Fresno pays off $8 million Gap settlement – to itself

Airports as a Money Tree

Erhard in his letter doesn’t come right out and say Fresno City Hall in the late 1990s and early 2000s was playing fast and loose with airport assets. But that’s his obvious message.

For example, part of Erhard’s letter deals with Air21. Remember that short-lived, Fresno-based commercial airline? As I recall, its first flight was in late 1995. I was on that inaugural flight to the Bay Area, and hurried back to Fresno to write a story about the trip for The Bee.

Erhard wrote that the Fresno City Council on Oct. 29, 1996 approved a surety (a promise to cover a debt) of $132,891. The surety guaranteed the Airports department payment of debts should Air21 file for bankruptcy. The surety was good for six months. Air21 filed for Chapter 11 bankruptcy protection on Jan. 6, 1997, 10 weeks after the council’s action.

The Fresno city attorney on Sept. 22, 2004 issued an opinion that the debt was uncollectable and could be written off, Erhard wrote.

In other words, the city attorney had told city officials exactly what they wanted to hear: No need to dig into the general fund to make good on the surety; the airport will eat Air21 debt.

Think again, Erhard wrote.

“There is a difference between ‘uncollectable’ and a refusal to pay,” Erhard wrote. “The surety was not contingent upon the City collecting money from the bankrupt airline. The purpose of the surety agreement was to ensure payment to the Airport in case of bankruptcy…. The FAA finds the City unlawfully diverted Airport revenue when it failed to pay the surety.”

Erhard said the city owed $346,975 (this includes interest) to the airport.

Then there is the matter of the airport loan to the Redevelopment Agency (RDA).

Erhard goes into considerable detail about the unusual nature of this loan. It’s sufficient here to quote from Erhard’s summary. Erhard said there were three problems with the loan: “First, the (RDA) has over $6 million of Airport money tied up in a loan for which no payment of interest or principal has been received in over 13 years. Second, airport revenue should not be used for economic development, which is the focus of the RDA. Finally, the RDA has provided little financial benefit to the Airport in comparison to what the Airport has provided to the RDA.”

Redevelopment agencies throughout the state were killed by Gov. Jerry Brown during the Great Recession. In its heyday, Fresno’s RDA was nothing more than an arm of the City Council, which served as its governing board.

Erhard in his letter told City Hall to repay that $6 million loan to the airport.

Erhard paints a picture of an Airports department often in disarray. I give you one more example from my days as a Bee reporter, though Erhard makes no mention of it in his letter.

Remember the concourse fiasco? City Hall in the late 1990s decided Fresno Yosemite International Airport needed a concourse fit for the 21st century. Construction on the 36$ million building began in 2000. Nothing went right. City Manager Dan Hobbs in April 2002 fired Airports Director Charles Hayes and brought in Severo Esquivel to fix things. The concourse got built, but the project was late and over budget.

Erhard ended his letter by, among other things, telling City Hall to pay the airport fair market value for the 201 acres.

“Please take our comments and concerns into account as your decisions could adversely impact the availability of future AIP grants and new PFC approvals,” Erhard wrote.

In other words, do as we say or lose control of your airport.

1 comment
  1. Great analysis.
    Question: Has the City received enough financial benefit from GAP to offset the value of the land they gave away?

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