Governor Changes His Tune on Loan

Gov. George Deukmejian on Thursday said he may have been misinformed when he recently allowed the state to risk $15 million in general fund money on an unsecured loan to help with the construction of an Olympic Training Center in Chula Vista.

The admission came after Deukmejian tried to explain why he decided last week to veto as “unnecessary” special legislation requiring the San Diego National Sports Training Foundation to put up collateral for the controversial loan, which comes at a time when the state is cutting back drastically on social services.

Deukmejian said he penciled out the provision because he had already been given written assurances by the foundation that it would repay the loan. “And negotiations for such a contract are under way,” he said.

The governor allowed that he may have been under a false impression, however, when reporters pointed out that the contract for the loan had been signed in June, and that it doesn’t require the foundation to offer security for the deal.

A state official told The Times after the contract was made public that the agreement was “unusual” and could lead to the state losing its money if the foundation folded or walked away from the deal.

“That wasn’t the information that I had,” Deukmejian said. “My information is that a contract has not yet been signed. . . . I don’t have the right information. If that’s in fact so, I would like to see what that contract says.”

Asked what action he could take, Deukmejian said he couldn’t rescind last week’s veto and that it would take new legislation to require the collateral once again.

Reiterating his longstanding concerns that the loan be safe, Deukmejian said: “I will take a look at it and see what it says, if in fact there is a contract, see what it says, and I will want to be satisfied . . . that there is sufficient guarantee that this money will be repaid.”

Deukmejian’s comments Thursday were his first since news about the unsecured loan drew howls of protest this summer from a number of legislators who labored over an austere state budget that cuts deeply into social programs.

The budget battle between Deukmejian and the Legislature dragged on 31 days into the current budget year and was resolved after the governor cut $753 million from programs such as mental health and education.

One of those lawmakers, Sen. John Seymour (R-Anaheim), said Thursday he would contact the governor’s office to say he’d be “pleased” to reintroduce the collateral requirement, which would have to be rushed through the Legislature during its remaining three weeks before adjournment.

“I’m very heartened to hear that he wants the loan secured. That’s more like the George Deukmejian that I’ve known,” said Seymour, who has lambasted the arrangement as a “bad deal.”

The controversial loan has raised eyebrows since last year, when foundation officials won approval from the Legislature to borrow $5 million a year for the next three years. Foundation backers, including shopping center magnate Ernie Hahn, sought the money as part of its fund-raising efforts to build a state-of-the-art, $60-million training center on the western shore of Lower Otay Reservoir.

The bill, passed by lawmakers in the waning hours of the 1989 session, originally stipulated that the money be repaid through the sale of specialized license plates. Yet critics claimed the financing scheme was a “sham,” and the Department of Motor Vehicles estimated it would take 142 years to sell enough plates to pay back the $15 million.

Taking heed, Deukmejian signed the loan bill only after extracting a written promise from the foundation that it would repay the money if the license sales went bust. He disclosed the promise in an unusual message accompanying the new law.

Those assurances, however, did not translate into financial security when the Department of Commerce subsequently negotiated the loan agreement with the foundation. The contract had no requirement for collateral, and Jack Stewart, the department’s chief deputy director who negotiated the agreement, admitted to The Times that it was a “very unusual” deal that put the state’s money at risk if the foundation went belly-up. Stewart was on vacation Thursday and couldn’t be reached for comment.

The revelation prompted Seymour and other legislators to insert special language in this year’s budget bill calling for “a letter of credit, collateral, or other negotiable form of security” to cover the first $5 million installment, which is supposed to be forwarded to the foundation by Dec. 31. But, when the language reached Deukmejian’s desk, he used his blue pencil to cut it out of the law.

At Thursday’s press conference, Deukmejian said the “reason I did it was at the time that I signed that legislation, I issued a specific statement about that bill in which I said at the time that I had received assurances in writing that the organizations supporting this Olympic training center would enter into a contract with the state to guarantee the payment of that money. And negotiations for such contract are under way.”

Told that a contract already exists with provisions for an unsecured loan, Deukmejian said he may have been misinformed and that he wanted to see the written agreement.

After the press conference, Deukmejian press secretary Bob Gore accepted responsibility for Deukmejian’s apparent misimpressions.

Gore said he “made a mistake” by telling the governor that the Department of Commerce was still working on the deal, when in fact it was “working on getting us a copy of the contract.”

He also said the governor’s office had not been tracking the legislative furor over the training center loan. “The issue, on a global scale of things, didn’t register,” he said. “There were a lot of other things to worry about. I didn’t know about the contract.”

Hours later, Gore modified the story: Deukmejian knew about the June contract all along. What the governor was referring to in the press conference was an unfinished “addendum” that would require collateral from the foundation, he said.

“There are, and have been, for the past three weeks, the negotiations the governor referred to, discussions between the Department of Commerce to get collateral, to guarantee the loan,” said Gore. “The foundation realizes the necessity to find collateral. What they’re negotiating is an addendum to the contract that will satisfy the governor’s signing this.”

But David Nielsen, foundation executive vice president, said Thursday that there are no negotiations going on, and that the nonprofit group will approach the state in several weeks with an offer for collateral--an offer prompted by the legislative outcry, and not from Deukmejian’s office.

“We always felt that we had a legally binding agreement with the Department of Commerce,” said Nielsen. “On the other hand, we heard the concerns that were expressed and felt that we should respond to them.”