The Runway 9/27 Financing Question
This section
is an attempt to understand the Memphis Airport Authority’s explanation as to
how the new Runway 9/27 was paid for. The reason the financing is suspect is
because of how quickly the decision was made to build the new runway in
November of 2008 (within a three week period).
The primary reason the Airport Authority’s explanations for
the financing of the new runway don’t make any sense is because there were no
plans to replace Runway 9/27 prior to FedEx Express receiving my Enterprise
Vulnerability Report and AFRAM Engineering Report
in November 2008. The AFRAM Engineering Report
that the Airport Authority is still insisting is accurate was commissioned to
determine if the 2006 infrastructure, which included the asphalt Runway 9/27,
could support FedEx’s new A380’s which were still on order when the studies
were conducted.
The results of AFRAM’s studies were that the existing
infrastructure could support the A380’s and later the Boeing 777’s which would
eventually replace the A380 order. The
final report was published
on February 6, 2007. So in February
of 2007 there was no need or plan to replace Runway 9/27 nor any financing
required.
The following excerpt was taken from the 2009 MSCAA
Comprehensive Financial
Report. I have highlighted the
section that explains that the Airport Authority has the power to issue bonds
and that the bonds shall be payable solely from the revenues, income and
charges of the Authority and such bonds shall not constitute an obligation of
the City or County.
PROFILE OF THE MEMPHIS-SHELBY COUNTY AIRPORT AUTHORITY
The
Authority is established pursuant to the Metropolitan Airport Authority Act of
Tennessee and all amendments thereto. The major purposes of the Authority are
to plan, establish, acquire, construct, improve and operate one or more
airports within the City and Shelby County (the “County”). The Authority has the power to
issue bonds to accomplish any of the purposes authorized by the Metropolitan
Airport Authority Act of Tennessee. All bonds shall be payable solely from the
revenues, income and charges of the Authority and such bonds shall not
constitute an obligation of the City or County.
The
Mayor of the City, with the Mayor of Shelby County nominating two, appoints all
members of the seven-member Board of Commissioners to govern the Authority. The
Memphis City Council confirms these appointments for a seven-year term. A
member of the Board may be removed from office by a two-thirds vote of the Memphis
City Council, but only after notice of cause for the removal has been served
and the member has been granted an opportunity for a public hearing on the
matter.
The
Board appoints the President, who is the chief executive officer of the
Authority. The President appoints, and the Board confirms, the remaining
officers. These officers manage and operate the Authority’s airports with a
staff of approximately 300 employees, both permanent and temporary.
Based
on the financial accountability the City has over the Authority, the Authority
is considered a component unit of the City under the criteria set forth by the
Governmental Accounting Standards Board (“GASB”).
The Authority prepares an annual
budget on the basis established by the 1973 General Revenue Bond Resolution
dated June 15, 1973, as amended and restated, for all accounts and funds
established by those agreements and resolutions, except construction and debt
service funds. The annual budget serves as the foundation for the Authority’s
financial planning and control. All appropriations, except open project account
appropriations, lapse at the end of each fiscal year and must be reappropriated. Since there is no legal requirement to
report on the budgetary basis, no budget information is presented in the
accompanying financial statements.
The Authority owns Memphis International (the “Airport”),
Charles W. Baker, and General DeWitt Spain Airports. Charles W. Baker Airport
(“Baker”) is located south of Millington, Tennessee and General DeWitt Spain Airport
(“Spain”) is located just north of downtown Memphis. Both Baker and Spain
Airports serve general aviation and are considered reliever airports for the
Airport.
The Airport occupies about 4,600 acres of land in Shelby
County and is 13 miles by road southeast of downtown Memphis. The Airport is
99.9% unaffected by impassable weather and handles all types of aircraft. The
Airport has four runways equipped with precision instrument landing systems
suitable for use by large aircraft and a surface movement guidance system
allowing the Airport to operate down to a 300 foot runway visual range. The
terminal building has 85 gates to accommodate passenger aircraft and includes a
Federal Inspection Station (“FIS”) for clearing international flights and associated
passengers.
In November of 2008 I sent my Enterprise
Vulnerability Report to FedEx Express Management which questioned the results
of the AFRAM studies and raised the possibility that Runway 9/27 could collapse
into the Hurricane Creek tunnel. Three weeks after receiving my report the
Memphis Airport Authority announced Runway 9/27 will be completely replaced. The estimate for the new runway was $50
million.
See the Timeline
here.
In the Memphis Shelby County Airport Authority's 2009 Annual
Report there is a statement that the Airport Authority received a $45 million
dollar revolving credit line from "a bank" for construction of the
new runway. See 2009 Annual
Report, page
28.
I have read through the Airport Authority’s Charter and
cannot find any provision that would allow the Authority to apply for such a
large revolving credit line.
Here is an excerpt from an email I sent to Sara Hall, the
Airport Authority’s Legal Counsel inquiring about the runway’s financing on
February 18, 2010. Ms. Hall’s responses
are in blue.
1) Did
FedEx fund any part of the new runway 9/27's construction?
“MSCAA funded the Runway 9/27 construction with 75% FAA Airport Improvement Program grant funds and 25% MSCAA
revenues.”
2) In the Memphis Shelby County Airport Authority's 2009 Annual Report there is
a statement that the Airport Authority received a $45 million dollar revolving
credit line from "a bank" for construction of the new runway.
Which bank provided this credit line?
“Regions Bank.”
3) The Annual Report also stated that no funds had been drawn from the
credit line by June of 2009 (about halfway through the project). How were construction costs paid for up until June?
“MSCAA revenues.”
4) Did the Airport Authority receive any Federal Stimulus funds for the
construction of the new runway?
“No, see answer to question one above.”
-
Sara Hall’s email response was sent
to Guy Cobb on February 22, 2010
This is a second email response from
Memphis Airport Authority Legal Counsel Sara Hall explaining the runway’s
financing. What is suspect here is Ms.
Hall’s reference to FAA grants that included Runway 9/27. Remember that the AFRAM studies cleared the
way for the new A380’s and Boeing 777’s to use the existing runway. There should not have been an FAA grant for
Runway 9/27 in November 2008 when the decision to replace the runway took
place.
“First, FedEx did not
loan MSCAA any money for reconstruction of Runway 9/27 or for any other
purpose. MSCAA obtained a 45 million dollar line of credit from Regions
Bank as a precautionary measure as we had and have a number of FAA grant
eligible projects for which we were and are receiving grants, including Runway 9/27.
Because the timing of those grant reimbursements from the Federal government
cannot be predicted with certainty, we obtained a line of credit which would be
more than sufficient to accommodate the most extreme of delays in grant
reimbursement. The obtaining of a line of credit, which we have yet to
draw upon, was a prudent financial decision which protected MSCAA from
potential delays in federal reimbursement. “
“MSCAA received FAA
entitlement grants for the reconstruction of Runway 9/27 and did not receive
any federal stimulus funds. MSCAA funds on hand were used to fund Runway
9/27 costs and periodic reimbursement requests were made and funds received
from the FAA.”
-
Sara Hall email to
Guy Cobb, sent on March 5, 2010
I contacted Shelby County Attorney
Brian Kuhn to see if he could help me and received this response:
“Mr. Cobb,
Thanks but I know how to get in touch with Ms. Hall. The County has no
authority to direct, request and/or allow an
inspection of an airport runway. As I told you in my first reply,
the County govt has very little to do with the
Airport Authority. It is independent. I’ve discussed your issue
with Ms. Hall and am satisfied that they are taking the appropriate steps to
address this issue. I do not see any liability for the county govt in this matter under the Tennessee law. To
reiterate, the Airport Authority is an independent Authority, we don’t appoint
any board members, the City of Memphis was the creating municipality, there is
no liability to the county, and Ms. Hall and the Airport Authority seem to be
having the appropriate agencies look into your complaint. Therefore it
seems that your complaints and responses should be to and from the Airport
Authority and/or the City of Memphis. Thank you for your time and
consideration in this matter.”
Brian Kuhn, Shelby County
Attorney
-
Brian Kuhn email to
Guy Cobb, sent on March 8, 2010
Mr. Cobb, As I have stated to you
before, the County does not have any authority here, so Please delete me from
your mailing list. I will depend on Ms. Hall letting me know if I need to
be aware of any details here. I get dozens of emails a day related to my
duties and responsibilities; I don’t need extra ones that I don’t need.
Brian Kuhn
-
Brian Kuhn email to
Guy Cobb, sent on March 24, 2010
I found this Resolution for $300,000,000
in “Refunding Bonds” authorized by Shelby County Attorney Brian L. Kuhn.
The following appeared in the Memphis Daily News on
November 19, 2009:
Below is the MSCAA’s online newsletter from April 2009. This newsletter validates that the primary
goal for the new runway’s construction was the MSCAA’s promise to FedEx Express
to complete the runway by December 1st.
The Memphis Airport Authority has not responded to any of my
requests to speak with the Regions Bank loan officer to confirm all of the
details about the $45 million dollar revolving credit line. They have also been unwilling to share
financial records showing exactly how the runway was paid for.
Shelby County Attorney Brian Kuhn replaces Memphis Airport
Authority Legal Counsel Sara Hall in September 2010. Read
story.
“Kuhn said he
called Hall “because she was an old friend and I’d always admired the airport authority
and her” to offer his services as an assistant attorney.
“It just
happened to be the same week she accepted the position she was going to, so she
said, ‘I’ve got one better than that, I’m leaving so you may want to look at this
job,’” Kuhn said, later earning an appointed by airport president and CEO Larry
Cox and approval by the board of commissioners.”
IF YOU HAVE INFORMATION YOU WOULD LIKE TO SHARE ABOUT HURRICANE CREEK, ANONYMOUSLY OR OTHERWISE, YOU MAY CONTACT ME AT guy@guycobb.com
This documentation and the author, Guy Cobb, are protected by the United States Sarbanes-Oxley Act of 2002 Section 806 -- Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud; the False Claims Act; the Wendell H. Ford Aviation Investment and Reform Act For the 21st Century (AIR21) Public Law 106-181, April 5, 2000 49 USC Section 42121 Subchapter III – Whistleblower Protection Program and the American Reinvestment & Recovery Act, Article 4 Section 1553. |
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