The state Department of Aviation needs to tighten its oversight of state airport funds, the state office of the inspector general said Monday in a report prepared in response to the Peninsula Airport Commission keeping state aviation officials in the dark about its use of taxpayer funds to pay off a loan for the now-defunct People Express Airlines.
The inspector general’s review of the aviation department is one of two major audits sparked by Daily Press reports earlier this year that Newport News/Williamsburg International Airport repaid $4.5 million that People Express owed TowneBank. A Virginia Department of Transportation audit of the airport is due in the next few weeks.
The inspector general found that the Peninsula Airport Commission did not tell state officials it had used state money to repay a loan and did not even report it had spent the money for more than a year after it should have.
“This delay is significant,” the OIG report says, noting it was only after state officials asked about the money several months later, a move Secretary of Transportation Aubrey Layne said was prompted by the Daily Press reports, that the commission disclosed it had used state funds to repay the loan.
The inspector general said such loan repayments were an ineligible use of state money and added that “unfortunately (the state aviation department) lacks the internal authority to require the funds to be reimbursed to the state for inappropriate use.”
It said the commission’s audited financial reports, which the aviation department never saw, did not say how the airport intended to honor the loan guarantee, as it eventually had to, or detail any plans to seek reimbursement for what it spent.
In response, the inspector general said the state, among other steps, should:
*require airports to submit audited financial reports and reports on the use of state airport grants annually and develop procedures to enforce this requirement.
*review those reports to ensure state funds are spent properly.
*tighten its basic agreements with airports to make clearer what costs can be covered with state taxpayer funds.
*require airports to post bonds as an insurance to reimburse the state if executives use state money inappropriately (the OIG noted that this might require new legislation).
The aviation department agreed to adopt the inspector general’s recommendations.
“This isn’t really a surprise. … It did say they didn’t know what was going on at the PAC,” Layne said.
“We should have been doing a lot of these things. It’s just good governance,” he added.
Layne said he wanted the inspector general’s office, which is responsible for looking at how state agencies do their jobs, to look at the aviation department, while VDOT’s own auditors look at the actions of Newport News/Williamsburg airport officials.
He had been pushing for legislation to tighten oversight of airport funds and said Daily Press reports on the People Express loan showed an urgent need to act. The legislation calls for many of the steps the inspector general recommended.
Sandy Wanner, the airport’s interim executive director, said he had not seen the report.
He declined to comment when asked if he thought the report supported former Executive Director Ken Spirito and former Newport News City Manager Jim Bourey, who argued that the commission did nothing wrong in paying off the loan and had been transparent about it.
The commission fired Spirito last week after interim findings of the VDOT audit showed he had used airport funds to cover several thousand dollars of personal expenses.
Spirito had been on paid leave from his $223,000-a-year job since early March pending completion of the VDOT audit. Bourey resigned from the commission and from his job as city manager.
The transaction that sparked the inspector general review and the still pending VDOT audit was the airport commission’s use of $3.5 million of state funds to help pay off the TowneBank loan.
The commission also used $700,000 from the Regional Air Service Enhancement Committee, a regional body funded by local governments that tries to woo airlines to the airport and a $300,000 federal grant meant to pay for marketing and to guarantee revenue for the People Express service while it was operating.
When Hampton, James City County and York County learned of the use of RAISE funds, they put a hold on their contributions to the group.
The airport commission made the decision to use taxpayer funds to guarantee the loan to People Express in a closed-door meeting. In public, it voted only to authorize then-Chairwoman LaDonna Finch to take whatever steps she deemed necessary to provide adequate air service at the airport. The broadly worded motion was written by the commission’s attorney at the time, Herbert V. Kelly Jr., who was a member of TowneBank’s Peninsula Board. The commission cut ties with Kelly in December.
By that time, People Express had been promising to begin air service to New York and Boston for two years. The airline postponed its originally announced summer 2012 start date after federal regulators fined it $10,000 for illegal sales of memberships in a travel club. The airline had been sued in several courts for unpaid bills.
In the 12 days that followed the signing of the loan guarantee agreement, People Express drew about $3.5 million on the line of credit. It drew an additional million in the three months before it stopped flying.
Ress can be reached by phone at 757-247-4535.
