The state Fair Political Practices Commission will review the propriety of a loan that Los Angeles City Councilman Richard Alarcon received from the wife of a developer who benefited from a city earthquake rehabilitation program, a spokesman for the agency said Friday.
Alarcon, who is in a close primary race for a state Senate seat, said Friday that he made "a mistake" when he joined in unanimous council approval of a city loan to Valleyheart West Condominium Assn., but that it was due to ignorance, not venality.
"Without any excuses, I messed up, and I am embarrassed about that," Alarcon said. "But if there was the slightest doubt, I wouldn't have participated. . . . The thing is, I didn't know."
On Thursday, Alarcon filed revised financial reports with the city to include the loan, which he omitted in 1996 and 1997 disclosure documents.
Alarcon's opponent in the Senate race, Richard Katz, was quick to seize on the issue to make a broader slap against the councilman's ethics.
"I think it's the tip of the iceberg," said Katz, whose staff had collected documents on Alarcon's loan history and passed them to reporters.
One of the principals of Valleyheart is Mark Handel, whose wife, Sarah Luluff, has loaned Alarcon $38,000 in the form of a second mortgage for yard improvements and a pool at his Sylmar home. Alarcon got a bank loan to buy the $268,000 new home in September 1993 from developer Handel, he said. The councilman said that he asked Handel if a pool could be added and that Handel told him he would find an investor to provide a second loan.
"The house was built with no improvements. There was just dirt in the backyard. We wanted a swimming pool like in our other house," Alarcon said. "The developers said they could do that."
Alarcon said Handel told him that Luluff could provide the second trust deed. The councilman said he was told that Luluff had her own investment portfolio separate from her husband's company. Luluff did not return phone calls from The Times seeking comment.
Alarcon is paying 8% interest on the loan from Luluff, he said. He pays $547 a month and has $20,600 left on the loan. The pool has since been built.
Shortly after Alarcon bought the house, a permit involving another Handel development came before the council, and Alarcon removed himself from that vote because of the loan, he said.
"I asked the city attorney, 'Would it be appropriate to vote on this?' They said they weren't sure, but probably not," Alarcon said.
But in December 1995, the council voted on a zero-interest $1.1-million loan to the Valleyheart group, a limited partnership of Handel, Mark Adler and Mark Armbruster, housing officials said. The loan was to partially finance acquisition of 36 earthquake-damaged condominiums in Studio City. This time, Alarcon voted to approve the project.
The complex at 13030 Valleyheart Drive in Studio City was yellow-tagged after the quake and left vacant, according to a city housing report on the project that the city administrator provided to the council. The report does not contain the partners' names.
The Valleyheart group, after completing the $3.96-million acquisition and rehabilitation project, which was also paid for in part by their own equity and conventional bank loans, was expected to sell the complex for about $5.06 million for an $845,000 profit, the report said.
"The intent was totally appropriate," said City Administrative Officer Keith Comrie. "If you've got neighborhoods with drastic damage and people who walked, you want contractors to go in and rehabilitate it."
Besides being a developer, Armbruster is a registered lobbyist. All three partners have contributed to Alarcon's campaign. Armbruster and his wife, Margot, gave $2,000, while Adler and Handel each contributed $500.
Public officials are allowed to vote on issues that affect campaign contributors, an aspect of the law about which a spokesman for the state watchdog agency, Gary Huckaby, said he often gets frustrated questions.
But state law prohibits public officials from participating in discussions leading to a vote on any matter in which they have a financial interest of $250 or more, he added.
Loans are considered a financial interest, he said. And spouses are not distinguished as separate parties by the law due to community property statutes, he said, adding that he could not comment directly on the Alarcon case.
Alarcon said the developers never lobbied him on the 1995 vote and that his removal from the first vote shows he had no ill intent.