Financial Woes Beset Mayoral Candidate : Santa Ana: Councilman John Acosta has closed his business and is selling his home to pay off more than $600,000 in back taxes and debts, and to protect himself in divorce. He says problems shouldn’t be political grist.

As he prepares to launch a campaign for mayor, Santa Ana City Councilman John Acosta’s business affairs are collapsing around him, court records show.

Under the supervision of a bankruptcy court, Acosta has closed his masonry business and is selling his north Santa Ana home to pay about $440,000 in federal and state back taxes and to settle about $200,000 in other debts, according to court records filed in Santa Ana.

“It was just a series of problems that can happen to anybody in business,” Acosta said Friday of the debt that began mounting in 1989.

The turn of bad luck, he said, began when he underbid on a couple of projects and was not repaid money owed to him by another contractor. The financial setback led to his non-payment of employee taxes and, ultimately, forced him in 1989 to seek protection from his creditors through a Chapter 11 reorganization filing, he added.

Acosta said the case was converted in November to Chapter 7--a liquidation of assets--primarily to protect himself in a pending divorce from his wife of 36 years. “I want to show as little (assets) as possible,” he said.

Acosta said his “personal life has nothing to do with my political life,” and he continues planning an election campaign against Mayor Daniel H. Young.

Records in federal bankruptcy court show that Acosta owes the Internal Revenue Service $362,000 and the state Employment Development Department $78,000 for failing to pay employee withholding taxes. Other debts listed in the records total $225,800, although the councilman said that figure could be reduced as court-appointed accountants refine the figures.

In addition, records at the Contractors State License Board show that licenses assigned to two other Acosta businesses--Tecate Tile and Imports and John Acosta and Sons Inc.--were frozen in December and January because the liability bonds for the licenses were suspended. The license still considered active is under the name of John Acosta Masonry, which has been closed.

In the petition for legal separation filed by his wife, Cecilia G. Acosta, the councilman is being asked to give her control of their home and provide financial support. In the petition, she claims that he discontinued financial support on Nov. 20, 1991, the date when the bankruptcy petition was changed from a Chapter 11 reorganization to liquidation.

Although he has not addressed in public his business and personal problems since the initial bankruptcy filing in 1989, City Hall observers have quietly speculated in recent weeks how the issues might effect his political ambitions.

But Acosta said that his ability to pay his taxes and manage his finances should not be an issue in the November election.

“My (voting) record should be looked at,” Acosta said, “and people will find out I have acted in a prudent manner each time I cast a vote on a fiscal issue.”

Campaign finance statements filed last month in the city clerk’s office show that the John Acosta for Mayor-1992 Committee did not raise or spend any funds last year. His second political committee reported a cash balance at the end of last year totaling $1,779, and an outstanding debt totaling $1,736.

By contrast, Young reported a cash balance at the end of the year totaling $41,554.

For his part, Young pledged to run a positive campaign if Acosta enters the race.

“I am sorry for John if he has personal and financial problems, and I hope we can conduct a campaign in a positive way and focus on issues of the community and not personal issues,” Young said in an interview.

In the bankruptcy case, court records show that for the first quarter of 1988, and then almost continuously between June, 1989, and September, 1991, Acosta did not pay to the federal government payroll taxes withheld from the paychecks of his employees.

Bankruptcy trustee Richard A. Marshack, who was recently assigned to the case, said the non-payment of employee taxes is not unusual in bankruptcy cases. “A large percentage of contractors who file bankruptcy have significant tax debt,” Marshack said.

In addition to the back taxes, other major debts listed in the bankruptcy records on file in Santa Ana include $40,843 owed to the State Compensation Insurance Fund for Workers’ Compensation insurance. Compensation fund officials would not comment on the amount due, but stated that Acosta’s policy was canceled July 19, 1989.

Acosta’s financial disclosure statement statement filed last July as part of the proposed Chapter 11 reorganization plan showed assets of $382,725 and liabilities of $365,706. But in the following weeks, none of his creditors, including the IRS, approved of the proposed reorganization plan, according to the court records.

The U.S. trustee and the IRS then urged the court to transfer the case to Chapter 7.

At that time, Acosta was forced to shut down his masonry business. A meeting between Acosta and his creditors is scheduled in early March. At that time, they will begin dividing up his assets.

Since his company went into Chapter 7, Acosta said he has been working as a “construction manager” at a North Bristol Street apartment complex where he currently lives.

Meantime, a hearing is scheduled for next week on Cecilia Acosta’s request that no property be disposed of while the divorce case is pending.

Marshack, the bankruptcy court trustee, said her petition would not interrupt the liquidation proceedings because she is also included in the bankruptcy case.

The trustee said he recently accepted a $225,000 offer for the house and is waiting for court approval.

“Who should get the house? Her or her creditors?” he asked.

Times correspondent Jon Nalick contributed to this report