Two Outrages: . . . and Sweetheart Loans in Capistrano : City Manager got contract and payout concessions with shockingly little oversight

Los Angeles, with its ridiculously generous buyout for a redevelopment chief, has no corner on the market for sweetheart deals. San Juan Capistrano, a once-sleepy mission town that began to grow in size and complexity during Orange County’s real estate boom of the 1980s, has a city manager who quietly tapped the city coffers during that period as if it were his own personal lending institution. Moral of the story: No city, whatever its size, can afford to let its guard down against clandestine manipulations that can favor inside players who take advantage of the system.

The excesses evident in City Manager Stephen B. Julian’s $398,235 worth of loans over a decade grew out of the city’s legitimate desire to help him find affordable housing in an expensive area. But Julian, aided further by the mayor’s somewhat naive belief that “every city has to make the best deal it can with its administrator,” and by the Finance Department’s apparent readiness to write a check on request, played the system and the city’s goodwill to the hilt. It shouldn’t have happened.

Julian negotiated a provision in his most recent contract that might eventually excuse “any” financial obligations, including $85,736.75 in remaining loans or any yet to come. That’s unheard of. The ethics committee chairman of the International City Management Assn. correctly called it an “extraordinary” deal.

Extraordinary, too, was the oral agreement with the city to extend the period of some of the loans that were not repaid on time. And so was a deal to convert benefits to cash upon demand --amounting to $26,701 a year of extra pay.

Without fanfare, and with too little public attention, San Juan Capistrano signed off on these deals. With the exception of a $250,000 loan to buy a house approved by the City Council in 1981, most were waved through without public debate. That’s incredible, considering the amount was loaned on terms that the bankrolling general public never could hope to find in regular financial markets.

Having passed up the opportunity for oversight, here’s one city that stands to lose the remainder of its outstanding loans. After all the optimism about growth that helped keep loans flowing into the city manager’s hands, it’s now stuck in a slower real estate market trying to sell the house it bought back from him.

It’s a hard lesson for lean times. Say goodby to the secret sweetheart deal that drains the public coffers, whether it’s concluded under the quiet stars of San Juan Capistrano or the bright lights of Los Angeles.