ALARCON GOT LOAN FROM WIFE OF BUILDER.

Byline: Patrick McGreevy Daily News Staff Writer

Los Angeles Councilman Richard Alarcon voted to approve a $1.1 million, no-interest city loan to politically connected developers after the wife of one of them loaned him $38,700 for improvements to his Sylmar home, records and interviews show.

Alarcon's dealings with developers Mark Armbruster, Scott Adler and Mark Handel raise ethical and possibly legal questions involving conflict of interest, according to officials with public and private government watchdog agencies.

The councilman, who has received contributions from the developers for his state Senate campaign against Richard Katz, reported the $38,700 loan from Sarah Lulloff on his disclosure statements in 1995 but failed to report it the past two years. Lulloff is Handel's wife.

Asked Thursday about his dealings with the developers, Alarcon said the failure to report the loan was an oversight that will be corrected immediately. He denied knowing about the possible conflict of interest when he voted for the loan for the developers' Studio City project in late 1995.

Discovery of the continuing connection between Alarcon and the developers comes three years after the Daily News reported the councilman decided to recuse himself from voting on another project involving the same group.

In that case, Alarcon cited a conflict of interest over the proximity of the new project to the house he had recently bought from the developers. He immediately borrowed $38,700 from a private lender to pay the developers for the swimming pool and landscaping.

A search of public records in recent days showed that the lender was in fact Sarah Lulloff. More than $20,000 remains to be repaid, and Alarcon is paying $550 a month on it at 8 percent interest, Handel said.

Eighteen months after borrowing the money from Lulloff, Alarcon voted with the City Council majority to approve the $1.1 million loan that allowed the developers through a partnership called Valleyheart West L.P. to buy a 36-unit, earthquake-damaged condominium building in Studio City.

``I don't remember ever that the people who built my house were the people that were working on that project,'' Alarcon said Thursday. ``If I knew that (Handel was) the benefactor of the (city) support of the project, I would check with the city attorney, and I've done that on other things.''

Alarcon said he does not believe there was a conflict because Lulloff was not a party to the city loan and the developers did not lobby him for support.

``I don't remember them ever approaching me for support on the project, but this loan is not with their construction company - it's with Sarah Lulloff,'' Alarcon said.

Officials with the city Ethics Commission and state Fair Political Practices Commission said they would need to review the case in detail before making a determination about whether a conflict exists.

Gary Huckaby of the FPPC said elected officials are prohibited by conflict-of-interest laws from voting on any matter that has a material effect on a financial interest that is a source of income of at least $250 for the elected official.

``Loans are considered a source of income,'' Huckaby said.

Income shared

He said that in general, California's community property laws mean that income for one spouse is considered to be shared with the other for purposes of determining a conflict.

``It doesn't matter with a married couple what they've done to segregate their finances,'' Huckaby said.

He said his comments were general and not directly about the Alarcon case.

Jim Knox, who heads the ethics-watchdog group California Common Cause, said Alarcon should not have voted on the project if he knew who the partners were.

``I think there is the potential of an appearance of a conflict,'' Knox said. ``Legally it's probably not. Ethically it's another question. I think it would have been best for the councilman to recuse himself from the vote, but I doubt whether anything illegal has taken place.''

The dealings between Alarcon and the developers date back at least until October 1993, when he agreed to pay $250,000 for a home in a project they built in Sylmar. Later, they made improvements for him.

``Richard purchased a house from us, and he wanted certain improvements that did not come with the house - a swimming pool and landscaping,'' Handel recalled. ``We mentioned to Richard that we could speak to some investors (about the second trust deed) to see if someone was interested, and we did.''

In 1994, Adler told the Daily News that a third-party lender would be found to cover the cost of the pool and landscaping, and that the lender would not be involved in the development because the developers were seeking council approval of another development nearby.

Took second deed 

In a recent interview, Handel acknowledged he went to his wife, who has her own separate investment portfolio, and she agreed to take a second trust deed for $38,700 for Alarcon, which was recorded March 4, 1994.

``From what I remember,'' Alarcon said, ``they wanted to sell the house, and I didn't want to buy the house without improvements. In order for them to sell the house and do the improvements, they had to find a way to finance the project.''

Handel said he does not believe his wife's loan to Alarcon poses a conflict for the councilman to vote on other projects involving Handel, Armbruster and Adler.

``I don't see any problem,'' he said. ``She's not a partner in any of these projects. I don't see a conflict.

``She has an independent financial life separate (from mine). We file separate tax returns. She has her own investment portfolio.''

Handel said he and Lulloff have a prenuptial agreement that he would only take over the Alarcon loan if his wife died, and that otherwise he has no interest in the loan.

Lulloff declined to be interviewed.

Alarcon said he remembers Handel telling him that the trust-deed holder was related to him but that they kept their finances separately.

``I do remember him saying that,'' the councilman said.

Loan was listed

Alarcon listed the Lulloff loan on his required city statement of economic interest for 1995 as being $35,000 at the time, but did not report the loan in the statements for 1996 or 1997.

Ethics Commission rules say loans that are outstanding for more than $250 during the reporting period should be disclosed in the economic interest statement covering that period.

Alarcon said that if the loan was not disclosed in the 1996 and 1997 statements, it was ``purely a clerical mistake and we'll change it.''

Late Thursday, he had his staff file amendments to disclose the loan, he said.

Armbruster, who ended his partnership with Adler in 1996, is a registered lobbyist and serves as Mayor Richard Riordan's appointee as president of the city Environmental Affairs Commission.

Adler, who also has served as a lobbyist, is a former Riordan appointee, having served as president of the city Building and Safety Commission.

He resigned in August 1996 after he was arrested on suspicion of having sex with an underage prostitute at a Van Nuys apartment building. He pleaded no contest and was sentenced to community service.

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PHOTO Alarcon