Auditor Slams S.F. On Charges to Airport

Saturday, April 3, 2004
Money diverted to city’s general fund, report says
By Harriet Chiang, Chronicle Legal Affairs Writer
The San Francisco (CA) Chronicle

San Francisco illegally diverted $12.5 million in revenues from San Francisco International Airport to the city’s general fund by overcharging the airport for administrative and legal services and other overhead costs, according to U.S. Department of Transportation auditors.

The auditors’ report, released Thursday by the Transportation Department’s office of inspector general, found that the 12.5 million in charges imposed on the airport — occurring between 1998 and 2002 — violated a lease agreement between the city and the airlines. It said the funds, plus interest, must be repaid to the airport.

The auditors also called on the Federal Aviation Administration to review all charges the city has imposed on the airport since 1998 to make sure San Francisco didn’t further violate the lease or federal laws designed to prevent municipal governments from bleeding airports of revenue.

Those laws are on the books to ensure that landing fees charged to airlines by airports and other airport revenues are used to maintain and improve airport facilities rather than to support general municipal spending.

The auditor?s findings are bad news for San Francisco, which already is grappling with a budget deficit of $352 million projected for the next fiscal year.

Officials at the airport, which is governed by a mayoral-appointed Airport Commission, said they disagreed with some of the audit findings and characterized it as a starting point for discussions with the FAA.

“We believe there are a number of misinterpretations, and we look forward to clarifying them with the FAA,” said Kandace Bender, airport deputy director of communications and marketing. “This is really just the initial first step in a rather long process.”

Alexis Stefani, who oversaw the audit by the inspector general’s office, said the auditors were happy to review new information justifying the charges. “There’s still the opportunity that maybe somebody didn’t give us a document or something,” Stefani said. “Right now, it’s up to the FAA and the city to come to an agreement.”

FAA spokesman Allen Kenitzer said that the agency would follow the report’s recommendations and take steps to determine whether additional money had been diverted illegally for non-airport uses. “We have to determine — hopefully with the city’s cooperation — what money went where,” Kenitzer said.

The federal audit was triggered by a 2001 annual audit performed for the airport by its accounting firm KPMG LLP, which found several city charges that appeared to be illegal diversions.

When the airlines learned of the annual audit, they asked the transportation department for a full report.

The federal audit report, dated March 31, focused on a section of the city’s 1981 lease agreement with the airlines that says that the city will receive an annual service payment for the cost of providing “indirect services” to the airport. Under that provision, the city has received an average of $21.5 million each year since 1998.

But the federal auditors found that the city has been charging the airport additional costs that were already covered by the annual service payment.

The auditors found that the city attorney’s office charged the airport $2, 867,356 for legal services in 2001, including $1,149,179 for overhead costs that already were paid for by the annual service payment. The auditors also found another $913,145 in costs charged by the city attorney that they couldn’t verify as actually costs to the airport.

The mayor’s office was faulted for charging the airport $3.9 million from 1998 through 2002.

The report cited other illegal charges by the Fire and Police Departments, the Civil Service Commission, the Department of Public

Works, Human Resources and the Office of Citizen Complaints, which investigates misconduct allegations leveled against police officers by members of the general public.

“The results of this report underscore the need for vigilant oversight of Airport revenue use,” the auditors said.

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