The Eastern Oregon Regional Airport is carrying $2.5 million in debt, but action by the Pendleton City Council could provide immediate relief and a path to total repayment.
The city’s auditor, Rob Tremper, and Finance Director Linda Carter explained to the city council Tuesday how the city could write off a significant amount of the loan’s interest and gave a general primer on the airport’s debt.
Here’s how it would work:
What is the airport debt?
Decades ago, the city began taking loans from other city funds to subsidize airport operations. Since 1995, the airport’s debt on those loans has grown to more than $2.5 million.
The city borrows from a multitude of internal sources, but the lion’s share comes from the general fund, the city’s only discretionary fund that pays for services like police, fire and parks.
In accordance with a state law, Carter said the airport fund pays back the balance of the loans at the end of each fiscal year. But at the beginning of the new year, the airport takes out the loans again and re-establishes the debt.
The city is paying back the interest on the loans each year, but in name only.
According to a spreadsheet presented to the council, the city has paid more than $1.2 million in interest since 1995. Although that money repaid to the various funds is represented in the budget, it isn’t backed up by actual cash.
“What you’re forgiving is an IOU,” said City Manager Robb Corbett.
How does interest write-off affect the debt?
The loans’ interest rate has long been tied to the Oregon Local Government Investment Pool and has fluctuated between 1 and 7 percent over the past two decades.
But as an alternative, state statute also allows the city to set its own interest rates for intergovernment loans rather than follow the pool’s interest rate.
Under the city’s proposal, the IOU money would be transferred back to the airport fund and retroactively reduced to an across-the-board lower rate closer to 0.5 or 1 percent.
According to the spreadsheet, the city would knock off $893,669 if it reduced the interest to 1 percent and more than $1 million if it took it down to 0.5 percent.
How will it affect the budget?
The most significant impact on the budget would be the carryover for the general fund.
To bridge the time from the beginning of the fiscal year in July to November, when the city receives property tax revenue, the city relies on carryover from the previous fiscal year to cover operational costs.
If the city were to implement the new 1 percent interest rate in the 2018-2019 fiscal year, the end-of-the year carryover would be slashed from a projected $2.3 million to $1.4 million. Tremper said the target carryover amount for Pendleton would range from $2.2 million to $2.5 million.
Councilor Paul Chalmers asked Carter if she supported the interest reduction proposal.
“I think something needs to be done,” she said. “But if the general fund takes that hit, our contingency and whatnot is going to be a lot lower next budget year. ... I would expect tighter budgets to make sure that you can build that contingency up.”
Even if the council lowered the interfund’s interest rate, it would still be left with more than $1 million in remaining interest and principle payments.
Tremper advised the council that it also adopt a repayment plan for the airport debt that would pay it back in full over a 10-year period.
How does it affect the airport?
With the continuing demands of the Pendleton Unmanned Aerial Systems Range, Tremper said the debt load could eventually hamper further investment in the project if it’s not paid off.
“The airport is in a position, I think, where it’s doing better,” he said. “But it’s going to need some of these additional resources to continue and to fund the operations and improvements that are going on up there. There’s been an ongoing piece that there’s not a lot of hope that they’re going to pay this off.”
Corbett said staff would soon present the council with a supplementary budget request that showed the increased revenue the airport has received from drone companies testing their unmanned vehicles at the test range.
Mayor John Turner suggested the council wait to take action until it had a firmer grasp of the airport’s revenue.
“I think we can have a discussion with the airport about what they actually have, not projecting future maybes, and make a decision after that kind of briefing,” he said.
Contact Antonio Sierra at firstname.lastname@example.org or 541-966-0836.