College of Business Administration

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Philip J. LaVelle and Anthony Millican

Stallings' stock deal big trouble for ballpark | Issuing bonds nearly impossible with investigations under way

The already troubled downtown ballpark project is facing a new and potentially shattering complication: fallout from City Councilwoman Valerie Stallings' trading in the stock of a company headed by Padres owner John Moores.

Stallings' trades last year in Texas-based Neon Systems, a software company, are being investigated by the district attorney and the U.S. attorney.

It is virtually impossible for the city to issue up to $299 million in bonds to help finance the ballpark as long as a criminal probe is under way. Moreover, in a worst-case scenario, California law could render invalid all the council's ballpark votes since March 5, 1999, when Stallings was cut in on Neon's initial public offering.

She sold her shares 26 days later at the stock's all-time high price, the same day she joined a unanimous council vote to keep the $1 billion ballpark-and-redevelopment project on track.

City lawyers and outside bond counsel are studying whether Stallings' activities have tainted the council's ballpark votes.

The cure for that would be to deliberate and vote again.

But Section 1090 of the California Government Code has been interpreted to mean that those new deliberations could not take place unless the offending official leaves office.

The law is designed to address financial conflicts of interest "which would prevent officials from exercising absolute loyalty and undivided allegiance in furthering the best interests of their public agencies," according to a 1998 California Attorney General's Office memo.

"I don't see a problem under 1090, based on what I know," Assistant City Attorney Les Girard said yesterday, echoing an earlier opinion from City Attorney Casey Gwinn that Stallings had no direct conflict of interest since her ballpark vote benefited the Padres, not Neon Systems.

Stallings declined to be interviewed yesterday, but her office released a prepared statement: "I look forward to participating in any investigation so that I can clear my name. All these questions will then be laid to rest."

Stallings did not attend a closed session meeting last month at which the rest of the council was briefed by lawyers on potential problems stemming from her conduct.

Mayor Susan Golding declined to discuss specifics of that briefing.

"(But) I know enough about the bond market to know that there probably wouldn't be a market for the bonds," she said. "Are you going to buy a bond when you don't even know if the votes are valid?"

This is the latest roadblock to public financing of the project, approved by voters as Proposition C in 1998.

UCSD political scientist Steve Erie said the Stallings problem comes at a particularly bad time.

"It creates more uncertainty at a time when financing on Wall Street is becoming increasingly fickle," he said. "Rising interest rates make it much more difficult to finance big-ticket projects, and delays are much more costly than a year ago."

Other complications include 11 anti-ballpark lawsuits, won at Superior Court by the city but currently on appeal.

In addition, a proposed hotel on the former Campbell Industries shipyard is well behind schedule. It is being counted on to generate room-tax revenue necessary to help repay the ballpark bonds once they are issued.

"Would we issue bonds with 11 court cases on appeal?" Golding asked. "My answer is . . . we have never done it before. No city in California has done it."

The 46,000-capacity ballpark was planned to be ready by opening day 2002. Structures on the East Village site have been cleared, but heavy construction is awaiting financing from the city, forcing the Padres to recalculate their plans.

Padres President Larry Lucchino yesterday predicted the ballpark still could open by May or June 2002, but conceded that the Stallings matter is another setback.

"I would certainly acknowledge that additional delays are possible, perhaps even probable . . . particularly if (former Councilman) Bruce Henderson decides to file lawsuit No. 12 against the project," Lucchino said.

"But I do think we should keep our eyes on the goal here and also remember the voters' mandate. The voters told us to get it done and get it done as soon as possible."

Padres Executive Vice President Jack McGrory said project expenditures to date by the city, the Padres and private developers are "well north of $100 million."

How much the Stallings matter adds to the delays remains to be seen.

"As we sit here today," the city's Girard explained, "there's been no determination of wrongdoing -- no indictment, no trial, no conviction. However, there are these investigations under way, and we are continuing to analyze the situation. We are looking at the potential impact. We may conclude that there is no impact, and we're free to move ahead."

Some at City Hall share Lucchino's concern that Henderson, who has launched much of the anti-ballpark litigation now on appeal, may file a lawsuit alleging that Stallings had a conflict of interest that tainted the council's ballpark votes.

Henderson said yesterday he is awaiting the outcome of the criminal probe.

Copyright Union-Tribune Publishing Co.

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