San Juan Lets Go Embattled City Manager : Termination: Council members say Stephen B. Julian is no longer effective. His contract could entitle him to $200,000 in separation payments.

Citing a need for new leadership, the City Council on Monday terminated longtime City Manager Stephen B. Julian, a move that officials say could cost the city up to $200,000 in severance and other payments.

City leaders said a recent lawsuit, which alleged that some benefits in Julian’s contract with the city constituted an abuse of public funds, had undermined Julian’s authority and effectiveness. The suit was dismissed, but the damage was done, said City Councilman Kenneth B. Friess.

“For a long time Steve did an absolutely incredible job for this city, but that lawsuit took its toll,” Friess said. “He was just not effective any longer in leading the staff. . . . He couldn’t do what was needed to take control back and do what was necessary to be done.”

The council decision was announced after a hastily arranged morning meeting that included more than an hour of private discussion with City Atty. Richard K. Denhalter. When the council emerged it voted unanimously to end Julian’s 11-year tenure with the city and place him on paid leave.

“With sincere regret, I have to make this motion that the council vote to terminate City Manager Stephen B. Julian, effective Oct. 15, 1992,” Friess said during the public session in the council chamber.

Julian, 51, a longtime resident of San Juan Capistrano, said he had no immediate plans except to remain in the city. Although he did not necessarily agree with the council decision, he said, he had no quarrel with it.

“The council made a decision for what they think are the best interests of the city. I respect them for making what is a difficult decision,” Julian said. “They think my leadership ability has been impaired, that’s their call.”

Mayor Gil Jones said Julian had been asked to resign but had refused, thereby forcing the council’s hand. That termination triggered clauses in Julian’s contract that provide him with a year’s salary--$125,646--plus a series of cash payments for unused vacation and sick leave, a $5,400 automobile allowance and retirement pay, all to be negotiated by city officials and Julian’s attorneys, Denhalter said.

“There are about 20 items that need to be discussed with (Julian’s) representatives,” said Denhalter. “It will be something less than $200,000, but we don’t have the actual numbers to work with yet. He will get everything he is entitled to and nothing he isn’t.”

Denhalter called Julian’s contract “generous” for a city of 26,000 people.

Julian’s contract, which was renegotiated in February, 1990, also may mean the forgiveness of some personal debts that Julian owes the city, Denhalter said. Under the terms of that contract, Julian could be excused from those debts if he is terminated for anything other than misconduct. But city officials said they are uncertain about that.

The council has asked him to repay at least one debt, an outstanding and unsecured loan of about $26,000 that was linked to a home the city purchased for Julian when he arrived in 1981, Denhalter said. The home has since been sold.

Julian called his contract fair and said he hoped the council would honor the loan clauses in it, including the home loan.

“According to the contract, the city is supposed to forgive the loan. I think they will,” Julian said. “We’ll just have to see what they have to say.”

It was that new contract, renegotiated with two years still remaining on the old contract, that touched off the controversy and subsequent lawsuit involving Julian. As outlined in a series of articles in The Times in early 1991, the debt forgiveness clause was unusual, according to James Hendrickson, a longtime city manager who did a study of municipal executive salary packages for the California City Management Foundation.

The Times articles also detailed how the city gave Julian a $250,000 home loan in 1981, and allowed him to borrow cash against accrued vacation and sick leave.

Julian filed a libel suit against The Times, contending that the stories were false. The suit was settled after The Times published a clarification that said the articles were not meant to imply that Julian’s contract was illegal.

A local attorney, Carlos Negrete, filed a lawsuit against seven city officials, including Julian, alleging that the home loan and approval to borrow cash against accrued time off were improperly approved by the council without public discussion. Negrete also alleged that taking cash for unused vacation constituted an unauthorized cash bonus.

A Superior Court judge dismissed the lawsuit in August, however, saying he found no evidence of illegal expenditures, waste, misuse of public funds or fraud.

City Councilman Jeff Vasquez, who was elected after the new contract was approved and who has been a harsh critic of the Julian pact, called the city manager’s deal extraordinary and a “golden parachute” that more than doubled his severance benefits.

Vasquez also criticized the timing of Julian’s departure just five weeks before election day. Julian is being made “the scapegoat for the poor financial judgments of the council majority,” Vasquez said.

Friess is leaving the council after 16 years of service and appointed Councilman Jerry Harris is up for reelection.

“Maybe this is the best time for him to leave to maximize the value of his severance agreement,” Vasquez said. “A new council might not be so generous.”

Friess and Gary L. Hausdorfer are the only two members of the current council who also served in 1990. Friess called criticism of the Julian contract “Monday morning quarterbacking.”

“At the time it seemed like the right thing to do,” Friess said. “At the time, Steve approached us about the contract and asked to have a re-look because there was an election coming up in five months.”

Friess said Julian wanted to renegotiate his contract with a council he knew, rather than risk dealing with a new council majority.

Hausdorfer, who is frequently at odds with Vasquez, argued that Monday’s decision was necessary to “clear the air” and that, with an election approaching, it would not be fair “to place the burden of this kind of decision on a new council.”

“We did it now to give a new City Council a clean slate to pick their own city manager,” said Hausdorfer. “We are trying to staff the city with a group of executives to lead us into the future.”

Assistant City Manager George Scarborough was named interim city manager with a search for Julian’s replacement slated for January, after the November council election.