San Bernardino: Airport deals not lucrative, officials say

10:00 PM PDT on Saturday, July 9, 2011

By KIMBERLY PIERCEALL
The Press-Enterprise

San Bernardino International Airport officials, in reaction to a critical civil Grand Jury report, say agreements given to key airport developer Scot Spencer were not profitable even though he made $2.06 million in fees as of March.

The fees were awarded to Spencer for building a passenger terminal and corporate jet facility, among other things, at the airport.

"These were not profitable contracts," said Don Rogers, executive director of the airport.

The Grand Jury report questioned Spencer's increasing role at the airport and condemned the management and financial oversight of the airport's development. Spencer served time in federal prison for bankruptcy fraud and was later banned from the aviation industry by the Department of Transportation.

Since Spencer was tapped in 2007, construction costs have escalated from $45 million to $142.5 million, and it's not yet complete.

The fees were generated by multiple no-bid agreements for work done primarily by two of Spencer's companies, Norton Development and SBD Properties. They called for 1.35 percent of the value of every contract to build the main passenger terminal and 2 percent of the worth of contracts to build a three-story U.S. Customs building, still under construction, and a fixed-base operation that includes the corporate jet Million Air terminal.

Those fees do not include another $4.3 million the airport authority reimbursed Spencer for equipment he bought, designs, construction management and municipal fees.

His companies have rarely paid for any contracts or goods up front to develop the airport.

And only in the past few months has he been required to pay rent for the terminal his Million Air franchise occupies, even though the business officially opened last August.

Originally the Inland Valley Development Agency, which is overseeing reuse of the former Norton Air Force Base, gave Spencer access to $45 million by May 2007 to build the terminal and corporate jet facility. But by August of that year, the agency shifted to a fund control process that put the money in a trust account that only a third-party - in this case, First American Fund Control - can access to write checks.

The Grand Jury report criticized the process saying it kept the agency's chief financial officer out of the loop and was inadequate in preventing a waste of taxpayer funds. The firm which conducted the audit of the airport for the Grand Jury reported seeing forms lacking required signatures and no clear way for the third-party to assess if the airport is paying a fair price.

Through the process, the developer would get an invoice from the contractor or subcontractor. That "voucher" would be forwarded on to the IVDA to review and sent to the fund control signed by at least one staff member, typically Rogers or assistant director Mike Burrows; a representative from Spencer's companies and an IVDA board member, usually chair and San Bernardino Mayor Pat Morris. The fund control company reviews the invoice that's supposed to include evidence of charges, sometimes conducts on-site inspections of the work, obtains final approval from the agency, and then cuts a check directly to the contractor or jointly to the subcontractor.

Despite the revenue and his lack of out of pocket expenses, Spencer has often been late paying rent and taxes and says he's never once made money for the investors in his airport-related companies.

TAXES AND LIENS

Spencer and airport officials spent nearly 4 ½ hours Tuesday with reporters and editors from The Press-Enterprise discussing the Grand Jury report and Spencer's debts. At least two of his companies owe more than $680,000 in property and employment taxes from business at the airport. He was also three months late in paying his rent.

That same day, Spencer wrote three checks for a total of $329,060.19 to the airport for the rent he owed to occupy the Million Air terminal, another fixed-base operation and space in hangar 763, according to airport officials. As of Friday afternoon, there was no evidence the checks had cleared.

Most of the taxes Spencer's SBD Aircraft Services LLC owes to San Bernardino County relates to the property he rents from the airport. Since Spencer rents space from a tax-exempt government agency to operate a private business, he's liable for the property taxes.

Those taxes have amounted to about $530,000 primarily for the space he leases in hangar 763 at the airport. Spencer has blamed his renters for not paying the taxes they owe. A "triple-net" provision in the subleases his company has signed pass liabilities such as taxes to the subtenant. Such a provision is common in commercial real estate.

Nonetheless, one of two of Spencer's subtenants -- AeroPro -- was unaware of the provision in the sublease and in eight years had never been informed by Spencer or the county tax-collector that it owed any taxes. In the sublease, the language refers to the taxes, "that may be imposed" on the subtenant.

"Nothing has been imposed on us. Nothing," said Mike Allen, president of AeroPro, adding later, "if we owe it, we owe it."

Only SBD Aircraft Services is listed as owing any of the property taxes with the county tax-collector based on the assessor's records.

According to the most recent amended lease, Spencer's Norton Property rents a total of 245,454 square feet and has first right of refusal to the remaining 172,659 square feet. According to its lease, AeroPro rents about 83,000 square feet, including shared common area with other tenants.

Based on the lease language, Spencer's SBD Aircraft Services would be responsible for the taxes for any space not rented to someone else. The only other large tenant in the hangar had been Norton Aircraft Maintenance Services, a company founded by Spencer. That company's assets were recently bought out by a related company, SBAM Technics, a subsidiary of the San Bernardino Airport Management he manages, he said.

Spencer's company also owes a little more than $4,000 for taxes owed on aircraft maintenance equipment worth approximately $232,000.

The assessor's office has had to take an educated guess as to the value of Spencer's equipment, though, because every year since 2008 his company failed to respond to the county's property statement. Not replying to that letter adds an extra 10 percent on top of the assessor's guess at the value.

Reach Kimberly Pierceall at 951-368-9552 or kpierceall@PE.com

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