Lobbyist at Center of 101 Ash Scandal Hired Wife of Mayor’s Chief to Help Lobby Mayor
By Arturo Castañares
The lobbyist who has been working behind-the-scenes to broker a settlement on the 101 Ash Street building scandal hired the wife of Mayor Kevin Faulconer’s Chief of Staff during a critical time when the building’s owner was trying to convince the City to enter into a lease.
Chris Wahl, President of Southwest Strategies, has grown his company to become one of San Diego’s largest lobbying firms by cultivating a stable of connected political operatives who left government posts and used their relationships to become high-paid lobbyists.
In April 2015, Wahl hired Diana Palacios when she was working as Deputy Chief of Staff for then-Councilman Scott Sherman. Palacios had previously worked for Councilman Carl DeMaio in 2012.
At the time Palacios went to work for Southwest Strategies, she had a two-year-old daughter with then-Mayor Kevin Faulconer’s Chief of Staff, Stephen Puetz. Although the two were not married, it was widely-known at the time that Puetz and Palacios were a couple.
Puetz and Palacios had worked together when Puetz managed DeMaio’s campaign for Mayor in 2012 and Palacios was the Communications Director in DeMaio’s council office and also volunteered on the campaign.
Palacios had moved to Sherman’s office in 2013 after DeMaio left office and she rose to the second-top post in Sherman’s office as Deputy Chief of Staff.
In late 2013, when Mayor Bob Filner resigned over accusations of sexual harassment, then-Councilman Kevin Faulconer ran in a special election to replace him.
After Faulconer’s victory in February 2014, Stephen Puetz was named as the new Mayor’s Chief of Staff. Puetz had managed Faulconer’s campaign after having run DeMaio’s failed campaign the previous year when he lost to Filner.
In her financial disclosure report filed as she left the City on April 2, 2015, Palacios reported income during the 2014 calendar year from her City job in Sherman’s council office of between $10,001 and $100,000, as well as income of between $10,001 and $100,000 from her own “Research/Consulting” work, but she did not itemize any specific clients or sources of the revenue she received from that outside work. It is not clear what clients paid her or what issues she worked on for them.
Palacios resigned her position with Councilman Sherman and became a Director of Public Affairs at Southwest Strategies two weeks later, but she had a one-year “cooling-off” period where former City officials are limited from directly lobbying the City for one year after leaving their government post.
The City’s Ethics Commission enforces the cooling-off period because the City “believes that employment with the City should not be seen as an opportunity to learn confidential information and build relationships that may later be exploited for private gain” and to “prevent improper influence only in those circumstances in which the former official could exert influence through “inside” knowledge of an issue or through access to decision-makers based on relationships developed during his or her City service.“
THE 101 ASH CONNECTION
At the same time Southwest Strategies hired Palacios, the firm began lobbying senior City staff, including Stephen Puetz, senior mayoral staffer Michael Hansen, and Cybele Thompson, Director of City Real Estate Assets Department, on behalf of “Shapery Development Gas & Electric Corporation” for the approval of “an office space lease with the City of San Diego.”
(The report erroneously listed Stephen Puetz as working for City Council District 6 instead of as the Mayor’s office. Council District 6 was Councilman Chris Cate’s office, but Puetz never worked for him.)
The Shapery entity was owned by Sandor “Sandy” Shapery, who at the time was the sole owner of 101 Ash Street. The name of the company reflected 101 Ash’s former role as the headquarters building of San Diego Gas & Electric and its parent company, Sempra Energy.
Shapery was seeking to lease all or part of the 101 Ash building to the City.
Sempra had abandoned the 101 Ash building in 2015 when it moved to a new building near Petco Park and the building was completely vacant. In 2014, a consultant for SDGE testified before the State Public Utilities Commission that the building as “functionally obsolete” and was too costly to maintain.
Southwest Strategies’ lobbyist report shows that between July and September 2015, Wahl expanded his lobbying for Shapery’s 101 Ash company to include meeting directly with Mayor Kevin Faulconer, Stephen Puetz, Cybele Thompson, and Deputy COO Ron Villa.
During this period, Palacios worked for Southwest Strategies but could not directly lobby anyone at the City.
(The report also incorrectly lists Stephen Puetz and Kevin Faulconer under City Council District 6.)
After months for trying to lease or sell the 101 Ash building alone, Shapery announced in mid-2015 that he had taken on “Papa” Doug Manchester as a 49.9% co-owner in the building through a $20 million investment.
Just one week after Manchester became a partner in the building, several high-ranking City officials suddenly toured the 19-story tower, including Faulconer, Puetz, Villa, and Thompson. Manchester later moved his financial company into the top two floors of the 19-story tower while the rest of the building remained empty.
TWO POLITICOS MARRY
The following month, Puetz and Palacios got married and held their wedding at the Point Loma waterfront estate of Morgan Dene Oliver, a wealthy San Diego developer who, just four day before the wedding, met with Faulconer for lunch and introduced the Mayor to investors behind what became the SoccerCity proposal for a new professional soccer stadium in Mission Valley.
The SoccerCity proposal, which Faulconer supported, was defeated on the November 2018 ballot by a competing proposal for what is now SDSU’s new stadium project approved by voters.
It was later reported in the San Diego Union-Tribune that Puetzs only paid $427 for the use of Oliver’s $9 million mansion, in addition to a $340 cleaning fee after the wedding.
When questioned about the use of the mansion of someone who sought project approvals from the City, Stephen Puetz called Oliver his “friend and a mentor”, but dismissed accusations that the unusually-low cost he paid for the use of the mansion created a conflict-of-interest or unlawful gift.
In late 2015, Palacios began using her married name as Diana Puetz when reporting her lobbying activity, as well on financial disclosures required in her new role as an appointed member of the City’s Center City Parking Advisory Board, a volunteer group that controls the parking structure City employees and visitors use to access City Hall.
Then in April 2016, as soon as she was eligible to lobby City officials, Diana Puetz began attending lobbying meeting along with Wahl, including meetings in the Mayor’s office with Faulconer and her husband, Stephen Puetz.
Southwest Strategies’ official City lobbyist reports show Diana Puetz and Wahl lobbied her husband and his boss on behalf of the San Diego Padres, Margaritaville restaurants, and WaterSmart software.
Two lobbyists who represent clients before City officials could not recall any other firms who employ the husband or wife of a high-ranking City official and use them to lobby their own spouse.
During 2016, Puetz also lobbied other City officials, including Councilmembers, staff, and department officials, among them then-Councilman Todd Gloria who is now the Mayor.
Diana Puetz represented clients including short-term rental company Homeaway/Expedia, Pardee Home developer, and the San Diego Vacation Home Rental Association in those meetings.
December 20, 2016, Southwest Strategies filed a year-end lobbyist report that removed Puetz as one of their registered lobbyists, presumably because she had left her employment with the firm during the fourth quarter of the year to join the Padres organization.
Stephen Puetz filed his 2016 statement of economic interests showing his wife’s income from Southwest Strategies at over $100,000, as well as income for her position as Director of Public Affairs at the San Diego Padres with a salary ranging from $1,001 to $10,000.
In addition to his salary as Faulconer’s Chief of Staff, Puetz also reported receiving additional side income for himself for consulting for the San Diego Republican Party of between $1,001 and $10,000, and consulting income from the San Diego Regional Chamber of Commerce of between $1,001 and $10,000.
Knowledge of the Puetzs’ use of Oliver’s mansion for their wedding was tightly-held information until May 2017 when San Diego Union-Tribune’s Watchdog reporter Jeff McDonald published a story detailing the low cost paid for the use of the mansion.
Although Stephen Puetz argued that he did not violate any ethical rules, he resigned as Faulconer’s top aide just one month later.
Puetz returned to consulting when he rejoined Axios Consulting, a political consulting firm where he had previously worked in 2010.
Last month, Stephen Puetz was deposed in one of the pending lawsuits related to the 101 Ash building, and he testified under oath that he routinely deleted text messages from his phone that involved official City business.
State public records laws require that communications to and from public officials, including text messages, emails, and physical documents, be preserved and are subject to public requests.
Puetz and Faulconer did not respond to media request for comment on his admission to deleting protected public documents.
MOVE TO THE PADRES
Diana Puetz continued her work as the Padres’ Director of Public Affairs after the end of her husbands’ time in Faulconer’s office, and today is the club’s Vice President of Public Affairs. She routinely lobbies City officials on issues related to Petco Park and future development around the stadium.
In addition to her position at the Padres, Puetz serves on the Board of the Downtown San Diego Partnership, a business group advocating for downtown companies; the San Diego Regional Chamber of Commerce’s International Affairs Committee; and continues to serve on the Centre City Parking Advisory Board.
Her last Statement of Economic Interests filed for calendar year 2020 reported her income from the Padres at more than $100,000, and Stephen’s income from Axios Consulting at over $100,000. Her 2021 report is due by April 1st.
Earlier this month, the Padres announced they had reached a deal with the City for a planned development on the four-block surface parking lot currently known as Tailgate Park near Petco Park.
The City-owned parking lot has been leased to the Padres since the building of the ballpark, and the lease runs until 2044, allowing the team to use it for each of its 81 home games, plus ten additional days per year.
After more than a year of negotiations, the development team announced that they agreed to purchase the City-owned parking lot for a proposed $1.5 billion mixed-use project with 1,800 apartments, including 270 low-cost units for low-income residents, 50,000 sq. ft. of commercial spaces, and a 1.3 acre park over part of the property that has a seismic fault line running through it.
The price detailed in the deal announcement was $35.1 million, even though an appraisal pegged the market value at $74 million. City staff gave the Padres a $42 million discount credit, they argued, to compensate the team for having to replace the required parking spaces, in addition to developable area lost due to earthquake faults under the property.
Critics quickly charged that the behind-closed-doors negotiations were reminiscent of the recent 101 Ash Street building debacle, pointing out that early announcements by the Padres of the project in mid-2020 included Cisterra Development as a partner.
Cisterra is the landlord company at that holds both the 101 Ash and Civic Center Plaza lease with the City, and is accused of having paid the City’s real estate broker over $9.44 million in profit-sharing splits on the two leases he helped negotiate.
Although Cisterra’s name has been removed from public documents related to the new Tailgate Park project since the 101 Ash St deal failure became headline news, neither the Padres nor Cisterra have completely ruled out that the company may be involved in the project when its actually built.
Others have also raised questions about the City’s track-record in negotiating complex deals, including the recently rescinded approval of a project at the current Sports Arena site, the failed SoccerCity proposal for the Mission Valley stadium site, and the losing court battle over the City’s hotel tax increase to fund an expansion of the Convention Center, in addition to the 101 Ash debacle that continues to expose failures by City officials.
All of those deals were negotiated during City Attorney Mara Elliott’s tenure as the City’s chief legal advisor, and her office has been involved in the Tailgate Park negotiations as well.
On March 9th, the City Council’s Economic Development & Intergovernmental Relations Committee voted unanimously to move the proposal forward to the full City Council for approval. That meeting is expected to take place in April.
The committee’s Chairman, Councilman Raul Campillo, supported the proposal with language that was eerily similar to comments made by Councilmembers when the 101 Ash St building lease went before the Council in 2016.
“Overall, and in specific details, this is a great deal for the City of San Diego, and part of that is because the Padres are one of our closest partners,” Campillo said during the hearing.
Campillo was joined by the three other committee members in supporting the project; Councilmembers Chris Cate, Dr. Jen Campbell, and Monica Montgomery Steppe.
The property transaction must close before the end of the year in order to meet new state requirements governing the sale of surplus redevelopment land. The site was previously owned by the City’s redevelopment agency which was dissolved.
Under state law, the City will only receive about $6 million of the sale price, with the rest being shared proportionally with local agencies based on property tax revenues, including the San Diego Unified School District which is expected to receive the largest share at about $15.4 million.
WAHL IS CONSUMMATE CITY HALL INSIDER
As the head of one of the largest lobbying firms in San Diego, Wahl has now represented three separate players in the 101 Ash scandal.
In 2013, Wahl was in contact with then-Mayor Bob Filner’s office on behalf of Jason Hughes when the broker was being appointed as a special advisor to the City.
Wahl did not report any lobbying activities for Hughes on his official lobbyist reports during that period. Hughes continued in that role and eventually received over $9.44 million in undisclosed profit-sharing on two City leases he helped negotiate.
In 2015 Wahl represented 101 Ash owner Sandy Shapery during the first attempt to lease the building to the City before Cisterra stepped in to offer the 20-year lease-to-own deal eventually approved.
And now Wahl, who has represented Cisterra since 2020, has been involved in on-going meetings between City officials and representatives from Cisterra and its financier, CGA Capital, in an attempt to reach an out-of-court resolution to three pending lawsuits related to the 101 Ash St building.
Although the parties have engaged a retired judge to serve as a mediator, Wahl has been involved in meeting with Councilmembers and key staffers to help find a settlement that can muster enough votes to pass.
Two weeks ago, when the City’s Chief Operating Officer, Jay Goldstone, wanted to speak with Cisterra’s principal partner Steven Black to discuss a potential settlement offer, he called Wahl to set up the call.
During a recent deposition in one of the pending lawsuits, Wahl refused to answer some questions about his involvement with the 101 Ash settlement meetings after lawyers said he should be shielded from testifying under the legal protections known as mediation privilege, which restricts discovery of settlement discussions held in an effort to mediate a lawsuit.
Lawyers suing the City over the lease argue Wahl is using the mediation privilege to hide what is, in essence, lobbying which would be required to be disclosed.
In a hearing this week, trial Judge Wohlfeil said Wahl will have to answer questions in a follow-up deposition related to his activities on the 101 Ash deal that took place before Jan. 21, 2021, when a mediation agreement was entered into by the parties. His actions after that date will still be protected by the mediation privilege.
In addition to his lobbying work on the controversial building, Wahl has also been a prolific fundraiser for City politicians, including raising tens of thousands in contributions for Mayor Todd Gloria’s campaign in 2020, as well as City Attorney Mara Elliott, and current members of the City Council.
Wahl has been with Southwest Strategies for more than 20 years, and is married to Jennifer Ziegaus Wahl, the company’s General Counsel. Jennifer Wahl, who earned her law degree from UC Berkeley’s Boalt Hall School of Law, is the daughter of one of the firm’s founders and current Chairman Emeritus, Alan Ziegaus.