Hermosa to Vote Again on Loan to City Manager

A plan for Hermosa Beach to provide its city manager with a $250,000 mortgage--approved by the City Council at 1 a.m. Wednesday--has generated so much criticism that the councilwoman who cast the deciding vote is forcing a reconsideration.

Councilwoman June Williams said Thursday that she placed the matter on the agenda for the next regular council meeting Feb. 28.

Williams vowed to switch her vote if residents still seem heavily opposed to the loan, which was proposed to help City Manager Kevin Northcraft afford a house in Hermosa Beach.

She said she is “very disturbed by the public’s perception” but added: “Personally, as a taxpayer, I still think it’s a good idea.”

Not Aired on TV

The vote came late at night at the end of a packed council agenda, with only a handful of residents present for the 15-minute discussion. The meeting was no longer being aired on local cable television.

The loan proposal passed by a vote of 3-2, with Mayor Jim Rosenberger, Councilman Chuck Sheldon and Williams in favor, and council members Etta Simpson and Roger Creighton opposed. The council also voted to raise Northcraft’s salary by 9%--from $65,000 to $70,850--but that has generated little criticism.

Williams said opposition to the mortgage loan “spread like wildfire” through the city Wednesday.

“I started getting a lot of objections, and I finally determined that this would put a pall over everything,” she said. “For years, everybody would be saying the city bought him a house. . . . These stories get around town to where they get so out of proportion. So I just think it’s not a good idea, based on the citizens’ perception.”

Both she and the other backers of the proposal blamed the criticism on the lack of public discussion, which they say got short shrift because of the late hour. They say the loan has been misunderstood by residents.

Precedent Cited

Those in favor say the loan is a good deal for both Hermosa Beach and Northcraft, who lives in El Segundo, where he once was assistant city manager. Those opposed say providing a mortgage for a city official would set a bad precedent.

Said Councilman Creighton, who voted against the pay raise and the loan: “I look at it this way. The guy got a $20,000 increase in pay by moving from Suisun City to Hermosa Beach, and that’s enough. . . . If we’ve got enough money to be loaning for housing, why don’t we give a tax refund?”

Essentially, the plan calls for the city to act as a mortgage banker for Northcraft, who came to Hermosa Beach a year ago from Suisun City in Northern California. The concept is not a new one; three years ago, the city of Inglewood loaned its city manager $275,000 to help him buy a home.

Under the terms of the Hermosa Beach agreement, the city would be the first lien holder on Northcraft’s house, meaning that if Northcraft defaulted, the city would own the property--a valuable asset in a place like Hermosa Beach, where real estate prices are high.

City officials estimated that the house would cost Northcraft about $400,000 and that he would provide a 40% down payment from the sale of his El Segundo house.

10% Interest Rate

The loan would come from the city’s investment fund. It would carry a 10% interest rate, about 1% lower than banks are charging on 30-year fixed-rate mortgages but more than the average 8.6% the city is earning on its funds.

The loan would be amortized over a 30-year period but would not be equivalent to a 30-year fixed-rate loan. The city would have the right to call it on 120 days’ notice, and the rate would come up for renegotiation in five years. The city would not charge Northcraft closing fees.

“It’s strictly an investment,” said Rosenberger.

“The city, in terms of its investments, is supposed to consider three things: safety, liquidity and yield,” he said. “This loan is appropriate on all three criteria.”

Rosenberger likened the offer to something a corporation would do for its top executive and said it has the added benefit of helping Northcraft become a Hermosa Beach resident.

But Councilwoman Simpson, who cast one of the two votes against the plan, said it goes against city investment policy and would set a precedent for all city employees.

In addition, she said, the 120-day call provision gives the appearance of extending Northcraft’s contract, which can be terminated with only 30 days’ notice.

Proposed Idea

Northcraft, reached by telephone in Monterey, where he is attending a League of California Cities conference, said Thursday that he initially proposed the loan when the city hired him a year ago. He said city officials told him then that they were reluctant to make such an offer before he came to work for them.

Northcraft, who has three children, rented a house in Hermosa Beach when he took the city manager’s position. He already owned the house in El Segundo but did not move into it until his tenants left.

About a month ago, Northcraft raised the mortgage issue again. He said Thursday that he had found a home he would like to buy in Hermosa Beach and had put his El Segundo house on the market. He also said he is seeking financing for the new house from several lending institutions and that the city’s offer is so close to market rates that he may be able to find something comparable in the private sector.

Northcraft said that whether or not the council rejects the loan, he believes it is an idea that should be considered when hiring top-level city employees in the future.

“With the housing market in California, it is something more and more cities are doing,” he said. “When we hire a critical department head in the future I want to keep the concept in mind.”