Councilman Eric Garcetti long ago conceded that he made a mistake when he voted for a legal settlement that allowed Clear Channel Outdoor and CBS Outdoor to erect 420 digital billboards apiece across the city.
The vote was one of the bigger debacles of Garcetti's reign as city council president. Residents hated the digital signs, and a judge later voided the agreement because it violated the city's own laws.
But Garcetti — who is one of the top contenders for L.A. mayor — has not acknowledged that, in addition to his vote being a mistake, it was also a mistake for him to have voted at all.
At the time, Garcetti owned 200 shares of Clear Channel Communications, which created a conflict of interest, according to Fair Political Practices Commission regulations.
The 2006 settlement was a windfall for Clear Channel and CBS Outdoor, giving them the exclusive right to put up digital signs in Los Angeles. Clear Channel was able to put up 85 signs, and CBS an additional 20 signs, before the city reversed course and stopped issuing permits.
Under the Political Reform Act, a government official may not participate in a decision if it would affect his own financial interests in a reasonably foreseeable way.
In this case, Garcetti declared ownership of Clear Channel stock valued at $2,000 to $10,000 on his disclosure statement for 2006. In such a circumstance, FPPC regulations provide that a conflict exists only if the decision would have an effect of greater than $10 million on the company's revenues, or greater than $2.5 million on the company's expenses.
Phil Recht, an attorney for a third billboard company, estimates that Clear Channel's revenue from its 85 digital billboards is in the vicinity of $100 million a year. Recht's client, Summit Media, sued to overturn the settlement on the grounds that it created an illegal monopoly for digital signs.
“They're so unbelievably lucrative,” Recht said. “To have a monopoly in this town — with no competition, none — is unbelievably valuable.”
In Los Angeles, the city attorney's office is tasked with advising council members on whether they have a conflict of interest. Garcetti did not seek an opinion from the city attorney before the vote, his spokesman said.
“Knowing what he knows now, he would have consulted with the city attorney, and followed the city attorney's recommendation on recusal,” said the spokesman, Jeff Millman.
Frank Mateljan, the city attorney's spokesman, declined to comment on the Clear Channel issue. However, he did provide a 2009 advice letter it sent to the Board of Airport Commissioners, which related to a similar set of circumstances.
In that case, Commissioner Chris Essel asked whether she could participate in discussions about whether to sue financial institutions, including J.P. Morgan, given that she owned more than $2,000 in J.P. Morgan stock. The city attorney's office advised Essel not to participate, due to a “reasonable likelihood” that the cost of the litigation to J.P. Morgan would exceed the FPPC's threshold.
In Garcetti's defense, Millman said the councilman was unaware in 2006 that he had a financial interest in Clear Channel Outdoor, which is a Clear Channel Communications subsidiary. (Garcetti donated the Clear Channel stock to charity the following year.)
“Under state law, a public official must know or have reason to know that he has a financial interest in a matter for a conflict of interest to arise,” Millman said in a prepared statement. “Because Eric did not hold stock in Clear Channel Outdoor, he didn't know or have any reason to know that he had a financial interest.”
Controller Wendy Greuel, Garcetti's top rival in the March 5 mayoral primary, challenged that assertion through her spokesman.
“This is worse than when Mitt Romney said he had nothing to do with Bain Capital's layoffs and outsourcing of hundreds and hundreds of American jobs, even though he held millions of dollars of investments at Bain,” said Dave Jacobson, Greuel's spokesman. “The fact is, there is no daylight between Clear Channel Outdoor and Clear Channel Communications. They're apples to apples–not apples to oranges.”
In 2005, Clear Channel Outdoor put 10% of its stock up for sale at a public offering. However, Clear Channel Communications retained an 89% stake in the billboard company, according to its SEC filings.
“Eric was not aware that Clear Channel Communications retained any control of Clear Channel Outdoor,” Millman said in the statement. “As is his practice, Eric cast his vote based on the public's best interest, informed by the City Attorney's strong recommendation to the City Council.”
The city attorney at the time, Rocky Delgadillo, was indeed pushing strongly for the settlement. Clear Channel was one of Delgadillo's major contributors. In 2001, Clear Channel Outdoor — which was then known as Eller Media — spent $301,000 on an independent campaign to get Delgadillo elected.
Clear Channel Outdoor also donated $500 — which was then the maximum allowed — to Garcetti's officeholder account on the day before the council voted on the 2006 settlement. The council voted 12-0 to support the settlement. (Greuel, who was then a councilwoman, was absent from that vote, though she did vote for a subsequent agreement allowing a smaller company, Regency Outdoor, to get digital signs.)
Summit won a favorable verdict at the trial court in 2009, overturning the settlement and stripping Clear Channel and CBS of the right to have digital billboards. An appellate court recently upheld that verdict, and the two sign companies are now preparing to appeal to the state Supreme Court. Summit is now trying to get them to remove the 100 digital signs that have already been installed.
Shortly after the trial court verdict, Garcetti acknowledged that his support for the settlement was a mistake. Since then, having heard an earful of abuse from his constituents, he has become an opponent of digital signs.
When the council last fall considered a motion to allow the 100 signs to stay in place, Garcetti was one of just three council members who voted no.
Clear Channel is now engaged in a public campaign to keep its digital signs, and their future remains in doubt.