Valley Commentary : After the Quake, the Voters Are Lenders of Last Resort : Proposed state bond measure would fill gaps in financing the recovery of whole neighborhoods that face business and residential exodus and irreversible decline.

The program announced last week with some fanfare in Hollywood to help owners of damaged Los Angeles apartment houses is a welcome sign that the city and federal governments clearly recognize the potential for a long-term economic disaster resulting from the Northridge earthquake.

But it is important to keep the announcement in perspective. The latest $30-million pledge by the federal government represents only 4% of a conservative estimate of the need for low-interest loans to apartment owners. When you combine it with other aid earmarked for the purpose, the city still appears to have less than a third of the likely need for assistance.

The adverse effects of the earthquake are visible in many parts of the San Fernando Valley. Neighborhoods have large numbers of empty apartment and condominium buildings. “Ghost towns” are hurting the surrounding business and residential neighborhoods. Damaged empty buildings are not being repaired because the owners are unable to obtain money for the repairs.

Half to 70% of the buildings in some neighborhoods in Northridge, Sherman Oaks and Reseda are vacant. Fearful that the area will be an unsafe community of deteriorating, boarded-up vacant buildings, many tenants have moved out of undamaged buildings.

Landlords do not have sufficient rental income to make repairs or mortgage payments. The retail businesses in the neighborhoods suffer and close because their customers are gone.

Historically, apartment buildings in the Valley have been owned by individuals and small groups of people--not large corporations. These people want to rebuild. However, they are faced with the following problems:

* Many owners did not have earthquake insurance because of the high cost and high deductible. Those with insurance often had deductibles so large it is financially impossible to rebuild.

* Because of high vacancy rates and the failure of vacant buildings to generate income, traditional lenders are unable to lend the money necessary to repair the buildings.

* The federal Small Business Administration is rejecting many loan requests because of the lack of guaranteed sources of repayment.

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The situation threatens to do serious harm to the city treasury. Empty neighborhoods hurt businesses. The decline and closures of retail business lead to reduced property tax and sales tax revenue. The communities around these “ghost towns” will deteriorate. Abandoned buildings will invite vandalism, graffiti, burglaries and break-ins by transients.

The city of Los Angeles is allocating a substantial part of the earthquake-relief money authorized by Congress to loans to owners of apartment buildings.

Through Mayor Richard Riordan’s program, the city will loan half the cost of repair to a maximum of $15,000 per unit if funds are not available from conventional lenders, the SBA and insurance proceeds. The building’s owner must provide the remaining half of the money.

Last week’s announcement brought the amount of firmly committed money to $119 million. Ultimately, the program could command upward of $154 million, depending on the priorities set by Riordan and the City Council.

But even if the lion’s share of available federal aid goes into apartment reconstruction, it will be only a fraction of the amount needed.

The city has 19,000 empty residential units now, and 31,000 significantly damaged units at high risk of becoming vacant unless they are repaired. Assuming a conservative $15,000-per-unit cost of repair, the 50,000 units would cost $750 million to repair.

However, there is hope for money from an additional source.

State Measure 1A on the June 7 ballot would permit the sale of state bonds to provide the city with $160 million for earthquake assistance.

Measure 1A may not pass. Other areas of the state may not support it, because the measure is principally targeted to help Los Angeles. No substantial campaign is planned for the passage of the bond measure.

However, if the city of Los Angeles is to be the “lender of last resort” to stabilize and rebuild neighborhoods, it must have adequate funds to accomplish the goal.

Residents of the San Fernando Valley must actively support State Measure 1A. The city and individual members of the City Council need to support it and campaign for its passage. Residents and businesses in the Valley must explain to friends, relatives and customers that the measure is necessary to rebuild the Valley.

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One only has to look at East Coast cities to see the effect of abandoned buildings and large areas of vacant land. Once a neighborhood starts to decline, it is not possible to obtain private capital to rebuild. The key is to stop the decline before it occurs. Stop the exodus of residents. Stop retail businesses from leaving the communities.

Most important, the city must be available--when there are no other lenders--to provide the money to repair and rebuild.