City to Ask D.A. for Loan Probe : Inquiry: The San Juan Capistrano council votes 5 to 0 to hand City Manager Stephen Julian’s controversial financial transactions over to the district attorney’s office.

Saying that they want an independent review, City Council members have decided to ask the Orange County district attorney’s office to investigate circumstances surrounding nearly $400,000 in municipal loan debts incurred by City Manager Stephen B. Julian.

Two weeks ago, the council announced its intention to hire a law firm and an accounting firm to examine the loan transactions. But after residents at Tuesday’s council meeting criticized that action, council members voted to instead turn to the district attorney.

“The district attorney can have at it,” said Councilman Gary L. Hausdorfer. “. . . I honestly am not afraid of one single thing in this whole process.”

Minutes later, the council voted 5 to 0 to seek the district attorney’s investigation and to reconsider hiring the outside specialists only if prosecutors say that they do not want to examine the matter. Mayor Kenneth E. Friess said Wednesday that he will make the request in a formal letter that he expects to deliver as early as Friday.

Julian and those who served on the council when the loans were made have said that the transactions were entirely proper. Julian has not participated in the council’s efforts to seek an outside review of the loans and did not address the issue during Tuesday’s meeting.

Dist. Atty. Michael R. Capizzi said Wednesday that his office would await receipt of the formal request before deciding whether to investigate.

“If they’re suggesting there’s the potential for criminal violations, we would want to investigate that likelihood,” Capizzi said. “Our role is to investigate and prosecute criminal violations. And if there is no indication of that, it would not be within our jurisdiction.”

Assistant Dist. Atty. John D. Conley confirmed on Wednesday that a San Juan Capistrano resident had asked for an investigation of Julian’s transactions last month. Conley said he told the resident that any decision to investigate would be delayed until after the council’s outside legal and accounting specialists reported their findings.

In an interview, Conley also said he was not aware of a similar instance in which a city council has requested the district attorney to investigate.

The council’s action on Tuesday was in response to a Jan. 6 report in The Times that Julian had obtained five city loans since 1981, incurring debts totaling $398,235. Julian, as of late January, still owed the city about $81,000 at no interest.

The story also reported that three of those loans were not repaid within the required time. Moreover, Julian’s current employment contract could excuse him from repaying “any” financial obligations to the city if he leaves his job for reasons other than “misconduct” or “willful or habitual breach of duty.”

As had been the case at three previous council meetings, the topic of Julian’s loans generated spirited debate Tuesday from residents and council members. Three of those council members--Friess, Hausdorfer and Lawrence F. Buchheim--reiterated their support for Julian and voiced frustration.

“I get so damn sick and tired of spending half your life up here and trying to do the right damn thing, and you get criticized and chastised by everyone in this community,” said Buchheim who, along with Friess and Hausdorfer, has served since the late 1970s.

Councilman Gil Jones, who was elected in November, said that during the past month he has paid his own attorney to advise him how best to proceed in evaluating the city’s transactions with Julian.

After residents criticized the council’s decision at the end of the Feb. 5 meeting to try to hire the outside lawyers and accountants, Friess suggested that the critics turn to “the ballot box.” Friess said Wednesday that he would not seek reelection in November, 1992.

“I’m very tired, and I’m real beat up by all this,” Friess said, adding that he also has faced stress in his personal life.

On Tuesday, Friess and Hausdorfer also noted that, although the matter was not listed on the five-page prepared agenda on Feb. 5, the council did vote to open the item for discussion. That vote occurred soon after 10 p.m.--three hours after the meeting began and after most of the 150 residents on hand had left.

The idea to seek the district attorney’s investigation was suggested Tuesday night by first-year Councilman Jeff Vasquez, who criticized as “very weak” a proposed outside review to be performed for $10,000 by a San Francisco-area law firm. That proposal called for completing the review within one month, according to a draft agreement circulated at Tuesday’s council meeting.