City Hall corruption case could change way Dallas does, attracts business
By MICHAEL E. YOUNG and ERIC TORBENSON / The Dallas Morning News, October 11, 2009
myoung@dallasnews.com
etorbenson@dallasnews.com
LINK

The Dallas City Hall corruption case that ended last week won't keep conventioneers and tourists away, marketing experts and consultants say, but continuing ethical problems could change the way the city does – and attracts – business.

Former Mayor Pro Tem Don Hill, his wife and several associates were convicted in federal court of taking hundreds of thousands of dollars in bribes from developer Brian Potashnik and extorting many thousands more from developer James R. "Bill" Fisher.

The convictions only reinforced a reputation of South Dallas, which Hill served, as a place where developers had to "pay to play" by bribing officials for zoning approvals.

Some wonder now whether the whole city will be tainted.

In the short term, perhaps not.

Phillip Jones, president of the Dallas Convention & Visitors Bureau, said the convictions haven't been a part of his conversations with groups planning meetings here.

"It's such a local issue that people I'm talking with aren't even aware of what happened," he said. "These people want to know if they can walk from downtown hotels to attractions and restaurants, they want to know what's going on with the convention center hotel, and they want to know if there's going to be stuff for their people to do."

But Greg Bustin, head of Bustin & Co., a political consulting and public relations firm in Dallas, said the city's situation is serious. It reminded him of a quote from self-made billionaire Warren Buffett.

"He said of his businesses, 'They can lose money, even a lot of it, but they cannot lose their reputation, not even a shred of it,' " Bustin said. "I think that's what Dallas is facing."

Whether Dallas joins Chicago, Detroit and other spots where official corruption is seen as part of the fabric of the place isn't really the issue, he said.

More important is how a business-seeking Dallas stacks up against competing cities and how the City Council responds to this latest ethical breach.

Some cities easily shake off problems. Atlanta's former mayor went to prison, and Portland's openly gay mayor confessed to having an affair with an 18-year-old intern and kept his job. Yet both cities retain their allure, and companies are eager to move there, consultants say.

"If your City Hall convictions are a one-off, it's not going to be that detrimental," said Dennis Donovan, head of WDGC Corporate Relocation Services in Bridgewater, N.J. "Companies looking to relocate are very sensitive about their images – they want to be perceived as good corporate citizens, and they want to be in areas thought of as good corporate environments.

"If you get a string of these kinds of things happening, then it's more deleterious."

But isolated local cases generally don't impact national perceptions, said King R. White, president of Site Selection Group LLC in Dallas.

"Corporate leaders around the U.S. don't bring these localized, single-incident issues into consideration when evaluating locations for expansion or relocation," he said.

More pressing factors

Dr. Dan Howard, professor of marketing at the Cox School of Business at Southern Methodist University, agreed that corruption cases fall well behind land costs and availability, location, a skilled and educated workforce and tax rates when companies consider a move.

"But what happens if Dallas ties with another major area on those attributes?" he said. "People go to less-salient issues. And if people get the impression that Dallas is significantly more corrupt than another area, then yes, this could have an impact.

"If you have a pattern of corruption over years from the city's leaders, business people think, 'I don't want to get in a situation of paying off politicians. If I do that, what are the implications for the business if it's exposed? And if I don't, will I be able to operate?' "

Is Dallas at that point?

"My personal opinion is yes, it has reached that stage," Howard said. "As a business professor, I talk with a lot of consumers and a lot of businesspeople. To them, this is not an isolated event.

"And when it happens repeatedly, people come to the conclusion that something is broken in city government that needs to be fixed.

"Until it is, do I want to put my business here?" he asked.

Perhaps the only upside for the city was the timing of the convictions. With the recession and continuing problems in the credit markets, real estate and construction companies have more pressing worries than the state of City Hall.

"In normal times, this would draw quite a bit of attention among developers who might be thinking about building in Dallas," said Dallas industry analyst Ron Witten. "In today's capital-starved environment, development is grinding to a halt, and I would suspect that this issue is way down the list of what developers are thinking about."

Awaiting response

Business leaders are watching for City Hall's response, Bustin said, and worrying that the changes will simply bring more rules.

Dallas sees itself as a pro-business city, but Bustin calls that "a delusion," especially over the last several years. Adding the whiff of corruption will make things worse, he says.

"These convictions tarnish the city's reputation," he said. "There was a Wharton study, done post-Enron, which concluded that a 10 percent change in a city's reputation resulted in a 25 percent drop in capitalization.

"Distrust translates into dollars lost."

Staff writer Steve Brown contributed to this report.
SCANDALS ELSEWHERE

Recent headlines in major city hall corruption:

•Tuesday: A Jersey City, N.J., council member becomes the sixth city official out of 45 arrested to plead guilty in a sweeping corruption investigation, the state's most ambitious fraud prosecution that targeted rabbis, elected officials and developers.

•Aug. 11: Philadelphia City Council aide Christopher Wright is sentenced to four years in prison for accepting bribes from developers. He blames alcoholism and personal problems for his acts.

•July 29: Baltimore Mayor Sheila Dixon is re-indicted on perjury charges for allegedly failing to disclose gifts from a developer with whom she was romantically involved.

•March 23: Former Chicago Streets and Sanitation Commissioner Al Sanchez is convicted in a hiring fraud scheme. Sanchez used forged documents to get jobs for campaign workers.

•Oct. 28, 2008: Former Atlanta Mayor Bill Campbell is released from prison after serving part of his 30-month sentence for tax evasion. He was previously acquitted on corruption and bribery charges stemming from his time as mayor.

•Sept. 4, 2008: Detroit Mayor Kwame Kilpatrick pleads guilty to lying under oath about his affair with his chief of staff and is sentenced to 120 days in jail. He later moves to Southlake and takes a job at Covisint.

The Dallas City Hall corruption case

10:50 AM CDT on Tuesday, October 6, 2009

The case

The massive prosecution case came down to three main questions:

Did the defendants conspire to extort money from developer and FBI informant James R. “Bill” Fisher?

Did the defendants accept bribes from developer Brian Potashnik in exchange for political support for his projects?

Was improper political influence used by a City Council member and a plan commissioner in an attempt to buy the Lancaster Kiest shopping center using government funds?

The jury, with its verdicts, said yes to each of these questions.

The defendants

The case originally had 14 defendants. Six pleaded guilty. Three will be tried later.

Five went to trial on charges carrying penalties of 5 to 20 years in prison:

Don Hill, 57, of Dallas, a lawyer and a City Council member from 1999 to 2007.

What prosecutors said: Hill sold his votes in a bribery and extortion scheme targeting Fisher, who turned FBI informant, and Potashnik. If the developers paid -- by hiring his friends and associates -- Hill supported them politically. If they did not pay, he delayed votes on their projects. Hill also improperly used his influence as a council member to try to get the city’s fire pension system to invest in the purchase of the Lancaster Kiest shopping center. Prosecutors say Hill had a financial interest in the purchase, and at the time, was a pension board trustee.

What the defense said: Hill was a selfless public servant who neglected his law practice and put himself in financial peril to devote more time to his City Council work. He only delayed votes to get developers to honor their commitments to hire black contractors for projects in his southern Dallas district. The only money Hill received was in the form of legal campaign contributions.

What the jury said: Hill was charged with nine crimes — conspiracy to commit bribery; two counts of bribery; conspiracy to commit extortion; two counts of extortion; conspiracy to commit deprivation of honest services, and two counts of conspiracy to commit money laundering. Jurors convicted him on seven of nine counts, acquitting him on one count of extortion and one of money laundering.

D’Angelo Lee, 43, of Dallas and Los Angeles, a former pastor, Wall Street intern, self-styled real estate consultant -- and Hill’s right-hand man. In 2003, Hill appointed Lee to the Dallas City Plan Commission.

What prosecutors said: Lee helped Hill pressure Potashnik and Fisher to hire Sheila Farrington -- then Hill's mistress, and now his wife -- as well as others. Lee also got kickbacks, and used his influence as a plan commissioner to attempt to buy the Lancaster Kiest shopping center through a shadow development firm he controlled, the LKC. He planned to share the million dollars he hoped to make off the deal with Hill.

What the defense said: Lee never sold his Plan Commission vote and was the victim of an overzealous informant, Fisher. The only pressure Lee put on developers was to hire local minority firms for their multimillion projects. The LKC deals did not come before Lee as a plan commissioner, so there was nothing wrong with his making money from them. Hill had no financial stake in the LKC.

What the jury said: Lee was charged with seven crimes — conspiracy to commit bribery; two counts of bribery; conspiracy to commit extortion; extortion; conspiracy to commit deprivation of honest services, and conspiracy to commit money laundering. He was found guilty on all counts. Jurors also were instructed to decide if Lee was entrapped. They said he as not.

Sheila Farrington Hill, 45, of Dallas. She was involved in real estate and political consulting, and was having an affair with Hill. They eventually married.

What prosecutors said: Farrington created a sham consulting business, Farrington and Associates, to launder bribes and extortion payments to Hill and Lee. She did no real work for the $14,000 a month that Potashnik’s firm paid her. Hill and Lee pressured Potashnik to hire Farrington, ostensibly to help provide social services at his affordable housing projects, even though already he had someone in his firm already doing that job. In wiretapped phone conversations, Hill and Farrington talked about withdrawals and deposits of hundreds of thousands of dollars in her business bank account.

What the defense said: Farrington did legitimate work for Potashnik, including attending meetings, helping establish social services, and working to lower crime at his complexes. Early on, no one -- including Potashnik -- knew that she and Hill were having an affair, so there was no reason for Potashnik to believe that Hill was pressuring him to hire Farrington. Hill never got any Farrington and Associates money.

What the jury said: Farrington was charged with six crimes — conspiracy to commit bribery; two counts of aiding and abetting in bribery; aiding and abetting in extortion; conspiracy to commit deprivation of honest services, and conspiracy to commit money laundering. She was convicted on five counts, and acquitted on one count of aiding and abetting in bribery.

Darren Reagan, 50, of DeSoto, chairman and CEO of the so-called Black State Employees Association of Texas. He recently served a year in federal prison on an unrelated conviction involving theft from the Dallas Housing Authority.

What prosecutors said: Reagan’s association represented no black state employees. It was a front for his shakedown schemes, which were well-known in certain quarters in the black community. About half of the $2 million the association took in from 2000 to 2005 was withdrawn in cash by Reagan, who used it to pay living expenses. On wiretaps, Reagan told Hill to pull Fisher’s items off the City Council agenda while Reagan made demands for more money from the developer. Reagan gave Hill $10,000, the same day he received twice that amount in extortion payments from Fisher.

What the defense said: Reagan was a civil rights activist whose group held banquets every year and awarded thousands of dollars in scholarships. He had a legitimate consulting contract with Fisher and did what he promised: helped Fisher find black contractors to meet his minority hiring requirements. The $10,000 he gave Hill was a campaign contribution.

What the jury said: Reagan was charged with four crimes — conspiracy to commit extortion; two counts of aiding and abetting extortion and conspiracy to commit money laundering. He was convicted of conspiracy to commit extortion and one count of aiding and abetting extortion and acquitted on one count of aiding and abetting in extortion and conspiracy to commit money laundering.

Rickey Robertson, 43, of Cedar Hill, a car dealer and homebuilder.

What prosecutors said: Robertson formed a sham construction firm, RA-MILL, in a secret partnership with Lee and tried to get Fisher to award it subcontracts, even though Robertson was unqualified to do commercial work. Robertson bought a silver 1998 BMW 740i that Hill drove. He bought the luxury car with bribe money Farrington had gotten from Potashnik.

What the defense said: Robertson was an experienced builder who wanted to break into commercial work. He formed RA-MILL to make that happen. The company was legitimate: It had an office and at least two other employees. Robertson was not an elected official and therefore could not have exerted influence over Fisher. He had no idea where Farrington got the money for the BMW.

What the jury said: Robertson was accused of three crimes — conspiracy to commit bribery; conspiracy to commit extortion and conspiracy to commit money laundering. He was convicted of conspiracy to commit extortion and conspiracy to commit money laundering and acquitted of conspiracy to commit bribery;

Still to be tried

State Rep. Terri Hodge, 68, of Dallas, a Democrat representing Texas House District 100 who last year was re-elected to a seventh term. She is accused of getting a free apartment and new carpets from Potashnik in exchange for supporting his developments.

Ronald Slovacek, 41, a real estate developer from Denton County who sought construction subcontracts from the Potashniks and who, prosecutors say, funneled bribe payments to Hill and Lee.

Jibreel Rashad, 42, of Stafford, Texas, a real estate investor who partnered with Rickey Robertson to form RA-MILL and who, prosecutors say, sought sham subcontracts from Fisher and funneled bribes to Hill and Lee. In October 2007, Rashad was sentenced to 11 years in federal prison for mortgage fraud.

Pleaded guilty, awaiting sentencing

Brian Potashnik, 51, of Highland Park, founder of Southwest Housing Development Co, once one of Texas’ most prolific builders of apartments for low-income tenants and seniors. He cut a deal with prosecutors, agreeing to testify against others. He admitted funneling bribe payments to Hill and Lee by hiring their associates.

Cheryl Potashnik, 40, of Highland Park, the chief operating officer of Southwest Housing, founded by her husband, Brian. She has admitted helping her husband bribe State Rep.Terri Hodge.

Allen McGill, 66, of Dallas, the former president and vice chairman of Reagan’s Black State Employees Association of Texas. He pleaded guilty to working with Reagan to extort money from Fisher on behalf of Hill and Lee.

Andrea Spencer, 35, of Dallas, a real estate developer. She pleaded guilty to using her minority business certificate to get construction contracts with Potashnik and paying kickbacks to Hill and Lee.

John Lewis, 46, of Dallas, an attorney. He pleaded guilty to partnering with another defendant, Kevin Dean, to extort money from Fisher in Hill’s name.

Kevin Dean, 44, of Arlington, a former football player at Texas Christian University who joined the San Francisco 49ers for one season. He pleaded guilty to helping Lewis extort money from Fisher in Hill’s name.