In the Matter of Compliance with Federal Obligations by the Perry County Airport and Industrial Authority – No. 16-21-09
FAA Docket No:
16-21-09
Author:
Michael W. Helvey, Director, Office of Airport Compliance and Management Analysis
Complainant(s):
Federal Aviation AdministrationRespondent(s):
Perry County Airport and Industrial AuthorityAirport(s):
Vaiden Field Airport (A08/Airport)
Holding:
Violation of Grant Assurances 3, 4, 5, 13 and Surplus Property Act of 1944Abstract:
The FAA investigated the Perry County Airport and Industrial Authority, owner, operator, and sponsor of Vaiden Field Airport, after issuing a Notice of Investigation alleging improper financial transactions involving the sale, mortgage, transfer, or assignment of federally obligated airport property without FAA approval, creating prohibited encumbrances on land conveyed under a 1978 quitclaim deed pursuant to the Surplus Property Act of 1944. (Director’s Determination, p. 1.) The FAA found the Authority in violation of Grant Assurance 3, Sponsor Fund Availability; Grant Assurance 4, Good Title; Grant Assurance 5, Preserving Rights and Powers; Grant Assurance 13, Accounting System, Audit, and Record Keeping Requirements; and its obligations under the Surplus Property Act of 1944, as amended. (Director’s Determination, p. 1.)
Grant Assurance 3, Sponsor Fund Availability: Insufficient Capital to Maintain Runways, Taxiways, etc.
The FAA investigated whether the Perry County Airport and Industrial Authority violated Grant Assurance 3, Sponsor Fund Availability, after discovering the airport authority had used federally obligated airport property as collateral for a $1.2 million interest-only loan (to construct T-hangars, add a fuel farm, and purchase maintenance equipment). At the time, the bank did not require any collateral from the airport authority; however, when the loan was modified several years later, the bank assessed an accrued interest rate and required the airport authority to put forth collateral. (Director’s Determination, p. 6.) In response, the airport authority collateralized airport land conveyed by the deed comprising all property at the airport, and it did so without FAA knowledge or approval. (Director’s Determination, p. 6.) The deed specifically stated “that no property transferred by this instrument shall be used, leased, sold, salvaged or disposed of by the grantee for other than airport purposes without the written consent of the Administrator of the FAA.” (Director’s Determination, p. 6.)
Upon learning of this, the FAA notified the airport authority of its pending noncompliance status with its federal obligations based on entering into the then-defaulted loan agreement, as well as the fact that the FAA subsequently issued an Airport Improvement Program grant for more than $500,000 to reimburse the airport authority for eligible costs of the T-hangars and fuel farm. (Director’s Determination, p. 6.) After multiple notices, the airport authority expressed regret and submitted a corrective action plan (CAP) admitting the improper collateralization, lack of board approval, and inadequate financial oversight. (Director’s Determination, p. 7.) The airport authority retained an attorney to resolve the encumbrance issue, implementing a new governing structure, retaining an accountant, and improving financial records with the goal of revenue generation. (Director’s Determination, p. 7.)
The Director commended the airport authority’s efforts at achieving compliance; however, these steps did not cure the improper land-encumbrance condition or demonstrate sufficient funds to operate and maintain the airport. (Director’s Determination, p. 7.) Therefore, the Director found the airport authority in violation of Grant Assurance 3, citing insufficient funds to maintain grant-funded facilities, failure to meet federal obligations, and inconsistency with the Surplus Property Act. (Director’s Determination, p. 7.) “Grant Assurance 3 is in place to protect taxpayer investment in airport facilities by ensuring the investments are operated and maintained with adequate funds from the sponsor over the useful life of the facilities,” the Director wrote. (Director’s Determination, p. 7.) The CAP was deemed inadequate without immediate action to resolve the financial issues or prove solvency. (Director’s Determination, p. 7.)
Grant Assurance 4, Good Title, and Grant Assurance 5, Preserving Rights and Powers: Effect of Modifying Loan by Collateralizing Airport Property
The Director determined that the airport authority was in violation of Grant Assurance 4, Good Title, and Grant Assurance 5, Preserving Rights and Powers, for inappropriately encumbering all airport property as collateral in a loan modification without FAA knowledge or approval, later resulting in loan default and foreclosure risk. (Director’s Determination, p. 8.) This action violated Section 7A of the 1978 deed pursuant to the Surplus Property Act, which prohibits sale, lease, or encumbrance of federally obligated property without FAA consent. (Director’s Determination, p. 8.)
The FAA determined that by subordinating its fee interest to the bank, the airport authority surrendered its rights and powers necessary to meet federal obligations and no longer held good title to airport property as required under its grant assurances. (Director’s Determination, p. 8.) Moreover, the airport authority’s proposed CAP failed to demonstrate a concrete plan to restore clear title or regain control of the property. As such, the Director concluded the airport authority was in violation of both assurances and the deed’s requirements. (Director’s Determination, p. 8.)
Grant Assurance 13, Accounting System, Audit, and Record Keeping Requirements
Finally, the Director determined that the airport authority violated Grant Assurance 13, Accounting System, Audit, and Record Keeping Requirements, by failing to comply with audit obligations under the Single Audit Act of 1984 and the Surplus Property deed for the airport. (Director’s Determination, p. 9.) Despite receiving a $2.2 million discretionary grant for a taxiway extension, the airport authority failed to submit the required financial audit statements to the Federal Audit Clearinghouse. (Director’s Determination, p. 9.)
FAA correspondence had explicitly reminded the airport authority of these obligations, and the 1978 deed required annual or special financial reports upon request. (Director’s Determination, p. 10.) Although the airport authority’s CAP indicated efforts to retrieve financial records from prior leadership, it provided no proof of compliance or audit submissions. (Director’s Determination, p. 10.) Therefore, the Director concluded that the airport authority’s failure to submit audits and provide financial documentation constituted violations of Grant Assurance 13 and the deed requirements.