City to Buy Low-Income Housing Units : Council: Vote to sell $32 million in bonds follows bitter debate over owner and his reputed ties to the mob.

Despite warnings about “the sleaze related to the . . . transaction,” the San Diego City Council on Tuesday voted to authorize the sale of $32 million in bonds to purchase two low-income housing projects owned by Alvin Malnik, a Florida attorney with reputed ties to organized crime.

Council members voted 6 to 2 to issue the bonds after an acrimonious discussion. Later, as the discussion continued, supporters of the purchase, led by Councilman Wes Pratt, walked out in a huff, leaving a frustrated Mayor Maureen O’Connor complaining that they were not interested in learning the truth about Malnik and the transaction.

Earlier in the debate, when it became apparent that O’Connor was going to fail in her bid to block the bond sale, she compared Malnik to Iraqi leader Saddam Hussein and former Panamanian dictator Manuel Noriega. The mayor quickly retracted her comments at the urging of Councilwoman Judy McCarty.

The San Diego Housing Authority will sell the bonds. Additional funds for the purchase will come from tax credits, federal funds and the state housing rehabilitation fund. The 816 units are at the Mt. Aguilar Apartments in Clairemont and Penasquitos Gardens in Rancho Penasquitos.

O’Connor, who has been a consistent critic of the San Diego Housing Commission’s plan to purchase the apartments, vowed to report Malnik and the transaction to the Internal Revenue Service. She charged that Malnik will receive millions in tax breaks from his $47.5-million deal with the city.

The tone for the debate was set earlier in the day, when the council defeated a move by O’Connor and Councilman Bruce Henderson, another opponent of the deal, to postpone the bond vote for two weeks. Henderson said the delay was needed to give San Diego County Dist. Atty. Edwin Miller more time to complete a report on his office’s investigation of Malnik’s background.

Miller’s office has been investigating Malnik since November, following another investigation by San Diego police. Authorities are looking into allegations raised in newspaper articles about Malnik’s ties to several organized crime figures.

When the debate was taken up again four hours later, O’Connor continued hammering away at the purchase.

“This is a lousy, lousy financial deal,” she said repeatedly. She also objected to “the sleaze related to the present transaction,” and complained that Housing Commission officials have hidden key details about the deal with Malnik from her and Henderson.

O’Connor’s complaints and her continued calls for a two-week delay on the bond vote led to a brief, angry exchange with Councilwoman Linda Bernhardt.

“I’ve given this council and you ample time ad nauseam to look into this case,” said an angry Bernhardt, who until that moment had not engaged in the debate. “You have asked the same questions and gotten the same answers.”

Bernhardt and Pratt, who support the purchase plan, told O’Connor that information about the city’s real estate deal with Malnik had been made available to the entire council.

“I have problems with the finances,” the mayor said. “We’re paying too much for this. We’re paying all cash, plus a deferral where he won’t have to pay capital gains tax.”

Pratt and Housing Commission Executive Director Evan Becker said the agreement between Malnik and the city has received preliminary approval from the U.S. Department of Housing and Urban Development. HUD has agreed to subsidize the tenants’ rents with Section 8 funds, which require that tenants pay only 30% of their income for rent.

“We got pre-approval from HUD,” Pratt said. “If the district attorney finds something that would cashier this project, rescission is always available. If it’s merited.”

Henderson, who has been the opposition’s point man on this issue, said there had been “gross malfeasance” by the commission in arranging the deal with Malnik. He repeated past warnings that “we may be dealing with a person who may be an undesirable person.”

Despite questions raised about Malnik’s reputation, a commission task force report released in November says he had never been convicted of a crime.

“Malnik has never been convicted of any crimes, and, as a result of the acquisition, would have no further associations with these projects,” the report says. “HUD further reported that Malnik had managed the properties responsibly for more than 15 years.”

Henderson, who wants Malnik to sell the apartments to a private buyer, said he had an appraisal that put the apartments’ worth at $23 million, less than half the price the city is willing to pay.

However, Becker said the low appraisal is good only if the rents remain artificially low. Rents at the two projects now range from $288 to $326 for two- and three-bedroom units. There are no one-bedroom units.

O’Connor warned that the higher price being paid by the city will result in an increase in rents. Commission officials had already conceded that in November, when they announced that, under HUD’s Section 8 guidelines, the city would have to increase rents by a third each year for three years.

After Tuesday’s meeting, Becker said HUD guidelines would require a rent increase whether the units were purchased by the city or a private buyer.

Councilwoman Abbe Wolfsheimer said the city should be concerned about only two issues in its dealing with Malnik:

“The legal issue is if it’s title free, lien clear, unencumbered and marketable. The answer is yes.

“The moral issue is whether we’re going to put people out on the street indirectly by failing to provide affordable housing.”

The walkout by supporters of the bond sale occurred when O’Connor and Henderson asked for a motion to require Dist. Atty. Miller to appear before the council in two weeks and discuss the report of his investigation.

Pratt, an attorney, advised O’Connor that Miller is an independent law enforcement officer not beholden to the council. O’Connor responded that supporters of the project did not want to call Miller because they were not interested in learning the facts about Malnik.

Pratt and Bernhardt angrily called the mayor’s move a publicity stunt and led the walkout, leaving the council without a quorum.