L.A.'S ROCKY TAKES IT ON CHIN STATE AUDIT BLASTS PRIVATE-LAWYER COST.

Byline: Rick Orlov and Harrison Sheppard Staff Writers

Despite a staff of 500 lawyers, Los Angeles City Attorney Rocky Delgadillo's office spent more than $32 million last year on private attorneys who were subject only to lax contracting and budget controls, the state auditor says in a blistering report released Thursday.

The review by Auditor Elaine Howle faults Delgadillo, a candidate for state attorney general, for failing to sufficiently justify hirings, monitor contract costs and enforce accountability.

The $32 million is nearly double what was spent for outside counsel six years ago. During the same period, liability payouts dropped from $92 million to $28 million, but Howle challenged Delgadillo's assertion that the hiring of outside attorneys was responsible.

``Although it is true that liability payouts from the city's general fund have decreased, the extent to which the use of outside counsel has contributed is unknown,'' she wrote.

But Delgadillo defended the use of outside attorneys, saying his staff didn't have the expertise needed for some especially lengthy, complicated or specialized cases. He also credited the private lawyers for the significant decline in liability payments.

``We believe there is a correlation there. This report confirms that our payouts have declined 60 percent in the last four years,'' said Delgadillo, who took office in mid-2001. ``This program pays for itself.''

Delgadillo said hiring outside attorneys also reduces the need to add staffers and related costs to the city payroll.

With a total of 800 employees and an annual budget of $139.3 million, the City Attorney's Office is one of the nation's largest public law firms.

It pales, of course, to state Attorney General Bill Lockyer's office, which employs about 1,000 staff attorneys and has an annual budget of about $690 million. But a spokesman said that office spends just $3 million to $5 million a year on outside attorneys, most of it connected to the cleanup of a Superfund site at Riverside.

Outside counsel has also been used to help the state recover money from energy companies that overbilled California during the power crisis.

Howle's 71-page report details the city's costs to hire private attorneys - normally used when the city has a conflict of interest in a case or needs expertise.

It shows significant costs to hire private attorneys to work with the Department of Water and Power and with Los Angeles World Airports, two of the city's three proprietary agencies.

Costs for defending the DWP in a series of overcharge cases in the wake of the energy crisis spiked to $16 million two years ago before settling at $2.5 million last year.

The airports agency has had higher costs as part of its expansion program, with spending for outside attorneys going from $2.6 million in 1999-2000 to $5.9 million last year.

State auditors quoted a report from the City Attorney's Office, recommending hiring outside counsel in those matters, as saying the staff lacked ``the necessary expertise and resources.''

State auditors also questioned the money spent on private attorneys hired to deal with workers' compensation cases - an increase from $1.6 million in 1999-2000 to $5.6 million last year. Delgadillo aides said the costs were because of a backlog of cases and an effort to contest more claims to reduce city payouts.

And auditors noted that private attorneys who were hired often did not submit comprehensive budgets, monthly invoices or required quarterly reports on case status.

Delgadillo said he will implement changes to deal with documentation issues cited in the audit, which was requested by state Sen. Richard Alarcon, D-Van Nuys, as part of his unsuccessful bid for mayor.

City Controller Laura Chick had said she wanted to conduct the audit herself, but she was rebuffed by Delgadillo, who said she did not have the power to audit another elected official.

Chick subsequently turned over all information she had to the state auditors.

``We cooperated fully with the state auditors,'' Chick said. ``They were here in our office several times reviewing documents. The city spends an enormous amount of money on hiring outside legal counsel, and I wanted questions answered.''

Among the questions, Chick said, were how Delgadillo decided to hire outside counsel, which firms to hire and how contracts were overseen.

Delgadillo said his office will tighten its review process in determining when to hire a private attorney and will more closely monitor the spending by the firms.

Alarcon said he hopes Delgadillo uses the audit to help revamp his policies on the use of outside counsel.

``Clearly, to double the amount of dollars spent on outside counsel when you're talking about tens of millions of dollars - that is an expenditure that I believe is unnecessary,'' Alarcon said.

``And it could be avoided with effective implementation of the policies that exist, as well as implementing new policies as recommended by the audit.''

Alarcon said the problem dates back at least to Delgadillo's predecessor in the job, James Hahn, later a one-term mayor, and he credited Delgadillo with writing a few new policies to try to deal with the issue.

Rick Orlov, [phone]

rick.orlov(at)dailynews.com