Critics of Santa Barbara City’s $4.4 million employee mortgage loan program are scrutinizing city funding due to concerns over detrimental use of the government’s financial reserves.
Drawn from the city’s general reserve, the program’s funding provided 36 loans to help city employees afford the central coast’s high property values. Although the city has not offered one of the loans since 2009, the program has become a point of contention because of recent economic downturn.
According to Santa Barbara City Council Member Michael Self, the program has sapped resources that should remain in reserve for public services or emergencies.
“These monies came from our reserves of which now there are none and we are trying to close an almost three million dollar deficit,” Self said. “However, this was offered to the employees in good faith and I do not hold them responsible.”
Self said the city gave the loans without ensuring debtors could repay the funds.
“It appears that this governmental overreach did not use sound lending practices in awarding these loans,” Self said in an email. “There were no credit checks, to name one item of concern.”
Despite concerns over the loans’ credibility, Santa Barbara City Finance Director Robert Samario said the city provided a 15 percent loan only if the applicant was a first time home buyer on the south coast and demonstrated they could get conventional financing from one of the city’s approved banks.
“[This] made sure that they were doing the right things, not cutting corners and undermining the process,” Samario said. “You had to meet the strict lending requirements and lending criteria to be approved.”
Mayor Helene Schneider said the loan program is an attempt to provide housing opportunities for valuable city officials such as police officers and fire fighters.
“When the council put it together in the mid 2000’s it was certainly a reasonable policy,” Schneider said. “There is a list of 47 people who were able to live and work in the Santa Barbara area because of the loans.”
According to a March 24th article in The Daily Sound, employees who took out loans have collectively paid back only $188,000 of the $4.4 million loaned. However, in an email sent to Mayor Schneider, Samario reported that the program was in good financial standing and the Sound had been mistaken.
According to Samario, the city has received $632,000 in interest payments on top of $948,000 of the loans that have been paid in full.
“Until recently it has not been a big concern of mine,” Samario said. “Clearly we recognized that the latest [loans given] were issues, because we know that property values have declined significantly. Our concern is making sure that they stay current.”
Samario said the monies used to fund the program were excess reserves and the city should see no shortfall unless the mortgaged properties are foreclosed on.
“Right now we just have a paper loss, it is not a real loss,” Samario said. “There is no point in trying to take any action that would ensure a loss for the city or the banks.”
Although the city will not make any new loans, both Samario and Schneider said the program will continue to collect on the loans over their scheduled 15-year period.