RIORDAN PAL GETS SWEET DEAL.

Byline: Beth Barrett Staff Writer

A subsidiary of a firm headed by a Princeton schoolmate of former Mayor Richard Riordan used a loophole in state law to get a $107 million deal with the Los Angeles Unified School District without competitive bidding, the Daily News learned Tuesday.

With Riordan playing a key role in LAUSD affairs, the deal raises questions about insider influence and back-room deal-making at a time when the district is embarking on a massive school construction program likely to cost more than $10 billion.

Those who worked on the deal - including two Riordan & McKinzie attorneys who drew up legal papers for the developer - said Riordan and William Carey, chairman of W.P. Carey, the parent of Emerald Development Co., did not play a role in the negotiations for the turnkey school construction project south of downtown.

But board member David Tokofsky, the only one who objected to the deal when it was approved, said it raises concerns about insider dealings.

``There's no question Dick Riordan does tremendous charitable good things for the children of Los Angeles. But there are others around him, that he associates himself with, who are pursuing the almighty buck at the same time.

``What bothered me was that people were getting into turnkey projects or similar deals without a general announcement to the public ... The problem is that those who had access would have an easier time whether their deal was good or bad.''

LAUSD's top lawyer acknowledged in an interview having qualms about cutting major deals without competitive bidding, but Superintendent Roy Romer defended the deal during an open school board meeting Tuesday.

Romer interrupted the meeting to grill Jim McConnell, head of the Facilities Division, ignoring the advice of the board's lawyer that the deal wasn't on the agenda and thus couldn't be legally discussed.

``We just passed a bond issue. It's tremendously important that we have credibility as we go about this,'' Romer said.

Later, in an interview, Romer said the project was ``a good economic deal'' and it would have taken a couple of years longer if the property had to be taken by eminent domain.

He said influence ``doesn't cut anything here,'' and added: ``The whole point is I have to keep this place trustworthy and credible.''

Most projects in the future will be competitively bid, he said.

``In the public realm, I think there's a confidence factor ... that's better maintained if there's the check and balance (of projects) being bid in a competitive marketplace.''

With passage of recent local and state bond issues, LAUSD has more than $5 billion to build and upgrade schools, with at least as much likely when other local and state bond issues go before voters in 2004.

Under the structure of the deal, a Carey-affiliated company that owned the 18.5-acre old Santee Dairy property sold it to the district for $24 million. The firm then leased it back for a nominal fee and used a loophole in state law to cut the deal to build a high school and continuation school on the site without either bids or requests for proposals being sought.

LAUSD defended the deal as the fastest way to qualify for $36 million in state matching funds for the schools at 231 E. 23rd Street.

Michael Hersher, California Department of Education deputy general counsel, questioned allowing the the exception to bidding requirements.

``Why that is doesn't make any particular sense to me; the logic escapes me. It's some very narrow area of school construction law practice, and we don't regulate that. School districts are on their own in complying with statutes; no one is monitoring them.''

Board President Caprice Young said she believes projects should be bid.

``(Santee) came with the blessings of legal counsel,'' Young said, adding the project appears to be on budget and ahead of schedule. ``We definitely have to have a bid process (for future projects). Competition generally makes for saved money.''

District officials said repeats of the Santee deal could lead to insider dealing, or the perception of it.

``Do I think it's lawful, yes, in terms of the statute,'' said LASUD general counsel Hal Kwalwasser. ``But I think your point is well taken ... you certainly could check it out and see who's out there and do something akin to a (request for proposal), even if it's not the lowest responsible bid. I concur in this. Why they went this way on this project, I can't tell you.''

Riordan said that although he attended Princeton with Carey, he has only gotten to know him recently over matters unrelated to the school project.

Lawyers at Riordan & McKinzie have handled some of Carey's legal business for years, and also handled the legal papers for Emerald Development in the school deal. Emerald Development has temporary offices at the law firm.

Riordan said the fact the property was owned by a Carey subsidiary, Corporate Property Associates 4, for years gave it leverage in dealing with LAUSD.

The situation would have been different, even open to fraud, he said, if a company had insider information and speculated on the property.

``I think that would be ethically dangerous because you could pick and choose your cronies,'' Riordan said.

Carey, who heads the largest limited liability company on the New York Stock Exchange, said Brent Carrier, executive vice president of Emerald Development, urged him to get involved in Los Angeles educational affairs.

Carey said he's talked to Mayor James Hahn and other public officials, who all have enthusiastically endorsed what he's trying to do.

``I'm trying to do something good for the city ... to do some good, while doing well,'' Carey said.

``Brent really believes in this, that it's the way to get something off the ground ... Brent hopes this is a precursor to additional schools.''

Carrier said a broker for LAUSD approached the company in August 2000 and threatened to condemn the property. Instead, the non-competitive deal was made.

``I requested they do it in that direction,'' he said. ``I wanted the work.''

LAUSD got the state funds after Emerald cleaned up environmental problems, for which it got a $500,000 incentive bonus. The firm gets $2 million in incentive bonuses if the 2,112-student South Central Los Angeles Area New High School No. 1 and 89-student Jefferson Continuation High School are completed a year early in 2004. The base development fee is $5.5 million.

``I think it's a huge mistake to draw parallels with Belmont,'' McConnell, LAUSD's head of facilities, said. ``We have a professional team; we have oversight, district inspectors, a much better guaranteed maximum price, a very reputable architect.''

He said the district intends to bid many of its upcoming school projects but also may use other methods.

``A lot of major players,'' McConnell said, prefer to negotiate.

Staff Writer Helen Gao contributed to this report.

CAPTION(S):

map

Map:

South Central LA Area New High School No. 2 and Jefferson Continuation High School

Daily News