Letter Arguing That Has Development Corp. Is Subject To The Texas Public Information Act

Jennifer Peebles Texas Watchdog 5535 Memorial Drive Suite F, No. 601 Houston, TX 77007 July 22, 2009 Office of the Texas Attorney General Open Records Division P.O. Box 12548 Austin, Texas 78711-2548

Re: AG ID #351739: Texas Public Information Act request dated May 26, 2009, from Jennifer Peebles for information pertaining to the Houston Airport System and the Houston Airport System Development Corporation (also called HAS Development Corporation) Dear General Abbott and staff: A hard copy of the following letter will be sent to your office, with all the exhibits and attachments referenced herein, via U.S. Priority Mail, by Monday morning. Please note that the length of this entire fax should be 8 pages, including this page. (And there may also be a cover sheet on it, too.) Thank you in advance for your consideration. Sincerely, Jennifer Peebles Phone: (281) 656-1681 [email protected]

Jennifer Peebles Texas Watchdog 5535 Memorial Drive Suite F, No. 601 Houston, TX 77007 July 22, 2009 Office of the Texas Attorney General Open Records Division P.O. Box 12548 Austin, Texas 78711-2548

Re: AG ID #351739: Texas Public Information Act request dated May 26, 2009, from Jennifer Peebles for information pertaining to the Houston Airport System and the Houston Airport System Development Corporation (also called HAS Development Corporation) Dear General Abbott and the staff of the Open Records Division: I am writing you today in regard to Public Information Act requests I have recently filed pertaining to a Texas-based nonprofit corporation called HAS Development Corporation, or HASDC, headquartered in Houston. In recent weeks, I have asked for records pertaining to the HAS Development Corporation from both the City of Houston and the corporation itself. The corporation, through its attorney, has argued to your office that is not a governmental agency and, therefore, is not covered by the Public Information Act. I am writing you today to argue that HAS Development Corp., often called HASDC, is indeed a governmental agency and should be subject to the Texas Public Information Act. As you are aware, the U.S. Court of Appeals for the Fifth Circuit ruled in the 1988 case Kneeland vs. National Collegiate Athletic Association that there were "three distinct patterns of analysis" through which private entities in Texas can be deemed governmental agencies and be subject to the state's open records laws. The HAS Development Corp. passes all three parts of the threepart test spelled out in the Kneeland decision. I will address each part individually. I. The HAS Development Corporation has a relationship with the government that does NOT impose "a specific and definite obligation . . . to provide a measurable amount of service in exchange for a certain amount of money as would be expected in a typical armslength contract for services between a vendor and purchaser." A. While it's true that HAS Development Corporation has a contract with the City of Houston, a closer examination of its relationship with the city shows that the corporation is receiving a multitude of financial and other benefits from the city government that are above and beyond what is spelled out in that contract. In short, HASDC receives "general support" and unrestricted grants from the city of Houston and the Houston Airport System, which is a division of city government. The contract, formally titled a "technical services agreement," allows the corporation to effectively rent City of Houston employees' time and labor. But those workers perform this labor in offices owned by the city, using city resources in city offices and city facilities -- using city-funded electricity and other city resources. My review of former Airport System Director Richard Vacar's 2008-09 personal calendar, which I viewed under the Texas Public Information Act, showed that Mr. Vacar held numerous meetings and conference calls at his office and in his conference room at the airport system's administration building regarding HASDC-related business. Some of these

meetings lasted an entire work day, such as one in November 2008 in which he and other airport system and HASDC officials met with officials from Nicaragua pertaining to possible work by HASDC and its affiliated spinoff companies on a cargo airport there. (I am attaching a link to my story on this topic: http://tinyurl.com/lbsq97). Other times, these employees are granted time off away from their city jobs to fly to Ecuador, Costa Rica and other nations to personally oversee HASDC's work in those countries. (Again, these trips were documented by me through a review of Mr. Vacar's personal calendar; see the link above.) If the city airport system's director -- and sometimes its No. 2 and No. 3 officials as well -- are putting aside their city jobs for hours or days at a time to work on HASDC-related issues, using City of Houston facilities and resources or time off from their regular city duties, then HASDC is receiving "general support" from the city. Indeed, the city says, according to the Houston Chronicle newspaper, that more than 300 city employees have put in more than 23,000 combined hours for HASDC over the past few years. While HASDC was, under contract, required to reimburse the city for these employees' time, the unstated cumulative impact of these employees' time and facilities usage certainly elevates HASDC's relationship with the city beyond that of simple contractor and to one in which the nonprofit was receiving general support and unrestricted grants from the city. I refer you to Open Records Decision No. 228, written in 1979, which dealt with an issue very similar to this one. Then-Attorney General Mark White said that a private entity called the North Texas Commission was indeed subject to Texas' public records law. The commission had argued that it had a contract with various public entities but was nothing more than a contractor providing a finite, limited service to a government agency in return for a specified amount of money. General White wrote that the commission's contract with those public entities was not "a typical arms-length contract for services between a vendor and purchaser." "[The Commission] receives funds from several public entities and has entered into contracts with these entities which result in at least a portion of the public funds paid to the Commission being used for general support of the Commission rather than being attributable to specific payment for specific measurable services." [Emphasis added.] I would also refer you back to Open Records Decision No. 621, written in 1993. In that case, then-Attorney General Dan Morales found that the Arlington Chamber of Commerce and the related Arlington Economic Development Foundation were subject to the Texas public records laws: While the city may be receiving valuable services in exchange for the public funds it provides the foundation, we find that the general provisions of the agreement fail to impose on the foundation a specific and definite obligation to provide a measurable amount of service in exchange for a certain amount of money, as one would expect to find in a typical arms-length contract. The agreement thus puts the city in the position of providing general support for the operation of the foundation. [Emphasis added.] B. The highly unusual nature of the relationship between the city and HAS Development Corporation makes the corporation subject to the Texas Public Information Act. Let me put it this way: The Coca-Cola Company is a company that makes soft drinks. Microsoft is a company that makes computer software. The HAS Development Corporation is a corporation that sells one thing: The expertise and labor of the employees of the Houston Airport System, who work for the corporation under a contract between it and the city.

In a normal government-vendor relationship, the government signs a contract with a vendor, and the vendor supplies the government agency with labor or materials. For instance, the state comptroller's office may contract with Office Depot for regular deliveries of paper for its photocopiers. But the relationship between the City of Houston and the HAS Development Corporation is exactly reversed from that normal relationship: The city supplies the corporation with labor and services, not the other way around. It's as if the comptroller's office were supplying paper to Office Depot. Furthermore, the City of Houston is the one and only source of labor and expertise for the HAS Development Corporation. The corporation does not contract with any other cities or government agencies for use of their employees. If the city tore up the contract tomorrow, HAS Development Corporation would quickly dry up and die. It is completely dependent upon the City of Houston to conduct its business of building and running airports in other countries and performing airportrelated consulting and training work. It is merely a vehicle through which the Houston Airport System, a public entity, does business in other countries. I would refer you back to Attorney General's opinion JM-821, written in 1987, in which thenAttorney General Jim Mattox said that the Cy-Fair Volunteer Fire Department here in Houston had to open its books to the public. Speaking of the "test" as to whether a private entity is subject to the state's public records laws, General Mattox wrote: The "test" cannot be applied mechanically. The precise manner of funding is not the sole dispositive issue in determining whether an entity falls under the Open Records Act ... The overall nature of the relationship created by the contract is relevant in determining whether the private entity is so closely associated with the governmental body that the private entity falls within the Open Records Act. Consider this bit of trivia: The CEO of HASDC has a reserved parking space at the Houston Airport System's administration building. It's marked with a little metal sign. And it's a really good parking space, too -- right near the front door. I ask you: How many other supposed vendors do you know of who have reserved parking spaces in front of government buildings? Does the comptroller's office in Austin have a parking space reserved for someone from Texas Instruments' calculator-making division? Does the Texas Department of Public Safety have a parking space reserved outside its headquarters for the head of Glock Corp.? Again, the relationship between HASDC and the City of Houston is not the "typical arms-length contract for services between a vendor and purchaser." C. While HASDC currently has an office rented here in Houston, its original base of operations and mailing address was that of the Houston Airport System's administration building on the Bush Intercontinental Airport campus, on John F. Kennedy Boulevard here in Houston. (I am attaching a copy of HASDC's letterhead stationery bearing the JFK address as EXHIBIT A.) I would refer you back to Attorney General's opinion MW-373, written in 1981, in which thenAttorney General Mark White said that records of the University of Texas Law School Foundation would be public because the foundation would use office space, telephone and utilities and the like, provided by the publicly financed university. D. The HASDC Web site is merely a component of the Houston Airport System's own Web site, which is paid for by the airport system, which is a division of the City of Houston. This Web site includes a statement of HASDC's purpose, a listing of its top executives and their contact information, and various other promotional write-ups intended to interest potential clients in doing

business with the airport system via the nonprofit. (I am including printouts of the Web site -which you will see is "framed" by the Houston Airport System's own Web pages -- as EXHIBIT B.) II. HASDC and the City of Houston have "a contract or relationship that involves public funds and that indicates a common purpose or objective or that creates an agency-type relationship between a private entity and a public entity," which would "bring the private entity within the ... definition of a 'governmental body.'" (This is the second step of the three-part test spelled out in the Kneeland decision.) Again, HAS Development Corporation exists only to market and sell the expertise and labor of the Houston Airport System, a division of the City of Houston municipal government. It may be incorporated as a private nonprofit corporation, but it is merely a vehicle through which the Houston Airport System does business in other countries. I will list some specific evidence. A. According to its 2008 tax filing to the Internal Revenue Service, a document called Form 990 which is public under federal laws governing nonprofit entities, the mission of the HAS Development Corporation is as follows: "The corporation seeks opportunities to both increase air travel and increase transport trade through the Houston Airport System with its training programs." (This appears on Page 2 of the document; I am enclosing a printout of it as EXHIBIT C.) B. The mission of the corporation was also spelled out in its articles of incorporation, filed Dec. 14, 2001, with the Texas Secretary of State's office. Article Four reads: The purposes for which the Corporation is organized and to be operated are exclusively charitable, within the meaning of section 501(c)(3) of the Code, and will be undertaken for the benefit of the City of Houston, Texas, and, more specifically, the Houston Airport System. In accomplishment of such purposes, the Corporation will (i) seek opportunities to increase air travel to and through Houston, (ii) undertake activities that will increase the volume of air transport related trade activities and (iii) perform such other functions as may be necessary or appropriate to fulfill the purposes of the Corporation. (I am enclosing a printout of these articles as EXHIBIT D.) C. Later in those same articles of incorporation, Article 10 says that if the corporation should be dissolved, its "remaining assets shall be distributed to the City of Houston, Texas." D. I point you to the minutes of the Houston City Council meeting from July 24-25, 2001, at which the council discussed the creation of HAS Development Corporation. At that meeting, the council called on Richard Vacar, then the city's aviation director and head of the Houston Airport System, to tell them more about the proposed venture: Mr. Vacar stated that the number one reason for the [project] was to make money ... that they [the Houston Airport System] had been approached by other entities to add their expertise to a variety of projects and this particular one in Ecuador was for the airport system to join up with essentially the government of Canada Corporation (sic) to provide expertise in the operation of the Quito airport and eventually participate in helping them design and operate a new airport there, that generally this would require that the airport system enter into an agreement with a stand alone operating company, and Mr. Hank Coleman, [of] Vinson and Elkins, was present to explain the liability issue, that the airport system engaged in a contract with the HAS Development Corporation, which would be formed, and they would provide through that development corporation certain services, mostly consultant services, and the HASDC would become part of the concession that would be awarded at Quito by the Corporation Airport del Quito ... (Emphasis added.) Again, this is not a typical arms-length contractual relationship between a government agency

and a vendor. I would again point you back to Open Records Decision 621, in which General Morales wrote that the Arlington Chamber and its foundation were public because they served as an "instrument of the city for carrying out the public purposes" authorized by the state Constitution and the Texas local government code. E. That same point is also made in the wording of the title of the Houston City Council ordinance that approved the creation of HASDC and the city's initial contract with it (ordinance 2001-725): "An ordinance providing for authorization of the mayor to execute a technical services agreement with the HAS Development Corporation in order to facilitate participation by the Department of Aviation in submitting a bid for privatization of the current airport and the proposed airport in Quito, Ecuador ..." (emphasis added). (I am enclosing a copy of this ordinance as EXHIBIT E). F. The first paragraph of the contract between the City of Houston and the HAS Development Corporation describes the corporation this way: "A non-profit corporation formed solely for the purposes of promoting air transportation, trade and economic development for the benefit of the Houston Airport System." G. Here is how HAS Development Corporation describes itself to the world on its own Web site (which, again, is part of the Houston Airport System's Web site): As the sixth largest airport system in the world and fourth largest in the United States, the Houston Airport System has entered into the international market for airport privatization and strategic development services through the HAS Development Corporation (HASDC). HASDC participates in bids for airport concessions globally and markets its expertise for the operational, commercial, and financial development of airports around the world. (Emphasis added.) H. The level of authority by the City of Houston in both the creation of and the activities of the HAS Development Corporation reflects that of an "agency-type relationship" with the city government. 1. The corporation's very formation had to be approved by a vote of the Houston City Council. (This occurred in 2001.) 2. The original language in its contract with the city, the "technical services agreement," signed in 2001, said that the corporation could work solely on the Quito, Ecuador, airport project, and that if it wanted to perform any other projects in any other countries, it could not do so "without appropriate authorization of (the) City Council." (This clause appears in Section 1(b) of the contract.) The City Council later altered this language, in 2005, so that the corporation only needed approval of the mayor of Houston, but not the full Council, to take on other projects. 3. In a memo dated Jan. 8, 2008, Mayor Bill White instructed the director of the Houston Airport System to provide his office with quarterly updates on the international work of HASDC and profit-and-loss statements for its foreign activities. (This was reported in a story I wrote, which is available at this link: http://tinyurl.com/lbsq97) 4. In an interview, Mr. Vacar told me in June that the mayor's office signed off on the countries in which HASDC was allowed to conduct business. In response to my questions about possible HASDC interests in the African nation of Libya, Mr. Vacar said Libya was not on the list of countries in which the airport was allowed to work. (A link to my story appears here: http://tinyurl.com/m35a2c) I. In a similar vein to my last point, the makeup of the board of directors of HASDC also reflects that of an "agency-type relationship" with the Houston Airport System, a division of the City of Houston.

1. The chairman of the board of HASDC is always the head of the Houston Airport System -- it was Mr. Vacar until his retirement in mid-May; the current interim head of the Houston Airport System is Eric Potts, who is also now chairman of the board of the HAS Development Corporation. (I am enclosing a printout of the list of HASDC board members from its Form 990 as EXHIBIT F.) 2. The vice chairman of the board of HASDC is always the chief operating officer of the Houston Airport System. That person is currently Thomas B. Bartlett, COO of the airport system. 3. One seat on the board of directors is always reserved for someone representing the Port of Houston Authority Commission. The current holder of that seat is Houston businessman Kase Lawal. Mr. Lawal serves on the port authority board as an appointee of the Houston City Council, which traditionally appoints two people to the port authority board. (I am attaching a printout of a press release noting Mr. Lawal's reappointment to the port authority board in 2007 as EXHIBIT G.) J. HASDC is described as "the development affiliate of the Houston Airport System" on the Web site of ADC & HAS -- that's a for-profit joint venture between HASDC and a private Canadian airport-management firm. (A printout of this Web page is enclosed as EXHIBIT H.) III. The HAS Development Corporation provides "services traditionally provided by governmental bodies." (This is the third step in the three-part test described in the Kneeland decision.) A. As noted earlier, the stated mission of HASDC is to make money for, and increase airport business for, the Houston Airport System. Traditionally, the only entity that would provide such services for the Houston Airport System would be the Houston Airport System itself. B. Also, HASDC exists only to harness, coordinate and market the expertise and labor of Houston Airport System employees. Under normal circumstances, the only entity that would harness, coordinate and market the expertise and labor of these workers would be the Houston Airport System itself. Some examples of the way in which the HAS Development Corporation markets its usage of Houston Airport System employees: 1. HASDC has a glossy marketing brochure posted on its Web site titled "Exporting our Expertise," and bearing the logo of HASDC with a line beneath it reading, "Affiliated with the Houston Airport System." On page 2, it says "As a Texas non-profit corporation, HASDC provides airport management services globally and brings the operational expertise of the Houston Airport System to your airport and aviation challenges." (Emphasis added. A printout of this brochure is enclosed as EXHIBIT I.) 2. Here's a bit more of how HASDC plugs its affiliation to the city on its own Web site (a printout of which is enclosed as EXHIBIT J): There now exists a strong demand for the Houston Airport System (HAS) to provide specialized consulting services. As the 4th largest airport system in the United States and the 6th largest airport system in the world, the Houston Airport System is available to provide specialized consulting and training services to both emerging airports and other airports who may find helpful the expertise of a well established group of airport professionals as they address new challenges in growth and business development at their airports ... The Houston Airport System manages three airports: George Bush Intercontinental (IAH), William P. Hobby (HOU) and Ellington Airport (EFD), which together serve more than 50

million passengers annually and process more than 400 thousand metric tons of air cargo. The experience of planning for, developing, and operating these airports has led HAS to enter the market of providing airport professional services. HASDC offers the services of the Houston Airport System professionals in all areas of airport management and operations. To summarize, the Texas Public Information Act says that private entities can be required to open their books to public inspection if they receive public funds, and in numerous instances, the Texas Attorney General's office has found that private entities are indeed subject to the Public Information Act. The decision in the Kneeland vs. NCAA case spelled out three points of analysis by which private entities can be deemed subject to the open records law. The HAS Development Corporation, a private entity, meets all three standards spelled out in the Kneeland case. I wish to note that the attorney for HASDC has written your office that he may wish to add to the comments he has already submitted as to why he thinks the corporation is not subject to the public records law. Likewise, if HASDC presents additional arguments in support of their case, I reserve the right to present additional arguments in rebuttal. I appreciate the attorney general's time and consideration in reading my comments. If your office has any questions about my letter, please do not hesitate to contact me. I am reachable by e-mail at [email protected] or by phone at (281) 656-1681. Sincerely,

Jennifer Peebles Houston, TX