Chula Vista Mayor Failed to Disclose Loans From S

Chula Vista Mayor Greg Cox received a $2.2-million real estate loan from Home Federal Savings & Loan Assn. in August, 1985, and later cast votes for two multimillion-dollar development projects by the San Diego lender without disclosing the loan.

Cox, who needed the $2.2 million to avoid default on a 123-unit apartment complex he and 10 other investors owned in Austin, Tex., did not list the loan on his annual financial disclosure forms for the past two years. On April 2, Cox amended his economic statements to include the loan after learning that The Times had inquired about the transaction.

The mayor was obligated to disclose the loan under state Political Reform Act laws that require public officials to report loans exceeding $10,000 from banks that conduct business in local jurisdictions, said Jeanette Turvill, a spokeswoman for the state Fair Political Practices Commission.

The political reform laws also prohibit a public official from making decisions that benefit sources of income, in some cases including loans. However, the law exempts commercial loans as a source of income if similar loan terms are available generally.

“If I’m guilty of anything, it’s perhaps that the loan should have been listed,” said Cox, who added that it never occurred to him that the loan posed any conflict of interest.

In an interview last week in his Chula Vista office, Cox said that he did not receive any special treatment from Home Federal and the financing “absolutely did not influence my votes in any way” on the two development projects.

A Home Federal spokeswoman, Monica Wiley, said that 15% of Home Federal’s real estate loans are made on properties outside the state, and that the institution’s loan to Cox followed “conservative underwriting standards.”

Cox, 38, who was elected mayor in 1981, said he is in “serious” financial straits. Home Federal had scheduled an April 7 foreclosure auction to sell the Austin apartments after Cox’s investor group defaulted on the loan late last year. The auction was postponed at the last minute when an unnamed buyer expressed interest in the property, Cox said.

Cox said he stands to lose as much as $117,000 if the Austin property is foreclosed on. A new foreclosure auction is scheduled for May 7 in Austin.

“The net worth that I have accumulated over the past few years as a result of real estate investment has been rather severely depleted,” Cox said.

After learning that The Times was looking into his financial troubles, Cox said, he asked Chula Vista City Attorney Thomas Harron whether he had violated any disclosure or conflict-of-interest laws. Harron referred Cox to the FPPC in Sacramento, which told Cox to submit details in writing.

Turvill said the FPPC will advise Cox on his current disclosure responsibilities relating to the Home Federal loan, but will not tell him immediately whether he acted properly in not disclosing the loan.

Turvill said violation of disclosure or conflict-of-interest provisions of the state Political Reform Act can result in both civil and criminal sanctions. The FPPC can assess administrative fines of $2,000 per violation and seek civil penalties as much as the loan amount. The district attorney can also file charges and conviction for knowingly violating the law could lead to 18 months in jail.

Home Federal’s real estate subsidiary, Home Capital Development Corp., is participating with builder Corky McMillin in a joint venture to develop two major projects in Chula Vista: the 4,028-unit El Rancho Del Rey and the 862-unit Bonita Long Canyon, both located in the hills and canyons along H Street east of Interstate 805. Included in the El Rancho Del Rey project is a 100-acre industrial business park.

On several occasions since he received the $2.2-million loan, Cox cast votes in favor of the two projects.

In December, 1985, Cox voted with the council majority to increase the housing units in Bonita Long Canyon to 862 units from the previously approved 826. He joined the Chula Vista City Council last August in unanimously approving a final subdivision plan for the project.

Although the underlying zoning for the El Rancho Del Rey project was approved before Home Federal purchased the property in January, 1986, Cox has since participated in numerous council votes concerning minor development details in the project area such as utility easements and road construction.

Cox said it never occurred to him that his actions on the projects posed a potential conflict of interest for him. In fact, Cox recalls the votes as being procedural rather than substantive. He said he will consult with the city attorney before participating in future votes on Home Federal projects.

“(A conflict) not only never occurred to me, but it would never happen,” Cox said. “Their handling of the loan was on a business basis and issues that I deal with before the City Council are strictly viewed on the basis of what’s best for the City of Chula Vista.”

Cox said he neglected to include the Home Federal loan on his 1985 economic interest statement because he basically copied the information from his 1984 form.

“I reviewed the 1984 one and I didn’t notice any changes as I looked through it and did not reflect on the fact that the Texas property had been refinanced,” Cox said. “Nor did I specifically recall that Home Federal was the one that made the loan.”

In an April 2 cover letter accompanying his amended financial statements to City Clerk Jennie Fulasz, Cox wrote, “Out of what may be an excess of caution, I have decided to file this supplemental disclosure.”

Cox became involved in the Texas apartments in 1979 when he organized a group of 10 investors, including several family members, to purchase the Gazebos Apartments out of foreclosure. Two years later, after the Texas economy soured and tenant occupancy levels fell significantly at the Gazebos, Cox and his partners began looking for a buyer. The building had serious structural flaws, and the partners were unable to find a lender to finance renovations of the property, Cox said.

Cox sold the apartments in 1983 to an investor group organized by Patrick Judd, a friend of Cox’s and a co-investor in other real estate deals. Cox retained ownership of the land.

By mid-1985, Cox and Judd needed a loan to help them save the failing property. They approached three local lenders--Home Federal, Great American First Savings Bank and Coast Savings & Loan.

At the time, both Home Federal and Great American were actively developing large residential projects in Chula Vista. In July, 1984, Home Capital Development Corp. paid $9.7 million for Bonita Long Canyon. Home Capital then brought in builder Corky McMillin as a joint venture partner to construct the homes. Great American, also in partnership with McMillin, was in the process of developing Terra Nova, a 565-unit housing development in the same area.

Cox said Home Federal was the only banking institution that would lend him the $2.2 million on reasonable terms. Cox said he was no longer actively managing the apartments, but Home Federal required him to co-sign the note because he still owned the land.

Cox said that he received no special treatment from Home Federal in applying for and getting the loan.

“The fact that the property went into default and was in foreclosure shows they handled it as a business transaction,” Cox said. “In the event there is a need to foreclose, they will foreclose on me as they would anyone else.”

Cox and Judd received the loan in August, 1985. In that same time period, Cox played a key role in negotiating a compromise that would bring an industrial business park and increased housing density to El Rancho Del Rey, which was purchased by Home Federal in January, 1986.

Community groups opposed the rezoning proposal and threatened to force a ballot initiative if the council approved the business park and increased housing density. Cox met with community leaders and the property owner, The Gersten Companies, to hammer out a compromise.

Cox suggested an alternative that provided industrial development only on the north side of H Street and 10% less residential density to the El Rancho Del Rey project, bringing the total number of dwellings to 4,028. According to Chula Vista Planning Director George Krempl, the council approved the plan in November, 1985.

In January, 1986, Home Capital bought the El Rancho Del Rey project for $27 million.

Last December Cox objected to a proposed moratorium on building permits for homes east of Interstate 8 in Chula Vista, including the El Rancho Del Rey and Bonita Long Canyon projects. While Bonita Long Canyon is in the initial stages of development, El Rancho Del Rey faces significant hurdles this summer when developers will submit a subdivision map proposal. City officials say that it will be at least two years before homes are completed in El Rancho Del Rey.

Councilman David Malcolm, who proposed the moratorium, said he felt the city needed to build schools and widen roads before allowing the construction of any more houses.

Cox argued against the moratorium and it was never considered for a formal council vote. Asked if there was a conflict in arguing against the proposed moratorium, Cox said, “To be honest, I don’t know.

“The rationale I had in opposing the moratorium was that it dealt with traffic . . . The moratorium would have delayed widening of East H street.”

Malcolm, who has opposed Cox on a number of development issues in Chula Vista, said that he doubted that Cox deliberately concealed his involvement with one of the city’s largest developers.

“Greg has been a great mayor for Chula Vista,” Malcolm said. “I could say unequivocally that if there was a mistake, it was an honest mistake. I don’t know what it is or what happened, but I think that basically Greg has been very honest and very forthright with everyone.”

Cox, a former high school teacher, said he invested in 10 San Diego and Texas real estate projects over the past 15 years. Starting with a duplex in National City, Cox gradually built up enough equity to buy projects the size of the Gazebos.

The Austin apartment complex was not the only investment disaster for Cox.

In February, Cox lost between $150,000 and $200,000 when he and several partners lost a court battle to reverse the September, 1983, foreclosure of a 70-unit apartment complex in San Antonio.

In January, 1986, Cox took out a $35,000 personal unsecured loan from Peoples Bank in Chula Vista to pay property taxes on the troubled Austin apartment complex.

Said Cox: “The hardest thing to accept about the problems, although they have not been all of my own doing, is that the investments have not been a success.”