By Constitution Staff

The Oklahoma Supreme Court ruled on October 11 that the Bank of Oklahoma (BOK) must repay $7.1 million to the city of Tulsa for a 2008 settlement involving Great Plains Airlines. The ruling could result in the reopening of the bank's $12.5 million claim against the Tulsa Airports Improvement Trust for not meeting its obligation to the bank in backing a $30 million loan to the airline. The $12.5 million includes $7.5 million in principal plus $5 million in interest.

In 1996, the "Goals for Tomorrow" study sponsored by the Tulsa Metro Chamber and other entities said improved air service was needed to improve industry retention and attraction in Tulsa. During the 1999 legislative session, the Oklahoma Legislature authorized transferable tax credits to create Great Plains Airlines, with the promise that it would link Oklahoma to the east and west coasts with direct flights.

In November of 1999, the Tulsa City Council approved an agreement between the Tulsa Industrial Authority and Great Plains Airlines permitting the new airline to tap $18 million in state tax credits. On November 30, 2000, the Tulsa City Council approved a Memorandum of Understanding between the Tulsa Industrial Authority (TIA) and the City of Tulsa which would convey to the TIA about 25 acres at the airport's Air Force Plant No. 3 site. The purpose of the transfer was to allow TIA to mortgage the property to the BOK in support of a non-recourse loan by the bank to TIA so that TIA could, in turn, make a $30 million loan to Great Plains Airlines. With the loan and the proceeds from the tax credits, the company bought the bankrupt Missouri-based Ozark Airlines which had two 32-seat Fairchild Dornier 328 jets.

Unlike other tax credit programs in which a company is allowed to use the tax credits to offset its tax liabilities once the company succeeds and makes a profit, the transferable credits can be sold at a discount, allowing the buyer to offset their tax obligations. For example, Great Plains Airline initially was given $18 million in state tax credits which it sold to Blue Cross and Blue Shield of Oklahoma and Farmers Insurance Group for $14.6 million. The two companies in turn were able to pay $18 million in state tax obligations at a savings of $3.4 million. The airline then used the proceeds from the sale to buy jets. In effect, the state of Oklahoma gave the airline a gift to go into business. The state eventually granted a total of $27 million in tax credits to the airline.

The airline never achieved its business development milestones and filed for bankruptcy. On March 21, 2004 the airline defaulted on the loan leaving a balance of approximately seven million dollars owed to the bank. BOK then demanded repayment. However, the Federal Aviation Administration (FAA) prevented the transaction involving the airport collateral property.

In January of 2003, U.S. Jim Inhofe requested a federal probe of airport operations. In May 2004, the federal investigation released a report which concluded that Tulsa airport officials improperly attempted to pay off the loan to Great Plains Airlines by attaching the 25 acres to a proposed runway extension project. Since passenger facility charges collected by the airport were to be used to pay for the project, including the loan balance, it violated the FAA Revenue Use Policy prohibition on direct subsidies to air carriers.

In 2008, Mayor Kathy Taylor, who served on the board of directors of BOK before she became mayor, pushed for the city to pay the bank $7.1 million out of its property tax reserve fund to settle a lawsuit concerning the loan default by the airline. In the settlement agreement, the bank agreed to drop its lawsuit against the trust if the city paid the $7.1 million.

A group of ten taxpayers filed a demand with the city asserting that the settlement agreement was not authorized by law and sought action through the courts. The Supreme Court ruling remands the taxpayer demand back to district court "to direct the repayment of the settlement funds from BOK back to the city."

Tulsa billionaire George Kaiser is the chairman of Tulsa-based BOK Financial Corp. and owner of Kaiser-Francis Oil Co. He is Oklahoma's richest citizen and a major supporter for the state and national Democrat Party. See the article elsewhere in this issue concerning Kaiser's involvement in the Solyndra scandal.