Griftin' on the Dock of the Bay

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."