SACRAMENTO — The former head of a state loan guarantee program testified Tuesday that his boss manipulated the voting majority on a key advisory committee in order to push through a controversial $167-million loan guarantee in December, 1990.
The recipient of the guarantee was Triad Healthcare of Encino, which has defaulted and filed for federal bankruptcy protection. Because the loan was guaranteed by the state, taxpayers are potentially liable for Triad's debt.
Richard A. McManus, chief of the Cal-Mortgage program from 1986 through 1991, told the Assembly Health Committee on Tuesday that he opposed granting a loan guarantee to Triad, but he felt pressured by the head of Cal-Mortgage's parent agency, Larry G. Meeks, to withdraw his objections.
McManus said that when Meeks learned that a majority of Cal-Mortgage's advisory loan committee was also opposed, he took the unprecedented step of ordering McManus and another Cal-Mortgage employee on the committee to abstain from voting on Triad's application.
That eliminated two "no" votes, McManus said, and cleared the way for a favorable loan committee decision.
Meeks, who also testified Tuesday, said he did not remember that conversation with McManus, but added that it could have taken place. He disagreed with McManus' conclusion that Meeks was trying to eliminate staff opposition to Triad's application.
On the contrary, Meeks said he approved the loan guarantee for Triad on the basis of favorable recommendations by McManus and Cal-Mortgage's advisory loan committee.
McManus, now retired, contradicted his former boss.
"I never recommended that that project be approved," McManus said in response to questioning by committee Chairman Burt Margolin (D-Los Angeles).
McManus said Meeks had known of his opposition and had reacted angrily, chastising McManus for erecting "roadblocks" to the deal.
In the end, McManus said he acquiesced to the wishes of his boss, abstaining from the loan committee vote, and obeying Meeks' order that he instruct the other Cal-Mortgage employee, staff architect Richard Hoisington, to do likewise. "I just felt sort of defeated," McManus said.
McManus' testimony came in the second hearing in two months called by the Assembly Health Committee to investigate possible conflicts of interest and ethical breaches in the handling of Triad's loan guarantee application.
Among other issues, the committee is looking into the role of a member of Cal-Mortgage's loan committee who also was the broker on Triad's loan.
The Times reported in December that the loan committee member, Vincent F. Forte, a vice president of the investment banking firm Goldman Sachs & Co., helped his firm earn $2.4 million in commissions by negotiating the loan guarantee for Triad.
Because Triad was his client, Forte abstained from the vote. At the time, Cal-Mortgage policy did not prohibit loan committee members from representing applicants.
Margolin has since introduced legislation that would bar state employees and appointees from representing clients before their agencies.
Under questioning by Margolin, Meeks disclosed that Forte spoke to him privately about Triad's loan guarantee application as did Stuart Marylander, Triad's president. But Meeks repeatedly rejected Margolin's suggestion that he was influenced by the conversations.
Forte and Marylander did not appear Tuesday, but testified at an earlier hearing that they believed their conduct in the Triad transaction was proper.
Triad's loan guarantee was the largest ever granted by Cal-Mortgage, which for 25 years has helped nonprofit health care companies qualify for low-interest construction loans. The default has effectively shut down the program.