The House That AC Transit Bought 

Why did the bus agency give general manager Rick Fernandez a secret $400,000 loan to buy a home in Oakland?

AC Transit's finances were in disarray in April 2004. The bus agency had declared a fiscal emergency, slashed services, and borrowed $20 million just to remain solvent. Yet against this backdrop, the agency's board secretly took $400,000 out of its general fund and loaned it to General Manager Rick Fernandez so that he could buy his dead girlfriend's house at a steeply discounted price.

It was odd enough for a public agency to provide housing assistance to an employee who already had lived in the Bay Area for eight years. But that wasn't the only notable aspect of the involvement of the Alameda-Contra Costa Transit District. Agency documents and records from a bitter court battle over the home paint a startling portrait of the man who runs this $300 million transit agency. The involvement of public funds and AC Transit personnel make it a matter of legitimate public concern.

The home had belonged to longtime agency employee Georgia DeTro, who both dated and worked under Fernandez for several years. It was a relationship that would have violated the agency's personnel rules if they had been married to one another. Fernandez and DeTro lived together for five years, and she accompanied him on at least one of the eight trips to Europe that taxpayers have paid for him to make since 2001.

AC Transit employees also played starring roles in the bizarre drama that resulted in a last-minute will benefiting Fernandez and ultimately allowing him to buy DeTro's house with public funds. An AC Transit employee was a witness to the new will, which also was drawn up by a former member of the agency's board of directors. In addition, yet another agency employee visited DeTro at home on her deathbed to add Fernandez to the stricken woman's life insurance policy and retirement benefits two weeks before she died.

The flurry of eleventh-hour changes was deeply disturbing to members of DeTro's family, who said in court filings that Georgia was far too ill and incapacitated to have made any such decisions on her own. They challenged both the will and Fernandez' claim on the house in an acrimonious court battle. They also noted that the signatures on the will, insurance policy, and retirement benefit barely resembled DeTro's distinctive handwriting.

Fernandez declined to comment for this story. But Michael Foster, a private attorney representing AC Transit on his behalf, said loans such as the one the general manager obtained are commonplace in public transit agencies even when they don't involve recruiting or transfers to a new city. He said he personally knew of such loans, but would not provide other examples.

So why did AC Transit loan its general manager $400,000 and later supplement the loan with another $100,000? Board members who voted in favor of the low-interest loan, which has not been disclosed publicly until now, said their agency is earning more interest than it otherwise would make on its short-term investments. But this was not a short-term investment. Fernandez has thirty years to pay the money back, which means the agency cannot use the money during that period for expenses such as hiring drivers or adding routes at a time when it has slashed service and raised fares. This transaction would be extraordinary even if the agency were not enduring tough economic times, from skyrocketing costs and diminished service to losses in ridership and increasing dependence on taxpayer funds.

Although court records indicate that he was still married to another woman at the time, voter registration records suggest that Rick Fernandez moved in with Georgia DeTro in 1998. It was two years after he came to work for AC Transit, and about a year before he was named to lead the agency. The couple lived in a charming two-story stucco house on Seminary Avenue, across the street from Mills College. Their home in the Millsmont district had been in DeTro's family for decades. She had bought it from her grandparents' estate, according to property records and her brother, Frank DeTro.

Inside AC Transit headquarters, Rick and Georgia's relationship was hardly a secret. In fact, in spring 2001 she accompanied him on his first agency-funded trip to Europe, according to travel records supplied by her brother. Eight months later, the agency signed an expensive and controversial long-term contract with Van Hool company of Belgium to buy its buses. As would become his habit, as reported by the Express in January, Fernandez took a side trip to Paris during that inaugural junket. He and Georgia stayed for seven nights at the Normandy Hotel in the heart of the city, along the River Seine, and across the street from the Louvre. Fernandez, a snappy dresser with expensive tastes, would eventually make at least eight trips to Europe at taxpayer expense, including excursions to Paris and Amsterdam, even though he had no official business in those cities.

As the agency's executive coordinator to general managers, Georgia reported directly to Fernandez for at least two years. Their relationship appears to have violated the spirit of the agency's personnel rules. AC Transit does not prohibit executives from fraternizing with subordinates, according to agency General Counsel Ken Scheidig, but the agency nepotism rules forbid husbands from supervising their wives, or vice versa. However, those rules didn't apply to Fernandez and DeTro because they never married during their five-year cohabitation.

In a recent interview, Georgia's brother, Frank DeTro, described her as "an organized and together" woman who was an "important cog" at AC Transit long before Fernandez arrived. "She was fabulous," he said. "She was an artist, and not only was she a beauty, she had intelligence."

But in December 2002, Georgia was diagnosed with bone cancer. She died six months later. Just four days before her death, she apparently signed a new will in which she described Fernandez as her "life partner" and appointed him and her brother as co-executors of her estate. She also stipulated that Fernandez could stay in her 2,100 square-foot-home for up to a year and then purchase it for only $350,000. A few months later, according to court records, an appraiser valued the home at $440,000. As of last week, estimated it was worth $555,500.

The last-minute will angered some of DeTro's family members. With the help of Georgia's aunt, Kathleen LaPonte, Frank DeTro challenged it in court. The two alleged in sworn statements that Fernandez had coerced a very sick woman into selling the family home at a below-market price and that she was too racked with cancer and too medicated to have executed a will on her own. "She was so ill and on such a high dosage of morphine, she could not have known or understood what she was doing," LaPonte said in a sworn statement to the court, adding that her niece had several brain tumors and was partially blind. "She could not eat; she could not read; and she could not write."

Frank DeTro also alleged that his sister suffered under Fernandez' care. In February 2003, three months before she died, "she was admitted to the hospital for malnutrition and morphine overdose," Frank DeTro said in his sworn statement. Both he and LaPonte also alleged in court papers that in the months before Georgia's death, Fernandez continued to overmedicate her and would not allow family members to visit her unless he was present. In the weeks before she died, they claimed that he cut off all family access to her. Frank also alleged that Fernandez had repeatedly tried to get Georgia to award him power of attorney after she was diagnosed with cancer, but that she refused. LaPonte also claimed in court filings that on the day Georgia died, Fernandez changed the locks on her house so as to deny the family access. The aunt's court filing also alleged that Fernandez moved a new girlfriend into Georgia's home a few months after she died, and about nine months before he bought the house from her estate.

The family was additionally suspicious because the will was drawn up by Clinton Killian, a Fernandez friend who is an Oakland lawyer and former AC Transit board member. Killian had been on the board when it promoted Fernandez to general manager. In addition, one of the will's two witnesses was another friend of Fernandez, John Rudniski, then an AC Transit employee who just left the agency last month.

Killian's testimony on behalf of the will proved pivotal. According to court documents filed by Fernandez' lawyer Patricia Simmons, Killian testified in a deposition that the will was proper and that it was her idea — not Fernandez'. According to Simmons, Killian also said that he completed the will alone with Georgia, without Fernandez present. Simmons also denied that Georgia had been on morphine before her death. With Killian's testimony, the family was forced to settle the case and allow Fernandez to buy the house for $350,000, Frank DeTro said.

In the settlement agreement signed in February 2004, Fernandez issued a blanket denial of any wrongdoing. But he admitted to running up Georgia's credit card after she died. He also admitted to racking up $805 in local and long distance phone calls on her phone and failing to pay $690 in garbage bills and $947 in property taxes on the house.

On April 21, 2004, the AC Transit board voted to loan Fernandez $400,000 to buy Georgia's house — $50,000 more than he paid for it. Public records show that the board discussed the loan behind closed doors, and then voted in public, but did not announce what it was voting on. According to minutes of the meeting and to the agency's lead attorney, Scheidig, the board only announced that it was voting on "an amendment to the employment contract with the general manager." The Express recently learned about the deails of the loan through a public-records request.

"It's outrageous," said East Bay transit activist Joyce Roy, when told of the secret loan. "It's hidden government. It makes you question everything about this agency." Longtime Bay Area transit official Tom Radulovich said that in his experience a loan of this type would be uncommon. Radulovich, who has been on the BART board for eleven years, said housing allowances are not unusual "if you have a candidate who you were trying to attract, and that person has sticker shock because of Bay Area housing prices. But for somebody who's been here for a while, that's really odd."

The loan came from the agency's general operating account, which is funded by East Bay property and sales taxes and rider fares. The loan document is in the form of a mortgage and is secured with the property. Like many such loans, the general manager has thirty years to pay it back, but if he leaves AC Transit he must repay it within one year, or the agency can seize the house.

The AC Transit board's final vote on the loan was 4-2-1. Current board member Joe Wallace voted no, but said last week he couldn't remember why. Former board member Pat Piras also voted against it, but did not return phone calls seeking comment. Board President Chris Peeples abstained, but he did not respond to an e-mail requesting an interview.

Of the four board members who did vote for the loan, only two still serve on the board — Greg Harper and Rebecca Kaplan. In a recent interview, Harper defended the loan, saying he viewed it as an "investment" in the general manager. He also noted that the loan terms require Fernandez to pay an interest rate 1.2 percentage points higher than what the agency normally receives when it invests money on a short-term basis. The agency could have gotten a higher rate for its money on a long-term investment but, as agency attorney Scheidig noted, the agency typically makes no long-term investments. Harper said Fernandez asked the board for the loan because the interest rate was lower than what was available on the mortgage market at the time. Fernandez' initial rate was just 3.0 percent, but it has since climbed to 6.2 percent.

Kaplan also defended the loan, arguing that other public agencies routinely provide housing allowances as part of their "relocation benefits." But when it was pointed out that Fernandez had already been with AC Transit for eight years when he got the loan, she claimed that he was a special case because he had not received a relocation benefit when he arrived from New Jersey in 1996. She also argued that the loan carries "zero cost" to the agency, even though it ties up general operating funds for up to three decades. Neither Harper nor Kaplan were aware of the controversy surrounding Fernandez' acquisition of the house.

So why would an executive who is paid a salary of $260,000 a year need a low-interest loan from a public agency when home mortgage rates in 2004 were already at historic lows? It might have been because Fernandez and his wife filed for Chapter 7 bankruptcy in New Jersey in the mid-1990s and did not emerge from their financial mess until September 1997, according to federal bankruptcy records. Bankruptcies can stain a person's credit record for up to ten years, and make it extremely difficult to obtain home mortgages with decent interest rates.

Agency records show that Fernandez has been repaying the AC Transit loan through payroll deductions for the past four years. However, he owes more money now than he did in 2004. In July 2006, the AC Transit board secretly approved a second loan, bringing the total to $500,000. It is not clear what this loan was for.

Meanwhile, Frank DeTro remains bitter. He still lives next door to Fernandez in a duplex that his sister left to him and his brother. "He was still using her credit cards five months after her death," DeTro said of Fernandez, during an interview in his dining room.

DeTro also is angry that two weeks before his sister's death, an AC Transit employee came to her house and changed the beneficiary list on her life insurance and her retirement benefits to include Fernandez and others. Copies of these documents show that Fernandez pocketed at least $23,945 as a result. Georgia's signature on the documents, like her signature on the last-minute will, looks as if they were written by a someone barely in control of her faculties. And one of the signatures does not include Georgia's middle initial of "M," which her brother said she always used when signing her name.

A letter to Fernandez from Frank DeTro's attorney also alleges that Fernandez was using his sister's last name in December 2004 — nineteen months after she died. The letter from Oakland attorney Catherine Haley alleges that AC Transit's general manager was using the name "Richard Fernandez DeTro" on his cable, garbage, and utility bills. This newspaper could find no records of Fernandez having changed his last name to DeTro. But county records do show that in July 2004 — just three months after AC Transit gave him the loan to buy Georgia's house — he married his new girlfriend.

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