Authority dealing with $1.5M cash flow problemSeptember 16, 2020
By CANDY NEAL
HUNTINGBURG — The Huntingburg Airport’s runway project is progressing well.
Monday morning, the Dubois County Airport Authority celebrated the opening of a tunnel over County Road 200 West, the first airport tunnel in the state. The tunnel allows for the runway to be extended overhead.
But at the authority board’s Monday evening meeting, board members discussed an upcoming $1.5 million cash flow problem associated with the project.
An unexpected cost and the Federal Aviation Administration’s timing for closing out grants are the sources of the issue, Engineer Curtis Brown of Woolpert explained to the authority board.
An unexpected cost came up in phase one with the discovery of unsuitable soil that had to be removed and replaced. That work cost about $1 million and was submitted as a change order. “The FAA has approved that change order,” Brown said, “but they will not fund that change order until they do a grant amendment, which occurs at grant closing.”
The FAA holds on to the last 5% of a grant as retainage until the administrative work is completely closed. That includes checking to make sure all the reports, audits and other paperwork are in order. That is the agency’s leverage to make sure the project is completed as it was presented to the agency. That process could take up to a year, Brown said. For phase one of the project, which is the tunnel, the 5% retainage is $400,000.
“So there is $1.4 million that the contractor is due, that we will need to pay,” Brown said, “and then wait a year for the FAA to reimburse the airport.
“That creates a little bit of a cash flow crisis.”
There will likely be another retainage matter with next year’s phase two of the project, which includes widening and extending the runway, paving and electrical work.
Ultimately, there will be $1.5 million that needs to be covered, Brown said.
Board member Bob Johnson questioned why there isn’t funding in place to cover unexpected costs. “I thought we prepared for stuff like this,” he said.
Brown explained that he did not foresee the issue with the soil, which is the bulk of the cost that needs to be covered. “It’s pushed us over the edge of what we had planned,” he said. “It’s creating a little more of an additional burden, more than what I was anticipating.”
While the airport has some funds that could help cover some of the cost, Brown said a better option would be to obtain a line of credit with a local bank. That way, “you do not completely cash out the airport funds,” he said. “You will still have capital to cover the airport, like if a tractor breaks down or something, and still pay these bills. And when the reimbursement comes, you can pay off that line of credit.”
Another idea is to work with the contractor and firm Woolpert and set up a payment plan. “But you will accrue some finance charges,” Brown said. “You can negotiate a much better rate with a bank than with a construction company.”
Phil Schneider, attorney for the authority board, said that the process the authority may have to go through is issuing bonds.
“Generally local units of government can’t just go out and borrow money,” he said. “They have to issue bonds, and it’s a much more involved process than just going to a bank and signing a line of credit.” He said he will check to see if there are any exceptions for airport authorities.
If the board does pursue the bond route, that will take some time to implement and it could be costly, Schneider said. “If we have to issue bonds,” he said, “and we have a bond counsel and financial advisor to issue the necessary letters to the investors, we could be talking about $50,000, $60,000, $100,000 just in bond issuance costs for a million-dollar issuance.”
Board President Jim Hunsicker favors the authority doing what it can to pay the construction company and Woolpert.
“Weddle has done a good job for us. I don’t want to go back to them and asked if we can set up a payment plan,” he said of the construction company. “They’ve come out here and done the work, paid all their bills. I don’t see that as fair to them, or to Woolpert either. They’ve been good to us and have done a good job for us.”
Airport Manager Travis McQueen mentioned earlier in the meeting that Weddle completed the tunnel a month ahead of schedule.
McQueen asked if it was possible to borrow money from the county. He recalled the airport doing that years ago to acquire some land.
“That may be a viable economical option to fix this cash flow issue. But we’d have to approach the Dubois County Council about that,” he said.
Board members said that would be a better course of action, especially since the FAA has already guaranteed that the airport will receive the funding.
“That would be a great option,” Johnson said. “We can explain what happened, and that this [funding] is coming in.”
Schneider will also look into that possibility.
The authority board also:
• Approved the airport’s 2021 $477,602 operating budget and $5,147,000 cumulative budget. They must also be approved by the county and state.
• Heard that a committee is meeting to discuss the charges for various services done at the airport. The goal is to have a master list of rates at next month’s authority meeting.
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