Accounting executive James Hill Jr. told federal investigators he paid $2,000 to $3,000 to D.C. Deputy Mayor Alphonse G. Hill in December and January in exchange for business referrals not related to city government, James Hill's attorney said yesterday.

A federal grand jury has been investigating since last summer whether James Hill's firm, Hill, Taylor & Co., made payoffs or gave other financial considerations to Alphonse Hill in return for city contracts.

Attorney Adam Bourgeois said the payments were proper and were not a kickback in return for city contracts awarded to Hill, Taylor & Co., a Chicago-based accounting firm.

Hill, Taylor & Co., which has received hundreds of thousands of dollars in city auditing contracts since 1981, held a contract with the D.C. Lottery Board and a subcontract for the city's annual audit at the time the payments were made.

A source familiar with the investigation said that James Hill has told the FBI that Alphonse Hill wanted James Hill to give him $5,000 in small amounts in exchange for helping James Hill's firm obtain business from another company. According to the source, James Hill told the FBI he paid the full $5,000 to Alphonse Hill, but federal investigators are waiting to obtain canceled checks in an attempt to corroborate the account.

Alphonse Hill, who previously has denied any wrongdoing, declined to comment yesterday on developments in the case. Alphonse Hill and James Hill are not related.

The city's conflict-of-interest laws prohibit District employes from accepting any "thing of value" from persons who have contractual relations with the District government.

The Washington Times reported yesterday that James Hill had told federal law enforcement authorities that he paid at least $5,000 in kickbacks to Alphonse Hill in return for various city contracts.

"There were no kickbacks paid," Bourgeois said yesterday.

Bourgeois said James Hill had volunteered information about the payments in a meeting with federal investigators in early February and that his client's truthfulness had been substantiated by a private polygraph examination in January.

Bourgeois said his client disclosed "either $2,000 or $3,000" in payments made to Alphonse Hill last December and January as well as an additional $3,000 paid by James Hill to Alphonse Hill in 1981.

The 1981 payment was made in compensation to Alphonse Hill for having referred a $10,000 National Endowment for the Humanities auditing contract to James Hill two years earlier, around the time Alphonse Hill was leaving the private sector to go to work for the city, Alphonse Hill said in an interview last month.

James Hill and Alphonse Hill are longtime associates who met at graduate school during the mid-1960s and shared an apartment in Chicago in 1967. James Hill opened a branch of Hill, Taylor & Co. in the District in 1981 and, for a few months after that, stayed in Alphonse Hill's home while visiting the city.

In describing the relationship between his client and Alphonse Hill, Bourgeois declined to provide details of the financial transactions, except to say that the payments were made as a "matter of courtesy" for referring business to Hill, Taylor & Co.

"It was like one lawyer sending another lawyer a check for having referred a case," he said.

Bourgeois said he would not identify the client or clients involved, but he said the business was unrelated to the District government and was based in the Midwest.

"I can't begin to tell you how upset I am that anyone would characterize these payments as a kickback," he said.

Allegations of payoffs to Alphonse Hill surfaced in late 1981 and early 1982 and were investigated by then-D.C. Inspector General Joyce Blalock. Blalock found no evidence of criminal wrongdoing but advised Alphonse Hill that he should have put "a little more distance" between himself and James Hill's firm.

Blalock, in probing the allegations, uncovered assets held by Alphonse Hill in the mid-1970s when he defaulted on a Small Business Administration loan. The inspector general referred her investigative file to the U.S. attorney's office in 1982 and, in December 1983, Alphonse Hill settled a civil suit with the SBA for $80,000. He admitted no wrongdoing in the SBA case.

Hill, Taylor received more than $200,000 in city contracts within a year after it opened its offices in Washington in 1981. In 1983, the firm won a contract to monitor the city's lottery games. Last year, Alphonse Hill, serving on a joint federal and District contract review panel, was among those who recommended that Hill, Taylor receive a contract of nearly $300,000 to audit St. Elizabeths Hospital.