MTA board members, staff at odds over loan dispute.

The Metropolitan Transportation Authority staff rushed its board into a sudden, closed-door session last month - a meeting attorneys agree was illegal - to gain approval for $1.3 million in loans to a high-profile developer.

And conversations with board members indicate the board was misled by its staff about the nature of the loans. The staff, for example, failed to tell the board that the bank the MTA contracted with to write Metro Rail construction compensation loans had rejected one of the loans five days earlier, or that there already are two trust deeds on the property involved, backing $15 million in debt.

"It was brought to us as a matter of urgency, that we were facing litigation within days, certainly before the next meeting," explained Board Member John Fasana, a councilman from Duarte. "We were under the gun."

The developer involved is restoration czar Wayne Ratkovich, and the property is the Wiltern Theater building at 3780 Wilshire Blvd. Ratkovich's building is one of several that have been adversely affected by Metro Rail construction on Wilshire Boulevard.

Ratkovich has been threatening to sue the MTA and its predecessor agency, the Los Angeles County Transportation Commission, since last fall.

The LACTC late last year approved sponsoring a $25 million loan program to help the businesses and property owners along Wilshire. Under the Construction Enhancement Loan Program, loans would be made available at 1 or 2 percent below the prime rate, with repayment schedules set to start after Metro Rail construction is completed.

But it wasn't until April of this year that the MTA contracted with East-West Federal bank to write the loans, and the bank started taking applications in May. Ratkovich applied for two loans - $300,000 for his business and $1 million as a property owner.

It is clear from correspondence between Ratkovich and the MTA that the developer was dissuaded several times from filing suit because of the promise of the loan program, but that he became progressively frustrated by delays in getting the program running.

At a board meeting June 9, the MTA board was told by its staff that Ratkovich's loans hadn't been approved yet and that the developer needed a "bridge loan" to tide him over until the bank loans came in. A bank decision was due June 11, but staff said actually obtaining the money would take more time.

Then on June 16, the board was having a "special meeting" on the employment contract of MTA Chief Executive Franklin White and a "budget workshop." County Counsel David Kelsey told the board that day that an item needed to be addressed that had come up subsequent to the agenda being posted -- the Ratkovich loans.

Because of the threat of a lawsuit, the board discussed the matter in closed session. Then the board went back into open session and granted $1.3 million in direct loans from the MTA to Ratkovich.

Two attorneys who specialize in the state's open meeting law, the Brown Act, said the action was clearly illegal. The Brown Act, they noted, only allows for items to be added to "regular meeting" agendas. Under the section on special meetings, the Brown Act states: "No other business shall be considered at these meetings by the legislative body."

"The Brown Act does not permit any off-agenda items at a special meeting," said Terry Francke, executive director of the First Amendment Coalition. "It's almost irrelevant that they went into closed session because they shouldn't have met at all (concerning the loans)."

An MTA board member, who spoke on the condition of anonymity, agreed with that view.

"This didn't come up subsequent to the posting of the agenda," the board member noted. "This was not on the agenda. Nobody knew it was going to happen. I think it was in violation of the Brown Act.

"It was an impossible situation. They (the board members) were shoved, with the lead person being the lawyer (Kelsey)."

Kelsey's position is that a "budget workshop" counts as a "regular meeting." There is no mention of "workshops" or "work sessions" in the Brown Act, but they are generally considered to be non-voting meetings for discussion purposes only.

In fact, at a more recent budget workshop, MTA Chairman Richard Alatorre allowed board members to make motions, but he noted that nothing would be voted on until the next regular meeting, because the meeting the board was in was a workshop only.

A regular meeting is generally described as a meeting at the board's normal monthly time and place; for example, the MTA board regularly meets on the fourth Wednesday of each month. At regular meetings, boards generally vote on a number of items, which are listed on an agenda.

In the executive session of June 16, many board members said they remained under the impression that the Ratkovich loan was still a bridge loan. They said they were not told that East-West had turned down the loan on June 11 or why -- because no appraisal had been done, and there are already two mortgages on the property.

A title search shows two active deeds of trust on the property -- a first deed of trust held by General Electric Capital Corp., dated Aug. 3, 1990, for $11 million, and a construction deed held by a company identified as Bronco Ltd., dated Jan. 18, 1985, for $4.25 million.

"They asked for a third deed of trust and there was no appraisal," said East-West Vice President Derald Borup. "We won't do that. We only do first and seconds. Both of them (Ratkovich and the MTA staff) knew that from the beginning."

Ratkovich sent a letter to MTA Board Member Mike Antonovich, also an L.A. County supervisor, on May 27 explaining that the bank wanted an appraisal that was going to cost him $30,000 and take 60 days.

MTA Treasury Analyst for Special Projects Joya C. De Foor commented on that letter in an interoffice memo dated June 1 that was copied to MTA Deputy Executive Director Les Porter and placed in CELP files.

De Foor wrote that Ratkovich's appraisal estimates were high, and that the bank estimated the cost of the appraisal at $10,000 to $12,000. Another loan applicant in the area received an appraisal from Home Savings for $6,700, the memo said.

De Foor further wrote: "Not mentioned in the (Ratkovich) memo is the fact that the Ratkovich Company has been inquiring about a third trust deed. Only first and second trust deeds are acceptable (approved by the board) for the CELP."

Several board members said they were not given this information. They said they were told that the MTA had been unfair to Ratkovich and that he was being forced out of business and was going to sue them. But they also said they didn't know, when they voted on the 16th, that the property has two encumbrances on it, or that the bank rejected the loan.

"It was said unequivocally that this was a stop-gap loan," said one board member. "It was referred to as a bridge loan. His business is ready to go under."

MTA Board Member James Cragin, a councilman from Gardena, said he abstained from voting on the loans because he "knew very little about it."

"It was explained to us as a bridge loan. Ratkovich was a very nice gentleman who had been inconvenienced and threatened to sue," Cragin recalled. "I was not told the bank had turned down the loan."

He added that the meeting "was a special meeting, not a regular meeting, but the lawyer was there, so I thought it must be OK."

Board Member Larry Zarian, mayor of Glendale, said he voted for the loans because "I felt we had hindered this man's business, almost causing him to go out of business."

He said he "knew there was no guarantee the bank would approve" the loan, but he said it would "surprise" him to learn the bank had rejected the loan on the 11th.

"My impression was that the property was appraised and that it was worth more than the value of the loan, and that we would get a first," said Zarian. He recalled being told the property has a good "appraisal/loan ratio."

Board Member Mark Ridley-Thomas, an L.A. city councilman, said he didn't know about the existing deeds of trust, but that possibility was "precisely what I was concerned about" when he abstained from voting.

"There seemed to be a certain rush to get this done," said Ridley-Thomas. "I don't think the threat of a suit is a substantial reason for loaning money in that amount without proper information. It was not a compelling case."

MTA Board Member Fasana said he was told the bank loan was denied because of "an error in our (appraisal) requirements."

Antonovich issued a statement about the loans that said in part: "If any fault is to be found, it would be in the MTA staff's handling of this program. They were insubordinate in their lack of regard for the board's direction to get this program underway before businesses along the Metro Rail route were forced into bankruptcy."

Other board members said they have been frustrated recently with the staff's failure to keep them informed and answer their questions on other matters.

This also is not the first time the Brown Act has been an issue at the recently formed MTA. Earlier this year, Catellus Development Corp. filed suit against the MTA, alleging Brown Act violations at another meeting. And Board Member Gloria Molina, a Los Angeles County supervisor, has struggled to win passage of an MTA open meeting policy.

Kelsey refused to discuss what happened in closed session on the 16th. Told what the board members recalled about the meeting, Kelsey said simply: "I think your statement is wild."

He added that he was "not sure" whether he knew on June 16 that the bank had denied the loan.

So far, Ratkovich has obtained the $300,000 loan, but not the $1 million due to Wiltern Associates, to be guaranteed with a third deed of trust on the property.

Ratkovich said he plans to use $30,000 from the proceeds of the $1 million loan to pay for an appraisal. He said he also plans to "solve" the bank's second trust deed, which he said is held by Wiltern Associates principals, and reapply with the bank.

If the bank approves the second loan application, the MTA loan will be repaid, he said.