Philadelphia Inquirer

Philadelphia Inquirer, The (PA)

November 17, 2005
Section: LOCAL NEWS PHILADELPHIA & ITS SUBURBS
Edition: CITY-D
Page: B01

$1 million worth of ethics
That's the cost this year of the measure OKd by voters,

the city says. Bond deals are not within its scope - yet.
Marcia Gelbart INQUIRER STAFF WRITER

Even cleaning up government comes with a cost.

The Street administration says it will have to spend more than $1 million of taxpayer money this year - and up to $900,000 each year after - to make changes demanded by voters in last week's ethics referendum, in which they called for tighter regulation of no-bid city contracts.

About $500,000 will be spent on a massive overhaul of the city's computerized system for tracking contracts, said deputy managing director Susan Kretsge. Other money will be spent on consultants and materials to educate vendors, the public and city staff, she said.

Moreover, that figure is almost certain to grow, as officials are now scrambling to patch a major hole that has surfaced: The new rules fail to apply to the type of deals - municipal bond transactions - that lie at the heart of the city corruption probe and were the impetus for the ethics referendum to begin with.

"The view of the Law Department is that the legislation does not cover city bond transactions," City Solicitor Romulo Diaz Jr. said yesterday.

That determination hinged on two issues, he said. First, there are no written contracts between the city and the bond professionals involved in these deals. Second, city money is not used to compensate bond professionals; they are paid with bond sale proceeds.

For the moment, that means there are no new rules for lawyers like the late Ronald A. White, who raised thousands of dollars in campaign funds for Mayor Street while also earning more than $900,000 on municipal bond deals. Prosecutors indicted White in a broad municipal corruption probe, but he died before trial.

Yesterday, the disclosure, first reported by the Philadelphia Daily News, that the ethics measure would not apply to city bond teams stunned - and angered - key backers of the referendum question, approved by 87 percent of voters.

"You're kidding!" said Mark Stier, an organizer of Neighborhood Networks, one of the groups that supported the referendum question. "It really is outrageous, since the fundamental concern was corruption in the process of how we solicited bond lawyers."

Diaz's legal determination baffled City Councilman Michael A. Nutter, who wrote the referendum question and drove the legislative push for more transparency in the city contracting process. "It is still a mystery to me as to why the administration continues to insist that those kinds of transactions are not covered," he said yesterday.

Referring to Council hearings last spring on the measure, Nutter said, "I don't believe anyone from the administration ever came in here, sat at that table, and said, 'Bond deals are not covered by this bill,' so I don't know why it's being raised now."

Nutter noted that many of the law firms that participate in bond deals also have other no-bid contracts with the city, and so would be covered by the new rules anyway.

Still, he said he might call for a legislative fix.

Street's top aides, meanwhile, said the mayor was already planning to issue an executive order this winter, per a Council resolution, to make bond transactions more transparent to the public, and he would now amend it to ensure that the lawyers, financial advisers, and other bond-deal professionals would play by the same rules.

Among those new rules, which affect about 500 no-bid city contracts, are provisions that call for more public disclosure about what consultants a company might use to try to win work, and restrictions on campaign donations by companies or individuals seeking major deals.

Zack Stalberg, chief executive of the government watchdog Committee of Seventy, laid blame at the mayor's feet for what was an accident, an oversight or an intentional act.

"It's one more example of the mayor's arrogance," Stalberg said. "In my mind, he's decided to ignore the message of the ethics legislation. . . . He either had it in the back of his mind to try to exempt bond transactions, or he came up with it after the fact, but it should have been on the table."

Stalberg said Street was "trying to steal a little bit of Nutter's thunder" by addressing the mishap in an executive order.

George Burrell, Street's top political adviser, who has also typically approved bond teams, said in response: "It's a disgrace that a person of Zack Stalberg's sophistication would allow his passion to override his objectivity, and he ought to rethink what he's suggesting by those remarks."

He added, "What political agenda is it that this independent watchdog is pursuing by his focus on who gets credit?"

Street aides said they first learned of the potential oversight last month, from a group of staffers assigned to oversee implementation of the new rules.

Contact staff writer Marcia Gelbart at 215-854-2338 or mgelbart@phillynews.com.