News: CJ Exclusives

Audit Documents TransPark’s Massive Debt

FAA reiterates repayment unlikely if airport keeps operating

RALEIGH – The N.C. Global TransPark Authority had an outstanding loan balance of more than $38 million for the fiscal year ending June 30, 2010, and insufficient operating cash to repay it when it comes due on Oct. 1, concluded an audit commissioned by State Auditor Beth Wood that she released Friday.

“These conditions raise substantial doubt about the Authority’s ability to continue as a going concern,” concluded auditors from Thomas & Gibbs, the Durham-based Certified Public Accounting firm that performed the audit.

The audit also stated, “if the Authority declares bankruptcy, funding received to date from the Federal Aviation Administration may be required to be paid back. As of June 30, 2010, the Authority’s amortized potential liability to the FAA was approximately $17.4 million.”

But FAA officials have told Carolina Journal on multiple occasions over the past decade that FAA would not require repayment if the airport connected to the GTP is open to the public. In 2002, a N.C. Department of Transportation report on the TransPark also overstated the potential financial obligations to the FAA. At the time, Scott Seritt, manager of the FAA Airports District Office in Atlanta, told CJ that FAA grants do not need to be repaid as long as the airport remains a public facility. “We believe the GTP runway can be open and operational at this time without additional funds from the state,” he said.

It is unclear whether Thomas & Gibbs concluded that the FAA would have to be repaid by communicating with FAA officials or relying on information from GTP officials. Shawana Karkouki, one of the authors, would not answer a query from CJ directly, instead saying the report stated the FAA “may” require funds to be returned.

The General Assembly created the authority 20 years ago to select a site and develop an industrial complex around an airport. It selected the Kinston Regional Jetport, a 2,500-acre former World War II military airfield, operated by a local airport authority. The project has two separate components — a public airport and an industrial park seeking tenants. The latter activity has caused the financial problems. Annual operating revenue for the year ending June 30, 2010 — mostly from building rents — was $1,441,143. This was not enough cover operating expenses of $5,405,478.

An economic impact analysis prepared by the N.C. Department of Commerce in June documented a mere 232 total jobs located at the GTP while claiming those jobs produced a total annual economic output of $42.5 million.

In 2008, the park landed an “anchor tenant” in Spirit AeroSystems, a Wichita, Kan.-based company that will manufacture large aircraft components. The anchor tenant came at a high cost to the public. While Spirit officials have stated the company plans to invest approximately $500 million in the facility, state officials committed subsidies in excess of $200 million to attract the company. If Spirit hires 1,000 workers as planned, the cost to taxpayers may exceed $200,000 per job.

A major component of North Carolina’s incentive package is an agreement for GTP to pay $100 million toward Spirit’s building. The TransPark also obtained a $100 million grant from the Golden LEAF foundation to secure the Spirit project. GTP will own the structure and lease it to Spirit for $100 per year. Since rent is the park’s primary source of revenue, Spirit will never generate enough money to help GTP repay its debt.

The FAA’s position

This week, FAA Atlanta Media Relations Manager Kathleen Bergen reiterated the FAA’s position. “Regarding economic development, the FAA program is based upon aviation demand, not economic development,” she responded in an e-mail. “We treat those two operations totally separately and with different rules. Aviation demand is primary and we would not be concerned if there was no economic development.”

“The FAA is only concerned that the airport has a legal sponsor who can honor all of the outstanding and future assurances. Who that sponsor is, is not a concern,” Bergen added.

Rep. Stephen LaRoque, R-Lenoir, told CJ he was well aware of the TransPark’s financial situation. He said the airport operation should be separated from the industry recruiting function. The Department of Commerce could take over industry recruiting and the airport operation could be placed under a separate entity — possibly a new Kinston-Lenoir County Airport Authority. He offered no specific ideas on what to do about the $38 million debt.

A spokeswoman for Gov. Bev Perdue suggested to CJ that the governor’s budget proposal to be released Thursday might contain some changes that affect the TransPark.

The loan

The General Assembly authorized the GTP to borrow up to $25 million from a fund managed by the state treasurer known as the Escheat Fund. An escheat is the succession of unclaimed property to the state, often result from someone dying without a will or any known heirs. It also includes any property or funds unclaimed or abandoned, including utility deposits or bank deposits. The treasurer’s office searches actively for the rightful owners of unclaimed property. The current total value of the Escheat Fund is $400 million. 

The $21,741,952 principal and net accrued interest expense on the GTP loan represent a balance of $38,360,998 due the fund as of June 30, 2010. The interest expense for the year was $2,181,718. With no payments and another year’s interest, the balance will likely exceed $40 million by the end of the current fiscal year June 30.

The interest on the Escheat Fund goes to the State Educational Assistance Authority to pay for grants, loans, and scholarships for North Carolina students attending public universities and community colleges. In 2009, the treasurer’s office said 88,000 students were receiving assistance from the program.

Don Carrington is executive editor of Carolina Journal.