The City of Phoenix turned a blind eye to Governor J. Fife Symington III's financial troubles by failing for more than two years to demand repayment of a $2.7 million loan the city made to Symington's Mercado partnership.
Rather than meeting its obligations under a federal grant to immediately demand that Symington repay the loan when he defaulted on the Mercado, the city retreated into the shadows while the governor and the Mercado's primary financier--six union pension funds--slugged it out in court.
"The city consciously or unconsciously hid behind the skirt" of the pension funds, says vice mayor Craig Tribken.
Because it failed to aggressively pursue repayment from Symington, the city will never collect a $2.7 million loan it arranged for the Mercado.
The loan was envisioned as seed money to spur long-term development in blighted areas. The city obtained the money from the U.S. Department of Housing and Urban Development under a grant program. The city expected not only repayment of the loan, but also a share of profits from the Mercado. Those profits were to be used to fund similar developments.
The city lent the grant money to Symington's Mercado partnership in 1988 after Symington personally guaranteed repayment.
The Mercado failed soon after opening in December 1989. The pension funds bought back the development at a foreclosure sale on May 13, 1993, for $3 million, after Symington's partnership defaulted on a $10 million pension fund loan.
Upon foreclosure, the City of Phoenix was obligated under its federal grant contract to demand that Symington immediately fulfill his personal guarantee to repay the $2.7 million city loan, city documents show.
The city, however, did not request repayment of the loan until last month--more than two years after the Mercado was foreclosed upon. The city sent the demand letter to Symington on September 6. The governor did not respond in writing to the city's repayment request.
Symington listed the city loan among his $24.8 million in debts when he filed for Chapter 7 personal bankruptcy on September 20.
Current and former elected officials say they didn't demand repayment of the loan because the city didn't want to be blamed for forcing the governor into bankruptcy or to be accused of taking political advantage of Symington's financial problems.
Instead, the city opted to let the union pension funds' investment manager, San Francisco-based McMorgan & Company, press the governor for repayment of the $10 million pension fund loan.
"We didn't want to be the ones who made the governor go bankrupt while knowing we are not going to get anything, anyway," says former Phoenix mayor Paul Johnson.
The city was in second position, behind the pension funds, to recover any money from the Mercado property.
City leaders also were reluctant to demand payment from the governor because they feared Symington would retaliate.
"There was no need to make a political enemy when you don't have to," says vice mayor Tribken.
City officials were worried that Symington would respond by trying to cut Phoenix's share of state transportation and revenue-sharing funds, Tribken says.
The city council knew as early as December 1992 that it was required immediately to demand that Symington repay the loan if the pension funds foreclosed on the Mercado, a city council executive session memorandum shows.
"If foreclosure occurs, the City will be obligated per the (HUD) agreement with the federal government to call the loan immediately due and payable," the memo states.
Symington repeatedly tried to stave off foreclosure in early 1993. In January 1993, his Mercado development partner, Pete Garcia, president of Chicanos Por La Causa, asked former mayor Johnson for the city's financial help.
Johnson rejected Garcia's request a month later, saying "the city is not in a position to accept additional financial obligations . . . for the Mercado project."
Symington then made a personal appeal to Johnson and councilmembers, asking that the city take over the Mercado and assume the $10 million pension fund loan. The council, however, refused to consider Symington's request, clearing the way for the foreclosure sale.
More than two years after the sale of the Mercado, city records show the council has yet to formally discuss pursuing the $2.7 million loan to Symington even though the federal grant contract leaves the city responsible for the money.
"Nobody has told me anything about the loan," says councilmember Frances Emma Barwood.
The grant was an essential part of the Mercado financing; Symington had pressed hard for Phoenix to obtain the funding.
City records show Symington and Garcia also lobbied the Arizona congressional delegation to urge HUD to issue the grant to Phoenix. U.S. Senator John McCain and former U.S. senator Dennis DeConcini each wrote letters supporting Phoenix's application for the HUD grant.
If you like this story, consider signing up for our email newsletters.
SHOW ME HOW
You have successfully signed up for your selected newsletter(s) - please keep an eye on your mailbox, we're movin' in!
Jack Flynn, a spokesman for HUD based in Washington, D.C., says repayment of the loan is the city's responsibility.
The $2.7 million loan to Symington is being scrutinized by two Arizona public-interest groups--Common Cause and the Arizona Center for Law in the Public Interest. The groups want to strengthen campaign finance and public disclosure laws.
The current law allowed Symington not to report the $2.7 million city loan on his personal financial disclosure statements filed annually with the secretary of state. The law only requires that public officeholders disclose business debts greater than $10,000 and at least 30 percent of the total business debt.
In the Mercado's case, the city loan only accounted for about 20 percent of the partnership's total indebtedness on the project, so it didn't need to be reported.