost money because of the substantial cash contributions he made to keep the partnership going when rental income was insufficient.
Whatever the amount, Garcia wouldn't have made the investment without Stein's help.
Here, as told in interviews and gleaned from old records on microfilm, in archives and bound volumes, is the inside story of an insiders' deal.
The vacant lot on Justin Avenue in Glendale offered attractive views on either side. To the south lay the hills of Griffith Park, to the north the San Gabriel Mountains. An earlier developer had cleared the land of homes but gone bust, leaving his lender, Independence Bank, no choice but to take the property back.
Anxious to get the land off its books, Independence approached Stein, a lawyer turned home builder who had already financed several projects through the bank.
Stein filed his first building permit application for the property with Glendale officials in December 1984. The document said his construction firm, Raider Planning & Construction, would build an apartment complex to be owned by "Justin Manor," a business entity listed at Raider's address.
Two months later, Stein filed paperwork with the state to start a Justin Manor limited partnership in which he would have the lead role.
As it happened, Garcia was trying to develop an apartment complex in Los Angeles at the same time, but ran into political trouble. As head of the Planning Commission, he recused himself, because voting on his own request would have been a conflict of interest. He won the zoning change he needed but dropped his plans for the project after he was publicly criticized as a City Hall favorite. He lost several thousand dollars and a tax shelter he had been looking for.
Stein stepped forward with Justin Manor as a replacement deal.
Garcia and Stein had met as young lawyers in the 1970s and remained friends as their professional lives diverged. Stein became a housing developer; Garcia became a law partner at Munger, Tolles & Olsen. When the Los Angeles deal fell through for Garcia, Justin Manor seemed to be the perfect fit. Because it was already zoned for apartments and was outside the city limits, Garcia could avoid political headaches.
"So he was extraordinarily happy," Stein recalled.
A partnership agreement was drafted naming Garcia general partner. A self-described novice at investments, he showed the agreement to a colleague on the Planning Commission.
That man, industrial developer Robert Abernethy, said Garcia gave him an unsigned agreement to review that seemed standard, except for one thing: Garcia was to become general partner, although he wasn't putting up any money and had no special expertise or experience to bring to the deal.
"He didn't have anything that you would normally have to get a general partner's remuneration," Abernethy said. "I developed out of that the belief that this was a gratuity - a thank you - as [in] Ted saying a thank you to Dan."
Garcia agrees that Stein might have been "trying to cozy up to me," but added that the deal was no gratuity, because he didn't feel "on the hook" to Stein. "If there was this deep, dark ugly thing, why would I show it to Bob?"
For reasons that remain unclear, the agreement that Abernethy saw was never signed.
Garcia became the property's owner of record in 1986, buying the parcel for $323,000.
Garcia's wife at the time, Signe Buck, said recently that she understood her husband had one partner in the deal: Stein.
But county real estate records show that Stein had no ownership interest in the property. Documents show that Garcia's ownership was later transferred to a partnership. His only partners were listed as Wendy Jewsbury, Stein's corporate secretary, who had 10% of the deal, and Stephen Monroe, an attorney who had represented both Stein and Garcia on unrelated matters, who had 33%.
Garcia's share was 57%. He put up most of the money to purchase the lot, though not out of his own pocket. Independence Bank advanced him a $50,000 unsecured loan, plus a $160,000 loan secured by the land itself. Where the balance of the purchase price came from isn't clear.
Records show that the bank also lent Garcia $1.4 million to pay for construction. Part of that money evidently went to pay a $100,000 fee to Stein's firm, which built the apartment house.
"This was the only project I built for someone else, and I did this strictly as a favor for Dan," Stein said.
While construction was underway in 1986, Stein appeared before Garcia at a Los Angeles Planning Commission meeting to request a zoning change for one of his own projects: 27 condominiums on Chase Street in Northridge.
Under the City Charter, commissioners are required to disqualify themselves from voting on projects in which they have a conflict of interest or the appearance of a conflict. In a series of opinions dating back many years, the city attorney's office has consistently held that a commissioner should withdraw "whenever the facts are such that the public might well question his objectivity."
Garcia himself, in another case, asked the city attorney whether he could participate in a vote involving an oil company that other lawyers in his firm had represented in an unrelated matter. He was instructed to disqualify himself, which he did, records show.
But in voting on Stein's zoning change, Garcia joined three other commissioners in unanimously approving the request.
Several months later, at the end of 1986, Stein finished building the Justin Manor apartment complex. It opened for business in January 1987.
Three months after that, Stein again appeared before Garcia and the Planning Commission, this time with a request for a zoning change so he could build 20 homes on half-acre lots in the San Fernando Valley.
A Planning Department hearing examiner had given the development the nod with conditions, including one that allowed equestrian uses in the tract. Stein appealed to have the Planning Commission overturn that condition, which it did, with Garcia voting for it. After complaints from neighbors, a City Council committee reversed the vote, restoring the equestrian element.
A few months later, Stein appeared in court on behalf of Garcia and his Justin Manor partners, winning a $1,600 judgment against a tenant, records show.
The following year, Garcia helped Stein win his first commission appointment, as a member of the Planning Commission.
Stein until this point had been only moderately active in politics. But watching Garcia, he said, he had become interested in Los Angeles' unusual commission form of government.
Garcia said Stein asked him to tell the mayor that the developer deserved a seat on the commission, and Garcia did.
"I thought he was a pretty hardworking guy with at least some public service background, and he was likable, very likable," Garcia said.
He said he submitted Stein's and others' names for three anticipated vacancies.
Mayor Bradley interviewed Stein and replaced Abernethy, the industrial developer, with Stein, the residential developer, in the midst of Abernethy's term.
Abernethy, who went on to represent the city as a Bradley appointee to the Metropolitan Water District and to the city's telecommunications commission, recalled: "Ted wanted to get on the Planning Commission very badly. Why? I don't know." .
Stein became president of the commission under Bradley. Garcia moved on to head the Police Commission. It didn't take Garcia long to have second thoughts about his role in launching Stein's career.
Garcia said Stein quickly developed a reputation as "pushy" and seemed to have become "enraptured ... with having power in government."
As the Bradley administration wound down, Stein attached himself to the campaign of lawyer and venture capitalist Richard Riordan, volunteering as chief policy advisor.
After Riordan was elected, he appointed Stein to the Airport Commission, where the developer led Riordan's ill-fated effort to divert airport department money to the city's general fund.
Stein then left the airport to make his one and only bid for elective office, as city attorney. He staged a largely negative campaign against James K. Hahn, a Riordan nemesis, calling Hahn incompetent and unethical.
When Hahn won reelection handily, Stein returned to Riordan's fold as head of the Harbor Commission. There, he earned the reputation as a demanding official who put in 30 hours a week for no pay. Some city staffers considered him a bully.
In the next mayoral campaign, Stein threw his support to Hahn, leaving the harsh words of the city attorney's race behind. He served Hahn as a key fundraiser and got a second appointment as the Airport Commission president.
Stein's fundraising activities peaked during the Hahn-led 2002 campaign to prevent Valley secession from Los Angeles, in which there were no contribution limits.
But Stein's dual roles as fundraiser and Airport Commission president led to trouble. Executives of the URS engineering firm, which was doing work at the airport, told law enforcement authorities that Stein pressured them through an intermediary to make a large contribution to the anti-secession effort or face a loss of work, sources said.
Stein acknowledged pressuring the company, but said the only reason was that its work was poor. He denied asking any airport contractors for donations.
Nonetheless, he resigned from his airport post and bowed out of civic life in April, saying he could not be effective after The Times reported that prosecutors were examining the allegations against him as part of a broader investigation into possible corruption at City Hall. Garcia had left government as president of the Airport Commission under Riordan in 1998.
Oddly, Stein and Garcia almost coincidentally crossed paths again in the investigation. Along with Stein, another key figure in the probe is Leland Wong, who resigned earlier this year as Kaiser Permanente's Southern California government relations chief. Like Stein, he was an airport commissioner, prolific fundraiser and behind-the-scenes player in Los Angeles politics.
The Times reported allegations last year that Wong had used his position as an airport commissioner to try to steer a contract to the daughter of a friend.
A subsequent internal investigation by Kaiser concluded that Wong had misused corporate funds for political purposes.
Among the findings: He spent $250,000 over 11 years to buy unused season tickets to Laker games and other events from an associate. Wong, who has denied any wrongdoing, used the tickets as gifts to politicians and others.
One of the Kaiser executives who investigated Wong's alleged ethical lapses inside the giant HMO was Dan Garcia.
The source of the tickets: Ted Stein. 'Ted wanted to get on the Planning Commission very badly. Why? I don't know.'
Robert Abernethy, on Stein, who replaced him on the panel