From Flimflams to Kickbacks

By Tommy Purvis

Posted July 7, 2011 in Feature Story

So far the over-hyped and much-anticipated passenger service for San Bernardino International Airport (SBIA) is a taxpayer-funded pipe dream of epic proportions. The proof is found in the empty $100 million refurbished terminal that was ready for the promised hordes of tourist going to Big Bear resorts last winter; and also outside on the skid mark deprived heavy duty $35 million runway that was poured in the middle of last decade. It remains without scheduled passenger service. An inspection building for Customs and Border Protection (CBP) to clear incoming international flights will cost at least another $7 million—or twice the initial budget. A short line-up of potential passenger airlines declined generous guaranteed incentives from SBIA authorities to land elsewhere.

Instead, SBIA officials hope the screech of plane tires on the runway will soon come from corporate jets and aircraft full of Asian imports. Politicians and special interest insiders spun the passenger service tale to secure funds to build infrastructure in the former Norton Air Force Base (NAFB) redevelopment zone for the expanding IE logistics sector. The industry—also known as the goods movement—is responsible for the transportation and warehousing of imports that pass through IE locations in route to the entire U.S. marketplace. The slow emerging logistics airport will allow some foreign manufacturers the option to flyover the unionized Port of Long Beach to a government subsidized warehouse megalopolis.

The Braniff Felon Returns . . . again.

The several false SBIA takeoff attempts led to a two-year San Bernardino County Grand Jury investigation that was released before the long holiday weekend. Scot Spencer— the airport’s developer convicted of fraud and conspiracy to commit fraud for his role in the failed passenger airline Braniff Inc.—emerged as the target in an elaborate corporate welfare scheme worked out with SBIA interim Executive Director Donald Rogers. The grand jury report found that the SBIAA “has not established effective internal control over financial management activities.”

The accounting firm that Rogers is a founding partner of conducts the airport’s annual audits and special compliance reviews. The grand jury investigation found past compliance reviews did not contain information for major areas of concern for SBIA. After a reputable airport management company did not respond to a proposal from the San Bernardino International Airport Authority (SBIAA) to take over operations, Rogers hired the Spencer-ran firm San Bernardino Airport Management. The limited liability corporation (LLC) is near the end of a 5-year $2.5 million contract.

The contract was signed with the SBIAA as Spencer appealed his lifelong ban from work in the “aviation industry” by the Department of Transportation (DOT). Spencer was already known as the Braniff Felon to the Leeham Company. The business which provides market analysis and competitive research of the aviation industry was able to find 208 DOT filings dealing with Spencer dating back to the early ’90s. He ran his first airline company into the ground as a Texas teenager.

Sweetheart Contracts

Spencer had a soft landing at SBIA after he served 51 months in a Florida federal prison for taking kickbacks and hiding assets in Braniff. The SBIAA was quick to lease Spencer a hangar space for the failed Ascend Aviation. The charter operation went bankrupt in just three months after it left a Los Angeles Dodger team flight grounded for a $16,000 fuel bill. Blue’s Aviation later seized one of Spencer’s company’s planes for an unpaid fuel tab of half-a-million dollars.

The past debt is chump change compared to the $7.4 million worth of fast-track no-bid sweetheart contracts the airport developer pushed to his own Sbd Properties, LLC. The turn key firm is responsible for renovations to the passenger terminal, and building the CBP building, among other things at SBIA. During the same time frame the construction cost for the passenger terminal continues to rise five times higher than the original estimate. The third floor of the still to be completed $14 million CBP building will become office space for Million Air San Bernardino.

Spencer also serves as chief executive officer of the well established fixed base operator (FBO) that provides aeronautical services to corporate jet owners. The FBO also Boeing 747-8F Super Freighter landed at SBIA after test flights were conducted over the Pacific Ocean last summer. The Million Air FBO was able to sign a contract for services during the trial flights.

Last August, the lavish San Bernardino Million Air terminal opening party was attended by a partisan list of political dignitaries from the local and federal level. Rep. Jerry Lewis (R-Redlands) who secured Department of Defense funds for infrastructure improvements around SBIA was acknowledged. And so was John Magness, senior vice president from Hillwood Investments, and the developer of the warehouse complex that surrounds SBIA.

Redevelopment Rears its Ugly Head

The Inland Valley Development Agency (IVDA) and the SBIAA were left in control of the 2,221-acre former NAFB in the mid ’90s. The joint authority agency that works for the cities of San Bernardino, Colton and Loma Linda to develop 14,000-acres of property around the airfield quickly became a highly effective piecemeal redevelopment agency. The streamlined bureaucracy was able to secure another $165 million in bonds—to pay off past debt and fund future growth in the NAFB redevelopment zone— before the July 1 deadline set by the Gov. Jerry Brown. A vote made after the date would have allowed the state to take the funds to help balance the budget.

Currently, 5th District Supervisor, Josie Gonzales serves as the co-chair for the IVDA board along with San Bernardino Mayor Patrick Morris. The rest of board is filled out with city council members who also serve in the same roles on the SBIAA commission. Legal counsel to oversee the largesse is provided by Timothy Sabo from the high powered law firm Lewis Brisbois Bisgaard & Smith.

The California Redevelopment Association claims that statewide 300,000 jobs would be lost if redevelopment funds were taken by Sacramento. The non-profit special interest funded group released a report that found that it would cost San Bernardino County 33,596 jobs—with 2,536 of them lost from the IVDA redevelopment cash alone.

Norton Air Force Base

The former NAFB was named for San Bernardino native Captain Leland Francis Norton. The A-20 Havoc light bomber pilot was struck with anti-aircraft fire over France in WWII. He ordered the crew to bailout and went down with the plane. His photo hung on the wall of the Officer Club for five decades. The inland airbase was first put into use to defend Los Angeles from attack after the bombing of Pearl Harbor. Years later the C-141 aircraft known as the Hanoi Taxi that flew Sen. John McCain (R-AZ) and 590 other prisoners of war home from Vietnam was stationed at the base. Major General Chuck Yeager, a one time test pilot who was the first person to travel faster than sound served his last assignment at NAFB.

The Department of Defense placed the 2,221-acre NAFB on a closure list in the late ’80s. A few months later the property appeared on the Superfund National Priorities List. The government treated 23,000 cubic yards of contaminated soil and removed nearly 9,000 pounds of trichloroethylene (TCE) from the air force base and the immediate perimeter. The cancer causing toxin has been traced to 1,400 military installations nationwide. Left behind asbestos contaminated buildings and the already congested IE air traffic were seen as the biggest obstacles to developing the land.

Many questioned the dire need to redevelop the former NAFB for passenger air service in the eastern San Bernardino valley. The nearby Ontario International Airport operates below capacity without troubled economic times.

Flimflam Business Schemes

As the budget and timeline for emerging logistics airport continues to grow, so does the blight in downtown San Bernardino, the effect of the usurped funds channeled from the embattled neighborhoods that languish just a few miles west of SBIA. After several failed redevelopment attempts the area was determined to be the most disappointing mid-size downtown in the state from the California Planning and Development Report. The respected periodical found depressing conditions persisted after the ’70s-era Carousel Mall forced out mom and pop business. The San Bernardino Police Department blasts country music from KFRG through the mall parking lot PA System as a crime suppression tool.

Worse, to date the NAFB redevelopment zone has replaced less than a third of the 10,000 jobs that were lost as result of the base closure. But even then the few thousand warehouse jobs in the logistics sector are known for poverty wages and severe exploitation. So far the tax revenue from the SBIA logistics airport has amounted to a nominal cash flow when compared to the long term expenditures absorbed for the venture. Still, numerous politicians at every level of the government would defend the spending, and sweetheart deals, and the low-wage jobs that followed as the cost of doing business in a state that heavily regulates the private business sector.

SBD Properties and another Spencer-ran business at SBIA, SBD Aircraft Services, LLC still owes more than $680,000 in unpaid property and employment taxes. But the middle-class bears the brunt of the debt associated with his flimflam business schemes.

Alliance California

The other pet project in the former Norton Air Force Base (NAFB) that completes the SBIA logistics airport is Alliance California. The massive 4.5 million sq. ft. warehouse complex on the perimeter of the air field has been the recipient of $85 million in taxpayer-funded infrastructure improvements since the beginning of last decade. Property seized south of SBIA was used to widen a Tippecanoe Avenue for an expected increase in truck traffic between development and the I-10 corridor. The Burlington Northern Santa Fe railroad container facility is just a few miles north of the almost two-mile long SBIA runway.

The Alliance California warehouse development is one of six inland logistic real estate properties in the portfolio of the Texas based Hillwood Investments. The developer uses a subsidiary named Alliance Operating Services to alert prospective tenants to a windfall of available logistic savings. The SBIA Foreign Trade Zone (FTZ) designation allows foreign or domestic merchandise and components to enter the area without payment of either custom duties or government excise taxes. The incentive is just one of the many loopholes companies like GE use to skirt taxes.

Even with the incentives more than half of the warehouse space in Alliance California remains empty as the so-called economic recovery rolls forward. The SBIA logistics airport also faces stiff competition from March Global Port in Riverside County. The logistic airport shares operation costs in a heavily subsidized program with Air Force. But the Ross Perot Jr. firm that built the SBIA warehouse sprawl has oil assets in Iraq and North Africa to help wait out the holding pattern. It is the embattled community below that needs the return on the investment to take flight.

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