Broken Promises: The TORCA Loan Scandal

By Paul DeSantis

Most American communities want to assist middle-income residents AND to assist low-income residents. The Santa Monica City Council does not. On Tuesday, the Council will vote to place on the ballot a proposition that, if passed, will virtually eliminate the TORCA homeownership loan fund, the only City money dedicated to help middle-income residents become homeowners.

Santa Monica has failed for many years to provide adequate homeownership opportunities for our middle-income residents. Two-thirds of Americans own their own home. In Santa Monica, it is upside down. Only one-third of Santa Monica residents own their homes.

Today, there are only two types of housing being built in Santa Monica --- housing for the very wealthy and housing for the very poor. No housing for middle-income ownership has been built in years. As a result, the only housing opportunities for Santa Monica's middle-income residents are market rate rental apartments and a few TORCA condo units on the resale market.

Instead of recommending a raid on the TORCA homeownership loan fund, City staff should have recommended a charter amendment liberalizing the TORCA loan criteria. The City's goal should be to provide down-payment assistance for middle-income purchasers, not only for TORCA condominiums, but for all types of housing, including SMRPH condominiums (should that proposition become law this Fall).

In 1984, the voters enacted the TORCA charter amendment by an overwhelming 70 percent majority. City leaders solemnly promised that the TORCA tax would be used to help tenants purchase their apartments. The City Council did not keep its promise.

The majority of TORCA activity took place during the first decade, 1984 - 1994. Millions of dollars flowed into the TORCA fund, but no loans flowed out. Not until SEVEN YEARS after TORCA began was the first TORCA loan made, $49,300. The second loan was not made until ONE DECADE after TORCA began.

It is truly a scandal. TORCA loans were withheld when they were needed the most during the majority of TORCA activity, 1984 - 1994. Year after year, tenants and sellers asked for the loans. The City Council played politics with the loan funds, breaking its promises and frustrating the will of the people.

Was there a hidden agenda to keep the money for other purposes?

In 1990, the loan program was amended to allocate 50 percent of the TORCA funds for low-income housing. The other 50 percent would remain dedicated to the original purpose of helping tenants become homeowners. The trade-off for giving up half of the homeownership fund was the City leaders' promise that this time, "trust us," "we will promptly develop a usable TORCA loan program."

Once again, the promises were broken. Rather than promptly making loans from the millions of dollars in the bank to the hundreds of tenants seeking loans, it was FOUR YEARS later, in 1994, that a Shared Appreciation Loan was made for the second TORCA loan since 1984.

Here is the City's TORCA Loan Report Card: First loan made SEVEN years after program began. Second loan made TEN years after program began. Total loans, 51 in 17 years, an average of 3 loans a year! Total TORCA funds to date, $20 million. Total TORCA loans for the original homeownership purpose, only $2.8 million, about 14 percent of the funds. The City Council talks about wanting to assist our middle-income residents, but this Loan Report Card tells us that the Council "does not walk the talk."

My personal goal is to help provide housing for both middle-income home ownership AND for low-income residents. These goals are not mutually exclusive. From personal experience I also know the importance of low-income housing, especially for single parents who are trying to raise a family. As a child I lived several years in public low-income housing as my mother struggled to raise three young sons. For the last 15 years, I have been proud to serve as an active member of the Board of Directors of Community Corporation, Santa Monica's primary low-income housing provider. I have testified in favor of numerous low-income housing projects.

The City has provided tens of millions of dollars for low-income housing and more is required. Low-income families need a safe place to live while their children attend our excellent public schools and community college. With a safe place to live and a good education, these children will get a fair start in life. They will not need public housing when they are adults. They will become our future middle-income residents.

So far, the City has provided only $2.8 million to assist homeownership. Today, middle-income families without wealthy parents need help with the down payments. They also need an opportunity to purchase their market rate apartments. (The SMRPH proposition, which will be on the ballot this November, will allow this.) The net monthly cost of homeownership is similar to the cost of their market rent due to the large tax benefits given to homeowners. Ownership will allow them to build equity and to pass on a small inheritance to their children instead of passing on rent receipts.

If the City Council THIS TIME honestly wants to "walk the talk" and help middle-income residents become homeowners, then here is Step 1: Instead of raiding the $7 million TORCA home-ownership fund, use other funds for affordable housing. The City has property that could be developed or sold. Also, more than $16 million dollars of housing funds were used to purchase the Civic Center property. That $16 million dollars (twice the size of the TORCA homeowner fund) is not producing low-income housing nor earning interest. The City should release the housing portion of the land at the Civic Center for immediate construction or else promptly refund the $16 million dollars to the housing fund.

Step 2 of "walking the talk:" Establish a workable Shared Appreciation loan program to assist our middle-income residents become homeowners, including a charter amendment liberalizing the TORCA loan requirements. Several people, including a former Housing Commissioner, have provided concrete recommendations to fix the TORCA loan program.

Please ask our City Council members not to place staff's misguided TORCA raid amendment on the ballot. If the Council places an amendment that removes the protection of homeownership funds on the ballot, then please join with me to vote "No" on that amendment. Ask the Council to create a new amendment that preserves the homeownership funds and makes it easier for middle-income residents to obtain loans.

Paul DeSantis is a Santa Monica resident, local real estate attorney and President of HomesUSA, a Santa Monica real estate brokerage company. He was the primary author of the TORCA law and is the primary author of SMRPH, a new version of the TORCA law and of VERITAS, a political reform measure. Both SMRPH and VERITAS will be on the November 5, 2002 ballot.