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SPECIAL investigation
Goldwater Institute
No. 09-01 I October 14, 2009
High Fliers: How Political Insiders Gained an Edge in Sky Harbor Concessions
by Mark Flatten, Investigative Reporter, Goldwater Institute
Mary Rose Wilcox eked out a small profit from a Mexican restaurant she owned in south Phoenix before she used
her race and status as the owner of a “disadvantaged” business to land a lucrative concession deal at Sky Harbor Inter-
national Airport.
The long-entrenched Democrat on the Maricopa County Board of Supervisors reported $10,000 in profits from
her El Portal restaurant in an August 2003 financial statement. In December 2004, Wilcox was brought into a joint
venture to co-own a Chili’s franchise, the only full-service bar and restaurant in the main lobby of Terminal 4.
Seven months later, Wilcox reported profits of $113,000 from the Chili’s deal alone.
Wilcox did not have to bring any money into the deal. Host International Inc., which holds the master conces-
sion contract with the City of Phoenix for all food and beverage sales in Terminal 4, fronted her company a loan for
her initial capital contribution of $450,000. The loan was to be repaid through profits from the restaurant, and was
made in violation of city policy.
In violation of federal rules, Wilcox did not have a role in the day-to-day operations of the franchise. That was
the exclusive job of Host, according to the joint venture agreement she signed with the international mega-concession
company.
Wilcox was not even required to spend any more time on the restaurant business than she deemed appropriate.
One inviolable rule for Wilcox, who is Hispanic, was that she had to maintain her status as the owner of an Air-
port Concession Disadvantaged Business Enterprise (ACDBE or DBE), a creation of federal law and regulations that
give preferences in airport concession contracting to firms owned by minorities and women.
The DBE program is supposed to remedy current and past discrimination, and create a “level playing field” in the
awarding of airport concession contracts. The DBE owner is required to take an active role in running the company,
according to federal rules.
GOLDWATER INSTITUTE I special investigation
But a three-month investigation by the Goldwater Institute shows firms
certified as “disadvantaged” are often little more than a name on the lease, brought
in as partners by large concession companies to meet city-imposed goals for
participation by businesses owned by women and minorities.
Large concessionaires at Sky Harbor control most of the restaurant and retail
operations in all three terminals at the airport. They are required to hit targets
set by the city for DBE participation. As a result, there is little chance of a small
business that is not certified as disadvantaged because of the race or sex of the
owner getting any concession deal at the airport.
Of more than 140 individual concession storefronts at Sky Harbor, city
records identify only two that are not operated exclusively by a master contractor
or owned, at least in part, by a certified DBE. Both of those businesses are part of
There is little chance of a large national chains.
small business that is not
certified as disadvantaged There are conflicting records for a third business, and no records identifying a
because of the race or sex concession owned by a small business that is not DBE certified.
of the owner getting any
concession deal at the Rather than bringing in a diverse group of small business owners to operate
airport. individual storefronts, a few key players hold multiple concession leases, whether
through direct contracts with the city or through partnership agreements with
national concession companies like Host.
Critics of the DBE program say it amounts to a quota system that discriminates
against firms that are not owned by a minority or woman. Breaking up large
contracts and scrapping unnecessary bidding restrictions would make the process
more competitive for all small businesses without resorting to preferences based
on race or gender, they say.
Read: Race-neutral reforms Next year, Arizona voters will decide whether to prohibit race and gender
a better alternative than preferences in government contracting through a general election ballot measure.
preferences
The Institute’s investigation also shows that many of the most lucrative
concessions at Sky Harbor are held by a small cadre of political insiders who have
pumped more than $87,000 into political campaigns at the federal, state and local
level since the beginning of the 2004 election cycle.
Among the business owners deemed “disadvantaged” who have extensive
political histories are Yolanda and Aaron Kizer, and Gregory and Josephine
Torrez.
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October 14, 2009
The Kizers have an ownership interest in 11 retail stores at Sky Harbor through
their DBE-certified company, Casa Fenix Merchandising Inc. Both Yolanda and
Aaron Kizer have been appointed to multiple advisory boards at the city and state
Read: City records scant on level. They have also given more than $49,000 to political campaigns since the
airport concession ownership beginning of the 2004 election cycle.
The Torrezes own a DBE that is involved in 14 retail concessions at the airport,
according to city records. A former member of the Arizona School Facilities
Board, Gregory Torrez and his wife have donated more than $11,000 to political
campaigns since the 2004 election cycle.
Several DBE owners told the Goldwater Institute that politics is part of doing
business at Sky Harbor.
“They have people in the mayor’s office. They have people in the governor’s
office,” said Terry Delley, who has operated the Burger King in Terminal 4 at Sky
Harbor since it opened in 1990 and recently lost his certification as a disadvantaged
business owner. “They have political ties that enable them to get those contracts.
That’s just the way it is. That’s the way the business is done.”
Management edict
David Krietor
For the most part, city officials refused to cooperate with the Institute’s
investigation, beyond providing documents as required under the state’s public
records law.
The three city officials ultimately responsible for how the program is
administered refused to be interviewed: David Krietor, the former airport director
Watch: Phoenix Mayor and now deputy city manager whose responsibilities include oversight of Sky
Phil Gordon respond Harbor, Danny Murphy, the current aviation director at Sky Harbor, and Mayor
to Goldwater Institute Phil Gordon.
questions regarding airport
concession leases. Mayor Gordon initially refused to answer questions about the concession
program at Sky Harbor. When approached by the Institute after a public event,
however, he said he had never used his influence to benefit political allies at the
airport.
Two days after Krietor refused to talk, his office sent out an edict that others
on the city staff should not agree to interviews with the Institute, and should do
no more than provide public records.
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GOLDWATER INSTITUTE I special investigation
Even at that, the city provided incomplete information. On some subjects,
virtually no information was produced.
In 2007, the city hired a Virginia research firm to conduct a disparity study to
identify current and past discrimination in awarding concession contracts at Sky
Harbor. Such studies are required under federal court rulings if an airport is going
to use race as a factor in awarding concession leases.
The study was supposed to take a year and cost less than $350,000. It has
dragged on for more than two years, and now is scheduled for completion by
December. And, the cost has increased to $609,500.
Yet the documents produced by the city do not explain the reason for the
delays or additional cost.
The study is critical.
Read: Court rulings limit The city officially suspended its use of “race-conscious” programs at Sky Harbor
racial preference programs in July 2006. It still has a goal that DBEs will account for at least 15.8 percent of
sales at the airport, but claims it will not use racial preferences in awarding new
contracts.
The suspension came in response to a letter issued by the Federal Aviation
Administration (FAA) the previous January warning that a federal court case had
raised the standards for proving preferences based on race or sex were necessary to
combat discrimination in awarding contracts. Airports would need more rigorous
scientific studies to justify the use of race-conscious programs, the FAA warned.
Airport operators were told to switch to contracting methods that did not use
race as a factor until they completed disparity studies to justify the use of race-
conscious methods.
The change has had little impact at Sky Harbor.
Leases and concession contracts that were about to expire when the city
dropped its use of race-based goals were simply extended until the disparity study
is finished.
That means virtually all of the concession deals at Sky Harbor, which were
issued when race-conscious methods were still being used, remain in effect.
The city continues to track overall sales based on the disadvantaged status of
business owners. It also reports the total sales attributed to contracts issued using
4
October 14, 2009
race-conscious methods.
Disadvantaged businesses accounted for about $52 million in sales at Sky
Harbor in the fiscal year that ended September 30, 2008, the most recent annual
figures available, according to city records which exclude car rentals. That is 29.7
percent of the $175.1 million in total sales at the airport.
Of the $52 million in sales attributed to “disadvantaged” businesses,
about $32.7 million comes from the use of race-based preferences in awarding
contracts.
Paying off
The airport concession deal paid off for Wilcox.
The agreement she signed with Host in December 2004 gave her company,
Grant Park Enterprises, 30 percent ownership in the joint venture that operates the
Chili’s Too at Sky Harbor. Host owns the remaining 70 percent of the company
called Host-Grant Park Chili’s Joint Venture. Profits are split based on ownership
County Supervisor Mary Rose percentages.
Wilcox and President Barack
Obama By the end of June 2005, Wilcox reported profits of $113,000 from the Chili’s
franchise.
Since then, Wilcox has stopped reporting her income from the Chili’s franchise
separately from other restaurant income. Last year she opened a second El Portal
location in another city-owned building, the downtown campus of Arizona State
University.
In April 2007, Wilcox listed income of $145,617 through Grant Park
Enterprises, but did not break out the Chili’s profits separately. In February 2008,
she listed $180,000 in “other” income, but did not describe its source. Mary Rose
Read: city emails regarding Wilcox and her husband, Earl, reported combined salaries of $126,000 from their
Wilcox DBE compliance government jobs on that same report.
Their most recent financial statement did not include a listing for restaurant
income.
Yet despite the windfall in profits and federal regulations that require DBE
partners to perform a “clearly defined” and “commercially useful” function in
operating their concessions, city officials have struggled for years to define what it
is that Wilcox does in running the Chili’s Too restaurant in Terminal 4.
5
GOLDWATER INSTITUTE I special investigation
As recently as last December, city officials described Wilcox’s role in the
business as “negligible.” Host had been threatened with breach of contract if it
did not increase the level of sales that could be attributed to DBEs at the airport.
One solution Host officials came up with was to increase the percentage of
Watch: County Supervisor claimed ownership in the Chili’s franchise of Wilcox’s company from 30 percent
Wilcox’s response to to 40 percent. But city officials balked, concluding Wilcox was little more than a
Goldwater Institute request name on the lease, and had no real role in running the restaurant, according to
for comment. documents obtained from the city through multiple public records requests.
“The role of the ACDBE (Grant Park) in the joint venture, both administratively
and operationally, is negligible and lacks the substance and depth that would
substantiate counting 40 percent ACDBE participation,” Margo Dorrough, an
equal opportunity specialist with the City of Phoenix, wrote in a December 5,
2008, letter to Host officials.
“It was impossible to ascertain how the joint venture involving the ACDBE
partner differs from those Host concession operations with no ACDBE
Wilcox refused an interview involvement,” Dorrough continued in her letter to Ron Gomes, vice president for
with the Goldwater Institute strategic alliances at Host. “Notwithstanding the agreement and its deficiencies,
about her partnership at Sky our previous compliance reviews have also demonstrated a lack of real and
Harbor, saying it involves meaningful involvement of the ACDBE partner consistent with the letter and
private business information intent of the federal DBE program as demonstrated in the governing regulations
and has nothing to do with that go beyond the pro forma of the paperwork creating the partnership.”
her job as a public official.
Wilcox refused an interview with the Goldwater Institute about her partnership
at Sky Harbor, saying it involves private business information and has nothing to
do with her job as a public official.
“If your call was related to a county issue, as an elected official, I would not
hesitate to return your calls,” Wilcox said in a written statement. “However, your
call is related to a private personal (matter) and I will not be responding.”
Wilcox refused to answer questions when contacted in person after a board
Read: Grant Park, Host meeting.
joint venture agreement
Host officials also refused to comment.
“Level Playing Field”
Congress created the “disadvantaged business enterprise” program in 1983 as
a means of helping small companies owned by minorities and women who had
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October 14, 2009
suffered past discrimination gain an edge in competing for federal construction
dollars. The law was expanded in 1987 to include airport concession contracts.
A national goal that 10 percent of all gross sales revenues generated by airport
concessions should be attributable to “disadvantaged” businesses was imposed
on airport operators—typically cities—that receive federal funds. Car rentals are
counted separately.
The federal law and agency regulations mimic court-imposed restrictions on
racial preference programs. Quotas are specifically prohibited. Airports that fail to
meet their goals, however, can lose federal funds if they cannot show good faith
To qualify as a DBE, efforts were made to attract more minority and woman-owned businesses.
at least 51 percent of a
company must be owned Airport operators are required to set their own goals based on the availability
by a qualified minority of disadvantaged businesses in local markets, and what their level of participation
or woman, under federal would be in airport contracting in the absence of discrimination.
regulations.
Airports pass on their requirements for DBE participation to prime contractors,
as Phoenix has done with Host and Delaware North Companies, the two large
retailers that have master concession contracts for food and beverage sales at Sky
Harbor.
Delaware North officials also refused to comment.
A master contractor can be held in breach of contract if it does not meet
its goals, or prove it has made a good-faith effort to bring in higher levels of
participation by DBEs.
Read: Wilcox financial
statements To qualify as a DBE, at least 51 percent of a company must be owned by
a qualified minority or woman, under federal regulations. Some racial groups
are presumed to be “disadvantaged” in federal law and agency regulations. They
include blacks, Hispanics, Native Americans, women of all races and Asians.
There are limits.
DBE owners cannot have a personal net worth of more than $750,000,
excluding the equity in their primary residence and the company operating the
airport concession.
Two disadvantaged business owners at Sky Harbor, including Delley, were
decertified earlier this year because they exceeded the personal net worth cap.
7
GOLDWATER INSTITUTE I special investigation
Several others, including Wilcox, are close.
When a DBE is decertified, it continues to be counted as “disadvantaged”
until its leases expire.
Once the goal has been set, airports are supposed to achieve as much of it as
possible through “race-neutral” methods that would make it more likely that any
small business could qualify for a particular concession, regardless of the race or
gender of the owner.
One favored race-neutral method is “unbundling” or breaking concession
opportunities into smaller contracts to allow smaller firms to compete with large
companies, according to federal guidelines.
But when race-neutral methods are not sufficient to reach the airport’s goal for
participation by minority and woman-owned businesses, its operators are required
to use contracting methods that take race and gender into account.
Of the nearly $4.75 billion
generated nationally
“It’s not a preference,” said Michael Freilich, director for DBE compliance for
through airport concessions
the FAA. “We do not allow preferences. But what it is, is a race-conscious goal in
in the 2008 fiscal year,
cases where the airport can’t meet it through race-neutral means.”
excluding car rentals, about
$1.14 billion or 24.1
Of the nearly $4.75 billion generated nationally through airport concessions
percent was attributed to
in the 2008 fiscal year, excluding car rentals, about $1.14 billion or 24.1 percent
“disadvantaged” businesses,
was attributed to “disadvantaged” businesses, according to federal reports. Of that,
according to federal reports.
about $727.4 million came through race-conscious contracting while $415.2
million was generated through race-neutral means, according to the report from
the FAA for sales through September 30, 2008, the most recent annual figures
available.
Goals or Quotas
To its supporters, the DBE program has created opportunities for small
businesses owned by minorities and women that otherwise would not exist. Small
concessionaires do not have the ability to raise the money, post the insurance bonds
or attract the national brands they would need to compete against large master
contractors, according to the owners of several DBEs operating at Sky Harbor.
Without the federal requirements, most acknowledge they would probably not be
in business at the airport.
“There is a real misconception about what the DBE programs do, that they
are actually handing something out to somebody that either doesn’t deserve to be
8
October 14, 2009
there or shouldn’t be there for some reason or another,” said John Avila, owner of a
DBE which is involved with more than a dozen retail shops scattered throughout
Sky Harbor’s three terminals.
“The truth is, all the preference does is get you in the door,” Avila said. “That’s
it. If you are not a good enough business person, you’re just not going to be there.
You’re not going to last.”
But to its critics, the DBE program is largely a quota system that favors certain
businesses based on the race or gender of the owner. Difficulties in raising money,
securing loans or posting bonds that are cited as stifling for minority and woman-
owned businesses are the same challenges faced by any small business owner, they
say.
Using race-neutral means such as unbundling contracts would improve
concession opportunities for all small businesses, not just the select few, said Ralph
Kasarda, an attorney with the Pacifc Legal Foundation in California.
The way the system is structured now, there is no incentive for either airports
or large master contractors to seek out small businesses that are not certified as
disadvantaged, Kasarda said.
The Foundation sued the operators of Oakland International Airport over its
Ralph Kasarda DBE program in 2007, claiming the city and the port authority violated the state’s
constitutional ban on preference programs for minorities and women. Arizona
voters will be asked to decide on a similar ban in the November 2010 election.
The case was dropped last year after the Oakland port authority ended its race-
based requirements.
Kasarda said that while federal regulations say quotas are not allowed, in
practice setting “aspirational” goals and requiring good-faith efforts to meet them
amount to the same thing.
“The good faith effort determination basically requires that the contractor
perform race-conscious measures, only solicit to minorities, to ensure they are
going to meet this goal,” Kasarda said. “An aspirational goal that is tied to a good-
faith effort really becomes in practice a quota or a system of exclusion where only
women or minorities are being solicited or brought in.”
9
GOLDWATER INSTITUTE I special investigation
Realistic Shot
Kasarda’s assertion that the only small businesses with a realistic shot at landing
an airport concession spot are the ones deemed disadvantaged is borne out at Sky
Harbor.
A Goldwater Institute review of thousands of pages of city documents identified
only two concession businesses at Sky Harbor that are not operated exclusively
by a master contractor or owned, at least in part, by a certified DBE. Those two
stores, Borders Books and InMotion Entertainment, are both in Terminal 4 and
part of large national chains. There are conflicting records regarding the ownership
and DBE status of a third business, Flo’s Shanghai Café in Terminal 4.
There is no bidding for airport concession leases in the traditional sense. Price
is a minor consideration. Meeting DBE participation rules is required to even be
considered.
There is no bidding for
airport concession leases in
At Sky Harbor, like most other major airports across the country, large master
the traditional sense. Price
concessionaires have contracts for all food and beverage operations. Host has held
is a minor consideration.
the master contract for Terminals 3 and 4 since 1990. The contract has not been
Meeting DBE participation
rebid since, but a new request for proposals is being prepared.
rules is required to even be
considered.
The city’s agreement with Host runs until 2011.
Host is part of the world’s largest food and beverage retailer catering to travelers,
according to the company’s Web site. The company is also the controlling partner
in numerous retail joint ventures at the airport.
A similar master concession contract with the city in the much smaller Terminal
2 is held by Delaware North, another of the nation’s largest retail conglomerates.
There is no Terminal 1 at Sky Harbor.
Goals for DBE participation are included in the city’s contracts with master
concessionaires. Those concessionaires are responsible for bringing in disadvantaged
businesses, either through subleases or as partners in joint ventures, to hit their
minimum participation targets.
For retail operations such as bookstores and gift shops, the city leases space
directly. In the past, Phoenix has set minimum DBE participation levels when
it put retail contracts out to bid. Sometimes the city leases space directly to a
single disadvantaged business. Most often, the retail leases go to partnerships that
pair a large national concession company with a DBE to reach the minimum
10
October 14, 2009
participation goal.
Only a few new concession contracts have been issued since the city suspended
its use of race-conscious methods. Those leases have gone to DBE-certified firms,
partnerships that include a DBE, or large corporations, according to city records.
“Great Opportunity”
City records do not say how Mary Rose Wilcox got the opportunity to become
a partner in the Chili’s Too restaurant in Terminal 4. Since neither the county
supervisor nor Host officials would agree to an interview, there was no way for the
Goldwater Institute to find out.
Wilcox spent nine years on the Phoenix City Council before being elected to
the county Board of Supervisors in 1992. She has not faced a challenger in either
the primary or general election since 2000.
Mary Rose and Earl Wilcox formed Grant Park Enterprises LLC in September
2000, according to Arizona Corporation Commission records. They opened the
first El Portal restaurant in South Phoenix a year earlier.
Supervisor Wilcox and her
husband, Earl Wilcox pictured Earl Wilcox is a former state legislator and justice of the peace who served as
with boxer Oscar De La Hoya. an assistant to former Gov. Janet Napolitano from January 2003 through June
Supervisor Wilcox was a member 2008. Since the beginning of the 2004 election, the Wilcoxes have donated more
of the Arizona State Boxing than $18,000 to political campaigns on the federal, state, Maricopa County and
Commission until last June. City of Phoenix levels.
The first reference to the Chili’s deal in city files is the minutes of an August
2004 board meeting of the Grant Park owners—Mary Rose and Earl Wilcox.
“The company has the opportunity to apply to operate a Joint Venture for a
restaurant at Phoenix Sky Harbor Airport with HMS Host,” the minutes state.
Read entire Grant Park, “It was believed this could be a great opportunity for the company to enter into a
Host joint venture food and beverage business at the airport.”
agreement
Four months later, the joint venture partnership with Host was formed.
Host was specifically granted control over the day-to-day operation of the
business and retained exclusive control of the franchise agreement with Chili’s.
Wilcox’s duties were relegated to participating in meetings, employing a
single manager, and performing a few other minor tasks that did not significantly
11
GOLDWATER INSTITUTE I special investigation
contribute to the operation of the business, according to city records.
There was even a provision in the original agreement that allowed Wilcox
to decide how much time she and her husband would spend helping with the
franchise.
At the time, Mary Rose Wilcox was working full time as a county supervisor
while Earl Wilcox had a full-time job in the governor’s office.
Neither Wilcox nor officials Voting power on management committees was controlled by the percentage
at Host reported the loan of ownership in the joint venture—70 percent to Host and 30 percent to Grant
to city officials when the Park.
original joint venture
agreement was signed. It The contract would be terminated if Grant Park lost its certification as a
was discovered in a routine disadvantaged business.
review of the partnership
conducted by the city in “Problematic” Loan
early 2007.
As troublesome as the vague descriptions of Wilcox’s duties would later become
for city officials, what ultimately caused them the most concern was the $450,000
loan that Host made to Grant Park for its initial capital contribution.
Federal guidelines do allow prime concessionaires to make loans to
disadvantaged businesses that are their joint venture partners. Those loans are
supposed to be a last resort when no other credit is available, should be secured by
personal guarantees, and are required to be on terms similar to what a bank would
offer. Loans made to disadvantaged business partners also should not be for 100
percent of their capital contributions, according to federal guidelines.
The joint venture agreement shows Grant Park’s initial capital contribution
was $450,000. A separate document filed by Wilcox at the Maricopa County
Read city emails regarding Recorder’s Office in December 2007 lists the initial loan she received from Host as
Wilcox DBE compliance $480,872. That document indicates Wilcox did not originally back the loan with
a personal guarantee as required by federal rules. The loan was to be repaid from
profits generated by the restaurant.
Phoenix city policies prohibit prime concessionaires from making loans to
joint venture partners, which may only be firms certified as “disadvantaged.”
Neither Wilcox nor officials at Host reported the loan to city officials when
the original joint venture agreement was signed. It was discovered in a routine
review of the partnership conducted by the city in early 2007.
12
October 14, 2009
Terri Baack, a DBE compliance specialist with the city, called the loan
“problematic” in a February 2007 e-mail sent shortly after it was discovered. At
the time, the loan had an unpaid balance of $226,589.
“This has never been an acceptable arrangement,” Baack said in the e-mail to
Carolyn Gall of the city’s Equal Opportunity Department. “I know that we would
never allow her (Wilcox) to obtain a loan from Host now, but I’m uncertain about
handling an after-the-fact discovery under these circumstances.”
Commercially Useful
Beyond the issue of the loan, city officials struggled for more than two years to
define a commercially useful function for Wilcox in running the Chili’s Too.
Federal regulations make clear that a disadvantaged business owner is supposed
to be more than a passive participant or “silent partner” in running an airport
But even before the new concession business. DBEs are supposed to perform distinct, clearly defined and
guidelines were issued, “commercially useful” functions in running the business consistent with their
compliance officials at Sky degree of ownership.
Harbor knew the joint
venture agreement between Across the country, numerous companies have been prosecuted for fraud
Wilcox and Host did not because they created “pass-through” schemes in which the DBE was brought in as
meet federal regulations. a partner to meet the bidding requirements, but was neither expected nor allowed
to perform a meaningful role in running the business.
Joint ventures, like the one Wilcox is involved in, have been particularly
troublesome for federal regulators because they create a ripe opportunity for pass-
through schemes.
In the past, a DBE’s participation in a joint venture had been counted
based solely on its ownership percentage. In 2005, the FAA issued more specific
regulations that required airports to monitor participation by DBEs to ensure they
were actually taking a role in running the business.
Last year, the FAA issued additional guidelines for joint ventures, reiterating
the long-standing rules that airport operators were required to ensure DBE
partners were performing commercially useful functions equal to their claimed
ownership in a company.
“We directed they need to look at every single joint venture that they had with
ACDBEs in the country and make sure it complies with our guidelines to ensure
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GOLDWATER INSTITUTE I special investigation
that there is not fraud, that the DBEs are really doing what they’re supposed to do,
that it’s not a front,” said Freilich, the FAA’s director of compliance.
Freilich said the guidance issued last year did not change the rules for joint
ventures. Rather, it gave airport operators more specific instructions for what was
expected of minority partners in running a concession business.
But even before the new guidelines were issued, compliance officials at Sky
Harbor knew the joint venture agreement between Wilcox and Host did not
meet federal regulations. Host was under pressure to increase its claimed level
of participation by minority and woman-owned businesses by late 2006. Host’s
contract with the city required a 25 percent participation level by disadvantaged
businesses, but the master concessionaire had consistently failed to meet that goal,
according to city memos. City officials repeatedly threatened that Host could be
held in breach of contract if it did not raise the portion of its total sales attributed
to DBEs to the required 25 percent.
In October 2006, Host officials proposed increasing Wilcox’s ownership in
the Chili’s operation from 30 percent to 40 percent as part of an effort to boost
its claimed participation by certified DBEs. City documents do not say whether
Wilcox was required to put any additional money into the joint venture to
buy the greater percentage of ownership. There is a reference to the possibility
of a $130,000 additional investment for the increase in Wilcox’s ownership in
notes from a November 2007 meeting. However, other city documents do not
explain whether that money was ever paid. A September 2008 e-mail between
city officials indicates Wilcox tried to obtain a larger ownership percentage in the
Chili’s venture, but that “her financing did not work out.” At the time, Wilcox
Chili’s Too franchise in Terminal 4 was claiming to city officials that she was a 40 percent owner.
Level of Control
Host’s proposal to increase Wilcox’s ownership triggered a review of the joint
venture agreement by the city’s equal opportunity department. It was during that
review that city officials first learned of the loan.
It also became clear that Wilcox’s role in running the partnership was minimal,
according to a series of e-mails from city compliance officials.
“It is highly unlikely that we will be able to count any additional participation
by Mary Rose Wilcox in Chili’s,” Terri Baack of the city’s aviation department
wrote in a January 2007 e-mail. “Her involvement and level of control are barely
(if even) commiserate (sic) with 30% participation.”
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October 14, 2009
A few weeks later, Baack acknowledged it would be difficult for Wilcox to
take a more active role in running the business because of her job as a county
supervisor.
In December 2007, Margo Dorrough of the city’s equal opportunity
department laid out specific shortcomings in the joint venture agreement.
Host had total control of the day-to-day affairs of the franchise, Dorrough
complained.
Specific roles assigned to Wilcox such as attending meetings of management
committees were insufficient since “meetings are not critical to operating a
restaurant.”
Dorrough also suggested some specific roles Wilcox could undertake to help
City officials sent similar justify her ownership: cashiering, cleaning, hostessing, bartending, cooking,
memos over the next several conducting inventory and ordering supplies.
months. Host officials
submitted several minor City officials sent similar memos over the next several months. Host officials
revisions to the joint venture submitted several minor revisions to the joint venture agreement meant to increase
agreement meant to increase Wilcox’s role in running the company, at least on paper, but those were repeatedly
Wilcox’s role in running the rejected by city compliance officials.
company, at least on paper,
but those were repeatedly In May 2008, Dorrough threatened to stop counting Wilcox’s ownership
rejected by city compliance percentage in the Chili’s restaurant toward Host’s minimum DBE participation
officials. requirement. Those threats continued through the rest of the year.
Gall, deputy director of the city’s equal opportunity department and head of
compliance for the disadvantaged business program, said in a Dec. 4, 2008 memo
to her boss that the agreement between Host and Wilcox still did not meet federal
regulations. She also said that the city would stop counting Wilcox’s 30 percent
ownership in the partnership toward Host’s goal in January unless a revised
agreement was approved.
An undated and unsigned report in city files that appears to have accompanied
Gall’s formal letter expresses the frustration of city officials more bluntly.
“The part that has been left out is the frustration by EOD with Grant Park,”
the report reads in reference to Wilcox’s company. “Grant Park has been asked to
provide information and when it has been provided it is incorrect or incomplete.
Host is frustrated because the Chili’s brand will only allow a minimum of
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GOLDWATER INSTITUTE I special investigation
responsibility to be out of Host’s direct control, to preserve the integrity of the
Brand. The new JV (joint venture) guidance is much more specific and is in
conflict with what Host and the Chili’s Brand are comfortable with.”
Read entire Grant Park,
Host joint venture The city’s pressure on Host continued into February, when Dorrough sent a
agreement letter to Gomes, the company’s vice president, that rejected the request to count
Wilcox’s participation at 40 percent. Shortly afterward, Dorrough was transferred
to the city’s economic development department and no longer had a role in
enforcing the airport regulations.
Last April, the city approved revisions to the Chili’s agreement and agreed to
count Wilcox’s participation in the business at 30 percent.
Dorrough said she was transferred out of the equal opportunity department
as part of a citywide reorganization due to layoffs and budget cuts. She told the
As to the Host loan for Goldwater Institute that her transfer had nothing to do with her dealings with
Wilcox’s initial investment, Wilcox.
Gall said it clearly did not
meet federal regulations Last year the city dropped Host’s minimum requirement for DBE sales to 15
that require terms similar to percent.
those that would be offered
by an unaffiliated lender. Minimal Role
Gall, one of the few city officials who did speak with the Institute, acknowledged
Wilcox’s role in running the Chili’s was minimal at first. But revisions to the
joint venture agreement have increased her duties to the point that they are now
consistent with 30 percent ownership, said Gall, who is the city’s liaison with
federal agencies on DBE issues.
“It’s not a pass-through in that there is participation. It may be minimal
participation,” said Gall, who spoke to the Institute the day before the city
manager’s office sent out its instructions that employees should not agree to
interviews.
“There was never a question of a pass-through, of somebody sitting back and
drawing a check,” Gall said of Wilcox’s involvement in the joint venture. “There
was proof of involvement. Our challenge became to what degree and what was
that involvement commensurate with.”
As to the Host loan for Wilcox’s initial investment, Gall said it clearly did not
meet federal regulations that require terms similar to those that would be offered
by an unaffiliated lender. However, by the time city officials learned about the
16
October 14, 2009
loan more than two years later there were not many options for bringing it into
compliance, she said.
Although Phoenix city policies prohibit master contractors from loaning
money to their DBE partners, the practice is common at other airports, Gall said.
Wilcox was pressured to obtain outside financing to pay off the Host loan
in early 2007, according to city records. In January of that year, Wilcox told city
officials she could get outside financing to pay off the debt. A month later, city
officials were asking only that she secure the loan with collateral.
In December 2007, the Wilcoxes filed a deed of trust at the Maricopa County
Recorder’s Office pledging properties they owned to secure the Host loan. Wilcox
still owes money on the debt, according to the most recent personal financial
disclosure statement she filed as an elected official with the county.
Aaron and Yolanda Kizer,
the husband-and-wife Insiders
owners of Casa Fenix
Merchandising Inc., have Wilcox is not the only DBE owner who has had trouble proving to city officials
been active in city and she had a commercially useful role in running a concession at Sky Harbor. She
state politics since they got also is not the only one with deep political connections.
into the airport concession
business in the early 1990’s. Many of those with concession leases at Sky Harbor have long political
Both have been appointed histories, having been appointed to boards and commissions by elected officials.
to a variety of boards and Some have held top jobs at the state and city level. Since the beginning of the 2004
advisory panels by governors election cycle, “disadvantaged” business owners at Sky Harbor have contributed
and Phoenix mayors. more than $87,000 to political campaigns at the federal, state and local level
Of the $52 million in sales attributed to disadvantaged businesses at Sky
Harbor in the 2008 fiscal year, $15.4 million was generated by five DBEs owned
by people who have been active in politics, according to city records.
Aaron and Yolanda Kizer, the husband-and-wife owners of Casa Fenix
Merchandising Inc., have been active in city and state politics since they got into
the airport concession business in the early 1990’s. Both have been appointed to a
variety of boards and advisory panels by governors and Phoenix mayors.
Read Wilcox financial
statements Yolanda Kizer is a past president of the Arizona Hispanic Chamber of
Commerce, and currently is on the board of directors of the Airport Minority
Advisory Council, a national trade organization that promotes ownership of
airport concessions by minority and woman-owned businesses. She has been
appointed by past governors to advisory boards on diversity and state financing,
17
GOLDWATER INSTITUTE I special investigation
and was a member of the Phoenix Mayor’s Bond Committee in 2005.
Aaron Kizer is a Phoenix lawyer who was named State Bar of Arizona’s Member
of the Year in 2004. A former state Registrar of Contractors, he was general counsel
and executive director of the Arizona State Senate in the early 1990’s. In 2007, he
was appointed to the state’s Baseball and Softball Commission by Napolitano, and
reappointed to the now-defunct Maricopa County Sports Authority by Phoenix
Mayor Phil Gordon.
The Kizers have given more than $49,000 to political campaigns since the
beginning of the 2004 election cycle. The top recipients of donations from the
Kizers are U.S. Reps. Ed Pastor and Harry Mitchell, both Arizona Democrats.
The Goldwater Institute tracked donations from people who are listed as
owners of disadvantaged business enterprises at Sky Harbor. The totals do not
include donations from family members or employees, unless they were listed as
part owners of the companies. The Institute also did not track donations from
employees of Host, Delaware North or other large concession operators which
have partnership agreements with DBEs.
Pastor, a powerful member of the House Appropriations Committee, received
more money from disadvantaged concession operators at Sky Harbor than any
other politician—$14,766, according to campaign disclosure statements. The
Kizers have given him $11,000, even though he has not faced serious opposition
since his first congressional election in 1992.
Mitchell, a member of House Committee on Transportation and Infrastructure
that oversees airport operations, received $7,750 from DBE owners at Sky Harbor,
including $6,000 from the Kizers.
Art Othon
In state and local races, which have far lower contribution limits than federal
campaigns, the top recipient of donations from airport concessionaires was Mayor
Gordon, who received $3,370, according to campaign finance reports.
Other disadvantaged business owners with political ties include:
• Gregory Torrez, who was appointed by Napolitano to the Arizona School
Facilities Board in 2006 and has served on Latino advisory boards to
Napolitano and Gordon. Torrez and his wife, Josephine, have contributed
$11,072 to political campaigns since the 2004 election cycle. Torrez’s
DBE, Torrez International, is part owner of 14 gift shops, newsstands and
golf stores throughout all three terminals of Sky Harbor. The standard
arrangement is that Torrez owns 15 percent of the business, a national
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October 14, 2009
retailer called The Paradies Shops owns 70 percent, and the remaining 15
percent is held by a second disadvantaged business enterprise owned by
Teresa Dominguez.
Aside from his concessions at the airport, Gregory Torrez is partners with
Veolia Transportation in a $25 million annual contract awarded last year
by the Phoenix City Council to provide free shuttle bus service between
terminals.
Torrez would not agree to an interview.
• Art Othon, who served as a top advisor to former Gov. Rose Mofford and
former Phoenix Mayor Terry Goddard, now Arizona’s attorney general.
Othon, who gave less than $1,000 to political campaigns since 2004, is also
the former director of community relations and economic development at
The politically active Arizona Public Service, the state’s largest electric utility. Othon owns El
concession owners who did Bravo, a Mexican restaurant in Terminal 4, and operates there under a
speak with the Institute say sublease from Host.
they have not been helped
by their connections, and • Bettye Dixon, the widow of a prominent California congressman, who is
that they have never sought a partner in two duty-free shops in Terminal 4. Dixon, who lives in Los
help from elected officials Angeles, has given $5,800 to political candidates during the time studied
in operating their airport by the Goldwater Institute. All of that has gone to federal races.
businesses.
The political connections extend beyond the airport. Ronnie Lopez, a lobbyist
who was chairman of Gordon’s last re-election campaign, lists several airport
concessionaires among his current or former clients on his company’s Web site.
Among them is HMS Host and Casa Fenix, Kizer’s company. Lopez did not return
phone calls seeking comment.
In addition to chairing Gordon’s re-election campaign, Lopez was campaign
co-chairman for Phoenix Councilman Claude Mattox. He also was the finance
chairman for Pastor’s re-election campaign.
The Web site for Lopez’s company, Phoenix International Consultants, has a
separate section for potential clients who want to do business at the airport.
“PIC has a long history of relationships with key decision makers at Sky
Harbor,” the Web site reads. “PIC leverages system knowledge and trusted
relationships in each negotiation to expedite timelines, level the playing field and
create successful and profitable partnerships with one of the nation’s most dynamic
airports.”
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GOLDWATER INSTITUTE I special investigation
Connections
The politically active concession owners who did speak with the Institute say
they have not been helped by their connections, and that they have never sought
help from elected officials in operating their airport businesses.
Yolanda Kizer said she has turned in proposals on 13 different lease packages
at Sky Harbor and has only been selected in four of them.
“If it’s political, it’s not political for me,” she said.
Proposals for airport leases turned in by the Kizers in 2006 include letters of
Dixon said she deliberately recommendation from influential supporters, including Pastor, Wilcox and Pete
stays out of local politics. Rios, who at the time was the Democratic minority whip in the state House of
She wants to succeed on her Representatives.
business skills, she said, and
if staying on the political Also in the proposals are more nondescript letters of congratulations and
sidelines hurts her in a thanks from ASU President Michael Crow and David Cavazos, then-chairman
particular city then that is of the Arizona Hispanic Chamber of Commerce. At the time Cavazos wrote his
something she is willing to letter praising Kizer and Casa Fenix, he was a top official of the Phoenix Aviation
accept. Department. He is now a deputy Phoenix city manager.
The Kizers are involved in 11 retail stores in Terminals 3 and 4, either with
full ownership or through a partnership with Host. Yolanda Kizer said she went
to college with Pastor, and that is why she and her husband have given the
congressman so much money in campaign donations.
“We’ve always felt like if somebody feels like they want to run for office, we
can help them,” Kizer said. “But we always know we can’t make the difference.
They have to win on their own.”
Dixon said she deliberately stays out of local politics. She wants to succeed on
her business skills, she said, and if staying on the political sidelines hurts her in a
particular city then that is something she is willing to accept.
“I have tried very hard not to get into the political arena,” Dixon said. “I’ve
been in that arena before. I try to present myself as someone who is capable,
competent and able to do the work. I don’t know any political people there that I
know of. I certainly have not made a pastime of maintaining contacts with anyone
politically.”
20
October 14, 2009
Othon, whose family has been in the restaurant business for almost 30 years,
said he could have benefitted if he had used his political connections at the city.
But that is something he’s never done, he said.
Leaning on political allies to benefit the community is something he was
willing to do when he worked for a governor, a mayor or a utility. But exerting
political pressure for his own personal benefit would be wrong, he said.
Beyond that, Host, which Othon subleases space from, has strict rules against
concessionaires lobbying city officials, he said.
“I don’t have any problem calling in chits for community efforts or for other
people,” Othon said. “But I never do it for my personal benefit.”
One benefit political insiders do have is that they know the bureaucracy,
Othon said. That gives them an edge when it comes to cutting through red tape
Politicians and city or dealing with city officials that someone who has no background in government
officials who spoke with the would lack, he said.
Goldwater Institute said
they have never used their Although Othon said he has never used his contacts to benefit his airport
influence to assist any DBE business, he does acknowledge the perception that he has friends at City Hall may
owner operating an airport have been a factor when Host officials picked him for the airport sublease.
concession.
“If I was in Host’s position, I would have thought that,” Othon said. “I would
have probably said ‘you know what, this guy’s got connections.’ They maybe did.
They never approached me.”
Good Business
Politicians and city officials who spoke with the Goldwater Institute said they
have never used their influence to assist any DBE owner operating an airport
concession.
Most could not explain why so many airport concession leases have gone to
political donors. Those who tried suggested the political activism comes because
airport operators are so reliant on the city for their livelihoods that it is just good
business for them to be active in city affairs.
“If that’s your business, then you are going to do what you need to do to
advance your business,” Councilman Mattox said. “If you are doing concessions at
airports, then you are going to be working with whomever as part of that process,
and obviously to a certain degree politicians are part of the process.”
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GOLDWATER INSTITUTE I special investigation
There is nothing in city records that shows Gordon or any member of the
city council intervened on behalf of their political allies who hold concession
leases at the airport. The Goldwater Institute filed a public records request for
any communications from the mayor, council or city manager’s office regarding
airport concessions. The city responded with a one-page statement that it only
keeps e-mails for 30 days.
Council members Peggy Neely and Sal DiCiccio both said the best way to
combat political cronyism is to make the process of awarding and monitoring
airport leases as open and transparent as possible. Both said they are concerned
that is not happening at Sky Harbor.
Other DBE owners, “I believe it’s from the old-time relationships with staff and some political
regardless of their political people that they’ve been able to move through the process more successfully,”
ties, have been subjected to Neely said of the many airport concession contracts held by political insiders.
the same level of scrutiny
that Wilcox received, Gall DiCiccio said he is pushing to have the master concession contract that is
said. City records bear that held by Host broken up into smaller parts when it goes out for new proposals.
out. Smaller contracts spur competition and increase openness of the bidding process,
DiCiccio said, adding he is also not a fan of preference programs for business
owners based on race.
“If you put the council in the situation where they have to justify why certain
groups get what they get, you can only do so much of that before the public starts
getting unglued,” DiCiccio said of any special treatment that city insiders may
receive. “It all comes down to levels of transparency. And transparency in this case
comes down to competition.”
Gall, the head of the DBE program for the city, said she has never been
pressured by anyone on the council or in the city manager’s office to give special
treatment to any airport vendor. The equal opportunity department, where Gall is
the deputy director, is not involved in the awarding of airport contracts. But it is
responsible for ensuring that the owners of disadvantaged businesses take an active
role in running airport concessions consistent with federal regulations.
Other DBE owners, regardless of their political ties, have been subjected to the
same level of scrutiny that Wilcox received, Gall said. City records bear that out. At
the same time Gall and her staff were pressing Wilcox to be more involved in the
Chili’s, they were taking similar enforcement actions against other disadvantaged
business owners, including Yolanda Kizer, city records show.
22
October 14, 2009
“I have never come under any political pressure,” Gall said. “Ever. Never.
“If we were found to be running a program outside of the legal requirements—
allowing fraud, that kind of thing—it would jeopardize millions of dollars in
federal funding to the City of Phoenix. And I believe everyone understands that it
is necessary to run a reputable, legal, compliant program.”
“Wrong”
Not all DBE owners operating at the airport have political ties.
Some, like John Avila, have been in the airport concession business for more
than a decade and say they have made the conscious decision to stay out of
politics.
Politics is a factor in airport concessions everywhere, said Avila, who has been
in the business since 1991.
Most of the stores Avila operates at Sky Harbor are owned exclusively by
his New Mexico-based company. A few are operated in partnerships with other
disadvantaged businesses or through a joint venture with Host.
Avila said he is active in community affairs, and is chairman of the Albuquerque
Hispano Chamber of Commerce in his hometown. But he avoids crossing the
line into politics because he believes contracts in city-owned buildings should
be awarded and administered on merit, not political connections, he said. The
Goldwater Institute did not find any political contributions from Avila.
Roger Clegg
“You’ve got a whole bunch of people contributing big amounts of money to
city councilors or to congressmen or whatever,” Avila said. “I think that’s what’s
wrong with our whole system. Not just the airport system. I think it’s what’s wrong
with our whole country.”
Beyond the issue of politics, city records show many of the owners of DBE-
certified companies are hardly “disadvantaged” in the traditional sense, with net
worths in excess of $1 million.
Mary Rose and Earl Wilcox reported a combined net worth of $1.13 million
in September 2008. Since that is split between them, they remain under the net
worth cap of $750,000.
The Kizers claimed a combined net worth of $1.88 million in a December
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GOLDWATER INSTITUTE I special investigation
2008 financial disclosure statement. Because of the exclusions allowed in DBE
regulations, they remain under the net worth cap. Yolanda Kizer reported a salary
of $214,862 in the same report.
Torrez listed his net worth as almost $1.5 million in a December 2008 report,
but with exclusions that dropped to about $740,000.
What is happening at Sky Harbor is typical of major airports, said Roger Clegg,
president and general counsel of the Center for Equal Opportunity in Virginia, a
conservative think tank that focuses on issues of race and ethnicity.
Airport concession contracts tend to go a small group of people who are
deemed “disadvantaged” because they are minorities or women, not because they
are economically disadvantaged or faced any past discrimination themselves, Clegg
said.
The set-asides help a few political insiders, but end up hurting small, struggling
businesses by making it virtually impossible for them to compete for concession
The set-asides help a few deals, he said.
political insiders, but end
up hurting small, struggling Government contracts awarded on the basis of race rather than merit are
businesses by making it particularly susceptible to becoming vehicles for political patronage, he said.
virtually impossible for them
to compete for concession “The bottom line is these programs are woefully inconsistent with the
deals, he said. justification that is put forward for them,” Clegg said. “The justification supposedly
is that small and disadvantaged companies are going to be helped. And in fact the
companies that are most often helped are not particularly small and not at all
disadvantaged. Instead, the preference is given to companies that are well heeled
and well connected and need no help in breaking into the system because they are
already frequently awarded contracts over and over again by the system.”
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