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SFO My God 

Airport officials have bungled their international business efforts so badly, the city attorney has to investigate

Wednesday, May 21 2003
The president, the national congress, and the business leadership of Honduras have spent a good part of May attempting to unwind a financial debacle created by a group of employees who work for the San Francisco International Airport. Following days of back-room wrangling, consultation with global financing organizations, and insider horse-trading, the Honduran congress will vote later in the month on whether to approve a possible rewriting of contracts negotiated in 2000 by San Francisco city government employees.

Until that happens, however, a private business consortium formed five years ago by SFO employees to operate Honduran airports will continue to incur a fine of $20,000 per day. The fines began April 1.

Airport officials have made no public statements about the Honduran fines or the contract negotiations. But unusual public behavior by Airport Director John Martin during recent weeks suggests he may have the brewing Honduran crisis very much in mind.

In March, Martin and an attorney from the law firm of Morrison & Foerster, which represents SFO for some purposes, made a tour of the offices of the San Francisco supervisors, the city attorney, and the city controller. According to several supervisorial sources and a letter sent to one supervisor, Martin asked the public officials if they would agree to the release of $220,000 in airport funds that the Board of Supervisors, in a dispute with airport managers, had previously frozen; once released, the funds would be used to support a strange arrangement in which a firm formed by SFO is helping to run the national airport system of Honduras.

If the funding were not restored, Martin said, the city of San Francisco might be sued by the government of Honduras.

According to city sources, Martin and his lawyer didn't fully explain what, precisely, the $220,000 would be used for. Upon what grounds, precisely, San Francisco might be sued likewise was not explained, the sources contend.

At a meeting of the Board of Supervisors Budget Committee last Friday, however, Martin made his plea for cash in terms that anyone familiar with SFO and its dealings in Honduras might consider fairly straightforward: "I know we have a contractual-liability issue here. If I were to stop all work, even without getting direction from the Board of Supervisors, we'd very likely have a lawsuit. In effect I'd be exposing the General Fund to a lawsuit."

Don't say I didn't warn you.

Over the past two years, I've written a series of columns about SFO Enterprises Inc., a private, for-profit firm that San Francisco airport officials formed to bid on contracts to run the airports of foreign countries. Those columns explained how, as SFO Enterprises led a consortium that won the contract to run Honduras' airports, airport officials entangled the city of San Francisco in a Central American quagmire that involves potentially massive civil liability and the possible misappropriation of public funds. The Honduras episode raises questions about whether airport officials have systematically violated the law, and it puts into doubt the competence of the current SFO management team.

The indications of inappropriate behavior by San Francisco public officials are so clear, and the potential problems now faced by San Francisco as a result are so great, that I believe a public investigation is in order. City Attorney Dennis Herrera has already begun investigating allegations that construction giant Tutor-Saliba Corp. fraudulently overbilled the airport for millions of dollars in building the new international terminal at SFO. It's time for Herrera's office to investigate another private corporation that seems to have harmed San Francisco government: SFO Enterprises Inc.

In 1997, Airport Deputy Director John Costas, with the help of then-Deputy City Attorney Mara Rosales, chartered a private, Delaware-registered corporation called SFO Enterprises Inc. At the time, airport officials said that SFO (the airport) needed to set up SFO Enterprises (the private, for-profit corporation) to protect the city from possible liability in connection with a scheme by which airport managers would try to make money for the city by helping to take foreign airports private.

In setting up a private corporation, the logic went, San Francisco government could be protected from liability -- as long as city and private funds weren't intermingled, and the private corporation were run entirely apart from the city government. The corporation could be quicker on its feet, in a business sense, airport officials said, because it would not have to deal with the red tape associated with any government undertaking. (Among the regulations the private corporation could avoid, of course, were laws guaranteeing public access to records of government business.) After it was established with a small infusion of city funds, airport officials vowed, the fast-moving new corporation would gain contracts around the world, create its own revenue stream, and repatriate profits to the city. And after the first small infusion of city funds, the founders of SFO Enterprises asserted, no government money would be needed.

After the Board of Supervisors appropriated $10,000 to help create SFO Enterprises, Costas, Leonardo Fermin, the airport's acting deputy director of business and finance, and their cohorts immediately turned around and did what they'd promised would not be done, siphoning millions of dollars in city money into and through SFO Enterprises, sometimes in apparent violation of laws prohibiting the misappropriation of public funds. According to the airport's own records, they paid for international plane trips, luxury hotel bills, employee salaries, and who knows what other costs through the private shell firm. It began to seem like SFO Enterprises existed primarily to move taxpayer dollars into private hands.

This seamless blending of accounts presumably eliminated the rationale that, because SFO Enterprises Inc. and the city of San Francisco were legally separate entities, San Francisco taxpayers weren't liable for actions done in the private company's name. By Martin, Costas, and Rosales' own logic, therefore, the blending of taxpayer and SFO Enterprises money exposed San Francisco to potentially massive liability from the corporation's operations in Tegucigalpa, home of the world's most dangerous airport.

About The Author

Matt Smith


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