SAN JUAN CAPISTRANO : City Manager Loan Investigations Halted

Following the advice of their lawyer, City Council members have voted to halt independent accounting and legal reviews of five municipal loans made to the city manager.

Council members said they suspended the outside reviews Tuesday night because of City Atty. Thomas P. Clark Jr.’s concern that release of those studies would compromise the city’s position in battling a lawsuit filed recently by local activists.

The suit, which questions the propriety of the loans and other city transactions, names as defendants council members Gary L. Hausdorfer, Lawrence F. Buchheim and Kenneth E. Friess, along with City Manager Stephen B. Julian and Administrative Services Director David P. Bentz.

In its vote Tuesday night, the council also sought to prohibit its members and other city officials from discussing anything that could be related to the lawsuit, Friess said. Councilman Jeff Vasquez was the only dissenter.

“The accounting facts are as they are and will not be changed whether or not they are uncovered,” said Vasquez, a first-year council member who was not among those named in the lawsuit. “I view this as a taxpayers’ audit. They demanded it, the council didn’t . . . and I think we should do what the people asked.”

The city attorney said he advised otherwise.

“I just advised them to stop until the lawsuit was resolved,” Clark said after the meeting. “In the context of litigation, the city attempting to lay the records open to the public would not be sound practice.”

Hausdorfer and Friess said Wednesday that they voted with mixed feelings to halt the outside reviews.

“I didn’t want any of the investigations to be suspended,” Hausdorfer said. “My desire was to see them completed, but we acted on advice of our counsel.”

The council first voted to hire the outside accountants and lawyers following news articles in January reporting that Julian had incurred five city loan debts since 1981 totaling $398,235. As of March, Julian still owed the city about $80,000, at no interest.

Friess, Hausdorfer, Buchheim and Julian have repeatedly said that the transactions were entirely proper. The Orange County district attorney’s office has declined to investigate, citing no evidence of any crime.

The four council members have added they welcomed the outside accounting and legal reviews, were eager for them to be concluded, and expected the results to confirm that the loan transactions were straightforward. The city hired the San Diego-based accounting firm Coopers & Lybrand and the Palo Alto law firm of Whitmore, Kay & Stevens.

Local attorney Carlos Negrete, a leader of the Committee to Restore Integrity in San Juan Capistrano, the group suing the city and some of its officials, said the council’s decision serves as a roadblock to the public’s right to know more about the financial transactions.

“These were going to be objective reports,” Negrete said.

Clark announced at Tuesday’s meeting that no reports have yet been delivered by the accounting and law firms to San Juan Capistrano. On Wednesday, Assistant City Manager George Scarborough said that he expected the city would receive a bill “soon” from Coopers & Lybrand.