Big Gap Seen in City Quake Loan Fund

A Los Angeles city loan program to repair earthquake-damaged houses and apartments will fall up to $240 million short of helping qualified applicants, according to an unpublished city report obtained by The Times.

The shortfall in the Housing Department’s loan program is projected in the department’s annual report, a 23-page document that focuses mostly on efforts to rebuild the city’s quake-ravaged housing stock.

The report is scheduled to be released to the City Council next week.

The projected gap appears to contradict housing officials who developed the $314-million program in July and promised that it would provide enough funding to repair all housing units that qualify for the program.

Gary Squier, head of the Housing Department, attributed the shortfall mostly to early damage estimates by city building inspectors that underestimated the cost of repairing many residences.

“Some of these early inspections lasted five minutes,” he said.

The shortfall came to light, he said, after inspectors and contractors began to make more detailed evaluations of the cost of rebuilding quake-damaged housing.

The loan program was devised as a funding source of last resort because it provides 30-year, interest-free loans to landlords who fail to get funding from the Small Business Administration and traditional lending institutions. It is funded through state and federal grants.

The program will fall about $152 million short of funding the more than 25,000 housing units now in the program’s application pipeline, Squier said. The shortfall is projected to grow to about $240 million because the city continues to receive referrals from 20 to 40 landlords daily who have been rejected by the SBA, he said.

Based on estimates of $20,000 to repair an average housing unit, the $240-million shortfall can leave as many as 12,000 damaged housing units without funding.

The quake severely damaged about 65,000 units in Los Angeles, about half of which are expected to get repair funding from the SBA. A small percentage will likely receive repair financing through private insurance. The program was designed to pay for the remaining 25,000 to 30,000 units.

News of the shortfall raised new concerns from city officials who question the Housing Department’s strategy of doling out money on a first-come, first-served basis.

According to housing officials, those most severely affected will be landlords in poor neighborhoods who have had the most difficulty negotiating a break on mortgage payments with their bank and must wait until the negotiations are completed to apply for repair funds.

Councilwoman Jackie Goldberg, who represents hard-hit areas of Hollywood and Silver Lake, is concerned that the program will run out of funds before landlords in low-income neighborhoods are able to apply for aid, thereby leaving many poor people without housing.

“We will be creating more homeless people needlessly,” she said.

Goldberg vowed to press housing officials to set aside some of the program’s funding for landlords of low-income units.

Councilman Hal Bernson, who heads the council’s committee on quake recovery, said he was very concerned about the shortfall and plans to question housing officials about it next week. He added that he will work to find additional funding to fill the gap.

In response to the projection, Squier said his department also will look for other funding sources such as so-called federal “108” funds, which the city can borrow by offering federal housing grants--used for traditional housing projects--as collateral.

SBA spokeswoman Rebecca McKenzie said her agency has done all it can to provide repair funding and would not be willing to relax its lending requirements to provide more housing funds.

“There is nothing we can do differently,” she said. “This is an unprecedented effort on our part.”

Dennis Williams, a spokesman for the state’s Office of Emergency Services, said another funding option is the state-run Individual and Family Grant Program, which is funded 75% by the federal government and 25% by the state.

The program provides a maximum of $22,000 per grant, he said. Thus far it has paid out $191 million to 193,455 quake victims, Williams said. The application deadline, however, is Jan. 20.

Once that program ends, he said, the state has no plans to provide additional funding for quake-damaged housing.