Saturday, June 17, 2017

Were localities in the dark about People Express loan?

The same month that startup airline People Express began flying out of Newport News/Williamsburg International Airport, Newport News economic development officials were trying to craft a proposal that a regional committee would vote on granting the airline $700,650 in local funds.

They wanted the motion to be clear: the money, though secure, would be collateral on a loan from TowneBank to People Express.

Florence Kingston, Newport News' director of economic development, and her right hand, Sam Workman, drafted and emailed the following to then-City Manager Jim Bourey on June 2, 2014: "The RAISE (Regional Air Service Enhancement Committee) funds will first be deposited into an escrow account as collateral security for a TowneBank loan to PeoplExpress until disbursed as a grant in accordance with the TSA (transportation service agreement)." Kingston's department was the fiscal agent for RAISE.

Bourey, then an airport commissioner, Kingston's boss and a key person in helping the airline secure financing, replied: "Florence, I am ok with this but do not thin [sic] we need to be as specific on how the money will be used."

The RAISE Committee collects funds to provide incentives for air service at the airport. It's made up of representatives from Newport News, Hampton, James City County, York County, Gloucester County, Poquoson and Williamsburg, which all contribute money. This fiscal year, Newport News contributed $108,431; Hampton, $54,974; James City County, $26,804; York County, $26,186; Gloucester, $14,743; Williamsburg, $5,627; and Poquoson, $4,860.

The $700,650 was pulled from RAISE's pool of cash. It would match a $950,000 U.S. Department of Transportation grant and was supposed to be disbursed to People Express only if they met certain goals set in the TSA.

The motion that RAISE committee members voted on made no mention of a $5 million line of credit that People Express was opening with TowneBank, which the Peninsula Airport Commission would guarantee. The next year, the airport commission would use millions in state and federal funds and all of the RAISE money to pay off $4.5 million that People Express owed to the bank.

"I don't think RAISE knew about the loan," Kingston said in an interview last week.

In an emailed statement, Bourey said, "If she felt they needed to know more of the details of the expenditure, then it would have been her responsibility to tell them more," since Kingston was directly involved with that group. "In no way," he said, "was any information kept from the RAISE group."

Earlier this month, a state audit prompted by Daily Press reports found that the commission improperly used state taxpayer funds to quietly guarantee that loan. Virginia Attorney General Mark Herring issued an opinion that found the loan guarantee was illegal.

The commission has seen a major shake-up since the launch of the audit. Bourey, who voted for the loan guarantee, resigned from the airport commission, then as city manager. The Newport News City Council removed longtime airport commissioner Aubrey Fitzgerald and has appointed new members to fill vacancies. The airport commission fired Ken Spirito as its executive director after auditors reported that he had used commission money for personal expenses. It also fired its longtime legal counsel, Herbert V. Kelly Jr., who had told commissioners that the loan was legal.

After the Daily Press first reported on the loan guarantee, James City and York counties, joined later by Hampton, suspended funding to RAISE.

When it came to those local RAISE funds, Kingston said her department's position was consistent: People Express needed more private investment. RAISE had helped AirTran and Frontier, both of which later left the airport, but their finances were more solid. In an email leading up to the RAISE Committee vote that granted the $700,650, Kingston wrote to Spirito: "Ken ... I believe a strong consideration needed to get buy-in is some requirement for private match $ from PEX (People Express). How much money do they have on hand now?"

"I'm not sure how much they would be able to do if any," Spirito replied, after telling her "the headline for the approval" of the RAISE funding was that it would match a larger federal grant to the airport.

Around the same time, in late May 2014, Kingston joined a meeting with TowneBank officials, set up by Councilman Bert Bateman, about the possibility of a loan for People Express. Her understanding was that it was going to be a short-term loan meant to carry People Express over until it nailed down $5 million from a New Jersey investor.

Bourey said Kingston was "knowledgeable" about the loan, based on the all the emails she was included in, and had phone conversations with Bourey about it.

"From the very first day when Ken told me about his idea to guarantee a loan, I talked with Florence about the idea and asked for her input, which she provided," Bourey said in an email to the Daily Press. "I would never have proceeded with voting for the loan guarantee without her assistance, as I respect Florence's knowledge of the industry and her understanding how to structure it."

"I think it is clear both Florence and I knew there was a risk involved with the loan guarantee," Bourey wrote. "Florence did get the huge economic development upside to a successful People Express operation. At no time did Florence or anyone else involved advise against doing the loan guarantee."

Kingston said Bourey made it clear that he was "taking the lead" on People Express when he joined the airport commission in October 2013, which audit records also show. Even though Kingston emphasized that her message was consistent and that "you can't rely on the public sector to start your airline," she said she trusted Bourey's and Spirito's experience. And they were both "more private sector risk takers," she said.

"He had experience in air service development," she said. "We relied on his expertise, and Ken's."

Two months after People Express began service, Bourey emailed Kingston about a conversation she had with a reporter about incentives for People Express, according to audit records. He wrote, "So she did not ask about the loan info and, of course, you did not volunteer it."

Kingston replied, "Heck no and no. She got into Raise detail more (which we accommodated). We kept it high detail ..."

"It was apparent from my reaction that it was made clear by Jim that he didn't want discussion about the loan," Kingston said in the recent interview. "The reason my reaction is, 'Heck no' is that he made it clear that we talk about the grant and the grant match. I think he felt as though the loan information was airport stuff. It's clear that he was taking the lead, and he wanted to control the message."

Spirito had asked to be the spokesman for People Express after it suspended service, Bourey's email to the Daily Press said, and both he and Kingston "honored that." Bourey said he was simply asking about the loan, and her reaction must indicate her strong desire not to talk about it.

In People Express' three-month life, Kingston and RAISE committee members were still told that their money was safe and would be disbursed once the company met certain obligations. She saw a draft of the transportation services agreement, but never the final version.

The airport commission is the body that signed the federal grant agreement for People Express, which dictated what kind of goals the airline had to achieve in order to get RAISE's money. This arrangement kept RAISE at arm's length.

In the past, when RAISE contributed money to launch AirTran's popular service to New York and Boston, or to support Frontier's service to Denver, RAISE had oversight and monitored the airlines' progress the whole way, Kingston said. With the People Express agreement, Kingston's understanding was that it was broadly worded, and essentially committed the RAISE funds to the air service as long as it flew.

"I never got a clear answer from Ken and Jim on, Was it an earned incentive?" she said.

Bourey wrote that he "always shared all the information I could with her on all projects including the People Express loan."

When Bourey briefed the RAISE committee in October 2014, a month after People Express stopped flying, he reported that the money was safely tucked away in an escrow account, according to notes of that meeting taken by a city official and provided to the Daily Press in response to a Freedom of Information Act request.

And about a month after the Peninsula Airport Commission moved the money into an account that would help cover People Express's $4.5 million TowneBank loan, Spirito told the Daily Press the RAISE money had not been touched and the airline's collapse was a financial wash for the airport.

It didn't matter, though — the RAISE committee figured the money was out the door. Someone at the October 2014 meeting said the money was gone whether it was an earned incentive or was in escrow, Kingston said.

"To me, at the end of the day, it would be a criticism that we paid $700,000 for 89 days of air service," she said.

Bourey said the RAISE funds were used by People Express for operation costs when the loan guarantee had to be fulfilled, which was in line with their agreement.

No records have been found that show how or where the money was spent.

In reading the audit released this month, Kingston said she found many things she wasn't aware of.

And looking forward, Kingston said, "we've learned a lot" about what the red flags are. She said city managers have different management styles; she was invited to the table more often with others.

Bourey said Kingston was "always a great partner" while he was with the city.

Cindy Rohlf, whom the City Council chose to replace Bourey as city manager, said, "It's incumbent on me to create an environment that people feel comfortable asking questions."

RAISE contributions

Here are the amounts that member localities provided this fiscal year to the Regional Air Service Enhancement Committee, known as RAISE:

•Newport News: $108,431

•Hampton: $54,974

•James City County: $26,804

•York County: $26,186

•Gloucester: $14,743

•Williamsburg: $5,627

•Poquoson: $4,860

Story and video:  http://www.dailypress.com

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