Government & Politics

KCI project looks to outside lender for $90M amid blowback over borrowing city funds

The political football of a plan to finance early costs for the city’s new $1.64 billion single terminal at Kansas City International Airport may be tossed to an outside lender.

City Council members have been going round and round over how to pay for early development and design work by Edgemoor Infrastructure and Real Estate and initial construction work while the city issues bonds for the rest of the project.

All told, including other fees, the city estimates it needs about $90 million.

Some members pushed back against a plan to borrow the money from the city’s general fund, arguing it breaks their promise to voters of not using taxpayer money on the project.

A revised version of the plan sparked concerns the money would come out of the city’s water department, which has already had to hike residents’ rates to cover infrastructure costs.

Coming up with funds for early construction costs would allow crews to start work on KCI as soon as the deal goes through — which is expected soon — instead of waiting for bond proceeds to start flowing in.

Now, city staffers are in talks with Morgan Stanley to borrow the money.

The city’s finance director, Randy Landes, informed Industrial Development Authority board members of the idea on Tuesday.

“The finance director would tell you it’s a big waste of money and time,” Landes said. “But I’m almost over it.”

Landes said using an outside lender was an alternative meant to satisfy council members who oppose the idea of borrowing from other city funds. The opposition, he said, is misguided.

“There apparently is not a clear understanding at our legislative level on the city’s ability to inter-fund borrow to do advanced funding for this project,” Landes said. “For whatever reason it’s become politicized and then it was editorialized, and it’s been completely twisted, turned and misunderstood.”

Also at the meeting, board members signed off on issuing up to $2 billion in bonds to finance the project. The city still has to approve the issuance once it reaches a deal with the airlines that serve KCI.

As for the loan, it’s unclear what form it would take.

John Green, chief financial officer of the city’s Aviation Department, said the city could pursue a traditional loan, a bond anticipation note or a line of credit, which would allow the city to borrow only what it ends up needing up to the $90 million cap. If it borrows less, the loan would accrue less interest.

The city would repay the loan once it receives proceeds from selling bonds to finance the project, Green said.

It’s early in the process, Green said, but his “back of the napkin” calculation told him the loan would cost about $800,000 in interest and fees.

That’s assuming the city borrows the full $90 million at an interest rate of 3.4 percent or 3.5 percent and takes about two or three months to pay it back. But it would depend on the structure of the deal with Morgan Stanley.

Airport Committee Chairwoman and mayoral candidate Jolie Justus, 4th District, said Thursday she had been briefed by city staff and asked that the aviation department notify the rest of the council. She said the committee will discuss the financing issue next week.

Justus said for decades, the city had transferred money between funds to make projects work, but she acknowledged concerns from other council members about borrowing city money for the airport.

Council members repeatedly told voters the new airport terminal would not be built using taxpayer money. Some argue that borrowing it from city funds, to be repaid within months by the bonds, breaks that promise.

Inter-fund borrowing “is the most cost-effective way to do things and it has the complete support of our finance department, and in my opinion, it is a smart way to do things,” Justus said. “But as an elected official, I also know that I must make sure that we have the trust of our council and our public.”

As of Wednesday evening, fellow committee member Councilman Quinton Lucas, 3rd District at-large, said he had not been informed of the plan to borrow from Morgan Stanley. Lucas has taken issue with the idea of borrowing money from other city funds.

“The whole shtick about our airport campaign is that the airlines are paying for it and you’re not paying for it,” said Lucas, a fellow mayoral candidate.

Mayor Pro Tem Scott Wagner, who is also running for mayor, said Wednesday night he hadn’t been informed of the plan.

“But that is not a surprise because they have no other means to get the money they need to carry forward on the project,” Wagner said.

Green said he does not imagine an scenario where the city would take out the loan, not reach a deal on the airport and have to pay it back from city proceeds because the council would green light the loan at the same time it approves the entire project.

“My expectation would be we wouldn’t do anything until we knew that we had the entire package put together,” Green said.

The $90 million loan, Green said, would cover $23 million the city will owe Edgemoor for early work under the memorandum of understanding reached nearly a year ago, another $48 million in early construction costs and fees for city and airline representatives.

The airlines that serve KCI still have not signed on to the new terminal deal. Negotiations between them stalled last year when some airlines took issue with the growing price tag. They’re also in disagreement over how to split the cost of a baggage handling system priced at $20 million per year.

On Thursday, Aviation Director Pat Klein said the department is having near-daily phone calls with the airlines and is “very close” to a deal. Several of the carriers, he said, are talking to their executives this week.

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Allison Kite reports on City Hall and local politics for The Star. She joined the paper in February 2018 and covered Midterm election races on both sides of the state line. She holds a bachelor’s degree in journalism with minors in economics and public policy from the University of Kansas.