Selective Ethics

Eleven months ago, when he could still be depended upon to voice an independent thought, Lloyd Kelley dismissed the city's Ethics Committee as a colossal waste of time and money.

"If they are that ineffective," the then-councilman remarked to the Press, "I'm not going to spend a dime on them. Selective ethics is worse than no ethics at all."

Funny how a man who once offered his opinion in the interest of a solution can so easily become part of the problem.

In keeping with what we already know about Lloyd Kelley -- that he's aprincipled, overtly ambitious and politically vindictive -- the mutation has been anything but subtle.

His transformation started shortly after Kelley offered the above assessment of the Ethics Committee. It was completed when, a week after being sworn in as city controller on January 2, Kelley appeared before the very same committee to answer charges that he used his influence while on Council to block the demolition of a dilapidated Woodland Heights house that he and his wife now plan to make their home.

When the two-day hearing was over, Kelley had been cleared of any wrongdoing. But as one observer commented, a "web of mystery" remains, and the hearing, which resulted from a complaint lodged by an irate Woodlands Heights homeowner, raised as many questions as it answered.

Let's begin with how it is that Kelley slipped the net that snared Bill Stephens, his friend and former Council aide who was recently appointed a deputy to the new controller.

In November 1994, Stephens began requesting and receiving extensions to the demolition order from the city's Neighborhood Protection office. Stephens, who at the time shared law office space with Kelley while earning $20 an hour as Kelley's part-time Council aide, told the committee that he did so on behalf of a legal client, Solomon Ventures. He testified that the firm hired him to help extract the two-story brick house from the bankrupt estate of crooked real estate wheeler-dealer and jailhouse suicide J.R. McConnell.

Stephens' part in the Woodland Heights affair was a no-brainer for the committee, which found that the Kelley aide had violated the provision of the city's Ethics Code that prohibits salaried city employees from representing outside interests before city agencies. In the final report it will issue on the hearing, the basically powerless committee could recommend anything from a reprimand of Stephens to (but highly unlikely) termination of his city employment.

But what of Kelley? He was also employed as an attorney for Solomon Ventures, ostensibly to clear up some 40 liens that blocked clear title to the Woodland Heights property. But in testifying to the committee last week, Kelley admitted that his real estate expertise was limited to a "special interest" in law school and a clerkship in the real estate section at Vinson & Elkins. In other words, Solomon Ventures hired someone with almost no pertinent experience to work on the McConnell estate, one of the most dauntingly complex bankruptcy cases in Harris County history. Someone who happened to be an at-large city councilman, that is.

Though it's unclear why or even when Kelley began work for Solomon Ventures, he did not restrict his efforts to the courthouse. In March 1994, he appeared at a city Building and Standards Commission hearing and, on someone's behalf, tried to discourage demolition of the Woodland Heights property.

"I've gotten calls ... from people who are interested in buying it, and they can't," Kelley told the building commission. "I guess you're ready to proceed with demolition, and I don't know how that fits in, but I know that there are people who are interested in purchasing the property to do something with it. To me, that is preferable to simply demolishing it. How long it's going to take, I don't know. I know they're not prepared today."

Apparently, committee members saw no connection between Kelley's attempt to dissuade one city agency from ordering the demolition and Stephens' later efforts to get another to delay it. That's odd, for several reasons.

First, Stephens' violation of the Ethics Code successfully held off the wrecking ball to save a house that Lloyd Kelley is now in the process of buying, with plans to renovate and move into it with his wife. But Kelley testified last week that he would have never signed the contract to buy the house unless he could get clear title. That title would be useless, had Stephens not received the extensions; without them, the building would have been demolished.

Second, curiously enough, Kelley dodged any discussion last week of his fee arrangement with Solomon Ventures. When the new controller was asked by the committee if he billed the company for his services, Ron Cohen, Solomon Ventures' legal counsel, objected. "That's none of the committee's business," he snapped. It was never revealed how Kelley was compensated for his services. Stephens, however, admitted that his fees would come from any profit Solomon Ventures made on the sale of the property.

Finally, the January 8-9 hearing would have been unnecessary if the original building commission order had followed its normal course to demolition. According to the commission's published rules, there are only two ways to amend a demolition order: a district court ruling or an appeal to the commission filed by the city. Building owners or interested parties must request one hearing or the other within 30 days of the original order. Neither was ever sought.

Instead, Stephens took his case to the Neighborhood Protection Division, which was created by a Council committee of which Kelley was a member. Neighborhood Protection has aggressively administered the city's new Building Standards Code -- so aggressively that the city is now spending three times as much on building demolitions than it was prior to the division's creation.

But for some reason, the agency failed to pursue this particular demolition with its usual zeal. Six months after the 30-day demolition order had expired, Stephens walked into Neighborhood Protection offices, was granted a waiver of the standard $2,200 bond required in case the city has to tear the building down itself and took out the first of a half-dozen extensions.

Kelley claims he "never dealt" with the city agency. He did, however, admit to having several conversations about the dangerous building process with the agency's assistant director, Bea Link. Moreover, Kelley's name turned up in Neighborhood Protection files at least once as a contact person regarding the building.

Stephens testified that he never used his friendship with Kelley or his employment in the councilman's office as leverage to get the extensions. But he might have difficulty saying the same about his effort to get dumpster service from a city contractor.

According to the testimony last week of Don Fitch, waste hauler BFI's liaison to Council, Stephens called his office in November 1994 to arrange for dumpsters to be delivered to the Woodland Heights property. Fitch said that while he was never told Kelley owned the property, the councilman's name "was mentioned in connection with the request for services."

Stephens, Fitch recalled, claimed the property was "historic" -- a distortion of the truth, since the state agency in charge of such designations had already ruled the house did not qualify. Fitch testified that while he was never asked outright for free services, Stephens' description of the Woodland Heights project led him to believe it was "community service."

"When someone calls from a councilmember's office and says it's a historic site," Fitch explained, "it's our policy to try and help however we can."

Fitch reached a different conclusion when the bills started rolling in. After the first two invoices, which Fitch said "were billed to me," he determined that "this was not a charitable project." He called Stephens, and subsequent bills were sent to Kelley's law firm. Yet, Fitch testified, BFI was not paid for its services -- some $2,900 in hauling charges -- until months later.

"There was some dispute over the bill," Fitch said. "Finally, we were able to collect payment."

Even though it appears that Stephens, at least at first, had accepted free services from a city contractor, the Ethics Committee decided that neither the Council aide nor Kelley had requested them. Unfortunately for Stephens, the Ethics Code wasn't so unequivocal on the charge that he represented a legal client on city business while in the employ of an elected official. Even so, one committee member voted to clear him.

Committee member Sidney Buchanan ruled with the majority against Stephens. Nevertheless, Buchanan wasn't convinced that Stephens had "any particular malevolent purpose" in mind. Buchanan also admitted that the evidence on whether Kelley committed the same violation as Stephens was inconclusive.

"I suppose, technically, you could argue that he was representing Solomon Ventures" before the building commission, Buchanan acknowledged. "But he appeared more or less as an interested citizen just to kind of know what's going on. It's a close call, but that was the thinking there."

Perhaps that kind of thinking -- incongruous -- drove Lloyd Kelley to rip the ethics panel last February. Kelley's use of the term "selective ethics" certainly seems to apply to last week's rulings. After all, Stephens was just doing his job, whether it was as an attorney for Solomon Ventures or as an aide to a city councilman. But to date, the only person who has clearly benefited is Lloyd Kelley, who, as soon as a few loose ends are tied up, will have himself a new fixer-upper in the Woodland Heights.

"Selective" might also be used to describe when and under what circumstances Lloyd Kelley chooses to criticize the functions of official city watchdogs.

Last year at this time, Kelley was pushing for a hearing into contract-steering allegations against former city attorney Ben Hall. The matter had already been reviewed by two Harris County grand juries, which took no action, and the Houston Police Department's Public Integrity Review Group, which found the accusation unfounded.

Yet Kelley was upset that the Ethics Committee refused to consider the allegations until Hall had already left City Hall for private law practice. Of course, Hall is almost as politically ambitious as Kelley, and, as a high-profile African-American, might be a good bit more viable. A juicy ethics scandal would be the perfect way to level the playing field.

Compare Kelley's outrage over Hall's alleged behavior to his reaction to the Municipal Collections debacle in his first few weeks as controller. An audit by recently departed controller -- and possible 1997 mayoral candidate -- George Greanias found that the firm, owned by a friend of and campaign worker for Mayor Bob Lanier, had been overpaid as much as $1 million while collecting delinquent traffic fines for the city. Many questions remain about how the company got the contract -- enough, at least, to draw the FBI into the picture. But Kelley, who was elected controller thanks to the largess of Lanier's circle of big-money supporters, saw no reason to risk elevating Greanias' profile by calling in the Ethics Committee to attempt to answer those questions.

Instead, he has declared that Greanias' audit is wrong, and as the city's new financial watchdog, he won't waste his time continuing his predecessor's pursuit of the $1 million overpayment. Kelley also plans to write off about $450,000 that, according to Greanias' audit, was paid to a Municipal Collections' subcontractor that did little or no work.

With political considerations the driving force in the Kelley transition, it's no wonder that the controller's office has become anxiety central. A week and a half after taking office, Kelley cut 11 staff positions, including six employees hired within the last year, and brought on ten of his own people. The new controller is also planning to roll back about $200,000 in raises Greanias awarded to more than 40 employees in the past year.

Kelley did not return calls for comment. But a spokesman for the controller argued that "you have to look at the big picture" to understand what's going on.

"There are a lot of things that will bear out over time that will show we have to move in a new direction in order to meet the demands of the 21st century," declared A.J. Thomas, who apparently was called upon to speak for Kelley because of a talent for doling out such drivel with a straight face. "It's all part of the process of reinventing government."

If Kelley's personnel decisions are the first step to reinventing the controller's office, he'd better look again -- or come up with a better way of explaining it. Thomas, with as much outrage as he could muster, suggested that Greanias had somehow been remiss in filling only 105 of the 117 positions for which the controller's office is funded. Greanias apparently opted to leave 12 high-paying executive level positions open and used those salaries to fund pay raises and an incentive program for his trimmed-down rank-and-file staff.

To the untrained eye, that might seem like efficient and fat-free management. Not so, Thomas said. Greanias' pay raises were "ridiculous," he said, and Kelley believes "the justification for [the raises] was not there." Thomas offered no insight into how Kelley thought himself qualified to make that determination. But he claimed that Kelley had discovered Greanias was over budget, and that if changes weren't made, the new controller would have had to ask Council for more money.

"Unacceptable," said Thomas.
The problem with that explanation is that according to a Peat Marwick report timed to Greanias' departure, the former controller's expenditures were in line with his department's actual fiscal year budget. They also were consistent with what Greanias spent over the same period last year.

The real trouble with Greanias' personnel policy appears to be that it complicated Kelley's hiring decisions. "In essence, it tied Kelley's hands because he couldn't bring on anybody that he felt he needed to bring on," Thomas explained.

If Kelley had simply said that, instead of fabricating charges of mismanagement against the former controller, the air wouldn't be so foul on the third floor of the City Hall Annex. As it is now, a couple of Greanias-hired staffers who so far have survived the transition have stopped dodging the rolling heads long enough to register their displeasure with Kelley.

Some of the gripes are petty, such as the charge that Kelley has commandeered the employees' refrigerator for "executive use only." More disconcerting is the revelation that Kelley plans to construct a wall around the cluster of offices occupied by him and his key advisors. While Greanias ran an open and amiable ship, the fear is that Kelley is preparing to set full sail on his future political career, a journey that demands a degree of insulation from the hoi polloi.

Then there is Kelley's own personnel policy. One source in the controller's office, who understandably didn't want to be identified, says that the salaries paid to Kelley's ten new hires cancel any savings realized by his staff cuts.

The Press tried to get that information from Kelley himself, but in keeping with his "reinventing government" theme, perhaps, the new controller wasn't cooperating. Thomas said he did not have the exact figures on the salaries earned by Kelley's new employees, deemed his own pay "irrelevant" to the discussion and mumbled something about it all being public record.

Thomas' obstinacy receded when reminded that taxpayers pay the salaries of city employees, and they have a right to know how deeply guys like Bill Stephens are dipping into their pockets. But, at press time, he hadn't yet fulfilled his promise to retrieve the information.

According to our source, though, the new controller isn't the cost cutter he makes himself out to be. He may have cut raises and laid off moderately paid administrative assistants, but any real savings went out the door with the $470,000 Kelley is paying the ten new people he's brought on board.

The highest paid are the two newly appointed deputy controllers, David Hagy and Bill Stephens. Both are earning $75,000 a year. Compare that to the $90,000 paid to Greanias' lone deputy, who left last July for another job. Rather than hire a new one, Greanias used the salary for incentive pay. But the former Council aides probably deserve to move up in the world. Leading up to Kelley's election in November, they were spending more time on the campaign trail on their boss' behalf than at City Hall.

And more changes are on the horizon, some significant. For example, Kelley is considering getting rid of the internal audit division, a key function of the controller's office.

But not to worry, Thomas says. With the 21st century fast approaching, Lloyd Kelley is in control. "It's all part of the process; it's all part of reinventing government," he says.


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