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"Officials offer two views of the Burlington airport financing issue"
Monday, June 13, 2011
Officials offer two views of the Burlington airport financing issue
The Burlington (VT) Free Press
Chief Administrative Officer Jonathan Leopold told the Free Press that
criticism of his financial management of the airports garage expansion is
Following are exerpts from Leopold's email:
"It typically requires four to six months to issue a revenue bond. The
airport did not have the requisite documentation for a revenue bond issue
immediately after the bond vote and the downgrade occurred just three months
after the bond vote.
The City could not have issued a $21 million revenue bond before Moody's
downgrade and thereby receive a favorable interest rate, because a bond
issue of that size would need a rating review that would have resulted in a
Typically a large scale project like the parking garage is financed during
construction with interim financing. The permanent financing is usually
secured after the construction is underway or completed. One major reason
for issuing bonds later is to avoid issuing bonds for money that is not
required. Any "excess" bonding typically has a negative arbitrage that
increases the total cost of financing. In this case the amount authorized by
voters is significantly higher than the amount expended to date. This would
have significantly increased the financing cost for the airport.
Finally, the planned Bond Anticipation Note (BAN) will not be factored in
the calculation of the "debt service coverage" ratio calculation for current
airport bonds. The airport will need to generate more net revenue to cover
the debt service for a revenue bond. The BAN will give the airport the time
to generate the new revenue from the garage expansion to cover the reserve.
The financing to date for this project has been cost effective and has
reduced the costs of this project to the airport. The BAN financing this
month will provide the airport liquidity and will repay approximately $7
million advanced from pooled cash. Finally it is important to note that this
was the same approach used for BED's financings these past three years of
more than $25 m."
Airport Commissioner Miro Weinberger summarized his view of the issue:
"Amidst the financial uncertainty of a deep recession, in the wake of
Burlington Telecom, the Administration began construction of a $15 million
parking garage without voter-approved financing in place and without
completing the typical due diligence and underwriting large capital projects
They undertook this work in the face of expert warnings regarding the
financial stability of the airport and the feasibility of the project."
When the warnings proved correct within weeks of the start of construction
and the Administration was unable to secure the approved financing for the
project, it decided to pay for the project largely with pooled cash, putting
the taxpayers at significant risk.
Now that the financing of the garage is coming to a head, the
Administration's proposed solution is an expensive, risky and short-term fix
(the BAN) that will defer the problem until after the next mayoral election
and put considerable financial stress on the airport."
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