Housing Loan Questions

City Hall watchdog Ernie Salomon has raised questions about an employee loan program designed to help city workers buy homes, charging that many of the loans are now worth more than the properties themselves and that the program, begun in 2000, siphoned more than $4 million from the general fund that could otherwise have paid the salaries of firefighters, police officers, or librarians. Furthermore, Salomon — also a public-access TV talk-show host — contends the loan program has operated with no oversight by the City Council. Mayor Helene Schneider countered that the council has revisited and reauthorized the loan program twice since its inception. City finance czar Bob Samario said of the 45 loans issued by this program, nine have been repaid in full. Of the 36 still outstanding, only one is in arrears. Samario said he expected a check this week to cure that deficiency.

The program was started in 2000 shortly after Police Chief Cam Sanchez secured a $500,000 housing loan from City Hall as a condition of his employment, akin to a major league ballplayer’s signing bonus. At that time, property values were increasing by 9 percent a year, and the median housing cost jumped from $500,000 to $800,000 to $1.2 million. To recruit and keep employees, City Hall started a loan program restricted to first-time home buyers; in most cases, the city loaned employees up to 15 percent of the sale price so that they could effectively make a down payment of only 5 percent. The same program is offered by UCSB, Cottage Hospital, the Cancer Center, and Westmont College. Of the 36 outstanding loans, nine went to public safety workers. In six cases, the employees have either retired or taken jobs outside City Hall since accepting the loan.

It remains to be seen to what extent these loans went to employees who could not have secured other financing on their own. As many as 11 loans were issued since the real estate market tanked; it’s unclear how many of these are “underwater.” The loan program was financed with revenues from the city’s reserves. As of 2004, the city’s reserves had $4 million more than the $10-million cushion required by city policy. By 2005, it was $1 million more. By last year, it was $8 million less. The program ended in 2009 when funding ran out. By then, the median price of a home on the South Coast dropped to the neighborhood of $800,000. The City Council has scheduled a hearing on the loan program for April 12.