We’re told time and again that aviation funds cannot be used for a city’s own financial needs. Federal law is clear on this. The Show-Me Institute has mentioned this, as have the leaders of the Kansas City mayor’s advisory group on Kansas City International Airport (MCI).
As with many of the arguments in favor of building a new $1.2 billion terminal, it’s true . . . sort of.
In July and August of 2010, the Kansas City Aviation Department gave $10.2 million to the city of Kansas City in the form of an interdepartmental loan with an interest rate of 3 percent. The initial Memorandum of Understanding (MOU) indicated the loan was “for the use by Finance in connection with the historical liabilities associated with various TIF [Tax Increment Financing] projects” and would be paid back by July 1, 2013. Not surprisingly, the city later renegotiated and the debt won’t be fully paid until 2017, at the earliest.
The Federal Aviation Administration (FAA) says that such loans are legal as long as they are at the prevailing rate of interest (see page 7,720 of the Federal Register). The 3 percent the city is paying is within the prevailing rate of interest.
What is troubling is that the loan from the Aviation Department was going to cover TIF payments the city couldn’t otherwise afford to make. In other words, Kansas City is borrowing money from the airport, with interest, to cover losses it incurred in tax abatements to things such as the Power & Light District. (Gamblers Anonymous includes this activity as one of many signs of addiction.)
A $1.2 billion new terminal will upset an already out-of-balance apple cart. Consider the following:
- MCI is already relying on federal funds to cover losses;
- Federal programs aimed at subsidizing airports are drying up;
- The increased fees and ticket prices that are needed to fund an airport bond will make the airport less attractive to airlines and passengers; and
- If the airport cannot generate enough money to repay its bonds, the city will almost certainly dip into the general funds to cover the payments, just as it has done elsewhere, even when the city is not technically on the hook.
Not only is building a new terminal a bad idea on its merits, but it puts at risk a source of money the city is using to cover losses on all its other bad ideas. Worse yet, a new terminal may turn the Aviation Department from a source of funds for the city to another drain on resources.