Many Cities Help Leaders Move In
California’s real-estate recession has put a dent in housing prices, but buying a home in the state’s more upscale markets can remain a stretch--even on $100,000 a year.
For that reason, many cities are trying to cushion the blow for their top municipal executives with forms of assistance that go beyond standard reimbursements for moving vans and other relocation costs.
Some cities provide a monthly housing stipend to their city manager. At least six have entered shared-equity arrangements. Still others have provided forms of direct financing or combinations of assistance.
“Where you find the most innovations is in the housing arena,” said Palos Verdes Estates City Manager James B. Hendrickson, who authored a recent study of municipal executives’ employment agreements. “That’s an area I think is going to get a lot more creative as time goes on.”
Hendrickson said that a recent survey by the League of California Cities found that 27 of 291 city managers responding said they had been or were receiving some form of municipal housing assistance. Housing assistance has become most frequent, Hendrickson said, among managers moving into the Los Angeles and San Francisco Bay areas.
One such city is the affluent hillside community of Los Gatos, 40 miles south of San Francisco. Town Manager David W. Knapp said he put forward $120,000 of his own money for a down payment last fall, then obtained a $200,000 loan from the city. Knapp, whose salary is $85,000, said that he will repay the city loan at a fluctuating interest rate tied to the municipality’s annual return on its investments no later than when he sells the house or leaves his job. However, Knapp said that if the house does not appreciate during that period by an average of almost 5% a year, the interest he owes the city would be reduced proportionately.
“If appreciation is low, it would lower my interest debt,” said Knapp, hired last year from Boulder, Colo.
Elsewhere, in the desert resort community of Indian Wells, the city last year became owner of 49% of a $550,000 house along with its new city manager, Roderick Wood, who owns 51%. Wood said that after selling his former home in Escondido, he made a down payment of $56,000 for his share of the Indian Wells house, spent an additional $11,000 of his own money to upgrade and repair it, and obtained a $224,400 loan from the city. Wood, whose salary is $95,000 a year, said he is repaying the city at 9.38%, over 15 years, through monthly payments of $2,600.
Wood said that if he leaves his job for any reason, he would have to repay the city. Indian Wells, he said, would have first rights to buy the house; if the City Council and he could not come to an agreement, the price would be determined by outside appraisers.
He noted that the 9.38% interest rate he is paying was higher, as of 1990, than the 7.1% that Indian Wells was earning on its other municipal investments. And, he said, the city would share in the profits from any appreciation in the home’s value.
“It’s a good financial deal for me,” Wood said. “It’s a good financial deal for the city.”
The arrangements in Indian Wells and Los Gatos differ in some respects from the terms set over the last decade by the San Juan Capistrano City Council.
In 1981, the city loaned its manager, Stephen B. Julian, $250,000 to buy a house within the city. Julian made no down payment of his own money, and the interest rate for repayment of the loan was tied to the fluctuating, average yearly rate of return on the city’s investments. The home sold for $207,500, and Julian has said that he used the remaining loan proceeds to make improvements to the residence. In 1988, the city purchased the home from him for $280,000, and re-established his remaining outstanding loan balance at no interest.
In 1990, San Juan Capistrano council members approved a new employment contract that could free Julian from repaying any remaining city financial obligations if the city terminates him for reasons unrelated to misconduct or willful or habitual breach of duty.
Other cities that are providing forms of housing assistance include:
* Palos Verdes Estates. City Manager Hendrickson lives for free in an ocean-bluff home owned by the city that he says would otherwise rent for $3,500 a month. Hendrickson said that the trade-off is his salary: $70,308 a year, compared to the $85,000 he had been earning as city manager in San Clemente as of 1989.
* San Clemente. Soon after City Manager Michael W. Parness was hired in late 1989 from Renton, Wash., he used what his contract describes as a $200,000 “advance” from the city toward purchasing a $485,000 house. Parness, whose annual salary is $99,000, said that he used the $200,000 as a down payment and his own money and private financing for the remaining $285,000. The city shares in the equity of the house. Parness said that he would have to repay the $200,000 to the city, along with a proportionate share of any appreciation of the home’s value, either when he sold the residence or within a year of his departure as city manager.
* Laguna Niguel. City Manager Tim Casey, hired in summer, 1990, from Redondo Beach, receives $700 a month for housing; his salary is $99,600.
* Redondo Beach. City Manager William E. Kirchhoff, who came to the city last month from Arlington, Tex., is receiving $1,200 a month as a stipend for housing. He said his annual salary is now $120,720.
* Rancho Palos Verdes. City Manager Paul D. Bussey, hired last year from La Palma, owns his house in partnership with the city and receives a $400-a-month housing stipend. Aside from the $4,800 a year he receives for housing, Bussey said his annual salary is $80,200. Bussey said he owns 51% of the house, and the city, which sold him his share, owns 49%. He said he spent his own money to purchase his share of the $510,000 home and obtained financing through a private lending institution.
