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.
Even so, airport officials had clung to the fiction that SFO and SFO Enterprises were functionally separate organizations.
Until very recently.
For reasons that aren't immediately clear, Martin has spent several months insisting that the city now faces imminent legal peril in connection with airport officials' Honduras activities -- a circumstance he'd previously denied was possible.
Martin has repeatedly pleaded with city supervisors to give him money he says he needs to "work on" SFO Enterprises' ongoing deal to privatize Honduras' airports. Martin's campaign for additional funding is puzzling; sources in Honduras say they see no immediate apparent need for the additional city funding.
The firm set up by SFO Enterprises to operate in Honduras, SFO Honduras, has a contract that gives it $745,000 per year to provide "operation and management services" for the consortium that won the 20-year contract to manage and overhaul Honduras' airports. The fee is paid every quarter. SFO Enterprises also receives a $50,000-per-year travel budget from the consortium, says Raul Torres Lazo, a Honduras industrialist whom SFO officials recruited in 2000 as a consortium member.
"It makes no sense to me why John Martin would be asking for more money. SFO couldn't possibly be spending $750,000 per year here. It just doesn't make sense," Torres Lazo says, using a rounded figure for the SFO fee. "As current members of the consortium, we know we're paying them $750,000 per year. And we know that with that money -- with far less than that amount of money -- they could contract a company to do the work they're obliged to do."
Nonetheless, Martin has dedicated an untoward amount of time and political capital begging for new city money to fund SFO activities in Honduras. The need for money is apparently so acute that Martin has tossed aside the conceit -- carefully guarded until recently -- that the SFO Enterprises corporate shell protects San Francisco from liability.
Now, Martin maintains, the city of San Francisco stands accountable for SFO Enterprises' financial obligations in Honduras.
In March, Martin wrote a letter to Board of Supervisors President Matt Gonzalez requesting money to fund SFO Enterprises Inc. activities, saying if he didn't get the money, the city might be sued.
"I have consulted the advice of legal counsel on this matter. I understand that if I discontinue funding staff from the available resources the City may face legal action, including an allegation that the City has breached the agreements with Honduras," Martin wrote in the signed, March 5 letter.
And Friday, during a Board of Supervisors meeting, Martin said the legal peril the city faces is serious.
"It is very clear that if I stop work, that I almost certainly have a lawsuit; the General Fund will have a lawsuit," Martin said. "I cannot be in a position, as a department head, of placing the city at risk of a lawsuit."
If it's unclear why Martin is begging for more money to conduct business in Honduras, it's quite clear that he's correct about one thing: Honduran government officials are extremely angry with employees of the San Francisco International Airport.
When it won the contract in 2000 to run and refurbish Honduras' airports, the SFO Enterprises-led consortium agreed to finish construction of a passenger terminal at the airport in the Caribbean city of La Ceiba, and to expand facilities at the airport on the island of Roatan, among other things. This April -- after the consortium spent 2 1/2 years failing to live up to many aspects of the privatization contract -- the Honduran government began levying a fine of $20,000 per day, which, as I write on Monday, continues accruing.
According to government regulators, San Francisco has treated Honduras to lies, excuses, misrepresentations, and broken agreements, almost from the day SFO employees began showing up in Tegucigalpa three years ago.
"For us, this has been a huge fraud," Honduran government regulator Silvio Larios Bones told me last week. "It's clear [San Francisco] has acted in bad faith all along. Here, it feels like they're treating us like the Spanish during their empire. They're selling us little birds in exchange for pieces of gold."
Still, according to Torres Lazo, the Tegucigalpa industrialist whom San Francisco recruited as a consortium partner, the little problem of the $20,000-a-day fine will be taken care of soon. Honduran President Ricardo Maduro has taken a keen interest in the airport problems, Torres says. Maduro recently arranged a series of negotiations among officials in the ministry of public works, transportation, and housing (Soptravi) and the tourism ministry, several presidential aides, many business leaders, and members of the private airports consortium, Interairports SA.
Honduras regulators tell me they have the authority to continue saddling the SFO Enterprises consortium with massive fines. But this option might give the country a bad reputation with international investors, both Larios and Torres Lazo say. So the Honduran congress will soon vote on a proposed arrangement that would slash the fine, and let the airport consortium operate under a new set of contract stipulations.
"Maduro's party has a simple majority in congress, so there won't be a problem," Torres Lazo says. "You can take it as a given the consortium's not going to collapse over this."
So there's nothing to worry about, then -- unless one considers it unseemly that San Francisco officials have been involved in back-room, high-stakes financial negotiations with a government that Transparency International, a Berlin-based organization devoted to combating corruption worldwide, calls one of the world's more corrupt.
That's not to say SFO officials did anything improper during those negotiations. Why would anything questionable happen during secret negotiations over government concessions in a banana republic?
Isn't it about time that San Franciscans learned what is really going on with our Honduran adventure? I'd love to do the learning, and pass on the full truth about SFO Enterprises, but -- at least for the moment -- I can't.
Though SFO Enterprises is apparently useless in protecting San Francisco from liability, it does provide Martin with the extremely important function of secrecy. In response to my request last month for SFO Enterprises records, airport spokesman Michael McCarron sent me the following message by fax:
"With respect to those records you have requested which are in the exclusive possession of SFO Enterprises, Inc., such records are not subject to disclosure under the California Public Records Act or the San Francisco Sunshine Ordinance since SFO Enterprises is an independent corporation and is not a department of the City and County of San Francisco. Furthermore, the records of SFO Enterprises, Inc. are not "public records' within the meaning of the Public Records Act or the Sunshine Ordinance."
Despite the dubiousness of this legal reasoning, I can't for the moment peek inside SFO Enterprises. But I know someone who can. If it's true, as Martin says, that San Francisco now faces possible liability stemming from the actions -- or non-actions -- of SFO Enterprises, shouldn't the agency in charge of protecting the city from lawsuits conduct an investigation, and examine that company's files?
Dennis Herrera, are you out there?
