Five years ago Maricopa County residents momentarily set aside their hatred of taxes to finance a spectacular network of freeways. Terminally disgusted with the Valley's podunk street system, voters approved a half-cent sales tax intended to raise $3 billion with which to build the 231- mile system.
And thereby made the Arizona Department of Transportation, which handles those revenues, the fattest goose in state government.
This fact was not lost on anyone, least of all the owners of large land holdings in the freeway corridors. Within months of starting work on its huge new freeway system, ADOT began hemorrhaging money.
Put simply, the state--and taxpayers--are getting killed in condemnation lawsuits over land for the new roads, while landowners benefit from a long tradition of legislation and case law sympathetic to private property. The problem is big enough, say agency officials, that essential stretches of the freeway system are now uncertain to be completed.
"We're spending twice what we'd expected on land acquisition," laments Charles Miller, director of ADOT. "Something has to be done to make this a more equitable system."
Charlie Miller's latest effort to solve the dilemma, however, bares the agency's plump thigh to yet another plucking--this time from one of its own consultants. Acting on the recommendation of granddaddy lobbyist Jack DeBolske, executive director of the Arizona League of Cities and Towns, Miller recently gave two lucrative contracts to Bill Stephens, a onetime Democratic party golden boy and long-time DeBolske crony, to help the state acquire land.
In doing so, Miller by-passed usual ADOT hiring procedures and his own top assistants, who've been scrambling to assemble an effective defense strategy against the agency's huge losses in condemnation court. He authorized his agency to pay hundreds of thousands of dollars from land- acquisition funds to Stephens, whose law firm does not even list eminent domain law (the focus of condemnation suits) among its specialties.
Stephens' contract for legal services--services that usually are handled in-house by ADOT's team of lawyers from the Attorney General's Office--calls for him to be paid on an hourly basis and does not contain a cap on the amount of hours he can charge. The second contract, which was hastily canceled last month shortly after New Times' inquiries, called for Stephens to receive $450,000 in ADOT funds to set up a computerized database to aid him in the pursuit of his efforts.
Miller says he hired Stephens "based on his expertise and success in this area" and hopes Stephens will "plow new ground" in condemnation law, saving the taxpayers millions of dollars in the process.
"As I understand it, he's had good success using expert witnesses in this area," Miller says.
Bill Stephens' personal experience litigating condemnation cases before juries--where ADOT has been suffering its main damage--is limited to one lawsuit in the past decade. Stephens says that he has supervised the work of younger lawyers who handled condemnation cases in the past, and that those cases "all turned out fairly well." Phoenix attorney Bob Kerrick, who represents numerous landowners in condemnation suits, says that, in his opinion, the Stephens-ADOT agreement is "clearly a good ol' boy contract."
Stephens, a former legislator, denies he got his ADOT contracts through political connections, saying, "[Attorney General] Bob Corbin is a Republican. [Corbin aide] Steve Twist is a Republican. I don't know what the politics of Charlie or Jack are. I doubt Jack would be party to such a deal. As far as my political power goes, that's an illusion, too. I'm no longer involved in politics."
As to whether he thinks he has the expertise for the ADOT work, Stephens, who has built his law practice around well-paying government contracts, downplays his limited experience in condemnation law. "There's nothing terribly unique about condemnation law," Stephens says, citing his successful history of water-rights disputes. "I would characterize our main qualification as the experience of this law firm in handling complex and fairly novel legal questions."
Meanwhile, the state's top condemnation lawyers pricked up their ears as word of Stephens' deal hit the streets; their reaction is one of hungry anticipation. "How are they going to use him?" Kerrick wants to know. "Are they going to send him up against someone who doesn't know what they are doing, or against one of us?" In Kerrick's opinion, Stephens has been less than a raging success in condemnation cases. "He's gotten his brains beat out," says Kerrick.
Stephens contends that his firm successfully represented the city of Phoenix in the largest water-company condemnation case in state history and says, "Collectively, our firm has handled these matters quite successfully."
Court records suggest otherwise.
CHARLIE MILLER IS a frustrated man. Since the 1985 freeway vote, his agency has spent more than $400 million just to buy land. The toughest part of the problem, he claims, is that Arizona's condemnation law and past court decisions hamstring ADOT efforts to strike a fair bargain on behalf of the taxpayers.
Miller has tried repeatedly to get the state legislature to amend the state law, which favors property owners, but each effort has withered in the face of powerful opposition from chambers of commerce, condemnation lawyers and other private-property interests.
Land-acquisition costs have been running so far over estimated levels that ADOT officials now predict that construction costs for the entire system will be around $6 billion--about twice the original projected cost. At the same time, sales tax revenues have dipped as the economy slowed.
The result has been construction delays and worry among state officials that some portions of the system won't be built unless additional funding is found--or costs are cut.
As Miller tells it, he got the idea to hire Stephens after talking with lobbyist DeBolske, who has worked closely with ADOT in the past. Miller says he got to thinking, "If we can't do it legislatively, maybe we can do it in court."
Miller's in-house legal staff of twelve assistant attorneys general includes some of the state's most experienced condemnation lawyers. But, he says that at DeBolske's instigation, he decided to hire Stephens under a special contract--the first time in 25 years ADOT has hired outside counsel to do condemnation work. "He recommended I consider going to outside counsel, someone who'd had success and experience in this area," Miller says. "He recommended Bill Stephens."
Stephens and DeBolske. The names epitomize what the words "political connection" mean in Arizona. DeBolske, a thirty-year veteran of state politics, is the unofficial dean of the State Capitol lobbying corps. Stephens says the two have been friends since Stephens was elected to the state House of Representatives in 1956.
Stephens was a rising young star in the Democratic party in those years, a charming comer whose talents far outstripped his humble beginnings. Though barely past 25, the minimum age to hold the office, Stephens was elected to the House with strong support from Arizona's labor organizations.
In a few short years, he went from a blue-collar job at the now-closed Reynolds Aluminum plant to become county chairman for the Democratic party and House majority leader, a position he held for two years before leaving the legislature to pursue his education in 1962. "I left because I did not have a high school education," Stephens explains.
He subsequently earned a GED and then went to college on a Pulliam scholarship, bequeathed then as now by the owners of the Arizona Republic and the Phoenix Gazette. Stephens' friendship with DeBolske continued while DeBolske, as major domo for municipal interests at the Capitol, grew in political influence. In fact, Stephens confirms that it was DeBolske who first suggested he consider going to law school.
After law school, Stephens returned to Phoenix just as the era of water-resource management began making water law a profitable specialty, replete with cash-cow governmental clients. Stephens, with his extensive government contacts, made a smooth transition from politician to water lobbyist, serving as executive director and legal counsel for the Arizona Municipal Water Users Association (AMWUA) from 1969 to 1984.
Just how profitable Stephens found government work to be emerges in the pages of a 1983 deposition given by a former law partner, Jeremy Toles. Stephens' practice mushroomed as he began to represent AMWUA and a growing number of individual cities anxious to secure their future water supplies, Toles says in his deposition. Though only a few years out of law school, Stephens was raking in a six- figure annual income from his water clients while Toles, the other half of the practice, was bringing in only around $50,000 a year, the deposition says.
Although Stephens claims to be retired from politics, he remains close to the centers of power. For instance, a former associate, Fred Bockman, went directly from Stephens' law firm to a position on Governor Rose Mofford's transition team.
His brilliant rise notwithstanding, Stephens has been a mercurial and controversial figure. He is said to hate publicity--Stephens refused to be photographed by New Times, citing "security concerns" that he wouldn't explain--and one long-time associate describes him as "the ultimate back- room politician. He hates the spotlight."
Stephens' last two law partnerships dissolved amid bitter feuding according to court records. His most recent partnership, Stephens & Toles, ended in a crossfire of lawsuits. Toles, who claimed in his deposition that Stephens and an aide hid thousands of dollars due to Toles, was awarded $84,282 in damages by a jury in April 1985. Stephens has denied those allegations. After he appealed the award, the matter ended in a settlement, with both parties agreeing not to discuss it further.
Miller, however, says he was so impressed when he interviewed Stephens that he ordered his chief legal counsel, assistant attorney general James Redpath, to hire Stephens to acquire three chunks of land in the west Valley needed for the Outer Loop.
Stephens says he suggested, and received, the second contract to prepare a database for use in the cases. The state avoided submitting the contract for competitive bids through a technicality.
In fact, the hiring of Stephens on both contracts, which took effect in October, departed from the agency's usual procedure.
Adding to the questions surrounding this deal, Stephens billed ADOT for more than $150,000 within the first two months of signing his contracts, including more than $50,000 for work done before they were signed or in effect. The Attorney General's Office currently is reviewing the bills and has already rejected one $25,000 invoice, saying the state won't pay for work done outside a contract.
"I was under the impression we had a contract, so I billed them for that time," Stephens explains.
BILL STEPHENS HAS come under question on other occasions for his billing practices on government contracts, according to records of his previous legal work for the City of Phoenix and the Arizona Municipal Water Users Association.
Phoenix city attorney Rod McDougall says the city more than once returned Stephens' bills for additional documentation of the charges. "[Inadequate documentation] was a problem off and on," McDougall says. "There were some times when we refused to pay a charge, although I don't recall that large amounts of money were involved."
Among the charges Phoenix balked at paying was a bill for more than $27,000 in technical expenses that Stephens submitted to AMWUA in 1988. Phoenix and other AMWUA cities refused to pay it, arguing that they had not authorized the expenditures. Stephens eventually dropped the claim, saying he did not want to be "divisive," AMWUA records show.
McDougall says his office also investigated charges that Stephens may have overbilled his municipal clients, based on information Toles revealed in his deposition that Stephens sometimes would bill more than one client for the same time period. For instance, Stephens might spend ten hours at a water meeting and bill five client cities for five hours each, rather than for two hours each, Toles says in his deposition.
"We did not take action because our contract with him did not specify whether such a practice was allowed or not allowed," McDougall says.
Stephens says he billed his clients only for time that was relevant to their specific cases, adding, "It worked out to a low hourly rate for the individual cities. The end result was that these clients were billed less than were those represented by other firms."
Opposing lawyers in two condemnation cases cited by Stephens, however, cite several instances in which, they say, Stephens or his associates generated additional costs by causing unnecessary procedural delays.
"I don't recall the specific instances you're referring to, but I don't know how we could throw up obstacles since we represented the plaintiffs and it was our responsibility to move the cases forward," Stephens says.
In one instance, Stephens' firm spent six years working on a relatively small case, involving a piece of land the City of Phoenix needed for street improvements. Originally, the case was assigned to the city attorney's office, which negotiated a settlement of $180,000 in 1979. Phoenix street engineers, however, complained about the amount, and the case was turned over to Stephens' firm, which worked on it until 1986.
Shortly before the trial date, however, Stephens filed an eleventh-hour petition insisting on the need to introduce an additional expert witness. Maricopa County Superior Court Judge Frederick Martone threw out the request, saying "good cause [must] be shown to grant this sort of relief on the eve of trial . . . Plaintiff knew of its expert-witness problem but failed to file an appropriate motion until the eve of trial. The underlying circumstances suggest a lack of preparation."
The Phoenix City Council voted shortly thereafter to settle for $150,000. With the addition of interest and fees, required by state law, the total check to the property owner was $252,000. Stephens' legal fees for the case totaled an additional $81,000, McDougall says.
Court records compiled by the Trial Reporter, which publishes a twice- monthly compendium of all cases tried in Maricopa County, show that Stephens' firm tried only three condemnation cases, including the one in which he was personally involved, between 1980 and the present.
Stephens describes the outcome of the water-company condemnation he handled: "We had an appraisal for $25,200,000 and they asked for $39 million. The jury came in with a verdict of $25 million."
Court records describe a very different picture. Lawyers for the water company say Stephens, far from being the hero, had little direct involvement with the trial. "I don't recall him playing any major role," recalls Lex Smith, one of the lead trial lawyers for the water company owner. Stephens' assistant, no longer with his firm, handled most of the case, Smith says.
"The city had an appraisal for $25 million but Stephens, trying to advance an alternative theory, argued for around $7 million," says Steve Hirsch, who assisted Smith in representing the water company. "He never mentioned the $25 million appraisal in closing arguments, nor was it entered into evidence. We argued for about $32 million and the jury came in at $25 million."
USUALLY, ADOT HIRES outside legal counsel on the advice of the Attorney General's Office. Not this time.
The attorney general maintains a list of private law firms which have applied to handle various types of cases, and when one of its division heads feels outside counsel is needed, interested firms are screened further to determine who is qualified to handle the work, Redpath explains.
In Stephens' case, however, the need to pass detailed scrutiny was circumvented by Miller's direct request to hire him. "The director requested it and he's the client," Redpath says. "The client has a right to choose the legal counsel he feels is most qualified for the work."
Stephens acknowledges that after obtaining the ADOT contract he tried to hire Redpath and another assistant attorney general to work on the cases he'd been assigned. "I asked Jim to work on the project because he knows more about condemnation law than most anyone else in the state," Stephens says.
Stephens' action draws hoots from local experts in condemnation law. "The ultimate irony is that ADOT enters into this huge contract, ostensibly to receive legal expertise it can't get from the Attorney General's Office, and the lawyer who gets the contract then tries to hire those same attorneys to do the job," Tom Irvine, a Phoenix lawyer specializing in condemnation cases, says with a chuckle.
The manner in which Stephens was awarded the second, $450,000 contract also circumvented usual ADOT screening procedures. Stephens convinced ADOT officials it would benefit his legal strategy to develop a computerized information bank containing sales records of all land exchanges, as well as zoning and demographic information, within the hundreds of miles of Valley freeway corridors. Despite the size and sweeping scope of the work planned, no request for proposals or advertisement was issued before the job was given to Stephens, ADOT officials admit.
Instead, the project was assigned as a subconsulting contract between Stephens and the managing consultant for the Outer Loop, which relieved the state of any obligation to seek competitive bids. The contract does not specify who among Stephens' employees is qualified to execute the mammoth undertaking, or who would be assigned to the job.
"We were requested by ADOT to put Stephens under contract and we did so," says Rex Leathers, project manager at DeLeuw, Cather & Company, managing engineers for the Outer Loop. Leathers referred other questions about the contract to ADOT officials.
On November 22, shortly after New Times first contacted ADOT with questions about the Stephens deal, the agency abruptly ordered DeLeuw, Cather to cancel its contract with him. "That was a subcontract Stephens had negotiated with the consulting engineer," Miller says. "It was brought to my attention and I canceled it upon advice of legal counsel. They advised me that we can't do that without putting out a request for proposals, it's too big in scope to be a subcontract to the Outer Loop. We went about it wrong."
ADOT urban-highways chief Rosendo Gutierrez, who was not yet with the agency when Stephens was awarded the contracts, says, "Your inquiry helped us to look closer at the contract and to discuss it with the Attorney General's Office and say, `This is probably not the way we want to do things,' and to cancel it as a result . . . your inquiry certainly focused attention on the contract."
Gutierrez says his top priority is the reduction of land-acquisition costs, and he currently is working with other agency experts on a strategy to cut those costs. "We definitely will start using more outside counsel as part of the strategy to reduce our losses in court," Gutierrez says. But those decisions will be based on recommendations from the agency's chief legal counsel, he emphasizes.
Meanwhile, neither Miller, Redpath nor Gutierrez can describe what, specifically, Stephens will do for the state under his remaining contract. "I don't know the details of his strategy but the general direction will be to try and convince the court to change the way parcels are valued," Miller says.
Stephens says he will be assisted in his ADOT work by Brad Brown. Stephens asserts that Brown, whose specialties are listed as corporate, administrative and water law, "is one of the brightest young lawyers I know."
Stephens is confident that he can save the taxpayers money in his current work for ADOT and says he plans to challenge the constitutionality of the state law governing property condemnation.
Ironically, one of the parcels Stephens has been assigned to acquire belongs to developer John F. Long. Stephens once defended Phoenix and other Valley cities when Long sued to overturn their contract to sell effluent to Arizona Public Service's Palo Verde Nuclear Generating Station.
Stephens now points to that case as an example of what he hopes to do for ADOT. "We set legal precedent with that case," he says. "We won by arguing that sewage effluent was a whole new class of water and couldn't be governed by rules for other types of water."
Stephens says he plans to take a similarly innovative approach with his ADOT cases. "We're going all the way back to the state constitutional convention in our research," he says.
Redpath says he cannot recall any case in which a state law governing the assessment of land values has been overturned by judicial fiat, adding that he has not researched the question recently. But Stephens says he believes it can be done. "I think if the question is properly presented, the court will address the issue," he says.
