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Tsunami Politics 

Why will the city receive no money from the sale of SFO Enterprises?

Wednesday, Jan 26 2005
As Supervisor Chris Daly weaves, bobs, and grandstands in an attempt to squeeze $1 million in tsunami relief from within San Francisco's budget crisis, a calmer maneuver by S.F. airport officials to extract even more, for a more dubious purpose, went unnoticed.

Call it the city's tsunami politics, in which one or two issues of marginal import will swell, splash, and wreak havoc on civic discussion, while underneath vast oceans of money and policy move subtly and unseen.

Daly's tsunami relief proposal will probably end up in the trivial distraction column, despite the swelling rhetoric accompanying it. If our mayor has sense he'll veto Daly's measure on the perfectly charitable grounds that foreign aid is best conducted at the federal level, then urge our powerful congressional delegation to increase aid.

At which point this effort, like so many of Daly's moments in the sun, will slip into the category of meaningless nonsense that causes politicians to avert their eyes from more serious affairs. Case in point: While fiddling over tsunami relief was going on, supervisors let slip by a $1.25 million update to a 9-year-old government rip-off called SFO Enterprises Inc., a shady, supposedly private, for-profit corporation that helps manage Honduras' national airports. For reasons the airport doesn't explain, this city will receive zero income from the sale of the city's interest in a contract to manage the airports, when industry insiders said last year that the sale stood to generate more than $2 million for the city.

Earlier this month, San Francisco International Airport Director John Martin placed at the bottom of the Board of Supervisors' agenda a memo stating that San Francisco would receive nothing from the sale of our government's membership in a consortium that now manages Honduras' airports. SFO managers assembled the consortium in 2000 to compete for the right to take over the airports from Honduras' government and run them at a profit. YVR Airport Services, a Canadian company, will pay as much as $1.25 million to take over from SFO, the memo said. But none of that money will reach SF city coffers. The money will be consumed by liquidation costs, Martin wrote.

The absence of money that might have gone into city coffers is bad. Worse, though, is the level of cynicism city fathers seem willing to tolerate from the airport bureaucrats when it comes to the global boondoggle of SFO Enterprises. For the near-decade this scheme was alive, Martin explained away the secretive and bizarre nature of this scheme by arguing that the Honduras operation was a good business proposition for San Francisco. And now he appears to have closed the entire episode by revealing, as an afterthought in an all-but-invisible memo, that it was a lousy deal after all.

To reprise this city's strange, unfortunate involvement in Honduras: Nine years ago airport managers created a private corporation for themselves, with the supposed intent of helping the city make money off consulting services offered by SFO personnel to other airports. In practice, Martin, his deputy, John Costas, and their numbers man, Leo Fermin, created a secret slush fund that helped them unlawfully reroute hundreds of thousands of dollars from various airport accounts into Honduras, where they'd brought various partners into a company called Interairports, to make money from the airport privatization.

Last year, under pressure from Supervisor Aaron Peskin, Martin sold San Francisco's interest in the consortium. Hence Martin's memo to the board, which was characterized as a history of SFO Enterprises and the "status of the winding up of the affairs of" the company.

Sources familiar with S.F. airport officials' negotiations with YVR had said in 2004 that the corporation's Honduras contract -- and its forecast fees, dividends, and other revenues -- had a net present value of more than $2 million. The way SFO Enterprises was set up, the corporation was given the option, but not the obligation, of paying "dividends" to the city. These dividends were the supposed reason the corporation was created in the first place, and it was reasonable to assume that San Francisco would receive some money from the sale.

"No shareholder dividends to the city have been declared because of the need to cover the costs of the sale and the expenses reimbursable to the Airport," Martin wrote.

Despite Martin's statement, it's impossible to tell what will really become of money received from YVR, because so far, Martin has kept the dealings of SFO Enterprises and SFO Honduras secret. To do this, he has for nine years made the absurd claim that SFO Enterprises is separate from San Francisco's government -- despite the fact that it uses S.F. government personnel, money, and other resources for the supposed benefit of the city and county of San Francisco's budget general fund -- and not subject to public records requests.

In the past I've blamed this SFO Enterprises fiasco on a group of unethical managers at the airport. But they couldn't have carried out their Honduran fiasco without a shocking lack of accountability.

There's no government oversight to ensure that SFO Honduras, the subsidiary, properly repays SFO Enterprises, the corporation. And there's no mechanism in place requiring that SFO Enterprises pay profits to its owner, the city and county of San Francisco. And, worst of all, few in government appear much concerned.

An exception has been current Board President Peskin. In addition to ordering Martin to shut down the Honduras operation, he got the controllers office to examine SFO Enterprises in an audit. A comprehensive inquiry would require examining the complete records of the corporation and its subsidiaries. In this way, it might be possible to get to the bottom of what airport officials did with all the various streams of money flowing through their slush fund.

Instead of taking this comprehensive approach, however, city auditors are conducting a far narrower, less illuminating review, which imagines SFO Enterprises as if it were an outside private contractor receiving city funds for services offered, rather than the government department it truly is.

In this spirit, auditors merely examined what airport officials did with $220,000 the Board of Supervisors allocated to the company in 2003. At that time, Martin said the money was necessary to keep the Honduras operation afloat and to prevent San Francisco's government from being sued while he looked for a buyer, so that the city might earn money from the sale.

But because Harrington's office has apparently decided it has no right to examine the complete archives of SFO Enterprises and SFO Honduras, there's no way to determine what really happened with all the money that flowed through these sinkholes.

About The Author

Matt Smith


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