Loan Guarantee in Hospital Deal Brings Call for Probe : Finances: Assemblyman wants to investigate relationships between officials and applicants in state programs.

As state officials advanced $1.5 million to help two San Fernando Valley hospitals meet payroll expenses, the chairman of the Assembly health committee Monday called for an investigation of decisions by a state loan guarantee program that may leave taxpayers on the hook for the hospitals’ debt.

“It was a disastrous decision for which the state will pay the consequences,” said Assemblyman Burt Margolin (D-Los Angeles). He was referring to a $167-million loan guarantee granted by the state’s Cal-Mortgage program to Triad Healthcare, enabling Triad to buy Sherman Oaks Hospital and Health Center in Sherman Oaks and West Valley Hospital and Health Center in Canoga Park.

The Times reported Sunday that an investment banker on Cal-Mortgage’s advisory loan committee also acted as broker for Triad’s guaranteed loan, helping to net his firm, Goldman Sachs & Co., $2.4 million in commissions. A staff report had warned that the deal was less than “arm’s length” because the buyer and seller of the hospitals had some executives in common.

Triad has since defaulted on the loan, jeopardizing the hospitals and prompting suspension of the state program. If the company is unable to resume payments, the Cal-Mortgage guarantee obligates the state to cover the debt.

Margolin said he will seek an investigation of all state loan guarantee and bonding authorities in a search for “conflicts of interest” between officials and applicants.

The committee chairman said he also will push for passage of a law barring appointees to any state body from doing business with that agency. “The Legislature has a responsibility to ensure that this type of scandal doesn’t duplicate itself,” Margolin said.

Records show that Vincent F. Forte, a Goldman Sachs vice president, was a member of Cal-Mortgage’s advisory loan committee in 1990 at the same time that he represented Triad on the biggest deal in Cal-Mortgage’s 25-year history. When the matter came up for a vote by the loan committee, he abstained. The program had no policy prohibiting a loan committee member from representing an applicant before late 1991.

Forte could not be reached for comment Monday on Margolin’s remarks. Goldman Sachs earlier said in a statement that Forte’s actions were proper and ethical and that he had not received any “personal commissions” from the Triad deal.

Goldman Sachs also noted that “representatives of the state attorney general regularly attended” loan committee meetings. But a Goldman Sachs spokesman said he did not know if one was present during the Triad discussions.

Former agency Director Larry G. Meeks said he did not seek a legal opinion about whether loan committee members could represent clients before the committee.

Margolin called Cal-Mortgage rules inadequate, saying it was “ridiculous” for state officials to conclude that merely abstaining from voting eliminated conflicts of interest.

“It is preposterous to believe that a person who is a member of the loan committee had no influence on fellow committee members just because he abstains,” he said.

Margolin added that he has not “personally heard of a more flagrant example of conflict of interest” than in the Triad transaction.

The loan committee voted unanimously in favor of granting Triad the loan guarantee, a recommendation followed by Meeks, then-director of Cal-Mortgage’s parent agency, the Office of Statewide Health Planning and Development.

Both decisions ran counter to the report of a staff analyst who warned that the deal was not an “arm’s length transaction” because some Triad executives also were executives of Nu-Med, the company selling the two hospitals.

Meeks said that in approving the Triad loan guarantee, he placed more weight on the advisory loan committee’s unanimous recommendation than on the staff report.

A Cal-Mortgage guarantee lends the state’s good credit rating to health care borrowers, enabling them to get low interest rates.

Cal-Mortgage managers brought in by Gov. Pete Wilson’s Administration have instituted new policies barring loan committee members from representing applicants for loan guarantees. Forte subsequently resigned as did another investment banker on the loan committee.

But Margolin said the state has too much at stake to leave such matters to individual program managers or political administrations.

Cal-Mortgage is working closely with Triad managers to keep the hospitals open and improve their financial situation. On Monday, Cal-Mortgage arranged to advance Triad $1.5 million to help meet a payroll shortfall.