HomeMy WebLinkAboutStaff Report 379-10TO:
ATTN:
FROM:
DATE:
HONORABLE CITY COUNCIL
FINANCE COMMITTEE
CITY MANAGER
OCTOBER 19, 2010
DEPARTMENT: ADMINISTRATIVE
SERVICES
CMR: 379:10
SUB.JECT: Presentation and Discnssion of R. A. Wiedemann & Associates City of Palo
Alto Airport Business Plan Options and Community Valuation Analysis;
Request for Council Input and Direction on Options; and Formation of an
Airport Advisory Committee
EXECUTIVE SUMMARY
The Council directed staff and provided the resources to develop business plan options for
termination of the Palo Alto Airport (PAO) lease prior to 2017, the time at which the County's
50 year lease expires. The intent is for the City to have operational control of PAO earlier than
2017. The attached report from R. A. Wiedemann and Associates (Report) lays out several
management options" as well as pro-fofmas showing their results. Overall, each option shows
solid net revenues over the long-term. The results show the potential to pay back some or all of
General Fund "seed" money necessary to transition the airport from county control and to
reinvest in the airport's infrastructure.
Staff continues moving forward with the Council direction of assuming control over PAO
operations earlier than 2017, but before the City can proceed it is important to fully understand
the costs and implications of each option before deciding which option to pursue. On a
fundamental policy level, does the City want any direct role in operating the airport either by
hiring all airport management and operations staff or by managing a Fixed Base Operator who
operates the airport? Or, does the City desire to contract with a Third Party Operator who, with
minimal City oversight, basically runs the airport? This is a critical question which staff wants
to explore further and for which Council input is requested.
To begin the complex process of pursuing any of the airport options in the Report, there will be a
need for expertise to evaluate each option further and to chart a prudent course of action. At this
time, it is estimated roughly that $500,000 in resources are needed to hire such experts. In
addition, considerable in-house staff time is required to set the process in motion and to guide it
to fruition. Based on Council input, staff proposes to return with a Budget Amendment
CMR:379:10 Pogo J of II
Ordinance (BAO) for funding and to establish an Airport Enterprise Fund. Among other costs,
the BAO will fund an environmental site investigation to determine if there is any contaminated
soil or groundwater at the Airport that requires clean-up prior to the County and FBO lease
expirations. In addition, establishment of an Airport Advisory Committee is recommended as the
City moves toward managing the airport. Staff estimates that the process could take a minimum
of two to three years based on discussions with other agencies and feedback from R. A.
Wiedemann and Associates.
RECOMMENDATION
Staff recommends that the Council:
I) Provide input on and accept the "Palo Alto Airport Business Plan" and "Airport
Community Value" reports by RA. Wiedemann & Associates
2) Provide input on airport management options outlined in the Business Plan and direction on
which options to further evaluate in order to continue with Council direction to take over
the airport early.
3) Direct stall' to return to Council with a Budget Amendment Ordinance that establishes a
new Airport Enterprise Fund and the resources necessary to progress with finalizing a
business plan and a takeover of the Palo Alto airport. The BAO would reflect a loan from
the General Fund to the new Enterprise Fund.
4) Begin exploration of forming an Airport Commission comprised of users, businesspeople,
and other appropriate members to advise Council
BACKGROUND
In 1967 the City and the County entered into a 50-year leas.e for management of the Palo Alto
Airport (PAO). The lease agreement both with the County and the ClilTent Fixed Base Operators
(FBO) expires in 2017.
In 2006, a County consultant recommended returning airport management back to the City
before the lease expired in 2017. At that time, it was believed the PAO was a drain on County
resources and the County was not recouping the costs of its capital investments. Indications
from the County that it would only perform basic, safety related maintenance improvements was
of considerable concern given the condition of the Airport's aging infrastructure. Following
reports by the City Auditor and the Palo Alto Airport Working Group (PAA WG), which
contested the financial and other conclusions by the County, Council directed staff to begin
negotiations with the County of Santa Clara (County) to terminate its lease earlier than 2017 and
to commence work on the action and information items raised by Council on November 13,
2007. These included:
CMR:379:10
• Preparation of an airport business plan or evaluation of City options for operating
the airport
• Preparation of a community valuation analysis to determine economic value of
airport to the City and community
Page 2 of 11
• Preparation of semi-annual progress reports on negotiation status with County
On December 8, 2008 (CMR: 440:08), the Council adopted a PAO Mission Statement proposed
by the Palo Alto Airport Joint Community Relations Committee (PAAJCRC) and reviewed and
accepted a proposal from R.A. Wiedemann & Associates for preparation of a Palo Alto Airport
Business Plan and Community Value Analysis. Council passed a Budget Amendment Ordinance
which, together with a prior appropriation, authorized the City Manager to execute a $105,000
contract with R.A. Wiedemann tu develop a PAO business plan and community valuation
analysis.
DISCUSSION
The primary objectives of this City Manager Report (CMR) is to: summarize the business plan
options in the Wiedemann report (Report); outline the airport community valuation analysis;
provide staff's recommendation on next steps; obtain Council feedback and direction both on
next steps and airport management options; and to update Council on any other progress on
negotiations with the County since the last progress report.
As staff continues to follow Council direction on an early takeover of the airport, it has identified
preliminary and substantial financial and staffing commitments for this project. These costs
would be advanced by a financially challenged General Fund. Although staff believes advanced
funds can be repaid, outside legal advice will be required to determine which costs can be
reimbursed as the airport operation generates net revenues over time. The transition and startup
expenses identified thus far include:
1. Phase II Environmental Site Investigation estimated at $150,000
2. AirpOlt, legal and other expert support at an estimated cost of $350,000
3. Potential expenses to address unknown but urgent airport operational or capital needs
In addition to the above, extensive staff time and resourees that would otherwise be devoted to
existing priorities will be required. Efforts and involvement from the City Manager, Deputy City
Manager, Economic Development Manager, City Attorney staff, ASD Director, Deputy ASD
Director, a Seniol' Financial Analyst, Public Works Director, Assistant Public Director, other
Public Works staff, and other administrative support are needed to implement a takeover. The
City staff has no expeltise in this arena, so knowledgeable support to staff is a necessity both to
evaluate the management options in this report and to start a transition process. It is staff's intent
to return to Council with a BAO that establishes an Airport Enterprise Fund and provides
funding to move fOlward with control of airport operations.
Wiedemann Business Plan Options Report
The Report examines the feasibility and potential options for transferring the direct control,
management, and operation of P AO from the County to the City early or upon expiration of the
airport lease in 2017. Understanding the City's concern about potentially a~suming an asset that
could absorb significant City resources, the report considers potential management structure
options and their projected pro-forma financial performance prior to and following the lease
expiration in 2017. Key issues are addressed including: potential financial outcomes, a lack of
City staffresourees and expertise to operate PAO, the environmental sensitivity of the airport's
CMR:379:10 Page 3 of 11
location, construction constraints due to the Baylands Master Plan, existing subleases, aging
facilities, Palo Alto community relations and economic impact, and the competitive market
position of P A 0 relative to other airports in the area,
The Report's financial projections verifies, to varying extents, the conclusions in both the City
Auditor and P AA WG reports that the PAO has the potential to support itself financially over the
long-term, presU1l1ing that all assumptions or variables in the report come to fruition, R. A
Wiedemann and Associates (Wiedema111l) was asked to determine the financial viability of the
airport from 2012 to 2017 and to detemline if it could remain profitable, under varying
management structures, for 20 years thereafter, Using historical revenue and expense
information dating back to 2000, the consultant developed several "baseline" forecasts for
operation of the airport through 2017, These forecasts assume staffing levels that are' consistent
with those currently maintained by the county. The report then builds upon these "baseline
forecasts" to evaluate alternative business models for operating the airport. Because there are
multiple and detailed scenarios that build on a previous scenario, readers of this CMR are
encouraged to examine the consultant report (Attachment A). A brief synopsis of each relevant
scenario follows.
It is important to note that the "seed" expenses cited above is not included in the models or
forecasts in the report nor is there any consideration of potential payback of the County's
outstanding advance. It should be noted, however, that the City does not recognize the advance
as a City obligation. Naturally, these expenses would offset the net revenues shown in the
repolt's pro-form as and the results discussed below.
Baseline Forecast for City or County Operation of PAO through 2017 (p. 35 of Report,
Table 11)
Based on relatively conservative revenue and expense growth assumptions (page 35) as well as
continuing current FBO leases, the report concludes that between 2012 and 2017, the County or
City would have a net deficit of $129,200. The repOlt shows (hat operating income would be
positive over this period, but that after an annual $50,000 contribution to matching capital or
other capital needs a cumulative deficit would result. The author states, "This projection can be
considered the worst case scenario for the City or County operation of the Airport -continually
increasing costs and very slow revenue growth." The report then goes on (0 assess a takeover by
the City by July 20 II and concludes that the City could perform "slightly better" than the County
since it would not have to pay for all of the overhead perso111lel the County currently allocates.
For example, the County currently allocates and recoups the cost of noise management staff that
Wiedema111l states the City would not need (0 support.
Baseline Forecast for City Operation ofPAO from 2018 -2037 (page 36-37, Table 12)
Addressing the 20 year period following 2017, the repOlt finds potentially more robust net
revenues, especially as a consequence of the FBO leases expiring. In 2008, (he current, two
FBO's only paid $134,900 in a111lual rent, but it is estimated, based on the revenue and expenses
of FBO's at other airports, tllat the FBO's netted more than $1 million in revenue from their
subtenants. Wiedemann confirms this estimate by including revenue streams from FBO tie
down spaces and hangar and office rentals as income to the City. The Report does recognize
additional City costs to take the place of current FBO workload. For this scenario, the report
CMR:379:1Q Page40fll
projects that from 2018 through 2037, the PAO could generate $13.7 million in surplus revenues
after accounting for capital matching and other necessary capital improvements. The Federal
Aviation Administration (FAA) has indicated verbally that the old 50 year lease with the current
FBOs is inappropriate and borders on a gift of public funds. They recommend that leases of
shorter duration, e.g., 15-20 years, be implemented and the FAA intends to monitor these
contracts.
Once again, the financial projections above do not incorporate "seed" expenses, consideration of
County capital "advances," or any exceptional or unexpected major capital expenses. Although
this scenario portrays healthy surpluses that could cover the "seed" loan and other unanticipated
expenses, it is critical to note that as a condition of having accepted FAA grants that all revenue
generated at P AO must be funneled back into the PAO with the exception of paying City
overhead and other appropriate expenses (e.g., legal, payroll, and human resource). Hence, the
General Fund cannot "profit" from airport operations .. This guideline applies to all of the options
discussed below.
This option basically represents the City and its staff running the airport. It presumes City staff
will have future managerial, fixed base operator, and maintenance expeltise to run the airport
personnel. The alternatives that follow are variations on the assumptions for this model or
substitutions for part or the entire City staffing model.
Discussion and Analysis of Alternative Operational and Management Options
After evaluating the City run "baseline" scenarios pre and post 2017, the repOit considers several
different operational and management structures for PAO. Although the report does discuss a
scenario where the County continues to manage the airpOit after 2017 that could result in
additional City revenues, this CMR focuses on those alternatives where the City takes a
proactive role in managing or hiring management for the airport. These options include:
A. City Operation of the Airport
In order for the City to operate the airport, the consultant recommends hiring an airport
manager several months in advance of taking possession. Then, an assistant manager and
a palt-time City worker would be hired when the City assumes control. The airport
operation would become an Enterprise Fund and an Advisory Group, comprised of
knowledgeable users, business leaders and community members to the Council, would be
formed
B. Joint FBO and City Operation of the Airport
In this scenario, the City would contract with a Fixed Base Operator to provide day-to
day management of the airport. Duties would include daily inspections, minor
maintenance, apron and ramp management, reports to Council, and interaction with FAA
Control Tower operations. Basically, the Operator would substitute for some of the staff
hired by the City under Scenario A (above).
C. Third Pmty Management
This option could talee a vm'iety of forms, but essentially the City would completely turn
over operations and management to a third, for profit party. The City would retain
CMR:379:10 Page50fll
fundamental ownership of the land and would provide, for example, a long-term lease so
that the third party could invest in and profit from operations. The City would have
minimal control over operations other than to ensure quality service to airport users and
make sure the lhird Party is performing as expected. The consultant says the four main
benefits of this option include: capital infusion, efficiency gains, revenue gains for the
Airport Enterprise Fund, and an oppOltunity to reinvent the airport. In addition, the City
would require "measureable performance requirements that can be specified, with
appropriate penalties for failure to meet them."
The Report provides the pros and cons of each option as follows:
Table 18 -Summary of Pros and Cons for All Options
Pros I Cons
~.. City Operation of the Ail'l)ort (Baseline City Management Options)
I) Greater control of all factors, relative to 1) Responsibility for all finances and management of
County control of AirpOit tbe AirpOit
2) Positive net revenues over long term 2) Must deal with all staffing issues.
3) Man itor and control investment in capital 3) Airport can become pol itical issue
assets. 4) Potential financial risk
4) Ability to respond to Airport users and
resident neighbors.
Additional Hangcl'/A1)I'On
1) Highest revenue stream of all options 1) Potential change of Airport view shed
. City Plus JI!lQl\1ana2cment
1 ) Lower labor costs J) Less control of day-to-day operation and
2) Higher net revenues relative to 3,d Party management of Airport.
Management and Baseline Projections
3) FBO responsibility for technical aviation
issues
Third Party Management
1) Indirect responsibility for opel'llting the I) Least amount of control over day-to-day operation
Airport. and management of Airport.
2) Airport operates as a profit center, 2) Dependent upon financial stability and strength of
providing periodic payments to City. 3'" Party Operator.
3) May represent lowest financial risk of all
options.
City management of PAO with additional hangars/apron from 2012 -2017 and from 2018-
2037 (fables 13 and 14 on pages 43 and 44, respectively)
Moving on to the projected financial results for each option, the Report considers building
incremental or new hangars. Wiedemaml is acutely aware of the restrictions of the Baylands
Master Plan on intensification of use and includes this scenario only to assess the "economic
value" future operations could yield. The additional hangars could be built in areas that are not
environmentally sensitive. This model builds upon the "Baseline Forecast for City Operation of
PAO from 2018 through 2037" described above, but adds additional revenue and expense
associated with building and maintaining new hangars.
CMR:379:10 Page 6 of! J
To add new tie-downs and hangars in this "landside" option, the Enterprise Fund would issue
$4.55 million in r"venue bonds for 20 years at an estimated 5% interest rate. Once again using
conservative revenue and expense assumptions, the Report presents pro-formas for the periods
2012 through 2017 and for 2018 through 2037. For the period 2012 through 2017, the projection
shows cumulative net results of negative $43,800, but for the period 2018 through 2037 the
cumulative net results show a robust $20.5 million.
This option departs from the Baylands Master Plan because it assumes additional hangars. The
Master Plan specifically prohibits any intensification of use and would need to be amended to
allow this option to be implemented ..
City Plus FHO Management Option: 2018 -2037 (page 45, Table 15)
For this option the Report states it "is only slightly different from the complete City management
of the Airport." Day-to-day operation of the airport would fall to the FBO and the City would
have overall control of the airport and supply the legal and other administrative services that
complement those of the FBO.
This scenario does not contain any new tie-downs or hangars and includes the estimated cost of
an FBO. One assumption for this scenario that will require further analysis is that the FBO flat
management fee is less than the assumed salaries and benefits for a City run operation. The
author acknowledges that an RFP process and eventual FBO contract could change the assumed
FBO costs. For the period 2018-2037, the pro-forma for this option shows cumulative net
revenues of $22.6 million. Based on the financial results of this scenario, staff believes currently
that further investigation is merited.
Third Party Operation of PAO Option: 2012 -2017 and 2018 -2037 (pages 46-47, Table
16)
There are a number of formats tor third party operation of the airport and they can range from
"either management only or an all-inclusive master lease of the entire airport." In the Report, the
former is assrnned for the 2012-17 period. The third party would manage airport operations and
proeedures, manage property and assets, do maintenance and repairs, do tenant administration,
and other operational tasks. The City would be responsible for making all policy and leasing
decisions. For their work, the third party would likely be paid for their costs as well as a
percentage of gross aiIport revenues. The percentage, per the Report, is likely to be in the 5-10%
range. In this option, the Report estimates that for the years 2012-2018, the eumulative net
revenues would equal $816,200.
For the period 2018-2037, the Report assumes in its foreeast a third party master lease for the
entire Aitport which translates into very little involvement by the City. Building upon the City
plus FBO pro forma, the consultant's third party lease seenario assumes that the Airport
Entelprise Fund could expect between 70 to 80% of net revenues. By assuming a 75% retrnn,
the pro-forma results in total third party payments to the City's Enterprise Fund of $16.98
million during 2018-2037. The Report states that a lease of around 25 years would be expected
by the third pmty in order to recoup its investments in the airport. The lease would have to be
approved by the FAA and State Aeronautics. The length of the lease could be an issue for the
FAA given its reservations about long-term leases so this options merits further investigation.
CMR:379:10 Page 7 of 11
Summary of Pro-Formas and Consultant Conclusions
Table 17 from the Report (page 48) summarizes the financial forecasts for each of the options
discussed above:
Table 17 -Summary of Financial Performance Options: Total Net Revenues
MANAGEMENT 2012-2017 . 2018-2037 Total Net Revenues
OPTION
Baseline City -$129,200 $13,678,500 $13,549,300
Management ...
Additional -$43,800 $20,500,700 $20,456,900
Hangar/Apron
City Plus FBO N/A $22,646,400 $22,646,400
Management
Third Party $816,200 $16,984,800 $17,801,000
Management
The Report concludes that the "City Plus FBO Management Option produces the greatest surplus
of net revenues over the entire period" while "the Baseline City Management Option has the
lowest total net revenues of the four options. The reason for the significant revenue differences
between the City Management and City Plus FBO option is that the Consultant projects
considerably less labor cost under the FBO scenario over time. Differences in outcomes
between the FBO and Third Party options result from the 'Third Party taking a greater share of
revenues to compensate them for costs and risks for assuming the entire airport operation. The
variance between City and Third Party results from lower Third Party labor costs over time.
From the pro-formas, it would appear that all options have sufficient revenues to cover the
General Fund "seed" funding/loan as well as any' other moderate, unanticipated operating or
capital expenses.
In the "Recommended Options" section, the Report proposes two options: City and Third Party
Management. These scenarios provide clear paths: either the City maintains complete control or
delegates responsibility to a third party with relatively minimal oversight. Of the two options
recommended in the report, the Third Party option results in better financial returns than the City
run option. It should be noted that in all scenarios, the City is ultimately held responsible by the
FAA fOl'oonditions at the airpOlt.
The FBO option was not recommended because of potential FBO conflict of interest issues and
the filet that the City would be responsible for all capital improvements while the FBO operated
the airport. In addition, this model could lead to overlapping management and potential discord
unless roles and responsibilities were clearly defined. Nonetheless, because this option yields
the highest financial results, staff believes it is worthy of further analysis.
After making the recommendations, the Report describes the implementation steps fol' each of
the two options. This is important information that sets the stage for a timetable with tasks to
achieve the City's goal.
CMR:379:1O Page 8 ofl!
Airport Community Value
In Appendix B of the Report, the consultant goes beyond income statement projections for the
airport management options and studies the economic benefit of the PAO. Using a software
model, IMPLAN, to assess the impacts of expenditures by Airport employees, users, travelers an
estimate of economic value is generated. Using a variety of "inputs" or data such as user
spending on airplanes and employment at PAO, .the IMPLAN model calculates direct and
"induced" economic impacts. It is estimated that the Airport produces $64.3 million (including
$22.4 million in wage income) in economic benefits to Palo Alto and surrounding communities.
The model calculates that the airport supports 307 jobs. The $64.3 million does not include
income, personal property and possessory interest taxes that are paid to the State, County and
local jurisdictions. The Report states that over $3.7 million in State and local taxes is generated
annually.
Semi-annual Progress Report on Negotiation Status with County
City and County staff have had periodic meetings to discuss the transition to City control.
Discussions will continue to a more productive level after the completion of this report and
Council direction is given.
Staff Recommendation and Comments
Moving toward a takeover of the airport will require a significant effort by staff and reliance on
numerous outside experts such as outside legal counsel. This is the case whether the City
assumes control prior to or when the County lease expires. It also will be the case if the City
hires an FBO or Third Pruiy. A most preliminary and perhaps aggressive estimate is that it will
take a minimum of 2-3 yeru's to implement City oversight. Staffs understanding is that this
process must be thought tlu'ough carefully and sequentially so as to facilitate the process, work
through existing relationships, and maximize financial return to the Airport Enterprise.
Negotiations and a contract with an FBO or a Third Pruiy Operator will take considerable time
and due diligence. It is recommended that an expert staff member or consultant be hired to work
tlu'ough the options in the Report and to guide the City toward an eventual takeover. In all of the
above scenarios, the City will be responsible for submitting funding requests to the FAA.
This CMR has primru'ily concentrated on the financial results of the Consultant's report. There
are non-financial issues that are important to consider and address. A fundamental policy
question is how much involvement in and control of the airport does the City want, particularly
since it lacks expertise in this ru'ena and since any net revenues, after paying for any City
overhead SUPPOli, must be invested in airport improvements? Unless the City is prepared to
repay FAA grant monies and decouple from FAA support (which a complicated process), there
does not appear to be a direct return to the General Fund. The essential question is which
management model is most efficient and effective in serving users, maintaining an important
asset, and minimizing any impact on the General Fund?
A subsidiary question to City staff running the airport is how nimble and entrepreneurial will
they be in contrast to an FBO or Third Pruiy Manager who is familiru' with facility maintenance,
dealing with the FAA, accustomed to delivering a unique customer service, and who has the
incentives to perform well? On the other hand, it should be noted that most California airports
are managed by public agencies with a few exceptions in southern California that have third
CMR:379:10 Page 9 of II
party management. In fact, there has been one instance in which a public agency had to revoke
third party management of the airport due to performance issues. The challenge in third party
management is that strict specifications, performance measures, and oversight would be
necessary if Palo Alto decides on this course. The City would likely need to hire a manager to
keep vigil over the contract and service to the airport users.
Although the Report recommends two options, a City run airport or Third Party management, at
this time staff believes the Council should also review and comment on the FBO option. Given
the projected net revenues for an FBO model that are higher than the other options, this
altemative merits further consideration and analysis. In addition, it provides the expertise the
City needs to operate the airport if it chooses to have a management role short of full control. To
assist with the analysis of management options and a transition to City control, staff recommends
the formation of an advisory body to Council. Based on Council direction, staff will return with a
Budget Amendment Ordinance (BAO) for required resources and the establishment of an Airport
Enterprise Fund. A specific timeline (see below) for hiring the expertise and performing the
required tasks to move forward would be provided along with the BAO.
In addition to the issue of a management model, there are concerns over the physical condition
and vacancy rate at the airport. The former is a consequence of minimal County work in this
area and the latter is a result of higher fees implemented by the County to recover its prior capital
investments. These are important issues that affect the viability of the airport. In addition, there
is significant community and economic value (see Appendix B) that should be recognized.
TIMELINE
Taking control of the airport will be a complex, step by step process that involves a host of
entities and considerations. Multiple meetings with the County, the FAA, State, and East Palo
Alto will occur over time. Legal, contractual, and operational issues will need to be worked
through.
Depending on Council input and questions, staff envisions returning to Council with a BAO for
additional resources and a more finalized Business Plan. At that time a more detailed timeline
can be provided. Staff envisions the following, high-level timeline for next steps:
December, 2010 Return to Council with BAO
February, 2011 Formation of Airport Advisory Body
May, 2011 Advisory Board and Staff recommend, jointly or independently, Airport
Management Option and Timeline Steps to Implement Airport Transition.
RESOURCE IMP ACT
The preliminary costs of taking the first steps toward City control of PAO are $500,000. This
estimate includes:
Phase II Environmental Site Investigation
Airport Manager (annual cost)
CMR:379:10
$150,000
$220,000
Page to of 11
Other Expert or Consultant advice
Legal advice (first year)
Total
$100,000
$ 30,000
$500,000
The above costs are rough estimates and could vary depending on Council input and direction.
Legal costs would be ongoing and would increase as negotiations with an FBO or Third Party
ensue. In addition to an Airport Manager to help with the transition, other expert or consultant
adviec may be required. These expenses would be funded from the Budget Stabilization Reserve
in the General Fund as a loan and repaid by the Airport Enterprise Fund once sufficient funds are
accumulated.
POLICY IMPLICATIONS
This progress report and recommended actions are consistent with previous Council direction.
ENVIRONMENT AI" REVIEW
A Phase I Environmental Site Assessment has been eonducted and is attached to this CMR
(Attachment C). The assessment was done to determine if any hazardous material spills have
impacted soil and/or groundwater at PAO. The report concludes that there is sufficient cause to
recommend a Phase II site investigation to evaluate potential soil and groundwater contamination
atthePAO.
ATTACHMENTS
Attachment A: Wiedemann and Associates Business Plan and Community Value Analysis
Appendix A: Survey of Airport Users
Appendix B: PAO's Community Value
Attachment B: Environmental Site Assessment
PREPARED BY:
Depu ive Services
Director, Administrative Services
CITY MANAGER APPROVAL:
cc: County of Santa Clara
Palo Alto Airport Joint Community Relations Committee
Chair of the PAAWG
CMR:319:10 Poge II of II
Palo 11110 lIifllOfl Business Plan
Prepared for:
The Cit' of Palo Allo, California
Prepared by: "II' R.A. Wiedemann & ," r A !\~~?:i~!~~~ LI~A~'l s
P.O. Box 621 • Georgetown, KY 40324 • (502) 535-6570 FAX (502) 535-5314
www.rawiedemann.com
Palo Alto Airport
Draft Business Plan
. Draft Technical Report
Prepared for:
City of Palo Alto, CA
Prepared by:
P.O. Box 621 • Georgetown, KY 40324 (502) 535-6570 • FAX (502) 535-5314
SEC110N 1:
1.1
1.2
1.3
SECTION 2:
2.1
2.2
SEC'IlON 3:
3.1
3.2
3.3
3A
3.5
3.6
3.7
3.8
SECTION 4:
4.l
4.2
4.3
4.4
TABLE OF CONTENTS
INTRODUCTION
Understanding & Key Issues ......................................... I
Desired End Products ............................................... 4
Business Plan Outline .............................................. 4
BACKGROUND AND MANAGEMENT STRUCTURE
Current Airport Mission ............................................. 5
Current Airport Management Structure ................................. 6
EXISTING AIRPORT CHARACTERlSTICS
Airside Facilities .................................................. 9
Landside Facilities ................................................ 12
SupportServices ................................................. 15
Airspace Environment ............................................. 17
Airport Operational Characteristics ................................... 19
Environmental Concerns ........................................... 20
Airport Capital Improvement Program ................................ 21
Market Analysis .................................................. 25
BASELINE FINANCIAL PROJECTIONS
Historical Revenues and Expenses ................................... 31
Baseline Forecast of Rcvenues and Expenses 2010 to 2017 ................ 34
Baseline Forecast of Revenues and Expenses 2018 to 2037 ................ 36
Summary and Findings for Baseline Scenario ........................... 37
SECTION 5: ALTERNATIVE' OPERATIONAL STRUCTURES
5.1 Common Operational Structures for AirpOlts ........................... 39
5.2 Projections of Financial Performance ................................. 42
5.3 Summary of Financial Performance Options ............................ 47
5.4 FAA Policy on Revenue Diversion ................................... 49
5.5 FAA Policy on Airport Land Release or Airport Closure .................. 50
SECTION 6:
6.1
6.2
6.3
6.4
6.5
RECOMMENDED OPTIONS
Description of Options ............................................. 55
Implementation Steps for City Operation ofPAO ........................ 56
Implementation Steps for Third Party Operation ofPAO .................. 59
Accounting/Funding Overview ............. , ........................ 60
Feasibility of Management Options Summary .......................... 63
TABLE OF CONTENTS (Cont.)
LIST OF TABLES
Table I -PAO Runway Data .............................................. 12
Table 2-PAOTaxiways .......................................... , ...... 12
Table 3 -Landside Buildings. , ............................................ 13
Table 4 -Airport Capital Improvement Plan (ACIP) 2009-2013 .. , ............. ,. 22
Table 5 -Santa Clara County Tie Down Rates ............... , ... , .......... , . 27
Table 6 -Facility Comparison . , , ......... , ................................ 28
Table 7 -Service Comparison , , , . , ................. , ....... , .. , ......... , . 29
Table 8 -Rates and Charges Comparison " ...... ,", .. ,"",." .. , ........ ,. 30
Table 9 -Historical Revenues and Expenses for PAO .......... , ............... 33
Table 10 -Monthly PAO Tie-Down Vacancy Percentage and Fees ............ " .. 34
Table 11-Baseline Forecast for County Operation ofPAO (20\0-2017) .. , ........ 35
Table 12 -Baseline Revenues lk-Expenses for City Operation ofPAO (2018-2037) ... 36
Table 13 -City Management ofPAO with Additional Hangars/Apron (2012-20] 7) ... 43
Table 14 -City Management ofPAO with Additional Hangars/Apron (2018-2037) ... 44
Table 15 -City Plus FBO Management of PAO (2018-2037) .................... 45
Table 16 -Third Party Operation ofPAO (2012-2017) .... , .................... 46
Table 17 -Summary of Financial Performance Options: Total Net Revenues ........ 48
Table 18 -Summary of Pros and Cons for All Options ..................... , .... 48
Table 19 -Summary of Pros and Cons by Factor and Airport Operator ............. 49
Table 20 -Implementation Steps: City Management Option ..................... 56
Table 21 • Summary of City Management Pro Forma: 2012-2037 ................. 58
Table 22 • Implementation Steps: Third Party Management Option ................ 59
Table 23 • Sunimary of Third Party Management Pro Forma: 2012·2037 ........... 60
LIST OF FIGURES
Figure I· Formal Organization Chart ........................................ 7
Figure 2 -Airport Service Area ............................................ 10
Figure 3 • Existing Airport Layout ....................... "., .. ,', ......... 11
Figure 4· Airport Landside Facilities ...... , . , ............ , , ............. , 14
Figure 5 • Federal Airspace ........................ , ...................... I g
LIST OF APPENDICES
APPENDIX A • Detailed Survey Results
APPENDIX B • Airport Community Value
ADDENDUM
ADDENDUM A • Palo Alto Airport, CA Economic Impact, 2009
Palo Alto Airport
Draft Business Plan
DRAFT TECHNICAL REPORT
Palo Alto Airport Business Plan
1. INTRODUCTION
February 20JO
THE PURPOSE OF THIS BUSlNESS PLAN FOR the general aviation airport located within the
jurisdictional boundaries of Palo Alto, California (the "Airport" or "PAO") is to examine the
feasibility of transferring the direct control, management, and operation of the Airport to the
City of Palo Alto (the "City") prior to the expiration or earlier termination ofthe fifty-year ground
lease with the County of Santa Clara, California (the "County") in 2017. In this regard, the City is
exploring its options concerning an opportunity for the early termination of the lease, commencing
as early as in 2011, thus creating the need for study of the administrative, financial, legal and
political implications of taking such action. Of great concern to' the City is the potential for
assuming a liability that could require significant City resources to control, maintain and operate.
This plan also will consider the potential management structure options and the projected financial
performance of Airport operations following lease expiration in 2017.
1.1 Understanding & Key Issues
Our understanding of the Airport's current setting takes into account a number of long
standing events relating to the Airport, many of which occurred in the 1960s and 1970s. In
pa,ticular, the Baylands Master Plan', first published in 1978, has spelled out the primary policy
statement regarding any future growth or development within the Airport's boundaries. Limitations
enunciated by this policy include a directive that there shall be no intensification of activity at the
Airport. As such, previous efforts to expand the Airport's runway system were rejected, as were
attempts to develop new hangars on the landside area of the Airport.
Since the lease with the County was signed in 1967, there have been many significant
changes in the Bay Area. In particular, the development of Silicon Valley and high-tech industries,
the influx of large numbers of affluent residents, a growing scgrcity of developable land, and a
greater concern for the ecology of the region has taken place over the past forty-plus years. The
lease to the County was seen at the time as more efficient way to operate and maintain the Airport
with minimal cost to the City. The current fixed base operator ("FBO") subleases were signed in
1969. The County ground lease and the FBO subleases by their terms and conditions will expire in
2017, iflhey are not earlier terminated.
The 102-acre Airport has one runway (13-31), which is 2,443 feet long and 70 feet wide.
While it may be unusual that the small Airport has an Air Traffic Control Tower ("ATCT"), the
ATCT ensures safe operations at the Airport, including the occasional stoppage of air traffic to
permit geese to fly across the runway from the adjacent Palo Alto golf course. Another unusual
aspect is that the small Airport has more than 500 based aircraft. This fact attests to the strong
demand for local airport facilities in the Palo Alto area.
Baylands Master Plan, 4~ Edition, as Amended, City of Palo Alto, CA, 2008.
lMf R.A. Wiedemann & AssociatesJ Inc. 1
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Draft Business Plan
Key issues that are identified in this business plan include the following:
February 2010
• Environmental Sensitivity: The importance and recognition by the community of
environmental sensitivity in and about the Airport. This factor drives much of the
policy decisions made about the Airport. The Airport boundaries are contiguous to
the City,owned Baylands, Byxbee Park, and the nearby Don Edwards San Francisco
Bay National Wildlife Refuge. Two endangered species found in and about the
Airport include the Salt Marsh Harvest Mouse and the California Clapper Rail.
• Substantial Construction Prohibition: Although the Baylands Master Plan does not
expressly prohibit construction, there has long existed community concerns that the
construction of additional or larger facilities at the Airport may result in intensified
activity at the Airport. Thus the Baylands Master Plan enunciates the City'S policy
against intensification of activity at the Airport.
• Viewshed: The Palo Alto community has expressed a strong desire to preserve the
viewshed of the Baylands near the Airport, from the vantage of Embarcadero Road.
This preservation effort has served to deter the construction of new T -hangars on
vacant Airport land. An ongoing landscaping project along Embarcadero Road has
resulted in the growth of natural visual barriers which tend to make the Airport less
visually or aesthetically objectionable. There are plans to extend landscaping along
Embarcadero Road so that parked airplanes are less visible.
• Aging Facilities: The City expects the County to reinvest or promote the
reinvestment in capital facilities at the Airportthrough lease expiration in 2017. The
County has assured the City that, as the County is the ground lease tenant, it will
continue to fulfill its lease obligation to maintain the Airport "as though it were the
sole owner thereof." As 2017 draws near, the City's officials are well aware that
there is little financial incentive for the County to rehabilitate and extend the useful
1 ife offacilities beyond the leasehold term. By reclaiming the Airport prior to 2017,
the City's officials believe such action could assure a higher level of capital
improvement and maintenance of the Airport. The difficulty of adequately
improving and maintaining the Airport is compounded by the condition of soils at
the Airport, which are typical of the relatively unstable coastal tidelands in the Bay
Area due to their sandy and silt-loam nature and the effect of tidal action. These
conditions effectively result in the reduction of the useful life of the pavements at the
Airport by almost one-half. For example, though a runway pavement typically has
a useful life of twenty years, the City anticipates that the pavement rehabilitation at
the Airport, which was completed in 200 I, will likely require substantial work in the
2012-2013 period.
• FBO Subleases: Some level of uncertainty regarding the renewal of the FBO
subleases is perceived to exist and this may impact capital reinvestment in the FBO
facilities, including hangars and pavements. Because the hangars and other buildings
at the Airport will revert to the City'S control and possession in 2017, similar
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concerns about sufficient maintenance and capital investment in the airfield facil ities
also have arisen. In addition, there is some perception that the current FBO leases
are underpriced and that any new lease would provide the Airport operator with a
larger share of the FBOs' income.
• Rate and Fee Increases: The County's increase in tie-down rates in 2008 was
viewed by some as a means of recouping money previously spent at the Airport,
prior to lease expiration. The first round of rate increases by 8 percent coincided with
the departure of 31 tie-down tenants. A second round of rate increases planned (but
not implemented due to tenant objections) for June 2009, raised concerns that more
based aircraft tenants would depart from the Airport, thereby potentially undermining
the future cash flow at the Airport. Fuel flowage fees at PAO are now 10 cents per
gallon higher compared to fees charged at the other two County-owned general
aviation airports (Reid-Hillview airport and South County airport).
• Airport Operation: The City lacks in-house expertise and experience to manage and
operate a general aviation airport. This concern has caused the City to consider other
airport management structures that are used by various airpOlt sponsors around the
country, including third party or FBO types.
• Financial Feasibility: Many of the management and policy decisions to be made
regarding the City's control, management and operation of the Airport will revolve
around the City's ability to make the Airport financially viable as a self-supporting
. enterprise of the City. In particular, the City is not interested in taking on a facility
that drains its resources without any expectation of a return of the General Fund
contributions. Pro formas that can demonstrate whether or not the Airport can
produce positive net revenues (under the most feasible management structure) are
an essential part of the analysis.
• Community Relations: The value of the Airport as a community asset is influenced
by community participation during the Airport Day event, occurring biannually, and
the ongoing use of the Airport by individuals and businesses drawn to the Airport.
Because airpOlt operations occur mostly over uninhabited marshland and water,
airport noise impacts on the community are minimal. The County-and City
appointed Joint Community Relations Committee ("JCRC") representatives work
with the Palo Alto community in regard to noise complaints and as such, there are
a surprisingly low number of complaints about airport operations in the area.
• Other Jurisdictions: The City recognizes that key decisions regarding the Airport
warrant the City of East Palo Alto's participation or input in the Airport planning
process. The Airport's northwest boundary abuts East Palo Alto and flight
operations do occur over East Palo Alto in San Mateo County. In addition, the
Airport falls within the jurisdiction of Santa Clara County's Airport Land Use
Commission.
IKI R.A.' Wiedemann & Associates, Inc. 3
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Draft Business P/(Ill February 2010
• Economic Impacts of the Airport: As a part of this Business Plan, the value of the
Airport to the community will be estimated. This will include an estimate of the
asset value of existing facilities at the Airport and an estimate of jobs, income, total
output, and taxes that cou Id be generated by activities at the Airport.
1.2 Desired End Products
The desired end products produced as a result of this analysis include the following:
• An assessment of the economic feasibility of City operation of the Airport through
the year 2017.
• An assessment of the economic feasibility of City operation of the Airport in the
post:20 17 period.
• An assessment of the competitive market position of the Airport, relative to other
airports in the serv ice area.
• Pro forma options which project the expected results of different Management and
Operating structures:
City Self-Management
FBO Airport Management
Other Third Party Airport Management
• An assessment of current Airport business operating practices.
• An assessment of the airport community value, to include both physical assets and
economic impacts such as jobs, income, total output, and taxes generated.
1.3 Business Plan Outline
In order to address the issues described above and to produce the desired end products, this
report has been organized to include the following sections:
• Section 1 -Introduction
• Section 2 -Background and Management Structure
• Section 3 -Existing Airport Characteristics
• Section 4 -Baseline Financial Projection
• Section 5 -Business Plan Alternatives
• Section 6 -Recommended Options
• Appendix A • Detailed Survey Results
• Appendix B -Airport Community Value
,~, R.A. Wiedemann & Associales, lnc. 4
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Draft Busilless Plan
2. BACKGROUND AND MANAGEMENT STRUCTURE
February 2010
A N UNDERSTANDING OF THE HISTORICAL BACKGROUND AND management structure of the
Airport will enable the City to identify challenges and opportunities associated with the
impending change in control. and management of the Airport. All aspects of control,
management and operations of the Airport, including, but not limited to, the operating structure
lease agreements, and other management considerations now in place for the County will require
a thorough review by the City when the County lease expires or is earlier terminated.
To help establish the grounds for any changes in management structure, a clearly defined
and realistic mission for the Airport is needed to provide an overall goal for guiding the
operation of the facility. To be effective, this mission must reflect the desires and goals of the
community and its elected and appointed representatives. To adequately lay the groundwork for
future management structure decisions, the following topics are discussed:
\
• Current Airport Mission
• Current Airport Management Structure
2.1 Current Airport Mission
Palo Alto Airport's role is that of II general aviation facility, providing general aviation
services for regional air transportation. Palo Alto AirpoI1 accommodates general aviation
activity including all types of small to medium propeller aircraft. The Airport is operated by the
County of Santa Clara's County Roads and Airport Department The current mission of the
Airport is included indirectly in the County of Santa Clara's County Roads and Airport
Department mission which states:
"The mission of the Roads and Airports Department is to preserve, operate, and enhance
the County's expressways, unincorporated roads, and three general aviation airports in a
safe, timely and cost-effective manner to meet the needs of the traveling public."
This mission statement is sufficiently general to provide operational leeway to adapt to current
conditions. In addition to the Roads and Airports Department mission statement, the Airport
Land Use Commission of Santa Clara County has the following mission statement:
"To provide for the orderly development of each public use airport and the area
surrounding these airports so as to promote the overall goals and objectives of the
California airport noise standards and to prevent the creation of new noise and safety
problems."
In addition to these, there is a County-level Airports Commission whose mission is to act in an
advisory capacity to the Board of Supervisors on matters of policy concerning the operations,
long-term financing, capital improvements and the acquisition of land or airspace for the County
airport system.
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Draft Business Plan February 2010
In November of 2008 the Palo Alto City Council adopted the following Preamble and
Mission Statement.
The Functions and Value of the Palo Alto Airport:
The Palo Alto Airport is an important civic asset fOf the nearby communities of
Palo Alto, East Palo Alto, Menlo Park, Mountain View, Los Altos, and Los Altos Hills,
as well as other communities. As part of the National Air Transportation System,
it functions to meet the air transport needs for a range of constituents and agencies;
these include business, recreational, medical patient and transplant organ delivery, and
critical emergency serv ices during a disaster or serious incident. It is also a designated
reliever airport, accommodating general aviation operations incompatible with local large
air-carrier airports.
The Mission of the Palo Alto Airport is:
• To operate a safe, efficient and cost-effective airport providing for general aviation
operations within limits imposed by its size and location.
• To operate in conformity with all applicable laws and Federal Aviation Administration
(FAA) requirements.
• To be self-supporting and, operate without cost to the City's General Fund.
While there arc diverse opinions, the Palo Alto Airport is considered by some as an asset
to the community, providing air transportation infrastructure needed for both business and
personal travel.
2.2 Current Airport Management Structure
As mentioned, PAO is owned by the City and has been leased to the County since 1967.
The current lease expires in 2017, but an early end to the lease is being explored. The current
management of the Airport is subject to County organizational structure. In this regard, Figure I
presents an Organizational Chart, showing the direct lines of responsibility and formal
communication for airport management. The Organizational Chart shows the lines of
responsibility from the County's Director of County Airports to his Assistant Director, with staff
input from the County's Noise Progmm Manager, The line of responsibility continues down
through the Assistant Director of County Airports to the individual Airport Operations
Supervisors. Palo Alto has been assigned one half-time Supervisor and two Airport Operations
Workers. The current formal organizational chart for the Airport Operations is shown in Figure
I. Other staff shown in the Chart include the Airports Business Manager and the Administrative
Assistant. Not shown in the Organization Chart are the levels above the Director of County
Airports. In this regard, the Director of County Airports reports to the County Roads and
Airpolts Department. The Roads and Airports Department is made up of four divisions:
Administration, Road Operations, Infrastructure Development, and Airport Operations. That
Department, in turn, reports to the County Executive who reports to the County Board of
Supervisors.
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Palo Alto Airport
Draft Business Plan
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l~igure 1 -Formal Organization Chari
The County Airports Division policy is to staff the Palo Alto Airport during all hours of
operations, Or for 74 hours each week, The day-to-day operation of the Airport is the
responsibility of the Airport Operations Supervisor. The Airport Operations Supervisor's
position incorporates all facets of Airport administration along with responsibility for the
equipment and maintenance of grounds at the Airport. The Airport Operations Supervisor must
have a working knowledge ,of Federal, State, and local laws and regulations relating to aviation.
From an administrative standpoint, the Airport Operations Supervisor oversees two Airport staff
members, Two full-time Airport Operations Workers perform a variety of tasks including
maintenance of facilities and equipment, landscaping, janitorial duties, tracking tenants, billing
transient aircraft, repair and maintenance of runway facilities (such as runway marker lights,
windsocks, and signs), The Palo Alto Airport Operations Supervisor spends two days per week
at South County Airport.
Airport Staffing
The rationale for staffing the Palo Alto Airport was developed by the County using the
following mathematical relationships:
IAf R.A. WiedemanN & Associales, Inc 7
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Dn({t Busilless Plan
• Annual Staff-hour Needed (74 hours/week times 52) = 3,848 hours
February 2010
• Divided by Average Productive HourslWorker (80% times 2080) = 1,664 hours
• Equals Full-Time Equivalents Needed = 2.3
With 2.6 full-time equivalent staff positions budgeted, the Department has an excess of 0.3 staff
position. This excess can be used to cover for sick leave, vacation time, and other unexpected
staffing issues.
\1\/ R.A. Wiedemann & Associates, Inc. 8
Palo Alto Airport
Draft Business Plan
3. EXISTING AIRPORT CHARACTERISTICS
February 2010
P ALO ALTO AIRPORT IS ONE OF FIVE airports located in Santa Clara County, California
(Figure 2). The Airport occupies a 102-acre site within the urban limits of the City.
Access to the Airport is directly off Embarcadero Road.
The original 'Palo Alto Airport facility was developed in 1923 and was situatl,'d near
Newell Road and Embarcadero. In 1929 Stanford University was designated by the Aeronautics
Branch of the Department of Commerce as Aviation Ground School Number One and the
Airport was then moved to a location near El Camino on Stanford land (the current site of the
football stadium parking lot). In 1935 the Airport was moved to the Baylands in what was then
San Mateo County. Then in 1954 the Airport was moved further into the Baylands to its present
location in order to make way for the Palo Alto golf course. In 1963 the county boundaries
changed and the Airport was back within Santa Clara County. The Airport is owned by the City
but is under lease to the County until 2017. An early termination of the lease is being considered
as a part of this Business Plan.
3.1 Airside Facilities
Runway Information
The Airport has one runway (13-31) that is 2,443 feet in length by 70 feet in width
(Figure 3). Runway 13-31 will need rehabilitation by 2012. Parallel to the runway and 128 feet
southwest of the runway centerline, is a 30 foot wide taxiway (Taxiway 'Z'). Table 1 identifies
the existing runway data. The Airport's design aircraft is a light twin-engine aircraft (B-1) such
as a Beechcraft Baron or Piper Seneca. That designation aircraft has a wingspan of 49 feet or
less, an approach speed of less than 121 knots, and a maximum takeoff weight of 12,500 pounds.
The Airport elevation is 4 feet above mean sea level.
There is also an unlighted helipad located west of the terminal building. Although it is
fully functional, the helipad does not conform to the heliport design criteria set forth in FAA
Advisory Circular 150/5390-2B, Heliport Design, because of set-back guidelines. The current
Airport Capital Improvement Plan calls for the conformity to these guidelines through the
construction ofa helicopter landing pad and parking area in 201112012.
The existing design standards for the Airport are listed on the Airport's current Airport
Layout Plan (ALP) as Airport Reference Code (ARC) B-1. By way of explanation, an ARC is
used to relate airport design criteria to the operational and physical characteristics of the
airplanes intended to operate at the airport. The coding system has two components: the aircraft
approach category and the airplane design group. The first component is depicted by a letter (A,
B, C, D, or E) and is related to the aircraft approach speed. The second component is depicted
by a Roman numeral and is related to the airplane wingspan. The categories of each component
are described as follows:
\~, R.A. Wiedemann & Associates, Inc. 9
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EXisting Airport Layout
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" AV'AT'ON CON5UCTANTS
Palo Alto Airport Business Plan
P% Alto Airporl
"'D ..... r"'ofi ..... I;:..B"'us ..... in ..... e_ss_P_t_on _______________________ -..::.F:..;:e~.~llary 2010
I T bl 1 PAO R a e -unway D t a a I
Item Runway 13-31
Length 2.443'
Width 70'
Surface .. .' Asphalt
ARC B-1
Lighting Medium Intensity Runway
Marking BasiclNon-Precision
Weight Bearing Capacity Single Wheel -12,500
Navigational & Visual Aids GPS&VORDME
• Aircraft Approach Category is based upon 1.3 times an aircraft's stall
speed in their landing configuration at their maximum certificated landing
weight:
A: Speed less than 91 knots.
B: Speed 91 knots or more but less than 121 knots.
C: Speed 121 knots or more but less than 141 knots.
D: Speed 141 knots or more but Jess than 166 knots.
E: Speed 166 knots or more
• AirplaneDesign Group is based upon wingspan:
I: Up to but not including 49 feet.
II: 49 feet up to but not including 79 feet.
Ill: 79 feet up to but not including 118 feet.
IV: 118 feet up to but not including 171 feet.
V: 171 feet up to but not including 214 feet.
VI: 214 feet· up to but not including 262 feet.
Table 2 'shows the taxiways and their descriptions.
Table 2 -PAO Taxiways .
Taxiway Description
Z Full Parallel Taxiway
A-E Connecting Taxiways
G Transition Taxiway from Tie-Downs to
Parallel Taxiway
Taxi-lane 1 -1 Lanes Between Tie-Downs
3.2 Landside Facilities
Landside facilities provide for revenue production at most general aviation airports. As
such, a thorough inventory of these is important to the Business Plan. The landside facilities at
the Palo Alto Airport (except the telminal building) are located southwest of Runway 13-3\ and
R.A. Wiedemann & Associates, Inc. 12
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Palo Alto Airport
Draft Business Plan February 2010
are accessible from Embarcadero Road. They include a terminal building, FBO facilities,
fueling facilities, conventional hangars, T-hangars, aircraft parking apron, and auto parking
facilities (Table 3 and Figure 4). The aircraft hangars are completely controlled by the respective
FBOs as a part of their lease agreements. However, these buildings will revert to City control
when these leases expire in 20 J 7.
..
Table 3 -Landside Buildinl!s
Building . Descri ption
Building A: Two Hangars and Office Spac, Two Maintenance hangars 5,200 sq ft and 12,800 sq feet of
office space. Office Space has heating and air-conditioning,
j 20v electrical service and five restrootns.
Building B: Maintenance Hangar 9,350 sq feet. Metal hangar building with concrete foundation
and floor. Standard 120v and 220v electrical service; metal
roof, sliding driors and two gas heaters on timers.
Building C: Five T·hangars and Two End Five T-hangar spaces and two end units. All steel construction
Units including roof with concrete floors. No heat; 120v electrical
service. One end unit has small restroom with shower.
BuildingD: 12 Box Hangar Spaces 12 box hangar spaces approximately 1750 sq feet each, Wood
frame and sliding door building with tar and gravel roof;
concrete floors. Minimal 120v electrical service, no heat or
restroom facilities.
Building F, G: Eight T-hangar spaces and two Each building has eight T·hangar spaces and two end units.
end units each Metal framing and siding and roofs, sliding doors with man-door
access and asphalt floors. Minimal 120v eleetrical service.
Building E, H: Nine I-hangar spaces and two Each building has nine T-hangar spaces and two end units.
end units each Metal framing and siding and roofs, sliding doors with man-door
access and asohalt floors. Minimal 120v electrical service,
Building I Six large T·hangar spaces and two end units. One of which has
a second floor mezzanine. and is equipped with a restroom.
Office Building 5,600 sqj\office space
Conventional Hangar 24,000 sq ft hang!,r space
Civil Air Patrol Building This 1,300 sq ft building is localed near the FAA Air Traffic
Control Tower. It is used by the Civil Air Patrol.
Terminal Building A small temporary modular building located off of Harbor Road.
The primary funetion of the general aviation terminal office
facility is to serve as the focal point for GA pilot and passenger
transfer between ground transportation and general aviation
aircraft though the FRO faeility assists with this.
FAA Air Iraffic Control Tower The FAA Air Traffic Control Tower at PAO is a three story
building, constructed in the I 960s. The tower cab has roughly
800 sq ft. It is staffed by 8 FAA personnel and servesto
jmprove safety and coordination ofPAO aircraft operatIons in
the San Francisco airspace environment
Apron Area
Paved tie-downs are used for outside aircraft storage. In PAO's case, tie-downs are a
major part of the revenue stream for the Airport Sponsor. Currently, there are a total of 441
paved tie-downs spaces and 85 hangar spaces at the Airport. Of these, 86 tie-downs and 85
hangar spaces arc controlled by the FBOs. Some larger aircraft may use more than one tie-down
space at a time. Paved apron space is used to accommodate both based and transient aircraft
R.A. Wiedemann & Associates, Inc. 13
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Drllfi Business Plan Febrllary 2010
parking needs. The current Airport capacity for based aircraft includes both tie-down and hangar
spaces and as such, has been estimated as high as 526 based aircraft.
Automobile Parking
Automobile parking spaces at the .Airport are limited due .. to the. smaiL landside area
'assigned for this function. There are approximately 210 on-Airport parking spaces. There are
three different parking locations on the Airport as shown in Figure 3. These locations include
parking in front of the FEO building, remote parking near the FAA Tower, and parking at the
Aitport terminal building. During peak periods, spaces other than those near the terminal
building are filled and additional parking off the Airport is used. In this regard, the GdlfCourse
parking lot is used by Airport patrons simply because it is close to the FBO building and there is
no charge. Given the lack of space for auto parking, it is not likely that additional parking spaces
will be developed in the future.
3.3 Support Services
This section describes the many support services and related facilities at the Palo Alto
AirpOit. Services offered to general aviation users of the facility include fucling, aircraft
maintenance, aircraft storage, aircraft rental, air traffic control services, and flight training. The
facilities include aircraft refueling facilities, aircraft storage buildings, the FAA Air TraffiC
Control Tower, and FBO offices and hangar facilities.
/
Fixed Base Operators
Palo Alto has two primary FBOs and several Specialty Aviation Service Operators
(SASOs) located at the Airport:
Primary FBOs
• Roy-Aero Enterprises, LLC manages approximately 9.7 acres of subleased land at Palo
Alto that contains oftlces, hangars, and tie-down rentals.
• Dr. Brandt: A sublease tenant of Dr.' Brandt is Rossi Aircraft, which is the only full
service FRO on the field. Rossi offers 100 Low Lead A vGas (I OOLL) and Jet A fueling
from trucks between 6 am to 7 pm daily. They also offer aircrail maintenance and
management.
In keeping with the Baylands Master Plan primary policy statement regarding any future growth
or development in the Airport area, limitations include a directive that there be no intensification
of Airport activity. This policy has been interpreted as meaning a limitation of two FBOs at the
AirpOlt. These FBOs have historically had tenants of their own that perform some limited or
specialty services related to aviation. SASOs located at PAO include:
On-Airport SASOs
• Advantage Aviation offers maintenance, a flight school, and aircraft sales and rentals.
• Peninsula Avionics offers avionics installations, repairs and services.
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Driift Business Plan February 20]()
• Jorgenson-Lawrence offers, aircraft sales and management.
• Palo Alto Fllel Services, Inc. is a subsidiary of Roy-Aero Enterprises that provides
100LL AvGas.
• Z.P. Aircraft Maintenance offers aircraft maintenance.
• Flight Schools, Flying Clubs, and Charter Services: The Airport is home to six flight
schools, Advantage-Aviation has a 2,800 sqllare fbot flight training facility and a 10,000
square foot hangar that it lISes for training and aircraft storage. Centurion Flight Services,
Shoreline Flying Club, Sundance Flying Club, Stanford Flying Club and West Valley
Flying Club offer aircraft rentals and flight training. West Valley Flying Club is the
largest nonprofit flying club in the nation. They have 42 aircraft available and two flight
simulators at Palo Alto Airport. They also account for approximately 80,000 annual
operations at Palo Alto Airport.
Palo Alto Airport has three companies that offer charter services at the Airport:
o . Centurion FUgItt Services: 24 hour charter, instruction, rental and aerial
photography.
o Executive Helicopter: offers rental and charter services.
o Advantage Aviation Charfer LLC: offers chartering services with two types
of aircraft: the CE-182T (Cessna Skylane) and the BE-C90 (Beechcraft King
Air).
Fuel Storage and Dispensing Equipment
The Airport has a total of five above-ground storage tanks (AST) for fuel -Jet-A, and
100L1. Fuel is dispensed via trucks bwned by Rossi Aircraft, Inc, or from Palo Alto Fuel
Services, which operates the on-airport fuel island that offers self~serve 100LL fuel 24 hours per
day by credit card.
Air Traffic Control Tower
The Airport has an Air Traffic Control Tower that operates b9tween the hours of 7 am to
9 pm. The Tower is three stories in height and has 800 square feet of cab space. The FAA
employs eight certified controllers with an additional four controllers in training.
Fire Protection
General Aviation (GA) airpolts such as Palo Alto are not required to have specific on-
. airport rescue or firefighting staffing. GA airports typically receive these services from the local
community emergency agencies. Fire protection for the Airport is provided by the City of Palo
Alto from its Fire Station 3 on Embarcadero Road (roughly 1.6 miles from the Airport). Menlo
Park Fire Protection District serves as the first responder to potential aircraft accidents should
they occur north of San Francisquito Creek.
Emergency Staging Area
The Palo Alto Airport assists as an aerial medical evacuation (medevac) staging area,
emergency training location, earthquakes staging area, and an evacuation staging area. The FAA
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can provide emergency communications from the Control Tower, if needed. In addition, the
Airport is used by the Civil Air Patrol, Doctors without Borders, and the Red Cross.
Restaurant
Due to the Airport's small land area, there is only onc main non-aviation tenant at the
Airport. The Abundant Air Cafe, which is located adjacent to the FBO building, is a restaurant
that offers free Wi-Fi, a frequent diner card, and patio parties. The restaurant is meant to serve
Airport users, but can serve others as well.
3.4 Airspace Environment
One critical component of an airpOlt's operating location is the airspace environment in
which it is situated. In busy airspace terminal areas, air traffic from one airport affects traffic
and capacity at a nearby airport. From a business perspective, potential delays caused by
airspace congestion can be costly to based aircraft owners. As such, the proximity of San
Francisco International Airport (SFO), Moffet Field (NUQ), and San Jose International Airport
(SJC) can impact FAA-controlled instrument operations at PAO. In this regard SFO is within 18
miles, NUQ is within 5 miles, and SJC is within 12 miles.
Airspace Structure
Airspace structure is classified as Uncontrolled, Controlled, Special Use, or Other.
Uncontrolled Airspace is defined as all airspace that has not been designated as Controlled and
within which Air Traffic Control (ATC) has neither' the authority nor responsibility for control.
Controlled Airspace, on the other hand, is supported by ground/air communications, navigation
aids, and air traffic services. The specific FAA airspace classifications are listed below:
There are five classes of Controlled airspace (Figure 5) and one class of Uncontrolled
airspace:
• Class A: All airspace above 18,000 feet mean sea level (MSL).
• Class B: An area with a 20 Nautical Mile (NM) radius around the nation's busiest
commercial airports. SFO has Class B airspace which overlies PAO airspace.
• Class C: An area with il 10 NM radius around busy commercial airports. SJC
has Class C airspace.
• Class D: An area with a 5 NM radius (or larger) around moderate activity
commercial and military airports.
• Class E: GeneraJ/enroute controlled airspace beginning 700 feet Above Ground
Level (AGL), or 1,200 feet AGL and extending upward to the overlying Class A
area.
• Class G: Uncontrolled airspace from the surface to 700 feet AGL, or 1,200 feet
AGL.
There are a number of factors pertaining to Controlled airspace that impact pilots flying
through California airspace. First, regardless of weather conditions, ATC authorization is
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required prior to operating within the Class B airspace over the SFO. Further, it should be noted
that large turbine powered airplanes operating to or from a primary airport must operate at or
above the designated floors while within the lateral limits of the Class B airspace. Smaller
aircraft c.an "fly under" the Class B area floors but are cautioned against flying too close to Class
B area boundaries, especially where the floor of the Class B area is 3,000 feet or less or where
normal visual cruise altitudes are at or near the floor of higher levels. At PAO, the airspace
ceiling that lies under the Class B airspace transitions from 2,500 feet (north of the airport) to
4,000 feet beginning just south of the runway.
~~' ~<:! r·-' R.A. Wiedemann &
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""'ATOW" "o"5u~~J\ .. ~" Federal Airspace
In addition to these restrictions, all aircraft operating at or above I 0,000 feet (MSL), or
within 30 miles of a Class B airspace primary airport, or within and above all Class C airspace
up to 10,000 feet MSL, or within 10 miles of certain designated airports, need to be equipped
with Mode C transponders. These devices automatically report to ATC the location and altitude
of an aircraft. .
Air Traffic Control Assessment
Discussions with the Air Traffic Manager at the PAO Air Traffic Control Tower
indicated that many of the airspace restrictions associated with SFO and SJC do not materially
impact PAO traffic. In this regard, most of the PAO air traffic uses Visual Flight Rules (VFR)
and as such, do not have to wait for Instrument Flight Rule (lFR) clearance from the FAA.
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Rather, they receive clearance from the local Tower to take off and land visually, as long as they
stay beneath the Class B and Class C airspace located nearby. Occasionally, the direction of air
traffic flow from SFO or SJC may interrupt VFR traffic at PAO for short periods ofti~e.
For IFR traffic, PAO pilots must wait for FAA clearance on a first-come-firsl-serve basis.
That is, requests are forwarded from the PAO Tower to the FAA's· Terminal Radar Control
facility (TRACON). The TRACON will work these requests in with other area airport requests
for IFR clearance. During poor weather, waits at the PAO airport are usually no longer than 15
minutes. This is clearly acceptable, given the much longer waits at some other busy terminal
areas across the nation. Overall, it can be stated that the existing airspace and air traffic control
environment is not detrimental to operational use of the Airport. As such, the potential operation
ofPAO by the City would not be adversely affected by this constraint.
3.5 Airport Operational Characteristics
The Airport's operational characteristics form the basis for future projections of revenues
and expenses. At PAO, there has been a fairly high level of aircraft activity for many years.
There are a number of factors contributing to this activity, including the lack of alternative
airports in the nearby area, along with a high level of disposable income in the Silicon Valley.
These two factors tend to concentrate th~ aviation activity at smaJi airports in the area like 'PAO
and San Carlos (SQL).
The typical profile of aircraft type at PAO is a small, single engine or light twin engine
aircraft. In April, 2009, there were 412 total aircraft based at the Airport. Of these, there were
approximately 423 single-engine and 47 twin-engine aircraft. In addition, there were 2
helicopters based on the field. In 2008, there were 166,828 aircraft operations (an operation is
either a landing or a takeoff - a landing and takeoff are two operations). Although there has
been a recent decli\le in the total number of based aircraft, the Airport has historically operated at
almost full lands ide capacity for many years.
One reason for the high number of aircraft operations at PAO is the significant amount of
training that occurs via West Valley Flying Club. In this regard, West Valley may account for as
much as 50 percent of total operations or around 80,000 per year. This is significant when
considering that other flying clubs on the Airport such as Sundance, Stanford, and Advantage
Aviation, offer flight training as well.
From a financial standpoint, the greater number of based aircraft at an airport, the greater
the revenues that can be generated for the airport Sponsor. These revenues are derived from
leases for tie-down spaces and from FBO leases. An exodus of based aircraft can significantly
impact the bottom line for the Airport.
Airport User Survey
In early April 2009, an Airport User Survey was developed and mailed to aireraft owners
who based their aircraft at the Airport. Approximately 500 surveys were distributed. Prior to
this mailing, the Airport User Survey was launched via www.Zoomerang.com so that
--.. ------------------------
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respondents could either complete and mail in the surveyor complete it online. The online
survey was administered via web link from the home page of the City of Palo Alto website
('W'Ww.cityofnaloalto.org). Surveys were requested to be returned by May 1 Sf, During this
period, a total of 145 visits were recorded on www.Zoomcrang.com and 64 surveys were
completed. Additionally, 78 hard copy surveys were submitted, for a total of 142 responses to
the Airport User Survey. Ninety of the 142 survey responses listed an address, representing 19
different cities and towns within California. Of these, 20 responses were attributed to a Palo
Alto address.
In summary, there were several key points expressed as a. result of the survey of Palo
Alto Airport users:
• A total of$3,280,135 was spent by 129 Palo Alto Airport users on their aircraft in
2008.
A verage annual spending per aircraft was estimated at $20,900.
• One hundred and thirty-seven aircraft users reported an estimated 115,466 annual
operations (57,733 takeoffs).
• Impact of price increases: Approximately 77 percent of respondents indicated that
either any increase at all, or any increase that is significant (greater than CPII
inflation or not competitive with other airports), will cause them to relocate
their aircraft.
• The top three airports that based aircraft users would consider moving to are:
Moffett Federal (if available in the future) 36.9%
San Carlos Airport 26.2%
Mineta San Jose International (if available) 12.9%
Business users indicated that they rely on the use of the Palo Alto Airport for:
• Convenience to their office facilities or commute to other office locations
• Conducting business at the airport
• Providing aviation-related services which are dependent on an airport location.
3.6 Environmental Concerns
The importance and recognition of the environmental senSItIVIty of the Airport area
cannot be overstated. Not to diminish the importance of this subject, this section covers only the
major topics regarding environmental concerns and is not meant as an exhaustive inventory of
these issues. As a part of the Baylands Area, the Airport coexists with the nearby Don Edwards
San Francisco Bay National Wildlife Refuge and Byxbee Park recreation area. There are two
endangered species in the vicinity of the PAO, including the Salt Marsh Harvest Mouse and the
California Clapper Rail. The FAA Tower stops operations twice a day for a flock of geese that
fly from their nesting area to the golf course and back.
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The predominant land uses in the Airport environs are wetlands, bay waters, golf course,
commercial and limited residential. The City of East Palo Alto, located in San Mateo County, is
adjacent to the northwest portion of the Airpolt. The Baylands Master Plan I (2008) has spelled
out the primary policy statement regarding any future growth or development in the Airport area.
Limitations imposed by this policy include a directive that there should be no intensification of
Airport activity or changes that will significantly intrude into open space. As such, previous
efforts to expand the airport runway system were rejected, as were attempts to develop new
hangars on the lands ide area of the facility.
The Palo Alto Airport is also located in a FEMA-designated "Special Floo.d Hazard Area
Inundated by 100-Year Flood." Due to this designation. 'any new structures that are to be
occupied must be 8 feet above mean sea level (AMSL). Since the Airport is 4 feet AMSL, all
new occupied structures will have to be raised 4 feet to meet the 8 feet AMSL category. Non
occupied structures do not need to be elevated. San Francisquito Creek has flooded seven times
since 1910, with record flooding in 1998, causing major flooding on Airport propmty. As
buildings reach their useful life, rebuilding of these structures will have to comply with these
standards.
Other Environmental Concerns:
The County Master Plan for Palo Alto Airport also lists some of the following
environmental concerns:
• Subsidence: The area consists of marshland that was drained and filled with dirt. The
City'S "]998-20 I 0 Comprehensive Plan" shows the Palo Alto area as having historical
subsidence levels of from 2 to 3 feet.
• Ground Shaking and Liquefaction: The Airport is located in a seismically active area.
• Dam Failure IlIlIndation Area: The Airport area may be subject to seismically-induced
flooding from dam failure of Felt Lake, Searsville Lake, and Lagunitas Reservoir dams.
Perhaps the greatest impact on the financial performance of the Airport would be the
environmental concerns that place caps on the development of buildings at the Airport. This
stems from the desire to limit activity at the Airport that was described in the Baylands Master
Plan.
3.7 Airport Capital Improvement Program
The Airport is eligible for capital project funding assistance from Federal Aviation
Administration through the Airport and Airway Improvement Program (AlP). which is
periodically reauthorized. The latest occurred in January 2004, when the FAA Reauthorization
Legislation was signed into law as the "Vision 100 -Century of Av iation Reauthorization Act."
To take advantage of this program, the Airport is required to prepare, update annually, and
submit to the FAA a five-year Airport Capital Improvement Program (ACIP) to apply for federal
Baylands Master Plan, 4'" Edilion. as Amended. City of Palo Alto, CA, 2008.
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grants. These grants typically fund 95 percent of eligible development costs. AlP eligible
projects include the planning, design, and construction of projects associated with public use
nonrevenue generating facilities and equipment of the Airport. Typical AlP eligible projects
include: airport master plans and airport layout plans; land acquisition and site preparation;
airfield pavements, e.g. runways, taxiways, and transient aprons; lighting and navigational aids;
safety, security, and snow removal equipment; selected passenger terminal facilities; and
obstruction identification and removal. In addition, sOme revenue producing projects can be
funded from an airport's entitlement grants if there are no runway or safety projects at that
airport. These items can include hangars, fueling facilities, automobile parking facilities, private
use areas of terminal facilities, and other revenue generating facilities. Highest funding priority
according to FAA's rating procedure is generally offered those projects that are safety related
such as obstruction removal, runway safety area improvements, and facility improvements to
meet current FAA Airport Design Standards.
Currently the AlP program provides an annual entitlement grant of up to $150,000 per
eligible general aviation airport for qualifying projects. An airport can delay getting this funding
for I, 2, or 3 years to accumulate enough revenue to complete a project if it cannot be funded for
$ I 50,000 or does not get fully funded from other sources.
Table 4 -Airport Capital Improvement Plan (ACIP) 2009-2013
Year Project Description in Priority Order Federal State* Sponsor Total
200912010 Signage, Runway/Taxiway Marking
Changes IA W FAA RSA T $142,500 $0 $7,500 $150,000
Recommendations
200912010 Pavement Maintenance for Existing $285,000 $0 $15,000 $300,000 Runway, Taxiways and Aircraft parking
201112012 Reconfigure Taxiways G and Z to comply $380,000 $0 $20,000 $400,000 with FAA Standards
201112012 Construct Helicopter Landing Pad and $237,500 $0 $12,500 $250,000 Parking
201112012 Construct Exit Taxiway D $114,000 $0 $6,000 $120,000
201112012 Construct-Additional Transient Aircraft $427,500 $0 $22,500 $450,000 Parking Areas
201112013 Overlay Existing Runway and Taxiways $1,900,000 $0 $100,000 $2,000,000
TOTALS $3,543,500 $0 $186,500 $3,730,000
* It IS assumed that the State wIll not have funds available for the Airport thus making the City responSible for the
local and state share (4.75 pereent state and 0.25 percent local).
Other AlP Funding Categories
State Apportionment Funding: This is a portion of the FAA's funding that is set aside
based on the number and types of airports in the State. The funding is provided to airports in the
State depending on priority and needs for qualifying projects.
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Discretionary Funding: The remaining budget is then prioritized based on Safety,
Security, Capacity, and other criteria. The FAA estimates how much is needed to complete the
funding for the top projects that are not fully funded that year by other grant methods.
Sometimes an airport will not receive funding either from entitlements or apportionments to fund
a project. When this occurs, discretionary funding can be used to fill funding gaps for important
projects.
Congressional Earmark: This funding is procured for very specific projects that may not
get enough priority in the FAA system but are deemed necessary by a Congressional
Representative. This is typically undertaken for high cost projects that cannot be funded
completely using other methods. This funding comes out of the FAA's Airport Improvement
Program before the rest is apportioned to each FAA district. Congressional earmarks have come
under criticism in recent months and may be removed as an option for federal lawmakers in the
future.
State Funding
All State grant programs for California airports are funded from the Aeronautics Account
in the State Transportation Fund. Tax revenues, which arc collected on general aviation (GA)
fuel, are deposited in the Aeronautics Account. GA jet fuel is taxed at 2 cents per gallon and
AvGas is taxed at 18 cents per gallon. These taxes generate about $7 million per year. The
Aeronautics Account has several other revenue sources (interest that is earned on its cash balance
and sale of documents such as the State aeronautics chart). It should be noted that although
technically available, State funding has not been offered recently due to budget shortfalls.
Annual Grants: These are State grants to eligible airports for discretionary use subject to
applicable laws and regulations, with prior approval from the Department. The Annual Grant
($10,000 per year) can fund projects for "airport and aviation purposes" as defined in Section
21681(0 of the State Aeronautics Act. Also, the Annual Grant can fund fueling facilities,
restrooms, showers, wash racks, and operation and maintenance. The Annual Grant can provide
part of the sponsor's match for projects that are funded by FAA grants as long as the project is
otherwise eligible for State funding. If the Aeronautics Account does not have sufficient funds,
the Annual Grant amount is rcduced in proportion to the funds available. Up to five years' of
Annual Grants may be accrued at the sponsor's discretion.
AlP Matching Grants: These are State grants to eligible airp0l1s for eligible projects
subject to programming and allocation by the California Transportation Commission (eTC).
This grant assists the sponsor in meeting the local match for Airport Improvement Program
(A IP) grants from the FAA. An FAA AlP grant can be matched with State funds. By statute, the
DepaJ1ment typically matches 5 percent of the Airport Improvement Program (AlP) federal grant
amount, as a non-federal match, when the federal share is at either 90 percent or 95 percent of
the project cost. The federal share was 90 percent prior to 2003. The Century of Aviation
Reauthorization Act of 2003, VISION lOO, increased the federal share of airport funding from 90
percent to 95 percent of project cost. This impacted the State matching grants. At 90 percent
federal contribution, the State match was 4.5 percent, the local match was 5.5 percent. At 95
percent federal contribution, the State match is 4.75 percent, and the local match is 0.25 percent.
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Based on urgency legislation enacted in 2002, the Department may also increase its match to tfie
full·IO percent required non-federal match for certain "security projects" at eligible airports.
Acquisition and Development (A&D) Grants: These are state grants to eligible airports
for eligible projects subject to allocation by the CTC. Sponsor Eligibility Act Airport Land Use
Commission (ALUC).can receive funding to either prepare or update a comprehensive land use
plan (CLUP). An A&D grant can fund projects for "airport and aviation purposes" as defined in
Section 21681(1) of the State Aeronautics Act. An A&D grant cannot be used as local match for
an FAA grant, but an AlP Matching grant may be used for this purpose. However, an A&D
funded project can be constructed in conjunction with an FAA-funded project. Project services
(engineering, design, etc.) are limited to 12 percent of the actual construction cost of a project,
including change orders that have been approved by the Department. For land acquisition,
"project services" means appraisal, title and escrow fees. The minimum amount of an A&D grant
is $10,000. The maximum amount that can be allocated to an airport in a single fiscal year is
$500,000. This $500,000 maximum can occur as a single grant or multiple grants. The local
match can vary from 10 percent to 50 percent of the project's cost. The match rate is set annually
by the CTC. (A 10 percent rate has been utilized for the past 15+ years.) The Annual Grant may
not be used for the local match to an A&D grant.
Local Sponsor Fnnding
Local funding of capital projects for publicly-owned general aviation airports can be .
accomplished either through a public sponsor's enterprise fund or in some cases, the local
general fund. This expenditure may be offset by airport-generated revenues. Public bodies may
also issue general obligation (GO) or revenue bonds. These bonds arc usually reserved for large
capital projects. A revcnUll bond is backed by a promise to pay the principal and interest
represented by the bond with revenues generated by the project that it funds. As the issuance of
revenue bonds does not affect the general borrowing power of the issuing party, it represents an
attractive funding mechanism to a local political jurisdiction. Independent underwriters must
evaluate revenue bonds, and the proposed bonds must demonstrate a reasonable expectation of
repayment. As some airport facilities generate more indirect benefits to the community than
direct revenues, they may not always meet this test.
Private Enterprise Funding
Private investors are also a potential source of funds for revenue producing development.
Tenants and/or investors may finance the construction of facilities from which they derive
income. While the direct revenues to an airport are usually limited to the lease charges for the
land underlying the facilities, the local sponsor does not need to obtain its own funding for these
improvements. Additionally, the increased activity resulting from the airport improvements
often increase the number of based aircraft, which in turn, generate additional revenue associated
with fuel sales and other aviation services.
\~, R.A. Wiedemann & Associates, Inc. 24
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3.8 Market Analysis
Airport Market Area
February 20] 0
Figure 2 (presented earlier) illustrates the Airport service ru:ea including other nearby
public-use airports. For.the Palo Alto Airport, the service area is roughly based on the location
of alternate airport basing locations. This can range from a 30-minute driving distance to a 60-
minute driving distance, depending upon the level of traffic and time of day. Within the PAO
service area are located ten public-use airports and one former military base. Three of these
airports offer airline service: San Francisco International, Metropolitan Oakland International
(OAK), and San Jose International. The other general aviation airports located within PAO's
service area are: HalfMoon Bay, Hayward Executive, South County, Reid-Hillview, San Carlos,
and Livermore Municipal. Moffet Federal Airport, a former miliary airfield, is currently
controlled by the National Aeronautics and Space Administration's Ames Research Center and is
considered private-use. Limited operations are allowed there for military aircraft, NASA flight
testing, blimps, and some private aircraft.
Facilities .
Table 6 provides a comparison of airport facilities at public-use airports within the
service area of the Palo Alto Airport. Of the listed airports, seven have runways of 5,000 feet or
greater. These airpOlis can accommodate business jet activity. The only private-use airport in
the analyisis, Moffett Federal, has the longest and widest runway in the service area (9,202 feet
by 200 feet). Hayward Executive is the largest public non-commercial airport in the service area
with runway dimensions of 5,694 feet by 150 feet. Palo Alto has the shortest runway in the
service area with a primary runway length of2,443 feet by 70 feet. All the airports in the service
area have instrument approach procedures of some type, and all the airports but Half Moon Bay
and South County have air traffic control towers.
Based Aircraft
There are a reported total of 2,797 aircraft based at the airports within the Palo Alto
Airport's .service area. The vast majority of these (87 percent) are single engine aircraft. Of the
126 jet aircraft in the serv ice area, 100 (79 percent) are located at three commercial service
airports (OAK, SFO, and SJC). At general aviation airports, 15 based jets are located at
Hayward Executive, 10 are located at Livermore Municipal, and one is based at San Carlos.
With a total of 472 aircraft on the field including 47 multiengine aircraft and two helicopters,
PAO is operating below its historical high operational levels. Vacancies on the aircraft apron tie
down area have risen from zero in 2003 to 49 in 2009. Almost all of the airports in the service
area have waiting lists for aireraft hangars, ineluding Palo Alto. However, PAO does not have
any waiting list for tie-down space.
Aviation Services
Table 7 presents the availability of various aviation services at each of the area airports.
Listed services at Palo Alto include major airframe and powerplant repairs, flight instruction,
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charter services, avioncs, aircraft sales, aircraft rentals, glider, air ambulance, and aerial survey.
Palo Alto Airport offers more services than any other general aviation airport in the service area.
Hangars and Tic-downs
Monthly tie-down SPaces are available at all of the service area airports contacted except .
Half Moon Bay due to weather and Moffett Federal due to being a private military airport.
Prices for tie-down spaces range from.$60 to $150 at the various facilities (Table 8). Palo Alto
Airport has the highest tie-down rates in the service area.
Aircraft storage space in conventional hangars is currently available at Half Moon Bay,
though the one hangar that is available does not provide complete shelter from the weather. All
the other area airports including PAO report no vacancies in conventional hangars. The cost of
conventional hangar space at Palo Alto Airport is in the mid-range of the competing airports in
the service area.
Five airpOlts in the service area have T-hangars on the field; however, availability is
limited as there are waiting lists at all but South County Airport. In 2005, 100 T-hangars were
developed at South County Airport and in 2009, there is still a 40 percent vacancy rate. By
contrast, the wait time for T-hangars at PAO is between one and ten years. Thus, "location" is a
critical aspect ofT-hangar demand. Prices on I-hangars range from $212 to $1,200 per month.
Monthly T-hangar rates at Palo Alto Airport are priced between $850 and $1,200 pep month -the
highest in the service area. Monthly rates at some airports depend on age and condition of the T
hangars and can vary widely between airports, and even on the same airpoli.
Fuel Priccs
Avgas is available at seven of the service area airports. The highest per gallon prices (as
of May, 2009) was found at Hayward Executive Airport ($4.79). The lowest price was found at
Half Moon Bay and Livermore Municipal Airport at $3.95 pcr gallon. All fuel prices change
frequently, however. let Fuel is available at five airports in the service area. The lowest price
($3.42) was found at South County. The highest price was found at Hayward Executive Airport
($4.56). Palo Alto had the second highest let Fuel cost at ($3.89). Adjustments in pricing may
be required to maintain and/or increase market share of fuel sales.
Prices Compared at Santa Clara County-Operated Airports
When considering only the airports that Santa Clara County manages, the PrlClllg
structure associated with these three airports emerges (Palo Alto, South County and Reid.
Hillview). Tic-down fces for these airports range from a low of $86 per month at South County
to a high of$J88.50 at Palo Alto (Table 5).
lA' R.A. WiedemOlln & ASSOCiates, fnc. 26
Palo Alto Airport
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Table 5 -Santa Clara County Tie Down Rates
Aircraft WeightIFuel Fee Tie-Down Rental Rates/Month & Fuel Flowage Fe., .................... ---.J
Reid-Hillview .South County Palo Alto
o to 3,500 Ibs $120.50 $86 $129.50 iJ--j;soiio5;z"'o"'o ;;-Ib'-s ---+--"7.$"'14~O.::....--t----;2$"'1 0"'0---+----"':$"'1";;50"'. '--.----11
i 5,201 to 10,200 lbs $157.50 $112.50 $168.50
10,201101,-,7 ''''OO;,.:O..;.lb:;.:;s ___ +-_--'''$ ",I 7,=:5 _"'50"--_-+-__ ---,"'$1"'2.:;,6 ___ +-__ ..cS"'1,;:.887.5;;C0'----_"'-4!
Fuel Flowage Fees $0.10 $0.10 $0.20
Conventional hangar space is only offered at PAO and costs $400-$500 dollars per month. The
Palo Alto AirpOl1 also has the highest single engine T-hangar rates at $850 per month while T
hangar rates at South County are $600 per month and $573 per month at Reid-Hillview. Since
vacancies exist at Soulh County, the lower prices for T-hangars are reasonable. Overall, the
important pricing difference involves.tie-down fees. The Palo Alto Airport has the highest tie
down fees of any of the service area airports. This fee structure is causing some PAO tenants to
relocate to less expensive altel11ative airports. Aircraft owner and"pilot attitudes toward the
pricing structure are documented in the survey that was conducted (Appendix A). Finally, it
should be noted that fuel flowage fees for PAO are ten cents higher per gallon than at Reid
Hillview or Soulh County.
tMJ R.A. Wiedemann & Associates, Inc. 27
Palo Allo Airport
Draft Business Plan
Table 6 -Facility Comparison
Airport Airport Ownership Acres Number of Based Aircraft Runway
Code Jet Multi-Single Heli-Otber Total First
LxW·
PaloAlto* PAO Public 102 -47 423 2 472 2443' X 70'
HalfMoon Bay HAP Public 325 -2 37 1 40 5,000' X 150'
Hayward Executive HWD Public 543 15 42 339 14 -410 5,694 X 150'
South County' EI6 Public 179 -10 71 2 -83 3,100' X 75' .
Moffett Federal' NUQ Private -. 25 10 15 -50 9,202' X 200'
Reid-Hillview* RHV Public 179 -27 291 3 -321 3,100 X 75'
San Carlos SQL Public 110 I 40 321 10 -372 2,600' X 75'
Livermore Municipal LVK Public 643 10 36 551 4 -601 5253' X 100'
Commercial Airports
San Francisco SFO Public 5,207 4 3 1 2 -10 11,870' X 200' International
Metropolitan OAK Public 2,600 29 95 141 12 -277 H),OOO' X 150'
Oakland In!' 1
San Jose Inl'l' SIC Public 1,050 67 24 68 2 -161
2 parallel
11,000 X 150'
TOTAL 126 351 2,253 67 -2,797.
Source: Airport Master Record as Published 7 April 2009 (www.gcr!.com/5010WEB & www.aimav.com).
• Airport located in Santa Clara County
,", RA. Wiedemann & Associates,.lne,
----
Second
LxW -
3,107' X 75'
8,127' X 200'
3,099' X75'
2,600' X 75'
2,699' X 75'
10,602' X 200'
6,212' X 150'
4,599' X 100'
F ebtuary 2010
•
Navaids' Tower
Highest
.. --
GPS Yes
GPS No
GPS Yes
GPS No
ILS Yes
: GPS Yes
: GPS Yes
ILS Yes
ILSIGPS Yes
ILS . Yes
ILS/GPS Yes
28
Palo Alto Airport
Draft Business Plan
~
Airporl
Palo Alto'
HalfMoon Bay
Hayward Executive
South County'
Moffett Federal'
Reid-Hillview'
San Carlos
Li vermore Municipal
Commercial Airports
San Francisco
International
Metropolitan
Oakland Int'l
San Jose Int'l'
Frame Power
Repairs RepaiT$
Major Major
Major Major
Major Major
Major Major
--
Major Major
Major Major
Major Major
Major Major
Major Major
Major Major
Table 7 -Service Comparison
Flight Charter Avionics Aircraft
Instruction Service Sales
Yes Yes Yes Yes
0 ---
~~~~ -~
Yes Yes --
Yes Yes -Yes
0 -0
Yes --Yes
Yes Yes Yes 0
Yes Yes -Yes
Yes Yes Yes Yes
~. ----~~~ ~~~-~
Yes Yes Yes Yes
Yes Yes Yes Yes
Source: Airport Master Record as Published 7 April 2009 (www.gcrl.comi5010WEB & www.airnav.com) .
• Airport located in Santa Clara County
\~I R.A. Wiedemann & Associates, inc.
, February 2010
Aircraft Other
Rentals
Yes Glider. Am.bulanee, Aerial Survey
Yes
Yes
-
Yes
Yes
Yes
-AirFreight
------
Yes Air Freight, Cargo
Yes Air Freight, Cargo
29
Pall) AliI) Airport
Draft Business Plan
Table 8 -Rates and Charges Comparison
Airport Tie-Down Conventional HangllT$
$/month Available $Imonth
Palo Alto· $129.50-Yes $400-$500
$188.50 -.
HalfMoon Bay N/A N/A $425
Hayward
$6()"S75 Yes $750-$1,080 Executive
South County' S86 Yes NlA
Moffett Federal· N/A NIA N/A
Reid-Hillview'
S120.50
$157 Yes NlA
$118 Yes
$359 old
San Carlos
$533-$639 new
Single $76-$SI5-$554
Livermore $87 Yes $1,253 -$1,549 Municipal
TwinS10S
Commercial
Airports
San Francisco --$350lnight
International
Metropolitan $171night Yes $20-$30Inight
Oakland Int'I .
San lose In!'l' S40/fuel Yes $100-SI50Inight
Source: RA Wiedemann & Associates Inc. Telephone Survey 5-26-09
N/C No Charge
Nt A Not Available
* Airport located in Santa Clara County
1~' R.A. Wiedemann & Associates, Inc.
Available
No
1
No
N/A
N/A
N/A
No
No
Yes
Yes
No
T-Hangars
$/ month Available
$850-$1,200 No
NIA NIA
$212-$412 No
$600 Yes
N/A NIA
Single $468-$573
No
Twin $795-$865
N/A NIA
$293-$389 No
N/A NIA
NIA NIA
NIA NIA
February 2010
~
Fuel Waitil7.g List
10011 Jet A (Hangars)
$3.99 $3.89 Yes
$3.95 -No
..... -
$4.79 $4.56 140 planes
(7-9 years)
$3.99 $3.42 No
NIA NIA NIA
$4.01 -1 year
$4.10 $3.80 60 planes
-
$3.95 $3.72 3 to 10 years
$6.65 $5.51 -
$4.76 $4.05 -
$5.37 $5.24 -
'\
30
Palo Alto Airport
Draft Business Plan
4. BASELINE FINANCIAL PROJECTIONS
Febl'llary 2010
T HIS SECTION IDENTIFlES HISTORICAL REVENUES AND EXPENSES attributable to Palo Alto
Airport and projects those revenues and expenses first to the year 2017, and then from
2018 to the year 2037, The forecast to 2017 has one baseline projection that will serve as
both the County pro forma and the City pro forma. This projection represents a baseline or status
guo revenue and expense scenario for the Airport with no revenue enhancement projects
'included, For purposes of this analysis, it was assumed that the City and County cost stl11ctures
for operating the Airport are identicaL
Unless the lease with the County is terminated sooner, the County's responsibly will
officially expire in 2017 as will the two FBO leases and all other contracts relating to the Airport.
In 2017 all hangars and tie-down spaces will revert back to the City's control. Thus, a baseline
projection of financial performance was made for the City'S operation of the Airport for the
period 2018 to 2037, In a later section, alternative projections of financial performance will be
developed based upon comparisons between various types of management structures, To
properly frame these financial statements, this section is organized to present the following:
• Historical Revenues and Expenses
• Baseline Forecast of Revenues and Expenses: 2010·2017
• Baseline Forecast of Revenues and Expenses: 2018-2037
• Summary and Findings for Baseline Scenario
4.1 Historical Revenues and Expenses
Table 9 shows the historical revenues and expenses for 2000 through 2008 taken from the
statement of revenues and expenses for PAO provided by the County. This total does no!
include the annual contributions to the Airport from the County for capital development grants,
Those contributions are not considered revenues from operations by this analysis. Rather, this
analysis is geared to identify the actual revenue producing ability of the Airport, along with its
actual operating costs,
Revenues to the County from Palo Alto Airport are derived from the following:
• Aircraft Storage (Tie-downs): The County currently operates 355 tie-downs ranging
from $129,50 to $188.50 per month. Of these, 49 are vacant. The 2008 revenues of
$506,728 produced an average of $138 per tie-down, per month. Thus, the vacancies
created an opportunity cost to the County that averaged $81, I 00 in 2008, In addition to
these public tie-down spaces, there are 86 private tie-downs and 85 hangar spaces which
are under FBO controL
• FRO Lease Revenue: There are two FBOs at PAO that have leases with the County,
Roy-Aero Enterprises LLC leases 9.706 acres at $0.19/square foot. This equals
approximately $8,275 per acre which is $80,300 annually, The County also receives 6
percent of the revenue from 45 of Roy-Aero hangars and six end units whieh totaled
$28,640 in 2008. The other FBO, Airport Management Group, Inc. (AMG) leases 3.024
\~f R.A. Wiedemann & Associates, fne, 31
Palo Allo Airport
Draft Business Plall February 2010
acres at $O.2025/square foot. This equals approximately $8,800 per acre which is
$26,6'76 annually. The ground rent remains fixed for the FBOs until the next scheduled
five-year interval reappraisal (December 2009 arid December 2014 for Roy-Aero, and
December 2013 for AMG)
• Fuel Flowage Fees: The fuel~ flowage ~fee~ at P.alo Alto is the highest of all County ~
operated airports at $0.20 per gallon. &eid-Hillvh;wand South County Airports have fuel
flowage fees of $0.1 0 per gallon.
• Transient Atrcraft Revenue: Transient aircraft are required to pay a fee when occupying
a tie-down at the Airport. Of PAO's 441 tie-down spaces, 36 space are allocated for
transient aircraft. Tie-down rates are determined by aircraft size and du~ation of stay.
• Other Facility Revenue: This category captures all revenue that is not attributable to the
other categories. This includes vending income, auto parking fees, charter landing fees,
government credit card rebates, and tie-down waiting list fees. For 2008, this category
also included a rental car lease from Enterprise (valued at $32,800). That lease was
canceled by the rental car company in June, 2009. Thus, future years for this category
will yield significantly less revenue than the 2008 total.
Operating Expenses do not include depreciation expenses, since they are non-cash
expenses and are reflective of the Airport's asset base rather than income and expense
production. Operating Expenses were derived from the following:
• Salaries and Benefits: This includes direct salary and benefit costs for two Airport
Operations Workers and one part-time Airport Supervisor. It also includes the allocated
percentage (31.07 percent in FY08) of Airports Administration staff salaries and benefits.
The breakdown for this line item in 2008 is $232,950 for Operation staff (including the
supervisor) and $187,617 for Airports Administration staff.
• General Administration: The General Administration Expenses allocation for PAO for
FY08 was 31.07 percent of the Airports Administrative costs not related to salaries and
benefits. Airport Administrative costs includes insurance, communications, professional
services, roads and Airports Departmental overhead charges and the County's General
overhead charges.
• Aviation Services: This expense category incorporates PAO operating expenses such as
utilities, terminal building expense, non-capital maintenance, and other miscellaneous
expenses of operating the Airport.
The historical operating revenues and expenses shown in Table 9 for PAO represent
aggregated totals of several accounting sub-categories.
R.A. Wiedemann & Associates, Inc. 31
Palo Alto Airport
Draft Business Plan
~~~~~~
,--~~
i REVENUESIEXPENSES
Operating ~~~enues:
Aircraft Storage
Lease Revenue (FBOs)
Fuel Flowage ~
Transient Revenue
Other Facility Revenue
Tota! Operating Revenue
Operating Expense
Salaries & Benefits
General Administration
Aviation Services
Tota! Operating Expenses
Net Operating Income
FY2000
320,303
96,068
40,477
14,494
3,338
474,680
295,575
187,784
99,757
583,116
(!I'o ,,£,
Table 9 -Historical Revenues and Expenses for PAO
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY2006
419,978 507,129 485,504 487,893 489,231 489,035
124,930 121,038 130,047 123,830 131,249 133,563
44,922 54,964 54,478 53,941 57,883 59,967
58,026 31,776 35,973 24,447 27,068 24,627
N/A 37,854 21,654 32,955 20,046 19,465
647,856 752,761 727,656 723,066 725,477 726,657
315,137 357,903 368,712 371,150 424,954 436,301
142,571 156,256 171,457 161,621 174,533 123,449
91,206 115,980 122,937 72,919 118,667 128,860
548,914 630,139 663,106 605,690 718,154 688,610
98,942 122,622 64,550 117,376 7,323 38,047
February 2010
FY 2007 FY 2008 Av Growth
RatelYI'*
506,122 506,728 5.88%
129,953 134,905 4.30%
82,664 110,974 13.43%
27,329 31,419 10.17%
15,384 50,141 40.31%
761,452 834,167 7.32%
377,014 420,567 4.48%
159,281 179,147 ~0.61%
148,382 114,800 1.76%
684,677 714,514 2.62%
76,775 119,653 N/A
• The average growth rates per year are developed by calculating the compound growth rates between the starting year (FY 2000) and the ending year (FY 2008)
for each line item.
1~r R.A Wiedemann & Associates, Inc. 33
Palo Alto Airport
Droft Bus;lIess Plan February 20]0
As shown in Table 9 historical operating revenues have grown much more quickly than
historical operating expenses. During the period, operating revenues have grown at an average
annual rate of 7.3 percent. Operating expenses, on the other hand, have grown at a rate of 2.6
percent per year. Beginning in 2001, the Airport began generating surplus net operating
revenues. While these have fluctuated from year to year, they have averaged almost $60,000
since 2000.
Significant actions by the County that have increased revenues within the past couple of
years include:
• Increases in tic-down rates at PAO, to levels ahove those for Reid·Hillview and South
County.
• Increases in fuel flowage fees at PAO, which are douhle those for Reid-Hillview and
South County ($0.20 versus $0.10).
• Securing an agreement with Enterprise Rent-a-Car to locate at PAD in 2008. That lease
was cancelled hy Enterprise, eliminating that windfall for future years.
The increased vacancy rate for PAO tie-downs has been attributed by some to the downturn
in the national economy and the increase in prices for tie-down spaces. Table 10 presents an
historical look at the tie-down vacancy percentages and tie-down fees for an average aircraft
size:
Table 10 -Monthly PAD Tie-Down Vacancy Percentage and Fees
Year Total Vacant % Vacant
2000 367 88 24%
2001 367 1 2%
2002 360 0 0%
2003 360 0 0% :!
2004 354 8 2%
2005 351 11 3%
2006 351 32 . 9%
2007 357 16 4%
2008 355 33 9%
2009 i 355 49 14%
4.2 Baseline Forecast of Revenues and Expenses -2010 to 2017
As mentioned previously, a projection of revenues and expenses was developed for the
Baseline Forecast, showing the effects of minimal changes to the current operational structure at
the Airport. In essence, this projection considers the financial production of the Airport as it is
today, with little change through the year 2017. The analysis is designed to determine whether
or not PAO could be self-supporting from an operating standpoint between now and the
expiration of the current lease agreements. The projection applies to both the County and City
operation of the Airport. Table 11 presents a projection of revenues and expenses for PAO, for
the period from 2010to 2017. '
1M' R.A. Wiedemann & Associates, Inc. 34
Palo AlioAirporl
Droit Business Plan February 2010
Forecasting assumptions used in the projection included the following:
Revenues
• A postponement of the currently-proposed increase in Tie-Down fees (Aircraft Storage)
until 2011. At that time tie-down prices were increased by the proposed 8 percent
increase, with CPlincreases every year thereafter (4percent is the projected CPI).
• Reappraisal of the FBO leases occurs in 2013 for DI'. Brandt, and 2014 for Roy Aero. It
is assumed that a minimum 50 percent increase in rents will be assessed at these dates.
• No increase in Fuel Flowage Fees or Transient Revenues over the period.
• A decline of more than $32,800 in Other Facility Revenue from the 2008 level of
$50,141 due to the loss of Enterprise Rent-a-Car lease.
Expenses
• Growth in Salaries & Benefits Expense by 4.25 percent per year throughout the period.
• Growth in General Administration Expense by 4 percent per year through 2017.
• Growth in Aviation Services Expense by 4 percent per year throughout the period.
NQu-Operating Expenses
• A local share capital expend iture. of $50,000 annually was added to the forecast to cover
potential capital improvement costs and matching fund requirements for federal and state
grants. This amount would cover almost $2.0 million in FAA grants per year at a
matching rate of 2.5 percent. The pro fonna assumes that the City would have projects
included in some years that were not eligible for federal or state funding.
~ .... ----.---~----
~ .. D. ", tion ofPAO (2010-2017)
, Av Growth
YEAR 2012 20ll 7014 2015 2016 2017 RateIYr
.
Operathu! RevcJllles
I Aitcrafi StOfilltC 5506,728 $547.236 5569,125 $591.890 5615,56£ $640,189 $665,7% $692,428 4 {){tin
: Lease Revenue (FBOs) $134905 $134900 Sll4900 $134,900 $1349{)0 $157200 S202,400 5202.400 S202400 5.%%
: Fuel Flowalle 5110974 $111.000 51 I 1.000 $111000 $1 II 000 SJJlooo $1 I 1000 $1 lI,oooi $111000 0.00%
::Transient Revenue $31419 $31.400 $31 400 $31,400 $31400 $31,400 $31,400 $31,400 0.00%
:Other Facillrv Revenue $50141 $17300 SI7300 $J7300 $17300 SI7.300 S17,300 O.(){)'''
TMl1l Operllfillj! Revenue 8834167 5801300 $84183 ,I $932466 $1002289 $1027,896 $1,054,528 4.00%
0 s"
·SalftTies & Benefits $420 $67 $457075 $476.501 $517864 $539873 $562818 55867)8 $611.674 4.21%
:General Administration $179147 $193.765 $201516 5209576 $217,959 $226,678 $235745 5245,175 $254,981 4.00'1\
Aviation Services $114.800 $124 168 $129135 5134.300 $lJ9.672 5145.259 $151,069 $157,112 $163,397 4.00%
Tohd OperRtin~ Expenses $714,514 $775008 5807,152 $840,628 $875495 S911,810 5949,632 5989025 $1030,053 4.16%
i Nef OflenlliflH Inwme 5119,653 $26292 $34 684 $23097 SIO 995 520,656 552,657 $38,871 $24,475 -1.03%
Non-Operafjll~ Expenses
Local Share CaDilal Costs $0 S50000 $50000 $50000 $50 000 S50,OOO 5S0.000 $50000 550000 0,00%
Totjll Net Revenues $119,653 .$23,708 ,$15316 -$26903 ·$39005 -$29344 52.657 ·$11 129 ·$25,525 NIA
* 2008 -Aclual, 2010-2017' Forecast
** Forecast decrease represents loss of$32~800 Enterprise Rel1t~a~Car lease.
\~I R.A. Wiedemann & Associates, Inc. 35
,
Palo Alto Airport
Draft Business Plfln February 2010
Within the Baseline scenario, the FBOs are responsible for capital expenditures on their
hangars and other revenue producing facilities. These are not eligible for Federal funding as
long as they are under private control.
Under these difficult revenue generation conditions, the Airport would show a net
operating surplus 0[$231,700. However, if local share capital development costs of $50,000
annually are included, there is a net revenue loss of -$168,300 over the eight-year forecast
period. This projection can be considered the worst case scenario for the City or County
operation of the Airport -continually increasing costs and very slow revenue growth, In all
likelihood, revenues will increase more than predicted through growth in the areas that have been
held constant in the forecast.
If the City ends its lease with the County by July, 2011, losses (totaling -$129,200) from
that point forward would belong to the City. It is the Consultant's opinion that the City can
perform slightly better than the County due primarily to fewer personnel required to operate the
Airport, That is, PAO will not require the County's noise program manager, and the City would
not have to pay an allocation percentage for administrative staff to run multiple airports as the
County does, Rather, the salaries and benefits for PAO staff would be limited to those working
at the airport and an administrative allocation added for functions such as accounting, invoicing,
and professional services, Neveliheless, the costs shown in Table II were assumed to apply to
both the County and the City operational scenarios,
4.3 Baseline Forecast of Revenues and Expenses: 2018-2037
In the twenty years after 2017 when the current leases expire (assuming no early
cancelation or extensions of the leases), the City will have complete control over all of the
hangar and FBO facilities at the Airport. Thus, in 2018 the City sholild experience a revenue
windfall from the Airport, based upon the ability to rent hangars and tie-down spaces that were
under FBO control. Table 12 presents a summary of the revenue and expense pro forma for
baseline performance of PAO under City operation. The revenues and expenses are shown in
increments in order to display the entire 2018-2037 period within the Table.
Table 12 -Baseline Revennes & Ex enses for Ci eration of P AO
AvGrow1n
Year 2018 2022 2027 2032 2037 RatcIYr
0 ratin Revenues
$720,125 $1/8,887 $842,445 $947,636 $1,024,963 1.02%
86 S ace FBO A ron $167,040 ~~$180,670 $195,413 $219,813 $237,750 1.02%
Han at/Office Rentals $1 199100 $1 402777 $1 706693 $2076,453 $2,526,323 4.00%
Fuel Flowa e Sll1,OOO $111000 SI I 1,000 Slll,OOO SllI,OOO 0.00%
Transient Revenue $29,000 $29,000 $29,000 0.00%
Other Faclli Revenue $17,300 $17,300 0.00%
Tola) 0 erado Revenue $3,401,202 $3,946,336 3.02%
$1406,181 4.25%
11\' R.A. Wiedemlmn & Associates, IIle. 36
Palo Allo Airpon
Draft Business Plan February 2010
Table 12 -Baseline Revenues & Ex enses for Ci 0 eration of PAO
Year 20J8 20n 2021 2032 2
General Administration $397,772 $465,337 $566,154 $688,812
A viation Services $170546 $199515 $242,741 $359,316 4,00%
TotalO era tin Ex 'enses $1,205,988 $1,418,035 ' $1,736,324 $ $2603,543 4,13%
Net 0 eratin Income $1 037,577 $1,101599 $1,165 527 $1275,073 1.37 ti/n
Non~O eratin Costs
Locai Share Ca ital Costs $338,000 $395412 $585,307 4,00%
Total Net Revenues 5699,577 $706,187 $684,448 ffO,S()%.
Assumptions for the 2018 to 2037 period that differ with those of the 20 IOta 2017 period
include the following:
Revenues
• A total of 86 new tie-down spaces (former FBO apron) are available for revenue
production to the City.
• Fonner FBO hangar and office rentals are available for revenue production to the City,
Thus, the City would be collecting these rents rather than the FBO.
• While, no growth in Fuel Flowage was projected. Transient Revenue and Other Facility
Revenue was projected to grow at the rate of inflation,
Expenses
• Salaries and Benefits are assumed to grow by 4.25 percent per year.
• General Administration increased by 50 percent to account for additional administrative
workload related to former FBO rental properties (c'olJections and lease administration).
cpr adjustments were included for future years,
• Aviation Services was forecast to increase by 4 percent per year to reflect projected CPI.
• A Non-Operating Capital Development and Maintenance account was created to reflect
local share capital improvement costs and to invest in maintenance of revenue producing
facilities. Beginning year was estimated at 5 percent of the estimated existing hangar and
building value. cpr adjustments were included for future years.
Cumulative net operating revenues to the City under this baseline projection for the years 2018
to 2037 were estimated to total almost $13.7 million.
4.4 Summary and Findings for Baseline Scenario
For the Baseline Scenario, cumulative net operating revenue surpluses were shown for
. both the 2012-2017 and 2018-2037 periods for City operation of the Airport ($231,700 and
$23,743,500, respectively). However, when non-operating costs are added, the 2012-2037
period shows a cumulative net deficit of -$168,300 in total revenues, For the longer term (2018-
2037), total net revenues (which include non-operating costs) were estimated at $13,678,500.
lA' B.A. Wiedemann & Associales, Inc. 37
Palo Allo Airport
Drlift Bllslness Plan February]OIO
The Baseline projections did not include discussions of alternate methods of managing or
operating the Airport. They also did not include projections associated with any additional
hangar development at the Airport. Those discussions and analyses are presented in the next
section of this report.
IMI B.A. Wiedemann & Associates, Inc. 38
Palo Alto Airport
Dnift Business Plan
5. AL TERNA TlVE OPERA TIONAL STRUCTURES
February 2010
THIS SECTION CONSIDERS DIFFERENT OPERATIONAL STRUCTURES FOR P A 0 and estimates the
economic consequences of implementing those options. [nparticular, the City is
interested in the potential use of alternate management for the Airport either in the form of
an FBO or some other third party management arrangement. [n Section 4, baseline pro formas
were developed to estimate the financial outcome of City management of the Airport from the
years 20 J 2-2037, This section presents analysis for the following:
• Common Operational Structures for Airports
• Projections dfFinancial Performance:
Baseline City Management Option: 2012-2037
Additional Hangar/Apron Option: 2012-2037
City Plus FBO Management Option: 2012-2037
Third PaJty Management Option: 2012-2037
• Summary of Financial Performance Options
• FAA Policy on Revenue Diversion
• FAA Policy on Airport Land Release or Airport Closure
5.1 Common Operational Structures for Airports
As the City decides which management option to employ for the Airport, there are a
number of pros and cons for using different structures, If the goal of the City regarding the
Airport is identified, it may be easier to develop a matching operational structure, This report
pl'Ovides the background and projected economic outcomes for different management structures
so that sound decisions can be made for the future of PAO operation, Four options for airport
management are identified as follows:
• Continued County Operation of the Airport
• City Operation of the Airport
• Joint FBO and City Operation of the Airport
• Third Party Management
In all four options, the City must retain ownership of the Airport to satisfy Federal Aviation
Administration Airport Improvement Program grant assurances, as weIl as State of California
Aeronautics grant aid requirements, These are further discussed in Section 5.5.
Continued County Operation of the Airport
In this option, the City would re-negotiate a lease with the County for its operation ofthe
Airport. The viability of this option would depend upon the County's desire to continue
operating the Airport and the City'S endorsement of that arrangement. Under this option, the
existing lease would be kept in place through the year 2017, followed by a new lease with the
County, It is possible that in a newly renegotiated lease, the City could assume ownership of all
existing FBO property and the associated revenues. The City would then become the landlord of
I~I R.A, Wiedemann & Associates, lnc, 39
Palo Alia Airport
Draft Business Plan February 2010
the hangars, apron area, and fueling operation at PAO. Revenues from this operation could be
significant. On the other hand, under this scenario, there would likely be little or no control of
County pricing policy or reinvestment in airport facilities.
City Operation of the Airport
If the City is to be the sole operator of the Airport, there are several changes in the
staffing and management structure needed. In general, the City would need to implement the
following:
• Retain an Airport Manager several months before actually taking possessiun of the
Airport. In addition, an Assistant Airport Manager and a part time City worker would
need to be assigned to the Airport, once it was under City control.
• Set up of an Enterprise Fund (or similar fund) for Airport operation, where charges from
other City departments could be recorded as costs against Airport revenues. In addition,
a new expense category would include Airport Operations.
• The City would begin billing airport apron tenants and collecting lease revenues from
FBOs.
Although not required for general aviation airports like PAO, an airport operations manual
should be developed that would spell out daily, monthly, and annual responsibilities of personnel
and City administration, show contact names and numbers, and describe emergency and security
procedures.
Typically, many municipal airports have unelected airport boards or advisory/oversight
groups that function to advise or'assist in managing the Airport and its operations. These
advisory groups vary widely .in authority and complexity. Some have complete operational
control of their airports while others are advisory only. Prior to the City of Palo Alto taking back
PAO, it is recommended that an advisory group be formally chartered that would report to the
City. These positions' are usually appointed with staggered terms and usually represent a cross
section of airport users and stakeholders. Most have a good knowledge of aviation, business,
government, and the community.
Joint FBO and City Operation of the Airport
This option is only slightly different from the complete City management of the Airport.
In this regard, the City would contract with an FBO to provide management personnel for the
Airport. The City would still be required to provide legal and other City services to the Airport
under General Administration, but the actual day-to-day operation and management at the
Airport would be undertaken by the FBO. As the FBO must staff the facility for its own
business purposes, it could also provide watchful management of the Airport for the City,
including:
• Daily Airport inspection
• Minor maintenance
• Apron and Itinerant Ramp management
\~I R.A. Wiedemann & Associates, Inc. 40
Palo Alto Airport
Draft Business Plait
• Reporting to City and attendance at Council Meetings
• Interaction with FAA Control Tower Operations
February ::IO}(J
These and other tasks would be assigned to an FBO. By using personnel already located at the
Airport, the City should save significantly on labor costs using this method.
Third Party Management of the Airport
Third party management of an airport is sometimes called "airpcrt privatization,"
depending upon how inclusive of services the agreement or lease is. However, this generally
does not mean divestiture by the governmental owner of the airport. In general, the
governmental sponsor still maintains ownership of the airport and benefits from privatization by
not paying for the operation of the facility. The public has a right to be secure in the knowledge
that this service won't suffer at the hands of a private, for-profit enterprise. This assurance is
provided through the fact that third party airport management is generally not a complete
divestiture. In most cases, this type of management structure includes an ongoing pUblic-private
partnership.
There are a number of versions of the Third Party Management structure that have been
implemented in the U.S. These range from true "privatization" where the owner is paid to let a
third party run the airport for profit, essentially "leasing the airport," with no owner involvement.
A second model involves full third party leasing of the governmental owned airport, sometimes
with payments to the owner, but with allowance for profit taking from leases and rents (usually
of facilities the third party builds or acquires outright with their own funding). A third model
involves the hiring of a third party to operate the airport that is still owned by the governmental
entity. In each option, the responsibility for grant-in-aid applications for airport improvement
projects and the required local match funding has to be determined.
A number of airline and large general aviation airports have tried leasing and
privatization as a means of more efficiently operating their facilities. Generally, there are four
basic reason"s to use third party management:
• Capital Infusion
• Efficiency Gains
• Revenue Windfall
• OppOltunity to Reinvent the Airport
Some airport owners have little or no interaction with the operation of their airports and
instead, use their contractors as extensions of their municipal governments. For existing airports,
the simplest form of privatization is contracting out management of the airport on a relatively
short-term basis. Larger economic benefits generally can be obtained via a long-term lease of
the airport. One particular benefit of contracting out is that measurable performance
requirements can be specified, with appropriate penalties for failure to meet them.
It should be noted that the FAA has expressed concern that the sale or long-term lease of
an airport would violate the obligations undertaken by the municipal owner as a condition of its
lKf R.A. Wiedemann & Associates, Inc. 41
Palo Alto Airport
Draft Business Pia" February 2010
federal grants, The most significant of these is the obligation not to divert an airport's revenues.
Federal law requires that public airport revenues be used for capital and operating costs. The
FAA considers sale or lease proceeds to be airport revenue that cannot be transferred to other
municipal uses, Therefore, the financial incentives for U.S. public airports to privatize or use
third party management are constrained and they may even impede efforts to privatize because of
.a consequentially higher cost of capital and a. reduced ability to generate more revenues. For
Palo Alto Airport, any lease agreement to manage the Airport would require that revenues from
the lease over and above expenses could not be diverted to other uses. In short, the City of Palo
Alto could not carn money from the Airport to use elsewhere. All money made at the facility
would have to be reinvested in the Airport. This provision of the Federal law' is being reviewed
for general aviation airports and may be changed at some time in the future,
5.2 Projections of Financial Petiormance
Different management structures and hangar totals will produce different amounts of
revenue at PAO, Prior to implementing any strategy, the development of desktop models to test
the economic outcomes is important. For PAO, a number of operational structures have been
suggested for the future, including:
• Baseline City Management Option: 2012-2037
• Additional Hangar/Apron Option: 2012·2037
• City Plus FBO Management Option: 2012-2037
• City Plus Third Party Management Option: 2012-2037
Each of these options and their respective financial performance is presented in below.
Baseline City Management Option: 2012·2037
The financial pro formas associated with the Baseline City Management of PAO were
presented in Section 4 of this report. To recap, those projections showed slow revenue growth
(slower than general price inflation) and normal expense growth (exceeding projected price
inflation). With these assumptions, the following total net revenues (which included capital
development costs) were estimated:
• -$129,200 for 201 2-20 \7
• $13,678,500 for 20 18·2037
The significant revenue production in the second period is due to the reversion of private hangars
to City ownership and control.
Additional Hangar/Apron Option: 2012-2037
If additional hangar and apron space is developed at the Airport, there is an opportunity
to increase financial performance over the Baseline projections. This section is not meant as an
endorsement of the additional revenue producing facilities, Rather, it simply serves as a means
of estimating the economic value of this option, Any decision to pursue these additional
1~' R,A, Wiedemann & Associatf!.'l, Inc. 42
Palo Alto Airporl
Draft Business Plan Febrllary 2010
revenues must be made by the City, in concert with its Airport stakeholders and funding
agencies. Table 13 presents the short term (2012-2017) financial pro forma for what could be
considered a full landside development option. For the purpose of this report, the "lands ide" at
PAO refers to Airport areas that have buildings and aircraft storage. They do not include the
l1lnway and associated taxiways, runway protection' zones, or safety areas. This pro forma
contains the following assumptions;
• Early termination of the lease with the County for operation of the Airport -2012
assumed as first full year of City operation.
• City development of hangars using debt financing (principal of $4,550,000 for 20 years at
5 percent interest).
• Additional apron arca seeured through FAA grants.
• Deliberately low projections of Fuel Flowage Fees, Transient Revenue, and Other
Facility Revenue.
Table 13 -City Mana~ement ofPAO with Additional Hanllars/Apron (2012-2017)
Av Growth:
P,lo Alto 2012 2013 2014 2015 2016 2017 Rate/Yr
OpenttinJ;! Revenues
Aircraft Storage $569,125 S591 890 $615,566 $640,189 $665,796 $692,428 4.00%
Additional Tie~Down Rental $35352 $36766 $38237 $39,766 $41,357 $43,011 4.00%
Additional Hangar Rentftl NIA NIA $393,000 $408,720 $425,069 $442,072 4.00%
Lease ReveI1tlc (FBOs) $134,900 $134,900 $157,200 $202,400 $202,400 $202,400 8.45%
Fuel Flowage .. $111,000 $111 000 $111,000 $1 11000 $111,000 $111,000 0.00%
Transient Revenue $29000 $29 000 $29,000 $29,000 $29,000 $29,000 0.00%
Olher Facility Revenue $17,300 $17 300 $17,300 $17,300 $17,300 $17,300 0.00%
Total Ollcratinf;! Revenue $896,677 $920856 $1,361,303 $1,448,375 S),491,9Z2 $1,537,211 11.38%
Operatin g Expense
Salaries & B~nefits $496,752 $517864 $539,873 $562818 $586738 $611 674 4.25%
General Administration $209,576 $217959 $226,678 $235,745 $245,175 $254,982 4.00%
Aviation Services $134,300 $139 672 $145,259 $151069 $157 Il2 $163,397 4.00%
I Inlerest on Debt ServIce NIA 5224,600 $217,700 S210,300 5202,600 5194600 ·3.65%!
Total Oller-nfine: Expenses 5840,628 Sl,lOO 095 51,129,510 51,159,932 $1191 625 51,224,653 7,82 %
Net Operating Income -556,049 -5179,239 $231793 5288,443 5300,297 5312,558 41.02%
Non-Operating Costs
Debt Service Principal NIA 5136.100 I 55~ S.lJ%
Local Share Capital Costs 550,000 550 000 550,000 0.00%
Totol Non-Oner.tin. Costs 550,000 5186,100 $193000 5200 34.01%
Totol Net Revenues 56,049 -$365,339 538793 588,043 592,197 596,458 NIA
IMI R.A, Wiedemann & Associates, Inc. 43
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Palo Alia Airport
Draft Business Plan February 2010
Cumulative net revynues for the six years shown in the table total -$43,800, which is an
improvement of $124,500 over the Baseline pro forma. Principal payments on the debt service
range from $136,100 per yearto $166,100 beginning in 2013.
For the longer term, the net revenue production is much higher. Table 14 shows the pro
forma for the 2018-2037 period, assuming the development .of additional hangar and apron area
at PAO. Net revenue production includes both the FBO facilities that transfer at the end of the
current lease in 2017, plus the additional hangar and tie-down fees from the development of
these facilities. Cumulative net revenues for the 2018-2037 period total $20,500,700.
Table 14 -City Mana~ em en! ofPAO with Additional Han2arslApl'on (2018-2037)
Av Growth
rJ'EAR 2018 2022 2027 2032 2037 Rate/Yr
Operating Revenues
355 Space Aircraft Apron $720125 $778,887 $842445 $947,636 $1,024963 L88%
86 Space FBO Apron $167,040 $180,670 $19S,413 $219,813 $237 750 1.88%
~.~ditiollal Tie-Down Rental $44,732 $48,382 $52,330 $58,864 $63667 1.88%
Additional Hangar Rental $459,754 $497,270 $537,848 $605,005 $654,374 188%
~"'.
I Hangar/Office Rentals $],199100 $1,402777 $],706693 $2,076,4'53 $2.526323 4,00%
Fuel Flow ••• $111000 $111,000 $1lI,OOO $111 000 $111,000 0.00%
Transient Revenue $29000 $33,926 $41276 $50219 $61,099 1.88%
Otber Facility Revetlue $17,300 $20,239 $24,623 $29958 $36,448 1.88% ,
Toll,l Operating: Revenue $2748,651 $3,673,151 $3511,628 $4,098948 $4715,624 2,88%
Onerl'ltine. Expense
Salaries & Benefits $637,670 $753 183 $927,429 $1 141986 $1406181 4.25%
:, General Administration $397,772 $465,337 $566,154 $688812 $838,046 4.00%
! Aviation Services $181,757 $212,630 $258,697 $314744 $382934 4.00%
: Interest on Debt Servtce $186,100 $147,500 $87,100 $9.600 NIA NIA
i~··· ;
) TUfal Operating Expenses $1 403,299 $1,578,650 $1,839,380 $2,155142 $2,627,161 3.36%
Net Operating Income $1 344,752 $1,494,501 $1672 248 $1943806 $2,088463 2.34%
Non~Ofleratillg Costs
Debt Service lJrincipal $174600 I $213,200 $273,600 $351 100 NIA N/A
: Local Share Capital Costs $338,000 $395412 $481 079 $585,306 $712115 4.00%
!: Total NOIl~ODerfltin£ Costs $512,600 $608612 $754679 $936,406 $712,115 1.75'%
Ii Total Net Revenues $832,152 I $885,889 $917,569 $1 007,400 $1376,348 2.68%
--... --~-------'-----------------
1M/. R.A. Wiedemann & A.fSOcinles, lnc, 44
Palo Alto Airport
Draft Bllsiness Plan
City Plus FBO Management Option: 2018-2037
February 20]0
This option considers the City control of the Airport with assistance from an FBO that is
contracted to provide aviation services to Airport users, along with airport management services
for the City. Savings from this option arc primarily from labor costs, in that no duplication of
labor hours occurs from having both the FBO and City personnel stationed at the Airport. As the
FBO must have personnel at the Airport to conduct business, cross-utilization of these personnel
can occur relative to Airport management. As mentioned previously, it is believed that this
option is restricted to the post-20 17 period, unless the existing FBO contracts are purchased by
the City. It is possible that negotiations could occur that would penn it FBO management in the
2012 to 2017 period, however, the outcomes of such negotiation are subject to a great deal of
speculation.
Table 15 presents the pro forma for the City Plus FBO Management Option. As shown, a
flat fec for FBO management services was estimated to begin in 2018 at $342,100 (representing
$250,000 in 2010 current dollars), increased by price inflation. However, this number would
likely be negotiated through a Request for Proposals process during the 2017 timeframe,
coinciding with the replacement of FBO agreements.
! Table IS -City Plus FRO Management ofPAO (2018-2037)
Av Growth
YEAR 2018 2022 2027 2032 2037 ' RatelYr .... -
! Operatiu2 Revenues
• 355 Soace Aircraft Apron .720,125 $778,887 $842445 $947636 $1 024,963 I&~
: 86 Space FBO!,oron $167,040 $180670 $195413 $219,813. $237750 1.88%
:: Hangar/Office Rentals $1,199,100 $1402777 $1.706,693 $2,076,453 $2,526323 4.00%
'i FuelFlowage $1 I 1,000 SJll,OOO $ Jll,OOO $11 1 000 $111,000 0.00%
: Transient Revenue . $29000 $29.000 $29,000 $29000 $29,000 0.00%
0!her FacjEry Revenue $17300 $17,300 517300 SI7300 $17,300 0.00%_
!: Total Operntil1l! Revenue $2243,565 $2519,634 $2901 85) $3,401,202 $3946336 3.01%
; Onerating Expense
I FRO M~!lasrement Fee $342 )00 $400209 $486915 $592407 $720753 4.00%
: General Administration $397,772 $465,337 $566,154 $688812 $838.046 4.00%
Aviation Servi<:cs $)81,757 $2)2,630 $258697 $314744 $382,934 4.00%
~."I Operating Expenses $921 629 5),078,176 $1 311,766 5),595,963 $1,94) 733 4.00%
... -
_~_~~_9~erl\tinf! Jncome $1,321,936 $1,44) 458 51 590,085 $),805,239 $2,004,603 2.22%
Non-~e!~~.fing Costs
LocaJ Shore Capital Costs 5338,000 $395412 5481.079 $585,307 5712.115 4.00%_
Total Net Revenues $983,936 $),046046 S),1U9,006 $1,219,932 $1,292,488 1.45%
\~I R.A. Wiedemann & Associales, Tnc. 45
Palo Allo Airport
DraftlJusiness Plan February 2010
The only change in this option relative to the City Management Option is the lower cost
of on-airport personnel. In this case, the FBO should be able to perform these services for
significantly less than it would cost the City to provide through its employees. Cost savings to
the FBO are based primarily upon the cross-utilization of management personnel (which are
already attending the Airport during business hours). Cumulative net revenues over the 2018 to
2037 period are cstimatedto total $22,646,400.
Third Party Management Option: 2012-2037
The Third Party Management Option could take the form of either management only or
an all-inclusive master lease of the entire Airport. If Third Party Management is used in the
2012-2017 period, it would likely involve the management-only scenario, as the existing FBO
leases or obligations may prevent a master iease of the entire Airport. Under the management
only scenario, a third party contractor would manage and operate the airport with their
employees. Services would include all airport operations and procedures, community outreach,
asset management, property management, maintenance and repairs, tenant administration,
marketing and promotion of the Airport, development and construction management, airport
planning, grant submittals, processing and adherence, fueling, and all other services required to
operate the airport. The City would make all policy and leasing decisions. Payment to the . .
Contractor would involve the payment of all costs plus a percentage of gross revenues (usually in
the 5 to J 0 percent range). For this business plan, it was assumed that the Contractor would
provide labor for the Airport management and operation, rather than having City employees
operate the Airport. Table J 6 presents the pro forma for the short-term Third Party Management
option. As shown, cumulative net revenues to the City for this option total $816,200 for the
period.
Table 16 -Third Party Operation ofPAO: 2012-1017
AvGrowlh
YEAR 2012 2013 2014 2015 2016 2017 RareIYr
Onen-ltiJij! Revenues
Aircraft Storage $569,125 $591 890 $615,566 $640189 $665,796 $692,428 4.00%
Lease Revenue (FBOs) 5134,900 $l34 900 $157,200 $202,4001 $202,400 5202,400 8.45%
Fuel Flowage $111,000 Sl1l,OOO $111,000 SIIl,OOO Sill 000 $111,000 0.00%
Transient Revenue $31,400 $31,400 $31400 $3 ],400 $31,400 $31,400 0.00%
Other Facilitv Revenue $17,300 $17,300 $17,300 $17,300 $17,300 $17,300 0.00%
Total Ommding Revenue $863125 $886490 S93l,466 SIOOl,2891 $10278% $1054528 4.07%.
Ope ... tin~ Expense
: Jrd Party Labor $270,400 $281216 $292 465 $304 163 $316,330 $328,983 4.00%
3rd Party Pee $86373 $88649 $93247 $100,229 $102790 $105,453 4.07%
General Administration $209576 $217,959 $226678 $235,745 $245175 $254,982 4.00";"
A viatiQIl Services $134,300 $139,672 $145,259 5151,069 $157112 $163,397 4.00%
TorRI Ooel'atine: EX[lenses $700649 $727496 5757,649 $791206 $821,407 $852815 4,01%
,: Net Operating Income $163076 $158994 $)74,817 S211,083 $206,489 S201,7I3 4,34 %
IMT R.A. Wiedemann & Associates, )nc. 46
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Palo Aila Airport
Draft Business Plan February 2010
Table 16· Third Party Operation ofPAO: 2012·1017
Av Growth
/: YEAR 2012· 2013 2014 2015 2016 2017 Rate/Yr
!
NOI1~Ojler~.~.inl! Exoen:;cs
Local Sh~~ Capital Costs ... $50,000 $50,000 S50000 $50,000 S50000 $50,000 0.00%
Tot.al Net Revenues $113,076 $)08,994 $)24,817 $)6)'083 $)56,489 $151,713 6.05%
I
For the long term (2018-2037), the Third Party Management option could involve a
master lease for the entire Airport. In this regard, a third party contractor would typically be
responsible for all Airport operations, operational costs and employees, community outreach,
airport planning, grant preparation and local grant match contribution for federal and State
financial assistance, financing and redevelopment of existing revenue producing facilities,
marketing and promotion of the Airport, tenant administration and retention, property
management, asset management, and fueling. Under this scenario, the Contractor would collect
alJ revenues and pay a minimum base rent to the City with a percentage rent option as well, In
this regard, the City could expect between 70 and 80 percent of the pro forma.net revenues to he
paid at year-end after all accounting for revenues and expenses has heen made or audited.
Leases of this kind are typically set for a minimum 25 years and longer if a substantial
investment is required. They would also need Federal Aviation Administration and State
Aeronautics approval for this option.
For Ihis analysis, the long-term City Plus FBO Management pro fonna was used as a
means of projecting Contractor revenues to the City. In this regard, it was assumed that a check
for 75 percent of the projected net operating revenues would be written to the City each year.
While negotiations may be able to increase the percentage, it was assumed that conservative
approach was needed, Thus, for the period 2018-2037, checks totaling $16.98 million would be
written to the City by the Third Party Management company.
5.3 Summary of Financial Periormance Options
The previous section presented a number of different management and faeil ity options
along with their financial performance. To hetter compare each option, a summary tahle was
developed that shows the important economic measures of each alternative. Again, it is
understood that there are other criteria besides financial performance for selecting a preferred
alternative for PAO, Thus,non-economic factors may well determine the future course of the
Airport's management and operation. Table 17 presents a summary of total net revenues for
each of the management options.
IRI R.A. Wiedemann & Associates, Inc, 47
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Palo Alto Airport
Draft Bllsilless Plan February 2010
.
i Table 17 -Summary of Financial Performance Options: Tolal Net Revenues
I MANAGEMENT OPTION 2012-2017 2018-2037 Total Net Revenues
Baseline City Management -$129200 $13,678 500 $13,549,300 __
Addi lional Ha~g""a::.:rl,-,A",Plr",o,,-n _____ +-_-"'-$4-"3"',8"'0"'0_+_"'$2""0"',5"'0"'0 "-10"'0'--+ __ "'$2"'0"-,4"'5"'6,"'90::.;:0'--_-1
City PlusFBO Management NI A $22,646400$22,646,400 I
Thil'd Party Man.gement $816,200 $16984,800 $11,801,000
As shown, the City Plus FBO Management option produces the greatest surplus of net
revenues over the entire period. The Baseline City Management option has the lowest total net
revenues of the four options. Even with net losses for two of the options in the 2012 to 2017
period, the 2018 to 2037 periaq provides more than enough revenues to offset these initial losses.
A summary of pros and cons to the City relative to each option was developed to
condense the positive and negative factors associated with the four alternative management
structures presented here. Tables 18 and 19 present these factors by alternative and by Airport
operator.
Table 18 -Summary of Pros and Cons for All Options
Pros Cons
. City Oper.tion of the Airport (Bas.lin.City Man.gement Option)
I) Greater control of all factors, relative to County \) Responsibility for all finances and management of
control of Airport the Airport
2) Positive net revenues over long term 2) Must deal with all staffing issues.
3) Monitor and control inves.tment in capital assets. 3) Airport can ·become political issue
4) Ability to respond to Airport users and resident 4) Potential financial risk
neighbors. ! ....
Additional Ha1l2.rlAoron
I) Highest revenue stream of all options I) Potential change of Airport viewshed
City Plus FBO Man.".ment
I) Lower labor costs I) Less control afday-to-day management function.
2) Higher net revenues relative to 3" Party Management
and Baseline Projections
3) FBO responsibility for technical aviation issues.
Third Party Man. gement
I) Indirect responsibility for operating the Airport. 1) Least amount of control over day-to-day operation
2) Airport operates as a profit center, providing periodic and management of Airport.
payments to City. 2) Dependent upon finandal stability and strength of 3"
3) May represent lowest financial risk of all options. Party Operator.
-c------------------------........ --.----
\~I R.A. Wiedemllnn & AssocilllRs, Inc. 48
Palo Aile Airport
Draft Business Plan ___________ -.:F:...:;ehruury 2010
! Table 19 -Summary of Pros and Cons by Facto~ and Airport 0 erator
Factor/Operator County City FBO/City 3'" Party
i' General Fund Benefit None None None None
I 20 Yr. FAA Obligation City City c:ity City
: Lease Term 2017 N/A TED. TED
i Control over Fees None ,Complete Complete Limited
i: Control over Revenue ' None Complete Complete Limited
; Control over Expenses None Complete Complete Limited
, General Fund Risk None Limited/Loan LimitedlLoan LimitedlLoan/3'·
Party
, ,Planning Control Complete Complete Complete Complete
, Reinvestment Status Quo Yes Yes Yes
'Ement Control None Complete Limited Limited
, Income/Loss Projections None Complete Limited Limited
5.4 FAA Policy on Revenue Diversion
Airports receiv ing Federal Assistance must restrict their use of airport revenue for strictly
prescribed airport purposes (Title 49 U.S. Code 41707(b), 47133). When airport revenue of a
federally assisted airport is used for other than airport capital costs and operations, with few
exceptions, it is generally considered an unlawful airport revenue diversion. The FAA issued a
policy statement on this issue, which went into effect February 16, 1999. According to the
policy, any airport that receives Federal financial assistance must sign assurances, as palt of the
Grant Agreement, that the revenue generated by the operator will be used only for purposes
related to the airport. The assurance also prohibits the diversion of airpolt revenue to non-airport
use. The policy statement tends to offer general guidance, with only limited discussion of the
application of the airport revenue-use restriction to specific situations.
The FAA relies upon several means for monitoring compliance with its revenue use
requirements and interpreting those requirements:
• The sponsor's annual auditing report on revenue use required by statute.
• Single audit reports as authorized.
• Investigations prompted by third-party complaints pursuant to 14 CFR, Part 16.
• Department of Transportation, Office ofInspector General Audits
• Publicly available FAA Chief Counsel and DOT General Counsel Opinions.
• Guidance letters issued by Airport Division Staff based on specific fact situations
presented by operators.
Information on the application of the airport revenue-use requirements to a specific situation is
developed through these monitoring activities. Thus, information pertaining to revenue diversion
cannot be found at a central location, but is contained in all of the above sources. It is important
to remember that revenue diversion is typically "alleged" and not an obvious finding in most
cases. Cases such as these require in-depth investigations conducted by FAA and, when required
or requested, by the Office ofInspector General (OlG) within the Department of Transportation.
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Palo Alto Airport
Draft Business Plall FeBruary 2010
The origin of this policy was with airlines that believed it was unfair to charge them high
rates that created surplus revenues which were then spent off the airport on non-aviation projects.
A lawsuit at Los Angeles International Airport helped define cost structures that were permitted
and those that were not. For example, an airport sponsor cannot give excess land to its own
parks department for athletic fields. Rather, market rates have to be charged and applied to
airport revenucs.
For Palo Alto, the concept of revenue diversion is important, since there is likely to be a
significant surplus net revenue stream for the long term future. This money can be reinvested in
the Airport's infrastructure. For example, revenue producing hangars can be reconstructed when
they reach the end of their. useful life. A new/replacement terminal building can be developed
with this money. Other projects, as needed, could be funded from this surplus as well.
5.5 FAA Policy on Airport Land Release or Airport Closure
If the City desired to release some of the Airport property (but not close the Airport), they
would first have to examine the funding stream that has come through both the State of
California and the FAA to determine the number and size of grants received by the Airport. Any
land purchased with an FAA grant is "obligated" to the FAA for airport use. As part of the
Federal grant assUI'ances and associated regulations, all property that has been included as part of
the airport property, cannot be sold or used for non-aviation purposes without a formal approval
by the FAA. This policy has several purposes but is primarily intended to protect property
acquired for a public airport from being arbitrarily diverted from public use. In fact, all that is
required for airport property to be subject to this federal obligation is that the property has been
depicted on a federally approved Airport Layout Plan (ALP). The property in question need not
be acquired with federal funds to be federally obligated.
Per FAA Order 5190.6A, Airport Compliance Requirements:
Any property described as part of an airport in an agreement with the United States or
defined by an Airport Layout Plan (ALP) is considered to be "dedicated" or obligated for
airport purposes by the term.s of the agreement .
. Notwithstanding this federal policy, FAA will aJJow property to be used for non-aVJatlOo
purposes or sold outright for airport-compatible developments upon completing a formal FAA
land release process. Thereafter the property may be used "or disposed of' for non-aeronautical
uses. Briefly, the requirements of the land release are summarized below:
FAA Land Release
A formal request is submitted to the FAA, which may be in the form of a letter with
accompanying documentation. In the case ofPAO, the request would include the following:
• What specifically is being requested (long-term lease, release for sale, etc.).
• Why the release is requested (i.e., such as economic development).
• A justification of why the property is not needed for airport purposes.
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• The specific properties involved, with an illustration.
• How the property was acquired by the Airport.
• The present condition and use orthe property.
• Anticipated future use allcr disposal.
• The current Fair Market Value (FMV). per appraisal.
Feb'ruary 2010
• How the property sale revenues will be used for Airport needs (certifY compliance with
FAA's Revenue Use Policy, dated 2/16/99). Sale revenue may not be diverted for other
City purposes.
• Provide a comparison onhe relative advantage or benefit to the Airport or City from the
sale, as opposed to retention for rental income.
ALP Update (Pen & Ink Change)
As the release of the property is a change to the ALP, an ALP update must also be
submitted for F AA/CalTrans review and approval. As part of this submission, the formal airport
property map would also be updated, indicating the final date of the release or sale of the
affected parcels. A boundary surv,ey is typically required.
Environmental Approval
In coordination with FAA, an environmental review may also be applicable (e.g., federal
Categorical Exclusion 01' Environmental Assessment). If the FAA agrees with the justification to
release the propelty for the overall public benefit, the proposal will be published in the Federal
Register for comment. After receiving public comment, and assuming the FAA determines that
the land is not needed for present or foreseeable airpolt purposes, the release would be complete.
Note that the City may be required to document how the proceeds from the sale or lease of the
property is retained by the City exclusively for funding airport needs, as well as other obligations
that may be established in the release. Release of airport property is common for locations that
have reasonable airspace protection (Le., from local zoning) and that can be realistically shown
to be surplus to the airport's needs through the airport planning process or other justification. It is
not uncommon for a land release request to require over a year to execute, depending on its
complexity.
Airport Closure
The closure of a public-use airport can be a time consuming and costly legal challenge
for a municipal airport owner. This is particularly true for airports that have:
• Accepted land from a federal program,
• Purchased property using FAA funding, or
• Taken a federal grant for airport improvements within the last twenty years.
The FAA requires a thirty day notice of intent to close a facility. During this time, the FAA will
perform a review of the proposed closure to determine if the airport sponsor is obligated to keep
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the airport open and operating, per the grant assurances outlined in the Airport Improvement
Program (AlP) and/or any deed restrictions existing for federalJy deeded property.
FAA Grant Assurance Requirements
It is the policy of the FAA to not approve the Closure of an airport that has accepted
federal funds EAIP grants) or is under a deed restriction from the Federal Surplus Property Act.
In fact, according to the Airport Compliance Division of the FAA, they have never approved an
airport closure under those circumstances and no airport owncr has been successful in closing
their facility without FAA approval.
Airport owners who have accepted AlP funding are obligated to the federal government
to comply with the grant assurances outlined in each AlP grant. Typically, the assurances of the
AlP grants last for twenty years. However uses of AlP funds for property acquisition obligate
the grantee indefinitely (i.e., the requirement does not expire). Below is an excerpt from the
FAA's "Airport Grant Assurances" as they relate to the duration and applicability of the
obligations agreed to by the airport owner (i.e. airport sponsor) when they accept federal
funding:
B. Duration and Applicability
1. Airport development or Noise Compatibility Program Projects Undertaken by a Public
Agency Spansor. The terms, conditions and assurances of the grant agreement shall remain in
full force and effect throughout the usefollife of the facilities developed or equipment acquired
for an air part development or noise compatibility program project, or throughout the usefu{life
of the project items installed within afacility under a noise compatibility program project, but in
any event nollo exceed twenty (20) years from the date of acceptance of a grant offer of Federal
fonds for the project. However, there shall be no limit on the duration of the assurances
regarding ExclWiive Rights and Airport Revenue so long as the airport is used as an airport.
There shall be no limit on the duration of the terms, conditions, and assurances with respect to
real property acquired with federal funds. Furthermore, the duration of the Civil Rights
assurance shall be specified in the assurances.
As noted, there is no limit to the duration of these obligations on property that was purchased
with AlP funds. Additionally, Section C, Paragraph 19 of this document further make public
airport closure infeasible per regulation, stating:
C. Sponsor Certification. The sponsor hel:eby assures and certifies that:
19. Operation and Maintenance.
a. The airport and all facilities which are necessary to serve the aeronautical users of the
airport, other than facilities owned or controlled by the United States, shall be operated at all
times in a safe and serviceable condition and in accordance with the minimum standards as may
be required or prescribed by applicable Federal, state and local agencies for maintenance and
operation. It will not cause or permit any activity or action thereon which would interfere with
its use for airport purpases.
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These assurances obligate an airport spensor to keep the airport open at all times and not
allow any action that would interfere with its use as a public-use airport. By the virtue of this
assuranee, the airport owner has agreed to keep the airport open 10 be used as an airport for the
applicable duration of the obligation.
Repayment of Grant and Revenue Diversion,
In addition to the grant assurances, the grant agreement does not have provisions for
repayment of federal monies in order to cancel the grant and associated terms and conditions. Per
FAA pelicy, because of the important role that each airport has in the NPIAS, the FAA would
not support any effort to rescind the contract (grant) obligations. An additional obligation of an
airport owner is that any money earned by the sponsor operating the airport can only be spent on
the airport. Publicly owned airports cannot "divert" their revenue off of the airport. The FAA
Airport Compliance Division has stated that if an airport is closed without FAA approval, any
revenues earned on or from that property are considered airport revenues and must be paid back
to the FAA. In other words, if the 'FAA denies permission to close the airpert, they will consider
it to be airport property no mailer what the use is. If the land is sold, the sponsor could be
obligated to repay the FAA up to three times the sale price. Below, US Code, Title 49, 47107 and
47133 dictate the procedures and penalties of revenue accountability and diversion:
Sec. 47J07. Project grant application approval conditioned on assurances about airport
operations.
(n) Recovery of JIlegal/y Diverted Funds.--
(1) In general. --Not later than 180 days after the issuance of an audit or any other report that
identifies an illegal diversion of airport revenues (as determined under subsections (b) and (I)
and section 117133), the Secretary. acting through the Administrator, shall-
(A) Review the audit or report;
(B) Perform appropriatefactftnding; and
(C) Conduct a hearing and render a ftnal determination concerning whether the illegal diversion
of airport revenues asserted in the audit or report occurred.
Sec. 47133. Restriction on use of revenues
(0) PROHIB!TlON-Local taxes on aviation fuel (except taxes in effect on December 30, 1987)
or the revenues generated by an airport that is the subject of Federal assistance may not be
expended for any purpose other than the capita.! or operating costs o/--
(l) the airport;
(2) the local airport system; or
(3) any other local facilitY that is owned or operated by the person or entity that 'owns or
operates the airport that is directly and substantially related to the air transportation of
passengers or property.
(5) PENALTY FOR DIVERSION OF AVIA110N REVENUES-The amount of a civil penalty
assessed under this section/or a violation of section 47107(b) 0/ this title (or any assurance
made under such section) or section 47133 of this title may be increased above the otherwise
applicable maximum amount under this section to an amount not to exceed 3 times Ihe amount of
revenues that are used in violation of such section. ' .
...,.",..-----------------------""-
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Landmark Airport Closure (Meigs Field)
February 2010
There have been cases in the past where airport sponsors chose to disregard federal
requirements and closed their airport without FAA permission. Perhaps the most well publicized
closure is "Meigs Field," which was closed by the City of Chicago in 2003 without approval. In
this particular instance, the airport was not obligated via grant assurances as it had not received.
AlP funding within the durations outlined above. Additionally, Meigs Field, like PAO, was not
federally deeded property, so there were no deed restrictions applicable. 'The City of Chicago did
however close the airport without providing notice to the FAA. Based upon that violation, the
FAA levied a line against the City of Chicago of $33,000, which was the maximum penalty at
that time ($1,100 per day for thirty days).
In addition, the FAA also fined the City $1 million for diverting airport revenue by using
airport money to pay the contractors for the demolition of the runway. Records indicate that the
city spent an additional $550,000 on legal fees disputing the fines. In total, the closing of Meigs
Field cost the City of Chicago over $1.6 million. If the airport was obligated by grant assurances
(such as the case with PAO) the FAA would have ordered the City of Chicago to reopen the
Airport at the city's expense. Note that due to the national publicity and outcry from airport and
pilot groups that continued for years, Congress increased the fine for Failure to Notify the FAA
of Airport Closure from the previous $1,100 per day to $10,000 per day. The regulation is
entitled the "Meigs Legacy Amendment."
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Draft Business Plan
6. RECOMMENDED OPTIONS
February 2010
THE RECOMMENDED OPTIONS FOR PAO MANAGEMENT AND operation have been reduced to
two, after discussions with City staff. These two options were determined to be the most
likely scenarios and they present a contrast to each other in terms of costs and City
involvement. This section summarizes the attributes of each option, along with probable
impleJllentation tasks and costs.
6.1 Description of Options
Upon the completion of the analysis of management alternatives, discussions were held
with City staff concerning the reduction of four alternatives to a final two options. The City was
interested in seeing the differences between having the City operate the Airport and having a
third party firm operate PAO. Of course, there is a third option -do nothing -that would default
to having the County operate the Airport as it has for more than 40 years.
City Operation of the Airport
As described in Section 5 of this report, the City'S operation of the Airport would require
the implementation of the following:
• Retain an Airport Manager (preferably several months before actually taking possession
of the Airport). In addition, an Assistant Airport Manager and a part time City worker
would need to be assigned to the Airport, once it is under City control.
• Set up of an Enterprise Fund (or similar fund) for Airport operation, where charges from
other City departments could be recorded as costs against Airport revenues. In addition,
a new expense category would include Airport Operations. A discussion of Enterprise
Funds is included in Section 6.2 of this report.
• The City would set up a billing system for Airport apron tenants and collect lease
revenues from FBOs.
Typically, many municipal airports have unelected airport boards or advisory/oversight
groups that function to advise or assist in managing the Airport and its operations. These
advisory groups vary widely in authority and complexity. Some have complete operational
control of their airports while others are advisory only. Prior to the City of Palo Alto taking back
PAO, it is recommended that an advisory group be formally chartered that would report to the
City in an advisory capacity. The Joint Community Relations Committee already exists and may
provide the structure or basis for the City's formal advisory board. These positions are usually
appointed with staggered ternns and usually represent a cross-section of airport users and
stakeholders. Most have a good knowledge of aviation, business, government, and the
community.
Revenues and expenses generated from this management option were estimated in
previous sections and it was found that operating revenue surpluses were positive for both the
2012-2017 and 2018-2037 periods ($231,700 and $23,743,500, respectively). However, when
non-operating costs are added, there is a cumulative net deficit for the 2012-2017 period for PAO
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of -$129,200. For the longer term (2018-2037), total net revenues (which include non-operating
costs) were estimated at $13,678,500. Refinements to these numbers are provided in this section
to include potential start-up costs and one-time expenditures.
Third Party Management of the Airport
Third party management of an airport is sometimes called "airport privatization,"
depending upon how inclusive of services the agreement or lease is. Under this option at PAO,
the City would still retain ownership of the Airport, however, it would I)ot be involved
significantly with the day-to-day opetation of the facility. For the near term (2012-2017) it is
envisioned that a third party would be retained to operate the Airport for the City. Because of
existing lease agreements with current FBOs it may not be possible or cost-effective to lease the
entire AirpOlt to a third party. However, for the longer term (2018-2037), this management
model w<\1uld be expanded to involve full third party leasing of the Airport with payments to the
City, .but with an allowance for profits to a third party operator from leases and rents.
For this business plan, it was assumed that the Contractor would provide labor for the
Airport management and operation, rather than having City employees operate the Airport. As
such, cumulative net revenues to the City for this option were forecast to total $816,200 for the
2012-2017 period. For the longer-term period (2018-2037), the City would receive almost
$16.98 million from the Third Party Management company. Total net revenues from this option
would be $17,800,900 for the entire 2012-2037 period.
6.2 Implementation Steps for City Operation of PAO
If the City decides to operate the Airport with its own staff, there are a number of
implementation steps that would need to be initiated, along with some start-up cost items. This
option assumes that there will be an early termination of the lease with the County and that the
City will take the Airport back under its own management by 2012. The recommended steps and
their approximate timing are shown in Table 20.
Table 20 -Implementation Steps: City Manaj!ement Option
Action Item Description MilestoneITrigger Point
I • Negotiate with County Set date for early termination oflease w/County Upon decision of City
Council
2 -Transition books and leases Work with County to set up administration 3 months before Airport
takeover
3 -Retain Airport Manager Hire professional airport'rnanager 2 months before Airport
takeover
4 • Arrange for mowing Decide to either pay City or buy mower 2 months before Airport
takeover
5 ~ Retain administrative worker Hire administrative worker to manage Airport I month before Airport
accounting takeover
6 -Retain Other Airport Staff ! Hire assistant manager and part time worker I 2 weeks before Airport
I takeover
7 -Provide Office Furniture If needed, furnish Airport Manager's office 1 week before Airport
takeover
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Draft Busines.' Plan February 2010
As shown, the tirst step involves a negotiation with the County to set the date of the early
termination of the lease. This requires a City COUl1cil decision and County concurrence.
Assuming that is completed, the next milestone is a transition of the accounting system at three
months prior to the transition date for Airport management. That transition would involve
setting up an Enterprise Fund for the Airport, with accounts similar to those used by the County.
In addition, lease agreements used by the County for their tenants could be used after minor
changes for City lease language and standard provisions.
At two months prior to taking back the Airport, a professional airport manager
(Accredited Airport Executive), would be hired. During that time, the AAE would become
acclimated to the position, observe the County operation of the Airport, and develop an Airport
Operations Manual for the facility. Although not required for general aviation airports like PAO,
an Airport Operations Manual should be developed that would spell out daily, monthly, and
annual responsibilities of personnel and City administration, show contact names and numbers,
and describe emergency and security procedures. Later, at one month prior to the takeover, an
administrative person could be hired to keep the books for the Airport, send out invoices, and.
coordinate with the City regarding the Airport accounting system. The month prior to start-up
would be used for training, development of letterhead (if needed), set up for utilities, and
reporting to FAA.
At two months prior to taking back the Airport, the City should decide whether to have
existing park staff mow the Airport or purchase a mower for Airport personnel. This early
decision is needed since the potential purchase of mowing equipment requires advance notice for
funding and acquisition. It is not unusual for Airport management and staff of small airports to
participate in mowing activities. However, with the golf course next door, which requires
frequent mowing and grooming, perhaps an arrangement can be made with Open Space and
Parks Division staff to mow the Airport. Currently, there are about eight acres of open propelty
along Embarcadero Road and several acres to either side of the runway and taxiway that would
require periodic mowing. Some airport sponsors provide municipal equipment for their airport
staff to use· in mowing airpOit prop City • The decision to mow the Airport with Airport staff
would require the acquisition of mowing equipment -which would be the most significant cost
of transition. Mowing equipment for this size facility can cost between $)5,000 and $20,000.
The equipment does not have to be new.
Finally, the hiring of an assistant manager and part time slaff worker could occur two
weeks prior to start-up. Training for these positions can be accomplished relatively quickly. In
addition, the office used by County personnel will need re-equipping once it is vacated.
Therefore, a computer, telephone, and other office furniture and equipment would need to be
provided. It is not known whether any of these items are already available from the City, but
total costs for new equipment would be less than $5,000.
Start-up Costs
Overall, start-up costs are estimated to be $25,000 or less for the City's operation of
PAO. These costs would include mowing machinery (tractor and mower) and office
equipment/furniture. If labor costs are factored in, the early employment of the Airport
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management and administrative staff could add another $35,000 to the cost. Overall start-up
costs would be less than $60,000, much of which could be absorbed iii the pro forma. For
example, the budgeted non-operating expenses of $50,000 for that first year could be devoted
toward start-up costs. For 2012, the pro forma budgets $840,600 for operational expenses. Start
up costs, including salaries and benefits, would total roughly 7 percent or less of this budgeted
amount.
Revenues and Expenses
Under the City Management Option, a revenue and expense pro forma was developed
using the assumptions developed in Section 5 of this report. Year-by-year totals of revenues and
expenses are presented in Table 21.
Table 21-Summary of City Management Pm Forma: 2012 -2037
Non-Operating
Year Operaling Revenues Operating Expenses Capital Expenses Total Ne! Revenues
2012 $863,725 $84D,628 $50000 -$26,903
2013 $886,490 $875495 $50,000 -$39,005
2014 $932,466 $911 810 $50000 -$29,344
2015 $1,002289 $949632 $50000 $2,657
2016 $1,027,896 $989,024 $50000 -$1l,128
2017 $1,054,528 $1,030,052 $50000 -$25,524
2018 $2,243,565 $1205,988 $338000 $699577
2019 $2,291,529 $1,255,822 $351,520 $684,187
~---
2020 $2,376,898 $1307717 $365,58J $703,600
2021 $2,428,776 $1 36'1 758 $380204 $686,814
2022 $2,519,635 $1,418,035 $395,412 $706,188
2023 $2,575,746 $1,476.639 $411,229 $687,878
2024 $2,672,484 $1,537668 $427,678 5707,139
2025 $2733,174 $1601,221 $444,785 $687,168
2026 $2,836,209 $1667403 $462,576 $706,230
2027 $2,901,851 $1,736,323 $481 079 $684,448
2028 $3,01] 633 $1,808,095 $500,323 $703,216
2028 $3,082,631 $1 882836 $520,335 $679,460
2030 $3 199645 $1 960,669 $541,149 $697,827
2031 $3,276,437 $2041123 $562,795 $671,919
2032 $3,401,202 $2,126130 $585307 $689,765
2033 $3,484,260 $2214030 $608,719 $661,511
2034 $3,617,339 $2,305,568 . $633,068 $678,703
2035 $3,707,174 $2400893 $658,390 $647,89t
2036 $3,849,169 $2500164 $684,726 $664,280
2037 $),946,335 $2603542 $712,115 $630,678
IRI R.A. Wiedeman/l & Associales, Inc. 58
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6.3 Implementation Steps for Third Party Operation of PAO
Third party operation ofPAO could occur in two distinctways. The first would involve
keeping the existing leases with the County and its tenants in place until 2018. At that time, the
City could negotiate with a third party for operation of the Airport. The second option would be
an early termination of the lease agreement with the County and retention of a third party
operator for the Airport. For the first option,ilO analysis is needed for the 20 I 0~20 17 period.
For the second option, there are strategies needed for both the short and long term periods. Thus,
this analysis assumes an early termination in order to present potential methods of operating the
Airport using a third party management firm.
Assuming the City opts for third party management of PAO in the short term, it would
require a two-step process. The first step would involve operation of the Airport from the time
that the lease with the County is terminated until the end of2017. It is assumed that the existing
FBOs still would hold the same or similar lease terms with the City that they now hold with the
County. Once those leases expire in 2017, the City has exclusive claim to all hangars and other
revenue-producing facilities on the Airport. At that time, a second set of leases could be
negotiated with on-Airport FBOs and a third party airport operator. These new leases should
consider shorter renewal or renegotiation periods, giving the City flexibility to change terms and
conditions more frequently in concert with market conditions. Table 22 presents a summary of
the implementation steps associated with this management option.
._ ....
Table 22 -Implementation Steps: Third Party Management Option
Actiun Item Description Milestonerrrigger Point
Negotiate with County : Set date for early termination of lease
w/County Upon decision of City Council
Negotiate with curren! FDOs Transition revenues to City 6-9 months prior to takeover
Solicit 3rd Party Operator Issue RFP for 3rd Party Operator 6-9 months prior to takeover
Operate Airport through 20P Gauge working relationship, financial From takeover date through 2017 performance
Issue neW RFP Expand 3rd Party Operator scope January 20)7
Because the terms and responsibilities associated with a third party operator are subject to
negotiation, the City can be as involved or non-involved in the operation of the Airport as
desired. It is suggested that oversight of the facilities be retained by the City under any
agreement, such that capital re-investment, when needed, can be assured.
Sta rt-u p Costs
If mowing the facility is included in the Third Party Management agreement, then there
would be no equipment acquisition start-up costs for the City under this option. The City would
need to set up accounting systems to accommodate the Airport and the revenues and expenses
that would be assoeiatedwith the City'S responsibilities under a negotiated agreement.
However, if most of those responsibilities were given to a third party operator, the City would
simply account for surplus revenues generated at the Airport.
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Revenues and Expenses
February 20]0
Under the Third Party Management Option, a revenue and expense pro forma was
developed using the assumptions developed in Section 5 of this report. Year-by-year totals of
revenues and expenses are presented in Table 23. The column "Total Net Revenues" deseribes
the Airport's projected financial production, while the "Total to City" shows the portion of Total
Net Revenues that would accrue to the City afterpayirig the Third Party Operator.
Table 23 -Summary of Third Parly Manallement Pro Forma: 2012 -2037
Year TOlal Revenues Total Expenses Total Net Revenues Total to City
2012 $863,725 ..................... E50,649 $113077 $1
2013 $886490 $777,496 $108,994 $108,994
2014 $932 466 $807,648 $124,818 $124,818
2015 $1 002289 $841,206 $161,083 $161,083
20]6 $1,027896 $871 406 $156,490 $156,490
2017 $1,054,528 $902,814 $151,714 $151,714
2018 $2243565 $1 259,629 $983,936 $737,952
2019 $2,291,529 $1310014 $981515 $736,136
2020 $2376898 . $1,362,415 $1 014484 $760,863
.2021 $2,428,776 $1416911 $1,011,865 $758,899
2022 $2519635 $1473588 $1,046,048 $784,536
2023 i $2,575,746 $1 532531 $1,043,215 $782,411
2024 $2,672,484 $1 593,832 $1,078,652 $808,989
2025 $2,733 174 $1,657,586 $1,075,588 $806,691
2026 $2,836,209 $1,723,889 $1,112,320 $834,240
2027 $2,901,851 $1,792845 $1,109,006 $831,755
2028 $3,011,633 $1,864,559 $1 147074 $860,306
2028 $3,082,631 $1,939,141 $1,143,491 $857,618
2030 $3,199,645 $2016,706 $1,182,938 $887,204
2031 $3,276,437 $2,097,375 $1,179,062 $884,296
2032 $3;401,202 $2,181,270 $1,219932 $914,949
2033 $3,484,260 $2,268,521 $1,215,740 $911,805
2034 $3,617339 $2,359,261 ,258,077 $943,558
2035 $3,707,174 $2,453,632 $940,157
2036 $3,849,169 $2,551,777 $1,297,392 $973,044
2037 $.3,946,335 $2,653,848 $1,292,487 $969,365
6.4 Accounting/Funding Overview
A fund is a group of related accounts that is used to maintain control over resources that
have been segregated for specific activities or objectives. The two main categories of funds that
municipalities use are Governmental Funds and Proprietary Funds. The governmental fund
category includes the general fund, special revenue funds, capital projects funds, debt service
funds and permanent funds. The proprietary fund category includes enterprise and internal
service funds.
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The focus of this section is on enterprise funds and how they differ from general funds,
since that is the type required for the Airport. In this regard, an enterprise fund is used to
account for a business-like activity within a government, while the general fund is the primary
operating fund of a governmental unit.
General Fund
The general fund is the primary governmental fund type. Government Accounting
Standards Board (GASB) Codification, Section 1300.1 04a states that the purpose of a general
fund is "to account for all financial resources except those required to be accounted for in
another fund." In most governments, the general fund is a very active fund and can become quite
complex due to the range of activities, such as administration of the various branches of
government. General funds have all the characteristics of governmental funds. Revenues are
generally recognized when measurable and available. Expenditures are recognized when the
liability is incurred.
A governmental entity can have only one general fund for financial reporting purposes. If
several such funds exist, they are usually combined into one fund for financial reporting
purposes, as long as they are all part of the general government. Most general funds are required
by statute to have a budget approved by the legislative body. The approved budget sets the nature
and scope of financial operations by setting amounts for sources of revenues and for purposes of
expenditures and provides the legal authorization for expenditures,
Enterprise Fund
Enterprise funds arc used to account for the acquisition, operation and maintenance of
governmental facilities and services that are entirely or predominantly self-supporting by user
charges. The operations of enterprise funds are accounted for in such a manner as to show a
profit or loss similar to comparable private enterprises. Enterprise funds are created as a means
to ensure that no tax dollars go towards providing for the annual operating cost and future capital
improvements of tile activity that is operated as such. CommUllities who accept this general law
statute do so with the intent that user fees will be set at appropriate levels to cover the actiVity's
operating cost and capital improvements. The theory behind this practice is that the users of these
services shOUld pay for all costs, as they are the ones who use it.
Enterprise funds are no longer solely used to account for governmental activities that are
like commercial activities. As defined by GASB 34, enterprise funds may be used to report any
activity for which a fee is charged to external users for goods and services:'The need for an
enterprise fund is triggered if anyone of the following criteria is met.
• The activity is financed with debt that is secured solely by a pledge of the net revenues
from fees and charges of the activity. Debt that is secured by a pledge of net revenues
from fees and charges and the full faith and credit of a related primary government or
component unit -even if that government is not expected to make any payments -is not
payable solely from fees and charges of the activity. (Some debt may be secured, in part,
IMI R.A. Wiedemann & Associates, Inc. 61
Palo Alto Airport
Drop Business PIon February lOJlJ
by a portion of its own proceeds but should be considered as payable "solely" from the
revenues of the activity.)
• Laws or regulations require that the activity's cosls of providing services, including
capital costs (such as depreciation or debt service), be reCovered with fees and charges,
rather than with taxes or similar revenues.
• The pricing policies of the activity establish fees and charges designed to recover its
costs, including capital costs.
Slale unemployment compensation funds, turnpike authorities, lotteries, airports, and
public colleges and universities are examples of activities that may be accounted for as enterprise
funds. Once it is determined that an activity should be accounted for in an enterprise fund, a
separate fund should be established for each distinct service provided by the governmental unit.
Separate accounting entities facilitate the measurement of costs incurred to deliver each service.
Segment information disclosure may also be required for enterprise funds.
Some communities have actually established enterprise fund operations that are not self
supporting and are supported by taxes to a certain degree. This mainly happens when fees are set
too low and revenues taken in do not cover operating expenses andlor capilal improvements.
Conversely, some communities opt not to establish enterprise funds and allow any surplus
generated to be added to its general fund surplus and used to fund otHer operations not associated
with the activity. This practice is not permitted at airports that have grant assurance covenants
with the FAA because of its ban on revenue diversion (see Section 5.4).
If the City decides to operate the Airport, an enterprise fund would be used to account for
Airport revenues and expenditures. By law, an "enterprise" fund is self-sustaining, meaning that
all expenditures must be directly related to the operation, maintenance, repair, and management
of the City's Airport. Revenues to the Airport enterprise fund would be kept separate from other
municipal funds and uses and cannot be co-mingled with funds for any other activities.
Internal Service J<'und
An internal service fund is created to provide goods or services to other funds,
departments or agencies of the primary government and its component unils, or to other
governments, on a cost-reimbursement basis. For PAO, services provided to the Airport
enterprise fund from other units of City government would be reimbursed on a cost basis. Thus,
if mowing of Airport property is provided by the Open Space and Parks Division, a
reimbursement to that Division would be made from the Airport Enterprise Fund and charged to
the Aviation Services account.
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Palo Alto Airport
Drrift Bllsiness Plan
6.5 Feasibility of Management Options Summary
February 2010
Revenue surpluses over the entire forecast period are estimated to total $13,549,200 for
the City Management Option and $17,800,900 for the Third Party Management Option. It
should be noted that all of these revenue surpluses must be reinvested in the Airport according to
FAA revenue diversion policy directives. That is, after paying all expenses, the City cannot use
surplus revenues to invest in noncAirportactivities. It should also be noted that the current FAA
regu lations permit recovery of costs up to six years previous. Thus, if surplus revenues are
generated under the City Management Option in year 2018, the City is permitted to recover
losses back to year 2012. Given this policy both options appear feasible. The City Management
Option would require an ability to absorb roughly $130,000 in losses for the first six years of
operation, followed by repayment and revenue surpluses from that point forward. It is believed
that the Third Party Management Option would be self-supporting from its inception.
-::-:-,-----~~-............... ~ .... .
IAI R.A. Wiedemann & Associates,Int. 63
Appendix A:
Detailed Survey Results
Palo Alto Airport
Drafi,Business Plan
Appendix A -Survey of Airport Users
February 2010
In early April, 2009, an Airport User Survey was developed and mailed to aircraft owners
that based their aircraft at Palo Alto Airport (Figure A-I). Approximately 500 surveys were
distributed. Priorto this mailing, the Airport User Survey was launched via www.Zoomerang.com
so that respondents could either complete and mail in the surveyor complete it online. The online
survey was administered via web link from the home page of the City of Palo Alto website
(www.cityofpaioalto.org). Surveys were requested to be returned by May lSi. During this period,
a total of 145 visiL~ were recorded on www.Zoomcrang.eol11 and 64 surveys were completed.
Additionally, 78 hard copy surveys were submitted, for a total of J 42 responses to the Airport User
Survey. A total ofJ9 different cities and towns within California were represented in the responses.
AIRPORT USER SURVEY
1. Please list type of aircraft (specify make & model)
A total of 129 based aircraft owners at Palo Alia Airport responded to this question. Aircraft
types included J 48 single-engine aircraft and 9 multi-engine aircraft for a total of 157 aircraft (some
respondents owned multiple aircraft). Nine other user surveys were submitted by users that do not
base their aircraft at PAD. They represented an additional 9 single engine aircraft, to bring the total
number of aircraft represented to 166.
2·3. Please estimate the total annllallevel of spending associated with YOllr aircraft at YOllr
home airport:
Using the cumulative totals for several expense categories, the average annual spending per
PAD based aircraft respondent included:
• $6,706 Annually for Fuel
• $5,999 for Maintenance
• $3,052 for Storage
• $2,350 for Aviation Related Taxes
• $2,276 for "Other."
• TOTAL=$ZO,893
Combining all averages from these categories results in an average annual aircraft spending of
$20,893 (fuel, maintenance, storage, aviation-related taxes, and other) forthe 129 respondents tothis
question. Total spending for the 129 respondents to this question equaled $3,280,135. 'Some
respondents did not specify annual spending breakdown by category as specified in the survey,
providing just total annual spending.
INI R.A. Wiedemann & Associates, Inc. A-1
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Draft Business Plan
CITYt.)JALO ALTO Economic Impact ASse$Smenl of
Pajo Alto Airport
A1RPORT US£R SURVEY
,
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Palo Afro Ahport At:livily In/ormation
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____ I.p'II'O _._I'A'>t'I'ct'wtl ______ ........ __ ._._. ___ •
FigureA.I-Airport User Survey
February 2010
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If the three flying clubs that responded were removed from the survey results (and the 23
aircraft that they represented in their answers) then the average annual spending al PAO per aircraft
is reduced tQ $18,462. Average breakdowns by category ofexpenditure for non-flying ciubaircraft
were: $5,319 per year for fuel, $5,610 for maintenance, $3,195 for storage, $1,783 for aviation
related taxes and $1,957 for "other." .
4-5. Estimated Yearly Takeoffs at Palo Alto Airport and expected changes in the future:
Survey responses indicated thaI 137 aircraft users accounted for an estimated 115,466 annual
operations (57,733 takeotf.q). One of the flying clubs reported having 80,000 annual operations. If
all three flying clubs removed from the tOlal, the 134 remaining respondents averaged 206 annual
operations for a total of27,466 operations.
Ofthese respondents, 99 indicated that their activity would remain the same over the next
five years. Thilty respondents expected to increase their activity by a total of 11,200 operations
over the next five years. Eleven respondents indicated that they expected their activity to decrease,
and four of these are leaving PAO all together. Three respondents said that they are either going to
sell their aircraft or move due to high tie-down fees. The four respondents that stated that they were
IAI R.A. Wiedemann & Associates, Inc. A-2
Palo Alia Airport
Draft Business Plan
going to leave spent a combined $33,896 per year on their aircraft at PAO.
F'ebruary 2010
6. Is there a pricing point at Palo Alto Airport that would cause you to relocate your aircraft
to a different airport?
One hundred and eighteen airport users responded to ihisquestion. Six respol1dents indicated
that there was not a pricing point that would cause them to move. The following is a sample of the
different types of responses:
Percent of Total
• ·Jfprices increase, may relocate aircraft,
business, or family 28.0%
• Must stay competitive with other airports 17.0%
• Have already reached pricing point/too high Il.l%
• If increase is greater than CPIIinflation 11.0%
• Yes, there is pricing point, but unspecified 11.0%
• Will sell aircraft or already have 10.2%
• Unclear 5.9%
• Will not move -unaffected by pricing 5.1%
• Yes, but not near that level yet 5.1%
If several of these responses are combined, it becomes clear that significant changes in pricing in
the future will cause the relocation of aircraft and ih some cases Cause businesses to move to other
areas. Additionally, further price increases will cause some existing users to sell their aircraft (some
already have). When these categories are taken cumulativelY, approximately 77.3 percent of
respondents indicated that either any increase at ali, or any increase that is significant (greater than
CPI/inflation or not competitive with other airports), will cause them to relocate their aircraft. Due
to the overwhelming response to this question, many responses are reprinted at the end of this
section verbatim.
7. If pricing or airport availability were to cause you to move your aircraft, would you be
willing to actually base your aircraft at allY of the following alternative airports?
Moffett Federal (if available in the future)
San Carlos Airport
Mineta San Jose International
Reid Hillview
Hayward
South County Airport
HalfMoon Bay Airport
Other (specify):
Percent of Total
36.9%
26.2%
12.9%
.9.4%
9.0%
3.0%
2.6%
There were 16 respondents that specified other airports. Three identified Livermore, two
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identified Watsonville and the rest were various other facilities in other counties, cities, and states.
8. Please estimate the percentage use (BusinesslPersonal) of your aircraft?
A total of 135 Airport users responded to this question. The Airport users indicated that66
percent used their aircraft for personal reasons, while 32 percent used theil' aircraft for business
reasons, and 2 percent flew for other reasons. If these responses are weighted by the number of
flights flown, 83.2 percent of the flights were used for business reasons, while 16.4 percent offl ights
were used for personal reasons and 0.4 percent of flights were flown for other reasons.
9. If possible, please explain the importance of the business use of your aircraft to youI'
company or business
There were 90 responses to this question. Answers included the following general
categories:
% of Responses
• Aircraft is critical. No aircraft, no business 20.0%
• Important part of business, allows good service 29.9%
to existing clients and opens new markets
• Provides access to hard-to-reach places where 15.5%
driving is too time-intensive
• Use aircraft to commute to/from work weekly 10.0%
• Offers time savings and increased effectiveness 7.7%
for executives who travel a lot
• Aircraft offers cheaper, faster, more convenient 6.6%
transportation than commercial flights
• Other miscellaneous 11.3%
Taken cumulatively, almost 90 percent of respondents to this question said their aircraft ranges from
critical importance (no aircraft, no business) to a cheaper, faster, and more convenient mode than
commercial travel for business.
Summary of Airport User Survey Results
In summary, there were several key points expressed as a result of the survey of Palo Alto
Airport users:
• A total of $3,280,135 was spent by 129 Palo Alto Airport users on their aircraft in
2008.
A verage annual spending per aircraft was estimated at $20,900.
• One hundred and thirty-seven aircraft users that reported an estimated 115,466
annual operations (57,733 takeoffs).
IMI ItA. Wiedemann & Associates, Inc. A-4
Palo Allo Airport
Draft Bllsiness Plan February 2010
• Impact of price increases: Approximately 77 percent of respondents indicated that
either any increase at ali, or any increase that is significant (greater than
CPI/inflation or not competitive with other airports), will cause them to relocate their
aircraft.
• The top three airports that based aircraft users would consider moving to are:
Moffett Federal (if available in the future) 36.9%
San Carlos Airport 26.2%
Mineta San Jose International 12.9%
Business users indicated that they rely on the use of the Palo Alto Airport for:
• Convenience to their office facilities or commute to other office locations
• Conducting business at the airport.
• Providing aviation-related services which are dependent on an airport location.
Comparing the results of this Airport user survey with those from the Palo Alto Airport
Association (PAAA) membership survey conducted in 1995, there are a couple of similarities.
These similarities are:
• Terminal Facility/Services: The 1995 survey noted a need for a nice restaurant on
the airfield or within a block for pilots and to encourage fly-ins, in addition to better
restroom facilities, and enhanced services such as pilot's lounge with access to
weather information where pilot's could share operations and maintenance
information. Respondents to the 2009 Airport User Survey mentioned that the
existing restaurant is closed too oft"en, that restroom facilities were inadequate, and
there is an overall lack of services offered at the Airport.
• Business Impacts of the Airport: The 1995 survey mentioned a number of fad lity
improvements that are. necessary to support continued and effective business use,
such as: A WOS for night-time operations; abil ity to contact Bay Approach when the
A TCT is not manned; and, a full-service FBO to serve transients. Respondents to
the 2009 Airport User Survey reiterated how important pricing was, in terms of
supporting the economics of aircraft use for business purposes.
Detai! of Question #6 -Pricing Point
During review of the responses to the Palo Alto Airport User Survey, it became clear that
pricing is a very important issue for users. Listed below are the responses to Question #6, 'Is there
a pricing point at Palo Alto Airport that would cause you to relocate your aircraft to a different
airport?' This verbatim listing provides insight into attitudes of airport tenants toward pricing
changes at the Airport.
1~' R.A. Wiedeman .. & Associates, file. A-S
Pulo Alto Airport
Draft Business Plun February 2010
• Eventually the airplane is my primary commute vehicle and 'Palo Alto is the best location,
Palo Alto has to stay comparable to others.
• Yes would move to Palo Alto if hangar were available for'$350 per month.
• Yes $125/month for a tiedown is somewhat expensive. If this increases or their charges are
imposed, I would consider not using my plane for commuting toPAO.
• This airport is already more expensive than others. There arena hangars available at the
airports.
• Use fees for landing and taking off or much higher tie downs would lead me to consider
alternatives, Limited access to PAO would likely impact whether I do business in Palo Alto
or immediately surrounding area,
• Yes the hangars rental are very high and we may move to Oregon. State taxes are out of
control with the "use tax." Oregon does not have this,
• Yes, if the tie down fee increases beyond a reasonable amount.
• I currently pay $250 for my hangar in Jackson. It would be hard to justify paying more than
that for a tie-down in Palo Alto.
• Closeness to home is the best feature ofPAO.
• As a flight school we will move if the economic climate at PAO is not conducive to our
business,
• The point at which I lose money or decide the risk ion't worth the profit.
• Tie down expenses are killing us, Please do not raise them. Alternatively, we need a volume
discount.
• It's already so high that I think often about relocation,
• It is hard to provide a specific number, but ifthe tie-down or tax fees go up too much higher
than current levels I would either relocate the airplane or sell it. I do not tie the airplane
down at SJC, for example, because the fees are simply too high to be acceptable, I cannot
afford to pay for even the current hangar rent at PAO, for example, and tie down the airplane
in an attempt to maintain reasonable operating costs.
• My tie-down space is the single largest annual expense after maintenance. In the past 13
years I've had the plane at PAO, the cost has increased with the cost ofliving, which is fair
enough, though expensive, However, if the cost were to be increased beyond the rate of
inflation--especially in these recessionary times--l would have to look for alternatives, either
relocating the plane or selling it.
• No, I am moving to the Lake Tahoe area later this year and will maintain a part-time
residence in Palo Alto,
• Yes, but not sure what that point is, It depends on the options available, One option would
be to seI! the plane. Very undesirable!
• There is no single factor (price point) that would cause us to move. I do not think current
prices are unreasonable. 1 wish you would spend more money on improving the airside
facl lities and less on security fences,
• If hangar and fuel prices increase too much above nearby airports
• A further increase in tiedown fees would likely push me to seriously consider moving the
plane to San Carlos Airport.
• Tiedown is already too expensive.
• Yes, though it also depends on prieing at neighboring airports such as San Carlos and Reid
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Hillview.
• Yes -very difficult.
February 2010
• Yes, The hanger prices are 3x that of other regional airports. I chose PAO because it is close
to homelwork. I am considering moving the airplane.
• No.
• Iftie-down rent went up any inore~ I wa~ going to move to RHV. However, I just sold the
airplane.
• Yes. While PaJo Alto is the most convenient for us, there are several alternatives that are
close enough to consider if the price difference is significant.
• If there was a substantial increase in storage andlor fuel costs, I would go to Moffett, if
available. The other airports mentioned don't make any sense.
• Palo Alto is already a profitable airport and the city profits in many ways from the general
aviation flights Ihat are provided. Greed in the form of unwarranted fee increases would
cause me to seriously seek alternative location for my plane.
• If the lie down and other fees and charges increase to an unreasonable level.
• The other local choices are San Carios, San Jose, and Hayward. San Carlos and Hayward
are slightly less expensive but farther away. San Jose is much more expensive and farther
away.
• I can drive to Hollister and keep the plane in a hanger for the same price as the increased
county outside tiedown rates. My new rate will be $308/mo. I plan to move my airplane
outside of Santa Clara County.
• Fuel I can always buy somewhere else, but increased tiedown fees would drive me away at
about 10% more than I am paying now.
• If it became much more expensive than it currently is.
• Tie-down fees are important for me as that is a fixed monthly fee.
• Yes, I'm already there. I'm in the process of making arrangements to move my airplane to
either SQL (where I have a hangar with another airplane), Hayward, or Reid-Hillview.
• I'm close to it now, but ifSJC and Moffett remain GA non-options, I'll probably just sell the
plane rather than relocate it. Relocating anywhere else would make flying inconvenient
. enough that I probably wouldn't fly enough to warrant keeping a plane.
• I'm losing money now renting the plane through West Valley Flying Club so any significant
increase might tip me to sell it.
• Hangars are way too expensive, when compared to other counties. JOOLL fuel is also tQO
expensive. Why is it so much cheaper at, say, Tracy or HalfMoon Bay or Gustine? You're
losing my fuel business by pricing it so high. Knocking about 10-20 cents per gallon off
would dramatically inerease business.
• I had no idea that I was spending this much, annually, on my airplane. This simple exercise,
for the sake of responding to this survey, gives me pause as it is. Any meaningful price
increase will see me retiring from flight.
• I don't know.
• Will move if price increases.
• There probably is, but 1 do not have a specific price point in mind at the moment.
• Yes. Don't know at what point I would move.
• Remaining married is fundamentally incompatible with further increases in hangar rent, and
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my hangar is dominant in cost of my aircraft ownership. We are not wealthy, and this
expense is a point offriction at home.lfthe cost were to rise substantially; I would be forced
to sell this aircraft that I built myself and is the fulfillment of my life's dream.
• Any landing fees will cause me to relocate. Any more rent increases may also mean that the
aircraft needs to be relocated. • Have ilOtthought about itthat way.
• Not really. 1 live in San Francisco and choose to keep my plane because of the tower,
maintenance facilities and tie-down cost.
• Yes ... not sure.
• Tie down costs above $175.
• No --I would sell the airplane.
• No.
• Yes. High storage and fuel costs drive away owners, particularly where business expenses
aren't supporting cosls.
• I am currently a renter of aircraft based in Palo Alto. Palo Alto Airport rental pricing 1
believe is on the high end of the range in the Bay Area already. However, I would accept a
modest increase in fees rather than closure of the airport.
• Very near my limit now. Reid-Hillview is slightly farther to drive, and historically
maintained my plane (annual = thousands/yr, $J3k last year includes an incident repair).
Longer runways and drier environment.
• That "point" was reached in summer of 2007. LOsses were extreme -had to sell my
airplanes allhe rate of 1 per year (IRS limit). Two sold in 2008 & 2009 -third going next
year.
• Storage fees would have to be $100 more per month than nearby airports to make us
relocate.
• Of course! I own 3 aircraft and I have already moved 2 of them to places like Watsonville
and Central California. We fly because we love flying not necessarily afford it. When family
financial pressures overcome the joy we find other alternatives. Everyone flies
commercially. Where do we think these pilots come from? I have two sons less than 25 and
they are both pilots. Why? The familiarity is passed down from generation to generation.
PAO should embrace flying and look for Fed Gov support as well. Flying is a contribution
to our nation -a precious resource. We need to recognize that. I have been at PAO for over
25 years -in the nineties I moved to San Carlos for two years because pricing became
outrageous.
• Hard to answer .-pricing point for hangar/tie-down? For fuel? For maintenance? Or a
combo of the above? The answer is YES, but I'm not sure how to quantify it.
• It is very close to that point now. I am considering a move to San Carlos due to prices and
the extreme neglect that the county is showing to rAO. Runways are degenerating,
increasing wear on the aircraft. We pay more for less than any other airport. Additionally,
unused space on the airport needs to be developed for more hangars -which would also
increase revenue for the city/county.
• We are already at the limit of hangar cost. Would consider moving to tie down ifhangar
costs increase. Another issue is the decline of services at Palo Alto Airport.
• Yes. Aviation is already too expensive and each cost increment pushes me closer to selling
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the airplane.
February 20]0
• Yes, iftiedown/storage costs were to escalate from their current level or local fuel taxes were
to make Palo Alto uneconomic to refuel.
• Yes but depends on pricing at other local airports.
• If you can't afford to stay you will be forced to move.
• Avery small amount ok, but very large, no. Pricing very high now. If you have a pricing
problem give the Airport to San Mateo County.
• Reduce fuel cost, current providers have monopoly contracts. Build more hangars to
increase revenue.
• Yes if affordable hangar space became available. Yes if the tie down fees increased
disproportionately or if I can't get the maintenance and services that I need.
• Yes overall expense currently high relative to use.
• You are very close 10 my limit.
• Yes ifrenl, fuel, operation fees, storage fees as well as use friendliness became untenable,
we would move to a more user friendly airport.
• Difficult to say, but 8 percent is very sleep.
• No.
• More than San Carios, or reduction in service.
• If significantly more overpriced than San Jose or Reid Hillview we would move. However
we like it here.
• Obviously. Is this some sort of make work project for bureaucrats? This has been done
multiple times for decades since I have been at PAO.
• No-Location is important for business purposes.
• Yes. I am basically fixed income, and if] can't fit aircraft ownership into my budget, I will
sell the aircraft (which would likely move it away from Palo Alto).
• It's getting close to my limit now.
• Yes. The prices are considerably higher than the rest of California.
• At this point no. The only real variable is the tie-down. It would be cheaper anywhere else
but at this point is not offset by the convenience. I am considering a move to get a hangar
in spite of the convenience factor.
• Taxes and parking fees are very high. If they increase more then the cost of living I will sell
or move.
• Possibly; convenience is worth about 10 -20 percent at the moment.
• Yes, if parking and fees exceed fair market value for the bay area.
• Could consider relocating if storage and other use taxes were increased by 10·20 percent
over other nearby airports.
• The tie down fee, changed by the count at this time is excessive and to go up even further
(8% each year) it is out of line with surrounding airports. Probably >$150 per month
tiedown would make me move.
• Yes, if tie-downs exceeded San Carlos significantly, I'll relocate to San Carlos.
• I don't have another choice since I have a hangar at PAO.
• No. When I can't afford it, will sell plane and stop flying
• If fees increase to much I may move to hangar equipment in Hayward since turbine
operations are permitted there.
,", R.A. Wiedemann & Associates, Inc. A-9
Palo Alto Airport
_D_ffl:.rfl_B_u_s_ill_es_s_P._ta_n __________________________ February 2010
• The $120.50 is substantial compared to other airfields. A full hangar can be gained for that
elsewhere.
• This is a difficult question. Of course there always is a price that would cause me to move
but we are a long way from that price.
• IfI gaveaprice point, I might be charged that much. Palo Airport users already pay much
more than other airports in the area. It should be $100 per month or less.
• No-within reason.
• Palo Alto has relatively poor asphalt surfaces, a lot of potential conflicts with birds and a
regular cross-wind. If tiedown prices are raised too high the convenience of having my
aircraft close wi II be outweighed by costs.
• Of course but I don't know what it is off hand.
• Palo Alto is relatively most convenient for me than Reid Hillview. I'm willing to pay a small
premium for this convenience maybe 10 or 15 percent.
• Flying is a hobby for me now, and an expensive one so I am looking to manage expenses
where I can.
• Any increase in costs at Palo Alto compared to costs and another local airport.
• Although the airport management does a good job, it has always (last 25 years personal
knowledge) seemed that the city doesn't appreciated the asset that the airport represents. If
some ofthe proposed improvements were made (i.e. new terminal, shade hangars, etc., we
would be willing to accept a raise in price.
• Hayward is closer and cheaper and offers better services even a maintenance stall for
owners. I can gel a hangar for $214 per month.
• The parking/tiedown fee is one of the highest. If it is to be increased by 10 percent I would
have to rethink about relocating.
• Hangar pricing is the big factor for me. It will either COme down or I will relocated
• Definitely and it is approaching that pricing point now. $129.50 per month is simply far too
much to pay and is higher than any other airport far and wide San Carlos-San Carlos tie
down rates are S20 cheaper per month than Palo Alto's. I was previously at San Carlos and
would go back.
• The price point has been reached. Parking at Livermore is $75 per month. Palo Alto is
$129.50 per month. A few years ago there was a 2 year parking spot wait list. Now there
are 30 to 40 empty spaces.
• If the fees at Palo alto were to be greater than olher airports by a significant amount I would
definitely relocated.
• Any increase in cost that is greater than the current CPI makes me increasingly considering
moving. That said Palo Alto Airport is essential for the conduct of my business and my
transportation.
• Over $200 per month and property tax would get me to ask "is it worth it" to feed the
financial wants wishes of Palo Alto.
• Palo Alto Aero is an intermediary. We should pay the county and city not a private company
for hangars.
• My aireraft is currently hangared. Because ofthal, it looks like new and most owners of new
aircraft would be happy to pay fair market rent for hangar space. Other than that no.
• Probably there is, but it would depend on the alternative airports pricing.
IRf B.A. Wiedemann & ASSOCiates, Inc. A-IO
Palo Alto Airport
Draft Bus/ncss Plan
• Convenient to home.
• If costs grew by 1.5x I would sell my plane.
• It's too expensive now.
February 2010
• An increase in tie-down cost move to South County or Byron. Fuel at PAO is higher than
most others. .
• Yes if the tie-down fees wereraisecl too much then it would be worth my lime and move to
a nearby field.
• Yes, we are pretty much there. Any significant increases.
• Yes you have already passed it my airplane is for sale.
• Yes rates are high as is. Overall price of flying is increasing while my income has
dramatically decreased.
• Any increase over inflation would have me move to HalfMoon Bay
• Not sure.
• Yes. Other locations within 20 miles are cheaper.
I~I B.A. Wiedemann & Associates, 11lc. A-ll
Appendix B:
Airport Community Value
Palo Alto Alrporl
Business Plan -Ai,pol'! Community Value
Palo Alto Airport Business Plan
Airport Community Value
1. INTRODUCTION
February 2010
I N RECENT YEARS, THE VALUE OF AIRPORTS has come under closer examination from both
government officials and the general public. In many communities, this has resulted in
higher expectations of financial performance· and economic benefits. Measuring this
performance and some type of return on investment is critical to the argument for future capital
improvement projects. For Palo Alto, the value of the Airport to the community may be
important in the decision-making process surrounding the early "re-acquisition" of the Airport
from County management and control. Therefore, the determination of PAO's economic impact
and contribution to the local economy is the first half of this work. The other half of the equation
is the determination of the asset value of the Airpo11, so as to equip decision makers with
information about the City's capital investment at the Airport.
When examining the economic health and well-being of a business, it is customary to
, examine both the income statement and the balance sheet. Similarly, the Airport Community
Value (ACV) measurement examines the "income statement" (as measured by the IMPLAN
economic modeling) and the "balance sheet" (as measured by the depreciated or useful life value
of PAO assets). Previous economic impact studies have focused only on the "income" side of an
airports economic value.. The existing value of airport facilities should also be included in the
airport's economic impact. This would take the form of an estimate of replacement costs or
existing facility worth (including useful life depreciated values of facilities). With a baseline
value such as this, measurement of the total value of an airport is possible.
Given these analytical needs, this report is organized to include the following sections:
• Economic Activ ity Generated by PAO
• Existing Value of Airport Property and Facilities
• Summary of Airport Community Value
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2. ECONOMIC ACTIVITY GENERA TED BY PAO
T HIS SECTION PRESENTS THE METHOD AND FINDINGS used in measuring the economic
activity of PAD. In Ihis regard, the economic activity can be measured by estimating the
number of direct jobs, income, and output at the Airport. In addition, there is a ripple
effect of these jobs and income on the community. Just as the nation is experiencing a negative·
multiplier effect of job cutbacks, individual communities experience similar processes -both
positive and negative -only at a smaller seale.
2.1 The Multiplier or Ripple Effect
Previous economic impact studies show the multiplied effect of spending money on an
enterprise. As an example, if a new firm comes into an area and employs 50 people and also
purchases some local goods and services, the economic impact is attributable to the company's
direct outlays plus the respending of these outiays by firms supplying goods and services to the
new firm. There are generally two types of ripple effects: (I) those associated with firm-to-firm
transactions, and (2) those derived from the wages and salaries allocated to employees in these
firms. The wages and salaries paid to the 50 new employees are spent and respent several times
within the community. Retail establishments that have nothing to do with the nature of the new
firm's business are affected by its presence as the new employees spend their income on clothes,
automobiles, restaurant meals and so forth. Thus, for every dollar of new wages and salaries, an
additional >25 to 75 cents of income might be generated elsewhere in the area. As supplier
companies providing inputs to the new firm expand their own production and allocate more
resources to wages and salaries, a further consumption-generated ripple effect occurs.
When all the effects are taken in the aggregate, a new job often generates the equivalent
of another job (summed up over many partial jobs in different parts of the area's economy) if the
community is large and has a sophisticated consumer retail base. In smaller communities, a new
job can generate between one-third and two-thirds additional jobs. Ripple or multiplier effects
work in both a positive way (when a new airport is built or an existing airport expands) and in a
negative manner (when an enterprise goes out of business or an airport closes). For example, the
closure of a military base has a much greater economic impact than simply the loss of direct
employment or expenditures at the facility.
Numerous studies have been conducted to establish respending mUltipliers for various
geographic areas and segments of the economy. Sector-specific, input-output multipliers are
usually developed to estimate the respending impacts of wages and salaries and other related
expenditures. For impacts relating to airport employment, construction, and local business use,
multipliers from a number of different sectors are used.
2.2 IMPLAN Modeling
Typically, economic impact models are used to describe the flow of money from one
economic sector to another. In the past, models such as the Regional Input-Output Modeling
System (RIMS II) and the U.S Corps of Engineers Economic Impact Forecasting System (EIFS)
were used to measure the impacts of direct spending on an area. In recent years, more complex
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Business PI~fI-Airpoti Community Value February 20]0
models have been developed, including IMPLAN and Regional Economic Modeling, Inc.
(REMI), which have the ability to estimate tax revenue impacts. In all of these models, the
inputs of direct jobs and direct spending are critical to the economic impact measurement
process. The models tracc sector-to-sector impacts and estimate the proportion of any change
that is likely to circulate within the economy and the percentage that can be expected to "leak"
oilt to other geographic regions.
The models are based on input-output tables produced by the U.S. Department of
Commerce, Bureau of Economic Analysis (BEA). Input-output modeling takes into account the
dependency of each economic sector on every other sector (there are 500 sectors recorded in the
BEA input-output tables). Using these models, the BEA input-output tables are adjusted to take'
into account the structure of the local economy under study. For example, in calculating a
manufacturing mUltiplier for one county, over 300 sectors can be involved. Each of their
contributions to the multiplier is weighted by the size of the sector in terms of output. In
addition, the IMPLAN databases are composed of the following components:
• Employment;
• Industry Output;
• Value Added:
-Employee Compensation;
·Proprietary Income;
-Other Property Type Income;
-Indirect Business Taxes;
• Institutional Demands;
• Personal Consumption Expenditures (PCE) -three income levels;
• Federal Government Military and Non-Military Purchases;
• State and Local Government Education and Non-Education Purchases;
• Commodity Credit Corporation;
• Inventory Purchases;
• Capital Formation;
• Foreign Exports;
• Federal, State and Local Government Sales; and,
• Inventory Sales.
For this study, the IMPLAN methodology for measuring the ripple effect of spending and
economic activity at PAD was used. This method is more useful than older methods in
generating both the economic impacts and the tax accounting aspects of the Airport activity.
Desired outputs of the IMPLAN modeling include the following:
• Direct Spending: Includes on-airport spending on employment, operations, and
capital projects. It also includes off-airport spending by air travelers for rental
cars, hotels, restaurants, etc. Thus, direct spending is associated with both the
providers and the users of airport services.
• Induced Benefits (Multiplier Effect): Impacts above the original direct spending
created by the successive rounds of spending in the local economy until the
original direct dollar impact has been incrementally exported from the local area.
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• Jobs and Income: Quantify the income generated by aviation and the number of
jobs supported by tbe Airport.
• Total Output in Dollars: The combined impacts of direct and induced spending.
• Taxes: Tax revenue contribution of the aviation industry to local and State units
of govemmeni in California.
These five components of the Airport's value were assessed as a part of the airport activity
(IMPLAN) portion of the analysis, and represent the "income statement" for PAO.
2.3 Survey Data
Surveys of airport users and employers were conducted and documented in an earlier
interim report of this Business Plan. Results of those surveys are useful as inputs to the
IMPLAN model. Key findings from the surveys included the following:
• A total of$3,280,135 was spent by 129 Palo Alto Airport users on their aircraft in
2008.
• Average annual spending per aircraft was estimated at $20,900.
• A total of 77 full-time employees and 140 part-time employees were identified as
direct aviation-related at the Airport
Of these, 20 full-time and 114 part-time jobs involved flight training
operations at the Airport.
The surveys did not es~imate the number of employees working for construction companies
doing capital improvement work at the Airport. They also did not include any employment
generated off the Airport (hotels, restaurants, rental cars, etc.) by visitors to the area that use the
Airport. These jobs are estimated by the IMPLAN model, based upon expenditure data for these
activities.
2.4 Other IMPLAN Input Data
The determination of PAO's economic impact focuses on the value of the Airport and
how money spent there impacts other sectors of the local economy until the original expenditure
ultimately leaves the area. While the asset value of tile Airport is estimated in a later section, the
estimate of expenditure impacts is described in Ihis section. To accomplish this, the analysis
utilized IMPLAN and the following methodology:
IMPLAN Model Inputs
• Input Data on Direct Impacts
On-airport expenditures by Users (estimated via survey averages)
On-airport expenditures by the County and Employers {employment,
operations, and capital projects}
Off-airport spending by Air Travelers (rental cars, hotels, restaurants, etc.)
IMPLAN Model Outputs
• Direct and Induced Economic Impacts
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f!~~~~!!~~~~an ~ Airporl Community Value February 2010
• State and Local Tax Impacts
This section concludes with a summary of direct, induced, and State and local tax impacts
generated by Palo Alto Airport. Additionally, non-monetary impacts of the Airport and local
aviation in general are discussed.
On-Airport Spending
On-airport spending includes three primary categories: 1) tlie County as Airport Operator,
2) other on-airport employers, and 3) airport users. In this regard, expenditures are used for
administration,maintenance, wholesale fuel purchases, employment, and capital improvements.
Much of this information is included in the Airport Business Plan. There are 2.6 full·time
equivalent employees working as County employees at the Airport. Operating expenses for 2008
totaled $714,500 (from County budget information). That did not include capital improvement
expenditures. Since these vary from year to year, an aVerage of the ten year Airport Capital
Improvement Plan (2009-2019) was used to estimate this historical expenditure. That average
worked out to $492,000 per year. Most of this money is anticipated to come from FAA grants to
the Airport. Total Airport Operator spending was estimated to average $1,206,500 annually.
In addition to the Airport Sponsor, on-airport spending comes from other on-airport
employers. A census of on-airport businesses (in addition to the County's employees) revealed
that there are 75 full time equivalent employees and 139 part time employees. From the survey
of airport users, it was estimated that each based aircraft user spends an average of roughly
$20,900 annually on their aircraft activity. A portion of this money goes to on-airport
businesses. Given a total of 472 based aircraft, an estimate of $9,865,000 in direct spending was
calculated.
In summary, on-airport spending from each of the sources quantified in this analysis
totaled $1 1.07 million for 2008. This total was included as an input to the IMPLAN model along
with the off-airport visitor spending described in the next section.
Off-Airport Visitor Spending
Every year, air visitors to Palo Alto and the San Francisco Bay area arrive using Palo
Alto Airport. These visitors spend money for rental cars, hotels, and restaurants during their
trips and that spending can be attributed to their use of PAO. To estimate visitor spending,
itinerant visitor trips were multiplied times the amount spent per trip.
A method for determining spending by visitors using Palo Alto Airport was developed
based on a per-visitor spending estimate. Essentially, this method first estimates the number of
visitors to an airport. Then, an estimated average expenditure per visitor is applied to the total
number of visitors, quantifying total visitor spending. To estimate the number of general aviation
visitors to PAO, it was assumed that only the actual transient pilots and passengers would be
counted as visitors. General aviation surveys have estimated that the average occupancy of
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general aviation aircraft is roughly 2.5 passengers per flightl. Since transient (itinerant)
operations can contain significant numbers elf local residents (leaving and coming back to the
Airport), on Iy a portion of the itinerant operations could be counted as actual· visitors.
Discussions with airport FBOs indicated that roughly 10 percent of total itinerant passengers
could be considered overnight visitors to the Palo Alto area. The method of estimation is as
follows:
• Itinerant Arrivals = Itinerant Operations/2
(67,432/2 = 33,716 Itinerant Arrivals)
• Visitors = 0.10 times Itinerant Arrivals times 2.5
(0,10 x 33,716 x 2.5 = 8,429)
Information taken from D.K. Shifflet & Associates, Ltd., California 2008 Data Tables,
Prepared for California Travel & Tourism Commission 2 indicated an average visitor direct
spending of $443 per trip in the San Francisco Bay area. This amount includes expenditures by
visitors who spend money at local hotels, restaurants, travel agencies, and other businesses
during their trips. This estimate was multiplied by the estimated number of air visitors to Palo
Alto Airport. Using Ihis method, it was estimated that $3,734,000 was expended by visitors using
the Airport in 2008.
2.5 Application of Regional Multipliers
Induced economic impacts are the multiplied effects of the direct spending impacts.
Induced impacts are created by the successive rounds of spending in the local economy until the
original direct impact has been incrementally exported from the local area. Thus, the economic
impacts of aviation can be felt in parts of Palo Alto's economy that are far removed from
aviation. Regions that are more economically self-sufficient have higher respending
"multipliers" than do regions that are more dependent on regional imports since less of the
money is siphoned out of the community for goods and services.
For this study, IMPLAN software was selected as the best input-output model for
developing respending multipliers. IMPLAN, developed originally by the U.S. Forest Service, is
a comprehensive impact system that is built on a framework of input-output accounting
methodology. Since IMPLAN provides a comprehensive system, it is possible to trace impacts
of change in one sector on other sectors in a more detailed fashion.
To use the IMPLAN model, the economic impact methodology first identified the direct
spending and employment at Palo Alto Airport created by the operation, maintenance, and
capital improvement of the facility. To this was added the direct spending of air visitors at off
airport sites such as hotels and restaurants. Armed with this information, regional respending
multipliers derived from IMPLAN software were applied to the data to determine the multiplied
1 Aircraft Owners & Pilots Association (AOPA) estimate, 2004.
2 Source: ~!$m,visjtcal iforJJ.HL("om/mooi\.1.fun!oadslfl!t:s/edltorlHi!:~~.afch/2008 Califijrnin D~lla Tablc.iL.:
PUBUC VERSION~'
'Kf R.A. Wiedemann & Associales, Inc. B-6
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Business Plan -Airport Community Value F ehruary}O 10
impacts of direct spending (called induced impacts). Table I presents a summary of Palo Alto
Airpol1's direct and induced economic impacts, as taken from Addendum A.
Table 1 -Direct and Induced Economic Impacts: Palo Alto Airport
ITEM
, " ',',' " "
AMoUNT
,
Direct Impacts
Airport-related Income* (a) . $14,407,000
On and Off-Airport Expenditures (Total including $42,341,100
capital costs) (b)
Airport-related Employment (Total) (c) 183
Induced Impacts
Induced Income Impacts (d) $8,001,900
Induced Direct Impacts (e) $21,979,900
TotaJ Induced Employment Impacts (f) 124
Grand Total Dollar Impacts (b+e) $64,321,000
Grand Total Income Impacts' (a+d) $22,409,000
Grand Total Employment Impacts (c+f) 307
. . ... .. Includes mdlrect mcomcs from VIsitor spendmg and capItal development. 1hls IS a subset of the totailmpacts and IS already
included in the O\Jtpilt number.
As shown in TabJe I, the operation of the Palo Alto Airport produces roughly $22.4
million in incomes, $64.3 million in total output, and it sustains 307 jobs.
State and Local Tax Impacts
When discussing economic impacts of aviation, many people are interested in the
collective benefits to the local municipalities and the State of California. One measure of the
collective local benefits involves the level oftaxes paid to these local governmental units. These
tax impacts were estimated by the IMPLAN model for expenditures at the State and local level.
Estimated State and local tax impacts from aviation activity for Palo Alto Airport totaled
$3,725,600.
In addition to these tax revenues, local jurisdictions collect taxes on the personal property
value of aircraft based at their airports along with possessory interest tax on the land used by
aircraft owners for storage of aircraft. Both the aircraft personal property taxes and the
possessory inferest taxes are distributed as follows: I) One third to the city in which the airport is
situated; 2) One third to any local school district; 3) One third to the county general fund. If the
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airport is not within 1. city, the full amount is divided between the local school district and the
county. None of this tax revenue is kept for use on an airport. For the Ci7 of Palo Alto, the
reported personal property tax collectiotls lola led $222,533 in FY 2008-2009. Because the City
only receives one third of the total tax collected, this indicates that total local personal property
taxes generated by the Airport amounled to $667,600 this past year. The possessory interest tax
collections have totaled near $100,000 per year on the Airport; The combined property tax and
possessory interest local tax generation of roughly $765,000 is a subset of the total estimate of
$3,725,600 for the entire Airport.
. 2.6 Summary of Impact Analysis
As shown in Table 1, Palo Alto Airport supports 307 jobs and $64.3 million in annual
economic impact. The Airport generates over $3.7 million in State and local taxes and provides
incomes of roughly $22.4 million to area residents. Addendum A presents a detailed summary
of the IMPLAN economic impact respending process, by economic sector.
3 Source: Phone conversation with Tarun Narayan with City of Palo Alto 08/19109.
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3. EXISTING VALUE OF AIRPORT PROPERTY AND FACILITIES
T wo ESTIMATES OF EXISTING AIRPORT VALUES ARE helpful in describing the overall Airport
Community Value. The first value of an existing airport is the replacement cost of the
facility. While this is not the current value of the facility due to depreciation of assets, it
gives an idea of the-resources needed to replicate the facilities at the local airport. -The Airport
replacement value can be estimated by multiplying unit costs of construction times the existing
quantities of facilities to derive an approximate infrastructure investment total. Land values are
added to the facility development costs, yielding a total replacement value. Not included in this
mix are the potential difficulties of actually replacing the airport due to environmental issues,
land use constraints, and property availability.
A second important descriptor in the ACV involves the "depreciated" or "useful life"
value of the existing airport facilities. In this regard, careful records have been kept by the City
regarding the depreciated value of the Airport assets. These are described in the following
sections.
3.1 Airport Replacement Value
When considering the value of an airport, its economic impact is usually identified, but
rarely are the assets identified or valued. At Palo Alto Airport, a significant value of the facility
is related to its replacement value and current asset worth. The replacement value of Palo Alto
Airport is an estimate of the cOhstruction value of the individual facilities at the Airport. This
estimate uses the dimensions of the major assets, multiplied by the unit costs of construction to
obtain an approximate total value for the cost of the airport. Table 2 shows the estimation of
those costs. not including the value ofthe property on which the current airport is located.
The property value was not included since there is a wide range of methods and
assumptions that could be used in this determination. In this regard, there is not another 103-acre
parcel in the area upon which to base a comparative estimate. Rather, building lots in Palo Alto
for single homes can average from $1.0 to $1.5 million for less than 10,000 square feet of land.
The larger the parcel is, generally the lower the per-square-foot cost. Thus, a parcel with
4,486,700 square feet would be very hard to price. Given its location adjacent to the Baylands,
the Airport property would be difficult if not impossible to develop. Finally, land is not an asset
that would be depreciated or have a finite or "useful life." As such, the Airport land could have a
value of more than $100 million if it were possible to convert to another use.
For these reasons, land value was not included in the replaeement value total. Whatever
the existing value, it will not depreciate over the long term. As a result, only the facilities that
have been developed on the Airport were valued in this analysis. Replacement of these on
existing property would cost about $57 million Crable 2).
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IJusiness Plan '.Ilirport Community Value February 2010 ..... _ ....... --'-":':"''---''-'''~
I Table 2 -Airport Replacement Value Calculation
Description Units Measure Costl~ Amount
Pavement
Runwav Length" Width 201,950 Costlsq.ft ... $18.00 .. $3,635,100
1 -Full, 2··Partial,
Taxiway );None 1 $1,615,600
Actual Area from
Apron Area Aerial 1,597,406 Costlso.ft. $16.00 $25,558,496
I Hangars
!
Conventional Hangars Total Square Foolage 59,550 Costlso.ft. $180 $10,719,000
T·Hangars : Total Units 45 CostiUnit $85000 $3,825000
D··None, I-AvGas
,~.§xstem Only
!
. 2;A vGas & Jet A Lump Sum 2 $500,000
I : O-Nonet
I: Instrument Approaches I 1 ~Nonprecision
I 2=Precision Lumn Sum 0 $.
II
I' Air Traffic Control Tower O=No,I=Yes Lump Sum 1 $5000,000
Ii
Total Square Feet
Non·Hangar Buildings irom Aerial 19,800 CostlsQ.ft. $300 $5,940000
• Total Replacement Value $56,995 146
Thus, one method of valuing the facility would be to consider the equivalent costs of
replacement. Since many of the existing facilities are aging, they have lost a portion of their
value in accordance with their useful life. In this regard, a second measure of Airport value was
made· Current Value of Airport Facilities.
3.2 Current Value of Airport Facilities
The current value of Airport facilities was estimated using the calculated replacement
value along with the age of various facilities and their estimated useful life. For pavements, the
useful life is much shorter at Palo Alto A irport than the 20 years which is expected at many
airports due to PAO's location near tidal soils. Because of the constant movement of the soils,
the life expectancy for these pavements is closer to 12-I 5 years than to 20 years. A re-hab of the
existing runway and taxiway is planned for 2012, even though the pavement only dates back to
2001. Thus, the value of the pavement in the 11-15 year period was estimated at only 25 percent
of its replacement value. For pavements over 15 years, a current value of zero was assigned.
Most of the buildings on the Airport are between 30 and 34 years old, with several dating
back to the 1930s and J 940s. Even with these ages, a recent inspection of facilities by the City
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revealed that they are remarkably sound and still viable for use, It was estimated that most of
these facilities have at least another 10 years of useful life, Although they are listed in Table 4 as
being over 15 years old, it is understood that they are significantly older than 15 years, To
account for the remaining useful life in terms of replacement costs, the replacement values listed
in Table 3 were decreased in accordance with the age and remaining useful life of each facility,
For PAO buildings, it was estimated that the buildings still have one third of their replacement
value remaining in useful life. No deprecation w.as assumed for the fuel system or FAA Air
Traffic Control Tower since they hold their original replacement value by function. Table 3
presents the results ofthe current value estimate using the principles of remaining useful life.
Table 3 -Current Value Calculation
If----------+-;:---:::---,,-,-Age of Ex is lin F"'ac"'il"'it"'ie:::s __ ,...-,;;-:::;-;;:-_-+ _____ -il
Square Feet O· 10 SF II 15 S.F. Over ITEM·
IlP;ement
IrRlIl1way
jl Taxiway
: Apron Area
5 years old S.F. 5· yrs .,' yrs 15 yrs
201,950
100975
798 703 798,703
$908,775
$454,388
$11,181,842 !
.H ... a;.:;n=g'ar"-s_-.... __ ---+--C"'S"'.F:..; . ..:fi"'orc..;Cr·~h.angars, # ofUnits"-""'o::..r.=.T"'s)'--_+ ____ l---:-::-:c-. __ -II
Conventional Hangars 59,550 $3,537,270
T·H.ngars 45 $1,262,250
Fuel SYstem NlA
Instrument Approaches N/A
Air Traffic Control Tower N/A
1:!£n.Hangar Buildings
E.isting .. Facility V.lue
19,800
$500,000
$
$5,000,000
$1,960,200
$24,804;n:s I
As shown, the Airport's existing facility value based upon useful life estimates is
approximately $24.8 million. This is roughly 44 percent of its replacement value as estimated
without land costs.
3.3 Summary of Airport Community Value
The value of Palo Alto Airpoti has been estimated in this analysis, using two very
different measures. The first was the economic activity metric, which assesses the job creation,
income, output, and total taxes generated at the Airport. This value was estimated using survey
data, on·airport employment totals, annual operational and capital spending, and visitor spending
averages. These inputs were used in the IMPLAN model to estimate one portion of the value of
the Airport. In this regard, the Airport generates an average of $64.3 million per year and
sustains over 300 jobs in the area.
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Blls/ness Plan -Airport Community Value February 2010
A second measure of the value of the Airport involves the current asset value. In this
regard, a method was used that first estimated the current replacement .value of the facility and
then reduced that value by the useful life remaining on each specific asset. This procedure
resulted in a replacement value estimate of $57.0 million and a current value of $24.8 million.
Taken as a snapshot in time,the total value of the Airport could be 'estimated to include its
annual economic activity ($64.3 million) plus its current asset value ($24.8 million). Adding
these two numbers, it can be shown that the overall value of the Airport to the community is
$89.1 million.
There are a number of non-monetary benefits of aviation that have not been mentioned in
this analysis. Some of these benefits include:
• Transportation Benefits: Defined as the time saved and cost avoided by travelers
who use airports rather than the next best alternative. Palo Alto Airport provides
access to the National Air Transpo~tation System.
• Stimulation of Business: Businesses have indicated that airports can be an
important factor in the attraction and siting of new businesses in a city. This is
particularly true for businesses with over 100 employees.
• Aeromedical Evacuation: Airports often serve as bases for aeromedical
evacuation teams or flight services. This life-saving function has intrinsic value
that often cannot be adequately quantified.
• Recreation: Roughly 50 percent of commercial airline travel and 50 percent of
general aviation travel is for recreational purposes.
All of the above factors point to a value of an airport that is' not easily quantified. The
impacts that were estimated within the body of this report are only one facet of the overall
picture. The economic activity generated by the Airport along with its current asset value
represent the monetary value of the facility, while these other non-monetary factors describe
other features of its intrinsic worth.
1M' R.A. Wiedemanll & Associates,Inc. B-12
Addendum A
Palo Alto Airport, CA Economic Impact, 2009
E mplOyment
~
!NA1CS Aggregaled Seclar Direc il1direc induce •. Tota
IA Forest~y> Fish &, Hunting 0.0 0.0 0.1 0.1
:Minimi .. ... .. . ...... 0.0 . .' 0.2 0.0 0.2
Utilities 0.0 0.1 0.1 • 0.2
Construction 3.7 0.8 0.4 4.9
Manufacturinll 18.0 4.5 1.0 23.5
Wholesale Trade 0.0 4.5 2.1 6.6
Retaillrade 10.8 0.2 12.6 23.6
mnsporfation & Warehousing 101.0 11.8 0.8 J 13.6
:Information 0.0 1.7 0.8 2.5
IFinance &, insurance . 0.0 2.3 2.9 5.2
~~al estate &, rental '0.0 6.3 2.7 9.0
IProfessional~ scientific & tech services 0.0 4.7 2.0 6.7!
!Mana~ement of comrmnjes 0.0 1.5 o. 1.7!
Administrative & wllste services 0.0 9.0 2.1 lU
Educational services 0.0 0.1 3.2 3.3.
Health & soCial services 0.0 0.0 11.5 lIS
Arts-entertainment & recreation 8.8 0.4 1.9 lui
Accommodation & food services 30.9 13.2 7.7 51.8
Other services 0.0 1.2 5.6 6.81
Government & non NAICs 10.0, 2.4 1.0 13.41
irot,l 183.21 64.9 58.7 306.8!
Multiplier: 1.67
Addendum A
Palo Alto Airport, CA Economic Impact, 2009
Income
INAICS Aggrellated SeClor Direc lndirec Induce TOla~
IA., Foreslry, Fish & Hunting $0 $479 $4,250
... Mining .... $0 $21,968 $3,041
Utilities: $0 $58,476 $75,153 $
Construction $236,941 $38,915 $21,6121 $
Manufacturing $4,752,332 $823746 $101,882 $
Wholesale Trade $0 $564,298 $265,745 $8
:Retail trade $268481 $9988 $509,972 $7
Transportation & Warehousing S6;648,970 $635,061 $43,276 $73
Information $0 $293987 $93,824 $387,811
Finance & IllSurance $0 $208952 S281,70Q $490,661 i •
,Rca! est(lte & rental $0 $287 137 $85 536 $372 673
~Professiooal. scientific & tech services $0 $524,006 $217,333 $741 339
Management of companies $0 $180,850 $23,558 $204,408
Administrative & waste services $0 $459625 $96,041 $555,667
Educational sCNices $0 $4340 $160673 $165,013
Health & social services $0 $18 $823,540 $823,558
Arts~ entertaimnent & recreation $269,763 $13 090 $61,993 $344,846
Accommodation & food services $993,069 $325,508 $197,351 $1 515,927
Other services $0 $56,231 $155,398 $211,630
Government & non NAICs $1,237,486 $200,784 $72,581 $1510,851
rotaf $14,407,042 $4,707,452 $3294,473 $22408,975
Multiplier: 1.55
Addendum A
Palo Alto Airport, CA Economic Impact, 2009
o utput
WAles Aggregated Sector Direc Indirec Induce Totan
lAg. Forestry, Fish & Hunting $0 $2,516 $15,005 $17,520
Mining
, , , "'" $0 . $85,724 $]] ,883 $97,608
Utilities $0 $248,441 $293,706 . $542 147
Construction $4 $76,541 $43,624 $612,165:
Manufacturing $1027053 7 $2,409,290 $385,324 $13065150'
Wholesale Trade $0 $1,425,762 $671435 $2,097,197
Retail trade $560,10 $21,892 $1,133,572 $1,715,570
!Transportation & Warehousing $26,369066 $1,194478 $116,702 $27680,246
:Informatioll $0 $1,097,537 $384,159 $1481,696
Finance & insurance $0 $638,481 $836,656 $1,475,137
Real estate & rental $0 $1 539,864 $2,009,118 $3 548 983
iProfessional .. sclentifit & tech services i $0' $909,713 $401,251 $1,310,964
ManfLllement of companies $0 $370,564 $48,270 $418,834,
IAdministrutive & waste services $0 $1,110,456 $187,828 $1,298,284:
iEduc3tionai services $0 $8,932 $258,569 $267,502
'Health & social services $0 $45 $.1,396,220 $1,396265
Arts-entertainment & recreation $560107 $24055 $148,262 $732,423
Accommodation & food services $2742289 $861 559 $523031 $4,126,879:
Other services $0 $145,43l $377,274 $522,705
Government & non NATCs $1346989 $428264 $138,486 $1,913,740
Total $42,341095 $12,599545 $9,380,375 $64,321,015
Multlpher: 1.52
Addendum A
Tax I
Palo Alto Airport, CA Economic Impact, 2009
-------
E'!!E!. Co~ Prop. Income !Household 13> Enterprises Ind. Bus Tax Totals
Ent~rprises (Corporations) 1
Irorporate Profits Tax $527,915 $527,915
ndirect Bus Tax: Custom Duty SS6,99! $86,99~
ndirect Bus Tax: Excise Taxes $208 131 $208,131
ndirect Bus Tax: Fed NouTaxes $104,21 $104,21 ~
!Personal Tax: Estate and Gift Tax $0
!Personal Tax: income Tax ~ $2,626,948 $2,626948
Wersonal Tax; NonTaxes (Fines-Fees SO
Social Ins Tax-Empl2Lee Contribution $1 021,378 $48,631 $1,070,008
jsocial Ins Tax-Employer Contribution $1,072,57S -$1,072,575
~ederal Government NonDefense [clal $2,093,956 $48631 $2,626,948 $527,919 $399,346 $5,696,800
!corporate Profits Tax $12864' $128,644 ,
lDividends I $204,441 $204,441
IIndirect Bus Tax: Motor Vehicle Lic $21,762 $21 762
IIndirect Bus Tax: Other Taxes $227,798 $227,798
ndirect Bus Tax: Property Tax $865,271 $865,271
ndirect Bus Tax: SfL NonTaxes $94,323 $94,323
ndirect Bus Tax: Sales Tax $1,121,686 SI,121,68(
ndirect Bus Tax: Severance Tax $376 $37(
Perronal Tax: Estate and Gift Tax SO
Personal Tax: Income Tax $814693 $81469
!Personal Tax: Motor VehicJe License $27,270 $27;270
[Personal Tax: NonTaxes {Fines-Fees $160,019 $160,019
Personal Tax: Other Tax (FishlHunt) $6209 $6;209
lPersonal Tax: Property Taxes $8,038 $~,038
Social Ins Tax-Eml'l<>yee Contribution $8,498 $8,498
Soci.IIns Tax-Employer Contribution $36,559 $36;555
StatetLocal Govt NonEducation ~otal $45,057 $0 $1016228 $333,081 $2,331,216 $3,72558<
Total I II $2,122,569 $48,631 $3,643,]76 $861,005 $2,730,56, $9,405,943
Attachment B
Environmental Site Assessment
During spring 2009 Northgate Environmental Management, Inc. (Northgate) was contracted by
the City of Palo Alto to perform a Phase I Environmental Site Assessment (ESA) at the Palo Alto
Airport. The Phase I ESA was done to determine if there is reason to believe any hazardous
material spills have impacted soil andlor groundwater at PAO and was conducted in accordance
with the American Society for Testing and Materials (ASTM) "standard practice for
environmental site assessments" (ASTM Practice E 1527-05) and Unites States Environmental
Protection Agency (EPA) guidelines for ESAs. 'The Phase I ESA included research of historical
records related to past airport activities and site reconnaissance to identify potential sources of
environmental contamination, In their May 1, 2009 report Northgate identified the following
areas of potential environmental concern:
• Hazardous material use and storage by aircraft repalr and maintenance facilities at the site
including oil, aviation gas and solvents. Northgate stated that given the long history of
chemical use and storage at these facilities there is the potential of hazardous materials
releases to soil and groundwater at these locations,
• A fuel tank farm on the western portion of the site used to store aviation gas and diesel
used by refueling businesses at PAO. In their report Northgate stated three releases are
reported to have occurred at this tank farm.
• A self-service fueling station and underground piping located on the northeast corner of
the Roy-Aero Enterprises (REA) sublease area. In their report Northgate stated that this
area is a potential soil or groundwater contamination source area,
• An existing County hazardous materials storage area and corporation yard located on the
southeast area of the site, and a former County hazardous materials storage area located
on the westem edge of the site. Northgate stated that given the long history and nature of
hazardous materials storage areas they could not rule out the possibility of potential
impacts to soil or groundwater at these locations.
• Low to moderate levels of petroleum hydrocarbon compounds present in soil and
groundwater related to three former underground storage tanks (USTs) that were
removed from the site in 1988 and 1989. These USTs are the subject of an open leaking
underground storage tank (LUST) case under the purview of the Santa Clara Department
of Environmental Health.
• Two former aboveground fuel storage tanks located on the southwestern edge of the site.
Northgate stated this former fuel storage tank area represents a potential contamination
source area.
• Impacts to storm water quality due to airport storm water runoff due to reported aviation
gas spills and minor aircraft oil leaks.
• Low-level contamination of soil on a site-wide basis due to aircraft oil leaks, accidental
releases of aviation gas during refueling and intentional dumping of gasoline samples
during pre-flight inspections,
• Buildings potentially containing asbestos and lead-based paint. The Northgate report
states that due to the age of the buildings at the site it is possible that lead-based paints
were used in the strnetures in the past and it that asbestos-containing building materials
were used in some the structures.
The Northgate report recommends a Phase II site investigation be conducted at PAO to evaluate
potential soil and groundwater contamination at the sites discussed above. The Phase II site'
investigation should include soil and groundwater sampling as well as sampling at selected storm
drain locations and a survcy of potential asbestos and lead-based paint associated with buildings
at the airport. Staff recommends Council authorize uP. to $150,000 to procure environmental
consulting services for a Phase II site investigation to be performed in accordance with ASTM
and EPA guidelines for environmental site investigations. A final report will be prepared
including the results of the soil and groundwater testing, storm drain sampling and the asbestos
and lead-based paint survey. The report will also include recommendations for further
characterization of any soil or groundwater contamination encountered during the Phase II site
investigation along with results of the storm drain sampling and asbestos and lead-based paint
survey.
If significant environmental contamination is discovered at PAO based on the above described
Phase II site investigation the City will need to enter into discussion with the County and its
FBO's on responsibility for further risk assessment and site cleanup activities prior to the City
assuming responsibility for airport operations.