Opinion/Editorial

We’ve Got Questions (Printable Version , E-mail to a Friend )
Who’s got answers? But after taxpayers get wind of the information in this piece, the mayor, daily paper and one big bank might have a lot less credibility
by Michael Bates

Last week began with Mayor Bill LaFortune trying to get the City of Tulsa on a fast track to cover a $7.5 million debt owed by now-defunct Great Plains Airlines to the Bank of Oklahoma. Under LaFortune’s plan, the money would have come out of the city’s general fund--money that would otherwise pay for basic city services, like police and fire protection. LaFortune’s uncle, former Mayor Robert LaFortune, and a key political supporter, Bama chairman Paula Marshall-Chapman, are both on BOk’s board.

The plan was to get Council approval for the bailout at their November 10 meeting. The Council’s reformers--Henderson, Mautino, Medlock, and Turner--held a press conference to express their objections to the deal. 

By the middle of the week LaFortune abandoned the proposal, and the concerns of the reformers on the Council had been validated by the opinion of Alan Jackere, the City Attorney appointed by LaFortune earlier this year. 

You want an indication of how completely the winds of conventional wisdom shifted? Councilor Bill Christiansen (a rumored mayoral candidate), who was nowhere to be found on this issue at the beginning of the week, emerged at the end of the week to take credit for killing the deal. He was very bold on the issue once it was moot. 

There had been more than a month of pressure on the City Council to pick up Great Plains’ tab. The line from the Tulsa World and LaFortune was that the City had a moral obligation to pay the money back, even though it had no contractual obligation to do so. They cited verbal promises made by former Mayor Susan Savage. No one has suggested that the City has a contractual obligation to repay BOK on Great Plains’ behalf.

In fact, local support for Great Plains Airlines was structured in a way to insulate the City of Tulsa from any risk. Just ask County Commissioner Randi Miller, who was on the Council when the Great Plains deal was set up, and she’ll tell you--the Council was assured by the Savage administration that the City of Tulsa had no financial liability. 

The problem with the City undertaking a debt it doesn’t owe is that it isn’t really fair for the City to repay one person’s debt and not another. Suppose I made a risky loan to a friend and the friend couldn’t pay it back. It would be nice if the city would just pay it off on my friend’s behalf. I’d be happy to get my money back, my friend would be happy to be relieved of the debt, but everyone else in Tulsa who owes money or is owed money might feel slighted. 

They might feel so slighted that they’d file a qui tam lawsuit--a taxpayer’s demand to recover money improperly paid by the City. If the demand was upheld by a judge, city officials would be personally liable to repay three times the money. The Mayor and the Councilors who approved the improper payment would also be subject to removal from office and criminal charges.

That’s the case that the “Gang of Four” reform councilors made in their press conference on Monday, November 7. And apparently, that was the case that City Attorney Alan Jackere had been making for some time to LaFortune. 

Last Wednesday, Nov. 9, when LaFortune announced that he was abandoning his repayment proposal, he said, “I have always followed the advice of the city attorney, and it would be inappropriate for me to ignore his advice now.”

The memo from Jackere tells a different story. His closing paragraph begins, “As I have previously stated, another option poses a much lower risk.” (Emphasis added.) Apparently this memo wasn’t the first time LaFortune had been advised by Jackere about the serious flaws in LaFortune’s plan.

There’s another indication that LaFortune wasn’t heeding the advice of the City’s legal staff. Using taxpayer dollars, LaFortune hired an outside attorney, Robert Sartin, to pursue his repayment scheme on his behalf.

So who does owe that $7.5 million to Bank of Oklahoma? To answer that, let’s review the basic facts, which are laid out concisely in the Federal Aviation Administration’s (FAA) report of May 6, 2004.

The Tulsa Industrial Authority (TIA)--a public trust whose board members are appointed by the Mayor of Tulsa--signed a note in 2000 borrowing $30 million from Bank of Oklahoma, using Air Force Plant No. 3 (AFP3) as collateral. The money was for the use of Great Plains Airlines, and was to be repaid in December 2003. 

Just in case Great Plains couldn’t make the payments, the bank, TIA, and the Tulsa Airport Improvements Trust (TAIT) entered into a support agreement: TAIT promised that if Great Plains Airlines defaulted on the loan from BOk, TAIT would purchase that 30 acres of Air Force Plant No. 3 property for runway expansion, and the purchase price would be whatever was left on the loan--never mind the actual value of the land. TAIT would then use airport passenger service fees to pay TIA for the property.

A memo prepared by TAIT’s attorney, Richard Studenny, seems to suggest that the deal was structured as a real estate transaction in hopes of avoiding scrutiny from the Federal Aviation Administration.

On May 6, 2004, the FAA told TAIT that paying off the loan in that way would constitute an illegal direct subsidy from the airport to a specific airline. Great Plains is in Chapter 7 bankruptcy and can’t repay the loan. TIA doesn’t have the money and doesn’t have any way to get the money. TAIT can’t buy the AFP3 land from TIA, and even if TIA could sell the land on the open market, its real market value--estimated as being worth about $3 million--wouldn’t be enough to cover what is owed.

If BOk officials and Savage and Studenny all believed that the support agreement was legitimate and valid, why did Savage feel compelled to promise BOk that the City would step in and repay the loan if necessary? If BOk wasn’t confident enough of the validity of the support agreement to accept it on its own merits, why did they proceed with it? Who is liable and what are the consequences if BOk officials “ran a red light” by approving a loan based not on legitimate collateral but unenforceable promises?

It appears several more red lights were run. According to the FAA report, the airline requested an extension to make its payments for the first three months of 2002. By September of that year, “Great Plains, the Airport, and TIA requested that the Bank delay any decision to declare Great Plains in default of its loan. A November 2002 review “concluded that Great Plains was at risk of defaulting.” Nevertheless, the bank did not call the loan.

Instead, in April 2003, TAIT modified its capital improvements plan (CIP) to add $10.6 million to the cost of a runway/taxiway extension project, evidently in anticipation of a default and the need to justify to the FAA a passenger fee increase sufficient to pay off the loan. Then in May of 2004, the FAA said that the support agreement deal was illegal. 

Now TIA is suing TAIT--two City of Tulsa trusts, both of which had contracted with Studenny as their attorney.  Studenny was dismissed in 2004, so in this suit, TAIT is represented by Joel Wohlgemuth, a partner in the firm that employed Bill LaFortune before he became Mayor. TIA is represented by Frederic Dorwart, who is named in the contract for BOk’s arena naming rights as a legal representative for BOk. So Dorwart is representing both BOk and the public trust that owes money to Bok--not on the same matter, but still very strange.

This is now going to work its way through the courts, but it’s unlikely that the support agreement will be enforceable against TAIT. Only if the courts forced TAIT to pay up would the City even need to consider stepping in to bail TAIT out. 

In the meantime, I have a few questions: Shouldn’t BOk have performed some due diligence about the collateral offered to secure the loan--whether TIA could transfer the AFP3 property to BOk in event of a default, or whether they could sell the land to TAIT, as promised by the support agreement? Shouldn’t BOk have called the loan when the airline’s troubles became apparent, before it blew through more of the bank’s money?

Did mayoral promises of a bailout encourage them to be less cautious than they should have been in making and managing the loan? What are the consequences and who is accountable if the bank and the trusts knowingly set up a loan with bad collateral? And was concern about those consequences the reason behind the push to get the City to cover the loan?