FINAL REPORT - San Bernardino Superior Court

Section 4: SCLA Hangar Development
Sky Harbor Airport and caused the leasing of those facilities to third parties.” However, no
documentation was provided to our audit team as to the dates or extent of the Airport Director’s
contacts or to the level of the owner’s involvement in these projects, despite a request for the
documentation and commitments made by the City Attorney at the exit conference.
Contractor Was Party to Civil Litigation Before Engaged by City
While the background research conducted by the City Attorney’s Office in late November of
2005 revealed that CBS Aviation Development and its owner were listed as defendants in civil
suits, the City Attorney has maintained that “such litigation did not raise red flags.” Specifically,
the research revealed that CBS Aviation Development was listed as a defendant in two civil suits
filed in August 2003 as well as a civil suit filed in August 2005 in San Bernardino County
Superior Court. In addition, the owner of CBS Aviation was listed as a defendant in a civil suit
filed in November 2000 in San Mateo County Superior Court. The suits filed in San Bernardino
County appear to have multiple plaintiffs, many of which appear to be private constructionrelated
entities. As discussed later in this section, the City eventually removed CBS Aviation
Development from the hangar project due in part to the failure to pay subcontractors.
SCLAA Quick to Provide Funding to CBS Aviation Development, but Not to
Establish a Budget, Project Plan, or Controls
Although the ground lease agreement called for the hangar development project to be selffunded,
the SCLAA executed a loan agreement for $20 million with CBS Aviation Development
on November 1, 2005, just 32 days after the execution of the ground lease. Approximately $17.7
million was directly disbursed to the manager/owner of CBS Aviation on December 2, 2005.
No Budget, Project Plan, or Controls Established
City and SCLAA management did not institute any kind of budget, project plan, or controls
before executing the loan agreement with CBS Aviation. The provision of nearly $20 million of
public funds, for a project that a month earlier had been intended to be privately funded, does not
appear to have triggered any sense of alarm among City management or Council members that
the SCLAA’s role and risk in the project fundamentally changed. The absence of any kind of
project reevaluation by City officials was a clear failure of the City and SCLAA governance
structure and control environment.
SCLAA Provided Additional Funding After CBS Aviation Missed Performance Deadlines
CBS Aviation Development did not adhere to the “schedule of performance” in the ground lease
agreement, which called for the developer to complete the hangar facilities by December 31,
2005. Despite the developer’s failure to adhere to this performance schedule, the City did not
take action to establish controls or terminate the contract. Rather, on February 1, 2006, the
SCLAA entered into a second loan agreement providing additional bond funds. This second loan
agreement provided an additional $7.7 million to the owner/manager of CBS Aviation
Development. The supporting bond used for the loan was later refinanced, providing an
additional $4.5 million to CBS. This final payment brought the total amount disbursed to the
developer to approximately $30 million for the Hangar Development project.
4-3
Harvey M. Rose Associates, LLC