FBI fraud probe jeopardizes funding, airport credit
Moody’s Investors Service said Monday the impact of an FBI fraud investigation on Grand Junction Regional Airport’s credit rating was “unclear,” but could place $77 million in federal grants in jeopardy.
Moody’s took no action on the airport’s credit rating, which continues at Baa2, a stable and investment-grade rating, said David Jacobson, a Moody’s spokesman.
A downgrade from Moody’s would likely increase the cost of borrowing by the airport, but the airport’s credit rating was not directly at issue in Moody’s Monday advisory.
Instead, the credit rating service warned the airport could lose as much as $77 million in federal grants unless it made every possible effort to recover funds lost to fraud.
A cancellation of federal grants could cause Moody’s to lower the airport’s credit rating, Jacobson said.
“It’s very unfortunate that this kind of investigation can have this kind of an impact on a public airport, particularly when we haven’t even been told the nature of the allegation behind this investigation,” said Denny Granum, chairman of the Grand Junction Regional Airport Authority board.
“All I can say is that the authority is fully cooperating with the investigation. We hope that by doing so it will be quickly resolved,” Granum said.
Court records related to the FBI investigation are secret and have been sealed by a federal judge.
“Obviously, we don’t know anything that’s going on with this whole deal. We’re totally in the dark,” Granum said.
The airport had not started its own internal investigation into fraud allegations as of Tuesday, but whether it would do so eventually “remains to be seen,” he said.
The airport made no personnel changes since the fraud investigation was revealed Nov. 7, Granum said. On that day, FBI agents searched the airport’s administrative offices and removed several boxes of documents.
Rex Tippetts, airport manager, was questioned by agents at the scene Nov. 7. He has not responded to repeated requests for comment.
Through 2023, the authority expects to spend up to $180 million on construction projects, like a new administrative building, terminal, runway, taxiway, and drainage system, among other improvements.
Much of the money for those improvements will come from bonded debt and $77 million in grants approved by the federal Airport Improvement Program, according to the authority’s 10-year capital improvement plan.
Contracts between the airport and the federal agency that controls the grants require the airport to “make all efforts to recover any federal funds which have been fraudulently spent,” Moody’s said.
“If the recipient were to fail to do so, the grant agreement can be terminated for cause,” Moody’s said.
Should that happen, several dominoes could fall, leading ultimately to a downgrade in the airport’s credit rating, according to Moody’s.
If the airport’s federal grants were jeopardized, “the airport would likely need to issue more debt than originally planned,” Moody’s said.
Instead of adding debt to replace canceled grant money, the airport could also decide to increase costs to airlines or delay construction, the credit rating service reported.
Whether the airport decided to borrow more or delay construction would probably depend on the amount of grant money it lost, Jacobson said.
“Either course would negatively pressure the rating,” Moody’s said.
A downgrade in the airport’s credit rating would make it more expensive for it to borrow to pay for projects like a new terminal.
Granum said the airport authority board would conduct regular business at its next meeting set for 5 p.m. Nov. 19, where the status of negotiations with West Star Aviation over its construction of an $8 million paint hangar will be discussed.
The proposed West Star deal, known as a purchase and lease back arrangement, anticipates the airport would eventually purchase the new hangar and lease it back to West Star.
If the deal goes ahead as planned, the airport would use proceeds from the sale of $8 million in bonds to fund the purchase of the hangar.
Grand Junction bond attorney Kirk Rider said the fraud investigation would have to be disclosed in any public offering statement issued as part of a bond sale by the airport.
Granum said he could not comment on whether the FBI investigation would hurt the airport’s ability to sell bonds in the future. If successful, West Star’s expansion could add hundreds of new, good-paying jobs to the Grand Valley economy.
As an aside, Moody’s called the FBI’s involvement in the case “rare” because investigations of fraud at airports are normally conducted by the Federal Aviation Administration.