Agency happy with results
Josh Dulaney, Staff Writer
Posted: 07/17/2011 11:04:20 PM PDT
SAN BERNARDINO - A developer who was banned from the aviation industry has received millions of dollars for projects at San Bernardino International Airport, according to a Grand Jury report.
Scot Spencer, a convicted felon who has served time in federal prison for bankruptcy fraud, by January received payments of $7.4 million in developer fees and reimbursements for work on a corporate jet facility and a passenger terminal, according to the San Bernardino County Grand Jury report.
The initial cost estimate for the two projects was roughly $43 million, but the airport had spent more than $125 million on the projects through January, the report says.
According to San Francisco-based Harvey M. Rose Associates, which performed the audit on which the Grand Jury relied heavily for its report, Spencer "had limited experience in capital project airport development prior to being selected for these functions on a sole-source basis."
But with a sparkling terminal, four passenger gates and ticketing stations, Spencer said he has accomplished the mission he was given.
"As far as our performance on this project, I think the results speak for themselves," Spencer said. "For whatever reason, the auditors chose to ignore the information that was given to them or just declined to accept the documents to look at."
Concerning the $7.4 million in payments to Spencer's companies, the audit found that $1.9 million was in developer fees.
Spencer said more than $4 million was in reimbursement money for purchasing and refurbishing equipment at the airport.
He said the remainder was reimbursement for other costs he covered, including utilities and permits.
Airport officials have said Spencer's developer fee is cheaper than what others would have charged, and they say it is Spencer's networking ability in the aviation industry that has helped bring the likes of Boeing Co. to the airport.
"And they are here because of his connections," said Donald L. Rogers, the interim executive director of the airport.
Spencer said the cost of the airport projects, compared with similar ones throughout the country, is "within reason."
One of his companies, Norton Development Co., was chosen to develop the terminal without a bid process, something airport executives have said is routine for contractors hired to deliver a professional service.
The company is required to collect bids from contractors doing work at the terminal, and contractors are paid through a third party instead of having Spencer's firm write the checks, airport officials said.
Banned from aviation
In May 1996, Spencer was sentenced to 51 months in prison and three years of supervised release. His appeal was denied in October the following year.
According to the appellate judge's decision, Spencer in early 1992 used an advertising agency to hide payments made to him by Braniff International Airlines while the carrier was in bankruptcy protection.
Braniff was required to, but did not, report to the bankruptcy court that its expenses included payments to Spencer.
The Grand Jury report says that in 2005, Spencer was found guilty of operating as an indirect air carrier without the authority of the U.S. Department of Transportation and was fined $1 million, which remains unpaid.
An administrative-law judge wrote a default judgment against Spencer "to permanently cease and desist from further marketing or other involvement in air transportation operations so that he is banned from the aviation industry."
But Spencer, whose history at the airport dates back to 2003 as manager of a leasing and services company that leased storage space for Boeing 727 aircraft, manages multiple companies that do business with the airport, including Norton Development, which worked out the 2007 deal to build the terminal.
The agreement called for Norton Development to assume responsibility for construction work, then sell the terminal to the airport upon its completion.
The deal included a 1.35 percent development fee.
Norton Development also owns the Million Air corporate jet facility, and Spencer's business interests at the airport include SBD Aircraft Services, which holds a lease on the airport's hangar complex, and Norton Aircraft Maintenance Services, which performs repair work on jet aircraft.
'Serious questions'
The civil Grand Jury took to task the San Bernardino International Airport Authority - a joint-powers authority composed of San Bernardino County and the cities of San Bernardino, Colton, Loma Linda and Highland - for its increasingly complex relationship with Spencer.
"The evolution of these sole- source relationships between SBIAA and Mr. Spencer, and the growth in the involvement of the companies he manages, raises serious questions," the report says. "Further, Mr. Spencer's activities at SBIAA are in direct violation of the DOT order, which states he should be `banned from the aviation industry."'
"Is it embarrassing? Hell yes," said Josie Gonzales, chairwoman of the county Board of Supervisors, and member of the authority board.
Gonzales said it is the board's job to make sure "that Mr. Spencer is either performing to the letter of the contract that we have with him, and if he is not, it's our job to get him the hell out."
But Spencer believes the scope of the aviation industry ban is actually narrow.
"The DOT order, which, if you read the whole language of the order, doesn't just say `banned from the aviation industry' ... that refers to the sale of airline tickets and the marketing of airline products," Spencer said.
He said he has appealed the order.
"None of the activities that we're involved in at the airport are in contradiction to that order, because they are outside the statutory authority of what the DOT was referring to in that order," Spencer said.
Airport officials suggested that the Department of Transportation overreached in its decision to ban Spencer from the aviation industry, saying its authority does not cover corporate jet facilities or maintenance and leasing operations.
"We all agreed that the limitation on the aviation industry ban was very limited in scope and did not include all these ground operations," Rogers said.
The auditor disagreed with Rogers, and said in the Grand Jury report: "This interpretation runs counter to a plain- language understanding of the judge's order and is not documented in any fashion. We therefore reject the Interim Executive Director's interpretation and assertion regarding the court's intent."
Outside opinion
The Grand Jury has called for the airport authority to review its current contracts for construction services and airport operations with the companies Spencer manages, and to identify modifications "that may be necessary to protect" the airport from "potential future risk."
Although the airport authority board's legal team has said Spencer's involvement in the airport is not an issue, Gonzales has made repeated calls for input from an outside legal firm.
"In all honesty, we have not gone to an outside legal source and gotten a legal opinion that then we can hang our hat on and say, `Based on this ... legal opinion, we have proceeded,"' she said. "We intend to do that. I don't have a reason for why we've not done that."
http://www.redlandsdailyfacts.com/sanbernardinocounty/ci_18498347
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