Let’s not get fooled again
To the Editor:
At the start of every meeting, the Rhode Island EDC board should ponder Mr. Bush’s famous brain-twister: “There’s an old saying in Tennessee – I know it’s in Texas, probably in Tennessee – that says, fool me once, shame on – shame on you. Fool me – you can’t get fooled again.”
In other words, we can’t take another 38 Studios fiasco. Yet when the EDC board voted on the very next big deal after 38 Studios, the glycol treatment plant proposed by the Rhode Island Airport Corporation (RIAC), the EDC staff did not present any due diligence report – no spreadsheets. Despite the fact that passenger counts have been dropping for years, and bond rating agencies have issued warnings against new airport debt, the EDC board shut its eyes and rubber-stamped the RIAC board’s endorsement of the $33.5 million glycol plant borrowing deal. Did EDC get fooled again? One bond rating agency said “Yes” the other day.
Construction of a glycol plant to protect Buckeye Brook calls for the Rhode Island Clean Water Financing Agency to loan $33.5 million to the airport through EDC. Since the airport can’t borrow money, it turns to its parent corporation, EDC, the agency of 38 Studios renown, to assume responsibility. Clean Water has some firm rules about how it maintains its stellar “AAA” bond rating, the best among all state agencies. One rule is that every borrower backs up the loans of all the other borrowers. This situation was specifically discussed with airport officials during the Clean Water board meeting. Under this arrangement, the airport could be called in to settle a, say, City of Woonsocket or West Warwick Clean Water debt that went bad.
That’s because the airport joins with the cities and towns in a loan pool. If the pool goes as expected, the airport gets a very low interest rate – a 33 percent discount. But one failure by any borrower could turn that opportunity for savings into a nightmare for the airport, an agency that has to deal with FAA and other federal regulations that would fill a pickup truck. RIAC simply does not have the extra $450,000 in interest payments per year that could kick in if West Warwick were to falter on its obligations.
Would the airport have the capacity to draw down its reserves to help pay off a West Warwick debt? When I raised this question at an airport board meeting recently, the chairman assured me that its bond counsel had performed “due diligence.” But when I ask for supporting documents, all I get are blank stares. The only due diligence document that EDC could find was outdated by almost two years. It did not address the fundamental question: “Does RIAC have enough revenue to safely cover its glycol loan debt?”
Fitch Ratings answered that question the other day with an airport bond ratings downgrade. In its new airport rating, Fitch warns that the upcoming $82 million runway extension project “would likely elevate the airport’s already above-average debt load and could create added pressure to the airport’s (debt) leverage and cost profile.”
Does everybody get the message? Of what use is a runway extension if the airlines leave town rather than pay the airport’s bloated debt load?
The airport will adroitly handle the $900,000 or so in Clean Water interest per year after the discount, plus $1.5 million in loan payback for the next 20 years. How could that be? Because the airlines will be forced to pay that $2.4 million per year to Clean Water. And the airlines will have to pay to operate the plant, too. Expect higher ticket prices next year, that’s for sure. That is the secret ingredient – the due diligence parachute for the airport. Pork the airlines and they will simply raise the ticket prices, again and again.
What if the airlines say “get lost?” In that case, Warwick Sewer Authority customers, among others, would have to help bail out the airport. Can you imagine that potential fiasco? As we found out so dramatically during 38 Studios’ final torturous weeks, these are the kinds of issues that the EDC staff should have explored. The Clean Water board has set in motion a process that binds EDC and RIAC to help pay for bad loans to cities and towns in exchange for the $33.5 million glycol loan. There is no way the airlines would ever agree to bailing out a city or town. They would simply fly away. The RIAC and EDC boards need to discuss this issue in open sessions.
And somebody should discuss the possibility of a RIAC bailout with the Warwick Sewer Authority board and the WSA customers.
Let’s not get fooled again. I like my airport as it is, with its reasonable fares and convenient flights to such cheerful places as Denver, and, just recently, its direct flights to Puerto Rico.