PHOENIX, Ariz. - Gov. Fife Symington declared personal bankruptcy last month, blaming six pension funds for his predicament.
The pension funds rejected his offer to repay $11.4 million he owes them at 2.5 cents on the dollar.
"The project which has forced me into bankruptcy.....is the Mercado in downtown Phoenix," Mr. Symington said in a prepared statement read at a press conference last month. "The lenders of that project are local union pension funds.
"Unlike other lenders with whom I had restructured debt, the union funds have rejected settlement offers and elected to seek a judgment against me."
Mr. Symington was an Arizona real estate developer before becoming governor. He borrowed $10 million from the defined benefit and defined contribution plans of the Arizona State Carpenters; Operating Engineers Local 428; and the Arizona Laborers, Teamsters and Cement Masons. The money was used to build the Mercado, a mixed-used office and retail building in downtown Phoenix. The building is 35% to 40% vacant.
Mr. Symington personally guaranteed the loans at the request of McMorgan & Co., San Francisco, real estate adviser to the pension funds.
In his bankruptcy filing, Mr. Symington reported liabilities of $24 million and assets of less than $62,000.
The pension funds and McMorgan have aggressively pursued repayment of the loan. Most recently, the funds and their adviser told Mr. Symington they would garnishee his salary for repayment of the loan, said Paul Morton, vice president with McMorgan.
Mr. Symington, however, volunteered to pay 25% of his annual $75,000 salary, as Arizona law allows. After one payment to the pension funds and a rejection of his offer to settle for $285,000, Mr. Symington decided to file for bankruptcy protection.
"Short of winning the lottery, I could not pay an $11.4 million judgment under any circumstances," said Mr. Symington in the published statement. "I could not pay even the interest on such an amount."
The interest on the loan is $1 million a year, said Mr. Morton, who estimated it would take Mr. Symington 862 years to repay the loan.
"Most people don't have that as their lifespan," said Mr. Morton.
The $11.4 million is the result of an $8.8 million judgment against Mr. Symington in July by a Maricopa County Superior Court judge - plus accrued interest. The figure would be higher, but the pension funds foreclosed on the Mercado in 1993, paying $3.1 million for it in the foreclosure sale.
In 1992, the pension fund's custodian, Bank of America, sued one of Mr. Symington's development companies for the balance of the loan amount, resulting in an award of $8.8 million. Mr. Morton agreed with the governor that the pension funds were reluctant to restructure the terms of their mortgage.
"We have a singular one-dimensional interest: the pension funds," said Mr. Morton. "The others (investors) are used to writing off business and taking writedowns. We won't be as casual with any aspect of our pension clients' money."
McMorgan took over as the pension funds' adviser from Mitchell Hutchins Asset Management Co, in 1987. The loan commitment already was made but was unfunded, said Mr. Morton, "We asked for and got the personal guarantee, which turned out to be a pretty good idea," he said. "We didn't have a whole lot of leverage."