Reprinted From the Lincoln News Messenger, March 4, 2019 edition….
Lincoln’s Finance Department is undergoing a staff-described “overhaul” and on the list of items to be remedied are the city-owned Lincoln Regional Airport financials. As of June 2017, the airport has amassed a $5-million loan debt in borrowed funds, according to the most recent annual audit that analyzed the 2016/2017 city finances. An additional $1.4-million in interfund loans brings the total balance to $6.4 million in the red.
“The airport does not have the revenues to repay the debt it is carrying,” said Airport Committee member and Mayor Paul Joiner.
The result has been a years-long practice of interfund borrowing that is not compliant with the city’s own standards, according to staff. Lincoln Interim City Manager and acting Finance Director Jennifer Hanson said the $5 million amount is a short-term loan that is not in line with proper accounting methods. The other $1.4 million is in the form of an interfund loan related to the financing of an airport hangar project, according to Hanson.
“I believe it’s a problem that’s been building and it just hit an inflection point,” said Airport Committee chairman Richard Pearl.
Hanson said that the immediate need to address the city’s interfund processes has brought the issue of the airport’s finances into the forefront in a way it hasn’t previously. The city has shored up the airport’s more immediate operational debt by increasing revenue and decreasing expenses related to its labor and fuel operations, according to Hanson.
“What we haven’t been able to do is make a dent in the previous debt and that keeps compounding,” Hanson said.
The audit found that the airport’s enterprise fund does not have a demonstrated ability to repay the $5 million in borrowed funds.
Additionally, an analysis of the airport’s financials conducted mid-February by the city’s contracted financial consultant Stephanie Beauchaine characterized the airport’s operating fund as “essentially insolvent.” In summary, Beauchanie wrote the fund has $6.4 million in borrowed funds, debts in excess of assets of $510,000 and “only has 6.9 days of working capital on hand.”
Hanson said the practice of non-compliant interfund borrowing will not continue and that the city’s comprehensive interfund loan processes are currently undergoing staff review before the issue is presented to council within the fiscal year. Next steps to rectify the airport committee’s debts are now being discussed amongst city staff and advisory Airport Committee members in ongoing public meetings, the next scheduled for March 20 at City Hall.
“It’s going to be a combination of reducing expenditures, increasing revenue, and possibly the selling of some of the assets that the airport currently owns,” Hanson said.
One of the first steps in the city’s preliminary plan to reduce expenditures is to cut staffing and reduce full-time staff from two to one employee. Hanson said the staffing change will impact the operation hours of the airport but will still allow full-time service.
“Over the last few years, we’ve been working diligently to stop the bleeding at the airport and I think we’ve got that fairly well handled,” Joiner said. “Moving forward, we’ve got to take a look at that long-term liability of debt that has built up over the past couple of decades.”
Pearl said cutting costs won’t singularly solve the problem and he wants to focus more on growing the airport and hiring a professional management company to take over. Other options suggested by staff include privatizing services, implementing a public-private partnership, better leveraging fuel costs and leasing land to private entities.
Joiner said the city’s financial outlook has improved enough for the city to begin to address the airport’s debt. “I think we’re look at this more directly now than we ever have,” Joiner said.