Overriding critics, the South Gate City Council has agreed to lend $7 million to a controversial East Los Angeles company--a loan that may never have to be repaid.
The council gave final approval to the redevelopment loan Tuesday night on a 3-2 vote, clearing the way for the sale of bonds for a 74-unit senior citizens housing project, which will be built by a corporate arm of the East Los Angeles Community Union, better known as TELACU.
Critics of the deal point out that the East Los Angeles firm has been involved in a number of controversies over the years. In the 1980s, federal authorities accused TELACU of mismanaging public money intended for the poor. The firm was required to repay about $1 million.
The Times reported in April that the FBI's public corruption unit is investigating the connection between TELACU and the financing of a roof for the home of Los Angeles Councilman Richard Alatorre.
South Gate City Atty. Arnold Alvarez-Glasman said TELACU was queried about the investigation, but city officials were satisfied with TELACU's explanation that the agency was not the focus of it.
Representatives of TELACU did not respond to requests by The Times for comment.
South Gate taxpayers will repay the bonds, which will total $8.5 million when other costs are factored in, over 30 years. But critics of the deal complain that there will be relatively little risk to TELACU, which came up with the project and then persuaded the city to accept it, according to insiders.
Critics complain that the loan is in fact a grant that won't have to be repaid because all payments will be forgiven if the developer meets conditions of the loan, such as certifying that residents of the senior citizen housing are qualified and rents are held at affordable levels.
One of the region's leading suppliers of government-subsidized housing, TELACU in the past has built housing projects in Los Angeles, Monterey Park, the City of Commerce, El Monte and other cities.
In addition to providing 74 units of low-cost senior citizen housing, the development project at the southeast corner of Tweedy Boulevard and California Avenue will include 20,000 square feet of commercial space, which could generate some sales tax revenue for the city.
The developer will be a TELACU corporate entity called South Gate Senior Villas, a limited liability company. These types of entities protect investors from debts and other legal obligations.
South Gate Mayor Mary Ann Buckles called the project "a very innovative approach" that meets two city needs--senior citizen housing and additional commercial development.
Also voting in favor of the project were Councilmen Bill Martinez and Henry C. Gonzalez, a onetime TELACU official.
Supporters say that the money to pay for the project will come from property tax revenues generated by South Gate's redevelopment district. Under state law, 20% of the property tax revenues generated in redevelopment zones are earmarked for low-cost housing. One of the arguments used in favor of the project is that if the money isn't used for low-cost housing the tax money reverts to the county.
Critics in South Gate don't dispute the need for low-cost housing for senior citizens, but question the large price tag.
Complaining that the developer is putting up relatively little to secure the loan, Bill De Witt, a former South Gate city councilman who has been protesting the loan, said after Tuesday's vote, "It's like they won the lottery without having to buy a ticket."
Councilman Raul Moriel, one of the two votes against the project, said, "While I ardently support senior housing, I am totally opposed to the way this is being financed." He questioned the cost, which he said could reach more than $10 million, and the financing of the plan with bonds. He said he got private estimates that 74 one-bedroom units could be built at considerably lower cost.
Councilman Hector de la Torre, who also voted against the project, has urged that the city look over the development plan to ensure that South Gate is getting the best possible deal.
City Treasurer Albert Robles who is running for state treasurer, said he was excluded from negotiations on the project and was unable to review it.
Residents also complained that many of the negotiations were conducted behind closed doors.
Pharmacist Douglas Masushige, owner of Tweedy Pharmacy, said businesses are concerned about the project because they hoped that land that the city was acquiring would be used exclusively for commercial development.
"We are not so much opposed to the project as we are opposed to the way it was approved," Masushige said. "All the meetings were held behind closed doors."
"I think the financing is bad," said Deputy Dist. Atty. Jason Dominguez, a South Gate resident and former city employee. "We are giving free land and free construction to someone and also telling them that at the end, they can go out and collect the rents and keep [the property]."
Actually, Ruben M. Lopez, director of community development for South Gate, said TELACU could have to put up as much as $2 million.
The way the deal is structured, TELACU will receive $7 million from the city. The development firm in turn will use $1.25 million of that to pay South Gate for land that the city acquired previously as part of the redevelopment project. That will leave a net loan of about $6 million to build the housing and commercial development. TELACU would have to pay any costs above that, said Lopez, the city's community development director.
The city attorney said the public was excluded from many of the meetings under the Brown Act, the state's open meeting law, which he said makes provisions for allowing negotiations between government agencies and developers.
"I don't know of any city that engages in those discussions in the open," said Alvarez-Glasman.