Officials Irate Over Loans to Manager : Politics: Two San Juan Capistrano councilmen are angry over arrangement allowing the city’s top executive to borrow thousands in municipal money.

The elaborate financial transactions of this city’s top executive--including his receipt of municipal loans totaling thousands of dollars--are prompting angry reactions from residents and demands for explanation from two council members.

The reactions follow a report in the Orange County Edition of The Times last week that City Manager Stephen B. Julian has incurred loan debts with the city totaling $398,235. The Times also disclosed that Julian did not repay three of his five loans within the time promised, that he still owes the city $85,736.75--at no interest--and that he has a clause in his latest employment contract that may ultimately free him from any financial obligation with San Juan Capistrano.

The first loan, in 1981, was to help Julian purchase a house in the city. The most recent occurred last May, when Julian obtained a $38,500 interest-free loan.

Julian has denied that the arrangements are improper but a councilman is upset by the transactions.

“I do not support that type of financial arrangement at all,” said Councilman Jeff Vasquez, who was elected in November and had no role in approving the transactions with Julian. “I think it’s wrong. . . . I want an official response. . . . Regardless of whether the city manager is employed, I want him to pay the money back.”

Vasquez said he has written Julian requesting a “prompt response” to his concerns and expects the issue to be raised at tonight’s council meeting.

Said Councilman Gil Jones, who also was elected in November: “This issue is going to be addressed. Of course, I have concerns about it. . . . Quite frankly, the council has been discredited, and it concerns me.”

Jones said he is withholding judgment on the transactions until he has an opportunity to meet with Julian.

With some residents vowing to launch a recall campaign against two councilmen who helped approve the transactions over the last decade, both Vasquez and Jones said they expected Julian’s financial dealings to be discussed at the council meeting.

Carlos F. Negrete, a local attorney who is pledging to lead the recall against veteran council members Gary L. Hausdorfer and Kenneth E. Friess, said he will criticize Julian’s loan arrangements at the meeting.

Friess, now mayor, and long-time Councilman Lawrence F. Buchheim said in interviews last week that they had no qualms about the transactions with Julian.

Hausdorfer, a member of the council since 1978 and mayor last year when Julian’s employment contract was revised, did not return several telephone calls seeking his comment.

Julian last week again defended his transactions as proper and said that he had “every intention” of repaying $46,063 of his debt to the city that is unsecured. In a prepared statement, Julian blamed turmoil in his marriage for his failure to comply with the loan repayment terms.

“I am grateful and most appreciative of a City Council that has had the decency to allow me to work through a difficult personal and financial situation, without losing sight of their public responsibility,” Julian wrote.

In the statement, faxed to city managers throughout Orange County, Julian also discussed the provision in his contract that may terminate his financial obligations to the city if he leaves San Juan Capistrano.

Julian’s contract specifies that unless he dies, loses his “legal capacity,” breaches his duty in a “habitual or willful” manner, or commits “any act of misconduct or misfeasance,” he would be entitled to a lump-sum severance payment equal to his annual salary.

“In addition,” according to the contract, “any obligations of employee, financial or otherwise, to employer are likewise terminated.”

“The termination provision of my contract does not excuse me from financial obligations nor the debt owed the city if I leave the city to take another position or if I (am) terminated for cause,” Julian said in his statement. “It does release me from further repayment of the outstanding balance of the (1981) housing loan only in the event the City Council decides they want to terminate my agreement without just cause.”

Efforts to reach Julian for further comment were unsuccessful.

City Atty. John R. Shaw said that he is unaware of a similar provision in any other public employee’s contract that would forgive any financial obligations. But Shaw said that he believes the provision in Julian’s contract is legally enforceable.

Buchheim, who served on the council throughout the 1980s, said that he had no regrets about approving any of Julian’s transactions. “We had approval of the city attorney,” Buchheim said. “And we did nothing wrong, in my estimation.”