The effects of the Hot Creek airport litigation on the Town’s financial health are becoming increasingly clear.
On Wednesday night, Mammoth Lakes Town Council didn’t find that clarity particularly appealing.
Council voted unanimously to reject an airport terminal financing deal crafted by Finance Director Brad Koehn, largely because one could get better terms from a Vegas bookie.
Instead, Council will carry the note out of general fund cash reserves until it can qualify for Federal Aviation Administration (FAA) grants to pay itself back.
As Koehn explained in the Council agenda bill, “Staff and the Town financial advisor began the financing process in June 2008, but the nationwide credit crisis and the Town’s outstanding Hot Creek judgement created a challenging financing environment. These issues ‘closed the door’ to a long-term financing option and as a result, the Town pursued a short-term note … the note was paid in full on June 30, 2009. Upon payoff the Airport Enterprise fund borrowed the payoff funds from the General Fund until the Town could secure ‘rollover’ financing to replenish the General Fund.”
*Got that? Or do I need to draw a diagram?
On Wednesday, Koehn brought forward a long-term financing deal (the rollover financing) to replenish the General Fund.
He called it “The long-term financing package which we hope won’t end up long-term.”
Because of the Town’s credit rating (junk status), the best loan the Town could get was at 8.125%. In addition, there were $200,000 in associated closing costs.
The annual debt service worked out to $220,000/year.
Koehn said that once an airport reaches 10,000 passenger enplanements in a single calendar year (and the airport, with its expanded flight schedule, is expected to draw 20,000 passengers in 2010), the FAA provides a $1 million entitlement grant. Given the federal budget cycle, Mammoth wouldn’t see its first $1 million until October 2011 and wouldn’t be able to pay back the loan in its entirety until it received its second $1 million check from the FAA in October 2012.
Even if the loan could be paid off within a three-year time window, the Town would still be out approx. $750,000 in closing costs and interest.
This didn’t sit well with Mayor Neil McCarroll, who didn’t like the idea of borrowing such expensive dollars.
And for what? Koehn said financing the terminal debt would improve the Town’s cash flow position (translation: more money on hand to make the Finance Director appear more fiscally prudent). And besides, that money restored to the General Fund could now be invested! (albeit in a public agency fund which is currently earning about 1% interest).
Hmm. Factoring in closing costs, would you want to spend 37% over three years on some financing deal because you might make a 3% return on an extra $2 million you’ve got in the bank?
Even Council didn’t like that mathematical equation, rejecting the long-term financing deal 5-0.
Council funds Track Club
Town Council voted to fund another 4-year sponsorship agreement with the Mammoth Track Club (Running USA).
The expiring deal had the Town funding Running USA to the tune of $100,000 over four years beginning in FY 2004/05.
Running USA’s request for the next four years was $220,000.
Though the Tourism and Recreation Commission was in unanimous agreement to grant the request, Town Staff recommended a funding level of $42,000/year given the current budget situation.
Tourism and Recreation Director Danna Stroud estimated that the media exposure generated by Meb Keflezighi’s recent triumph in the New York City marathon was worth $1 million alone.
Council voted unanimously to fund Running USA at its $220,000 request.
In culmination of an eight-month process, The Town decided to lower its development impact fee (DIF) schedule.
The new fees will be approximately half of what they were before the current recession.
In addition, housing mitigation requirements were also scaled back by approximately 50%
The fee schedule was determined with the aid of consultant Walter Keiser.
In his summary report, Keiser found that the Town’s “aggregate fees including DIF, housing mitigation and other agency fees are comparatively high and will remain a deterrent to desired development.”