By Ian Simpson
WASHINGTON (Reuters) - Even as the District of Columbia is doing better than it has in decades, a campaign finance scandal is threatening to bring down the man in charge of the U.S. capital's local government -- Mayor Vincent Gray.
Two campaign workers and a consultant have pleaded guilty in an ongoing federal probe into the 2010 election, when Gray pledged to return integrity to city hall. His ratings dropping, the mayor is resisting calls by some council members to quit.
Gray, a Democrat, is not alleged to have been involved in or known about the events behind the scandal. But the affair reflects a culture of ingrained municipal corruption in the city, which is under unprecedented scrutiny by newly aggressive prosecutors, analysts said.
"The lunatics were minding the asylum. Now we have a situation where literally there is a new sheriff in town," said Chuck Thies, a political analyst and columnist.
The district, which is home to the U.S. Capitol and the White House, is under the district of the U.S. Congress and not part of any state.
The finance scandal is casting a cloud over Gray's office amid an economic and demographic boom for the city of 618,000 people.
With steady growth and a flourishing cultural scene, Washington ranked second behind Houston in a Forbes.com ranking of the coolest places to live in the United States.
The once-a-decade Census in 2010 recorded the District's first upturn in population in 60 years, driven by an influx of young professionals and immigrants.
The murder rate is at levels not seen since the 1960s. Unemployment is dropping, though still above the national average at 9.1 percent.
After wooing by Gray, retailer Wal-Mart Stores Inc is planning to open its first outlets in the District.
As part of the campaign scandal, two Gray aides have pleaded guilty over a scheme to pay a minor mayoral candidate to disparage incumbent Adrian Fenty in the 2010 Democratic mayoral primary.
A former consultant pleaded guilty in July for her role in helping to hide and spend about $650,000 in undisclosed campaign funds from a city contractor.
U.S. Attorney Ronald Machen Jr, who has spearheaded the federal probe, has said the 2010 race hid a "shadow campaign" that featured cash concealed from voters.
Gray easily won the primary, the key to victory in the overwhelmingly Democratic city, and cruised to a win in the general election.
In another blow to Gray, the Washington Post reported on July 23 that his campaign kept a database with the identities of almost 6,000 public housing residents it targeted in get-out-the-vote efforts.
Legal experts told the Post the list appeared to be an unauthorized use of private government information.
A Washington Post poll in July found only 29 percent of city residents approved of how Gray was doing his job. Fifty-four percent thought he should quit.
Gray, a youthful-looking 69, is keeping up a steady schedule of meetings and community events despite the allegations.
Cutting a ribbon on a business improvement project last week amid sweltering heat, Gray told about 100 applauding supporters that its bicycle lanes and gas and power lines were a model for the city.
He later turned aside questions from a Reuters reporter about the allegations, saying: "Let's not break into this, OK? Let's focus on this."
Asked how Gray was dealing with the scandal, spokesman Pedro Ribeiro said: "He continues to maintain the same schedule of running a city, and a healthy city at that."
The campaign charges are the latest in a long line of District scandals that include Mayor Marion Barry's conviction on a drug charge in 1990 -- he is now on the City Council -- and the 2008 conviction of a tax official for embezzling almost $50 million.
In June, Kwame Brown, the former council chairman, pleaded guilty to bank fraud and violating finance laws as part of his 2008 campaign. Another councilman pleaded guilty in January to stealing more than $350,000 in city funds.
Thies, the analyst, said the cloud over Gray was a result of increased federal and press scrutiny, infighting over city contracts and a political "old guard" that has failed to keep up with changing times.
Dorothy Brizill, founder of DC Watch, a government watchdog organization, called the current allegations "really over the top."
"Nobody blows the whistle (on corruption) and it goes on for years," she said.
(Reporting by Ian Simpson; Editing by Cynthia Osterman)