The City of Palmer is paying $857,000 to settle a complaint in federal district court that it made false statements repeatedly over years when it accepted federal grant money to improve and expand the city-owned airport.
The city sent out a statement that it "disputes any wrongdoing," but said it was settling to avoid legal costs.
The $857,000 penalty represents about 9 percent of Palmer's annual operating budget, which is about $10 million, said Palmer Mayor DeLena Johnson. The whistleblower case was brought by a former airport manager under the U.S. False Claims Act.
In the city's written statement, Johnson is quoted as saying, "The DOJ (federal Department of Justice) stated that they wanted the City of Palmer to 'feel pain,' and we are certainly feeling the pain."
According to the charges, the city's statements on grant applications included wrongful assurances that it met two requirements to get federal airport grants -- that airport revenue will only be used for the airport, and that airport land leased for non-airport uses will be rented at fair market value.
For example, the complaint says that the city used airport money to buy a city road grader, and used revenues from the 18-hole Palmer Golf Course on airport property to make payments for unrelated city bond debt.
The complaint also charges that the city didn't collect enough rent for airport space put to non-airport uses, such as:
• The golf course, spread over 144 acres.
• A city water well.
• Storage areas for the city Public Works Department and the Fire Department, and a shop for the Public Works Department.
• A lease to Hinchinbrook Equipment Inc.
City officials believe some airport property described in the complaint as being used for non-airport purposes is actually being used to benefit the airport. A snow storage area and Fire Department training area are "vital to airport safety," the city said.
Mayor Johnson asserted that cities around Alaska divert airport revenue to other purposes.
"Palmer gets to be the poster child," she said. "Every small airport is going to be looking at these issues."
The Justice Department and a whistleblower -- a former Palmer airport manager -- pursued the complaint against the city.
They contend that the city, by lying on grant applications, violated the False Claims Act, a Civil War era law designed to combat war profiteering.
The act lets the federal government "recover money from any government contractor or entity that cheats or defrauds the government out of money," said Phillip E. Benson, lawyer for whistleblower Jane Dale. Benson specializes in whistleblower cases under the False Claims Act. He lives in Minnesota but takes cases around the country. His firm's website lists an Anchorage office.
"The whistleblower provisions allow a private person with inside information to bring a lawsuit on behalf of government and share in the proceeds," said Benson.
The Justice Department in Washington, D.C., could not be reached for comment Tuesday afternoon.
The complaint in federal court was sealed until Tuesday, when both the court case and the settlement agreement became public.
The complaint also says the city has, over the past 10 years, "engaged in a continuing scheme to cheat the FAA and the United States."
FAA rules say airport land should be rented at market rates and revenue should be put back into the airport because the federal government is funding construction of airport facilities, said Benson.
The concerns about Palmer city government came to light after Dale, the whistleblower, became airport manager in the fall of 2007, moving from another Palmer city position.
She educated herself on airport management on the job, attending training sessions, she said in a brief interview.
Before long, said Benson, Dale figured out the city was handling airport money and property in ways that weren't legal. In a prepared statement, she said that as early as 2005, airport lessees and users were complaining about the lack of airport maintenance and misuse of the city's airport equipment.
She got city council permission to hire a consultant on airport issues, Benson said.
The consultant and Dale put together a report that listed mishandled revenues, said Benson. It took a long time to get the report before the city council.
And then nothing changed, said Dale.
Except she lost her job.
"She was forced out of her job within days," said Benson.
Dale did not want to talk about what happened to her, except to say that in July of 2008, she resigned. "It was mutual for sure," she said.
"The real story is the city did not change," she said.
She told her story to an Anchorage attorney, who referred her to Benson.
Under the False Claims Act, a whistleblower files a suit under seal in federal court and brings the case to the attention of the Justice Department, said Benson.
The case stays under seal while the Justice Department investigates, which in this instance took years, he said.
Once the Justice Department was satisfied the case had merit, it joined in and offered Palmer the chance of a settlement, said Benson.
Under the agreement, after attorney fees, Dale gets 16 1/2 percent of the amount recovered, which equals $134,145.
Dale, who now lives in Willow, could have objected to the settlement, but didn't.
"To me, this is great," she said. "Now the city can move forward and market their airport."
Reach Rosemary Shinohara at rshinohara@adn.com or 257-4340.
By ROSEMARY SHINOHARA
rshinohara@adn.com