Wednesday, February 1, 2017
Airport commission says it did not violate policy on using state funding; Va.’s top transportation official disagrees
The Newport News (VA) Daily Press
Peninsula Airport Commission officials said they did nothing wrong in using state funds to help repay a loan to a startup airline, despite sharp criticism from the state secretary of transportation.
The commission and Newport News/Williamsburg International Airport executives held a special meeting Tuesday to address the $3.55 million in state money used to repay a loan made to now-defunct People Express Airlines, which Secretary of Transportation Aubrey Layne has called “the largest ever unauthorized use of state aviation funds.”
“We did not violate policy,” airport executive director Ken Spirito told the commission after it held a 45-minute closed session. “We did nothing wrong in using entitlement funds.”
Spirito and commission attorney Herbert V. Kelly Jr. said state guidelines detailing how the airports can use entitlement funds allowed it to repay the People Express loan. Both said Layne is misinterpreting state policy.
“I don’t think I’ve misunderstood anything,” Layne said. “I think the misunderstanding is about the fiduciary responsibility of the commission.”
The commission felt using state funds to repay the People Express loan was an option from the moment the board decided to guarantee the loan from TowneBank to People Express in 2014, Spirito and commission chairman George Wallace said separately after the meeting. People Express stopped flying in September 2014 after less than three months in the air.
Spirito said he did not think it was wrong to use state funds.
“My job is to find opportunities for this airport,” Spirito said.
“I learned in city government that sometimes you have to take risks,” said Wallace, a former mayor and city manager of Hampton.
Layne did not see it that way when reached by phone after Tuesday’s meeting.
“I saw them say, ‘Sometimes you have to take a risk,’ but they weren’t taking the risk, the state’s taxpayers were — and nobody asked them,” he said.
Layne said it was particularly disturbing that the commission counted on state funds to bail out both the airport and People Express.
Spirito and several commissioners said Layne is invoking an unwritten policy. Spirito said the airport manual allows the use of state funds for “air service development projects,” as well as for operating expenditures. He said the only penalty for using the money that way comes in the future. The state could deduct that sum if an airport asked for additional money beyond what is dictated by a state formula based on traffic numbers, Spirito said. The obligation to deduct the money goes away after six years, he said.
Spirito said the commission saw that as a green light to use the state funds to repay the People Express loan. He said that was also the interpretation of commission attorney Kelly, who is a member of a local advisory board for TowneBank and an independent attorney.
“They used state money to repay a loan to a commercial firm,” Layne said. “That’s not an authorized use, and they had to know it.”
Layne has complained that the airport’s report on its use of state funds was more than a year late, despite repeated requests to file.
Spirito said the decision to guarantee the People Express loan was “a good value proposition” for an airport struggling to regain traffic after AirTran was purchased by Southwest and stopped service in Newport News in 2012. At the time, People Express had already borrowed $985,000 from W.M. Jordan Co., was being sued for more than $50,000 in unpaid credit card balances and was able to tap federal and local incentives to run its service.
When People Express ceased flight operations, the guarantee meant the commission was on the hook for the $4.5 million the airline borrowed from TowneBank, a sum that exceeded half the airport’s annual operating revenue. It used $3.55 million of state funds, $300,000 of a Federal Aviation Administration grant meant as an incentive to help launch People Express and $700,000 from the Regional Air Service Enhancement Committee, a regional group funded by contributions from governments in Newport News, Hampton, Gloucester, James City County, York County, Poquoson and Williamsburg.
In the months after People Express closed its doors, Spirito repeatedly said local funds had not been tapped to support the airline. The use of an unspecified amount of those local funds was disclosed roughly nine months later in a footnote on page 21 of the commission’s fiscal year 2015 audit, which was handed out to the commissioners on Jan. 29, 2016, and approved with no discussion noted in commission minutes on Feb. 25, 2016.
Newport News City Manager Jim Bourey, a current airport commission member who was chairman at the time of the loan payment, said the commission fully disclosed its financial commitment and that he was disappointed that it has become an issue.
“The Daily Press’ coverage has been unfair and inaccurate,” Bourey said after the meeting, when asked for comment. He declined to specify the inaccuracies or to answer more questions.
Spirito and vice president for air service Jessica Wharton blamed recent Daily Press reports about the loan, as well as Layne’s decision to cut off state funds, for Monday’s news that an airline was postponing service in Newport News. Elite Airways, which was to begin serving the airport in March, announced it was delaying “due to the challenging perceptions surrounding” the airport.
Kelly said the Daily Press has “single-handedly” had a “very negative impact on this airport.”
Marisa Porto, publisher and editor-in-chief of the Daily Press Media Group, said, “It’s always more convenient to find a scapegoat to blame than it is to look yourself in the mirror and admit you’ve made a poor decision. And that is exactly what is happening here. Officials from a government agency in this community made a poor decision — and they did it with taxpayer dollars.
“Now the state agency that gave them that money, and the taxpayers who paid it, are asking questions and demanding answers. And those who made this poor decision are trying to throw the blame elsewhere instead of taking responsibility for their own actions. I do not believe that taxpayers will be fooled in the least by this public sleight of hand.”
Spirito said that if the state wants to change the rules and make them more clear, the commission would support that. Layne has said the state is sending auditors to look into the commission’s books. Spirito and other commission members said they are “looking forward” to working with Layne.
Newport News Councilwoman Sharon Scott, who joined the airport commission last year, said she would have preferred Layne approach the commission before he aired his concerns to the Daily Press. She disagreed with Bourey and said the paper is “digging for facts” and reporting the information it collects.
“He should have been here,” Scott said of Layne after the meeting.
Spirito said the commission has requested a meeting with Layne but that a date has not been set.