Airline's bankruptcy costs state millions
Daily Oklahoman, May 14, 2006
By Randy Ellis, The Oklahoman
About $27 million in motor fuels tax revenue that normally would go to repair Oklahoma's substandard roads and bridges are being diverted to cover the state's losses on bankrupt Great Plains Airline of Tulsa.
"That certainly has made an impact on our maintenance program," said Mike Patterson, chief financial officer for the state Transportation Department.
Transportation officials said $27 million would be enough to resurface 135 miles of pavement or rehabilitate 90 bridges
Tax Commission [Ref C101] records show the Great Plains failure caused $6,550,800 in road and bridge money to be diverted in 2003, $6,573,000 in 2004 and $3,787,201 in 2005. The rest is expected to be diverted in the future, Patterson said.
The Legislature authorized the diversion in complex tax credit legislation passed in 1999 to provide up-front financing to Great Plains so it could provide direct passenger air service from Oklahoma to both coasts.
State Sen. Ted Fisher, author of the tax credit bill, said the state was desperate for direct coastal air service at the time because it had a shot at gaining a $3 billion Intel plant, but company executives were frustrated because it took all day to fly to anywhere in the state.
The Sept. 11, 2001, terrorist attacks on the United States, which devastated the airline industry, doomed any chance the project had for success, said Fisher, D-Sapulpa.
"We took a flier with it and lost," he said.
The Legislature gave Great Plains $27 million in tax credits in two installments to sell to provide start-up costs. The company was given $18 million in tax credits initially and $9 million more in 2002. When buyers of those tax credits use them to offset taxes they owe the state, the Tax Commission [Ref O101] takes motor fuels tax revenue obtained from sales along turnpikes to cover the cost. That revenue normally would go to the Transportation Department to pay for road and bridge repairs.
If Great Plains had been successful, the company would have been required to reimburse the Transportation Department with subsidies it would have been entitled to receive for creating jobs under the Quality Jobs Act.
When the airline failed, the Transportation Department was left with the bill.
Fisher described the use of road and bridge money as a "back up" funding source that legislators hoped would not be needed.
Similar tax credit legislation was used to subsidize the startup of Rocketplane, Patterson said.
Rocketplane is an Oklahoma company trying to establish a commercial space flight business. The company received $17.9 million in tax credits, but it's too early to tell whether the ultimate tab for those tax credits will have to come from road and bridge money, Patterson said.
In retrospect, state Rep. Kevin Calvey [Ref C101], R-Del City, said the Great Plains tax credit bill was "very poorly thought out." The measure provided the company with up-front subsidies without any guarantee that the state would recover its investment through increased economic activity. Also, no recourse or collateral was available to fall back on if the venture failed.
Mr. Calvey - a must read [Ref C101]
Calvey [Ref C101] voted in favor of giving Great Plains the initial $18 million in tax credits, but voted and spoke out against the additional $9 million subsidy in 2002.
Great Plains had promised nonstop flights to the coast, but the airplanes it bought "didn't even have the fuel capacity to reach the coasts," Calvey [Ref C101] said.
The dilapidated condition of roads and bridges has been a hot issue in Oklahoma in recent years. About 1,600 of the state's 6,700 bridges are considered obsolete or structurally deficient, according to the Transportation Department.
The Legislature passed an emergency $125 million supplemental appropriation this session to help repair some of the worst bridges.