No one knows better how handy the Arizona State Retirement System fund can be for speculative forays into Arizona real estate developments than Governor Fife Symington.
Symington found the system to be an easy touch when it came to borrowing money for his real estate gambits. Like many of his real estate projects that a few short years ago supposedly had created $12 million in equity but are now worthless, his $975,000 loan from the retirement system ended poorly--at least for the retirement fund's 196,000 beneficiaries.
Symington defaulted on the loan in 1991, a year after his personal guarantee to repay the note expired and after a series of unusual actions cut him a break on fulfilling that guarantee. The governor walked away from the note, leaving the state with a half-empty office building and a $350,000 shortfall.
The governor's handling of the Ten Mo real estate project at 1002 East Missouri also displayed Symington's penchant for shortchanging Maricopa County on real estate property taxes. The same month Symington received the $975,000 loan from the retirement system based on a $1.25 million appraisal, he was telling Maricopa County the office building was only worth $432,357.
The governor's past dealings with the retirement fund provide insight as to why Symington is linked to a recent effort within the retirement system to increase investments in Arizona economic development projects, such as real estate investments. The system is limited by law to investing no more than 1 percent of its total assets of $10.5 billion in state economic development projects. Historically, the system has invested far less in such projects because of their perceived risk.
Last year, Symington appointed real estate developer and prominent Republican party fund raiser John Stiteler to the state retirement system board of directors. Stiteler has been pressuring other board members to increase investments in state economic development efforts, including venture capital funds. He also wants Arizona stock brokers to handle some of the nearly $5 billion in stocks the fund has invested. The system now uses out-of-state brokers to reduce the chances of kickbacks and other corrupt activities.
Current and past board members have criticized Stiteler's efforts, saying such investments are too risky. Ron Pelton, the former chairman of the retirement system board, resigned in June after Stiteler announced his desire to increase speculative investments of retirement funds. Pelton says Stiteler does not have the ability or understanding to act as a trustee for the retirement fund.
"Stiteler lacks fiduciary temperament," Pelton says.
Last week Stiteler came under fire for failing to disclose his lengthy history of business failures. His checkered business career includes six bankruptcies of commercial ventures, state and federal tax liens, a $263,000 judgment against him stemming from a failed New Mexico thrift and a $15 million federal lawsuit filed against him and six other former officers and directors of the failed Century Bank.
The Century Bank lawsuit, filed by the Federal Deposit Insurance Corporation, charges that the bank made large loans to Stiteler and Stiteler's business that resulted in major losses for the bank. The suit alleges the bank failed to properly review the loans because Stiteler was on the board of directors.
The charges are very similar to the ones faced by Symington in a federal lawsuit. The Resolution Trust Corporation alleges Southwest Savings and Loan made improper loans to Symington while the governor was a member of the thrift's board of directors. The thrift failed in 1989 at an estimated loss to taxpayers of $941 million.
The governor used the Southwest Savings loans to finance the land purchase for his Camelback Esplanade project. The government claims the deal resulted in Southwest Savings' single largest loss at more than $30 million. Symington denies any wrongdoing and claims no money has been lost. Symington's role in the Esplanade transaction has been the target of a federal criminal investigation since late 1991.
A knowledgeable source close to the retirement system fears Symington, who is still burdened by a $1.2 million debt from the 1990 election and has raised little money to date for the 1994 race, is hoping investments by the state retirement fund in Arizona economic development projects and the inclusion of state brokerage firms will generate contributions to his near-empty campaign coffers.
While Symington repeatedly claims in statements issued by his press secretary that he has no role in Stiteler's crusade to increase speculative investments, the governor's longtime friend and former chief of staff George Leckie is deeply involved. Leckie, who was Symington's campaign finance chairman in 1990, has said he helped get Stiteler appointed to the retirement board, in part, because Stiteler raised funds for Symington.
Leckie, who resigned from the governor's staff last year after bungling the governor's office budget and in the wake of disclosures about his own business failures, has shown up at retirement board meetings. Now a private citizen but still closely tied to Symington, Leckie sat in on a recent board meeting where a potential candidate for executive director of the agency was interviewed.
Symington's loan from the retirement system dates back to May 1983 when he borrowed $820,000 to pay off a $775,000 construction loan used to build the two-story office building at Tenth Street and Missouri. The retirement system loan was based on an appraisal by Jim Homan, whom the governor was also using at the time to appraise his nearby Camelback Esplanade project.
Symington refinanced the loan in May 1987, this time raising the amount to $975,000. As part of the negotiations, Symington sought to avoid having to again place a personal guarantee on the loan, but the Valley National Bank Trust Department, which was handling the loan for the retirement system, insisted he do so.
The retirement system increased the value of the loan based on an appraisal by Homan's firm that said the building was now worth $1.25 million. Doug Lemon, deputy director of the retirement system, said the system believed the value of the building had gone up and that Symington wanted to tap some of the equity resulting from the higher value.
But the very same month Symington convinced the retirement system the value of the building had gone up, he was telling the Maricopa County Assessor the value had gone down. Somehow, the same building that was worth $1.25 million when it came to getting a loan from the retirement system was now only worth $432,357 when it was time to pay taxes.
The county didn't swallow the governor's lowball assessment, but did lower the value of the property on tax rolls to $617,653--half of the appraised value and two-thirds the value of the retirement system loan. Symington didn't give up trying to get his taxes cut. He appealed the tax assessment every year.
In the same month his three-year, personal guarantee to repay the $975,000 loan was scheduled to expire in February 1990, Symington told Maricopa County that the building was only worth $317,432. The county again rejected Symington's valuation, but ended up lowering the assessed value to $518,000.
It's impossible to know why Symington gave such a low value for the property in 1990 because Maricopa County has lost the governor's tax appeal for that year. But a clue to his reasoning can be found in a 1988 tax appeal he filed for a building he owned next door. In that case, Symington, through his tax attorney Don Roelhe, claimed the value of the building had declined because "economic performance projections do not support current" assessed value.
Thus Symington, at least for tax purposes, knew the property he had was worth far less than the loan he had obtained from the retirement system. In 1989, the discrepancy came to a head.
Symington fell behind in the rent payments on the property sometime in 1989. At that point, the state retirement system could have immediately began foreclosure proceedings and forced Symington to make good on the loan through his personal guarantee.
Instead, Valley National's trust department decided to renegotiate the terms of the loan, allowing Symington more time to catch up on payments. State records show the governor caught up on the payments in June 1990.
At that point, Lemon said, rather than insisting that Symington renew the personal guarantee because it was obvious the property was having problems generating enough cash to make the loan payments, Symington was released from his personal guarantee backing the loan.
A year later, Symington began missing the $8,556 monthly loan payments on the property. By the end of 1991, Symington was $50,000 in arrears on loan payments.
Pelton, a Republican, wanted to move immediately against the Republican governor. "I wanted to go after him for the whole amount," he said. "That's the first thing you want is to get your money back in a hurry."
But that wasn't to be the case.
Valley National's trust department, which has the authority to act independently from the retirement system board, had several options it could take:
It could renegotiate the loan with Symington.
It could ask the retirement system to become a joint owner in the property with Symington, thereby lowering his payments.
It could foreclose on the property and seek a deficiency judgment against Symington where he would pay the difference between the market value of the building and the outstanding loan amount, which was about $350,000.
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Or, it could just take the property back through a deed in lieu of foreclosure and let Symington walk away from the loan.
Valley National, now Bank One, chose the last option, letting Symington off the hook for the loan.
Henry Tang, a Phoenix businessman and former member of the retirement system investment advisory council, said the retirement system cut a sweetheart deal for the governor.
"The fact he got the retirement system to take a deed in lieu tells me a political favor was being done," Tang says.