Unsecured Olympic Center Loan Raises Eyebrows : Finances: If the San Diego group working to build an Olympic training center defaults on the loan, the state could lose its money.

In an arrangement it concedes is “very unusual” and potentially risky, the state Department of Commerce has not required collateral for a $15-million loan of public money to the San Diego-based foundation that wants to build a year-round Olympic training center in the South Bay.

The loan from the state’s general fund to the San Diego National Sports Training Foundation was mandated by a controversial law passed last year to help the nonprofit group reach its goal to build a state-of-the-art, $60-million training center on the western shore of Lower Otay Reservoir in Chula Vista. The foundation has scheduled a Saturday groundbreaking to coincide with a meeting in San Diego this weekend of the United States Olympic Committee board of directors.

Initially, the Legislature intended the $15-million state loan to be repaid through the sale of special Olympic training center license plates, which cost $132 a set. But Gov. George Deukmejian signed the law only after the foundation guaranteed to repay the loan itself if license plate sales flopped, as some legislators and critics of the loan have predicted.

That guarantee, however, did not translate into financial safeguards in the written contract negotiated between the foundation and the Department of Commerce. The contract, which was given final administrative approval this week, does not require the foundation to set aside assets or financial reserves to back up its promise to pay off the remaining parts of the loan in 20 years.

“We have no collateral,” acknowledged Jack Stewart, Department of Commerce chief deputy director and the person who negotiated the loan on the state’s behalf. “That makes it a very unusual type of loan agreement.”

Stewart said he could not recall the state making any other unsecured loans, adding that collateral is always required for any of the department’s competitive programs to provide funds to small businesses and local governments.

Asked whether the agreement could mean the state would lose its money if the foundation changed its mind or folded within 20 years, Stewart replied: “That is a possibility.”

But developer Ernest Hahn, vice president of the foundation’s board of trustees, maintained Wednesday that the potential of the nonprofit group defaulting on the loan is “very, very remote,” especially since civic leaders like himself have donated plenty of time and money to begin construction of the center.

“There’s no funny business to this loan,” said Hahn. “It’s a loan without collateral but based on the integrity of the foundation and based on the sale of the license plates.”

Hahn also defended the foundation loan as a reasonable “exception” to the state’s practice of requiring collateral. “You can’t apply rules--that they’ve never made a loan without collateral in the past--to what is now,” said Hahn.

“We’re not looking to the state for a handout,” he said. “I think the state should be kissing our fannies and saying, ‘Thank God, we have a volunteer group down there that is doing something that is not going to cost us anything.’ ”

Yet one powerful state assemblyman, when informed about the terms of the foundation loan this week, called the lack of collateral “outrageous,” especially at a time when the state is facing a $3.6-billion shortfall that could mean deep cuts in social and educational programs.

“It only reinforces our notion of how we lose our grip on reality when it comes to sports financing,” said Assembly Speaker Pro Tempore Mike Roos (D-Los Angeles), who has introduced legislation to outlaw the use of public funds to secure sports franchises. His unsuccessful bills were inspired by the controversy over relocation of the Los Angeles Raiders to Oakland.

Roos, the Assembly’s second-ranking Democrat, said he will take steps to make sure that legislative conferees re-examine the San Diego loan. “At a time when we’re leaving a lot of blood on the floor,” he said about budget negotiations, “it just seems nonsensical to see $15 million go out of the door without collateral.”

Public records filed with the Registry of Charitable Trusts in Sacramento show that the foundation lost $195,682 during the year ending April 30, 1989, the latest period for which public information is available.

Although the organization took in more than $470,000 in donations during the time period, it had nearly $700,000 in expenses and debt. The foundation received only five individual contributions during the period, the largest of which was $300,000 from newspaper publisher Helen Copley. The second largest gift was $100,000 from C. Terry Brown, chief executive officer of Atlas Hotels and vice president of the foundation.

The foundation’s largest debt is a $2-million revolving line of credit from Wells Fargo Bank to pay day-to-day operations; $478,000 of that was due, with interest, last December, but the deadline was extended because the foundation didn’t have the money, said foundation executive vice president David Nielsen.

Despite the reported deficits, Hahn and Nielsen, who is paid more than $88,000 a year, said the foundation has secured about $25 million in private and corporate pledges, not counting the $15-million loan from the state.

By the end of this year, said Nielsen, the foundation will have a surplus of $3.5 million to $5 million from initial payments on the private pledges and the state loan.

“You’re going to find, as we have in the past, that, once the ground is broken, we’re not going to have any trouble getting $100 million, at least,” said Hahn.

The foundation was created in May, 1987, by former San Diego City Councilwoman Gloria McColl, Hahn and other civic leaders to compete for the blessing of the United States Olympic Committee to build an all-weather training center for American athletes hoping to compete in the world games.

Preliminary plans call for the $60-million complex to have 250,000 square feet of gymnasiums, dormitories, eating facilities and storage rooms, as well as 1.5 million square feet of outdoor playing fields. Hahn said the complex, which will be used 40% of the time by San Diego-area colleges and schools, will feature computerized bobsled and luge simulators, as well as high-speed photography to help athletes perfect their starts.

The complex will be built on 150 acres adjacent to the Lower Otay Reservoir. The land was donated by the EastLake Development Co., a partnership that includes the politically powerful J.G. Boswell Co. agribusiness firm based in Los Angeles.

The training center site will be part of EastLake Development’s planned community near the lake, and it is also contiguous to the former Otay Ranch, which was recently purchased by the Baldwin company, a large Orange County development firm.

Foundation officials had hoped to complete the center in time for the 1992 Olympics in Barcelona. But delays have now pushed the construction deadline to the end of 1992, when the center is to be turned over by the foundation to the U.S. Olympic Committee, said Nielsen.

Arguing that the center would provide benefits for the entire state, foundation officials last year looked to Sacramento for help with money. Their cause was taken up by former Sen. William Campbell (R-Hacienda Heights), who at first introduced a bill simply granting the money to the San Diego group.

When legislators raised objections to the grant, however, Campbell rewrote the bill to make a $15-million loan toward the project, with the money to be repaid to the state’s coffers through the sale of the license plates.

That plan raised eyebrows in the state capital, especially since the sale of similar personalized plates during the 1984 Los Angeles Summer Olympics netted only $2.2 million. The Department of Motor Vehicles estimated that it would take 142 years for the sale of specialized training center tags to pay back the full $15 million. Some legislators called the bill a “sham.”

But foundation officials promised to promote the sale of the plates--a commitment that won approval from the Legislature. Deukmejian, troubled by the financing, signed the bill with the unusual stipulation that the foundation guarantee repayment to the state if license plate sales lag.

“Although I originally had concerns that the source of revenue provided in this bill would be insufficient to repay the loan to the state, I have received assurances in writing from the San Diego National Sports Training Foundation that they will enter into a written contract with the Department of Commerce to guarantee repayment of the loan,” Deukmejian wrote in his bill message. “Therefore, I am satisfied that state resources will not be jeopardized by enactment of this legislation.”

Under terms of the loan, the state will make the loan in $5-million yearly increments from the general fund after the foundation proves each year it has collected a matching $5 million in cash from private donations. The first increment could be paid to the foundation as early as December.

However, Stewart said this week that he never asked the foundation for collateral, although other state loan programs make that a requirement. The difference, in this case, was the legislative mandate.

“What is unusual is to have legislation dictating a loan to a specific entity,” said Stewart. “In this situation, you have the Legislature saying, ‘We want this center to be built, so we will loan them $15 million.’

“I’m convinced that we’re not looking at an organization that is down there to bilk the state out of any money,” said Stewart, who joined the Commerce Department after serving as a legislative aide to Campbell.

“This is a community project in San Diego,” he said. “Both the business and political leadership are involved in establishing something in San Diego. I’m convinced that the people on the board are committed to paying the debt that they owe.”

But Stewart conceded that, as drafted, the loan agreement does not hold board members such as McColl, Hahn and Brown responsible for any debts incurred by the foundation.

Nielsen maintained that the foundation will make good on its commitment, despite the lack of collateral. “We’ve entered into a binding agreement that we will do it,” he said. “It’s an obligation of the foundation. It’s a binding, legally enforceable agreement.

Despite those promises, Roos said Tuesday said the state should re-examine the loan. “I’m particularly sensitive to how outrageous on the surface this seems to be,” he said.

“I don’t think its a good, sound process,” Roos said. “Just look at what we require of our own citizens who are victims of disasters like an earthquake. You should see the hoops they have to go through” to obtain loans and financial assistance.

Nielsen said the foundation will lean heavily on the license plate sales to repay the loan. The group is now reviewing a number of proposals by private firms to promote the sales of the specialized tags.

Hahn added that the foundation hopes to sell 40,000 sets of specialized license plates a year at shopping centers, airport concession stands and through San Diego County firms, some of which have already agreed to institute a payroll deduction program for employees wishing to purchase the tags.

Many of the plates could be purchased by the 3 million to 4 million visitors expected to visit the training center once it is completed, said Hahn. “I think a lot of visitors to the Olympic training center will consider doing it, no matter where they live,” he said.

“It is not like the 1984 Olympics, where it was a souvenir,” Hahn said, comparing the one-time event in Los Angeles to the long-term project in San Diego. “This is a lasting memento.”

Lacking such a promotion, initial sales of the plates have been very slow, said DMV spokesman Bill Gengler. Only 106 people have requested the plates, which become available in July, he said.

“The program is intended to go over a number of years, but right now, I would see that as not a very large number of applications,” said Gengler. “We would hope to see more.”

Although a spokesman for Deukmejian said this week that the governor is satisfied with the financial arrangement, she refused to say whether he knows that the loan agreement negotiated by his administration included no collateral and could lead to the state losing its money.