Transit district stuck with house after former GM strategically defaults
Bad financial management decisions at California public agencies is nothing new. Orange County declared bankruptcy in the 1990s due to gross financial mismanagement, and the California state budget continues to be a mess. Sweetheart deals for public officials is nothing new here either. Public employees in the City of Bell paid themselves salaries approaching a million dollars a year, and California public worker’s unions negotiate compensation packages far in excess of the value they provide. With the culture of corruption rampant in California, it isn’t surprising that minor agencies are also doling out the largess.
Updated 11:06 p.m., Tuesday, December 4, 2012
AC Transit directors sank more than half a million dollars into an Oakland hills home for their former general manager – and now they’re stuck with it.
The cash-strapped district foreclosed on the four-bedroom house in July, six months after ex-GM Rick Fernandez stopped making his loan payments.
That has saddled the agency with an estimated $232,000 loss, based on a pair of loans totaling $500,000 that directors gave to Fernandez starting in 2004, plus additional sale and foreclosure costs.
“It turned out, in hindsight, not to be a good idea,” said longtime AC Transit Director Greg Harper, who was among the board majority that supported the loan.
The loans were always rather odd.
Fernandez first requested $400,000 in 2004 so he could buy the house that had belonged to his late girlfriend, a former AC Transit employee, for $350,000.
Why does a guy need $400,000 to purchase a $350,000 house? Did he and his girlfriend get a $50,000 signing bonus out of the deal?
A year later, the district loaned another $100,000 to Fernandez. AC Transit general counsel Ken Scheidig, who had been kept informed of the deal, recalled Fernandez “advising me he wanted to do improvements to the house.”
Well, apparently the $50,000 didn’t go to improvements because he needed another $100,000 for that. Why would the district loan this guy money to improve his private residence?
Fernandez, who was being paid $276,000 a year, got the loans in lieu of a pay raise.
The guy was making $276,000 per year, and he didn’t have any savings to either put down a payment or improve the property?
The variable-rate loans initially had a 3 percent interest rate. AC Transit directors figured the agency would make more money by lending to Fernandez than it could if it put the cash in short-term investments.
Oakland City Councilwoman Rebecca Kaplan, who served on the AC Transit board at the time, argued then that the deal carried “zero cost” to the agency. Kaplan did not return our calls this week seeking comment.
In 2009, Fernandez had a falling-out with the transit agency and exited with a year’s salary, and an extra year or two to pay off the home loan. Within a year or so of leaving, however, Fernandez began missing his payments.
He gets a $275,000 golden parachute, and he couldn’t make the payments on a $500,000 loan at 3%?
Fernandez did make “catch-up” payments, but in January he notified AC Transit that he was done – and the money stopped coming.
Fernandez did the wise finanical thing by stiffing the agency. It didn’t make sense for him to continue paying on a severely underwater home. Besides, he already looted their coffers.
Fernandez, who still lives in the Bay Area, told us he had no comment.
In a recent report to the district’s board, General Manager David Armijo said the home on Seminary Avenue is now appraised at $300,000 – $210,503 less than the district’s $510,503 investment.
Armijo recommended selling the property, but AC Transit directors have asked staffers first to explore renting the house – hoping to buy time for the market to pick up.
LOL! They’ve become floplords. How many years will they own this rental before the value rises enough for them to escape without a loss? 20?
“It was one of those things that looked too good to be true,” Harper said, “and it was.”
It wasn’t too good to be true for Fernandez. He made out like a bandit.