Peggy Neely, Who Vows to Strengthen Ethics at Phoenix City Hall if Elected Mayor, Exhibited Questionable Ethics to Help Financially Friendly Developer. UPDATED With Links

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Phoenix mayoral candidate Peggy Neely pledges to rein in the influence of developers at City Hall to strengthen ethics in government -- but certain of her past actions as a public official don't conform with her new political message.

Especially the former councilwoman's dealings with CityNorth, a $1.8 billion mixed-use community in north Phoenix, and its Chicago-based developers, Thomas J. Klutznick Companies.

Neely was an early advocate for the nearly $100 million performance-based tax rebate deal that the Klutznick firm got from the city in exchange for public parking spaces in a CityNorth garage. And, these days, her longtime political consultant, Chuck Coughlin, is the same man who was on the Klutznick's payroll lobbying for the controversial tax incentive. 

Court and city documents obtained by New Times, dated between 2006 and 2010, offer a behind-the-scenes look at how Neely used her political muscle to pressure staff into helping the Klutznicks -- who contributed substantially to her political war chest.

The rare glimpse was made possible because of a lawsuit between two feuding developers.

Gray Development's Bruce Gray filed a lawsuit against Thomas J. Klutznick Companies in 2009, claiming (among other things) that the Klutznicks intentionally thwarted his efforts to build luxury apartments at Desert Ridge, another mixed-use development in north Phoenix that neighbors CityNorth.

As part of that legal action, attorneys deposed key figures -- including Neely, her staff, city planners, and the Klutznicks. They also subpoenaed internal e-mails and reams of other documents.

The crux of the case is that, as master developers at Desert Ridge, the Klutznicks had control over the projects that took root in that 5,700-acre north Phoenix complex that features living spaces, shopping, dining, and entertainment.

The Klutznick brothers, John and Daniel, also were developers of neighboring CityNorth, and they had plans of their own to incorporate posh homes in their development. In an attempt to block the potential competition from Gray, the brothers wouldn't grant approval for his project.

And the Klutznicks worked in tandem with then-Councilwoman Neely to frustrate his attempt to get city approval for his project with 1,162 residential units. Instead, they wanted to cap him at 882.

"Someone had to stand up for the residents," Neely tells New Times, in an attempt to explain her opposition to Gray's project. "We worked with Gray Development to find a way to make sure the neighborhood was protected."

She refers to concerns of some Desert Ridge residents about an increase in traffic that the additional 280 units would generate. 

In July 2010, a jury sided with Gray and awarded him a $110 million judgment.

But before that landmark award, as Gray's plans moved through the city's planning process, Neely kept the Klutznicks apprised of his movements within City Hall.

Depositions from Neely and her assistants reveal that they used their personal e-mail addresses to forward internal e-mails regarding Gray to the Klutznicks -- a surefire way to keep the exchanges out of public view. (View e-mails forwarded to the Klutnicks from Neely's office: One. Two.)

In her deposition, Neely claimed that using the city's e-mail system outside of City Hall was "cumbersome" and that such e-mails were "next to impossible to send."

But Neely's assistant, Sarah Dobbins, forwarded e-mails that Neely wanted her to send to the Klutznicks, first from her city account to her personal Yahoo account and then to the Klutznicks. That is, she took the extra step even though she could have sent them easily from her city account.

Despite Neely's calls for "transparency" in city government, the way she and her staff operated almost guaranteed that the e-mails would not be discovered during a public-records request. But it couldn't shield them from a court-ordered subpoena, which is how they were eventually revealed.

As they used private e-mail accounts, Neely's staff members were instructed to use a special code to alert Neely that she had mail waiting for her.

The Arizona Republic reported on that system in 2007, noting that "the protocol tells staff members that after forwarding messages to the AOL account, they should send a subsequent message to peggy.neely@phoenix.gov with the code phrase 'just touching base. see ss.' That told Neely to check the AOL account."

In Dobbins' 2009 deposition, she confirmed that was how business was being done. (View excerpts from the deposition.)

When Gray requested information from the city Planning Department, Neely forwarded an e-mail to John Klutznick that she received from the director of the city's Development Services Department. When Neely wrote a memo to a deputy city manager asking him to revisit development fees that the Klutznicks were expected to pay, she passed that along to the developer. When Gray hired a public-relations firm, she also fired off an e-mail giving the Klutznicks a heads-up.

(Read e-mails that detail exchanges the Klutznicks' had with Neely and her office. One. Two. Three.)

Her involvement didn't end there.

Before Gray's proposal went before the Phoenix Planning Commission on April 5, 2006, Gray and commissioners asked for a legal opinion from the City Attorney on whether Gray had a legal right to develop 1,162 housing units he was requesting.

Apparently, Gray did have a legal right to those units, but the attorney's opinion was never made public.

On March 31, 2006, Daniel Klutznick wrote in an e-mail that he "spoke with the councilwoman's office and...confirmed that the city attorney will not be putting forth an opinion on the approval process as requested by Gray at the last meeting." (View Klutznick's e-mail.)

When the case between Gray and the Klutznicks went to trial, Daniel Klutznick's testimony reveals that Neely told him it wouldn't be public.

"It is true that no written city attorney opinion was ever issued, correct?" Gray's attorney asked Daniel Klutznick.

"Never one that I saw," he replied

"And that was consistent with what Councilwoman Neely had told [you], right, that no city attorney opinion would be issued?"

"I think that's what I relayed here," Klutznick said, referring to the March 2006 e-mail. "But, yes, that's what she told me."

When, for a moment, Klutznick suspected that the legal opinion was going to come out -- and in favor of Gray -- he called Neely, according to his testimony.

"And then you called Councilwoman Neely to say...'I thought you told me that the city attorney wasn't going to issue a report,' right?" Gray's attorney asked Klutznick.

"I think that might be what I said," Klutznick replied. (View an excerpt from his testimony.)

Neely also urged staff to make decisions and recommendations that would benefit the Klutznicks, and put a financial crimp on their competitor, Gray.

"Peggy made it very clear that she is not going to assist Gray in any way," John Klutznick wrote in a January 2007 e-mail to his brother, Daniel, and others in his company. "She told Paul [Katsenes] that she would not lock 2003 rates for Gray but asked Paul to find a way to assist 'the Klutznicks' with impact fees."

Katsenes was the assistant director of Phoenix's Community and Economic Development Department at the time. Also, the city's impact fees, charged to developers to cover growth-related costs, were about to increase. Gray wanted to be locked in at the lower 2003 rate.

Neely wasn't going to let that happen. She made calls to planning and economic development staff to make sure the Klutznicks were given extra considerations.

Klutznick also wrote that she wanted to find a "way to help us, and she asked Paul to find a solution." In that same e-mail, she suggested how the Klutznicks could make the planning staff "move more urgently" on their project.

"She suggested that we bring Grady [Gammage] to our next Development Agreement discussion (the staff respects him and would move more urgently)," Klutznick wrote. (View the e-mail.)

Gammage is a well-known attorney and real estate developer in Phoenix.

Along with the City Attorney's legal opinion that, according to court records, was favorable to Gray's proposal, the city planners also were aboard with his proposal. They recommended supporting his project with more than 1,100 residential units, instead of capping him at 882.

Planning Director Debra Stark testified in her deposition that she received several calls about the planning staff's recommendation, including some from Neely. She testified in 2010 that she felt a lot of "pressure from all different groups," which resulted in her reversing her staff's position.

She acknowledged that this reversal had nothing to do with finding any flaws in Gray's plan, only that she felt "pressure."

And during the Gray/Klutznick civil trial, Gray's lawyer asked, "And from a conversation that you had with Councilwoman Neely...she expressed to you that she hoped that you would revisit the staff's initial determination, correct?"

Stark agreed that Neely had done just that.

Neely admits to New Times that she raised questions about the staff's recommending approval of Gray's larger project. "But if "they didn't agree with me, they could have left it the way it was," she says.

But Stark, feeling that "pressure," issued her new staff recommendation -- dumping Gray's larger project -- in less than 24 hours.

Another city planner said he, too, felt "pressure" and believed that politics played a part in the city's about-face.

As she was helping out the Klutznicks, they were generously funding projects in her district, sponsoring events she was hosting, and even rounding up contributions for her re-election campaign.

And in the middle of the back-scratching stood Chuck Coughlin. While a political adviser to Neely, he lobbied on behalf of the Klutznicks' interest in CityNorth, creating a situation where one of his clients was supporting the other.

The Klutznicks donated nearly $30,000 to her campaign between 2005 and 2009, a bulk of the money coming during time periods that overlap with her helping them by tossing obstacles in front of their competition.

During his deposition in late September 2009, John Klutznick revealed that Neely solicited money from his company.

About her requests for money, he said, "What has come up recently is her fundraising for her reelection." He referred to conversations he'd had with Neely in 2009, the year that she was running to keep her council seat in District 2.

Campaign finance reports show that both John and Daniel Klutznick gave Neely the maximum donations allowed by law. Their spouses and relatives also kicked in max amounts, as did employees of companies associated with CityNorth, such as architectural, engineering, and construction firms.

John Klutznick testified that he personally sent e-mails requesting money for Neely and that the developer's Phoenix office would forward them to her re-election campaign.

He said Neely also contacted him to ask for money for additional soccer fields at the Reach 11 complex, a project that the self-proclaimed soccer mom promoted extensively.

Neely now dismisses both the Klutznicks and Gray as "greedy developers," saying she's moved on to the lofty pursuit of running for mayor.

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