CONTRACT WITH CITY GIVEN UP INFLUENTIAL P.R. FIRM WON'T SEEK RENEWAL.

Byline: Beth Barrett and James Nash Staff Writers

A well-connected downtown public relations firm that became swept up in the ethical controversies surrounding Mayor James Hahn's administration announced Tuesday that it was giving up its city contracting work that has been worth about $3 million a year.

The decision by Fleishman-Hillard, the city's largest public relations firm, to not seek contract extensions with the Harbor, Airport and Water and Power departments came after federal investigators subpoenaed company documents as part of a wide-ranging probe of the agencies' contracting practices.

The firm's $3 million-a-year contract with the DWP has been the source of controversy for several years and is now being audited by Controller Laura Chick. Fleishman-Hillard also holds a $400,000 contract with the Harbor Department and is authorized to get up to $500,000 from Los Angeles World Airports. All three contracts now will end within the next few months.

``Our decision was entirely based on our belief that the messenger had overshadowed the message,'' said Richard Kline, the company's regional president and newly named Los Angeles general manager.

Kline said that based on an internal review the firm has acted ``properly and ethically ... (and) complied with the terms of every contract and regulation.''

``Fleishman-Hillard is one small part of a very large story, a very large debate,'' he said.

``Unfortunately, our representation of the Department of Water of Power has become part of a larger public debate that has diverted attention from the department's important work to the provider of its communication services. That does not serve our client's best interests.''

The decision to pull out of city work follows the resignations of three key figures from the Hahn administration - Deputy Mayor Troy Edwards, who oversaw the airport, harbor and DWP; Airport Commission President Ted Stein; and DWP commissioner Leland Wong.

County and federal prosecutors are investigating whether city commissioners or others engaged in a ``pay-to-play'' system in which contacts are traded for campaign contributions or denied those who refused to contribute.

The heart of the investigations appears to be fund-raising for Hahn's campaign against San Fernando Valley secession.

Chick, who recently ordered an audit of the DWP's contract with Fleishman-Hillard, said the firm did the right thing, but she criticized Hahn for not extricating the city from the contracts long ago.

``I think the mayor was not only not showing leadership, but not showing wisdom most people in the city of Los Angeles who are ratepayers would really rather not have a P.R. firm getting $3 million a year of their money.

``It floors me that it takes a reputable international P.R. firm to decide that it isn't such good P.R. for them, that they very diplomatically bowed out. We could have said, Don't bill us any more. We should have done it.''

Chick said the DWP already has an internal public relations division of 23 employees, who are paid $41,154 to $108,242 a year.

The $3 million contract for Fleishman-Hillard, Chick added, could have been part of the revenue transfer to the city for more police, or other services.

Julie Wong, the mayor's spokeswoman, said the P.R. firm was simply making a business decision.

``In terms of addressing leadership, the mayor really is focused on the things L.A. residents elected him to do: reducing crime, building more housing, working to bring jobs to L.A. and making sure neighborhood councils have a meaningful role in our city.''

Wong said Chick was on the council when the DWP first contracted with Fleishman-Hillard during former Richard Riordan's administration, paid

the firm's invoices as controller and took campaign contributions from it.

Councilman Tony Cardenas, who chairs a committee that deals with the proprietary departments, said no one from the DWP, port or airports ever was able to justify the Fleishman-Hillard contracts.

``They're doing millions of dollars in P.R. contracts with the proprietaries yet no one is able to say why they need the contracts. Not one. Not a peep.''

Under its former general manager, Doug Dowie, the Los Angeles office was deeply involved in local politics, providing a number of free services to Hahn and other public officials - including the Christmas media party, the ``One Book, One City'' program and events to raise funds for the Getty House Foundation.

The firm contributed $15,000 to the mayor's L.A. United campaign against San Fernando Valley secession in 2002. The company and its employees also contributed $34,700 to city political campaigns in 2001.

Fleishman-Hillard hired Deputy Mayor Matt Middlebrook and Hahn hired the firm's Shannon Murphy to take over many press duties, causing critics to allege a revolving door between the company and the city.

Dowie, the former managing editor of the Daily News of Los Angeles, declined comment Tuesday. He is now managing the firm's state public affairs efforts and is co-chairman of its national public affairs practice.

Kline said that at its ``peak,'' public contracts made up about half of the Los Angeles office's business, though that has declined. Contracts with other local public agencies, including a $400,000 contract with the Los Angeles Community College District won't be affected.

Fleishman-Hillard's DWP contract signed in the summer of 1999, with amendments and extensions, totaled more than $16 million, according to DWP records. Some of that money went to the firm's subcontractors.

Beth Barrett, [phone]

beth.barrett(at)dailynews.com