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?

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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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