News Column

One option for port authority: $10M treasury loan

July 21, 2014

By Robert McCabe, The Virginian-Pilot

July 22--NORFOLK -- In hard times like these, it's a deal a lot of people might want.

Picture being able to borrow a few thousand bucks for mortgage or car payments you're struggling to make, drawing on a one-year loan with an interest rate of about 2 percent.

On a grander scale, that's what the Virginia Port Authority can do, courtesy of a $10 million treasury loan from the state's Department of Accounts, effective June 26.

"To my knowledge, the Port Authority hasn't asked for a treasury loan like this before," said David Von Moll, Virginia's comptroller, who signed the paperwork.

The loan, at this point, is merely an option.

Since January, the authority's finances have drawn intense scrutiny from Gov. Terry McAuliffe and other top state officials.

Early this year, the authority had projected an operating loss of $23.4 million for the fiscal year that ended last month -- which would have been the worst of six such losses in a row.

That figure now looks like it will be closer to $15 million, and things seem to be turning around.

This spring, along with its monthly through-the-roof container counts, the authority began to release profit figures. From March through May, the authority turned monthly profits totaling $978,000.

It has not released financial figures for June or the 2014 fiscal year that ended June 30, both record breakers for container volume.

"What the treasury loan is there for is to cover operations," said State Transportation Secretary Aubrey Layne, adding that it was his hope it wouldn't be needed.

"I can tell you in all the documentation they provided us, they don't anticipate really needing this and don't plan to use, and it would only be if something, you know, dramatically downturns that they would be forced to use it," Von Moll said.

It's fairly routine for state agencies to get "anticipation loans," money loaned from the state until funding expected from another source, such as the federal government, arrives.

What makes the Port Authority's loan not so routine, is that it is driven by a risk to their cash flow, he said.

"If they have insufficient cash, then they could draw upon this and then cut future planned expenditures to repay it."

The loan isn't open-ended, and the authority would need to reapply if it wanted to extend it beyond a year.

It's free to draw on all, some or none and would have a year from the date it uses any of it to pay it back, Von Moll said.

Interest rates on similar state loans have been running at under 2 percent, he added.

The only holdup now is final approval from the authority's board, which is scheduled to take the matter up at today's meeting. It appears from the pending resolution that the issue is a done deal.

The board has already "found and determined that it is in the best interest of the Authority" to establish the loan, it says.

The resolution authorizes John Reinhart, the authority's CEO and executive director, to draw on the loan "as he deems necessary in his sole discretion to ensure that sufficient cash is available to the authority to meet future current expense obligations and debt service payments."

Joe Harris, the authority's spokesman, deferred comment until the meeting.

Layne said the loan "seems to be the prudent thing to do," given that the authority has essentially burned through all of its cash in its effort to get its financial house in order.

"They pretty much have to run their business on what's being generated," he said Monday.

"It's a flag in the wind, to be sure," said James V. Koch, an Old Dominion University economist. However, he cautioned against any overly negative interpretation.

In recent months, the port has made modest investments in capital improvements in order to streamline operations and improve efficiencies.

Any momentary cash bind should be viewed in the larger context of the port's efforts to turn around its operation, he said.

"We'll have to wait and see whether that's so."

Until early this year, criticisms of the port's chronic operating losses were typically countered with the argument that they included depreciation and amortization and didn't account for the state's roughly $35 million a year Commonwealth Port Fund allocation.

The authority, it was argued, has never had to ask the state for additional funding.

Its cash-flow statement was deemed a better measure of its financial health, according to some.

The authority's "Statement of Cash Flows" from July 1, 2013, through this May, however, shows a net drop in "cash and cash equivalents" of more than $38.5 million, from $136.7 million to $98.1 million.

Layne said that even though the books -- as of Monday -- showed the authority had $98 million in "cash and cash equivalents," it doesn't necessarily mean those funds are available.

The funds may be tied up in reserves to cover bond payments or capital expenses, he said.

The treasury loan is intended to keep Reinhart focused on the port's long-term goals, he added.

Layne said he is convinced that Reinhart is "on the right track."

Since 1970, the Virginia Port Authority has received more than $1 billion from the state, according to an October 2013 report by the state's Joint Legislative Audit and Review Commission.

Robert McCabe, 757-446-2327,


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