Griftin' on the Dock of the Bay

Carl Ernst Jr. is a man of great height and girth. At first, he seems to be a gentle giant, intelligent and slightly self-mocking. But behind the twinkle in his eyes lie wells of bitterness. In March, Ernst talked for an hour inside a cabin cruiser tethered to the rotting pier he leases from the city of San Francisco. The boat rocked as Ernst shifted his weight from side to side, trying to explain why a fellow with what amounts to a lifetime lease at low rent on a valuable waterfront property can't make the damn place spin off any real money. Ernst complained that what stood in his way was city officials waiting to be bought off before they would help him. To dramatize the point, he pirouetted and held out his hand, palm up, in the universal gesture for baksheesh, some grease, a touch of the green, baby.

Ernst said he does not play that game, which is, of course, illegal. He said he came by his city lease, and nearly $3 million in financial backing from the state of California, purely on the basis of professional merit. For the last seven years, he has dreamed of remodeling Pier 38, just north of Pac Bell Park, as a recreational marina and restaurant complex. And for seven years the pier has continued to rot into the bay as Ernst's project got permanently mired in the dream stage.

Ernst blamed Mayor Willie Brown for his troubles. The mayor is out to destroy him, he said, because he won't make payoffs. But Ernst, 64, has only himself to blame for the debacle at Pier 38. His story -- how he frittered away public money while failing to build his project, how port and state officials enabled his failure, how he played the political influence game at City Hall -- is worth telling because it shows, in microcosm, the way things get done, or not done, under the Brown administration.

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Carl Ernst arrived in San Francisco in 1970, drawn by the beguiling promise of the Summer of Love. He held a doctorate in communications but had joined the crew of the hippie musical Hair and spent a few years partying. He especially remembers having fun at a nude beach south of the city, Gray Whale Cove. "We had cast parties on the beach, gay and straight, gals," he says. "I was only 30 years old." He enjoyed the secluded cove so much that he leased it from the state of California for two decades, pocketing entrance fees until the state took the property back in 2000.

Along the way, the versatile Ernst became a home builder and "the best of friends" with Joe O'Donoghue, influential president of the Residential Builders Association. In 1995, Ernst formed Pier 38 Maritime Recreation Center Inc. He appointed another house builder, Kenneth A. Hagan, nephew-in-law of then-Mayor Frank Jordan, as vice president of the corporation.

As Jordan was leaving office in 1996 -- to make way for Brown -- the San Francisco Port Commission granted Ernst a 36-year lease on Pier 38, at very low rents. The California Department of Boating and Waterways loaned the new corporation $1.5 million to construct a maritime recreation center to serve small boaters. The facility would offer slips for temporary docking, fuel, water, and sundries. Ernst promised to build rows of steel racks inside the pier's two-acre shed to "dry-store" hundreds of motorboats. The San Francisco Bay Conservation and Development Commission, a powerful state agency that controls the use of waterfront property around San Francisco Bay, OK'd Ernst's business plan, provided that he build a promenade around the pier for the public to enjoy.

Ernst and Hagan projected gross revenues of $5.6 million by their second year of operation. That meant they would have plenty of cash to remodel the crumbling pier, pay off the state loan, and take a profit. Seven years later, the state money is long gone and the restaurant, public promenade, and boat racks have not materialized. Ernst is running the business on a hand-to-mouth basis, scrounging dollars by charging hourly slip fees, storing a handful of small boats, subleasing office space, and parking cars owned by residents of nearby luxury condominiums -- the latter in violation of his city lease. Recently, Ernst entered into partnerships with a restaurateur and a yacht dealer, hoping to jack up his cash flow, but the relationships soured, leaving him unable to pay his debts.

The Pier 38 project is a dead albatross around the neck of its government sponsors. They all say it stinks, but they cannot get rid of it. For example, after bemoaning Ernst's chronic inability to earn his keep, the Bay Conservation and Development Commission launched an "enforcement action" against him two years ago for not providing public access to the pier. BCDC officials say they are still investigating the matter and have yet to assess any penalties. Port officials say the project is a financial and programmatic bust, yet they continue to champion Ernst, hoping for the best, even though they have excellent reasons to evict him.

Despite the pier's problems, Ernst's associate Hagan pocketed money from it. From 1996 to 1998, his company, Hagan Construction and Development, was paid more than $500,000 by Pier 38 Maritime Recreation Center to demolish rotted portions of the pier, build offices and public restrooms, assemble portable docks, paint and repair walls, and install windows. Much of this work was only partially finished, leaving a variety of holes in the pier. Hagan also got a $40,000 brokerage fee from the port when Ernst signed the lease, and has received tens of thousands of dollars in construction management fees, according to public records. Hagan, who did not return repeated calls requesting comment, appears to have parted ways with Ernst after the state loan money was exhausted in 1998.

Ernst paid $215,000 in state loan proceeds to his nude beach operation for contracting services and to purchase used equipment, including boat-launching gear, a forklift, and a rusty old barge, an eyesore tethered to the ballpark side of the pier. And port officials confirm that Ernst has permitted business activities on the pier that are prohibited by his lease.

Phillip L. Williamson, who manages the Pier 38 lease for the port, complains that Ernst sublets office space to nonmaritime businesses and allows commercial excursion ships to pick up and discharge passengers at Pier 38 — both in violation of his agreement with the port.

Williamson and his boss, Mark W. Lozovoy, the port's assistant deputy director of real estate, acknowledge that the lease also does not allow Ernst to charge for parking cars at the pier. However, public records show that Ernst charges up to five dozen people $185 per month for Pier 38 "memberships" that allow them to park inside the cavernous enclosed pier.

Meanwhile, Ernst is not paying the city 25 percent of his parking receipts, as required by law, according to a spokesperson for the San Francisco Treasurer-Tax Collector, who pointed out that parking fees are parking fees, even when disguised as "memberships." He also had failed -- for three years -- to pay $3,300 in possessory interest taxes, which are assessed against city leaseholders in lieu of property taxes. Ernst paid that bill two weeks ago, following inquiries by SF Weekly.

Port records show Ernst has had trouble paying his rent, although it is low: $1,000 a month for his first year at the pier, $5,500 a month for the next year, and increasing to $48,000 monthly through his 10th year but dropping to $22,000 a month for the remainder of the lease.

Sweetening the deal, the lease allows Ernst to deduct 50 percent of certain construction costs from his rent -- but only after the work is certified as complete by port inspectors. Ernst then must submit documents proving that he paid the construction bills, such as checks bearing cancellation stamps and invoices marked "paid" by the vendor. If he meets these conditions, he is eligible for credits that can be applied against future rent payments.

But port officials have not even enforced this generous provision of his lease. Rather than waiting for him to start, much less finish, the remodeling work, the port has only charged Ernst a half month's rent every month for seven years.

Nor are port executives very finicky when it comes to insisting on proof that rent credits should be disbursed. They approved Ernst's request for $328,000 in credits for construction work through June 2001 -- even though much of the work has not been certified by port building inspectors as finished. Moreover, Ernst submitted only copies of the fronts of checks, showing no cancellation stamps, and copies of invoices not marked "paid" by vendors.

The port's Williamson says he is not responsible for any misapplication of rent credits. He says he passed the credit requests on to the port's fiscal officer, John Woo, who approved them. Woo, on the other hand, says Williamson and Lozovoy were responsible for verifying the validity of Ernst's claims. Woo acknowledges that Ernst did not submit proper documentation, as required by the lease, but said that he "feels" Ernst paid for $656,000 worth of capital improvements, the amount he would have had to spend to justify getting $328,000 in credits. Port spokeswoman Renee Dunn says that "some of the original backup documents for rent credits may not have been retained."

The story gets even more bizarre. In late 2001, Ernst, then deeply in arrears on his rent, asked the port to retroactively grant him $634,000 in additional rent credits for unfinished construction work that Hagan started in 1997. A port accountant analyzed the request, which was, once again, submitted without proof of expenditure. In March 2002, she reported that Ernst was, at best, eligible for $120,000 in retroactive credits. Lozovoy says he decided to "override" her finding. He awarded Ernst $278,000 in credits, bringing him up to date on his rent payments.

Asked to explain why he has continued to help Ernst financially and has allowed him to remain at Pier 38, Lozovoy said -- repeatedly, almost as a mantra -- that he has seen "forward progress." He refused to elaborate. Williamson says Ernst received financial help from the port because "his business plan is not working."

Responding to written questions from SF Weekly, port spokeswoman Dunn faxed a statement that sidestepped most of the queries.

She did not explain why port officials granted rent credits for unfinished construction work or without proper proof of payment. Asked why the port allowed Ernst to fall months behind in his rent payments, Dunn wrote, "It is not uncommon for the port to be flexible with its tenants on past due rents when "rent credits' are likely to be granted in the near future."

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In a March interview, Ernst confided, "I am petrified of Willie Brown. I might as well put a gun in my mouth; the judges and the courts are his. I can't fight that. The Justice Department can't get this guy."

Ernst repeatedly tried to acquire political influence with Brown. At first, he curried favor with Joe O'Donoghue. In April 1997, Ernst gave O'Donoghue a rent-free office for his Residential Builders Association in a large, sunlit room on Pier 38 facing the Embarcadero. O'Donoghue installed his sidekick, Independent newspaper columnist Warren Hinckle, in the space. In a lawsuit two years later, Hinckle explained that in exchange for no rent, O'Donoghue "agreed to use his expertise and good will to help expedite" city approval of construction permits sought by Ernst. In an interview, O'Donoghue confirmed that he helped Ernst get various approvals for the pier project from the Board of Supervisors and the Brown administration. But Ernst made a tactical mistake: Neither the RBA nor Hinckle is a maritime business, a fact that apparently rankled several port commissioners, one of whom, Denise McCarthy, is Hinckle's ex-wife.

At the behest of port officials, Ernst moved to evict O'Donoghue and Hinckle in 1998, after most of his building permits had been approved. In court papers, Ernst alleged that O'Donoghue told him that "as the President of the RBA, O'Donoghue had a great deal of political influence in San Francisco and O'Donoghue intended to use his political influence to ensure that Pier 38's efforts to establish a maritime related operation on the Property would not succeed. ... O'Donoghue became enraged and told Ernst that he had better watch his back and said that Ernst 'could expect the worst.' ... O'Donoghue further told Ernst that he was kicking Ernst out of the RBA and that Ernst would not be able to rely on his relationship with a local politician to help him."

Ernst insists that his problems can be traced to O'Donoghue, who, he says, turned the mayor against Pier 38 as revenge for the eviction.

O'Donoghue laughed when asked to respond to Ernst's charges. "I am obviously not interested in jamming the guy," he said. "If I had involvement he would be out of there." Using a variety of unflattering metaphors, the acerbic lobbyist described Ernst's personality in some detail. Even after four years, he is obviously still pissed off at his erstwhile friend.

After tossing out O'Donoghue and Hinckle in April 1998, Ernst went looking for political allies. Among others, he found Dennis Herrera, a maritime lawyer in private practice. In November, Ernst and Herrera incorporated the San Francisco Port Tenants Association to represent the interests of businesses with port leases. Herrera, who was elected city attorney last year, says the tenant association quickly fell apart. The only other business relationship he has had with Ernst, he says, occurred when he purchased a residential building from him in September 1998, which Herrera sold at a profit three years later.

By the end of 1998, the state money had been spent and the maritime recreation center and restaurant were nowhere in sight. Ernst had a brainstorm. Out went the scheme to store motorboats for the little guy. Instead, Ernst would build a private marina for owners of luxury yachts. In 2000, Ernst approached the state for a second loan, this time to build permanent yacht berths and a public promenade -- the same walkway he was supposed to have built with the first state loan.

Despite the fact that the Pier 38 project was a financial shambles, the Department of Boating and Waterways agreed to loan Ernst another $1.3 million. But unfortunately for Ernst, his lease with the port prohibited permanently berthing yachts at Pier 38. Ernst desperately needed the Port Commission to amend his lease to allow such berths. He knew that getting the amendment would not be a cakewalk. Not only had he failed to build the maritime recreation center and restaurant as promised, but he had seriously offended Brown's cronies, O'Donoghue and Hinckle.

Ernst contacted Martin Eber, a local attorney who specializes in negotiating municipal permits and leases for private clients. When Ernst was trying to save his lease on the nude beach two years ago, he hired Eber to set up a meeting with Rusty Areias, director of the state Parks and Recreation Department. (Ernst met with Areias, but lost the beach lease anyway.) Eber says he told Ernst he could arrange a meeting with Brown to talk about the Pier 38 lease amendment and urged Ernst to make a list of his needs for the mayor.

Ernst tells a very different story. He claims Eber told him it would cost $200,000 to set up a series of meetings with Brown -- which Eber strongly denies. "That is patently absurd," he says. "Ernst was involved in a war with Joe and Hinckle and he wanted me to get involved. Ernst's problem is that he always thought that if he gave someone some money, the mayor would deliver the [Port Commission] votes. [I] tried to explain that there was no guarantee of anything. I can [only] show you how to present a case, or make the case better.

"I would have done that, or negotiated the lease," the attorney continues. "But he never gave me the list. I sent him a bill for $5,000 for working on that and the nude beach. He paid it."

Ernst then turned to one of his pier subtenants, Doc McDonald, a software developer who occasionally lunches with Brown at Le Central. Ernst claims McDonald asked him for $100,000 to pitch the lease amendment to Brown. McDonald says he did lobby the mayor -- but never demanded any money for his services.

"I was doing it for Carl," McDonald recalls. '"I saw [Brown] at lunch and said, "This guy is trying to get this work done.' Willie said, '"I'll look into it.' Carl was put on the agenda for the next [Port Commission] meeting. Carl never paid me a dime. He doesn't even have $100,000."

After the lease amendment was put on the agenda, Brown assigned Ken Harrington, his special assistant for business and economic development, to look into the matter. Harrington says McDonald told the mayor that it would be a "win-win" and the city would get "fabulous berthing," but that the amendment had to be put on the Port Commission agenda before June 30, 2001, to get the state loan. "So the mayor told [Port Executive Director] Doug Wong, 'This guy talked to me, get this on the calendar to get the loan, it's a good deal for the city,'" says Harrington.

The lease amendment was calendared for June 26. In the days before the meeting, Harrington nosed around the Pier 38 deal. "I called the head guy at [the state Boating Department]," he says. "He told me there was no urgency about the loan. Ernst was not being truthful; he had two years to get the loan.

"I looked at the lease; I found it to be the most incomprehensible lease I ever saw," Harrington continues. "Couldn't understand what the city gets in return for 36 years. Wong told me [Ernst] was parking cars and charging, which is in violation of the lease. In five years he had not done a single thing: no dry-boating, no restaurant, failed on public access, had nonmaritime tenants."

The morning of June 26 rolled around. At City Hall, Harrington received a fax of a portion of the lease amendment with a note scrawled across the top: "Willie, City pays 0 out of pocket! [Signed] Doc." Harrington says he never talked to McDonald, but he remembers the note. It was too little, too late. Harrington told the mayor Pier 38 was a problem. "The mayor said tell [Wong] to take it off the calendar and crunch the numbers."

In response to Ernst's assertion that O'Donoghue is responsible for what happened next, Harrington says, "I'm a friend of Joe's, but he had nothing to do with this." Harrington says he went to Port Commission headquarters at Pier 1 and told port officials to take the amendment off the calendar and to look into the problems with the lease. Noreen Ambrose, the commission's general counsel, says Wong removed the item shortly before the meeting was called to order.

Ernst's luxury yacht scheme appeared to be doomed.

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The physical state of Ernst's pier reflects the financial condition of his business.

Wooden pilings that support the pier are rotting away. Most of the shed has no fire sprinklers, though its interior is littered with construction debris, rusting machinery, car engines, and barrels of flammable asphalt. Port engineers say the pier is a danger to the public.

Instead of cleaning up the mess, Ernst spent the summer of 2001 lobbying midlevel port officials for rent breaks. The port allowed him to go into arrears, asking only that he raise a sunken vessel, fix numerous fire safety and building code violations, and return to his original plan of building boat storage racks. Ernst declined to do any of these things; he had found a way to squeeze more money out of the state.

In October 2000, while weighing his request for a second loan, the state Boating Department asked Ernst to list his sources of income, according to e-mails obtained by SF Weekly under the California Public Records Act. A Pier 38 executive replied that berthing boats brought in about $28,000 a month. The executive mentioned that Ernst also made money from subleasing office space and from parking "memberships," but he did not quantify this income, which probably added roughly $15,000 to the total. At the time, Ernst was paying about $45,000 to $50,000 monthly in rent, loan payments, and salaries to himself and two employees. Thus, his expenses offset his income.

In July 2001, the state approved a second loan, for $1.3 million, on the strength of its own financial analysis, which projected that Ernst would be pulling in $220,000 a month by the following year. The income projection included revenues from a boat dealership and a restaurant that Ernst hoped to attract to Pier 38. However, the restaurant never materialized and the boat dealer later backed out.

Less than four months after granting the second loan, the state allowed Ernst to defer making payments on the first loan for a year. Public records show that Donald Waltz, chief of the facilities division of the state Department of Boating and Waterways, then refunded $56,000 of Ernst's previous loan repayments.

Responding to written questions from SF Weekly, Boating Department spokeswoman Megan Standard said the deferral was granted "due to observed poor business activity at Pier 38." She added, "At the time, it was apparent that business operations at Pier 38 were adversely affected by the downturn in the technology industry and the aftermath of September 11, 2001."

With the state recycling his money back to him, Ernst went on the offensive against Mayor Brown. In December 2001, he filed a legal claim against the city alleging that Harrington, the mayor's special assistant, violated city and state law by improperly intervening in "matters pertaining to the lease of property under the jurisdiction of the San Francisco Port Commission." Ernst claimed to have lost income and financing in excess of $25,000 as a result of Harrington getting his lease amendment pulled from the Port Commission agenda.

City officials denied the claim and in June Ernst sued, naming the mayor, Harrington, and the city as defendants. Ernst accused the mayor and his assistant of damaging the Pier 38 project by meddling in Port Commission business.

But Ernst never served his lawsuit on the defendants. He told SF Weekly he would drop it if the commission granted his lease amendment, although he was not optimistic about that. Ernst also said he notified port officials and City Attorney Dennis Herrera about the impending suit -- an apparent effort to use the threatened court action as leverage to get what he wanted from the port.

The suit had the potential to create big trouble for the Brown administration. Ernst's legal argument was aimed at Brown's well-known habit of micromanaging city commissions. The lawsuit sought an injunction prohibiting the mayor from "influencing, or making decisions related to ... contracts and agreements germane to leases of Port property." With hundreds of millions of dollars in port leases and development projects on the table, such an injunction could have crippled the mayor's ability to call the shots at the port.

Before Ernst filed his lawsuit, port officials had doubts about granting the lease amendment they had rejected the previous year, according to e-mails obtained by SF Weekly. Nonetheless, the day after the suit was filed, Port Director Doug Wong faxed a letter to Ernst, telling Ernst that he was now favorably disposed toward his amendment and would put it before the commission.

The second vote on the amendment was calendared for Aug. 27. Ernst and his attorney sat in the back of the glassed-in meeting room at Pier 1, behind rows of port staffers wearing dark blue suits. In a moment of anti-climax, Commissioner Denise McCarthy asked, "Is the lease in good standing? There was a problem." Staffers assured her that everything was in order. Ernst's lease amendment passed unanimously.

Wong did not respond to repeated calls from SF Weekly. Port Commission President Michael Hardeman refused to say if commissioners discussed Ernst's lawsuit prior to the lease vote. He also declined to explain why the commission changed its mind on the issue.

The following day, Ernst -- with $1.3 million in state money on the way and 29 years left to figure out what to do with his leasehold -- was jubilant in an interview. He compared his victory at the Port Commission to the fall of the U.S.S.R., casting the port commissioners as anti-capitalist commissars and himself as a valiant entrepreneur.

But then he was asked some hard questions: Why wasn't he paying city parking taxes? Why wasn't he repaying his state loans? Why didn't he submit proper documentation when filing for port rent credits? Why was he subleasing pier space to nonmaritime businesses, in violation of his lease? What happened to the public promenade, and the boat racks, and the restaurant?

Ernst went silent for a solid minute.

"I am not going to cooperate in the publication of an article that is likely to damage the good working relationship that it has taken me seven years to build with the port," he eventually said. "Any article that goes over the history of this thing can't help me." Then he hung up.