Airport project financing built on field of dreams
To the Editor:
You probably remember the “Field of Dreams” movie. A young corn farmer builds a ball field. Long-dead ball players from the 1919 Black Sox scandal show up. In the final scene, a long stream of cars is seen headed for the field for the dream game. To make the plot work, the main point of tension is how will the farmer be able to meet his financial obligations with the Field of Dreams in his backyard, complete with an imaginary crowd of fans?
I see the same kind of tension unfolding at T.F. Green Airport. In this real-life story, starry-eyed Rhode Island Airport Corporation (RIAC) executives come into town with visions of building international jetports in the heart of Warwick. To support their dreams, they propose that long-dead airplanes are going to show up to take us all to distant lands. Then, in their dreams, long streams of cars roll in from the Boston area to fill these planes. We are promised non-stop service to our dream destinations without taking the 45-minute trip to Boston’s Logan Airport and all its “HUB bub.”
Like the farmer, our RIAC executives are hard-pressed to explain to the public just how they will pay for these dreams. They meet month after month in their private clubroom – oops ... boardroom – trying to imagine where the money will come from. The reason for their privacy? To protect the public from advance knowledge of how they hope to actualize their dreams.
RIAC’s financing dynamics are increasingly problematic. Their executives have had to turn to the Clean Water Financing Agency to borrow $32 million to build a proposed glycol-processing plant. The way Clean Water Financing works puts Warwick’s sewer ratepayers at risk of substantial rate increases in the event that the RIAC executives’ dreams melt away. This means that Clean Water Financing effectively becomes a banker to RIAC, charged with the responsibility of making sure that all future RIAC loans make sense and are honored. The Clean Water chairman is the former finance director of the city of Warwick, an airport neighbor, and an executive at a local bank. It is now his responsibility to bring future RIAC financing deals out of the private clubhouse through Clean Water Financing oversight.
When RIAC officials met recently with the Clean Water Financing Board, the RIAC chief financial officer stated that the reason RIAC’s future borrowing plans for relocation of ball fields, realigning Main Avenue, and extending the runway had been previously undisclosed to Clean Water is because the financing bonds for these new programs will be paid with Passenger Facility Charges (PFCs). They are not included in the RIAC Capital Budget for this strange reason. The implication was that these PFCs were some kind of secret gold that nobody needs to know about. That secret is out now, and full public disclosure of all PFC activities is an FAA mandate.
For RIAC to look to Congress for future assistance would likely be unproductive, because members of the House of Representatives have taken millions in “Airport Improvement Funds” to fill gaping holes in the air traffic controllers’ accounts to keep planes flying. Now airport executives are pushing to fill that new gap with additional PFCs. Airlines and small-government conservatives are waving red flags. The chant is “no increase in PFCs.”
Future borrowing at RIAC hinges on PFCs. The loan for the future glycol plant totally precludes other types of borrowing. Only PFC-based loans will work. RIAC’s debt service is now approaching $30 million per year against $44 million per year in revenues, including PFCs committed to existing loans. That leaves about $3 million in PFCs per year to pay for new loans. Fitch Ratings, an agency specializing in airports, has an official policy that loans based on PFCs will be rated “A” at best and “BBB” for more strained airports. RIAC has been warned by ratings agencies that future borrowings will probably lead to ratings downgrades. “BBB” is the bottom of the investment-grade scale. RIAC’s Interlink train station has already reached the bottom of this scale.
Since RIAC has been using some of this $3 million per year in PFCs for such things as deicing equipment at Quonset State Airport and other current needs, committing this flexible PFC revenue stream to long-term bonds begs the question of how current needs will be funded. The bigger problem is what will happen if airlines continue to pull flights out of Green, or increase the use of smaller regional jets. Passenger counts drop, PFCs dry up, and RIAC could easily go into violation of its bond-covenant agreements with its bondholders and the city of Warwick through Clean Water Financing.
That’s why it will be ever so difficult for RIAC executives to build their “Field of Dreams,” which, ironically, would replace Warwick’s existing ball fields with a runway to nowhere. The coffers are all but empty. What’s coming next? RIAC must have a frank discussion with Warwick city officials on how the airport will protect the Sewer Authority customers from PFC-based loan risks. At least, that’s the way things should work.