Monday, June 04, 2012

Airport Authority Misled Public On Airport's Financial Condition: Where Have We Heard This Before?

Fellow blogger Pat Andrews has learned that Indianapolis Airport Authority President Mike Wells' statements to local news media recently about the airport experiencing a more than $30 million operating loss in the most recent fiscal year have turned out to be quite misleading. While Wells was telling the media that the airport experienced a $31 million net operating loss last year, the authority's chief financial officer was sharing quite different numbers internally that showed the airport actually had a positive cash flow of nearly $75 million. Quoting from an e-mail the airport's CFO Marsha Stone circulated internally, Andrews helps us understand how the publicly-reported figure could be so much further from the true financial position of the airport:
You may have noticed recent news stories referring to supposed "financial trouble" faced by the Indianapolis Airport Authority. Driving these stories is the format in which our financial reports are required to be presented by various accounting rules and the difficulty the media and others have in analyzing and reporting on them.
In our 2011 audited financial statements, the IAA reported $167.8 million in operating expenses - but $106.2 million of that was a "paper loss" that is based on the depreciation, or loss in estimated value, of property. IAA's annual depreciation expense also includes this charge for property we (IAA) didn't even have to pay for, such as the FedEx sort facility. Yet when our tenants build such improvements on our property, we must record them as an IAA asset, and annually record their depreciation as an IAA expense. However, losses attributed to a depreciation involve no change in the Authority's cash levels.
An analogy would be if someone gave you a new car as a gift, then pointed out that you faced an immediate "loss" due to its depreciation. Even though you spent nothing on the car and saw no loss in cash, you could be said to have suffered from an "operating loss" on the car's annual depreciation.
Looking at our operating expenses for 2011 excluding depreciation, they totaled $61.6 million. Comparing that to our operating revenue of $136.5 million, you can see we earned a $74.9 million operating profit excluding depreciation, meaning the IAA generated positive cash flow. In fact, we recently made a $20 million early payment against our debt principal, which will save us $1 million per year in interest payments.

Andrews speculates that Wells' motivation for misleading the public on the true financial picture of the airport relates to its desire to eliminate competition from private businesses in the area surrounding the airport.  Andrews' blog has followed the airport authority's efforts to block a private developer from building a parking facility in Decatur Township near the airport. The airport authority has filed a lawsuit attempting to block zoning approval the private developer received for its project. Andrews thinks that it wasn't just public opinion Wells was motivated to influence but also the opinion of Judge Michael Keele, who has been assigned to hear the airport authority's lawsuit against Fast Park's proposed parking facility within the Ameriplex development area.

Andrews' discovery reminded me how the Capital Improvement Board deliberately misrepresented to the public, the City-County Council and the state legislature its financial picture in an effort to win approval for additional state funding and new tax hikes, which it succeeded in getting. After the CIB got what it wanted, it was suddenly flush with cash. If you went back and read the CIB officials' pre-bailout statements about its financial picture versus its post-bailout position, you quickly realized the staggering deficits it claimed it was facing could not have been anywhere close to the truth. The reality was that CIB officials like Bob Grand and Ann Lathrop deliberately misled the public about the CIB's financial situation in order to find funding for new public subsidies for the Indiana Pacers, a client of Bob Grand's law firm.

When the City-County Council approved the bailout measure, councilors told the public the additional money was needed simply to balance the municipal corporation's budget; it was not for the purpose of providing more subsidies to the Pacers. No sooner had the ink dried on Mayor Greg Ballard's signature on the approved bailout plan than Lathrop announced that a $33.5 million, three-year give-away to the Pacers had been approved. The CIB is now mulling permanent additional subsidies for the Pacers based upon the lies of its billionaire owner that the franchise continues to lose tens of millions of dollars every year--even after team owners negotiated a collective bargaining agreement with its players that provides more revenues to smaller NBA franchises like the Pacers.

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