Conflict Nixes Development Agreement

By Jorge Casuso

February 25 -- A proposal to turn two historic properties into a 77-room hotel was pulled from the City Council agenda shortly before Tuesday’s meeting after City officials discovered hearing the item could constitute a felony under State law, The Lookout has learned.

Officials feared the item -- which called for entering into a development agreement -- violated Government Code Section 1090, which strictly forbids public officials from having financial interests in their agencies’ contracts.

Shortly before the meeting, the City Attorney’s office learned that Councilman Herb Katz’s firm, RTK, was the architect for the project. Because the council would be voting on a development agreement, or contract, between the developers and the City, stepping down for the vote was not enough, according to the City Attorney.

“It’s a very narrow, deep, harsh law,” said City Attorney Marsha Moutrie. “It’s a clear prohibition. There is no way around it. It’s a felony.”

Katz, who routinely steps down when his projects come before the council for permits or approval, said he was caught by surprise.

“Their interpretation, and a narrow one, is that this is considered a contract,” Katz said. “I obviously said, ‘Huh?’ It came out of left field.

“I never heard of ten ninety,” he said. “Most people have never heard of it. (But) I’d rather err on the side of being conservative. I don’t want to hurt the developer.”

Katz questioned the city attorney’s decision to apply the code section -- which is a prohibition against self-dealing -- to a development agreement. The agreement, Katz said, is not a typical City contract, where the City pays for the work.

“It is really nit-picking,” Katz said.

Government Code section 1090 provides that “an officer or employee may not make a contract in which he or she is financially interested,” according to “Ethics Orientation for State Officials” issued by The California Attorney General's Office and the Fair Political Practices Commission.

“Any participation by an officer or an employee in the process by which such a contract is developed, negotiated and executed is a violation of section 1090,” according to the document.

Stepping down during the discussion and vote is not enough, according to “A Local Official’s Guide to Ethics Law” used by municipal governments.

“Members of the governing body of a local agency are conclusively presumed to have made any contract executed by the board, or any person or agency under its jurisdiction, even if officials disqualify themselves from participating in the contract,” the guide states.

Violation of the code “is a felony and may be punished by fines, imprisonment and being disqualified from ever holding public office,” the guide said.

In 1993, California's Superintendent of Public Instruction Bill Honig was convicted under the statute for entering into official contracts in which he had a financial interest. Honig was criminally convicted and eventually required to relinquish his public office.

Mayor Pam O’Connor said it might be time to revisit the law, which she had never seen applied to a development agreement.

“We don’t do development agreements often, and none that we’ve done in the past included a council member,” O’Connor said. “Maybe the law needs to be changed.

“It’ll be interesting to find out if it’s the law not catching up to practice, or if there is a specific reason it applies to development agreements,” O’Connor said.

The proposed project -- which would retain most of the existing façades and add hotel rooms in a new four-story, 40,000-square-foot building at the rear of the property fronting Palisades Park -- does not require a development agreement, planning officials said.

The agreement -- which both the Landmarks and Planning commissions recommended the council approve -- would have sped up the approval process, which would otherwise require a development review permit and a Conditional Use Permit.

The project -- which also includes a three-level subterranean garage and a café and restaurant around a publicly accessible plaza -- also requires a variance because it fails to meet the parking requirements.

“It’s a relatively complicated project given the historic nature,” said Suzanne Frick who heads the planning department. “They were looking to collapse all the requirements into one development agreement.”

The developers, Hill Street Realty, must now decide whether to find a new architect or forgo a development agreement and embark on the more lengthy process, City officials said.

Frick, who has worked in the City’s planning department for 21 years, said this is the first time she recalls a council member having an interest in a development agreement.