Entertainment Agency Veered Out of Control

By HOWARD FINE and DARRELL SATZMAN, Staff Reporters

It started out with the best of intentions and a clear set of goals: form a public-private partnership to reduce the layers of red tape for film shoot permits and to combat runaway production by marketing L.A. to film producers.

By nearly all accounts, the Entertainment Industry Development Corp. has succeeded in at least one of those goals: Getting a film permit is much easier today than it was eight years ago before the EIDC was formed. And many believe the agency has at least slowed the exodus of filmmakers from L.A.

Yet the EIDC is under siege. On Sept. 5, L.A. County District Attorney Steve Cooley seized agency records from its Hollywood headquarters and the home of its president, Cody Cluff. Cooley's office is investigating political contributions made by the agency and allegations of lavish spending. And last week, local politicians rushed out reform proposals to restructure the agency.

So what went wrong?

In sum: a vague governing structure and a board asleep at the switch allowed the management team to veer out of control. Ironically, the agency's apparent successes may have contributed to the atmosphere that allowed these problems to fester. With no chorus of complaints about how the agency was doing its job, there was no political will to step in.

Essentially, the EIDC broke away from what is considered proper operating procedure for non-profit, public-private ventures, like the dozens of economic development corporations throughout Southern California and scores of other commissions and entities set up to tackle the region's vexing problems.

"They not only broke normal guidelines, they completely left the reservation," said Steve Frates, senior fellow with the Rose Institute of State and Local Government at Claremont McKenna College. Frates said the most egregious break was in the $200,000 in contributions to local elected officials the EIDC made over the last four years, including those who served on its own board. Most recently, the EIDC contributed $10,000 to L.A. United, the campaign committee set up by L.A. Mayor James Hahn to fight secession.

"I've never heard of any such non-profit organization making political donations like that without setting up a totally separate political action committee," Frates said. "It just isn't done."

Extravagant spending

On the other hand, Frates said lavish spending is an all-too-common occurrence, especially when there is little or no oversight. District Attorney Cooley is looking into allegations of extravagant spending, including $40,000 for Los Angeles Lakers basketball and Kings hockey games and a $500-a-month membership for Cluff at the Grand Havana Room, a Beverly Hills cigar club.

"From time to time, you get these instances of out-of-control spending, especially in special districts and commissions that generally operate under the radar," Frates said.

The EIDC first took shape in the mid-1990s when film permitting in Los Angeles was coordinated through separate city and county offices, resulting in a cumbersome process that was the subject of frequent complaints from film companies trying to shoot on location. Local governments often found themselves in the crossfire between filming companies and local residents who found their streets taken over by film crews.

"The red tape was just horrible for the film industry, and the City of L.A. was the worst," said former Mayor Richard Riordan, who spearheaded the establishment of the EIDC. "I was very much in favor of coordinating film permitting offices throughout the county."

Privatizing services

As newly elected mayor of Los Angeles, Riordan was trying to push through a broad program of privatizing city services, much of which ran into resistance from city employee unions.

But he did make progress on this new film permit entity, getting the L.A. City Council and L.A. County Board of Supervisors to take film permitting out of the hands of bureaucrats in a multitude of agencies and place it in a single streamlined privately run entity that would serve the entire L.A. region.

"It was part of the city and county's desire to be more business friendly and more alert to the needs of the entertainment industry," said Robin Kramer, a senior fellow at the California Community Foundation who was Riordan's chief of staff at the time.

The privately run entity would be a surrogate for the government collection of permits fees and processing of film permits, and it would be overseen by elected officials on the board. The EIDC charges $450 for each permit sought by a film producer and makes arrangements for street closures and parking privileges for film crews with local police and fire departments. It also promotes Los Angeles as a filming location.

"There are scores of public-private partnerships throughout the county, including economic development corporations and special-purpose commissions," said Larry Kosmont, an economic development consultant who has also served as a city manager. "The difference here is that none of those entities perform what is essentially a government service: collecting film permit fees and processing film permits."

That function is at the heart of the dispute over whether the EIDC is a public entity subject to a ban on political contributions or a private entity with the right to make such contributions. Cooley's office says the EIDC is a public entity using public funds to carry out a public function; EIDC officials maintain they are a private organization using private funds.

Large board

The confusion is compounded by what Riordan and others say is an unwieldy structure of a 50-member board composed of 24 government officials and the rest from the private sector. On the board are all five members of the County Board of Supervisors and 15 L.A. City Council members, the L.A. Mayor, the city's Chief Legislative Analyst, and the County Administrative Officer.

"The big problem with the EIDC is the size of its board," Riordan said. "Any time you have 50 or more members on a board, the organization essentially becomes staff-driven, which is what happened in this case. If it were up to me, I would have had a much smaller board, with either the mayor or the county board of supervisors having a controlling majority."

But while Riordan was instrumental in the EIDC's founding, he said that decision wasn't up to him.

"Once I got that agreement, I stepped back and let the county take the responsibility for structuring the new entity," he said. The responsibility belonged with the county, since L.A. was only one of several cities that were to be included in the new entity, he said.

But a county source who attended some of the early meetings that led to the creation of the EIDC said that both city and county officials had input into how the EIDC was structured.

Whatever the discussions, the end result was a structure in which the full 50-member board met once a year, with an 11-member executive committee meeting quarterly.

And that, some say, was a recipe for disaster.

"If you have a large board, either it has to meet frequently or you need a strong executive committee that meets frequently and has a good grasp of what's going on," said Lee Harrington, president and chief executive of the Economic Development Corp. of Los Angeles County. The LAEDC's 80 board members meet eight times a year, while the executive committee meets as often as needed, usually four to six times a year.

"From this vantage point, it appears the board and its executive committee didn't meet frequently enough to have a good grasp of the organization," Harrington said.

Absent from meetings

Since the scandal broke on Sept. 5, several elected officials who were on the board said they had rarely attended EIDC meetings. "I only attended one board meeting," said County Supervisor Zev Yaroslavsky. "I sent staff to a few more meetings."

County Administrative Officer David Janssen said last week he didn't even know he was on the board.

With such infrequent oversight, EIDC staff had a freer hand in running the entity than is usually the case in a non-profit corporation. The staff was headed by Cluff, a one-time accountant who had been running the city film office as assistant deputy mayor for entertainment industry affairs under Riordan.

The former mayor eventually had a falling out with Cluff over the propriety of EIDC's political donations, which prompted him to resign from the board.

Nonetheless, the EIDC has appeared to make progress in making it easier to shoot in L.A.

"From the beginning (the EIDC) saw the writing on the wall that Southern California is no longer the only game in town for filming," said Ilt Jones, a longtime location scout for "The X-Files" who is now working with Revolution Studios. Jones sits on the EIDC's production committee.

"The process has improved markedly. "They've attempted to put into place measures to address the problems of filming in Southern California and they've made a big difference," Jones said.

In 2001, there were 43,976 total production days in Los Angeles County, up from 26,998 in 1994, the year before the EIDC was formed. A production day is a single day of shooting on a specific project, and includes film and television shoots, as well as commercials, music videos, student projects and photo shoots.

According to its Web site, the EIDC collected $4.1 million in permitting funds in the county in fiscal 1998-1999, the last year for which full figures were available, compared to $2.7 million in 1995.

Added Riordan: "I was very pleased with the agency's progress until I started hearing about the political donations about 18 months ago."

The EIDC's perceived success may explain why there were so few internal controls placed on spending and political donations.

"You need active oversight to make sure that the organization was staying in line with the original purposes or to concur with necessary changes to its mission," Kosmont said.

The decision to start making political contributions should have been debated and approved by the board, he said. "Any time you enter the realm of political contributions, you need intense internal scrutiny to make sure you're staying in the law," Kosmont said.

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