NEWPORT NEWS, Va. (WVEC) -- The Peninsula Airport Commission (PAC) reached a $2 million settlement on Dec. 21 with TowneBank, resolving a dispute over a loan the bank gave the now-defunct People Express Airlines.

The bank extended a $5 million line of credit to the company in 2014 which PAC guaranteed.

An audit of the commission by the Virginia Department of Transportation's Assurance and Compliance Office (ACO) found that PAC used more than $3 million in state money to pay off the loan on which People Express defaulted.

State Secretary of Transportation Aubrey Layne called it an unauthorized use of the transportation trust fund, and the Commonwealth pulled state funding for Newport News/Williamsburg International Airport.

The ACO recommended the PAC reimburse Virginia more than $4.5 million and take all reasonable steps to recover state, local, and airport funds used to satisfy the default obligation of People Express.

In November, the commission and TowneBank entered a "tolling agreement" that allowed them to keep negotiating for 90 more days. The settlement was finalized on Dec. 21 as a "full and final compromise," court documents said.

Spokeswoman Jessica Wharton explained that the deal was for $2 million which is being broken up. TowneBank agreed to accept $1.65 million in cash and a $350,000 interest write-off on a bond debt the airport had.

Peninsula Airport Commission and TowneBank Agreement by 13News Now on Scribd