Noir You See It, Noir You Don't

Naming one of the masterminds of the SFO Enterprises scandal as a "watchdog" over billions in public investment: city government or pulp fiction?

When I asked Cisneros whether he had read the two-paragraph legislation at the Board of Supervisors calling for approval of Fermin's nomination to the "public at large" committee seat, he said, "I don't have it right in front of me."

"There's a lot I've been doing. I've been treasurer less than a year. We've been working hard. I've been doing a lot of things in the Treasurer's Office," Cisneros added.

In 1994, Orange County declared bankruptcy after the county treasurer lost $1.6 billion in public money in highly speculative investments that went sour. To prevent future debacles of this kind, California legislators passed a law requiring, among other safeguards, that each county appoint a committee, made up of both public officials and disinterested outsiders, to keep other treasurers from going off the financial reservation. The placing of ordinary citizens on these oversight committees was no accident. "If you're truly going to have a member of the public as a representative on this pool, they need to be unaffiliated," notes Brett Barbre, deputy treasurer and tax collector for Orange County. "One of the reasons Orange County suffered the bankruptcy was the failure of supervisors to actually supervise."

Mark Baldassare, director of research at the Public Policy Institute of California and author of the book When Government Fails: The Orange County Bankruptcy, says it is "important to have people who come in and offer a fresh and independent perspective on the financial and investment practices of a government entity. The idea is for there to be some sort of objectivity and independence."

In egregious violation of this notion, last month Cisneros nominated Fermin to a second term as the "member of the public" on San Francisco's oversight committee. Moreover, Cisneros and the Board of Supervisors, which approved the appointment, waived the requirement that a committee appointee be a resident of San Francisco, allowing San Mateo resident Fermin to continue to occupy the post. The waiver was based on the idea that "there is no other possible representative, who is a resident of San Francisco and who has the specific experience, skills, or qualifications possessed by this applicant," according to the official measure approving Fermin's appointment.

The hilariousness of this snippet of officialese is hard to overstate. First, there's a comparatively mild incongruity: As the airport's business and finance director, Fermin has his hands on millions of dollars in airport money that flows through the Treasurer's Office and through treasurer-supervised investments. He's not the disinterested member of the public that state law instructs an occupier of this post should be.

Far more absurd, however, is Fermin's record of aiding in the apparently illegal flushing of government money down the rat hole called SFO Enterprises LLC -- and then engaging in accounting wizardry in an effort to cover the fiasco up. This is exactly the type of behavior, made famous in Orange County circa 1994, that the Treasury Oversight Committee was designed to thwart. Yet there Fermin sits.

On and beside my desk are four large legal-file boxes, filled with files from a public records request first made in 2000 and partially fulfilled just this year. These documents pertain to SFO Enterprises, a private firm set up under the auspices of airport supervisors and theoretically under the ownership of San Francisco taxpayers.

Between that time and June 2003, when the city's Board of Supervisors finally voted to shut down the SFO Enterprises operation, Fermin and a small group of airport officials managed to waste $1 million on a foray into the international airport consulting business that earned one tangible outcome: charges of gross mismanagement in Honduras for an SFO Enterprises-led airport privatization experiment. SFO officials flew to capitals all over the world in their self-described role as entrepreneur consultants, stayed in fancy hotels, leased cars, rented living and office space, ate elegant meals, and, ultimately, never reimbursed taxpayers for the party. Fermin's accounting chalked up this improper use of public funds to investment losses.

During the SFO Enterprises debacle, Fermin worked as chief accountant for the airport and handled the finances and accounting for SFO Enterprises. Whenever SFO officials or employees needed to fly to Honduras (at $2,500 a ticket), stay in a hotel, lease a car, or fly to Rome for an airport privatization seminar, Fermin was able to route the expense through an airport account as if it were an ordinary city expense. After I wrote a story exposing such diversions in 2001, the airport produced a hastily written IOU with a payment schedule by which SFO Enterprises would repay the diverted funds. The diversion was a good investment, SFO Director Martin told the Board of Supervisors during that period.

In its latest annual report, San Francisco International Airport, the city agency, stated that SFO Enterprises, the private company, owed around $1 million to the city. In January, Martin announced that none of the money would be repaid. It had all been eaten up by unspecified "expenses" related to the sale of San Francisco's share of the Honduras privatization contract. To emphasize the fact that Martin and Fermin wish to keep secret exactly how they managed to lose at least $1 million in investment capital, the latest SFO Enterprises board agenda I received in response to a public information request, dated February 2004, leaves the portion of the agenda that says "Honduras Project Update" blank, saying that's a trade secret.

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