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HomeMy WebLinkAboutStaff Report 440-08City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL ATTN:POLICY AND SERVICES COMMITTEE FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:NOVEMBER 18, 2008 CMR: 440:08 SUBJECT:City Oversight of the Palo Alto Airport: Biannual Progress Report on Negotiations with Santa Clara County and Other Steps Including Consideration of Recommendations to Council on: Approval of Airport Mission Statement; Acceptance of the Proposal from R.A. Wiedemann & Assoc. for Airport Business Plan and Airport/Community Value Analysis; Authorization of a $105,000 Contract Based on the Proposal; and Approval of a Budget Amendment Ordinance to transfer $80,000 from the City Council Contingency account to the Capital Project Fund to provide funding for the Business Plan & Airport/Community Value Analysis (CIP Project AS-09000, City of Palo Alto Municipal Airport Transition Project) EXECUTIVE SUMMARY This second biannual progress report on City oversight of the Palo Alto Airport updates the action and information items presented to Council in the June 9, 2008 first progress report. The City’s 50-year lease with the County of Santa Clara terminates in 2017, and the County wishes to end its involvement with the Airport in 2017 or earlier. The action items and progress reports are directed by Council to plan for an orderly transition to City oversight and take a more active, immediate role in the Airport operation. Staff also recommends Council action in reference to two of the action items covered in the report, development of an Airport mission statement and preparation of an independent 20-year Airport business plan. Concerning the mission statement, staff recommends that Council review and approve the Airport mission statement proposed by the Palo Alto Airport Joint Community Relations Committee. Regarding the business plan, staff presents and evaluates the two proposals received in response to the City’s Request for Proposals for an Airport business plan and recommends that Council: 1) accept the proposal from R.A. CMR:440:08 Page 1 of 10 Wiedemann & Associates for preparation of a Palo Alto Airport Business Plan and Community Value Analysis (Airport Business Plan); 2) direct staff to negotiate and authorize the City Manager to execute a $105,000 contract with R.A. Wiedemann based on its proposal; and 3) adopt a Budget Amendment Ordinance in the amount of $80,000 for increased funding for the preparation of the Airport Business Plan. RECOMMENDATION As directed by the Council, this second biannual progress report updates the action and information items presented to the Council in the June 9, 2008 first progress report (CMR:247:08). Staff also recommends that the Policy and Services Committee recormr~end that the Council: 1) review and approve the Airport mission statement proposed by the Palo Alto Airport Joint Community Relations Committee (PAAJCRC); 2) accept the attached proposal from R.A. Wiedemann & Associates for preparation of a Palo Alto Airport Business Plan and Community Value Analysis (Airport Business Plan); 3) direct staff to negotiate and authorize the City Manager or designee to execute a $105,000 contract with R.A. Wiedemann based on its proposal; and 4) adopt the attached Budget Amendment Ordinance (BAO) in the amount of $80,000 transferring funds from the City Council contingency to the capital project for increased funding for the preparation of the Airport Business Plan. (Attachment A BAO and Attachment A-1 Capital Improvement Project (CIP) Report) BACKGROUND The 50-year lease between the City of Palo Alto and the County of Santa Clara for the Palo Alto Airport (PAO) terminates in 2017. On December 12, 2006, County staff presented to the Board of Supervisors a business plan (Plan) for PAO that recommended the County: 1 ) Terminate its involvement in PAO in 2017 or earlier if desired by the City; 2) Limit future County capital investment in PAO to the local matching funds necessary for essential, non-deferrable, Airport Improvement Project (AIP)-eligible maintenance projects or security-related projects mandated by Federal agencies; 3) Require the City to submit all future AIP grant applications; and 4) Raise tie-down rates and fuel flowage fees to help make PAO financially self-sustaining and recover as much of the County’s original investment in PAO (Outstanding Advance) as possible prior to the lease expiration. The Board of Supervisors approved the Plan, but it delayed action on the disposition of PAO for six months in order to provide the City with an opportunity to present the County with viable development options for PAO and time to negotiate those options. On December 18, 2006, the Council authorized the creation of the Palo Alto Working Group (PAAWG) to analyze PAO operations and develop one or more viable business models for PAO. On June 4, 2007, the PAAWG presented its report to the City Council. Based on its findings, the PAAWG concluded: PAO is an important transportation, business, economic, recreational and emergency preparedness asset for the City and its residents; PAO can be operated on a self-sustaining, economical basis and be cash-flow positive without requiring any financial support from the City; and CMR:440:08 Page 2 of 10 The continued operation of PAO by the County will both diminish the resource value of the airport and threaten its long-term economic viability. These conclusidns led the PAA~WG to recommend that the City Council: 1) Direct the City Manager to negotiate an early termination of the existing PAO lease with the County; 2) Appoint an interim manager for PAO; and 3) Issue an RFP for the long-term management of PAO, which will ensure its asset value to the community is maintained and will preserve its economic value into the future. On September 18, 2007 (CMR 361:07), the Finance Committee discussed staff’s response to the PAAWG recommendations and three options related to the future of PAO: 1) do nothing and wait until the lease expires in 2017; 2) assume responsibility for PAO immediately; or 3) plan for an orderly transition to City oversight and take a more active, immediate role in PAO operation. The Committee split on the recommendation and agreed to forward the report to the full Council for its review along with staff’s response to a list of questions to be researched. On November 13, 2007 (CMR 418:07), the Council directed staff to begin negotiations with the County on an early termination of the lease and to commence work on the items set forth in the November 1-3, 2007 staff report. Council also directed staff to provide progress reports to the City Council every six months beginning in May 2008. The Palo Alto Airport Joint Community Relations Committee (PAAJCRC) is a joint County/City committee that was formed in 1987 initially to deal with noise concerns but over the last several years, the committee has broadened its interest to cover and coordinate all airport activities. The Committee consists of 5 appointees from each agency plus County, City staff and Airport Tower liaison. PAAJCRC has received national recognition for its ability to deal with airport issues. On June 2, 2008 (CMR:247:08), staff presented to Council the first biannual progress report (Attachment B). CMR: 418:07 (Attachment C) and CMR:361:07 (Attachment D) are also attached. CMR: 361:07 includes the City Audit Report and the Palo Alto Airport Working Group Report. DISCUSSION In the June 2008 report, staff anticipated returning to Council in this 2nd report with: 1) the Palo Alto Airport Joint Community Relations Committee proposed Mission Statement; 2) an independent 20-year airport business plan; 3) updates on the 12-action items assigned by the Council in its deliberation on November 17, 2007; and 4) other information updates. Council consideration and development of the Airport mission statement (item 1 t in the June 2nd report): In his July 6, 2007 observation and recommendations on the County and PAAWG reports, consultant R. Austin Wiswell advised that the most penetrating and insightful question for the City to consider is "what does the City want the airport to be." In other words, a clear vision of the municipal airport’s role is needed before assuming operations. Such a vision would guide the timing of City control of the airport and how it will be managed. CMR:440:08 Page 3 of 10 The PAAJCRC drafted the following proposed preamble and mission statement to be considered and approved by the Council: The Functions and Valtie of the Palo Alto Airport The Palo Alto Airport is an important civic asset for the nearby comnmnities 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 services 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 FAA requirements. ¯To be self-supporting and operate without cost to the City’s General Fund. The mission statement sets the tone to assure the community that the City will protect the PAO and will not utilize scarce resources in the City’s General Fund. Attachment E is a sampling of Mission Statements from other public agencies. Airport Business Plan and Airport/Community Value Analysis In early August, staff sent out an RFP for the preparation of an Airport Business Plan to analyze all the significant risks and obligations. The plan would also evaluate the benefits associated with running the Palo Alto Airport prior to entering into any forn4al contract negotiations to terminate the lease with the County. The RFP Scope of Services is attached (Attachment F). The RFP was sent to nine contractors and posted on the internet. In response, two proposals were submitted. Other contractors did not respond either due to current workloads or potential conflicts of interest arising from current business with the County. Proposals were submitted by: 1) Charles B. Warren, ASA-Urban Real Property (Warren); and 2) R.A. Wiedemann and Associates (Wiedemann). Warren is a San Francisco real estate valuation firm with experience in the valuation of commercial properties, particularly waterfront properties, acquisition and management of rights-of-ways and lands for numerous public agencies. Wiedemann is a Kentucky company specializing in airport business planning; marketing, economic impact analyses and other aviation planning. The proposals differ significantly in terms of both quality and cost. The proposals are summarized in Attachment G. The proposed costs are $30,000 for Warren and $105,000 for Wiedemann ($87,500 for the basic plan and $17,500 for an optional element). The proposals were reviewed and evaluated by a committee consisting of City staff from the Administrative Services Department, one of the co-authors of the PAAWG report and the City’s consultant, R. Austin Wiswell. The Wiedemann proposal was strongly preferred by the committee based on the proposer’s experience, responsiveness to the RFP, quality of product, originality and innovation. Wiedemann has prepared 40 airport business plans, at least three of CMR:440:08 Page 4 of 10 which are very close to what the City has asked for in the RFP (refer to proposal summary for details Attachment G.). Warren has yet to prepare any similar airport business plan. The Wiedemann proposal was ve.ry responsive to the RFP with much detail regarding how its proposed busindss plan would conform to the unique requirements and needs of the City and the PAO. In conformance with the RFP, the proposed plan is intended to: provide an overview analysis of the PAO; provide an assessment of business/economic development opportunities; give feasibility guidance for the transition, management, and development of the PAO as a City- managed and sponsored facility; and recommend a strategic source of action to pursue development and address issues. Strategic planning includes planning for market-niche fit, development of unused airport property, management .structure changes and other innovative methods for examining the potential for enhanced revenues at the airport. An innovation proposed in the Wiedemann response is the Airport/Community Value-Economic Impact Analysis which is offered as an optional element at an additional cost ($17,500, in addition to the $87,500 cost of the basic plan). This optional element involves a metric developed by Wiedemann that would examine both the economic contribution of the PAO and the asset value of the PAO. This option would identify jobs, taxes, and airport revenue generated in the community. It would also identify the amount of significant business use. This analysis allows the City and other interested parties to evaluate the overall airport value to the community against the operational cost of the PAO. It would also quantify the replacement value and existing value of airport facilities. This analysis would permit the City to estimate return on investment ratios relative to the asset base at the PAO. This process may be important for quantifying the value of PAO to the City and its residents, and the Committee agreed that its benefits to the City justify its additional cost. Staff had originally budgeted $25,000 for the business plan based on prior work done by the County. Staff was initially surprised at the $120,000 cost of the Wiedemann proposal until the proposal was closely reviewed in terms of detail and how closely it matched the City’s proposed scope of work. The City’s consultant, Mr. Wiswell, was not surprised at the cost and had expected it to be even higher. The RFP process also made apparent the limited number of experts in the preparation of airport business plans. It should be noted that Wiedemann has demonstrated a degree of commitment to the City by agreeing in negotiations with staff to reduce the original cost of its proposed plan to $105,000, a 12.5% reduction. Also, a comparison of the proposed time and cost spent by each proposer shows that Wiedemann’s hours total 1,220 (including the optional task) at an average of $100 per hour; Warren’s tOtal hours are 150 at an average rate of $200. Based on the committee’s and Mr. Wiswell’s evaluation, staff recommends the Council accept the attached proposal from R.A. Wiedemann & Associates and direct staff to negotiate and authorize the City Manager or designee to execute a $105,000 contract with R.A. Wiedemann based on its proposal for the preparation of a Palo Alto Airport Business Plan and Community Value Analysis. Second biannual update on the action and informational items presented to Council on June 8, 2008: 1.City/County negotiations regarding the "outstanding advance" CMR:440:08 Page 5 of 10 The outstanding advance is the difference between the County’s total capital investment, including grant matching fees, and the net revenue generated over the term of the PAO lease. The outstanding advance as of June 30, 2008 was $757,285. The City Auditor’s June 6, 2006 report to the Council indicatds the possibility that there would be no outstanding advance if County overhead cost had been proportioned correctly and historic costs had been properly attributed to the County General Fund and not the airport. City staff’s position is that the airport and the City do not have a legal obligation to repay. Since the June 2, 2008 update, staff has met and discussed the issue of the outstanding advance with the County. County staff has indicated that it wil.1 request approval to negotiate an early termination of the lease from the Board of Supervisors, and the outstanding advance will be a negotiation item. A major concern in taking back PAO is that it does not become a burden on the City’s General Fund. If the City is required to reimburse the County for the outstanding advance, staff believes it will severely impede improvements to the PAO by increasing the time the City would need to generate matching funds for FAA Grants. Proceeding with improvements at the PAO in the first few years would require seeking funding from other sources including the City’s General Fund. Advanced funding could be reimbursed from future airport revenue but it would put the City in the same position as the County when it established its ~°Outstanding Advance". The City proposes to begin negotiations with the County following completion of the Airport Business Plan. The disposition of the outstanding advance will be a major factor in the success or failure of the negotiations and transfer of the management for PAO. 2. Federal Aviation Administration (FAA) Grant Proposal Review FAA grant funding is based on a five-year airport improvement plan (AIP). Eligible projects include those improvements related to enhancing airport safety, capacity, security, and environmental concerns. AIP funds are not eligible for terminal buildings and non-aviation development. The County AIP projects, their costs, and the year for which FAA grant funds are requested for PAO for the next five years are listed and described in the attached June 8, 2008 staff report. Although it is not guaranteed, ideally, the FAA funds 95% of the cos~ and the State funds 2.5%, making the local match 2.5%. Based on this calculation, the total local match for these project would be $82,000. There are many variables in the grant process and the proposed PAO Business Plan will help the City better understand the associated risks. The County is going ahead with its proposal to apply for grant funding in 2009 to purchase a Sweeper and Portable Runway Closure Lighting estimated to cost $60,000. A condition of receiving FAA grant funding is a requirement that the airport remain in existence for 20 years beyond the latest grant date. If the funds are granted, the FAA grant condition would require the PAO to remain an airport open until at least 2029, or the City would have to pay the depreciated value of the FAA grant. 3. Current agreement and grant review Compared to more contemporary agreements, the current Fixed Base Operator (FBO) agreements (in effect until 2017) favor the FBO and do not adequately serve the revenue/growth needs of the airport. Both FBO’s made significant financial investments during the initial terms of their long-term leases with the County but now, with only 8 years remaining on their leases, CMR:440:08 Page 6 of 10 there is no incentive for any investment. It is estimated that the two FBO’s generate over 1.5 million dollars in revenue each year. If the tenants of the FBO’s remain beyond 2017, the revenue would provide a significant contribution to the future success of the airport. Current FAA grants will be reviewed by staff from the Public Works Department and the City Attorney’s office. However, due to worldoad issues, neither department has undertaken the review process to date. 4. Airport comparisons Possibilities for the most viable management arrangement for the PAO are varied and include operation by the City as well as different types of third l~arty management. It is important to note that the City’s legal responsibility cannot be reassigned even if a third party manages the airport. As a sponsor, the City is ultimately responsible for airport operations regardless of who manages the PAO. A complete Airport Business Plan will include data that will help in comparing the PAO with other airports and to assess the most viable management arrangement. 5. Staffing needs assessment Currently, the PAO on-site staffing consists of two full-time airport operations workers and a part-time supervisor. Regardless of whether the City assumes management of the PAO or if it is run by a third party, there will always be a need for City staff to write grants and manage/monitor airport operations. The FAA is clear that, as an °~airport sponsor," the City will have full liability for operations regardless of who oversees management operations. The airport business plan will provide various management options and the pro and cons of each. 6. USGS topographical maps and global warming Based on a San Francisco Bay Conservation and Development Commission (BCDC) map using USGS information, in 2100, the water level in San Francisco Bay is predicted to rise by one meter, high enough to submerge all the land within the Palo Alto City limits east of 101, with the exception of portions of Bixby Park. This would include all of the airport, golf course, water treatment plant and the businesses along Embarcadero Road. The Army Corps of Engineers and the Santa Clara Valley Water District are taking this information into account as part of their levee analysis due in 2011 (see below). 7.Hazardous Materials Analysis Due to worldoad issues, staff is proposing to postpone the hazardous materials analysis for a minimum of one year. 8.Metropolitan Transportation Commission (MTC) general aviation review The MTC is looking at ways to improve "on-time" performances of airlines at international Bay Area airports, and proposes to reduce the number of small privately-owned planes at these airports. Because its runway is too short and there is very little space to accept additional aircraft, the PAO will not be able to contribute much in this regard. Staff will continue to monitor these meetings and discussions for potential .impacts on the PAO. A discussion regarding Bay Area aviation will be addressed in the business plan. 9.US Army Corp. of Engineers levee report CMR:440:08 Page 7 of 10 The San Francisquito Creek feasibility study being conducted jointly by the Army Corp of Engineers and the San Francisquito Creek Joint Powers Authority should take into account the future impacts of predicted sea level rise caused by global warming and other factors. Improvements to the levees may also have a physical impact on the airport. At this point, the best estimate of the levee study completion is 2011 but it is staff understanding that the Joint Powers Authority may undertake an earlier smaller project within the next two years that may have some effect on airport lands. Staff will have more information on an earlier project in its next report. 10. Review of County Financial Statements Based on the City Auditor’s June 2006 report on the Airport’s financial condition, staff recommends that a periodic review of PAO financials should be conducted on an on-going basis. Copies of the County’s 2007 and 2008 annual reports are attached as attachments J and K. Note that surplus revenues of $45,000 in 2007 and $16,123 are being applied to the Outstanding Advance instead of being used for matching grants for future improvements to the airport. Staff is concerned that the County is more interested with recouping the outstanding advance in-lieu of making improvements to the airport. In a meeting on December 16, 2006, the County Board of Supervisors approved limiting future capital investment in the PAO to revenue-generating projects and the local match necessary for essential, non-deferrable, grant-eligible maintenance projects or security-related projects mandated by the FAA. Non-revenue projects ineligible for grant funding should not be undertaken. The County is proposing to recoup the entire outstanding advance of $757,285 by 2017. With only 9 years left the County would have to generate $84,00 per year to pay of the outstanding advance. 11.Mission Statement-See discussion above. 12.Outline of City obligations and responsibilities for PAO As previously noted, the City is well aware that it will be responsible for the PAO even if a third party manages it. An outline of the City’s obligations and r~sponsibilities for the PAO, whether it operates the PAO or "contracts out" the management, will be part of the Airport Business Plan. Other Information Updates: 1. Transition Timing On November 2, 2007, City Council directed staff to begin negotiations with County on an early termination of the lease with the County. In the next few months, County staff will be requesting Supervisorial approval to enter into formal negotiations with the City. Based on the complexity of the transition of the PAO operations from the County to the City’s oversight and the current worldoad demand, the County and City staff’s have tentatively set June 30, 2011, as a target date to work to for transfering management of PAO to the City 2. Tie-Down fee increase The County increased tie-down fees by 8% per month on July 1, 2008, which increased the cost of the average plane at the PAO to $150 per month. The $150 fee is $10 per month higher than that charged at the two other County run airports, is $32 higher than that charged at the San Carlos airport, and is $90 higher than the Hayward airport charge. Initially, City staff felt that owners of planes that used the tie-down facilities would move to other airports, but the County surmised that tie-down users at the PAO would pay a higher monthly fee for the convenience of CMR:440:08 Page 8 of 10 having their planes close by. The County assumption appears to be validated by the County’s July-Aug. 2008 bi-monthly report. The report shows 355 spaces, 9 new accounts and only 35 vacancies for PAO, a far better vacancy rate than the other two County airports. The County is proposing to increase the tie-d~wn fees again in June 2009 and each year through 2017 to pay off the outstanding advance. It is unclear whether airport users will tolerate additional fee increases. West Valley Flying Club, with 25 planes at PAO, has already suggested that its members may have to move some of its planes to other airports if the tie-down fees continue to increase. RESOURCE IMPACT The amount budgeted in the Fiscal Year 2008-09 for both the Airport Business Plan and the Hazardous Materials Analysis is $25,000 for each and are included in CIP Project AS-09000, the City of Palo Alto Municipal Airport Transition Project. The budget of $25,000 for the plan was based on estimates obtained from two local firms familiar with such reports. Because the cost of the recommended contract (including the $17,500 optional task) is $80,000 more than the $25,000, staff is recommending the Council is adoption of the attached Budget Amendment Ordinance which will results in the transfer of $80,000 from the City Council Contingency account to the Capital Project Fund to provide funding for the Business Plan-& Airport/Community Value Analysis of the Project. The balance of the contingency amount after the transfer will be $42,040. POLICY IMPLICATIONS This progress report is consistent with previous Council direction. ENVIRONMENTAL REVIEW An environmental impact assessment (EIA) may be required by the California Environmental Quality Act (CEQA) and will be performed in connection with future Council decisions regarding the PAO. ATTACHMENTS Attachment A: Budget Amendment Ordinance Attachment A-1: Capital Improvement Project Report Attachment B: June 8, 2008 informational report (CMR:247:08) Attachment C: November 13, 2007 (CMR:418:07) Attachment D: September 18, 2007 (CMR: 361:07) Attachment E: Mission Statements from other Airports Attachment F: Business Plan RFP Scope of Services Attachment G: Summary of Proposals Attachment H: Warren Proposal Attachment I: Wiedemann Proposal Attachment J: 2007 County Financial Report Attachment K: 2008 County Financial Report CMR:440:08 Page 9 of 10 PREPARED BY: ¯i 2 Manager, Real Prope~y Sent~f Financial ~alyst DEPARTMENT HEAD APPROVAL: LALO PEPd Director, Ad ’,Z ~inistrative Services CITY MANAGER APPROVAL: CC:County of Santa Clara JCRC Co-Chairs of the PAAWG CMR:440:08 Page 10 of 10 ATTACHMENT A & A-1 BUDGET AMENDMENT ORDINANCE & CIP Attachment A ORDINANCE Ordinance Of The Council Of The City Of Palo Alto Amending The Budget For Eiscal Year 2009 To Provide An Additional Appropriation Of $80,000 To Capital Improvement Program (CIP) Project AS-09000, City Of Palo Alto Municipal Airport Transition Project The Council of the City of Palo Alto does ordain as follows: SECTION i. The Council of the City of Palo Alto finds and determines as follows: A. Pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, the Council on June 9, 2008 did adopt a budget for fiscal year 2009; and B. In fiscal year 2009, the City Council appropriated $50,000 for CIP Project AS-09000, City of Palo Alto Hunicipal Airport Transition Project (Project). The planned budget was for the Airport Business Plan and the Hazardous Materials Analysis, $25,000 each; and C. The adopted budget for fiscal year 2009 was based on estimates obtained from two local firms familiar with airport business plan preparation; and D. On November 13, 2007 (CMR: 418:07), the Council directed staff to begin negotiations with the Santa Clara Couzty (County) on an early termination of the lease between the City and the County for the Palo Alto Airport and to commence work on the items set forth in the staff report (CMR: 418:07), including an independent 20 year Airport Business Plan; and E. Two proposals were submitted for the Airport Business Plan, and upon review and evaluation of the proposals, staff recommends the Council accept the proposal of R.A. Wiedemann & Associates, and enter into a contract totaling $105,000 for the preparation of the Airport Business Plan and the Community Value Analysis; and F. City Council authorization is needed to amend the 2009 Budget to make additional appropriations of $80,000 for increased funding to CIP Project AS-09000, City of Palo Alto Municipal Airport Transition Project bringing total appropriation to $130,000; and G. The City Council Contingency account will provide the necessary funds for the Project. SECTION 2. The sum of Eighty Thousand Dollars ($80,000) is hereby appropriated to CIP Project AS-09000, City of Palo Alto Municipal Airport Transition Project. SECTION 3. The sum of Eighty Thousand Dollars ($80,000) is hereby transferred from the City Council Contingency account to the Capital Project Fund. The balance of the City Council Contingency account is reduced to Forty Four Thousand Forty Dollars ($44,040) after the transfer. SECTION 4. As specified in Section 2.28.080(a) of the Palo Alto Municipal Code, a two-thirds vote of the City Council is required to adopt this ordinance. SECTION 5. As provided in Section 2.04.330 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. SECTION 6. An environmental impact assessment (EIA) may be required by the California Environmental Quality Act (CEQA) and will be performed in connection with future Council decisions regarding the Palo Alto Airport. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM: City Manager Senior Asst. City Attorney Director of Administrative Services ClP ATTACHMENT A-1 C TY OF PALO ALTO MUN!CIPAL A RPORT TRANS lqON PROJEC F (ASo0£000) Description: This project will develop a transition plan to expeditiously regain operational authority and management control of the City’s municipal airport from the County of Santa Clara. The County’s current lease agreement with the City expires in 2017. The County has offered to terminate its lease agreement with the City of Palo Alto earlier than 2017. Council has directed the city manager to begin negotiations with the County on an earlier termination of the lease. Justification: This project is a Council directed initiative. Council directed that the City assume control of airport operations and management by 2010. Supplemental Information: Staff will issue an RFP for Consultant Services to prepare an airport business plan and an Hazardous Materials Report ClP FACTS: * New * Project Status: Pre-Design , Timeline: FY 2008-2010 , Managing Department: Administrative Ser- vices , Comprehensive Plan: Policy C-24 o Board/Commission Review: PTC IMPACT ANALYSIS: o Environmental: This project is categorically exempt from CEQA under Section 15301. ~ Design Elements: This project may be subject to ARB review, this project may rquire Site and Design Review. ~ Operating: None * Telecommunications: None Pre-Design Costs $130,000 Design Costs Construction Costs Other Total Budge~ R~queSt 30;00~ $130,000 Revenues: Source of Funds:Infrastructure Reserve ($50,000); City Council Contingecny Account ($80,000) 121 CiO, of Palo Alto 2008-09 Budget ATTACHMENT B June 8, 2008 Informational Report (CMR: 247:08) Attachment B: City of Palo Alto City Manager’s Report. TO: FROM: DATE: SUBJECT: HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES JUNE 2, 2008 CMR: 247:08 PROGRESS REPORT ON NEGOTIATIONS WITH SANTA CLARA COUNTY AND OTHER STEPS TO FACILITATE CITY OVERSIGHT OF THE PALO ALTO AIRPORT This is an informational report and no. Council action is required. BACKGROUND The 50-year lease between the City and the County of Santa Clara for the Palo Alto Airport (PAO) terminates in 2017. On December 12, 2006, County staff presented to the County Board of Supervisors a business plan (Plan) for PAO, including an analysis of the lease; an overview of the County Airport Enterprise Fund; an analysis of PAO’s finances; identification of future capital investment needs; and recommended County action in anticipation oft he lease expiration in 2017. The Plan noted that the County has assumed all of the business risk associated with operating PAO; that PAO has historically operated at a deficit; and that opportunities to generate additional revenue were extremely limited due to physical, environmental, and policy constraints. The Plan recommended that the County: 1) Terminate its involvement in PAO in 2017 or earlier if desired by the City, 2) Limit future County capital investment in PAO to the local matching funds necessary for essential, non-deferrable, Airport Improvement Project (AIP)-eligible maintenance projects or security related projects mandated by Federal agencies; 3) Require the City. to submit all future AlP grant applications; and 4) Raise tie-down rates and fuel fl0wage fees to help make PAO financially self-sustaining and recover as much of the County’s original investment in PAO (Outstanding Advance) as possible prior to the lease expiration. The County Board of Supervisors approved the Plan, but delayed action on the disposition of PAO for six months in order to provide the City an opportunity to present the County with viable development Options for PAO and time to negotiate those options. On December 18, 2006, Council authorized the creation of the Palo Alto Working Group (PAAWG) to analyze PAO operations and develop one or more viable business models for CMR: 247:08 Page 1 of 12 PAO. The PAAWG irlcluded representatives from the City Council, City staff,, the Palo Alto Airport Assoc!ation, Stanford Hospita!, the Joint Community Relations Committee for the Palo Alto Airport and representatives of stakeholder-groups with an interest in PAO Use and operations. On June 4, 2007, the PAAWG presented its report to the City Council. Principal findings from th9 PAAWGreport.included: " 1) that airport operations were profitable; 2) that, based on PAAWG’s own financial analysis and the City Auditor’s review, the PAO has the economic potential to be self-sustaining, fund necessary improvements, and cover, the cost of City administrative overhead; 3) that the airport Was an essential community asset; and 4) that the County ignored numerous economic and social benefits the. airport provided. These benefits included: tax revenues generated by the airport that support local jurisdictions; transportation for businesses and their employees; transport for hospital patients and transplant organs; pilot training and Certification; recreation space for the local community; emergency support activities; and PAO’s part in the Bay Area airport and transportation system. The PAAWGconcluded: PAO is an important transportation, business, economic, recreational and emergency . preparedness asset for the City and its residents; e PAO can be operated On a self-sustaining, economical basis and be cash positive without requiring any financial support from the City; and The continued operation of PAO by the County will both diminish the resource value Of the airport and threaten its long-term economic viability. These conclusions led the PAAWG to recommend that the City Council: 1) Direct the City Manager to negotiate an early termination of the existing. PAO lease with the County; 2) Appoint an interim manager for PAO; and 3) Issue an RFP for the long-term management of PAO, whichwill ensure its asset value to the community is maintained and will preserve its economic value into the future. ¯ On September 18, 2007 (CMR 361:07), the Finance Committee discussed staff’ s response to the PAAWG recommendations and three options related to the future of PAO: 1) do nothing and wait until the lease expires in 2017; 2) assume responsibility for PAO immediately; or 3) plan for an orderly transition to City oversight and take a more active, immediate role in PAO operation. The Committee split on the recommendation and agreed to forward the report to the full Council for its review along with staff’s response to a list of questions to be researched. On November 13, 2007 (CMR 418:07), Council directed staff to begin negotiations witl-i the County on an early termination of the lease and to commence work on the items set forth in the November 13, 2007 staff report. Council also directed staff to provide progress reports to the City Council every, six months beginning in May 2008. CMR: 247:08 "Page 2 of 12 DISCUSSION As directed by Council on Novdmber 13, 2007, this is the first biannual progress report. Included in this first reportis an update onstaff’s progress towards completing PAO action items as well as other information updates. The action items are a combination of two lists of progressive steps taken from prior staff reports (Attached C - CMR 418:07 and 361:07) Progress on Steps 1. City/County negotiations regarding the "outstanding advance" The outstanding advance is the difference between the County’s total capital investment, including grant matching fees, and the net revenue generated over the term of the PAO lease. The offer by the Director of the Santa Clara County Roads and Airports Department to waive any remaining "outstanding advance" when the City takes over PAO will require the approval of the County Board of Supervisors. This offer has been made during the course of several public meetings including during a presentation to the County .Airports Commission. The outstanding advance as of June 30, 2007 was $773,408. In a City Auditor’s report to the Council on June 6, 2006, the auditor disputed the County’s claim that PAO was losing money and needed t_o increase fees to recoup the outstanding advance. The audit claimed PAO was paying for more than its fair share of overhead cost and questioned historic costs that were paid by. a County General Fund loan. In fact, the auditor felt that it was a grant not a loan since it was .not documented or paid back to the General Fund. The audit leads to the possible conclusion that if pooled overhead cost had been proportioned correctly and historic costs had been properly attributed to the County General Fund and not the airport, there would not be an outstanding advance. It is staff’s position that the airport and the City do not have a legal obligation to repay the advance unless a written agreement or contract Can be produced by the County. 2. Federal Aviation Administration (FAA) Grant Proposal Review FAA grant funding is based on a five-year airport improvement plan (ALP). Eligible projects include those improvements related to enhancing airport safety, capacity, security, and environmental concerns. AIP funds are not eligible for terminal buildings and non-aviation development. Each year, the airport manager submits a five-year airport improvement plan to the local branch of the FAA. The County AIP projects, their costs, and the year for which FAA grant funds are requested for PAO are, as follows, for the next five years: PROJECT 1) Signage, Runway/Taxiway Marking Changes IAW FAA RSAT Recommendations COST $150,000 YEAR 2009 2) Purchase FOD Sweeper and $60,000 2009 Portable Runway Closure Lighting CMR: 247:08 Page 3 of 12 3) Reconfigure Taxiways G and Z to complywith FAA Standards 4) Construct Helicopter Landing Pad and Parking 5) Construct Exit Taxiway D 6) Pavement. Maintenance for. Existing Runway, Taxiways and Aircraft parking 7) Overlay Existing Runway and Taxiways $~oo,ooo $250,000 $120,000 $300,000 $2,000,000 2010 2010 2010 2011 2012 Ideally, the FAA funds 95% of the cost, the State funds 2.5% and the local match is 2.5%. Based on this calculation, the local match for the next five years ofprojectswould be $82,000. Federal and State funds are never guaranteed, however. An example is the last major paving overlay project completed by the County in 2000. The local match was initially estimated to be $50,000 but by the time the projected was completed the County local match was $620,000. The County gave staff three reasons for the cost over-run: 1) bids were higher than the estimate; 2) the lack of State funding available at the time the project was ready to be funded; arid 3) the unanticipated time and cost to-obtain permit approval from the City. These costs added $479,929 to the County’s outstanding advance in the 1999-20130 fiscal year report. Federal Funding for 20.08-09 Airport Improvement Grants has not been authorized by Congress and it has been suggested that due to budget constraints Congress will reduce the grant match from 95% to 90% of the project cost. A major concern in taking back PAO is that it does not become a burden on the city’s General Fund. The County claims that PAO is losing money, and without additional hangars, there is no opportunity to generate more income. The 2007 PAAWGReport included a Projected Pro- Forma Income Statement for 2007. When the PAAWG Income Statement is compared to the County annual report for fiscal year 2006-07 (Exhibit B), it shows approximately the same amount of net revenue ($42,100) but.the PAAWG report includes a $100,000 Maintenance Reserve. The County applied the $43,533 net revenue to the outstanding advance leaving n° funding for the projected AIP, PAA grant matching funds. There are many variables in the grant process and a business plan would help the City better understand the associated risks. Staff is preparing a scope of services for the contractor providing the business plan response that would include the following: CMR: 247:08 Page 4 of. ! 2 ¯Determine the long-range (20 year) financial s[rength of PAO ¯How to maximize current income potential and the income potential beginning in 2017 when the current contracts expire. ’ o The time required to amortize the cost of constructing new hangars ¯Future viability of.airports and.aviation in general ¯Identify the airport’s future capital investmentneeds Staff anticipatesthat the business plan. will be available for the next 6 month update in November, 2008. 3.. Current agreement and grant review Staff has reviewed the current Fixed Base Operator (FBO) agreements and compared them to more contemporary agreements. In today’s environment, airport managers negotiate leases based on the capital the lessee is willing to invest inthe airport. Lessee’s who simply rent space, with little or no capital investment, have shorter term leases than those who risk a capital investment. The two current FBO leases at PAO are long-term, and have no incentives for capital investment. The leases do not include CPI, adjustments and do not remit a percent of gross revenue with the exception of the north half of Roy Areo’s lease where the County receives 6% of the hangar rental. These leases, which are in effect until 2017; favor the FBO and do not adequately serge the revenue/growth needs of the airport. Current FAA grants will be reviewed by staff from the Public Works Department and the City Attorney’s office. However, due tO workload issues, neither department has undertaken the review process to date. 4. Airpo~ comParisons staff is in the process of collecting data from severalairports on operations, management, the number of tie,downs, hangars and based aircraft, runway length, type of airport, and other pertinent information in order to assess the most viable management arrangement for PAO. Data so far indicates that most California municipal airports are operated, by the respective city public works departments as an enterprise fund. However, City operation and management may not be the best solution for PAO. Staff has .been cautioned that no two airports are alike and that to determine the best management for PAO, its uniqtie features must be considered. Given that PAO is going to need an infusion of funds from the beginning to either provide for matching grant funds, or to provide funding for non-grant applicable projects, staff is considering a third party operator for the airport. A third party would be required to have access to revenue to meet matching funds for federal and state grants, or to make improvements in the situation where grant funding is not available. The downside of having a third party manage the airport is that the City would lose direct control. Staff research has also revealed that there are several different types of third party management, which will be described and discussed in future reports. It is also clear that someone within the City will have to oversee the third party manager and prepare the. grant requests. In the next few months, staff will concentrate on finding out more information on airports operated by third parties. It is important to note that City responsibility cannot be reassigned. As a sponsor, the City is ultimately responsible for airport operations regardless of who manages PAO. CMR: 247:08 Page 5 of 12 5. Staffing needs assessment Currently, PAOon-site staffin~ consists of two full,time airport operations workers and a part- time supervisor. Future staffing needs may change based on PAO’s hours of operation. In addition, regardless of whether the City assumes management of PAO or ifit is run by a third party, there will always is a need for City staff to write grants and manage/monitor airport .operation~. The FAA is clear that, as an "airport sponsor," the City will have full liability for operations regardless of who oversees management operations. 6. USGS topographical maps and global warming The San Francisco Bay Conservation and Development Commission (BCDC) has produced a map using USGS information that depicts a potential global warming inundation scenario. In 2100, the water level in San Francisco Bay would rise by one meter Should current trends. continue. If this were to happen, all the land within the Palo Alto city limits east of. 101, with the exception of portions of Bixby Park, would be underwater. This would in.clude all of the airport, golf course, water treatment plant and the businesses along Embarcadero Road. The Army Corp of Engineers and the Santa Clara Valley Water District are taking this information into account as. partof their levee analysis due in 2010. The actual USGS topographical map is anticipated to be completed in September of this year. 7. Comprehensive economic study & hazardous materials analysis Staff is proposing to. have outside contractors prepare a Comprehensive Economic:Study (CES) and a Hazardous Materials Analysis (HMA). The CES will include an analysis to determine the long-term viability of PAO, providing assurance that sufficient funds can be generated to offset annual expenses and capital work. The combined estimated cost of both the CES and HMA is about $50,000, which is being proposed in the Fiscal Year 2008-09 ASD budget. 8. Metropolitan Transportation Commission general aviation review The MTC has been holding meetings to see if there is some way the ’.’on-time" performances can be improved at all three International Bay Area airports. One thought is to remove or reduce the non-commercial traffic from the three airports. This would have little effect on PAO, because its runway is too short to accept jet traffic, and there is very little space to accept additional aircraft. It may, however, help focus on opening Moffett Field to general aviation. Staff will continue to monitor these meetings and discussions for potential impacts on PAO. 9. US Army Corp. of Engineers levee report In an effort to expedite the levee report, the Santa Clara Valley Water District announced. recently that they will contribute $3.5 million to the study: The announcement claimed the Army C0rp of Engineers money was due to run out in July of 2008. The report is currently scheduled to be completed in 20!0, and it will respond to the USGS 2100 global warming prediction. CMR: 247:08 Page 6 of 12 10.Review of County Financial Statements The City. Auditor’s June 2006.~eport on the Airport’s financial condition was discussed in the September 18, 2007 staff report (CMR 361:07)..Staff recommends that a periodic review of PAO financials should be an on-going activity. Therefore, the. Comprehensive Economic Study discussed above will include an update on the projected PAO financial position. 11.Council consideration and development of the Airport mission statement The Palo Alto Airport Joint Community Relations Committee is assisting staff in drafting a proposed missionstatement to be considered by the Council. Staff anticipates that the Mission Statement draft will be available for Council review and approval in the November-2008 Airport update. 12.Outline of City obligations and responsibilities for PAO An outline of City obligations and responsibilities for PAO, whether it operates PAO or contracts out, the management, will be done as part of the Comprehensive Economic Study referred to above. Information Updates In addition to the 12 action item updates above, there are three information updates: 1. Transition Timing Previous staff reports estimated that the transition of PAO from County to City oversight could occur in approximately 3 years; however, this time-line now appears too short. As staff comes to understand more about the parameters of PAO project, ,the scope increases in size and complexity. In addition, the PAO project and its various components must be integrated into an already heavy staff workload. 2. Tie-Down fee increase The County will increase tie-down fees by 8% per month on July 1, 2008, which would increase the cost of the average plane at PAO to $150 per month. There are currently 361 tie-down spaces with 30 vacancies. Staff is concerned that if the County continues to raise the tie-down fee, pilots will seek other local airports, which; in turn, will decrease PAO’s revenue stream. The County claims only one pilot has stated he was moving due tO the upcoming fee increase, that the vacancy rate is similar to the other two County airports and is not unusual given the current. economy. In July, the tie-down rates for Reid Hillview will be increased.to $140 per month and for South County to $100 per month for the same type of aircraft used in PAO quote above. San Carlos does not have any tie down vacancy at the moment due to a hangar construction project but their tie down rate is only $115 per month and they are only 10 miles from PAO. Additionally, West Valley Flying club is a tenant of both airports and they currently have 25 planes in the County tie-down area of PAO. West Valley has indicated that they Would move their planes from PAO if the rates continue to increase. CMR: 247:08 Page 7 of 12 3. County reasons for terminating the lease In the first, monthly meeting in January between City and County staff, the County. outlined the following three main reasons .for terminating its lease for PAO: A. inability to generate additional revenue ~o keep up with expenses. PAO generates its income from 3 main sources of revenue: fuel fees, tie-downs and Fixed Base Operator (FBO) rentals. These sources are limited by the amount of fuel pumped, the number of tie down spaces available and. terms of the FBO lease agreements. PAO is the only airport not generating revenue from public agency-provided hangars. At all other Bay Area airports, hangar rentals are another major source of revenue. It is the County’s position that constructing hangars is not feasible because there is insufficient time remaining on its lease to amortize the cost of construction. The County also contends that the City would not approve construction of hangars because of the potential conflict with the City’s Baylands Master Plan which does not anticipate expansion of the airport. As an FAA designated "Reliever Airport," PAO is eligible fo.r FAA grant each year in an amount of $150,000. However, the use of the funds is limited, and must be thoroughly justified as not being diverted from basic airport payment maintenance needs.. These FAA grant funds also require local matching funds. (A "Reliever.Airport" is a high capacity general aviation airport in a major metropolitan area which provides pilots with an attractive alternative to using congested commercial service airports.) B,FEMA flood control requirements. The County’s position is that the Federal Emergency Management Agency (FEMA) will require all the buildings at PAO to be elevated to. eight feet above~ sea-level, cresting significant cost implications. The majority of the airport is currently at about four feet above sea-level. Staff’s investigation has determined that only new buildings occupied by personnel would have to be elevated. Existing buildings and new hangars would not require elevation. Co Strong likelihood that Moffett Field may open to relieve the three major Bay Area airports. The San Francisco Bay Conservation and Development Commission (BCDC). is looking at ways to relieve the Bay Area’s 3 international airports from congestion. One option being considered is to move all non-commercial carrier airplanes to the various reliever airports.. BCDC may look. to Moffett Field as a reliever airport because, unlike PAO, it can accommodate a much greater level of traffic, or number of aircraft operations, including jet aircraft. However, a number of people in the industry feel any proposed additional use of Moffett Field is a long way off. Also, staff has been assured by the State Division of Aeronautics that even if Moffett Field were to reopen, the State and the FAA would prefer that PAO remain open as a Reliever Airport. CMR: 247:08 Page 8 of 12. RESOURCE IMPACT The.resource impacts of the transition of PAO operations and management from the County to the City will be considered as part of the Comprehensive Economic Study.(CES) discussed above: The estimated cost ($50;000) of the CES and the HazardousMaterials Analysis will be considered by Council during the Fiscal Year 2008-09 budget process. POLICY IMPLICATIONS This progress report is Consistent with previous Council directioia. ENVIRONMENTAL REVIEW An environmental impact assessment (EIA) may be required by the California Environmental Quality Act (CEQA) and will be per.formed in connection with future Council decisions regarding PAO. ATTACHMENTS Attachment A: Attachment B: Attachment C: ¯ Progress Report Items PAO Revenue and Expense Comparison CMR 418:07 and 361:07 "WILLIAM W. FELLMAN /" Manager, Real proper DEPARTMENT HEAD APPROVAL: LALO P~ Director, Administrative Services CITY MANAGER APPROVAL: t ,. STEVE EMSLIE and KELLY MORARIU Deputy City Managers County of Santa Clara JCRC Chair of the PAAWG CMR: 247:08 Page 9 of 12 ATTACHMENT A PROGRESS REPORT ITEMS From November 13, 2007 staff report.(CMR 418:07): 1. City/County Negotiation~ 2.FAA Grant Proposal Review 3.Current Agreement-and Grant Reviews 4.Airport Comparisons 5.Staffing Needs Assessment 6.USGS TopographiCal Maps 7.Comprehensive Economic Study 8.Metropolitan Transportation commission General Aviation Review 9.U.S. Army Corp. of Engineers Levee Report 10. Review.of County Financial Statements From September 18, 2007 staff report (CMR 361.’07): 11. Council consideration and development of the airport’s mission. 12. An outline of all City obligations and responsibilities for PAO whether the PAO or contracts it out. it operates CMR: 247:08 Page 10 of 12 ATTACHMENT B PAO REVENUE AND EXPENSE COMPARISON PAAWG (2007) projected Income & Expense Statement County (2006-07) Actual Revenue & Expeflse Statement Revenue Lease Revenue Aircraft Tie Down Fuel Flowage Transient & Other Total Revenue $134,000 $561,600 $ 50,000 $ 60,000 $805,600 $129,000 $506,122 $ 82,000 $ 42,000 S761,000 Operating Expenses Salaries & Benefits General & Admin. Aviation Services Maintenance/City Reserve PAO Capital Expense ¯ Depreciation Levee Maintenance Contract Services $364,000 $1.69,000 $100,000 $100,000 $ 30,000 $ -0- $ -0- $377,014 $159,281 ,$148,382 $ -0- $ -0- $214,001" $ 20,788 $ 2,636 Total Expenses $736,500 $922,102 Net Gain or Loss $42,100 .<$160,650> Non-Operating Revenue Expense Master Plan Development Airport Calif. Monitoring Group State Water Permit Fee ($7,013) ($1,975) ($ 830) Total Non-Operating Expenses Net Income before Adjustment Add Back Depreciation on Capital Improvements Net Income ($9,818) ($170,468) $214,001" $ 43,533 CMR: 247:08 * The $214,001 is highlighted to show the County depreciates Grant Funding. It does not affect the calculation but it can mischaracterize the Airport’s current cash flow position. CMR: 247:08 Page 12 of 12 ATTACHMENT C NOVEMBER 13, 2007 (CMR: 418:07) ATTACHMENT C .TO: FROM: HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE: SUBJECT: NOVEMBER 13,2007 CMR: 418:07- FROM FINANCE COMMITTEE: REQUEST FOR COUNCIL DIRECTION CONCERNING RESPONSE TO THE PALO ALTO AIRPORT WORKINGGROUP REPORT AND OPTIONS REGARDING THE FUTURE OF THE PALO ALTO AIRPORT RECOMMENDATION Staff requests Council directionregarding options for the future of the Palo Alto airport. COMMITTEE REVIEW AND RECOMMENDATIONS At the September !8, 2007 Finance Committee ..meeting, the Committee discussed staff’s response tO the Palo Alto Airport Working Group Report (PAAWG) and also discussed options related to the future of the Palo Alto Airport. The Committee was split on the recommendation and agreed to forward the report to the fullCouncil for its review. The Committee also had a list of questions that required additional research by staff and directed that responses to these questions be forwarded to Council with the report. See Attachment A. WILLIAM W. FELLMAN Manager, Real Property DEPARTMENT HEAD:\~’~~-~~~ CARL YF~TS Director, Administrative Services CITY MANAGERAPPROVAL: ’~~ /~ E~MILY HARRISON Assistant City Manager ATTACHMENTS Attachment A: Questions from the 9/18/07 Finance Committee Meeting Attachment B: CMR:361:07 CMR:418:07 Page 1 of 1 ATTACHMENT A Ques~i0ns from the Finance Committee Meeting: 1)What is the current status of establishing Safety Zones at Pal0 Alto Airport "PAO" and do the safety zones have any bearing on future development in San Mateo County an~! East Palo Alto? The safety zones at PAO are currently being created to recent FAA requi!"ements. Walter Windus, a County of Santa Clara Airport Land Use Commissioner is working with the City Surveyor to establish the safety zones for the PAO. Once the safety zones have been created, they will be shared with surrounding jurisdictions. The north safety Zone will be submitted to San Mateo County and East Palo Alto for adoption. The south safety zone will be adopted by the Santa Clara Airport Land Commission and the City of Palo Alto. The safetyzones at both ends of the airport are over property owned by the City of Palo Alto. Staff believes that the proposed safety zones will not ¯ restrict development in San Mateo County, but this will be..verified. Will the Army Corps of Engineers levee report recommend a realignment of San -Francisquito Creek?. -Will the Army Corps buy any required right of way? Is the¯ Army Corps considering the effects of global warming in its report? If the location of the creek is changed, would the County boundary, line change? The Army Corps ~f Engineers Levee Report is underway but will not be available for review until the year 2010. One proposal that is still being considered is to return San Francisquito Creek to its original location. Another alternative would create a ponding area on the golf course. Staff was reminded by the Army Corps of Engineers that, at this point, these are suggested proposals still under review. Typically, the Army Corps leaves the purchase of any required right of way up to the lead agency. In this case that would be the San Francisquito Creek Joint Powers Authority, of which the City is a member. The Army Corps is taking into consideration the effects of Global Warming as part of its study. Staff does not believe that the boundary line between the two counties would change as a result of any realignment of the creek. 3)What did Mr. Wiswell mean when he indicated that PAO should be run as a "business node" and not a recreational facility? Staff asked Mr. Wiswell to explain the concept of running the airport as a business node. His response was that "all airports are "business node" airports t0 a varying degree. Businesses locate in the community and operate into and out of the community because the community has an airport. Having a local airport is a r ¯ factor in a business deciding to locate in that community. Central to a public agency 0wning a business-use airport are community employment and the resulting tax base. An airport that is supportive of business provides good accommodations aM services such as a pilot !ounge, small meeting rooms, rental car access, timely fueling etc. A business node airport should also be run like a business. PAO is a desirable location in the heart of Silicon Valley since it is close to Stanford and several large corporations. Given this fact, PAO is desirable for local airportaccess and it is reasonable if fees are higher than at other local airports. Mr. Wiswell recommends that a comprehensive economic impact survey and assessment of PAO be conducted to help develop a long-term revenue model that will not only meet Federal and State requirements but also provide the revenue for infrastructure requirements not funded by the Federal or State grants. He strongly recommends that the construction of additional hangars be considered to create a new revenue source. 4) Will the new light jets and the short single runway make PAO obsolete?. 5) No, it is estimated that 95 % of the current general aviation aircraft can land at PAO and, given the rapid pace of technological advancements being made in aircraft engines, the need for a 3,500 foot runway could likely change. The State. claims that what will make PAO obsolete or unattractive to a-business flyer is a lack of services: Business. aviation is the fastest growing segment of air travel at local airports because of convenient access and, the travel and congestion difficulties at commercial airports. Easy access to Silicon Valley and Stanford makes PAO an extremely attractive location for businesses. If the City were to take back PAO, what does staff estimate the time line to be? Staff believes that before there is change in management, including potential third party management of PAO, a closer relationship with the County and a full understanding of airport operations is necessary. This includes staff thoroughly investigating how other public agency airports are managed. Staff believes that it will take at least three years to transfer management responsibilities from the County to the City. Estimated Timelines for Eventual Airport Transfer to City Estimated Time Current Agreement & Grant Reviews Airport Comparisons Staffing Needs Assessment USGS Topo Maps Comprehensive Economic Study Metropolitan Transportation General Aviation Review US Army Corp. of Engineers Levee Report MTC General Aviation Review City/County Negotiations FAA Grant Proposal review Review of CoUnty Financial Statements to complete 6. months 9 months’ 9 months " 9 months 12 months Commission 18 months 3 years 18 months 3 years Estimated Completion Date July 2008 Sept 2008 Sept 2008 2008 2009 2009 2010 " 2009 2010 Annually Annually 6) What would happen to PAO .if Moffett Field became a general aviation airfield? The State is unaware of any plans for NASA to transfer ownership or to run. a general aviation airport..Moreover, both the Cities Of Sunnyvale and Santa Clara are opposed to Moffett being used for general aviation. PAO remained open when Moffett was an operating military airport, so. there would be no reason for¯the FAA to close PAO if Moffett Field became a general aviation airport.. Staff was also told that if local authorities were to close PAO; the FAA would require prorated payment of any outstanding FAA grant monies. 7) What is theState’s vision for PAO? The State believes that PAO is an important reliever airport. Due to its central location to the SilconValley businesses, Stanford University, and the Stanford hospitals, it will continue to be vital asset for many years to Come. 8) Who will be responsible for the County levee? The Board of Supervisors voted to discontinue maintenance of the current airport levee. The City of Palo Alto will now be responsible for the levee. This levee is included in the Army Corps of Engineers levee evaluation due in 2010. 9)PAO has a 10% tie down vacancy rate. Is that a.trend or Spike and does it have any relationship to t_he County’s increase in tie down fees? At the Finance Committee meeting on. September 18th, staff respondedthat it was too early to tell i-f increased rates have caused an increase in the vacancy rate for tie downs. Mr. Wiswell suggests that due to PAO’s desirable location, higher fees can be charged. This appears. to be true given the higher tie down vacancy rate at other Bay Area airports as shown in the table below. The County does plan .to increase the rate again in the summer of 2008, If the County continues to increase the rate annually until the end of its lease in 2017, it is possible that the vacancy rate could increase to the point where revenue generation would be affected. Fee increases will need to be evaluated carefully. When staff polled other Bay Area airports, it was interesting to note the extremely high demand for hangar space (shown in the following table). One of the PAO FBO’s asserts that if one of.their hangars became vacant, it could be rented again in an hour. The following is a sample of other public-run Bay Area Airports tie down vacancy rates and hangar wait lists: Location Tie-Down Vacancy Rate 1) Palo Alto !0% 2) Nut Tree 15% 3) Hayward 30% 4) Livermore "43% 5) Reidhillview 50%~ 6) South County.79% 7) Livermore 60% Hangar Wait List No Hangars Available 38 333 270 " ¯ 167 63 200 10)How are the master plans for the Baylands and the Airport in conflict? And the lease? The Couflty would like to construct hangars at PAO in order to generate more revenue. The 1990 Baylands Master Plan states " In general, make no changes in the airport activities that will increase the intensity of-the airport use or will significantly intrude into open space". The word "intensity" is a key term, but it is not defined. The County’s proposal to add hangars in the open space adjacent to Embarcadero Road could be considered a visual intrusion into open.space and an intensification of use. The vacant acreage the County has selected, space adjacent to Embarcadero Road, is considered the entrance to the Baylands. Adding hangar space in place of tie down space, however, could reduce the number of planes at PAO since an individual hangar would take up more square footage than a single tie down space, It has been suggested that hangar space can be located in existing ti.e-down areas closer to the FAA tower, reducing the total number. Of airplanes and not being in potential conflict with the Baylands Master Plan. An analysis of the revenue consequences .of such a plan would have to be condticted. 11) Why did staff feel that the County use of depreciation was misleading? The City Auditor stated in her report that "Although depreciation expense does . not affect .the Courity’s annual calculation of the outstanding advance, it has sometimes been included in public discussion in a Way that can mischaracterize the Airport’s current cash flow position: The County’s depreciation schedules amortize capital, improvements and other projects completed at the Airport between 1966. and 2001. The schedules list improvements costing over $4,965,000, of which $3,383,000 wasfunded by Federal and State grants. Federal and State grants covered as much as 81% of the .cost of some projects, and averaged over 68% of the total cost of all the projects. Depreciation expense (including depreciation on projects funded by Federal and State grants) fluctuated from $41.7,321 to $184,426 to $312~974 in FY 2002-03, 2003-04, and 2004-05, respectively. This can dramatically impact the appearance of profit or loss. at the Airport in any given year. However, depreciation is not. a flow of cash, and. is irrelevant to the calculation of the outstanding advance." 12)What wasthe actual wording by the Board of Supervisors on December 16, 2006 with regard to its interest in the PAO? The Board of Supervisors voted tO: 1. Approve the continuing fulfillmentof the County’s obligationsunder the lease with the City of Palo Alto for the airport Property until expiration of the lease in 2017 provided the City does the same, including allowing the " County to develop the airport as agreed upon in ttie lease. In 6 months, reconsider iermination of involvement in the airport upon expiration of the lease with the City .of Palo Alto, or earlier if desired by the City. In addition, direct the Administration to collaborate with the City of Palo Alto in an effort to resolve developmental issues relating to the Palo Alt0-Airport for report to the Board in June 2007. In June, the Board postponed the reconsideration of termination of the lease until the Palo Alto City Council determined if it was going to take back the airport early. . . Approve limitation on future County capital investment in the airport to the following: 1) revenue-generating projects that will produce an acceptable rate-of-return prior to expiration of the lease; 2) the local match necessary for essential, non-deferrable, grant-eligible maintenance projects or security-related projects mandated by the Federal Aviation Administration (FAA) or Transportation Security Administration (TSA). Non:revenue projects ineligible for grant funding s.h.0uld hot be Undertaken. Direct Admi~aistration to forward all future Airport Improvement Program (AIP) grant applications to the City of Palo Alto for signature and submission to the FAA: " ~ Approve. increase, in tie-down.rates .by 7.6% and increase in the fuel flowage fee from 10 cents per gallon to 20 cents per gallon effective January l, 2007 ~o help ensure the airport is financially self-sustaining on a full-cost basis. Direct Administration to pursue revenue-generating uses of the Embarcadero Road parcel in accordance with ttie development plan currently in force under the County’s lease with the City of Palo Alto. Approve termination of involvement in the levee maintenance agreement with the City of Palo Alto and the Santa Clara Valley Water District (SCVWD) and pursue an amendment to the lease between the County and the City of Palo Alto to remove from the leasehold the levee parallel to the runway. 13)If the City decided to close the PAO how much money would be due to pay off the outstanding FAA Grants? .. Staff estimates that the total amount due ifPAO were to Close in 3 years, would be $1,251.,322. If PAO were to close in 2017, the ,amount due the FAA would be $448,367. The County .is proposing to apply for future.grants. 14)If the City took back PAO, how would the rental rate. be established? Would there be any compensation to the General Fund? Airports that receive FAA grant funds are required to be se!f-funding with any money generated at airports to be used by the airport. Staff has not determined the rental rate but the transition process would include a study of other airports’ rental. rates. The few General Aviation Airports run by public agencies that staff has spoken with have established an enterprise account in lieu of charging rent. ATTACHMENT D SEPTEMBER 18, 2007 (CMR: 361:07) Attachment D:.City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL ATTN:FINANCE COMMITTEE FROM: DATE: .SUBJECT: C1TY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES SEPTEMBER 18, 2007 CMR: 361:07 STAFF RESPONSE TO THE PALO ALTO AIRPORT WORKING GROUP REPORT AND OPTIONS REGARDING THE FUTURE OF THE PALO ALTO AIRPORT RECOMMENDATION This report responds to the June 4, 2007 Palo Alto Airport Working Group Report; presents options regarding the future of the Palo Alto Airport; and requests Council direction on which option to explore. BACKGROUND The 50-year lease between the City and the CoUnty of Santa Clara for the Palo Alto Airport (PAO) terminates in 2017. On December 12, 2006, County staff presented to the County Board of Supervisors a business plan (Plan) for the PAO, which included an analysis of the lease; an overTiew of the County Airport Enterprise Fund; an analysis, of the PAO’s finances; identified future capital investment needs; and recommended County action in anticipation of the lease expiration in 2017. The Plan noted that the County has assumed all of the business risk associated with operating the PAO; that the PAO has historically operated at a deficit; and that Opportunities to generate additional revenue were extremely limited due to physical, environmental, and policy constraints. The Plan recommended that the County: 1) terminate its involvement in the PAO in 2017 or earlier if desired by the City 2) limit future County capital investment in the PAO to the local match necessary for essential, non-deferrable, Airport Improvement Project (AIP)-eligible maintenance projects or security related projects mandated by Federal agencies 3) require the City to submit all future AIP grant applications 4) raise tie-down rates and fuel flowage fees to help make the PAO financially self- sustaining and recover as much of the County’s original investment in the PAO (Outstanding Advance) as possible prior to the lease expiration. CMR:361:07 Page 1 of 8 The County Board of Supervisors approved the Plan, but delayed action on the disposition 0fthe PAO for six months in order to provide the City an Opportunity to present the County with viable ~evelopment options for the PAO and time for the County staff to negotiate those options. PAAWG Report On December 18, 2006, Council authorized the creation of the Palo Alto Working Group (PAAWG) to analyze PAO operations and devetop one or more ¥iable business models for the PAO. The PAAWG was appointed .by then-Mayor Kleinberg and included representatives from the City. Council, City staff, the Palo Alto Airport Association, Stanford Hospital, the Joint Community RelatiOns Committee for the Palo Alto Airport and representatives of stakeholder groups with an interest in PAO use and operations. On June. 4, 2007, the PAAWG presented its report to the City Council: ¯ One of the principal conclusions from the PAAWG report (Attachment A) was that airport operations were profitable. Citing.the City Auditor’sreview (Attachment B) of the County’s Plan and its own financial analysis, the PAAWG reported that the "PAO has the economic potential to be self-sus~aining, fund necessary improvements, and cover the City management overhead associated With the required functions such as Federal grant management." The Auditor found that airport operations generated $400,000 in adjusted net income over 37 years and the PAAWG report stated the airport had the capacity to generate a positive bottom line plus a $100,000 "set- aside" for capital improvements. Another principal PAAWG finding was that the airport was an essential community asset and that the County ignored numerous economic and social benefits the airport provided. These included: tax revenues generated by.the airport that support locgl jurisdictions; transportation for businesses and their employees; transport for hospital patients and .transPlant organs; pilot training and Certification; recreation .space for the loca! .community; emergency support activities; and the PAO’spart in. the Bay Area airport and transportation system. TO prove these benefits, the PAAWG cites a variety of statistics on airport employment, sales, and property taxes, fees generated, and business activity. The PAAWG concluded: o The PAO is an important transportation, business,, economic, recreational and emergency preparedness asset for the City and its residents; . . . The PAO can be operated on. a self-sustaining economical basis and be cash positive without requiring any financial support from the City; The continued operation of the PAO by the county will both diminish the resource value of the airport and threaten its long-term economic viability. These conclusions led the PAAWG to recommend that the City Council: 1. Direct the City Manger to negotiate an early termination of the existing PAO lease with the County; ¯ 2.Appoint an interim manager for the PAO; and 3.Issue an RFP four the long-term management of the PAO, which will ensure its asset value to the community is maintained and will preserve its economic valueinto the future. County Action FOllowing the PAAWG report,. County staff reported to theBoard of Supervisors on June 19, 2007 that the City had agreed to consider, as long as the ~ounty followed the City’s land development application process; a County proposal to develop 30 hangars on the vacant parcel along Embarcadero Road (this parcel, is part of tl~e PAO lease). The County indicated it would proceed with the preliminary work necessary to prepare such an application; but would most likely not proceed to final design because of project costs and Until the City Council made a decision on recommendations contained in the PAAWG report.A formal request from the County has not yetbeen received. DISCUSSION City Consultant Analysis and Comments To assess the County’s findings, the PAAWG’s recommendations, and the significant responsibilities of running a.municipalairport, the City retained the services of an experienced airport manager. The consultant, R. Austin Wiswell, is the former Chief of the Division of Aeronautics for the State of California Department of Transportation, where he was responsible for administering the state’s airport grant and loan programs; permitting and safety compliance inspectii~ns"of 243 publi~ use airports andS!40 hospital heliports; evaluating environmental issues; and conducting statewide aviation system planning to ensure integration of a regional, state, and national air transportation system. Prior to working for the State~. Mr. Wiswell was the general manager of an airport management company that operated a county-owned airport in Sedona,. Arizona; managed, the Yolo County Airpo~ for 4 years; worked, for Allied-Signal. Aerospace Company; and served for .23 years in the U.S.Air Force as a fighter pilot~ and headquarters staff officer. Mr. Wiswell prepared two reports:, one focusing on Federal and State requirements for operating an airport (Attachment C); and the second c6mmenting o~a the County and PAAWG reports (Attachment D). In the June "14, 2007 report, Mr. Wiswell .outlines the obligations and responsibilities of the City as owner of the PAO. These commitments apply to the City whether the airport is leased to the Coufity or run by the City. Citing Federal and State circulars and regulations, the consultant sta~es, "It.is a Federal obfigation to have revenues exceed expenses such that the airport is financially self-sufficient and .~. self-sustaining." This requirement is a direct Consequence of accepting Federal and State grants for airport improvements. In addition, the use. of grant money obligates the owner/lessee to maintain airport pavements, runways, taxiways, parking aprons and ramps. It should be noted that the City has already formally accepted the obligation to continue the airport usage to the year 2025 or reimburse the FAA for the unamortized portion of the two previous grants submitted and accepted by the County. Mr. Wiswell’s first report ends with a fundamental observation, "...being the owner-sponsor of an airport is a business matter; a property management business task .... the Safe use ofthe ’property’ is task number one," The theme of running the airport as a business that is financially solvent and capable of meeting operating and capital requirements is basic and runs throughout Mr. Wiswell’ s recommendations. On July 6, 2007, the consultant submitted his observations and recommendations on the County and PAAWG reports. His most penetrating and insightful question for the City to consider is "what does the City want the airport to be." In other words, what mission or purpose does the City want the airp.ort to serge in light of Federal and State mandates. -A clearvision of a municipal airport’s role ls needed before assuming operations.. Such a vision Would guide the timing of City .control of the ..airport and how it will manage it. In-Mr. Wiswell’s view, the airport’s primary value and overall purpose is as a "transportation node," a departtire and arrival point. He compares this to the predominant, current use of the. airport as a recreational and training facility despite its use by Stanford hospital and business travelers and its potential use for emergencies. While the airport has constraints~ physical and master plan-wise, that prohibit it from becoming a commercial facility, there are opportunities to consider that will ensure long- term financial solvency. After making the essential point on a City vision or business plan for the airport, the Consultant commented on PAAWG recommendations and statements: Early termination: .The consultant supports exploring direct Operational contrOl by the City and to begin negotiating earlier termination of the lease. In his view; City operation of its airport as a public-entity responsibility will better Serve its users and the community. Management of a City-owned transportation, and economic asset can produce value. : Before assuming control of the PAO, however, the report strongly recommends that the City needs to thoroughly educate itself on Federal and State obligations, risk exposures, and the liabilities it would assume with oversight. The City must notify both the State of California Aeronautics Division and the FAA of its intent to assume control from the County and to ensure that all past financial obligations and compliance requirements incurred by the County are known, resolved, and properly transferred. Interim Manager: It is important to distinguish between a "Manager," who has policy setting or contracting authority, and an "Operations Supervisor," who does not determine policy or enter into contracts, but who has authority to negotiate lease/rental agreements, collect payments, and authorize disbursements. Mr. Wiswell recommends initially hiring an Operations Supervisor who can eventually be promoted to an Airport Manager after the City evaluates their progress and success. o Request for Proposal: Prior to issuing an RFP for a contractor for management ofthe PAO, the City should acquire more information from other airports concerning contractor operation of a publicly-owned general aviation airport, whether it be a for-profit or not- for-profit operator, an airport FBO, or a City-chartered entity. Specifically, the consultant recommends contacting representatives of three other airport operations. One is the City of Oceanside, which has struggled for years as .to how its airport, currently run by the City’s Public Works Department, should be managed. Although the County of San Diego has offered to take over Oceanside’s airport given its regional importance, the City of Oceanside has decided to send out an RFP. The other airports are county-owned airports: one that is run by a for-profit organization and one that is not. The latter believes anot-for-profit entity, run by itself, provides more control over personnel issues. It is interesting to ndte that of the 243 state-inspected airports, only 20 are operated by an entity other than a County or City. CMR:361:07 Page 4 of 8 The consultant does not delve deeply into the points made by the County, Auditor, or PAAWG on the financial performance of.the .PAO. He does note; however, that the increases in tie-down and fuel flowage fees by the County are its only options to enhance revenue and recoup its investment even though attempts to increase revenue could have been implemented, eai-lier. In his view, the fees may be somewhat high, but this is offset by what he regards as a seller’s rather than a buyer’s market for local airport facilities. He notes that currently interpreted restrictions placed on hangar expansion by the Baylands Master Plan and the non-indexed, long-term leases provided to the FBO operators severely restrict additional revenue opportunities. Specifically, the consultant states PAO has a revenue generation base which favors the tenants rather than PAO needs. He advocates creating a revenue generation system of many sources equitably applied across all PAO tenants, users, and uses. While recognizing PAAWG’s model for determining the broad economic benefits the airport bestows, the report recommends engaging an experienced professional entity to conduct a comprehensive economic impact survey and assessment of the PAO’s value to the community and its businesses. It is essential that the City develop a long-term revenue model that keeps the airport solvent and is able to meet Federal and State matching requirements for capital projects as well as infrastructure impro~’ements not funded by Federal or State-jurlsdictions. As stated, the Baylands Master Plan prohibits an increase in the intensity of use of the PAO. Mr. Wiswell argues, that building additional hangars does not necessarily translate into more intense use. A short, single runway and demographic and economic factors may affect the number of future airplane flights, and it is not certain that use will intensify. Moreover, he states that there have beenarchitectural modifications to hangars that make them aesthetically less intrusive. He recommends the City re-examine its Baylands Master Plan to determine if an accommodation can be made for additional hangars and relocation of ttie terminal facility. Additional hangars represent an enhanced and steady revenue base. One FBO operator tias noted that hangers are in strong demand by airplane owners. ~ Additional Issues ¯ One issue not considered in the PAAWG or consultant reports that will have a significant bearing on the future of PAO is the anticipated improvements to San Francisquito Creek. The Army Corp of Engineers will complete its report in 2010. One of the alternatives being considered is to return the creek to its former location, which would cut across the golf course and run. down Embarcadero Road to the Bay. At the very least, staff anticipates that the recommendations will include extensive repairs to the current levees,, including the levee the County built on the easterly edge of the airport and for which it now wants to terminate any maintenance responsibility. .~ Another issue is hazardous materials. In anticipation of a return to City control of the PAO in 2017 or earlier, City staff from Planning, Public Works, Administrative Services and the Attorney’s office performed a cursory inspection of the PAO including the FBO buildings. In addition, the Fire Department regularly inspects the airport. Overall, the PAO is in .good condition, especially with the improvements on the Roy Aero FBO property.~ The hangars are in remarkable condition considering their age. Due to the age of the buildings, however, and prior use of the PAO by the military in World War II, staff is concerned about the presence of ,~N~R.3,~ 1:07 Page 5 of 8 hazardous materials. Staff is recommending a hazardous materials investiga~(ion be undertal4en as one of the steps in deteimining the future of the PAO. Staff Response ~o the County and PAAWG Reports and Consideration of Options The County staff’s proposal to terminate the leasein 2017 and offer to.terminate even earlier places the City in a perplexing situation. By belatedly trying to recapture the Outstanding Advance (a term the CoUnty coined for the difference between the County’s total capital investment, including grant matching fees, and the net revenue generated over the life Of the lease) and building cash for future grant funding matches, the County has alienated its customers with higher fees than surrounding airports and is forcing the City to make some untimely and di~fficult decisions. City staff does not have the County’s expertise in o:verseeing or running an airport and it will take time to build a viable ~knoyvledge base. Staff acknowledges the PAAWG’s concerns about the County’~ steep increases in fees and the potential for deterioration in airport infrastructure. To ensure the latter does not occur, City staff believes it necessary to work more closely and cooperatively with the County on Federal and State grants. This would enhance staff’s knowledge, fulfill a basic City obligation to understand the implications and terms of receiving a grant, and provide a realistic transition into eventual oversight of the airport. Based on government requirements and the County’s work to (elg.;, a complete repaving of th~ airport in 2001, repaving a portion of the access road, installing perimeter fencing gates, and implementing a noise implementation program),-it is unlikely the County will ignore basic improvements.- The County has a good record with the State on correcting safety issues, and the users of the PAO appear to approve., of current 0n-site staffing levels. In addition, the County has been cooperative in meeting fire and storm water run-off regulations. Although the County is focused on recapturing its:Outstanding Advance, it is likely. to meet its minimal operating and capital commitments. The City has three options: do nothing and wait until the lease expires in 2017; assume responsibility for the PAO immediately; or, plan for an orderly transition to City oversigh~ and taking a more active, in the PAO operation. inmaediate role Doing nothing exposes the City to short and long,term uncertainties. Deterioration of the facility is a possibility that could increase future, capital costs and impose further burdens on users and the City. Moreover, the review of Federal requirements indicates the City should assume a more knowledgeable role as owner of the airport. In staff’s view, the PAAWG’s recommendation to take over the airport immediately is far too aggressive and ignores tl~e City’s lack of expertise in overseeing airport and the necessary due diligence in preparing to run a business operation. Mr. Wiswell does not recommend an immediate takeover and staff believes the City is not in a position to assume the responsibilities .this action engenders. Staff agrees with Mr. Wiswell’s suggestion, that before undertaking the responsibilit!es of the PAO, the City must have a clear mission for the PAO and a clear picture of the tests it faces. He notes, for example, that the number of active pilots is reaching a plateau; that the Federal Aviation Administration is considering imposing fees on general aviation activity; and that the Page 6 of 8 costs of insuring and maintaining airplanes may have a substantial dampening effect on the number of plane owners and their-flights. Before the City enters into the airport business, the financial impact of these trends, requires evaluation. As stated, due diligence is required in any new business venture. .. Being self-sustaining is not only a Federal and State requirement, but a necessity given the financial challenges the General Fund faces. To assure the financial viability of the airport, the City will need to explore future financial relationships With thetwo FBO’s, carefully weigh the Baylands Master Plan guidelines, .and seek a better balance between the.current recreational model, the FBO role, and any additional business potential the airpoi-t may have. For example,. the PAAWG’s revenue analysis for the pas( 4 years (page 5 of i~s. report) indicates that the County is receiving a relatively low 22.6 percent of airport, total net earnings with the remainder going to the two FBO~. This relationship, while understandable from an historiclal perspective, requires realignment to more adequately reimbi~rse the City for its risks. The County is realizing a modest profit ($11,000 per year over 37 years), but staff believes that the long-term operational and capital needs require a stronger revenue base. By including depreciation in its public statements about the airport’s financial condition, the County does bend the picture of its cash position. Nevertheless; staff agrees it is necessary to Set aside monies, fis the PAAWG notes, for capital matching requirements and projects that are not funded by the Federal or State government. Staff finds option 3 the most viable. It would provide for a gradual, "open-eyed" transition to City airport oVei’Sight. The transition could occur in approximately 3 years. This will allow time for: Council consideratic~n and development of the airport’s mission. Staff work with the County to master basic ~nf6rmatlon and reqmrements. An outline of all City obligations and responsibilities for the PAO whether it operates the PAO or contracts it out. An economic analysis to determine the long-term viability of the PAO and providing assurance that sufficient funds can be generated to offset annual expenses and capital work. A thorough Hazardous Materials analysis. Obtaining written confirmation from the County on a waiver of re-payment of the "Outstanding Advance." Assessing and seeking the most viable management arrangement for the airport. Consideration of the Army Corp of Engineer’s recommendation i~n. San Francisquito Creek A complete legal analysis of the County/City PAO lease and examination of all the airport contractual agreements. In conclusion, staff recognizes the many benefits the airport currently provides and can provide to the greater community. Staff does not support the PAAWG recommendations to appoint an interim manager or to issue an RFP for the long-term management of the PAO at this time. Rmming the airport is a major responsibility and must be approached with careful planning. A gradual transition period that addresses the issues identified in this report is recommended. CMR:361:07 Page 7 of 8 RESOURCE IMPACT " Staff will return.to Council with estimates and a budget request for the option chosen by Council. POLICY IMPLICATIONS S:taff’s recommendations .are consistent with City policy and based on information included in the reports by the CityAudi:tor, the PAAWG, and the Consultant. ENVIRONMENTAL REVIEW An environmental impact assessment (EIA) as may be required bY the California Environmental. Quality Act (CEQA) will be performed in connection with future Council decisions regarding the PAO. ~ .! PREPARED BY:~-/ ) t-.~ .... WILLIAM W.LMAN Manager, Real Property DEPARTMENT HEAD APPROVAL: Director .dministrative Services CITY MANAGER APPROVAL: ATTACHMENTS " Attachment A: PAAWG report Attachment B: Auditor’s Report. Attachment C: June 14, 2007 Consultant RepOrt Attaclmaent D: July 6, 2007 Consultant Report CC:County of Santa Clara JCRC Chair of the PAAWG EMILY HARRISON Assistant City Manager Page 8 of 8 ATTACHMENT~ A. (Without Appendices) Palo Alto Airport Working GroUp.(PAAWG) Report to Palo Alto City Council: The Communitv Value, ¯ Economic Viabili and Future Management of Palo Alto Airport May2OO7 Palo Alto Airport Working Group (PAAWG) ¯ Concluding Report and Recommendations to Palo Alto. City Council . . PAAWG Resolution: .The PAAWG, having carefully reviewed the operation of the Palo Alto Airport resolves: l - The Palo Alto Airport is an important transportation, business, economic, recreational and emergency preparedness asset and resource for the Cit~ of PaloAlto and its residenis. 2 The Palo Alto.Airport can be operated on a self-sustaining economical basis and be cash positive .without requiring any financial support from the City. 3 - The continued operation of the Palo Alto Airport by the County will both diminish the resource value of the Airport and will threaten its long-term economic viability. The PAAWG hereby recommends that the City Council direct the Cily Manager to negotiate an early termination of the existing Palo Allo .Airport lease with the County, appoint an interim manager for the Airport, and issue an RFP for the long- term management of the Airport, which will ensure its asset value to the community is maintained and will preserve its economic value into the future. >>> Passed unanimously by PAAWG (with Larry Klein, City of Palo Alto, Vice Mayor, Bill Fellman, and Chris Mogensen not voting). Executive Summary In late 2006, the City Council authorized the creation ofthe Palo Alto Airport Working Group (PAAWG) to advise the Council on tWO basic questions: Is the Palo Alto airport an importan~ commumty asset?.. Can the Palo Alto airport be run on a profitable basis? .The PAAWG was tasked With providing this assessment to the City Council within 6 months. The information contained in these pages represents the 0utput-from the PAAWG efforts and hopefully provides the Palo Alto City Council with an independent assessment of the Palo Alto Airport as an important community asset, to both the city and the region, as well asa perspective on the.economicvalue and other benefits of the airport to the City of Palo Alto andits residents. Purpose: This repor~t is the PAAWG response to the City Council’s request for information and a recommendation to the City Council about Palo Airport management vis-i~-vis Sa.nta Clara County (the current lessee), regarding the impact and timing of a structural change in the operations lease. ¯ This report addresses: o The airport’s value as an essential community asset The airport’s actual and derived economic contributiont The airport’s operations and management ® The airport’s future alternatives and managemen~ recommendations. Notwithstanding its very interesting and profitable history, the Palo Alto Airport has recently been judged by the Santa Clara County Airports Division as a target for divestiture due to County reported negative financial performance: This inaccurate judgment appears to be more representative of a political decision than a carefully considered economic analysis. The County has ignored the Palo Alto City Auditor’s audit of County finances, which proved the economic viability of the Palo Alto Airport (which earned more than $400,000 over the past several years), and it also ignores the value of many other economic benefits such as tax revenue and the economic value of emergency support ahtivities a~ the airport, many of which have enormous value to the City of Palo Alto as well as the entire Bay Area. Herein lies the principal issue and the reason for this report- the Palo Alto City Council wishes to have a concise and independent evaluation of the airport’s economic value to the community in order to make a judicious decision on the future of this essential resource. -2- Palo Alto Airport Wor.king Group Findings Palo Alto Airport (PAO is the FAA airport identifier code) is a vital component 6fthe local transportation network and has many important community benefits: 1.Support for local business travel requirements 2.Transportation of patients and transplant organs to Stanford Hospital 3.Initial pilot training, certification, and bi-annual reviews 4.Recreation space for the local community 5.Serves as an important link to vital services and supplies in the event of an earthquake or other major emergency incident 6.Part of the overall Bay Area airport system and transportation infrastructure See Appendix l-A: t’alo Alto Airport - Essential Community Asset Palo Alto Airport is a significant part of the local economy, directly employing some 275 full and part-time flight instructors, m.aintenance technicians, administr.ators, and various other workers. The total annual revenue is $12.5 million dollars and total payroll is approximately $5.3M. Property and sales taxes amount to over $2 Million annually, supporting the local schools and community colleges as well as the City and County general funds. The Palo Alto Airport is an essential community asset, addressing many community. needs and interests, as well as, providing an array of important economic benefits to the City of Palo Alto. PAO has the economic potential to be self-sustaining, fund necessary improvements, and cover the City management overhead associated with lhe required City oversight for functions such as Federal grant management. Palo Alto has had an airport since 1928 and now boasts the busiest single runway airport of its size in the country with around 200,000 operations annually. It also is host to the country’s largest flying club, West Valley Flying Club (a non-profit organization), and to four smaller flying clubs. In addition, the Palo Alto Airport is a pilot training resource for a broad variety of people, from celebrities such as Joe Montana and several US astronauts to ordinary people like you, me, ano many of~our he~gnoors. -3- Summary Economic Overview of Palo Alto Airport (PAO) today -. Actual airport revenues total about $1.’~5M, of which 94% are sourced from rental and lease income,, with the remaining income from fees received for transient ¯ parking, and airport fuel flowage (a common sourceof~’evenue for an airport " operator). The total direct expenses are for persbnnel, tptaling $442,000 at the County, and an additional amount, totaling $438,000 for employees of the two Fixed Base Operators (FBOs) at PAO. An FBO is an independent (non- governmenta!) entity associated with airport services, operations or maintenance. This provides a. ~ross margin ofnearls~ 50% -a positive cash flow from current ai~:port operations.. Most of the major infrastructure expenses (i.e., runway and taxiway resurfacing, automated weather reporting, runway lighting, security fencing, etc.) for airports throughout the .country are, appl!ed for and covered under the.FAA Federal grant system. Staffing and operational costi for the FAA Tower at PAO are not paid by Santa Clara County or the City of Palo Alto, but are.sep.arate and also covered by the Federal Budget. ThePAO tower facility and the professionalism of its ATC (Air Traffic Control) s~aff are ..what make the number of anmial flight operationsat this airport po.s~ible. PAO is part of the regio.nal ~ind national transportation system. It is simply the ’.’on-ramp" to the vast network of airports and airways leading throughout the nation and the world. As such, it supports the business, medical, emergency, and personal transportation needs for the community. But, there are direct local benefits as well, .such as pit6t training and providing jobs doing the essential work of the airport. Airport businesses have a combined payroll of $5.3 Million, a significant percentage of which is spent in the local community. The PAAWG notes that the scale of flight operations at PAO is a direct indicator of this regional value. -4- Palo Alto Airport.(PAO) .Estuaated Average Annuat Composite .P.~ o-Forma. Income Statement current dollarsl averaged over the iperiod 2000~2004) Revenue (Income) Lease Income Transient income Fuel Flowage Total Revemie Operating Expense (Salaries,Benefits} And Maintenance) Net Earnings (Loss) SC County FBO-1 FBO-2 PA 0 Total $563,344 $57,402 $49,750 ¯$670;496 $422,255 $228,241 $94.6,168 $0 $946,168 $338,048 $608,120 $274,500 $o $274,500 $100,000 $174,500 % Rev. $1,784,012 94.3% $57,402 3.0% $49~50 2.6% $1,891,164 ." 100.0% $880,303 46.5% $1,010,861 53.5% -5- Current State of the City/County relationship The County Of Santa Clara Roads and Airports Department operates the Palo Alto Airport (PAO) under a lease agreement with the City ofPalo Alt6 which expires in 2017. Moneys collected bythe County at the airport flow into an enterprise fund which is independent Of the tax-supported general fund. The County has clearly stated that it does not want to continue operating the airport after 2017. The County asserts that it loses money at PAO, but the City auditor’s report disputes this view and also notes that County overhead charges amount to 40% of revenues collected by the County at the airport (this does not include tax revenue). A bulk of the total revenue at PAO is collected.by the two FBO sub’lessees who have long-term lease agreements with the. County, which also expire in 2017. After 2017, these sub-leases Will also expire and all property at PAO will revert to the City. Also after 2017; the combined revenue for all facilities at PAO should be expected tobe much larger than what the County collects today All of the hangars at PAO were built by and are further sub-leased by the FBOs to aircraft own.ers, as agreed under the County to FBO sub-leases. Hangars-are rented at- market rates and produce a very large profit because there is a strong demand and a shortage of available units. Reid-Hillview (RHV) Airport, which the .County owns and operates, shows a very satisfactoryprofit due to its hangar rentals, which the County rents directly to aircraft owners and Operators. At PAO, the County.’s lease agreement with the two FBO’s generates only modest revenue for the County with most of the cash flow from the rental 0fhangar space flowing to the FBO sub-lease holders. Recognize that the lease agreement between the County and the FBO’s was completed many years ago and the terms were made attractive to encourage the private investment necessary to fund hanger construction. Current FBOs, like most local real estate investors of the period, are now simply reaping the reward from their earlier private investment. -6- Some Sources of Conflict Split Ownership and Management with Conflicting Decision Making In 1978, the City adopted a Baylands Plan which stated, relative to the airport, that "no changes ~re planned which would take over a significant amount of the airport, and that a second runway would not be built. The.Airport will have two Fixed-Base Operators, but a third will not be built." There is no included definition of"Fixed Base Operator," thus the exact meaning, and intent of this last statement.is unclear, The lease with the County was amended so that a second runway could not be added and no expansion of fie-down space beyond 510 spaces could occur without the concurrence of the City. In October of 2005, the County produced a Master Plan for PAO. It included some changes required to the airport layout to bring the taxiways more into line with FAA guidelines and move the heliport.to comply with FAA Heliport guidelines. It also proposed a Baylands Welcoming Center and a new terminal, moving the terminal bey.ond the FAA defined "runway safety zone." Recognizing the need formore hangars to provide protection for some (typically more valuable) aircraft and their associated income generating potential, the plan also calls for adding 18 hangars adjacent the taxiway North of Embarcadero Road. It also raised the possibility of additional hangarscloser to Embarcadero Road, but made no recommendation in this regard. If these hangars w~re built, it would raise the total number of new hangars to 29. Significantly, the plan did not cali for any increase in runway length or width. The design and location of the terminal arethought to be highly negotiable. The current terminal is in an old "temporary" building and cannot be significantly modified in its present, location as it lies within the runway protection zone and is a non-conforming use. . . During the development of the PAO Master Plan, the County’s consultants were aware of the City Baylands Plan and as a result showed only modest changes to the Airport. However, one particularly impdrtant point for the County was the construction of additional hangars, as these would have generated additional income to further increase the.County Airport Enterprise Fund. The County’s PAO Master Plan was in conflict with the City BaYlands Plan, which would have required some modification to permit the improvements envisioned by the County plan. Ostensibly, the County improvements would have been done with FAA funding, but hangars are not eligible for Federal Airport Improvement (AIP) Program grants. It was at this point in time that the County Roads and Airports Director decided that the County should abandon the airport at the end of the lease. Clearly the Roads and Airports Department is frustrated by constraints placed on PAO, which are not under County control. Without the potential income from the new hangars and .due to the perceived constraints, the County argues that the Airport will likely lose money in the future and cited various -7- other "business.risks" in continuing to operate PAO. The County’s Business Plan states: "The airport is severely constrained from physical, environmental and policy standpoints; existing City policies specil]cally prohibit physical expansion of the airport into open spacea~-eas [on the airport property], signit]cantly increasing the intensity of operations, or adding a third FBO. In light of these constraints, only minor changes to the Airport’s airfield area were identified in the Master Plan." Oddly,the Roads and Airports Department paintsa much rosier picture for South County Airport (El 6), which has always required a subsidy from the Enterprise Fund and has been far more costly to manage in terms of land acquisition and facility improvement expense -South County revenues have not.covered these costs to this day. Without the constraints posed by the PAO location, the County hopes the South County Airport may prosper sometime in the future. Once the County decision for non-renewal was taken, the Roads and Airports Department decided to try to maximize its revenue and minimize expenses as it says in the business plan: "The loss of PAO would not present any operational impacts to the Coanty airport system because each airport’s aeronautical activities are independent." With this view, the Roads and Airports Department is imposing a 7.5% increase per year, compounded in tie-down rates paid only at PAO and doubling PAO fuel flowage fee~ (again, not at other County airports). These rates are thus higher than surrounding airports and the gap Will widen further over time, but the lor~g-term effects on PAO can only be speculated upon at this point. The County’s PAO Business Plan also states that it seeks to "Limitfuture County capital investment in the airport to thelocal match necessary for essential, non- deferrable, (emphasis added) Alp eligible maintenance projects or security related projects..." The plan further predicts that the tie-down rate arid fuel flowage increases will recover an additional $1 Million during the remaining period of the lease. Without other action, the~e policies will severely impact the quality JofPal0¯ Alto Airport facilities the County returns to City control in 2017. The County Board of Supervisors will, in the next few months, be asked to make a policy determination allowing The Roads and Airports Department to abandon its involvement in PAO in 2017 or sooner by agreement with the City. Absent a Board of Supervisors decision compelling ~l-ie Roads and Airports Department to operate its three airports as a Countywide System and spread the cost burden in abalanced manner, theBoard of Superwsors will likely vote to uphold the Roads & Airports Department program for exiting in 2017. In the meantime, the Roads & Airports Department is proposing a temporary hangar project to generate additional revenue during the remaining period of the lease. If this new construction is not approved by the City, it is possible that the Roads and Airports Department will consider this "cause" for early termination of the lease and exit sooner than 2017. Action .Scenarios Contemplated and Transition Control: There are three reasonable courses of action which have been contemplated for the City: Do nothing. The lease will expire between Santa Clara County and the City of Palo Alto in 2017. 2"he two major FBO leases would likely continue until term in 2017. The County would likely continue its demonstrated reduction of ~taff commitment and shift funding to support South County Airport (El 6) and Reid Hillview Airport (RHV), at the ’expense’ of Palo Alto Airport (PAO) via ignored grants and deferred maintenance. The Palo Alto Airport would likely revert to . The City of Palo Alto in a condition further deteriorated than it is at present. Implications of continuin~ the lease with the County Until 2017. Under this scenario, the County Will collect an additional $1 Million in excess of expenses due to increased tie-down and fuel flowage fees. Fuel flowage. dropped precipitously with the County increase in flowage rates, and it is not c.lear that this willproduce any extra revenue. Plannedtie2down rates at PAO will have increased by a factor.of 2,06 by 2017, with the smallest (and typical) rate then being $248/month. Other County airports will be at an estimated $154/month by that date. Only "non-deferrable" maintenance will be performed Which will likely result in a maintenance backlog and a further deterioration 0fPAO airport facilities.. The increased tie-down rates, coupled with thedisinvestment in the airportl will probably cause some reduction in flight trmmng and flying club activi-ty and the consequent loss of some jobs at the airport. Personal property taxes collected at the airport could also be somewhat reduced, due to aircraft leaving PAO. Past experience with County errors confirms this price elasticity. If the County constructs the proposed temporary hangars it will derive additional income, but there will be no corresponding benefit .to the City. In any event, in 2017, the City must be prepared to take over airport operations. Although income potential will be much greater in 2017, if tile City inherits and assumesresponsibility for the operation of considerably depreciated PAO facilities, it could be many years before profitable rental and service activities are realized. An Mter_n_ative i.q fnr the City to request the County Board 3f Super,~iso~s to reject its Roads and Airpo~s Department recommendation to terminate the lease in 2017 and force renegotiation of terms accep!able to both parties. -9- Act now - grant the.C0unty wish to end iheir management responsibility for the Palo Alto Airport. Negotiate terms favorable for a balanced reversion back to City control. Manage the financial transition well, including capital, accounts and claimed accruals. Manage the transition pursuant to a speq~fic City designated Palo Alto Airport management authority which would receive policy guidance from Palo Alto City Council. Under this scenario, there are rw0 . alternative paths, ei~ther at the option of the City or because the County feels it has legal grounds ~for earlytermination: " implications of endin~ the lease with the County early where the City of Palo Alto operates the airport. Under this option, PAO airport revenues would flow to the City. The City would need to establish an Enterprise Fund in order to accurately account for revenues and expenditures. This would be in accordance with the FAA . requirements for airports accepting Federal AIP funds. The City could determine what tie-down rates should be charged on the basis of what is the best balancefor the City and the airport in the long-fun. The City could schedule maintenance and apply for the corresponding FAA grants at its option~ thus insuring timely repai{s. The County FBO sub-leases are obligations running until 2017 and would accrue intact to the City.. (If the sub-leases were to be cancelled, the FBOs wouid likely expect compensation corresponding to the benefit they derivefrom their business through2017.) An analysis (see Appendix l-D) shows that the airport could be run profitably by the City until 2017, while honoring ~he existing County FBO sub-leases andyielding income of $100,000 which could, defray City management costs and/or create a maintenance reserve needed for deferred maintenance and code upgrades When the leaseholds revert to the City. After 2017, the airport would generate sufficient cash to provide for any contingency. Implicati0ns ofending the lease with the County early where the City of Palo Alto contracts operation t° an outside airport management firm or entity. The City could, at its option, contract PAO operation .to an independent airport management organization. There are alternatives under this option which are more fully described below. Basically, PAO would be run independently and the City wouldhave minimal responsibility for it. Nevertheless, the City would have oversighi responsibility as it does with any independent contractor working for the City. The City would also have responsibility for signing off on and complying with Federal grams which fund most of the capital projects at the airport. The work of preparing grant requests, filing documentation, and required reports would be done by PAO airport staff with minimal City the "bandwidth" to operate the airport directly. It may prove antithetical to the community service oriented facility as the profit expectations of an FBO may not allow for adequate reinvestment in the airport. -70- Wait, study, deliberate for 3 to 5 years. The costs of transition will continue to increase over time. Uncertainty of operating expense management will continue (i.e., fuel flowage, tenant charges, collections). A Sinking Fund or other allowances for capital improvements are difficult to arrange, so they remain deferred., Quality of service and property will continue to deteriorate during this period. There areother management considerations necessary, for effective control assuming a transition from County to City control. Should the County act in a way to force a City decision, the City could-consider asking one of the present Fixed Base Operators at the airport or the West Valley Flying Club to manage short-term operations at t~e airport. These organizations have the capability and computer power to facilitate such an interina transition. They have been approached and are willing to support the transition from County to City in whatever way the City deems desirable. This approach.may present a conflict of interest condition were the City to use a FBO. While choosing a FBO may represent a management expedient, it may contrast the community~service aspect of the airport with the inherent profit motive of a FBO.- Consequently, in the event of aggressive behavior being exhibited by the County, the PAAWG recommends contracting with the West Valley Flying Club and using their facilities, equipment, and personnel to facilitate transition to City control. A second alternative would be for the Palo Alto City Council to form a special district, although this may create additional, complex control issues for the City of Palo Alto. Finally, there are a few external, independent airport management companies, but their work isoften linked to an adjacent or significant real estat~ development mission and their profit expectations lead to a problem similar to using a FBO to run the airport. The Palo Alto Airport Workin~ Group does not recommend forming a special district, or assigning management responsibiliW to one of the FBO’s, or hirin,~ an outside commercial airport (i.e., real estate development) manaRement company. The Pal0 Alto Airport Working Group recommends the Palo Alto City Council: Form a non-profit management company to manage PAO airport. Staff requirement is small (5-6), would live locally, and there are many skilled people to consider. They are paid from airport operations. A local non- profit management company would be best to keep employment and direct costs low in keeping with. the size of the airport. This serves as the focal point to prepare grant requests to the Federal government. or, a non-profit corporation (ould be contracted to runPAOairport. The airport community-includes matiy 15eople with the interest, commitment, and ability to form and operate a non,profit organization which couldrespond to a City RFP to make this happen. The. organization would be responsive to City.requirements, take Care of all administrative tasks, and do all the grant administration with City .oversight. Airport finances would beessentially run as an enterprise fund with all money needed for airport operation collected from users with no burden on Palo Alto taxpayers. Taxes Collected at the ai~-port would flow m the City, County; and schools as they do no,w, with none of these funds used to sppport the airport. The City would be paid for management ¯ functions required and reimbursed for expenses incurred by. the City Attorney, Auditor, City Clerk, etc. The PAAWG did note ihat a local non-profit mana~,ement company.eliminates the need to add direct City staff at Palo Alto beyond what they would currently do in conjunction with managing via the County ~o sustain the federal grant application process. This decision will determine the future of our airport. -]2- Glossary Tie-down -A place on a paved or other designated spoton the airport property with secure attachment points where airplanes are secured by ropes or chains to prevent movement. Hangar - An enclosed building, for storage of aircraft, with.a roof, walls and a door. Sizes vary depending on the aircraft stored. Larger hangars are typically also used for the commercial service of aircraft, from mechanical to electronics work, including partial tear-down for annual inspections and sometimes for major repairs.. Shelter - An open-sided, covered structure for aircraft storage which provides shade for parked aircraft. Generally considered inferior to hangars, yet preferable to tie-downs, since it doe; provide some protection from the elements. There are currently no shelters at PAO Airp0r~. Sub-lessors - At an airport, these are usually aircraft owners who rent or lease tie-d0wns or hangar spaces. They include any business on airport property that does not own its property, this includes FBO’s (below). FBO - FiXed Base Operator - Thesd are businesses critical to airport operations with responsibilities defined under FAA regulations. At a minimum, these are fuel service" operators and primary maintenance facilities. The term does not include eateries, car rental businesses, service companies who only clean airplanes, Or airplane rental organizations. Part 135 Operator - This term refers to a part of the Federal Aviation Regulations (FARs), under which they operate. Most "air taxi" and other "for hire" operations (except for flight instruction) fall under these rules, whic’h are generally more restrictive than Part 91 (se.e below). They must meet the highest level of preventive main’~enance inspections. ~ Part 91 Operator - This term also refers to a part of the FARs; under which these organizations operate. Most not-for-compensation, personal, and business flying are governed by the rules stipulated here. Flight instruction is included under Part 91. This class of operations is typically non-scheduled flying.. General Aviation - All flying other thancommercial airlines and military aviation operations is considered General Aviation, which represents 75% of all US flying. Terminal - A place, often a building, th’rough which passengers pass to access aircraft. Palo Alto has a terminal onthe San Francisco Bay side of the airport. Flying Club -A group of people who organize to share the usage and operations cost of aircraft. A club can be a few individuals sharing ownership of a single aircraft, or like several of the larger clubs at PAO, can provide professional full-time management, scheduli.ng, maintenance, and other ancillary seryices such as flight instruction. Tower - Palo Alto’s Federal Air Traffic Control Tower (ATCT) is staffed by Federal employees from 7 AM until 9 PM, providing radio communications, assisted by radar, to aircraft flying in the 5 mile vicinity and on the ground. The ATCT staff interacts constantly and intensely with flight operations at nearby airports from San.Francisco to San Jose to provide safe and timely aircraft flight control and advisory services. ATTACHMENT City of Palo .Alto June 6, 2006 Honorable City Council Palo Alto, California " cc: Joint Community Relations Commission Review of Palo Alto Airport’s Financial Condition and Comments on Santa Clara County’s Proposed Business Plan for the Airport SUMMARY Santa Clara County’s proposed business plan for the Palo Alto Airport (Airport) highlights Airport deficits and proposes to dramatically increase tie-down fees1 to recoup the outstanding advanceused by the County to construct, maintain, and st~pport theairport. Ou~. analysis of the financial statements. County documents, and City records indicates that Palo Alto Airport operations have generated more than $400,000 i-n adjusted net income2 over the ast 37 years that has been used to offset the County’s original investment of $1,085 134 ($681 349 as of. 6/30/05). n recent years, the -Airport has remained ~)rofitable although County pooled and overhead costs total over 40% of tl~e Airport’s operating expenses. Because the Palo Alto Airport is bearing more than 30% of ~he County’s pooled airport costs for its mree airports, the operating income for the remaining, two.County airports would be ad~/ersely affected if the Palo Alto Airport lease were to be terminated. However, County staff indicates that significant budge{ reductions would offset the loss of Palo Alto revenue The proposed tie-down fees would be higher than nearby airports. We question whether current Airport users should bear the burden of historical deficits from the 1960’s and 1970’s (especially since recent years have been profitable), and specifically whether current Airport users should bear the full cost of 1973 Embarcadero Road improvements and 2005 Baylands levee repairs. Our analysis also indicates depreciation calculations should be cited with caution because depreciation expense does not affecl the County’s annual calculation of the outstanding advance. In addition, we suggest that the allocation of County overhead to the Airport be trued-up at the end of each year. Given the recent profitability of the Airport we estimatethe County’s remaining outstanding advance of $681,349 may be settled before the lease expires in 2017 even without the proposed 30% increase in tie-down f~es. Before 2017, the viability of the Airpor~ may be impacted by: developments in the San FrancisclU~to Creek project; implementation of some of the more feasible aspects of the County’s proposed 1 Tie-down fees are charged to aircraft tenants for outdoor storage of their aircraft. The County ope’rates 362 of the 468 tie-down spaces at the Palo Alto Airport. The other tie-downs and all of the hangars at the Palo Alto Airport are owned and operated by the FB.Os. 2 We are using the term "adjusted net income" to mdan operating revenues (not including federal and state grants), less operating expenses (not including depreciation), plus net non-operating revenue/expense (in~:luding capital expenditures net of federal and state reimbursements). -t- master plan; and/o~ the advent of new very light jet ~ircraft. After 2017, opportunities exist to increase revenue after the County’s subleases with the two fixed based operators (FBOs) expir~. ’ RECOMMENDATION: Authorize the City Manager to notify the Santa Clara Co~n.ty Board of SOperv!sors that: 1) The.City. of Palo Alto supports moderate increases in tie-down fees at the Palo 2) 3) Alto Airport, but the fees should be competitive with fees at nearby ai~-ports. Because it is a regional resource, the City expectsand encourages the C~)unty to continue operating the Airpor! per the terms of the lease through at least 201 7. The Coupty has benefited from operating the Palo Alto Airport, and should continue to maintain and improve Airport facilities per Federal Aviation ¯Administration (FAA) regulations. The City has. agreed to provide grant assurances when necessary BACKGROUND Lease agreement: The City of Palo Alto (City) owns the land where the Airport is located. In April 1967, the County of Santa Clara (County) and the City entered into an agreement under which the County leased the Palo Alto Airport property from the City for a term of 50 years (through 2017) for a payment of $25 for the entire term of the lease Under the terms of the lease, all revenue from the Airport was to be used to reimburse the County for expenditures made to construct and maintain the Palo Alto Airport, and for continuing operations, maintenance; and capital .imProvements on the airport premises. The County also agreed to pay the expense of relocating Embarcadero Road. Operating deficits in the first years of operations were added to the outstanding advance that was used to fund the initial construction at theAirport, and were expected to be rep.aid by future revenue. DeJoitte & Touche audit: In 1997. the City and County jointly funded a Deloitte & Touche audit of the County’s financial statements for the Palo Alto~ Airport to settle questions about the appropriate accounting for Palo AltoAirport and the outstanding advance. Proposed Airport business plan (Attachment 3): n FY 2005-06, the Airports Division3 hired a consultant to update the 1982 Master Plan for the County’s three airports, and prepare business plans for the three airports The proposed Palo Alto Airport business plan recommends that the County terminate ~ts involvementin the Airport after the lease expires in 2017. The recommendation is based on the premise that the Airport has historically operated at a deficit and that costs will cbntinue to exceed revenues: that. the loss of the Airport would not have any operational impact on the County system or its other two. airports; and that future opportunities to generate additional revenues are extremely limited. The business plan. further recommends that future capital investments be limited to those projects mandated and/or funded by the federal or state governments, and that the. City should be required to provide any assurances that exceed the 2017 expiration date on the lease (i.e. the 20-year assurances needed for fulure airport improvement project grants): Finally, the proposed business plan recommends that the County raise tie-down fees to help make the Airport financially self-sustainin~], and to help recover as much of the outstanding advance as possible prior to the lease expiration in 2017. Proposed Airport Master Plan: The proposed Airport Master Plan identifies minor changes to the Airport’s airfield area. and raises substantive questions about the extent to which the vacant8-acre parcel fronting Embarcadero Road should be developed City Planning staff The Airports Division is Dart of Santa Clara County’s Roads and Airports Department. 2 - indicates that improvements consistent with current Airport operations ai-e within thescope of the City’s Comprehensive Plan and theBaylands Master Plan. However, parts of the Plan intensifying-use or intruding into open space areas would not.be consistent. A response letter from the Planning Director is attached (Afiachment 2). Purpose, Scope and Methodology. Because of Santa Clara County’s recent, release of a proposed business plan for the Airport, the Palo Alto City Auditor’s Office was asked to review the Palo Alto Airport’s financial statements, and evaluate the COunty’s allocation of expenses and overhead to the Palo Alto Airport and the financial viability of the airport ope.rations. We conducted our. review in March and April 2006 in compliance with government auditing standards.4 DISCUSSION OF AUDIT RESULTS The Palo Alto Airport has generated more than $400,000 in adjusted net incomeover the last 37 years. Table 1 summarizes the financial history of the Airport since 1969, including the County’s more recent investments in the Airport’s infrastructure (net of federal reimbursements). The County ha~ used the Airport’s adjusted net income to offset its original $1 million investment in start-up and capital costs at the A irpor[ (the outstandi.ng advance). 4 For our review, we compiled the History o’~ profits, losses and outstanding advances; reviewed the financial statements and accounting data provided by the County and City from 1969 to 2005; analyzed the method for assigning County costs and oyerhead to the three County airports; and compared the operating revenues, expenses, and income for the three County airports. We analyzed the depreciation schedules used by the County; performed a detailed review of the acco~Jnting records provided by the Cou~~ty for FY 2002-03, 2003-04, and 2004-05; reviewed the Airport and FBO leases and the joint agreement for the levee repaired by the County. We recalculated the direct and pooled charges ~ssigned to the Palo Alto Airport and to the two other Cour)ty airports; reviewed the proposed master and business plans for the Airport; an.d examined previous consultant reports and County-City agreements. We compared the proposed rate increases with the rates charged by other airports, and physically observed the operations at all the County airports. We interviewed County airport staff and executives, an Airport FB0 executive, and representatives from the County Airport Land Use Commission, the County Airports Commission, and the Joint Community Relatior)s Committee for the Palo Alto Airport (JCRC). -3- Table 1:Palo Alto usted net income and advance Pi-ior ¯ FY 1968-69 FY 1969-70 FY 1970-71 FY 1971-72 FY 1972-73 FY :~ 973-74 FY 1974-75 FY 1975-76 FY 1976-77 FY 1977-78 FY 1978-79 FY 1979:-8O FY 1980-81 ¯ P¥ 1981~82 E¥ 1982-83 FY 1993-84 FY. 1984:85 FY 1985L86 FY 1986-87 FY 1987-88 FY 1988~89 EY 1989-90 FY 1990-91 FY 1991-92 FY 1992~93 FY 1993-94. FY 1994-95 FY 1995-96 .FY 1996-978 FY 1997-98 FY 1998-99 F¥ 1999-009 FY 2000-Ol FY 2001-021° . FY 2002-03 FY 2003-04 FY 2004-05 TOTAL $61,830 63,786 78,636 93,338 100,961 103,152 115,4£3 ~19,201 135,612 152,571 176,944 197,881 231.,470 288,678 313,807 ($69,949) (78,38.4) (88,525) .(97,353) (105,903) (124,276) (120,790) (153,142) (183,606) (20i ,4:~2) (209,553) (244,835) (302,663) (238,752) . (246:570) 346,267 (268,681 343,626 369,880 364~268 366,968 392,868 378,027 397,788 426,542 505,306 430,.105 385,542 438,722 430,238 439,377 488,062 474,680 647,857 752,760’ 727,657 723,065 725,478 $12,788,443 ) (327,483) (338,107) (340,129) ¯ (363,634). (302,721) (358,667) (289,294) ¯ (376,650) (435,563) (341,695) (360,617) (374,867) (381,060) (473,818) (548,411) (583,116) (548,914) (83~,677) (663;106) (617,646) (735,448) ($12,330,037) Source: ($8,119) (14,598) (9,889) (4,015) (4,942) (21,124) (5,297) (33,941) (47,994) (48,861) (32,609) (46,954) (71,193) 49,926 67,237 77;586 16,143 3.1,773 24,139 ¯ 3,334 84,140 24,718 10:7,494 ¯..97,755 97,607 107,988 51,796 91,819 113,400 ¯"(50,226) (86,461) (588,365) 98,498 125,788 63,902 104,253 39,077 $403,785 from various County reDoFtsCompiled by Palo Alto City Auditor’s Qfice ’ (6,007) 5,358 (1,000) 47,863 ~’ 27,864 19,578 26,871 27,964 64,222 (15,785) (26,112) (479,929) (445) 207,705 (649) (1,166) 4.9,047 {$54,621) $1,085,1347 1,093,253 1,126,697 t,153,118 1,187,059. 1,235,0~3 1,283,914 1,316,523 1,363,477 1,434,670 1,584,744 1,239,921 1,223,778 1,192,005 1,167,866 1,164,532 ¯ 1,080,392 1,055,674 948,180 850,425 252~818 644,830 593,034 50~,215 387,815 438,041 524,502 1,112,867 1,014,369 888,581 824,679 720,426 $68~,349 Does not include federal or state reimbursements for capital projects Data not available prior to 1989 $2,186,793 in improvements less $1,101.659 federal and state reimbursements Deloitte & Touche LLP audileo the financial statements for the year ended June 30, 1997 Includes $2.5 million improvements, less $2 million federal reimbursement ~o Includes $204 539 prior year construction in progress reclassified to maintenance expense -4- County pooled and over.head charges now average more than 40% of Palo Alto Airport expense. The County cha~ges some costs directly/to the Airport, and allocates i.ts.pooled costs based on .a formula. Over the last three years, the County’s direct costs at the Palo Alto Airpgrt averaged $391,791 per year.11 As shown in Table 2, the County’s pooled and overhead, costs at the Palo Alto Airport averaged $280,561 per year- or about 41.7% of Palo Alto Airpor~ operating expenses. 12 Table2: Percent County p~le~and overhead expenses allocated io Palo AIto Airport " Direct County costs to operate F?alo Alto Airport Pooled County operating costs and overhead charged to the Palo Alto Airport Total (not including depreciation) Percent County pooled and .overhead costs $378,345 $360,744 $436,285 $391,791 $284,761 $257,759"$299,163 $280,561 $663,106 $618,503 $735,448 $672 352 42.9%41.7%40.7%41.7% Pooled County expenses for salaries, benefits, and general administration overhead have increased in recent years, reducing.Palo Alto Airport operatingincome. For example, general and administrative County expenses increased 85.6%, from $94,031 in FY. 1997-1998 to $174,533 in FY 2004-2005., and averaged $153,761 per year betw.een FY 1997-98 to 2004- 05. Jn contrast, di.rect Airport expenses for aviation services increased 45% fromS81,766 in FY 1997-98 to $1!8,667 in FY 2004:05, for an .average of $103,466 during the same period. The County allocates pooled operating .costs and overhead through a formula. The County allocatespooled costs to each airport according to a formula that uses four factors: (1) the number of operations staff, (2) aircraft operations (t~ke-offs and landings), (3) aircraft. based at the airport, and (4) number of principal tenants~ (or FBOs).13 The percer~tages change each year as shown below: -Fable 3: Percent of pooled County costs allocated to each airport Palo Alto 32.5% .........~=i";~’&,~; ..........31.3°/o Reid-Hillview 58.6%56.6%56.6% South County 8.9%12.1%12.!% Allocated costs shobldbe trued up at the end of each year. The County allocates pooled and ¯ overhead costs based on estimates. Actual percentages may vary. Using actual figures, we estimate Palo Alto paid almost $16,000 morethan its share of allocated costs as follows:TM ~ Direct Airport costs included about $299,500 in salaries and benefits for 4.2 full-time equivalent employees at the Airport, and $136,000.in other direct 8osts. Theseemployees staff the terminal at the airport. This does not include airport tower expenses Which are borne.entirely by the FAA. ~,2 The P.alo Alto Airport’S share of pooled-County costs and overhead included $125,500 in salaries and benefits, and $174,500 in insurance, prpfessional services, internal departmental charges (e.g. legal expense), tools and instruments, transp0rtation, and other general administration costs.~3 -l:he percentage of each factor for each airport is combined in an overall percentage that is used to allocate the pooled County expenses to each airport.~4 In addition, County staff reports a credit of $53,728 will be issued in FY 2005-06 to reflect Palo Alto Airport’s share of a $17 1,655 credit to adjust overhead rates applied to intra-departmental charges at all three County airports. -5- Table 4:Estimated versus actual pooled and overhead cost allocation percentages :33% 33% 31.3% 32.5% 31:3% 31.3% $2,588 $13;278 0 $15,866 "FY 2002-03 FY 2003-04 FY 2004-05 TOTAL If the Palo Alto Airport lease were terminated, the operating income for, the remaining two County airports would be adversely affected. In FY 2004-05, Palo Alto paid $299,163, or 31.3%, of th~ County’s pooled Airports Division operating costs and overhead. This included $125,000 in salaries and benef its for Airports Division employees, and about $174,500 in other general administration costs. Unless County expenses were reduced, the two remaining County airports w6uld have to absorb some portion of Palo Alto’s share of Airports Division expenses if the Palo Alto Airport lease were terminated. To illustrate, the Reid-Hillview and South County Airports would have had to absorb $245,000 and $55,000 in pooled and allocated costs, respectively, if the Palo Alto Airport had not contributed toward Airports Division expenses in FY 2004°05. Counts, staff has indicated that County expenses would be dramatically reduced if the lease were terminated, 0ft’setting the loss of-revenue from Palo Alto: Depreciation expense does not affect the outstanding advance. Although depreciation expense does not affect the County’s annual ca culation Of the outstanding advance, it has sometimes been included in public discussion ~n a Way that can mischaracterize the Airport’s current cash flow position.. The County’s depreciation schedules amortize capital improvements and other projects completed at the Airport between. 1966 and 2001. The schedules list ~mprovements costing over $4,965,000 of which $3,383,000 was funded by Federal and State grants Federal and State grants covered as much as 81% of the cost of some projects, and averaged.over 68% of the total cost of all the projects.~6 Depreciation expense .(including depreciation on projects funded by Fe~leiaJ ~nd State grants) fluctuated from $417 321 to $184,426 to $312 974 in FY 2002-03, 2003.04, and 2004-05, respectively.~7 This can dramatically impact the appearance of profitability (or loss) at the Airport in any gwen year. However, depreciation is not a flow of cash, and is irrelevant to the cal~:ulation of the outstanding advance. The County (correctly, in our opinion) does not include depreciation in its annual calculation of the outstanding advance. The outstanding advance is important because, in accordance with the lease, the County is to be repaid for its investment in the Airport, bul must use any additional revenue to im prove and maintain the Airport. While the lease requires Airport revenues be reinvested in the Airport or applied against the outstanding advance, there is no formal loan agreement requirin! repayment of the advance. The capital improvements and start-up costs for the Airport totaled over $2,187,000 in Federal, State and County funds. The County share of the start up costs, which totaled $1,085,134, was advanced by the General Fund to the Airport Enterprise ~5 County staff reports that the actual number of aircraft based at South County was significantly less than had been projected. If the County also makes that correction, it would increase Palo Alto and Reid-Hillview’s share of costs, and reduce South County’s share of costs. We agree that using the actual number ofaircraft from the annual assessment roll is appropriate. ~ As of June 30, 2005, the depreciation schedules listed $1,582,085 in County-funded facility improvements, with a book value of $377,601 net of accumulated depreciation, ~7 At that rate, the remaining $1,8831000 book value could be fully depreciated in 6 years. -6- Fund.18 Howev.er, if:the lease were to be terminate~l, there is, to our knowledge, no formal 10an agreement.for repaying the amount, .and the City is no{required to repay the outstar)ding advance to the County. As of June 30,. 2005, the Outsta.nding"Advance balance was $681 ,349, and the $403,785 in adjusted net income (shown in Table 1) remains in theAirpo~l Enterprise Fund. .. ’ The outstanding advance amount is increased Or deoreased acc0.rding to whether the Airport generates a pro.fit 0rloss each year. No interest accrues on the balance, As shown earlier (in Table 1), after incurring 1osses in its start-up yea[s,the Airport generated positive adjusted nel income ~n 21 of the last 24 years (1982-2005). The Airport has reduced the outs!anding advance by over $403,000. Losses in 1998-2000, whi~:h increasedthe outstanding advance. after years of declines, were the result of $2.8 million in capital improvement projects.19 Embarcadero Road improvements in 1973 were c/!arged to Airport. iJsers. Our. analysis of the outstanding advance indicated the County Charged the Airport $194,500 for realigning Embarcadero Road and moving its related utilities.. The Airport Jease specifically staJes these were to be County expenses. It should be noted that the Embarcadero Road improvements benefited boththe County-run yacht harbor and the County-run airport. Levee repairs were charged to Airport users, in FY 2005-06, levee maintenance and repairs totaling $125,454 (for construCtion contra~2ts, consultant paymentsl and reimbursements for work done by the Roads .Division) was charged to the Palo Alto Airporl.2° According to the 1979 agreement for maintenance of levees in the Baylands21 the obligation to ~;epair the levees appears to be an obligation of the County. The agreement, does not mention the Palo Alto Airport. Therefore, the allocation of ievee repair costs to Palo Alto Airport users may be.questionable.22 Proposed tie-down fees would be significantly higherthan nearby general aviation airports. The business plan proposes 30% tie-down fee irlcreases at Palo Alto -compared ~o proposed 3% fee. increases proposed al the other two County airports,.Reid-.Hi.llview and South County. This would put Palo Alto fees significantly above other nearby general aviation airports, and could jeopardize Palo Alto revenues if users chose to move their aircraft to other airports. Table 5 compares the present and proposed fees for ai~:craft tie-downs. 18 Under generally accepted go~;ernmental accounting standards, the advance would technically be considered a transfer, nol a loan, since it has not been reported as an interfund receivable or payable.19 The county share of the $2.8 million in capital improvement projects was $550,900. Federal and State grants coverea the remaining $2:3. million used for electrical rehabilitation and upgr.ades, slurry sealing the pavement, adding sa!:ety fencing, rehabilitating the apron, and repaving the runway.20 Up to $50,000 in additional expense incurred by the SaritaClara Valley Water District for the project is still pending.2~ An agreement between the County of Santa Clara, the City of Palo Alto, and the Santa Clara Valley water District. 22 Apparently p~destrians have had access to the levee for many. years, and the levee appears as part of the regional Bay Trail on the Bay Conservation and Development Commission’s current maps. However; there does not appear to be any written agreement on the part of the City or the County for that access. -7- Table,5 Current versus Santa Clara County Airports Palo Alto Reid-Hillview . South County Nearby Airports San Carlos Half Moon Bay Hayward $111.50 $111.50 $79.5O $115.00 $59.00 $60.00 $144.95 (*30%) " $114.85 (+3%) . $.81.89 (+3%) Justification for increases: The business plan justifies the proposed fee increases by staling lhat. the Palo Alto Airport has historically operated at a financial loss and thatthe deficits arising from operations at the Palo Alto Airport are being subsidized by surplus revenues generated by Reid-Hillview Airport. In our opinion, these statements mischaracteriz# the operating results of the Palo AItoAirpor{. As shown above, the Palo Alto Airport generated more than $400,000 in adjusted net income over the last 37 years, while covering a sizable share of countywide airport operations.2s We estimate that if various adjustments to the outstandin9 advance were implemented (as discussed above), moderate fee increases were proposed, and operating and pooled costs were reviewed, the County’s entire outstanding advance may be settled before the end of the lease without need for such dramatic increases in tie-down fees.26 Future viability of the PaloAItoAirport. Between now and 2017, the Airp0~ should be able to continue to generate revenue sufficient to cover expenses and reduce the outstanding advance to zero (assuming that o.nly modest capital improvements are needed in the.next few years). In the recent past, the Airport has. ger~erated sufficient revenue to cover.the.required match for federal gra~?ts so that some of the modest impro’Jements to taxi-ways and runway that are suggested in the master plan could be implemerjted. Moderate increases to user fees would help the cash flow picture without the need for the dramatic increase in the tie- down fee. Increasing the number of hangar and tie-down spaces would generate additional revenues for the Palo Alto Airport in the near term. However, it is unlikely that major capital investments would happen prior to lease negotiations/expiration in 2017. Meanwhile, in the next 5-7 23 Tie-down fees for comparable aircraft at the San Jose International Airport are $1 85.00 a month. However, San Jose is primarily a commercial airport and in a different category from the general aviation airports. Fees at Oakland (in the same category as-San Jose) are $75.00 per month for comparable air.craft. San Jose is reducing space dedicated to general aviation. However, Oakland currently has space available. 24 Tie-down fees for aircraft w~ighing 0 - 3,500 Ibs. 25 It should be noted that County staff expect the Palo Alto Airport to end FY 2005-06 at a loss, due to $125,500 in levee repair relaied expenses. ............,~p~, o,,,,~ expenses,,~,~ ~" ...........u, u~,, ",o~t~ .....k~’~- average of"~ .~-/o’~"’ per ....... than operating revenues (an average of 7.6% per~fear). Airport expenses may be less than predicted for FY 2005-06 due to an unfilled vacancy, and staff is assessing the feasibility of curtailing terminal operating hours for FY 2006-07. Additional cost savings could result from reducing operating costs such as overtime ($22,600 in FY 2004-05), or contracting with one of the FBOs to provide terminal services (now performed by County staff at the County terminal). Onthe revenue side., a 3% tie-down fee increase would generate about $15,000 per year,compared to a moderate 10% fee increase generating about $48,000 per year, or about $145,000 peryear generated from a 30% tie-down fee increase). -8- years, the advent of air taxi services and the introduction of very lightjets (VLJ) capable of operating on short runways, could change the ge neral aviation marketplace. Fur-the[more, actions by-the San Francis-quito Creek Joint Powers .Authority, working with the Army Corps of Engineers to address flooding from the creek, could impact the Palo Alto Airport. After2017, FBO leases could generate higher revenues. Palo Alto Airport has two fixed base operators who have 30-year ground leases with the County. The leases allow the lessors to extend the original leases for additional 5-year perio.ds until the County-City lease expires in 2017.27 These leases did not contain clauses that based rent on inflation indexes such as the consumer price index, or require set dollar amounts for rent increases; and only one lease included a percentage of gross revenues generated from other sources. As a i-esult, the lease revenue.s, which totaled $123,000 in FY 2003-04 and $131,000 in FY 2004-05, totaled only17to 18% of the total Airport revenues. Once the leases expire in 2017,1hesetypesof clauses could be incorporated into the lease terms to ensure higher revenues from lease rents. Palo Alto is a regi6nal resource: Our analysis indicates the Palo Alto Airport is truly a regional resource. Palo Alto residents compose only 23.3% (78 tenants) of the airport’s 335 aircraft tenants.28 Regional Civil Air Patrol and Stanford Life Flight operations use the AirpoG, along with flying clubs and other aviation-related tenants. Accord!rig to the General Aviation Element of the Regional Airport System Plan, Palo Alto is one of 20 publicly owned and operated general aviation airports that provide services to personal and-business aircraft owners, and users. Palo Alto is designated by the FAA as a "reliever" airPort, providing an important "safety valve" for activity that would otherwise consume runway and airspace needed by the airlines using the three major commercial airports. The mission of the County’s Airports Division is to "promote. the economic and social vitality ofthe County by meeting‘ the needs of the General Aviation community and the traveling public.." Thirty:seven years ago,the City agreed to lease the Airport to the County for a nominal sum; lhe County agreed to operate the Airport and to maintain and invest in .Airport facilities. During odr review, City staff indicated that they expect and encourage the County to continue operating and maintaining the Airport until at least 201 7. Our recommendation is shown on page 2. I Would like to express my appreciation to County and City staff for their cooperation and assistance duringour review. A response from Santa Clara County’s Director of Roads and Airports is attached (Attachment 1). ReSpectfully submitted, Sharon W. Erickson, City Auditor Audit staff: Edwin Young " 27 The lease for one FBO (AMG) was signed in 1973 and assigned to another lessee in 1985. The original lease rent was $3,384 a year and, from the 11~h year onwards, was set al 8.5% of the fair market value of the premises, excluding the buildings and improvements made by the FBO. The lease for the second FBO (Roy-Aero) was signed in 1969 and assigned to a replacement lessor in 1970. The original lease rent was $910 per month ($10,920 per year) and was also set at 8.5% of the fair market value of the premises from the 11th year forward, plus additional rent of 6% of the gross revenues derived from individual tenants who rented aircraft storage spaces known as "tie- downs". 28 Statistics on transient and day-user aircraft are not readily available, and would require a manual count of County records. ATTACHMENT "1 Response from Director Roads and Airports County of Santa Clara Roads and Airporls Dopar~menl I 01 -c;’kyDOrl Dtiv6 San .)ose. Calilornia 951 I O- 1302 (408) 573-2,100 June 6, 2006 Ms. Sharon Winslow Erickson, City Auditor City of Palo A’lto 250 Hamilto~i Ave. Palo AIto, CA 94301 Subj:Review of the Palo Alto Airport’s Financial Condition Dear Ms. Erickson, Thank you for the opportunity tO review the draiCt report regardihg your analysis of the" financial condition of Palo Alto Airport (PAO). The following comments are provided: 1)Operating income The data presented support the County’s concI6sion stated in the draft Business Plan that since inception of the airp6rt lease,, the County’s investment in the airport has exceeded net revenue by $.681’:000 .despi~e the.fact that the greM majority of capital project cos~s have been funded by others and fl~e fact that the County’s unrecovered investment (the ’/Outstanding Advance") doe~ not accrue interest. These facts are compelling indications ofthe financial subsidies required to operate the hirport. N~’ar!y half of the meager $400;000 in total net:operating incom.~ generated over the.last 37 years willbe wiped out:by the projected FY 2006 operating ldss, due in large part to the levee project. An operating loss is also.projected for FY 2007. The .record clearly demonstrates that.operating .profits generk~d in.year~ when no additional capital investments Were made .are inevitably offset by the infusion -of additional capital required to maintain and improve the airport. Becaus.e these additional investments do no.t occur every year, they tend to. be Overlooked by some:even tho.ugh they have the same effect, dollar for dollar, as an .Operating loss. The Outstanding Advance (OA) is quita handy.in kh_is regard as a metric of the airport’s long-term financial performance because it represents the difference b~..rw, een the ~mm~/S in~r~e~rn~nf ;~n +h~ ~i ....+ and tb~e ~’ ~ .....~ income. Supervisors: Donald F. Gage, Bla~lca Alvaraoo. Pete McHugh, James T. taealI, Jr.. LJZ KfliS.q E×t~Culivc: PClGr Ktltla£ Jr. -10- 2) 3) 4) Overhead The overhead costs allocated to PAO are the overhead costs generated by PAO. Thes6 co~ts would not be incurred by the County if the County did not ope~at~ the airport and.will be eliminated when the County ceases to operate the airport. Some costs, such as intra-departmental charges, County Counsel charges, insurance, etc. will shrirck immediately upon expiration of the lease. " Management staff c6sts will be reduced as the management structure is adjt~sted to reflect the reduced scope of responsibility. Any ~llocated overhead not eliminated as a result of the lease expiration would be .small and offset many times over by the elimination .of the business risk associated with running the airport. " It is important to note that no adjustment is made in the overhead allocation to reflect the additional administrative burden imposed on staff due to the lease arrangemeflt wi~ theCity of Palo Alto, a burden which is not present with- respect, to the two airports owned and op.erated by rite County. Dopreciation. We ~igree with the report’s conclu.sion.that the .County is correctly excluding depreciation from the calculation of the Outstanding Advance, but .not for the reason suggested i.e. because d.epre¢iation.is not a cash transaction. Depreciation related to the grant-funded portion of capital projects is not included inthe calculation of the OA b~ause the OA isa benchmark ofthe County~ financial¯ exposure resulting fr6m its involvemen~t in the airport; the pass-through of outside grant funding does not impact the County’s financial Stake in the airport. The AEF-funded.porti0n Of capital projects is appropti.atel.y include4 in the calculation o~the O¢q..In oJherwords, the.relevant issue is the source of capital that was used.to fund theimprovements being-depreciated. Depreciation is the meehanism by which costs for longqife.assets are allocated over time and) of c0Lirse/a, re-entireIy relevant to any dis.cussdon about.the airport’s financial.positi.’0n and performance. The fact that the County’s investment in the airport has exceeded net revenue by $681;.000 over 37 years (not including inter.es:t) despite the fact .that the great majority of capital project costs were funded by others highlight’s airport’s relianceon subsidies to fund maintenance and improvements. Embarcadero Road .impi’ovemen ts and levee repairs There Seems to be ~onfinuing confusion over references to "County" expenses in the airport lease, wfth the implication that these expenses should somehow be -il - funde.d by some County fund source other thanthe AEF. As weha\,e.discnssed a number of times, the Airport Enterprise Fund is not a legal 6n~ity in.and of itself and therefore cannot be a party to an agreement. Th4 County of Santa Clara is the legal enti.ty that is the party to agreements regardless of which County department or fund source is.involved. The fact that the County - and not the Airport Enterprise Fund -.Is specified in the lease and the levee maintenance agreement as the responsible party for funding the Embarcadero Road improvements and the levee repairs, respectively, simply .reflects this basic legal concept. The report states that the Embarcadero Road nnprovements benefited both the Yacht Harbor a’nd the airport but does not estab]ish the basis to.support this claim. The Yacht Harbor was accessed from Embarcadero Road p..rior to the improvements, so the improvements were not essential to prov.ide, access to the Yacht Harbor~ T.he salient issue is that the Emb~rcade~ro Roadimprovements were made because they were required to be made by the airport lease. Since the improvements .were performed to fulfill a requirement of the airport lease, it is entirely reasonable to conclude that the. improvem, ents would not have been made had the County not been a party to the lease. Therefore, even if the improvements provided some secondary benefit to the Yacht Harbor, it JS appropriate that the full cost of the improvements be charged to the AEF.. Finally, the 1998 Deloitte-Touche audit included the cost of the Embarcadero Road improvements in the calculation of the OA that both the City and the County agreed to ~lse on a go-forward basis. The same reasoning applies to the leve~e repairs. Because the County is a party to the levee maintenance agreement due solely to its involvement in the airport, it is ap.p.ropri’a.te that the County’s costs of complying with the agreement becharged to the Airport.En...terpr~se Fund. No case can.bema"de to charge thosb cost~ to .any other County fun~ source. Issues related io whether it.ds appi~opriate for the Cbun~ to .be a pa~.r.tyto the levee maintenance agreement inthe first place and how part of the leasehold came to be used.:for other.opurpo~es without the c0unty’s conseint.as required by the lease will be addres’sed under separate cover. Tiedow.nrates and .the future viabitiVf of PAO The report does not provide any calculations to support the conclusion that the airpor~t can generate sufficient revenue to cover expenses (including modest capi.tal improvements) and reduce tl~e OA to zero prior to expiration of the lease No accounting adjustments to reduce the exis~ng OA are warranted as discussed above, nor is there evidence presenled thai overhead costs are uruceasonable, unnecessary Or misallocated, As menLioned ea.rlier, the OA is projected to increase substantially in FY 06 and FY 07 as escalation in operating costs outstrips growth in.revenue, An increase in tiedown fees is the only viable opportunity to generate additional revenue. The draft letter from the Director of Plarming and Commtmity Development attached to hhe repo~’tindicates thai no increase in aircraft bas!ng, capacity or intensity of airport use will be allowed, The letter is troubling because Exhibit C to the lease sets forth the plan for development of the airport and shows hang.ars and a FBO on the parcel fronting Embarcadero Road, The adopted City policies referenced in the letter appear to unilaterally restrict the County’s ability to develop the airport as agreed upon m the lease. Thank you again for the opportunity to review and comment on your dra’ft rep6rt.- Sincerety, Murdter Director -13- ATTACHMENT 2 Draft letter from Palo Alto’s Director Of Planning and Community Environment to Santa Clara County’s Director Roads and Airports April 24, 2006 DRAFT- Michael J. Murtder Director, Roads & Airports County of Santa Clara 101 Skyport Drive San Jose, California 95110-1302 Dear Mr. Murdter: This is in response to the County’s Airport Master Plan for the Palo Alto Airport. The Master Plan pr6vides long-range policies relative to the County’s continued operation of the Palo Alto Airport. Physical or operational changes are governed by the City’s Baylands Master Plan, which is attached for your future reference. in general the City’s BayIar~.ds Master Plan snppor{s the continued ope{anon of the airport in its current configuration. All aspects of the County’s Master Plan related to the rnaintenance of the existing facilities as well as some ofthd proposed new construction activities are compatible with the City’s plan These include the additional aircraft wash rack, the replacement of the existing helipad with a new heliport, a new Taxiway D and reconfiguratmn ofTaxSway G. The Baylands Master Plan, however, does not allow changes in airport activities that will increase the intensity of airport use or will significantly intrude into open space. Specifically, the expan~mn of permanem aircraft is in conflict with the Baylands Master Plan. I hope this clarifies flae application of existing City land use policies applicable to the Airport. Please feel free to contact me if you have any additional questions. steve.emslie@cit¥ofpaloalt0.or.g or 329-23 Very Truly Yours, Steve Emslie Director of Plarming & Community Environment City of Palo Alto Frank Behest, City Manager City Council JCRC -14- ATTACHMENT 3 Draft Palo Alto Airport Business Plan provided by Santa Clara County PAO Business Plan. INTRO DU C:TI O N .As .the iqm.per]ty .ow~e~:~-the Cky ~as .sole disc[e.tio-n ~ver ~he ~.mre ~£ ~he air~or~. T.he M~ste.t }~[an ~s aa ob~ec.~ve, ~tand-done docu- ment ~at ~og~ze, the C{~’~ sovezeignW with ~espect to ihe ~i.~-- p~t ~ega~.dJess of whether the Coe.tlty i.s .Jt~vo.Nvd in- ];~s operation thi~ Business ~.lan, xv-~Jch .add.re~es the. Co~"s ,re<at in ~he ope~-ad.on o.f the ~i~o~t. ~>e Bnsin’ess Pl,an is ~ sepa- upon by ~he Coun-b’ ~Boa~d DRAFT,January 2006 CITY]COUNTY LEASE OVERVIEW T~RM ~. ;RENT The. le.~s~ sp~d3qes -a t:erm of 50 5,~t~- ~n8 ~xpkes on.]u~e 11,2.017 accotdi~g *o C]~ d.ocument~. Tge. ten.t J~ $25 £o.t’ the ~.nfi~e of .the 5-2 US~E :A.N:D DE.VEL..OPMENT OF AIRPOR~ REAL PROP:E~RTY T.he Cov.ob.’s use o:[ dze }eased p.tem.t,~e.:s i*- limited to {.dn..stract.ing, operating az~d ma~ai.nJng an alcott and d~pozt J~ci’lid:~; non- aviation, inda~t:flal o~ m~nn-fact~tting ~tseS are p~ohibked. pt:ovemea*s mt~t conform t0 the Ci~~s building eode~ s.nbiect to City ph.n app£oval., A develo~me~x: plan was inModed as an e~{~it m the.ori.~ngl, leas% exeention ~fthe development p]Fn w~s conflnge.~t upon avdlaba~lJg, o~ J{un.d~ .and w:hdi:he~ ’rJ~n nee& :and ec.onom~c }~sdfica~o.a g,a~tant, such .d.ev:ekop~enC’ Th:e develdpme~t plan was snb-seqae,~y muffled ~vice and Jnc.ob po, ated¢nm ~e lease by .lease a.me~dme~t numbea" 1968 a~:d ~m.en~ent numbet two .ia Degemger T969. The tic 5s requi~ed to .~.p~xt the. C.oun~ ~. ~R ap~pgcafio.ns to ~na~cial. assis, tance agencies concc~N.ng *he de~,dopmen.t .and opera, on o.f the The Coamy is ,reqmred ~o ope.~ate t,h~ ~i}pott in a-coordtme¢, with Fede.ta] .Av,[ati.on .Ad~Nnist~.do.o {~:&A) .mgnla.ti.o.tas ,and has full power; a~.~horJt3, and resprmsiNl~f3, ;in :reg*~-d to the ope~ado.~, managemen.t and ma~nt’enance of*he airp.or~ ’%s though k were the so.~e ow-nex thereo£" -16- qu~.r~d t@ ptevam off.~i~port devdopment fi:om int:e~.fez[~g ~dth t-be ~a.’port safety zones. In addJdon to i:he two le.ase ~mendmei~r.s d].scu~sed abo’ve that ca~oz~ted the r¢~dsed development p]an~ into the l.ease,, lease ~me-ndmm~t numbe= t6.ree M Ma.y 1980 estab~shed a zequi}emem ~ox the County m obta~.n CJq concur.fence to ~pply m the FAA for slip,oval of ~ second ru.nw~y o.r cxpaasio= o~ permanent 6edown.s above 510 ,pace~, The fovrth and fio:al amendment to the le~Se .in. 1983 cla.dfied the Cou.nw’s xespo~ibifi.~ with ~.mpect i~6 ~d.l~w cha.tges re]~ted to the. sm.rm:w~.ter pumping UBE OF REV~UE Net .0pe:ra~fmg zeven~e generated at eh~ ai:poxt, ]f~a~a.3% is E~st plied against the xunn.iag bMance of tt~e Coun~’s un~ee:ove.ted i.n- ve~rm~n, h~ the ai,porg wblch is re.treed the "On tstandbag ’van.ee2" ~ rcm.aJnmg te:ven.n.e, ;:f ~-W~ ~s ~;o b~ a~ed for nancy, ope~af~n oz capital img~ove,a~efi-~ of t~e airport 9remises. recoop d~.e Coun~’s invesm~enr in. ~e ~porq ,any a.d.d]tio~d nee revenue mn~r be reinve-sreA ]n ~:be. ~.Lr~}o~t and cant~t b-e used m ~und ope~tion.s o.~ imp~pvement~ at be ot~e~ M~o~:s, The: 1ease A $~ 1G.’:R MERT AND ¯T.he Ie~se m~.y not be :~ssignc.d wJ.l!ho’~t-the City’s w.tirte.n consent but "th6 Co~n~r" may sublet ~e TF-RMiN.ATION The .lease m~-y be {~r.mkqa~ed by Mther parryin, the event of b~e.ach By d~e. othe; p~ty, ~he party i~ de~-d.v.has 30 days to ~emeOy ~e v~.s£o.n :for unfl~t:e.ral t.~n~tn.arJo~ of t~e Jesse J~ t~ ~Ssence of a bzeach b~ d~ e oth <r .page’. ~U~MARY Tt-,e le.ase cie~a.~.ly pl-aces all busine.ss risk ~:eh~ed :o 0pe.~a.tioff of the --a, Wo.et on the Cou~U’. T]~e. C]~ h~ nc) i~,~anchl ob]igation or .~{sk ~vi*h .respec~ go the aJDo~r’s operation..Mozeove~, ~f the Com~D" we.re to genet,ate positive ne~ opera.ta~g reve~ne at the ~u:port..aft:e~ DRAFT January 2006 6-3 -i7- Pu~s~ant to I~oaM .po.Li~’~ fhe 0AIE? must pay for all cosmos = di~ec~ a, nd indi~ec~ - .a~.sod~.ted svj~h ope:mdng, the. aL~otts, co~t~ ~o~ ~e~dces ,eceived ~oln o(h.e, Co~W’ d~pa~ments. Some o£ these ae~ices’ ~,e b,lied dlrec~fly - fog eg-am.p~a, Je.g~l ~e:t~,;ee~ b{Jled. ~yectly to ~v &partm-en* Based on CounW Cou~se.l’~ estgb- JJ.sb.~ gourl.y"rate. Other se.~ces su&. a.s Ct.e:~k of ~be ~o¢ l>rOeessjt}g Board t~ansmitcals an.d .p~avJdJ.n.g st,:f.g s~ppo.t, d~e.,M~port* Commission..a:m ~sttib~t:ed through ,b.e Cou~uy Cost ’Plih, ~he .A]~;~F there~c,m provides fi~B cpat 0isib~, ~o~ the my~:iad costs - so,he ob~ious -rod ~o:m.e rm>so-o.b’~,iot~s - ]~c6eced ~czo~s ¯ the County-to s~)ppose (h.e .akpo~,. 2k~hovgi~ ~he A£~~ capm.ve.~ ~ ai~0.r~ .fi.n~ncea in. ~ ~s~ng~.e%dge-t ~,~J.t~ f].~.e ~eve:n~e ~nd~expenses ~ssod~,:ed wit:h e~c~ a.~ the ¯ :nt.ab{e to each ~i~o~t such as E~O Je~:se ,evenue, a/~craft spac-~ rc.ntM/-a.ven.~a., opera,us s~a£f~l~ieg e¢. am easily fled. Oeneral ~nd ~dmiM.stta~ve expe.n~es not ~ttdbm~bk dkectty Plan cf~r~e~ etg.)-~te, c.apm, ed in ~n dx:pense .pool~ndp~o.~#ted qsuch, d~ th.. n~.mbe~ of b:ased ai~{~aft, ~~tm.be.r of.~r¢=ft operations and nu.mbe.t o~~na.}ov ~adlities at each Tot:d ~nnual .p,oiecred AEF.tevc.u~ js approximately 76% ofw~d~ i.s g~nerated £mm Gounu-owned ~i~c~ah. . County-owned ~j~-c.r~fe ~{:or~ge s.p~-ce.s ~a.ag~rs~ tiedowns 4helte.~(), rue1 ~wa.ge fees ~nd uther a~ott-rdated fees 5-4 "Co~m~ Airpo;{t. DRAFT JafuatY 2006 -18- ~b~ 1.2 Fixed B~.s~ Op~r~to:t~~ 0~’BO). Mo~ o[ ~hc EBO speci.[v a~ annual gmuad rein equa[ ro 8,5% oft]m fe~ simple of~he lease’h~ld p~em[seS ~not.ihclud~ng imp~v~mems), a~d pro: ¯ vlde for adjast,me.nt~ ev~, five ),ea.~ pursuant m a the premises. Given the tong-tetra nature of ~he FBO le~es~ the revenue from this source i.~ esse:ntialty fixed asid~ &-ore :he o~- s[ond mino.r adjustmen~ ~ (he ]e~se ~ate (the rea:pp~sal com~ .p]eted in Dece tuber 2004 :resulted Jn no ~ate lnc~e~ze), A.II ~evenue catego~ie~ including propexff xeata], f~el flowage fees, tcansient aJrc~ff fees n.ndi~te~e~-t income co~eedve[v generate ’i3% o.f AEF re.venues. Re.id "Hill’view Airport (TLHX.0 gen~a-~.t.es approxim.ate!y 56~A o~ the. to-t~[ .47~F zeven.ue p.ti:mz:~ily d~6 to d~e income f~z~m t~¢ 145 Count-owned haxa:gz~s.. P~ior ~:o t:he South Comity Airport ~’1.6) hangar p~oject cn.rrently n~a, ing co.mpledon,:Jt w~s the o.n;}y one of the three ~i~orts to hare C~an.B,zo~xm.ed h~-ng~,s. Histo~icaRy; ~V ~evenv~e. has exceeded er~enditut~ and the satpiu.s has been used to subsidize o~.*ad-ons =t EAO ¢md E16. Upon com.pJ.e.tion .of {he hangat p,-oject at Ei6, fi~ar ai;p.ot~ wi~ be finanda~y seltt P.AO REV:E~tUE A.NO EXPENDITURES In N}avember 1997. {he C}~ty con¢~k.ted wi.th DdoJtm & "To~che ~&T), an indepet~dent au~dng O~m, m a~dit the Coun~.~s ci~a~ da:m tdat:ed ~o the ~po~ gnd p~e.pa~e a"s~ of fi=aovial state- menrs in re~ponse.m con.(erns e~p.te~.sed by the ’P~to ~.to Assc~a{ion ~.,~A) ~nd the ~i~po.rff~ Jo.in.t Commu~i Co.mmittee- 0CRC) te~i/~g the Comw’s ~ccounfing for costs ~ad ~even0e~ asmckaced ~Jth :PAO) The D~’T audit; wNd~ was £~.nded joMd.y bY ~he C&y ~d the Co~nW .a:t ~ total cost.of ~39,~00, pmdneed.-a set of ba.sdi.~ ci-a! sm~emen.rs andaB~via~ed the co~¢em~ f~.i, ed by ~CKC, Snb~equem[),, Coun¢ s~ff.and CJg st~ff-agreed on a. for- mat .for the a.0nu~l, fin:ancial sta.~emen:t~ id he p~dded by tcmbet 8, 1997. DRAFT.Ja.o~uary 2006 5-5 -i9- County to tl~e City, ~e. at~.’.a.ehed dr~£t fina,ac.i.al s~:te.ments -for p~ 2~5 are {~ical of the data provided, e.~h yea~ to the CIr. Pe~hap~ ,he best mea~ o~ the ai~’~ IO.%-tetm fi.nand~l per- fo~aoce is the "Ou~t~ndl.ng Advance?’, w~.cb is the d}ffexeoce be~ee~ rSe Co~n~% {o~al t-apRal investment Jn the aj~o.tt and the cap.it~I inve,s~ment ~nd/o~. n~t ope~a~.ng to~es i:ncxease the O~t- st=ndlng Advanee~net op=t~dng pto~ts de-c~ea~e the On.ts~an.~ng Adva:nc¢. S~ce 9~:y the local (L< Co~n~-fgnded) componmt of capital p.mject~ ~ds to..*he: Out~a~ding Advanoe, the Out-studding Advance ~e~es ~s a be:n~h~rk of ~he Cou.n~s fin~ndal exposn,e. fesN.~.ng from J{s :in~olvement’wi~ {ge ~ort. I*~ the 38 ye.a~8 since inception of the..[ease, ~he-Coun.ty’s Jnx.,zst- meat in the ai.~o~t has .e:xceeded net reven-ud by $668,000. E~sca! Y¢.~ 2006 rex*e.~ue.~d e.x~endim~e, fgu~es in,cam a p~oj.ect~dT~Et ]o,~ of:$3.4.8,0(~, nea.dy’ hMf of which is due to ~ one-6me e,~endi- .A,dwn.ee ~ia p:mjected ~0 ~’oW tO d’ightfy over g~ m.~Ill.oa by the end o£.~isc~l Year 2:~6. :’ ~ta.ndi0g Ad~,~Sn.¢e .sho~ld ~ce-.eue jate~e~t for accounting pntpo~ ~e~d ~bat {he Ou.t-smnd.}ng Advanc:~ (:rod any sm~k~s, should o~.e {b e Out~ta~ng Adva~ce doe:8: not ze~.ect c~re.nt The fact :~hat ~e Out~t~ndlng Advance "~es not aocme ~nt~e’~t makes ~} .~ the m0~e dgni~cant-~a.t the C~u~.g)8 inves~mems the ~o~.t ha~ not b6en ~ecoyered, At ~]V and ~16, 9a~kal -v, es~mem;s, f~n:anced by ~ao:s .from thd CounW ’G.m.ae.tgl. Fund ~zr By ~evcnne bbnd~ aCcrueinterest Rast mns:t be paid .£o.~ as .part of the o.pcm~.ng budge:q ~f ~ dmJJa~ scenaOo app.~ed at RAO, .the st~ndMg: Advaoc¢.wo0td be ranch T~be a{~ort"s pmjecre.d .~’ 2006 ~ev.emm is gTOg,00q 0ppro~ma.tely 22% of rata[ AEF te~’ame) assmnhg th~:t the ~irpo:.t ~ei~nins n.e~:~ ~dt[ c~pac~. Each teven~e compone.at a.ad ]:is dolJa~ amotmt and @erceomge of :ttota] PAO ;evem~e i~ as ORAFT Januo~ 2006 -20 - PLAN FBO lease teve.n’ae - $.i 31~000 0.9%)., Tb~ ground .rent: p.dd by the *wo FBOs at the air~, Koy-Ae.ro £n{erptise~ LLC and A-viagon M’anagemen* G.tou~, Inc. (AMG), pe~io~ca~y pursuant to.~ reappt~s~ of ehe underlyihg tand ¯ apu~ed the ~n-n~’.s reapFr~isd a~d the matte~ ~o binding .a:cf]trafion. ~’~ arbkrator ruled thai[ the :b’MZV of the ~y-Aero l:eaaehoJd sho61d be discounted from the flooding po.mndd and soil. dondkio0as, At ct~z~ent, annn-a!, rate.s of $0,’l.9/sq~Jare [’o~r (:aI)pto~ima.tely $’8300/~¢~0, fl~.e Koy--A.e:ro Jease t~.ang~.rs, wh.id~ totals. ~ao ~3~.6o0~1 $25~000 pet.yea~, The’ $0.2025/8F (app~o~te,l:y $dB00iacre}~ which $26~0[~. FueI flowa.ge l"ee.s - $50,000 (7%) The CmmtT co][{-ec’r,s a $0.10 pe.r gallon furl. 5lowage fee fo.r ~ali fnd disp~a.~e0 at tl~.e. Corm ry a=i~pott~, d,esign.aed. £o[ tvan.sien~ ~.Mis.c¢lln~eons - $:.i5.~000 (2%), Thls camgo*3, capmt.es all rev’en~ae not am:~b~t~b]e to onh of the ~bove cu:tegodes, -~ncb ~a ~t~’tO .p,tking c.15a rge,~., .etc. ~even.ue gene.~,ted at the cdzporr.. £t’o.m saie,~ ta~e.~ ~nd pe~sonat. esti~ie. ~h.ds~ smount.s a~ $.150,000 and 1200.,000, ~e*l~.Ctlvel}< P:~oiec~ed ,FY 2006 ~xpendkue~s. total. :5"i.,052~000, inc?o.dJng ~’ln~0~000 for tlle afo~emen-tioned levee mdnten.ance .p{:OjeCt." A£F is e~pe.i:iencing a sktu~.mt~ pz0bleh~ with .m.s~ec~ t0 the ~ii’poxgs fina,~c.e$ in. tha:t coors a ~c ris.Jng whiJ.e ORAFrdanuao, 2006 5-7 -21 - FUTURI~ CAPITAL INVESTMENT NEEDS Thhs se.c.tion bxi.efly examines bm.h grant-fm~ded :rod locally-{unded cap].tal improvements identified Jn abe .Airfield .Area and B~it.ding ~ea chapters ofth~/vlaste.r P.l~.a The ~irgort sp[~.r~or is responsible fo~ { 000,6 of d.~ 1) fl~e teq.u:i’ted.match ftmding~ 2) .any demeht of the proieet ineld- gU)l.e £o~ AIJ? .funding; a0.d 3) dJd d)ffer, cn.ce bmween acmat costs told est{tn:amd- costs= .v’hJkh -together can tot~l a sign.ifieant 6h~re of the o-vet.all pr6ject costs. ."For examptes t:l~e rotal ~’~F {vmd.ing component ap.proacbvd 20% of the $2.8 mJ.llio.n compluted at PAO tn .,Mr:port .l’mpr0vement Program gr,q.at:s are. aeco.mpanied b {or 20y~.e~, Some of vhe g.~a~t ~:s,s~x~x~ce~ ~date m p~oje.et cO.rd ~eepJ.~g, ere{) wMle others are btoa.der Jn scop% such as .[equiremeny ~o keep the airport ope{~ *ivr 20 yeats and m.e .pmh.iBi~ don on ~vetd~g ,a[po~rrzvenae to non*akpot~.pulposes.. The .(o]lo~ng p~oj.~cts identJ~ed in the ,:b~.a~te.t Pla~. ar,e di.gible for [~iP fundt~ng: *Nmv Taxiway D "].Lecorafigu~:,~don o[ Taxiway G °]?hys.i.<a.{ security effha,~;cemen-rs =zMrfieJ:d-tel ated re[pai~ projects The following dex, eto.pment options J.den.ki.i%.d io Chapt:e~ 4, .Bu~ild, ing ~.~e.a., ,a,.iil ~.equi~e local fe, nd.ing: DRAFT Januagy" 2005 -22 - New ha~gars FUTURE COUNTY INVOLVEMENT .IN PALO ALTO AIRPORT Sraff camoot ]den-tlf}~-a compd!~ng reason .~o~ the Gou~, *0 assume the b~ne~s risk 9fop~r.a-~ng the ai~.o~t beyond ,he e~aitad<m o~ 1}.~ l~i~,v with *he Owm. 2g[7 re~:rdless of the changc~ r.o t:he base tha~ the CiW roW be wi~ag ~o .m.nke. Stuff recommends mrmina*-- J.ng Rs o[ox, olare’~aeot m fhe ’aiq}ort ~-t the ~pitatio~ q:[ the C.kTiConn¢ 4ea~e. i~ 2017 to eiimma.te the possib.iliW th~ ~V w~ need m snbgd~ze P.[&O i.n d).c ~al:~e and m a~ow s~a{f. ~o con- ,&s oot, ed ead~er, "the r!irport bus ~is{odcdt[y operated ..at a Ho’we.veg, [g-m~;e opportmJdes to ge.t~e.mte ~ddJtio.n’at ~v.ve.~u~ will. physkag envi, oxxm~ni-al -and poli~ smnd.poi,~ats: ~is.mg C~ poll cie.s Sl)e0.fic~dly p~’ohJhjx"phy~iv01 expan,s~:on oF tti& ~.q~ott into opc~ 8pace are~ Og~c~m~ly jncxe~s~g (he int’e~g~, of opecatio.us or addMg a rk[~d YBO. :In [qght Of daese conscca[~ts, o1.~.151 ;mmo~- changes m" the .airpo~gs abfidd ar~a x~mr-e identified" in ~{~ Ma~mr Pa~n. " No change to ch.c akport’s rote V4~ -~espe.ct m {he ~pe of ai~vta~t to be..a¢commo&t:ed J.s cont~m:pl.~red doe to dons ]f ~ mnway ¢.x.te:n-sto~ were. feasible.. R would have the po~ .{b~ ad~doBal, te:ve.#~e:-geaFxati~g d.e.veiop,ment ¯ ehe v.acan}: eig[xbacre pared koarlng En3bacqde.ro Aoa.d, The City 1.~ the ~aaJ ~a.y regaxding tM e,~mgt to ~:hivh th~ parcel .& devel- op~d, ~[ at a[[. "N~.e. o~y de.vq~pmem generating po-eenfiaJ {h.at is .identb~e.d in the &aff.M¢~te, P]a~ is the a&~6on ~f 29 ne.w bang:ars.: .NoweveL skyrocketing constraction costs, .rising i.ntercst rates and the .high c6st of’ fl~.¢ Eke~y m]figa~ion:a i eqni~ed d.iminifh ~ix¢ economic at~taetivea¢~ of ~!~.e l>vOjCCt, .Mo~eoveq extre:meiy at.~ff opposidm~ tO ~ny deve!o.p.m.e~t at vhe d~ort ~s -drt~lly gua*a.atccd a~ad the appxo~a[ p~ocess pared to be. l.m~gthy; ,Mnous ~<~ ex:pensive~ DUe to the no~xstanda~:d cte.a.~aace~ between t,axila.ne,~ .and p~r.ked ~airc.~af{, may co.n.ve.esio.n of e~isdng t~edo,,x,n r,ows *\’~ T-:ha.rag.~rs would .re, uk in. ~ ,~JgMfi-cm:~c ;ed~ctkm. o£ .ax~aiiab.e ajtcra.fl:" basing ORAFT’Janoary 5-9 .As discussed J}~ the ;tX~[ast¢.r "Plan, the akpo~r has :~n dev~doa only 4 feet above m~afl .se~ tevd (MSL) a~d is locatedin d.eN~a.ted ~peci~ Ylood H~zaM Atom q5.dr~-Fote, as the existlog ae~s ~¢pl}cement, ~n?’ new or sub~a~a~y tebu~t akpo~t m: such ~s a new Te~jn~l N~ding .must h~ve its fi.t~ rai:sed ~bove ~e 8-foo~ Base Nood Nev~.don ~FE) ot .be fleo@mofcd, ~hi.ch wilt ~aa sebs~and~y ~o cons[mc.5on costs. The B.FE for ,(he. aitport ~s anticipated so xise upon condus.ion o .VB~ ~tudy of [be San Fraodsco Day levee 6y~em, The higher In addi6on, ~ tatge.-sc~lepwje..ct ~o im:p, ove flood p,r.otecti0n to fl:e Ci~" by .r~slng the deva~on, og the e~snng levees ~un’ouafling the alq~t .is in.~vkabie .and k i~ likely ~hat the. ~kport, as ~ bm~efic~.aWof the imptovcmel~t8, wi.[[ b¢ expected 1o PW n shale of ~he p.to- j.ec.~’.s con.stmctlon. god maia-mnnnce co~ts. The basle bt}~.irtes,~ r[~.k, th.~t costs cordial continue to excved or-or [he !o.~g to,tin e~u.ld manifest itself in mydad }v~y~. The ~9~ cou.ld expetie~c~,edn.~q dem~.d £ec~m ,ai.tcraft ownm:s due to .a d.ownrn.m .in gea~M av[adon c.aused by h.[gif .~dp~ke~ O~ somk othe: f~cto~. Alt:ho~:h t:he .b’Ia~te~ Plan asa~t~rcs ~].~at Mogfett e}al ;~rfield wlU. raot.b-ecom.e, avaibb.I.e .fo~: dvilian generM av~tiion ~se, t, he possibility c.x}s.ks O:at it could become a~,~Jlab].e for s~ch use, whi, ch’wouid have a ~evere n~gariv~ ira.pact o~ {be demand. PA.O, Ot~e~ po~bi~de, in.c..R~de reduced £ed~tal g:~a~ unan{ici.pat~d expenses or eve:n a natur-d disa.~ter *uah a~ a flbod The J.0ss of PAO viould not p~esent any op£ea6onal impacts m the. Coun~ .ai~o,~ sysg~m beeau~ each a ~r’s n~ro.nzut-i~ai .activi~.es age Jadependfint. Fifim~ei~y,, e~mina:~ng PAO ~o:m ’the AEF wogld xesult .i~ (he .loss of ~he ~i~drr’s .teve~.di wl~ch ~’outd be mo:e than o:ffset b.y the .teduev.o~ in direct qperadag allow Co~.~ .ai~pomts staff m ~>c~ss -ot~ executing tb.e mas-ter plans fo:~ RNV and g~] 6. Regardless o.l~-wt~e{l~e.t rhe Ci~i: opemt:e~ zhe. aixipoxt itself’with en~pl:~yees, }~m~- a contractor t.o c,p.er-ate the a.~rpo:t o.n ~ day-:o-day ba~i~ c,x leases the ai.~po~r 1o a..n~:*~ i,cssee ~,&e.r 20t7, ~e -si:ract~al 5madrid. pzobt,em. ~nd bv~in.es~ :isk must- be ad.d~es~ed, Re~Uoc~ng ~o.me of.the b’usine~s risk fxom th.e. ]e~.~e¢ DRAFT Ja’nu’aty 2006 - 24 - Ope.rati.ng costs .c0u]d be. lowered...by .hiring a contractor, h-a~dng [owe.r Jabo, and overh.cad, costs than d~e C, onnty o~ the~ C&y xo op- erate, the airp~.ct on ~ ~ay-to*day basds. The-City o.r ;~ new lesse.e; could ~ak:e o~e~ th~ FBO f~ci,l.id.es upon expitatk~ o£- ~he.~BO l.ease.s m o~’de* to g~e~ate, reve~.ae, p~dcu- lagly from the hangars. Bot:h FBO .le~ses ~xplte simnl~, xe.ot’~s[y with the exp~a.~6n of ~he Ci*yiConnw ]¢a6e, and o~nership ’prove.merits c.onstru~ted by d~e FB(3~ reve~s to d~e ~i4pott spon- f~ci.Ude8 for m:aia~I:enaac.¢ majo~ ,e[)airg aa~d code np.gradeg. REc.o bI~1 END ED AC, T~ ON S the leas~ with t:he Ci~, Ja 20~7 bn~ te.~mSnate ~s invc~ve- Requi~:¢ the. Ci6, to su3bmi~ alt fmt’tre, kip gcanr app.hea- ~n.~, SJ.gc¢ t’he 20-yea, grant a~arances wit] remain ~n [arce welt bcyon.d the expi~£ton: C~ty tax,st dote cm’ine ’wheih.et tq a?p~y fo~ and ~Cal~, ~he with ~-he PL*~ .g~:ant assumnceKnnd! mxpirano.a of[he lease (consul.~ang sdect[on, constmc~m, -contracts, w.age t~xes, m-. ~pe.ctio.n, rec:ocd k~ep.{ng, e~vironmen{~ comp.[i.ancq etc.) 5-1 ~ -25 - .R-~J.~e tie-down r,~.¢es co l) .help matte "dq¢ al.t-po,t ~nancia.lJ.y -sd.f-st~tainlr~g; and 2) h:e.Jp ~cove,~ as .mncl~ of-the Our- s~a.nd~ng Ad’~mnce as, pas.~ibl.e p~:io* to ahe. lease exparat{on 20t % 5-12 DR.A.F T Januery 2006 - 26 - ATTACHMENT C William W. Fellman Manager, Real Pioperty Real Property Division City of Palo Alto P.O. Box 10250 Palo alto, CA 94303 June 14, 2007 Dear Mr. Fellman: As you requested, this constitutes my report to you on .the obligations and responsibilities the City of Palo Alto (hereinafter "City") incurs as the owner (also known as the "sponsor’:) of the Palo Alto Municipal Airport (hereinafter "Airport"). There are two fundamental "obligations" incurred by the City as the airport’s owner- sponsor: to the federal government, specifically the Federal Aviation Administration (FAA), and to the State of California, Specifically the Aeronautics Division-of the Department of Transportation (Caltrans). As long as the City is "federally obligated", by virtue of having, within the past twenty years, accepted Federal Aviation Administration Airport Improvement Program (AI~} grantasslstance funds for projects, the City wilI have to comply with the Grant Assurancesthat are made part of any FAA AlP grant. acceptance. This obtains even though; in the pasL the County of Santa Clara (County) sought the FAA AIP grants, with the concurrence of the City. The Gram Assurances (copy attached hereto) are part of the compliance requirements (with federal rules and regulations). There is another more expansive document, the FAA’s Order 5190.6A, Airport. Compliance Requirements, not attached here due to its size) which details more obligations a public entity airport sponsor incurs by accepting AlP funding grants. Additionally, as examples of other compliance requirements, there is a wide range of subjects covered by.FAA Advisory Circulars which impart owner-sponsor obligations for compliance. Examples are: 150/5190-6, Exclusive Rights At Federally-Obligated Airports; 150/5190-7, Minimum Standards for Commercial Aeronautical Activities; 150/5200-18C, .2/irport Safety Self-Inspection; 150/5370-2D, Operational Safety On . Airports During Construction; 150/5050-7, Establishment of Airport Action Groups; 150/5050-4, Citizen Participation in Airport Planning; and there are many, many more. Copies of these few are. attached hereto. The above covers a variety of owner-sponsor obligations that, while "advisory", often turn into ~’non-compliance" issues unless a good faith effort has been exerted by the airport owner-sponsor to comply. Ai~ort pavements, runways, taxlways, and parking aprons/ramps are a major owner- sponsor and federal investment, and are, literally, the heart and soul.of an airport. Maintaining or repairing pavement is acompliance requirement for federally obligated airports where AIP funds have been used to lay-down runway, taxiway, and parking apron!ramp pavements,. As an example of the FAA interest in, and expectation of owner-sponsor compliance,, and accountability that can’t be agsigned away, there is .a library of Advisory Circulars to be followed: 150/5380-6B, Guide!ines.and Procedures for Maintenance of Airport Pavements; 150/5380-7A, Airport pavement Management Program; 150/5380-7B, t~avement Management System; and 150/5335-5A, Standard Method of Reporting Airpori Pavement Strength. These detail the key elements of a Pavement Management & Maintenance Program as is required by the FAA for having accepted AIP grant funds for pavement projec!s. A Pavement Management & Maintenance Program starts with a simple daily observation and documenting of pavement condition and quality, across the airport. TheProgram requires a plan for periodic maintenance, from crack sealing, to ¯ widespread rejuvenating slurry sealing, to full pavement overlay. In conjunction with pavement condition & quality observation is the requirement to took for and remove "foreign object debris" that could damage airplane tires, damage propellers, or be ingested into jet engines. Fundamentally, the airport owner-sponsor is obligated to, and responsible for the safe use of the runway and taxiways, and parking apron/ramp. The above is intended to demonstrate a major area of own~r-sp0nsor obligation that can not be dismissed as perpe~tual owner-sponsor involvement. Then there are State obligations that accrue tothe City due to 1) being a State "permitted" airport (focused on. the safe ingress and egress, and use of the runway by aircraft), and 2) stemming from accepting State grant assistance funds..While the State does not, at this time, have "grant assurances" per se, like the FAA does, nor does the State have its own, or has supplemented or augmented FAA ".advisory circulars", there are State obligations. The California Public Utilities Code, Sections 2100! et seq, the State Aeronautics Act, and the California Code of Regulations, Title 21, Sections 3525 through03560, Airports and Heliports, serve as State ,advisory circulars" (copies of both attached hereto). Additionally, the California Code of Regulations, Title 21, Division 2.5~ Chapters 4 & 5, California Aid to Airports l~rogram and Airport Loan Program, provide "compliance " requirements" for applying for and for accepting State grant funding assistance (copy attached hereto)i There are twoFAA requirements that the. State has adopted as airport owner-s ~onsor obligations, both bearing on holding a State operating permit. One is the Advisory Circular 1. 50/53 O0 - 13, Airport Design, and .Federal Aviation Regulations Part 77, Objects Affecting Navigable Airspace The State expects compliance withthe guidelinesof each of these, and can suspend, or even revoke, a previously issued State operating permit - thus shutting down an airport. FYI: There is a Heliport Design FAA Advisory Circular adopted by the State pertaining to establishing and operating a heliport, whether on- or off-airport that could come to bear on the Palo Alto Airport if an on-airport heliport is eventually constructed. The bottom line here is that no matter Who "runs" the airport, the airport owner-sponsor is ultimately and always obligated to comply with federal and state requirements. An entity contracted by the airport owner-sponsor to conduct day-to-day operationof the airport can be made accountable to the owner-sponsor by the form of contract for compliance with federal and state requirements, but the owner-sponsor is obligated, thus responsible, thus accountable in the final analysis. There is an area that combines owner-sponsor obligation and responsibility: liability insurance. The owner-sponsor obligation is to have adequate coverage, as a responsibility to the rest of the City An entity contracted to operate the airport on behalf. of the owner-sponsor City can be required to obtain adequate liability insurance coverage, naming.the City as an additional insured. The city, as a public entity probably can acquire liabilityinsurance, at a cheaper rate than can a private entity contracted to operate the airport. The City has a risk exposure as a "deer pocket", even if the airport is’ operated by a contracted entity. This is clearly an area where the City has to make a "business decision" as to how to handle its risk exposure, and liability coverage. Another-area that combines obligation and responsibility is airport financial solvency. It is a federal obligation to have revenues exceed expenses such that the airport is financially "self-sufficient" and financially "self-sustaining." It is a requirement at the time of applying for an FAA Airport Improvement Program funding grant, or a State financial assistance grant that the "local match" funds be on-hand, or that there is a plan to acquire them before accepting a grant offer, which may come a year or two after initial application, for example. This requires a revenue generation program that covers basic - operating expenses, and then also. builds,over time, funds in a specific budget line item to Be used as local match flmds, and additionally build over time a "contingency reserve" to cover emergency repairs or acquisitions/purchases necessitated by accident or natural disaster. As a central part of achievin~ financial solvency, in the near’term as well as. for the- !onger-term; is to set the airport’s "rates, fees, and charges" scheme. Everything that is rented, leased, or used should have some charge or fee assigned to it. Property should be leased/rented on a cents-per-square foot basis (whole buildings or spaces inside buildings; tie-down spaces; raw dirt; even large paved apron/ramp areas leased to an FBO). Common areas (such as grass/open space that needs maintenance by the airport; motor vehicle parking lots with dedicated/reserved spaces; etc.) should have proportionate charges assessed to those fronting or using them. Rental/lease agreements Should have stated "escalation" paragraphs so rents can be increased periodically without major tenant or user upheaval. The FA_A strongly suggests escalators of some type. Most common and defensible is to review the Consumer Price Index annually .and decide at. the City’s option to increase rents and leases by that percent, or not.. And if not escalated annually it should be policy tO at least escalate biennially. While the FAA does not conduct regular, periodic safety inspections of the runway . environment, as does the State through its own permitting process, a further owner- sponsor obligation is to expeditiously correct discrepancies the State identifies in its inspections. Failure to do so can result in permit "suspension", or. even permit revocation - essentially shutting the airport down.. State permit safety requirements are easily met if the airport conducts its own daily self-inspections, which will Cover State requirements in addition to FAA suggestions. Finally, the airport 0wner-sponsor has the responsibility to ensure compliance, by itself and its tenants and users, with environmental protection requirements stemming from the National Environmental Protection Act (NEPA) and the CMifomia Environmental. Quality Act (CEQA) for projects and activities on the property. Contaminated storm water runoff; tenant disposal of lubricants and fuels; and leakage containment of fuel storage tanks are a few of the major environmental protection issues airport owners- sponsors have to deal with on a daily basis. The preceding not an exhaustive "primer" of what to do; and how to do it. This paper is intended to give a mere glimpse at the myriad, varied obligations and responsibilities that accrue to an airport owner-sponsor no matter, whom, or what type of entity, under what type of contract/agreement operates the airport. The responsibilities of airport ownership are to meet the obligations, and institute good business practices. In closing, being the owner-sponsor of an airport is a business matter; a property management business task. Certainly the safe use of the "property" by tenants and visitors is task Number One. Beyond that, maintaining financial solvency is imperative to allow for emergency and contingency recovery; repairs and maintenance of pavements and facilities: necessitated b~ normal wear and tear; and improvements and replacements, and additions of facilities and pavements prompted by increased use, or ctianges in use of the airport. Third, environmental protection and compliance with laws to that effect must be an everyday practice. Should you desire more explanation, please feel free to contact me. Sincerely, R. Austin Wiswell .. Attachments: 1. Federal Aviation Administration Airport Improvement Program Grant Assurances for Airport Sponsors, 03/2005. 2.Advisory Circular 150/5190-6, 01/04/07, Exclusive Rights At Federally Obligated Airports. 3.Advisory Circular 150/5190-7, 08/28/06, Minimum Standards for Commercial Aeronautical .Activities, 4.AdvisOry Circular 150/5200-18C, 04/23~04, Airport Safety Self-Inspection. 5.Advisory Circular 150/5370-2D, 05/31/02, Operational Safety On airports During Construction. 6 Advisory Circular 150/5050-7, 06/23/87, Establishment of Airpo~t Action Groups. 7 Advisory Circular 150/5050-4, 09/26/75, Citizen Participation In airport Planning. 8.California Public Utilities code, Sections 21001 et seq relating to the State Aeronautics Act, 02/2006. 9.California Code of Regulations, Title 21, Sections 3525-3560, airports and Heliports, 03/2003. 10. California Code of Regulations, Title 21, Division 2.5, Chapters 4 & %, California Air to airports Program and airport Loan Program, 07/2005. Cc: Chris Mogensen, Assistant to the City Manager w/o attachments Carolyn Bissett, City of Palo Alto Purchasing Department Bili.Fellman Manager, Re~l Property Real Property Division City of Palo Alto P.O. Box 10250 Palo Alto, CA.94303 July 6, 2007 ATTACHMENT D Dear Mr. Fellman: As requested by you, I’ve reviewed the Palo Alto. Airport Worldng Group’.s (PAAWG) May 2007 report to the Palo ARo ¯City Council that purports to advocate the City expeditiously regain operational authority, responSibility, and control of the City-owned ail:port. My specific task relative to the PAAWG’s report was to comment on their recommendation(s) that: ¯. 1. The City Council direct the City Manager to negotiate theearly termination of the existing Palo Alto Airport lease with the County of Santa Clara; .2. The City Council appoint an interim manager for the airport; and 3. The City Council issue an RFP (Request for Proposal) for the long-term management of the Airport, which will ensure its assetvalue to the community is maintained and will preserve its economic value into the future. ’ The PAAWG report is long.0n optimism, and naivetd, but that is not condemning of the effort. It may be an indication of thoughtful and confident consideration of:the responsibilities for the ’ variety of operating tasks: Or it may reflect a lack of understanding of the¯business aspects of running an airport of any. size. Most of the 292 page report is attachments without substantive comment of their respective importance, purpose, and utility in ~eaching any conclusions, or in making any recommendations. I will later comment on specific statements, assertions~ allegations, and suggestions made by the PAAWG. First~ I will address the three elements oi~the operativePAAWG recommendations, as I was tasked tO do. As regards the first PAAWG recommendation that the City of Palo.Alto negotiate an early termination of the current lease with the County of Santa Clara (earlier than the present 2017 lease termination year), which now has the County operating the City’s airport. I believe that course of action should be fully expl(~red as soon aS possible. It may well take a few years to settle all of the "minor" details, such asthe disposition of the County’s Outstanding Advance of, now, some $681,000+; past and future levee maintenance; future shared responsibilities for maintenance of Embarcadero Road; and other issues of probable disagreement between the County and the City. It does seem that the County is desirous of extricating itself from operating the Palo Alto Municipal Airport, especially, it may be, since the County’s South County Airport is growing in use and tenancy, and County management workload. The PAAWG report offers little in the way of enumerating the benefits to the City, and the airport, of City operational control; nor any informative discussion of the authorities, obligations, and responsibilities incumbent on the City for assuming operational control of the airport; or any meaningful ’ discussion of any "downside" to the City assuming operational control of their airport. I d(~ believe, even at this early time, that direct operational control by the City of PaSo A~to of its own airport has merit. The proposition has merit from the standpoint of operational control of its own airport being considered a public-entity.responsibility; to directly better serving City constituents, both airport supporters anddetractors; and having direct hands-0n management of a City-owned transportation andeconomic engine asset. Further, both the State of California"s Aeronautics Division and the Federal .Aviation Administration should be apprised of the mutually agreed to intent of the County to relinquish, and the City to assume¯ operational authority and responsibilities for the Palo Alto Municipal Airport. This would ensure that past financial obligations and compliance requirements (e.g. FAA Grant Assurances; accounting records of past State and federal grants; etc.) incurred by the County on behalf of the airport, ~nd the City, are known, resolved~ and properly transferred. Finally, the City should expeditiously apprise itself of the full breadth and depth state and federal obligations, and risk exposure and liability obligations and responsibilities it would assume when operational authority is obtained by the City. In a previous submission to you, I discussed the many and varied obligations and responsibilities the City now has as owner of the Pal0 Alto Municipal Airport regardless of County operating the airport or a contractor operating the airport, and the additional obligations and responsibilities the City would assume if it chooses to be the actual operator of the airport. As to the second of the three PAAWG recommendations, that of appointing an interim airport manager,.the City must make the distinction between having a "manager" with the fullest of responsibilit!es, obligations, and authorities that being a "manager’.’ of anything confers and requires; or having an ."operations supervisor", who merely monitors what is happening at the airport, primarily from a safety and maintenance perspective, but has no policy2s.etting or contracting authority, as examples; or a "business and property administrator", who has autl~ority to negotiate lease/rental agreements, collect payments, authorize disbursements, answer inquiries about airport policies and activities, as example. The term "airport manager" is too often, tossed out as the title, but the reality, is that each of these levels and types of operational control of airport management, or supervision, or administration is marked!y different. The City needs to decide what it wants, in light of what it can afford (financially, as well as benefits burden) and staff assignment, whether new hire from off-the-street or additional duty within current City staffing, and with regard to desired expertise. Assuming operational control of the City’s airport is a "start-up business" proposition that must be well thought-out, taken ¯seriously, and entered into cautiously. I believe that initially an Operations Supervisor is the objective, with future job enrichment and e:~pansion to Airport Manager after the Cily evaluates progress and success. There are mature, educable, and somewhat knowledgeable individuals available from the ranks of retired military or recent college graduates (e.g. Embry-Riddle; San Jose State University; California State University at Los Angeles are examples of university-level airport management programs that I have been associatedwith, and there are others) who could be hired-on to staff the City’s initial operational control foray. There are other options to using a City-employee, which leads to the third PAAWG recommendation, which I will next discuss. The third PAAWG recommendation is for the City to, in short, issue a Request For PropOsal (RFP) to seek a contractor for long-term management of the airport. I have personal experience in this arena, having been General¯Manager of an airport management entity that leased a small 200+ acre General Aviation airport from the County owner, This was not a hired operator, but a lessee operator. The lessee corporation was a "not~for-profit" entity with a seven-member volunteer Board of Directors overseeing What I, as corporation General Manager.(and daily Airport Manager) did. This arrangement of professional management by me, and my successor, serves the airport itself, the users and tenants, and the owning County well. The operative term 2 here is pr@s)ional management, professional by experience and educatiordtraining, and involvement in professional airport management organizations. Being an airport manager, or an operations supervisor for that matter, is much more that watching airplanes drone by the window .or having .morning .coffee with pilot friends each day.. I previously advised you to contact the City of OceanSide, in nortlaem San Diego County, to ask them about their plan, and progress, to seek an airport management entity for their City-owned small General Aviation airport, Odeanside, and the airport users and ~enants both have become somewhat, disenchanted with operating the airport from within the City’s Public Works Department. Further, ! apprised you o~’the County of Los A_ngeles’ long-standing single contractor operation of their five County-owned General Aviation airports. I also suggested you contact Riverside County’s aviation office to find out why they cancelled their five airport operating contract with the same c0ntraetor as Los Angeles County continues to employ. I strongly recommend contacting aH of t]~ese to give you a broad flavor of the issue: hiring someone to run your airport for you. 1Vl[uch more needs to be learned by the City before choosing any course of action, whe{her operating their own airport or contracting for an operator. It should be noted here, and is stated in the PAAWG report, that the City of Turlock entered into an operating agreement with the airport’s pilots association to run the City-owned airporton behalfi~fthe City. The reason for the pilots association proposing this operating agreement was their dissatisfaction with the City’s attention to the airport, especially as regards basic upkeep and maintenance, and applying for federal and State grants=in-aidi Now the pilots association wishes .the City would be more involved in what is happening with, and to the airport, and interact more with the pilots .association on.operational matters. There is no easy solution, and there is no solution clearly better than any other. Before proceeding with an RFP, the City oi" Palo Alto needs to gain more information, at least State-wide, if not nationally, on contractor operation of a public-owned General Aviation airport, whether a for-profit or not-for- profit operator; wtiether, on-airport FBO or not; whether City-chartered entity or not. I Will now turn my attention to specific comments made by the I~AAWG that warrant my viewpointsl One thing the City must reconcile before proceeding further to regain operational control of its airport, or pursue getting someone other than the County 6f Santa Clara to run it for the City is this: What does the city want the airport to be? There is a listing in the PAAWG report at Appendix 1A, page 5, 0fthe many, commonly recognized uses of the airport. Hopefully the order shown is not that of importance and value to the City. The airport’s primary value to the City, and overarching purpose and Use is as a "transportation node", as both a departure point and an arrival point for an aviation transportation leg. Thus, purpose #3 for the airport on the PAAWG listing :- "... convenient transport for business and personal needs." is what the City owns, wishes to operate themselves, and will commit to maintain in a safe and effective condition. The. airport’s primary value is as a contributor to the local economy in allowing local businesses to fly out of it in pursuit of business activities; allows businesses outside the local area to fly in to it to conduct locally beneficial business; and allows tourists and other personal purpose visitors to have a convenient local aviation transportation facility for arrival and departure use. Of course, the airport benefits the City’s citizens as a valuable location for emergency medical evacuation (air ambulance and "life flight" operations) and disaster response use. It also supports local law enforcement and fire fighting purposes as either a base of operations or a staging and refueling location. The City is not obligated to assume the responsibilities and obligations as airport operator for the purposes of flight training and local ,’,’,~;,,p~ilot "recreational" and hobby flying. Those, as examples, are tangential purposes and values to ,’,, the Cityl Once the airport’s value is understood, and its overarching purpose accepted, and, then, ¯ ,,,,,,i~the commimaent to the airport!s 10ng-term .welfare .is made, the negotiations with the County can commence in earnest and the search for a private-public partnership to operate the airport can be initiated., First things first: What d~es the City Want the airport to be, as regards clear value and benefit to the City? I offer that the airport is a transportation facility first~ and forena0st. The PAAWG report, and the City Auditor’s report both seem to feel the increase in monthly tie- down. fees and the fuel flowage.fee are excessive and without adequate justification. The monthly tie-down fee is a matter of it being a "seller’s market", not a "buyer’s market". Comparing tie-down fees across several airports is little more than interesting. Each airport .is very fundamentally different..Palo Alto has a revenue generation base now that favors the " tenants. It seems not to be driven by revenue generation for airport needs, and equitably applied across all airport tenants and users. Past revenue generation decisions, as ieflected in airport income constraining leases, and decisions to restrict expansion of revenue producing facilities and areas forces the airport (the County of Santa Clara in this case) to significantly increase what few revenue sources are available, namely monthly tie-down fees and fuel flowage fee. The . harsh reality of tie-down fees is that the tie-down occupants have made a personal convenience decision to locate their aircraft at the Palo Alt0 Airport. They, not the airport, have to make a further decision asto which of the cost versus convenience lines crosses into the negative area. That’s not to say the airport can raise fees in an unconstrained manner. Those paying tie-down fees are, in essence, investors in the upkeep, maintenance, and repair of the .airport, and as such they need to be treated fairly - and fully informed as to what their fees are going to, just like any business investor. Don’t let fear of comparables, and relatively idle threats of moving to another airport discourage charging what iS needed to support the airport. General Aviation airports are rarely in competition with other General Aviation airports, unlike commercial service airports... more often are. As for the dramatic increase in fuel flowage fees from ten cents per gallon to twenty cents per gallon, that is noteworthy. Even ten cents per gallon is nudging toward ¯the high side of fuel flowage fees. The airport has little choice in the matter since fuel flowage is one 0fthe two available sources of revenue to support airport needs. I gather that when airport operation reverts from the County to the City all leases and rental agreements are subject to renegotiation - on better terms for the airport and, probably for the tenants and users also. There are better, more commonly applied methods to fix fees for tie-down spaces; land leases, lease or rent of airport owned facilities/spaces; percent of gross FBO (and other business tenants) revenues; fuel ¯ flowage fees; transient aircraft parking;, meeting room rental; etc.; etc. that create a revenue generation system of many sources equitably applied across all airport tenants, users, and uses. 1[ suggest this be more fully explored by the City before committing to assuming responsibility for setting revenue generationpolicy. The airport, must be made financially self-sufficient, and financially self-sustaining in shor~ order after the City would assume ~peratfional control. Another area of comment here that is related to financial solvency of the airport, and revenue generation opportunities, is the City policy, expressed in the City’s Baylands Plan, which seems to be severely constraining the airport as regards, specifically; buil~ling revenue producing hangars. There is always a demand for hangars, and hangars are always revenue producers. There are several ways to fund construction of revenue producing hangars: State loan; revenue 4 bond; private financing for private owned & operated, but with ground lease and percent of gross coming to City for airport support. The City does not have tO accommodate every aircraft . wishing to be based at the Palo Alto Municipal Airport, nor does it have to accommodate every entrepreneur who wishes to place their aviation business-on, the airport. Again, it is a "seller’s market", not a "buyer’s." Having ~aid that,, however, I recommend an in-depth, no holds barred re-think of the City’s Baylands Master Plan relative to allowing construction of hangars (some 29 are proposed in the recent Airport Master Plan, and some number of that migM be possible), and the relocation of the Terminal Facility, both on the 5°6 acre site fronting Embarcadero and Harbor Roads.. I recognize, and. appreciate the city’s desire to not have airport operation~ significantly increase in "intensity" (which I doubt they will, for a number of reasons) or "intrude" .on open space areas (if it is airport property in the first place, I .don’t see an intmsion.0ccurring it its truest sense).. There is a lot of architectural design work that can go into unobtrusive siting and character of hangars and a new Terminal building that should be explored. Further, there should be considerable investigation of construction requirements to satisfy flood hazard concerns. Again, architectural design work could mitigate. most concerns - except increased cost of flood hazard mitigation. The relatively short .single runway, of 2, 433 feet long that can’t be appreciably lengthened, will always be a limiting factor in how much bigger the airport can get as regards basing of aircraft in hangars andontie-downs; and how much more daily traffic, the airport can accommodate; and how much larger the aircraft that routinely operate at the airport can be. Even the much touted four, six, or maybe eight passenger Very Light Jets, or Microjets,. desire a 3,500 foot long runway. Other factors that will combine in some fashion to limit furore "intensity" increase is the increasing cost of aircraft fuels; the relatively stagnant number of active pilots (lots of. hangared and tied-down aircraft don’tfly regularly); and the general cost of insuring and operating an aircraft (esp.ecially if some type of"user fee" structure is implemented by the Federal Aviation Administration). Hangared aircraft, don’t necessarily increase "intensity" of activity, but they do enhance airport revenue. The PAAWG takes great exception to the County’s accounting lYrocedures, and philosophy. The PAAWG seems to feel the County is overcharging the Palo Alto Airport part of the overall County Airport Enterprise Fund. The City Auditor’s report seems to have minor differences of opinion with. the County’s procedures and philosophy. I can’t definitively support either accounting approach, or adamantly disagree with either either. One issue is how to account for depreciation of assets, the basic wearing out of buildings and pavements. For Federal Aviation Administration projects funded by Airport Improvement Program grants (with the exception of "paper projects" like Master Plans) the depreciation schedule is usually a straight line twenty- year amortization. To me this means: set aside money,-enhanced by projectinginflation, each year to cover replacement in twenty years. In the public sector depreciation doesn’t-mean much more than that since there are no tax implications in play. An accelerated depreciation schedule can be employed with the same funds set-aside commitment to fund replacement.at the end of useable life - which still may be based on a twenty-year life span. 1V~y presen~ inclination is to embrace ~he City Auditor’s repor~ a~ regards its conclusions, criticisms, and revenue and e~pense his~ and projections. When the Ci~ assumes ~perat~nM co~tr~ ~f ~ts ~rp~ the C~s auditor w~ be T~ resp~ns~Me ~ud~t ~gency, a~d the Juae ~, 209~, C~ auditor’s rep~ can sere as a base~ine a~d depa~ure point f~r subsequent audits. A Second area of PAAWG criticismof the County has tO do with the County’s staffing of the Palo Alto Municipal Airport, and associated personnel costs. The issue may be systemic, rather " than scurrilous. The County of Santa Clara has its own persormel policies, rates of pay and benefi~ts, lmionization to deal with,, all in the context of a three airport, rather homogenous .. staffing regime. Stiould fie CitY of Palo Alto assume operational control Of their airport,, staffing can be tailored.to the simation: hire -staff as "independent contractors", not City employees; use . City employees in ttie context of "additional duties"; or paya named person, or persons of fie not-for-profit.corporation recommended by the PAAWG a base monthly rate but without pension contribution and health benefits (i.e. medical, dental, and -0ision). In either of file above options, the employee "tail" is absent .(e.g. Social Security; workmen’s compensation; state and federal tax withholding; post-empl0Yment pension; and long-term post-employment health care).. ¯In a related matter, in cliarging the airport for ’"services", the City can treat those differently ttian has the County, which would reduce operating cost~. The City can use its own administrative and operating agencies and claarge for just time-and-materials; or for time,and-materials and staff/personnel time. The City’s "overhead" for legal, accounting, human resources, grounds maintenance, etc. is likely to be somewhat less.than the County’s has been..CitY agencies can be used for basic maintenance and repairs at the airport and do a charge-batk for them: Finally, the staffing forthe airport is a matter of, first, answering the previoustwo options: how .- to staff (and for what purposes), and how to cover overhead and services. Then, second, pursuing a well thought out course of action. My initial suggestion, based on my earlier discussion of i~iring an airport manager, whether interim or long term, is to start with two persons to oversee the airport: one to deal with operational matters, such as safety and maintenance, and one to deal with administrative matters, such as grants and collections and disbursements, There is no requirement to staff fie airport 12to 16 hours per day, or seven days a week, at least not initially.- The CitY can add to staffing as it becomes more aware of the. full range Of its obligations and responsibilities, and what type of staffing (numbers of persons and experience required) it takes tO effectively meet them, and, ~f course; what the airpOrt can afford. .: . . ¯ I notice the PAAWG has attempted to accomplish an economic impact survey, or assessment, using a model developed by the Aircraft Owners and Pilots Association. It is a good tool for airport supporters to use to get a flavor of the airport’s economic engine role in its community. suggest engaging a more experienced professional entity to conduct a comprehensive economic impact survey and assessment of the airport’s value to the Palo Alto area business and commerce community° It is mildly impressive to define the direct economic impacts of salaries and services at the airport proper. It is more. impressive and more important to define the indirect economic impacts of services and products acquired off-airport because of the airport’s existence and use. Most impressive and most important, in my mind, are the induced positive economic impacts off-airport due to airport users, especially visitors (tourism and business) in terms of new businesses started or expanded, commerce expansion in general, and additional off-airport staff/personnel hires due to increased off-airport business and commerce fostered by airport use. The City needs to know much more about fie value of the airport offlairport. In closing, I’ll address the validity, andoptimism, of the PAAWG financial projections. One thing that must always be remembered when making hopeful economic predictions, especially those that portray revenues barely exceeding expenses: something can go wrong - and it probably will. I am not optimistic that growth in revenue at the Palo Alto Municipal Airport will mirror any traffic (i.e. use) increases projected by the Federal Aviation Administration, the State of California’s Department of Transportation’s Division of Aeronautics, or any affinity or trade group. The future of General Aviation activity, when compared to what.it was in the 1970s and 1980s, is very mucl~ open to question, and some doubt. As I stated earlier in this report, increased, and -increasing, fuel costs; increased liability and hull damage insurance costs; increased costs to acquire and maintain the basic aircraft (acquisition plus life-cycle costs for required periodic inspections and replacement parts); a relatively stagnant active pilot population (new starts do.not exceed "retirements" from active flying); and the specter of "user.fees" imposed on General Aviation aircraft operators in any combination will slow traffic growth, if not degrade current traffic levels. The fixed runway length, the limited space for which to place hangars, and the limitation On the number of apron tie-down spaces add to the prospect that increasing revenue projections out through 2017, and beyond to 2022, need to be tempered. The objective re~nains for the airport to be financially seLf-sufficient as soon as possible, a~d over the longer term be financially self-sustaining. It is nibbling around the edges of expenses combined with justified revenue generation, in balance~ that is the business approach required, at least initially. I remain readily available to further clarify and elaborate on my critique of the Palo Alto Airport Working Group’s three recommendations, and my additional comments. Sincerely, R. Austin Wiswell CC:Chris Mogensen, Assistant to the City Manager Carolyrm Bissett, Contract Administrator ATTACHMENT E MISSION STATEMENTS FROM OTHER AIRPORTS Attachment E: = m = Sample Municipal Airport Mission San Diego County Airport Monterey Peninsula Airport San Carlos and Half Moon Bay Airports Program Outcome Statement Yuma County Airport Authority 5.Oxnard Airport Stockton Metropolitan Airport John Wayne Airport= 8.Santa Clara Co. Reid-Hillview, South County, and Palo Alto Airports To operate and maintain safely, efficiently, and cost effectively, the eight County airports, airstrips, and airpark, as part of the National Air Transportation System, in conformance with Federal, State and local rules, regulations and ordinances and without cost to the County General Fund. A special airport district created by an Act of the California Legislature in 1941. The mission of the Monterey Peninsula Airport is to provide access to the air transportation system by developing and managing facilities and services that contribute to the economy of the region. The Airports Program operates and maintains the San Carlos and Half Moon Bay Airports in order to provide airport users, tenants, pilots, visitors, outside agencies, employees and the community with the highest level of airport services and benefits in a safe, responsive, economical and cooperative manner. The Yuma County Airport Authority’s mission is to provide a safe, efficient and customer focused airport to serve Greater Yuma. Oxnard Airport shall: Be a publicly owned, operated, and managed general aviation airport with a strong emphasis on safety, cooperation with its neighbors, and responsible flight operations. Maintain a viable center for air commerce, which enhances trade and business for the economic development and transportation needs of the City of Oxnard and Ventura County. Make every reasonable effort to limit the hours of air operations through a curfew, and to reduce noise and air pollution nuisances caused by airport users and operations. Provide the region with safe and efficient access to the national air transportation system and general aviation. Continue to search for a regional airport to serve the air carrier and commercial needs of the City of Oxnard and Ventura County. The Stockton Metropolitan Airport serves the current and future commercial, corporate business, and general aviation needs of San Joaquin County; plans, operates, and maintains the safety and appearance of the Airport to meet the highest standards; manages numerous tenant agreements and facilities located on Airport land; and promotes the development of Airport land and facilities for future aviation and commercial related services. The mission of John Wayne Airport is to plan, direct and provide high quality aviation services and facilities for Orange County in a safe, secure and efficient manner. The mission of the Roads and Airports Department is to operate, maintain, and enhance the County’s expressways, unincorporated roads, and the three general aviation airports in a safe, timely, and cost effective manner to meet the needs of the traveling public. 10/29/2008 ATTACHMENT F BUSINESS PLAN RFP SCOPE OF SERVICES Attachment F SCOPE OF SERVICES BUSINESS PLAN FOR PALO ALTO AIRPORT 1. Background: The County of Santa Clara has proposed to terminate the lease early prior to its expiration in 2017, citing the inability to generate enough revenue to match expenses as a rationale for seeking early termination of the lease. The Palo Alto City Council has directed staff to begin negotiations with the County to take back the airport by 2010. The City desires an analysis of all the significant risks and obligations, as well as the benefits associated with running the Palo Alto Airport prior to entering into any formal contract negotiations to terminate the lease with the County. 2. Scope of Work: The comprehensive Business Plan shall include the following: Provide an overview of the current County Airport Enterprise Fund (AEF) and examine the ability of the airport to economically stand alone without subsidy from the City’s General Fund (GF). [] Provide an overview and analysis of the airport’s current finances, to include existing, projected cash flow (income statement and balance sheet) until 2017, and potential cash flow including revenue generation opportunities, thereafter. []Review and analysis of current and future aircraft.operations including aircraft basing numbers, traffic levels, types of aircraft using the airport and purpose. Examine operational costs, both revenue and expenses, and prepare a 7- year detailed financial forecast starting in 2010 and a subsequent 15-year budget projection through 2037. Identify the airport’s future capital investment needs, how to maximize current income potentials, the opportunities for increasing revenue and reducing cost, and resources for all available federal/state/other grants. Identify and address potential adverse and constraining impacts of future studies such as the Army Corp of Engineers Levee Report, including USGS typographical maps and climate change effects, inconsistencies between the current Baylands Master Plan and the current County Airport Master Plan and improvements at other airports near the San Francisco bay, and any other potential impacts of neighboring areas or potential or likely future developments. Provide a brief analysis of the future viability of airports and aviation in general and where the Palo Alto Airport is positioned. List pros and cons of airport management by the City contrasted to non- government Third Party management. Make a recommendation whether or not to terminate the current lease before 2017 and a recommendation what should be done with the two Fixed Based Operator’s. 3. Attachments Included: Lease agreement between City of Palo Alto and County of Santa Clara (Attachment A -1) CMR:247:08 Palo Alto Airport Working Group (PAAWG) report (CD of complete report available) and City of Palo Alto Auditor’s report (Attachment A-2) 4. Deliverables: One unbound copy of the comprehensive Business Plan (pages shall be no larger than 8-1/2xll inches or 11x17 inches, if folded to that dimension). .Must be available, as required, to attend City Staff meeting(s) and/or City Council meeting(s). ATTACHMENT G SUMMARY OF PROPOSALS ATTACHMENT G SUMMARY OF PROPOSALS FOR AIRPORT BUSINESS PLAN R.A. Wiedemann & Associates Company Information: Kentucky company consisting of four full time professionals and a part part-time economic impact assessment specialist. In business for 20 years, the company specializes in airport business planning, marketing, economic impact analyses and other aviation planning. Experience: Company has provided its services in 33 states, including California and has developed more than 40 airport business plans and hundreds of airport economic impact assessments. Examples of Qualifying Experience: Many qualifying project are listed in the proposal. Three in particular show Wiedemann’s fit to the City’s RFP in terms of capabilities and experience. Determined the value of the airport to Camden County, NJ, its ability to be self suppo.rting and what physical expansion that could be done; Presented a feasibility analysis with alternatives for Endicott, NY, a city wanting to take back its airport from a Fixed Base Operator; Assessed an airport for a Missouri city to determine the value of the airport to the community. Proposed Innovations: Development of multiple pro-forma’s to present two or more options for potential operation of the PAO, such as City management, third party management or FBO management; ¯Assisting the City’s marketing and public information program for the PAO; ¯Formulating innovative development/funding methods such as involving private investment; and An optional task at additional cost which is a new metric designed to examine both the economic contribution of the PAO (through the economic impact analysis) and the asset value of the PAO (Airport/community Value). This would identify jobs, taxes, and airport revenue generated to the community. It would also identify the amount of significant business use. Allows the City and other interested parties to evaluate the overall airport value to the community against the operation cost of the PAO. Elements of Scope of Work/Product The proposed plan is intended to provide ¯an overview analysis of the PAO; ¯an assessment of business/economic development opportunities; ¯feasibility guidance for the transition, management, and development of the PAO as a city- managed and sponsored facility and recommend a strategic source of action to pursue development and address issues. an analysis of all the significant risk and obligations, as well as the benefits associated with running the PAO prior to entering into formal contract negotiations to terminate the lease with the County. The proposed scope of work for the plan consists of the following six elements which are described in detail in Section 4 of the proposal: 1) Initial meetings and Visioning Effort; 2) Data Collection; 3) Market Analysis; 4) Financial Outlook; 5) Management Structure; 6) Recommendations. The proposer will also conduct a final meeting and/or presentation on findings for the City. Time Line to completion of report: June 2009 Cost: $105,000 ($ 87,500 for basic plan; $17,500 for optional task (Airport/Community Value- Economic Impact Analysis) Charles B. Warren, ASA -Urban Real Property Company Information: San Francisco real estate valuation firm consisting of the owner and his consultant: Experience: Owner and consultant have 30 and 20 years respectively in valuation of commercial prope~ies, especially waterfront properties, acquisition and management of rights of ways and lands for numerous public agencies. Examples of Qualifying Experience: Managed Redwood Shores assessment project for the Redwood City Finance Dept. from 1992 to 2006 including annual appraisal of market value of over 4,000 parcels with varied uses; o Valuation of the impact of an oil spill on a shopping center; o Testimony in a case involving the valuation of a leasehold ¯Appraisal of vacant march acreage on the Peninsula. Proposed Innovations: None demonstrated Elements of Scope of Work/Product 1) a review of the County airport enterprise fund; 2) a review of probable airport operations; 3) review of the consistency with various plans with climate change; 4) projecting existing cash flows to 2017; 5) identifying probable costs, revenue enhancements, grants, economies; and 6) preparation of budgets for 7 + 15 years additional years Time Line to completion of report: 3 months Cost: $30,000 ATTACHMENT H WARREN PROPOSAL Attachment H: Valuation Consultation RFP 128288 1 2033 Powell Kathy Bradley City of Palo Alto Purchasing and Contract Administration 250 Hamilton Ave Palo Alto, CA 94301 Re: RFP 128288 8 September, 2008 Thank you for the opportunity to introduce myself and my subconsultant. The "firm" is basically myself, and subcontractor relationship with Wayne Lusvardi. We have extensive prior public agency real property acquisition and management experience. Collectively our team has on the order of 50 years of combined experience in the valuation, acquisition, and management of rights of ways and lands for CalTrans, the MWD of Southern California, Alameda Corridor and numerous other public agencies. Street .San Francisco California 94133 Phone 415. 433. 0959 Fax 415. Wayne Lusvardi is a nationally-recognized partial acquisition and utility corridor appraiser who. has particular expertise in the valuation of flood control channels, channel crossings, well sites, and "chains of lakes". He was formerly the senior appraiser and property manager for the MWD of Southern California. 982. 1441 In addition to quotidian problems, such as the Federal Reserve Building, my special areas of expertise is in water front property valuations, oblique aerial ph0to~raphy, GIS mapping, computer assisted valuation, and valuation of unusual situations. Published in Real Estate Review on the use of three approaches to leasehold valuation. I have successfully presented expert testimony in litigation clients such ag Liability Insurance Underwriters, Chevron and Cushman and Wakefield. Also had an opportunity to value Pacific Shores in March, 2000, correctly identifying the risks of a tech bubble. The objective of our service is to help the you determine a plan of action regarding the Palo Looking forward to working with .you. Charles B. Warren, ASA Web email - www.charlesbwarren.corn cbw@apo.corn Submitter: Charles B. Warren, ASA San Francisco - Principal RFQ Airport business plan Company Profile. RFP 128288 2 Charles B. Warren (ASA-Urban Real Property) is a real estate valuation firm in San Francisco with, beyond quotidian commercial properties like the Federal Reserve Building~ particular expertise in the valuation of waterfront properties, oblique aerial photography, GIS mapping, and remote image and cartographic research. See full firm profile at: http://www.charlesbwarren.com/. Experience. Wayne Lusvardi has 20 years experience in the valuation, acquisition, and management of fee, easement and license interests in urban and agricultural lands for the MWD of Southern California, including pipeline rights of ways, secondary use leases and licenses of rights of ways and lands, user fee schedules, crossing easements, well sites and associated water rights, pipeline route and feasibility studies, and the valuation of the "chain of reservoirs" connecting the Colorado River Aqueduct. Mr. Lusvardi has authored relevant professional articles on flood channel valuation and corridor valuation. Additionally, Mr. Lusvardi has successfully negotiated the acquisition of over 300 interests in water pipeline and aqueduct rights of ways without the necessity of eminent domain (San Diego Aqueduct Expansion Phases I & II, Etiwanda Pipeline, Inland Feeder, Allan McCullough Pipeline, Diamond Valley Reservoir, etc.). He was also responsible for managing MWD properties, particularly negotiating leases. Charles B. Warren, ASA, has over thirty years of consultation, valuation and project management, litigation support, value for estate management, property tax assessment, assessment appeal, and lending; extensive independent consultation, project management nationwide for American Appraisal; appraisal office management for Wells Fargo Bank; Assessment appeal defense: Alameda and San Francisco Counties; Computer Assisted Mass Assessment: City of Redwood City; Qualified expert witness: Superior Court, Federal District Court, Bankruptcy Court. He is a Senior member, American Society of Appraisers, urban real property; Visiting professor lstanbul Technical University; member of International Right of Way Association, the American Real Estate Sgciety> International Association of Assessment Officers, Real Estate Analysts Microcomputer Users Group, Urban Land Institute, Bay Area Automated Mapping Association He has successfully defended Chevron and Shell in alleged loss in value due to contamination suits; successfully defended Liability Insurance Underwriters and Cushman & Wakefield in appraisal standards cases. While valuation may seem a long way from business planning, ,it is less so in real estate. A large portion of real estate management is in recognizing and taking advantage markets, valuation. Feasibility is a large portion of both valuation and management. Business plans are an element of feasibility analysis. Mr. Warren also brings a pilot’s perspective to this project. Submitter: Charles B. Warren, ASA San Francisco- Principal RFQ Airport business plan RFP 128288 3 RELEVANT EXPERIENCE - NARRATIVE The Redwood Shores General Improvement District was a client from 1993 until they paid off their bonds in 2006. The project involved annual appraisal of the market value of over 4,000 parcels ranging from wetlands to software campus with thousands of houses and condominiums in between. Reportage was restricted format, and valuation was consistent with USPAP Rule 6 and the California Revenue and Taxation Code. Automated valuation modeling and computer assisted mass assessment augmented feet on the ground and made the project feasible at a fee to the client of about $10 per parcel. One oil company client was sued for totally destroying the value of a shopping center with leaking underground storage tanks (LUSTs). While it was pretty undeniable that the center was at a serious competitive.disadvantage, the causative factor was less clear. In fact, a study of aerial photography showed that the property had an empty parking lot before the date of discovery of the pollution. In fact, an image was found of the center breaking ground at the same time that the arterial which served it was being re-aligned by Caltrans. The research was not inexpensive, but neither was it as expensive as a fully- prepared-for-trial appraisal report and resulted in a settlement. An opportunity presented itself some years ago to testify in a case involving valuation of a leasehold. Fortunately there were depositions available in which the lessees discussed their metrics for the purchase " of such things, Differential rent had nothing to do with it. A reprint of the article on the subject may still be available from Real Estate Review. An interestingassignment was the appraisal of vacant marsh acreage on the Peninsula. Unusually, it was developable beyond its use as a slurry pond. That development entailed relocating dredging spoils from a nearby shipping channel which had formed an ad hoc island in order to raise the parcel above sea level. The really interesting part of the assignment, however, was highest and best use. The proposed highest and best use for a few hundred thousand square feet of new office building was related to housing dot- com firms. Many had signed letters of intent, but the date of value was March, 2000. Successfully made the connection between the success of the development and the continuation of speculation in dot-com stocks. The development constituted a large proportion of the vacant office space on the Peninsula for years. Projects have ranged from the thousands of dollars to the hundreds of thousands of dollars. Managed the Redwood Shores assment project, on the order of $50,000 each year, 1993 to 2006 for the Finance Department of the City of Redwood City. Effectively Palo Alto is a busy local field. Its runway length is marginal for the new generation of Very Light Jets (VLJs). That might be remediable. There is a large area of open tie downs. Mid-day, 2-27-04, the transient area was basically fully occupied. Full occupancy, economically, argues for higher fees. A possible way to make that more palatable would be construction of hangars. The presence of flying clubs is a definite plus to airport operations. If VLJs represent the upper end of the General Aviation future, light sport and ultralight, usually associated with clubs, represents the bottom. Submitter: Charles B. Warren, ASA San Francisco - Principal RFQ Airport business plan RFP 128288 4 Neither myself nor Mr. Lusvardi has any formal or informal arrangements that would impair our ability to perform independent and unbiased services for the City Of Palo Alto. Neither myself nor Mr. Lusvardi are or have been involved in any litigation or administrative proceeding that would impair our ability to perform services for the City of Palo Alto. General compliance with City contracting, labor, and insurance requirements will be maintained and Non-collusion: This submittal is genuine and made only in the interest of the parties named herein, nor is it inten .ded.to induce any behavior of any other parties who might offer their services pursuant to this RFP. Charles B. Warren, ASA (urban real property) 2033 Powell Street San Francisco, CA 94133 www.charlesbwarren.com 415.433.0959 vox 415.433.0959 fax cwarren@batnet.com Subrnitter: Charles B. Warren, ASA San Francisco - Principal RFQ Airport business plan References. RFP 128288 5 Daniel T. Clewley, Supervisor, Property Management, The Metropolitan Water District of Southern California. Tel: (213) 217-7576; dclewley@mwdh2o.com. Sherman Horn, Supervisor, Acquisitions, The Metropolitan Water District of Southern California. Tel: (213)217-7576; shom@mwdh2o.com Allan Phillips, Esq.100 Verde Road, Box 996, Half Moon Bay, CA 94019, Tel. 650.366.8231 mailto:alansmudson@yahoo.com Philip Soderquist, Esq., 351 California Street, Suite 550, San Francisco, CA, Tel. 415.374.8500 mailto: philquist@aol.com Alison Freeman, Department of Finance, City of Redwood City, Box 391, Redwood City, Ca Tel. 650 780 7071 mailto:afreeman@redwoodcity.org Names and Resumes of personnel including any subconsultant staff. Principal: Charles. B. Warren, ASA (Urban-Real Property) -Appraisal/negotiations - Qualifications attached Subconsultants: Wayne Lusvardi - Appraisal/negotiations - Qualifications attached SENIOR MEMBER AMERICAN SOCIETY OE APPRAISERS URBAN REAL PROPERTY CHARLES Bo WARREN CURRICULUM VITAE vox: 415.433.0959 EAX: 415.982.1441 EMAIL:~ CBW@APO.COM RFP 128288 6 WEB: WWW.CHARLESBWARRENoCOM EXPERIENCE 1993-2008: Principal, real property consultation service. Valuation and consultation related to estate management, litigation, and property taxation. Extensive and diverse property appraisal for consultation and litigation purposes. Project manager multi-disciplinary teams evaluating real property issues. Qualified expert witness in Federal District Court, Bankruptcy and Superior Court as well as assessment appeals. Extensive work in property rights, as well as environmental issues, land economic research and fe.asibility analysis. Present major clients include a 4,350 parcel assessment district with an aggregate value on the order of $5 billion. Knowlegledge in GIS, remote sensing, automated valuation models (AVM), CAMA, Mac and Windows OS. Prior to 1993: Progressively responsible experience with American Appraisal Associates, Richard Betts and Associates, Wells Fargo Bank, Alameda County Assessors Office, and as an independent expert. EDUCATION Bachelor of Arts, UC Berkeley, 1968 PROFESSIONALLY RELATED EDUCATION Basic, intermediate and advanced appraisal ¯ Income property analysis ¯ Land economics ¯ Statistics ¯ Applied regression analysis o Real estate law ° Challenged and passed Appraisal Institute courses 101, 102, and 201 ° Education principles ¯ Public sector labor relations LICENSES AND CREDENTIALS Visiting professor, School of Architecture, Istanbul Technical University General Certification as an appraiser in California: AG003171 California teaching credential in real estate American Society of Appraisers Real Property Committee USCG Master (100 ton) FAA Private Pilot MEMBERSHIPS Past President, American Society of Appraisers San Francisco Chapter Senior member, urban real property, American Society of Appraisers, recertified to 2011; Urban Land Institute, International Association of Assessment Officers, International Right of Way Association, Real Estate Ana.lysts Microcomputer Users Group, American Real Estate Society, Bay Area Automated Mapping Association PUBLICATIONS Real Estate Review. Real Estate Issues ¯ VSC Law Journal. Environmental Claims Journal ¯ Assessment Journal VOLUNTARY ACTIVITIES Director, Bastiat Institute for the Study of Land Economics, Webmaster, Tahiti Cup YC; Director, El Nino Project, U.S. Coast Guard Auxiliary LANGUAGES Fluent in French, some Spanish, Turkish, German, Russian and Japanese Submitter: Charles B. Warren, ASA San Francisco - Principal RFQ Airport business plan Statement of Qualifications Wayne C. Lusvardi Independent Real Estate Appraiser and Consultant P.O. Box 629 Pasadena, CA 91102 (626) 792-1033 or (626) 524-1069 cell; E-Mail: waynelus@yahoo.com RFP 128288 7 Certificates: Certificates in Real Estate Appraisal, UCLA School of Engineering, Bdsiness and Management, 1990. Professional Education: Completed course sequence pursuant to MAi designation, Appraisal Institute. Education: B.A., Aurora University, M.S.Admin., University of Southern California Experience: Senior Real Estate Appraiser - Metropolitan Water District of Southern California, 1 985 to 2004 Development Analyst/Review Appraiser - Los Angeles County Community Development Commission 1980-1985 Professional Publications/partial list): "Appraising Linear Subordinate Easements in Utility Corridors," Appraisal Journal (July 2000) "The Dose Makes the Poison: Environmental Phobia or Regulatory Stigma?" Appraisal lournal (Dec. 1999) "But Is It Market Value? Market Appraisal vs. Liability Model," Appraisal Journal (Jan. 1999) "Appraising Preservation Land in Extinct Markets," Appraisal Journal, (July 1998) "Market Value vs. Public Interest Value," Right of Way (june 1998) "A Case of Floodway Robbery?" .Right of Way (Sept. 1999) "Mitigating Factors in the Appraisal and Valuation of Contaminated Property," Real Estate Issues (Summer 2000) "Three Methods of Real Estate Damage Valuation: Deduction, Adduction, or Deduction," Real Estate Review (Oct 2000). "Unplanned Telecom Corridor Markets: The Marketization of Fiber Optic Easements by Deregulated Network Industries, Online Iournal of Planning and Markets (Sept. 2002) - (USC School of Real Estate Development and Public Policy- peer reviewed). ~ Pseudo Damages: Daubert-Compliant Appraisal Research Design for Property Damages," Environmental Claims ~ Sept. 2001. "What Price a Fiber Optic Easement? Public Utilities Fortnightly (Sept. 2001). "The Stigma Enigma: Doub[espeak, Double Standards and Double Compensation in Toxic Tort Property Damage Claims," Journal of Property Economics (Joint publication of the American Society of Appraisers, American Society of Farm Managers and Rural Appraisers, and International Association of Assessing Officers, 2003). Professional Awards: Mark Green Journalism Award - International Right of Way Association 1986 and 1 999 Distinguished Speaker Award - Appraisal Institute National Forum on Public Interest Value - Sacramento Chapter, 1999. Distinguished Speaker Award - Appraisal Institute National Symposium on Telecommunications Real Estate Valuation, Sacramento Chapter, Appraisal Institute, 2001. Distinguished Speaker Award - Seminar on Law and the Appraiser, Appraisal Institute, 2001. IAAO Award for Most Distinguished Article in Journal of Property Economics for 2003. Specializations: Land, Easements, Special Purpose Properties, Telecom Sites, Water Rights, Contaminated Land, Part Takings, Preservation Land, Rail & Transport Corridors, Pipeline corridors, water reservoir sites and facilities. Relevant Experience ¯ Appraisal & review appraisal of agricultural ground rents and water transfers, Palo Verde Irrigation District for the Metropolitan Water District of Southern California, 2004 Submitter: Charles B. Warren, ASA San Francisco - Principal RFQ Airport business plan RFP 128288 8 ¯ Appraisal of Phase 1, Fort Irwin Expansion Project, Western Mojave Desert (Superior Dry Lake, Coyote Dry Lake and Paradise Range areas), San Bernardlno County, with W.H.Neville, MAI, 2006 ¯ 20-years experience in appraising and managing desert lands along the MWD Colorado River Aqueduct, Parker Dam to Lake Mathews. ¯ Route feasibility studies and appraisal of water pipeline rights of ways for Metropolitan Water District of Southern California (Etiwanda Pipeline, San Diego Canal Expansion I & II, Inland Feeder, Allen McCullough Pipeline, etc.). Litigation/Arbitration Experience: U.S. Dept. of interior vs. Francis Gherini, 6,254-acre Santa Cruz island, California Coastline for acquisition for Channel Islands National Park - Review appraiser for property owner. $35 million court award. Sullivan, Workman and Dee, law firm, Los Angeles. Redevelopment Agency of Bell Gardens vs. Caditz and Grant Trust. Condemnation of 5,000 square foot office building for Phase 2 of redevelopment project. Appraiser for property o~vner. Expert witness. Depositions only. $500,000 out of court settlement. Harvey Grant, attorney, Beverly Hills. MWD vs. Francis Domenigoni, 650-acre agricultural property and water rights. Precipient witness, Riverside C.ounty Superior Court, 1993. $25 million court award plus damages: Best, Best & Krieger, Riverside. MWD vs William Jongsma, 67-acre ranch property acquisition by eminent domain. Precipient witness, Riverside County Superior Court, 1993. $750,000 court settlement. Best, Best & Krieger, Riverside. MWD - Rancon Realty arbitration for acquisition of 750-acre McSweeny Ranch in Hemet, California as part of Diamond Valley Reservoir. $13 million appraised arbitration. Review appraiser and arbitrator. In the Matter of:The Metropolitan Government of Nashville and Davidson County, Tennessee, Acting by and through the Electric Power Board of said government (DBA Nashville Electric Service) vs.CSX Transportation, a ~/irginia CorlYoration, and owner of rail corridor property in Davidson County, Tennessee. Filed Declaration of Value on behalf of client Nashville Electric Service, in condemnation of electric pole line easement with CSX rail corridor. NES prevailed in out-of-court settlement. $1 million valuation. No depositions or testimony. Attorneys: Neal & Harwell, attorneys-at-law, Nashville, Tennessee. Submitter: Charles B. Warren, ASA San Francisco - I~r~ncipal RFQ Airport busines_s plan RFP 128288 9 Price and payment proposal Fees are hourly with a maximum for each element 1. Review county airport enterprise fund $200/hour v. $5,000 cap - element deliverable in one month 2. Review probable airport operations $200/hour v. $2,000 cap - element deliverable in one month 3. Review consistency with various plaris and estimated climatic change $200/hour v $5,000 cap - element deliverable in second month 4. Project existing cash flows to 2017 $200/hour v. $3,000 cap - element deliverable in second month 5. Identify probable costs, possible revenue enhancements, possible grants, possible economies $200/hour v $8,000 cap - element deliverable in third month 6. Prepare budgets for 7 + 15 additional years, considering possible revenue enhancements and related costs $200/hour v $7,000 cap - element deliverable in third month Maximum cap -$30,000 Elements will be billed when complete There will be no overhead or expense charges Insurance endorsements wilt be provided upon award of contract ATTACHMENT wIEDEMANN & ASSOCIATES PROPOSAL Attachment.I: Airpor~ o! Santa Clara County Prepared for: City ~ Prepared by: R.A. Wiedemann & Associates, Inc. AVIATION CONSULTANTS P.O. Box 621 o Georgetown, KY 40324 o (502) 535-6570 FAX (502) 535-5314 www.rawiedemann.com Chapter 1 Proposal Summary Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 CHAPTER 1 Proposal Summary T HE FIRM OF R.A. WIEDEMANN ~; ASSOCIATES, INC., is pleased to submit this proposal to prepare a Business Plan for Palo Alto Airport of Santa Clara County, CA. As you will note from our proposal, R.A. Wiedemann & Associates, Inc., is one of the most experienced airport business planning and airport economic impact assessment consultants in the nation. We have developed more than 40 airport business plans and literally hundreds of airport economic impact assessments. We believe that your review of our proposal will lead you to conclude that we are best qualified to unde~ake the proposed assigr, ment. There are numerous projects listed in the qualifications section of this proposal that are directly applicable to the project under consideration. When we reviewed your R.F.P., we commented among ourselves that your request was a remarkable fit to our capabilities and experience. In particular, the following three examples stand out: Camden County Airport Acquisition Feasibility Study - The Camden County Improvement Authority retained R:A. Wiedemann & Associates in 2008 as part of team to determine the feasibility of purchasing a privately owned airport. The purpose of the study was to determine the value of the airport to the County, its ability to support itself without subsidy, and any physical expansion that could be accomplished. Business Plan and Airport Community Value Study - Lee’s Summit Airport, MO: R.A. Wiedemann & Associates, Inc. has pioneered a new economic impact metric called "Airport/Community Value." After completing a business plan for Lee’s Summit Airport, MO in 2008, the City has requested an assessment of the Airport to help determine the value of the airport to the~community. This request has been prompted by the community’s reluctance to implement expansion items in its master plan. Included inthe analysis is the economic impact (IMPLAN analysis) along with a valuation of the airport facilities and property. Tri-Cities Airport (Endicott, NY) Business Plan (2007) - This business plan focused on the City’s desire to "take back" their Airport which had been operated under an agreement with an FBO. The feasibility analysis presented pro formas for each alternative, giving the City significant decision making information. Our proposed work scope is tailored to your situation and reflects our cumulative experience in preparing airport business plans. We have added innovative steps that supplement your request and directly address the questions surrounding the feasibility of taking the Airport back from the County. We believe that our low overhead and competitive cost structure allows us to put more "labor" hours into your project, relative to our competition. We appreciate the opportunity to submit this proposal to perform a Business Plan for Palo Alto Airport of Santa Clara County. We look forward to the possibility of working with you on this challenging project. -., !i~i R.A. Wiedemann & Associates, Inc.1-1 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 Contacts for Key Staff Members R.A. Wiedemann & AsSociates, Inc., is a national firm with a significant resume of aviation planning expertise. Its founder, Randal Wiedemann, has over 33 years of aviation and economic impact planning experience. Key staff members include the following (see full resumes in Chapter 6): ®Randal Wiedemann - Project Director. Contact Information: Phone - 502-535-65;/0 Internet - randal@rawiedemann.com Rob Barber - Project Manager. Contact Information: Phone - 502-535-6570 Internet - rob@rawiedemann.com Geoffrey Hewings, Ph.D. - Lead Economist. Dr. Hewings has worked with R.A. Wiedemann & Associates since the firm’s inception in 1989. He is an internationally. respected economist with a long list of airport and aviation economic impact assessment experience. Contact Information: Phone - 312-320-3460 Internet - Hewin~s@illinois.edu Other Staff- The remaining project team will consist of the other two staff members ofR.A. Wiedemann & Associates Contact Information: Phone - 502-535-6570 i¢’ii R.A. Wiedemann & Associates, Inc. Chapter 2 Profile of R.A. Wiedemann & Associates, Inc. Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 CHAPTER 2 Profile ofRoA. Wiedemann & Associates, Inc. p,~av.A. WIEDEMANN ~ ASSOCIATES, INC. IS CONSIDERED a leading edge, high quality, specialized firm devoted to airport business planning, marketing, economic impact analyses, and other iation planning. Its principal, Randal A. Wiedemann has been involved in aviation planning and air service work beginning with Landrum & Brown, Inc. in 1975. Later, as Vice President of another national aviation planning firm serving a wide spectrum of clients, Mr. Wiedemann continued developing a reputation for high quality, insightful, and objective work. The concept behind the foundation ofR.A. Wiedemann & Associates in 1989 was to employ national and international experts who specialize in airport business planning, video production, economic development, and economic impact analyses. This specialized expertise can be brought to bear on projects ranging from small general aviation airports to national aviation system plans. The focus of all work is real world results. In this manner, objective solutions to complex problems can be reached, maximizing a client’s ability to deal with these challenges. R.A. Wiedemann & Associates, Inc., is a specialist in the development of airport business plans. Airport business plans are designed to improve an airport’s fmancial performance, economic development, and operation. Airport sponsors are continually exploring revenue producing opportunities including development of airport real propertyreserves and concession development. While the overall airport master plan guides the general direction and scope of airport development, there is frequently a need to see how the airport fits into its economic environment, its competitive environment, and its market niche. Airport Business Plans are designed to identify alternative sources of revenue and new marketing opportunities. In addition, business planning can be used to explore alternative management structures, FBO usage, and other management issues. Many Airport Business Plans completed by Wiedemann & Associates have been federally funded. To date, Wiedemann & Associates has participated in over 40 of these studies in eleven states. R.A. Wiedemann & Associates employs four full time professionals and one part-time economic impact assessment specialist. The average length of experience for the employees is over 20 years. Resumes of these professionals are presented later in this proposal. R.A. Wiedemann & Associates is preparing to celebrate its 20~ year in business (February, 2009). This longevity has been made possible by the provision of sound consulting services and work that has generated return business. Our clients are our best advertising. From a financial standpoint, our company is well positioned, with a large backlog and good financial resources. Our offices are located in Georgetown, Kentucky. From that location, we provide services across the nation. In this regard, we have performed work in 33 states, including California. R.A. Wiedemann & Associates has the capacity and resources to begin the Palo Alto project in November and to bring the job to a successful conclusion in April, 2009. R.A. Wiedemann & Associates does not and has never been involved in a lawsuit or litigation. i(~i R.A. Wiedemann & Associates, Inc. Chapter 3 Qualifications of the Firm Palo Alto Airport Airport Business Plan September, 2008 CHAPTER 3 Qualifications of the Firm Rm.A. WIEDEMANN ~; ASSOCIATES STAFF HAS EXTENSIVE experience in the area of financial anagement and business planning studies. Airport business plan studies are intended to rovide an overview analysis the airport. This includes financial planning analysis, assessment of business/economic development opportunities, and recommend a strategic course of action to pursue development and address issues. Most business plans examine a short history of revenue and expense performance and then project financials for a 5 year forecast period. Others take a longer term look at financial performance. Strategic planning for market niche fit, development of unused airport property, management structure changes and other innovative methods are used to examine the potential for enhanced revenues at the airport. The economic impact of the airport with and without recommended changes is also estimated. A portion of the numerous airport business planningprojects completed by R.A. Wiedemann & Associates, Inc., is listed below. Our experience in developing airport business plans is extensive and has given us good insight into airport issues such as those facing the Palo Alto Airport. We invite you to contact the study sponsors to determine the quality of our work, our timeliness, and our adherence to budgets. iNi R.A. Wiedemann & Associates, Inc.3-1 o 0 Chapter 4 Proposed Scope of Work Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 CHAPTER 4 .Proposed Scope of Work THE PROPOSED SCOPE OF WORK FOR THIS airport business plan conforms to the request for proposal outlfiae of desired services. In this regard, the Palo Alto Airport of Santa Clara .~. County business plan and financial feasibility is intended to: provide an overview analysis of the Airport; provide an assessment of business/economic development opportunities, give feasibility guidance for the transition, management, and development of the Airport as a City-managed and sponsored facility, and recommend a strategic course of action to pursue development and address issues. As described in your Request for Proposal, the County of Santa Clara has proposed to terminate the lease early prior to its expiration in 2017, citing the inability to generate enough revenue to match expenses as a rationale for seeking early termination of the lease. The targeted date of the take over is 2010, As such, this business plan will provide an analysis of all the significant risks and obligations, as well as the benefits associated with running the Palo Alto Airport prior to entering into any formal contract negotiations to terminate the lease with the County. The analysis will speak for itself in terms of the positive and negative aspects of airport ownership/management. STUDY COMPONENTS: The study would be accomplished using six primary work elements. The first element would involve an assessment of strategic business goals and discussions with the City of Palo Alto concerning resources, needs, strengths, weaknesses, 6pportunities, and threats. Thus, an initial set of discussions with City decision makers and policy analysts will be needed to frame the project in its relative complexity. Initial Meetings and Visioning Effort: An initial set of meetings should be held in Palo Alto to speak with the following groups: 0 ® City and County and leaders to identify local goals and objectives for the Airport. Selected Airport.tenants to identify on-Airport improvement desires. Economic development agencies in the region to determine the economic structure and target industries. Chamber of Commerce to gain perspective of major businesses in region. During these meetings, the following topics will be discussed: Assess capabilities and requirements for City sponsorship and management of the Airport. Assess opportunities for revenue including property development, new hangars, and fuel sales. Identify and confirm community objectives for operating the Airport facility. it~R.A. Vgiedemann & Associates, Inc.4-1 Palo Alto Airport of Santa Clara County Airport BuMness Plan September, 2008 Incorporate existing mission statement or develop one. Review: existing levels of service, reasons for those levels, expectations for service, -and opportunities for increased activity and economic development. Prior to this initial meeting, arrangements will be made to collect all pe,rtinent data such as: the most recent financial history, lease agreements, list of tenants, list of business clients, and ALP. Project Issues From the material provided by the City, we have identified a number of issues that must be considered in the development of this airport business plan. It is our understanding that in December 2006, the City Council authorized the creation of the Palo Alto Working Group (PAA WG) to analyze PAO operations and develop one or more viable business models for PAO. In June 2007, the PAAWG presented its report to the City Council. List of findings for Palo Alto by the PAAWG included the following: ® The Airport operations were found to be profitable. Based on PAAWG’s own financial analysis and the City Auditor’s review, PAO haft the economic potential to be self-sustaining, fund necessary improvements, and cover the cost of City administrative overhead. The airport was considered an essential community asset. The County has ignored numerous economic and social benefits that the airport has provided. These benefits have included: tax revenues generated by the Airport that support local jurisdictions; transportation for businesses and their employees; transport for hospital patients and transplant organs; pilot training and certification; recreation space for the local community; emergency support activities; and PAO’s part in the Bay Area airport and transportation ~ystem. The PAAWG concluded: PAO is an important transportation, business, economic, recreational, and emergency preparedness asset for the City and its residents; PAO can be operated on a self-sustaining, economical basis and be cash positive without requiring any financial support from the City; ®The continued operation of PAo by the County will both diminish the resource value of the airport and threaten its long-term economic viability These ® ® Conclusions led the PAAWG to recommend that the City Council: Direct the City Manager to negotiate an early termination of the existing PAO lease with the County. Appoint an interim manager for PAO. Issue an RFP for the long-term management of PAO, which will ensure its asset value to the community is maintained and will preserve its economic value into the future. ~i R.A. Wiedemann & Associates, Inc.4-2 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 Project Considerations: Outstanding advance of $773,408 - City Auditor report disputed the County’s claim -that PAO was losing money and needed to ,increase fees to recoup the outstanding advance. The Audit claimed PAO was paying for more than its fair share of overhead costs and questioned historic costs that were paid by the County. (The County was including Depreciation in the Operating Expenses). The City staff’s position is that the Airport and the City do not have a legal obligation to repay the advance unless a written agreement or contract can be produced by the County. Current Leases: the two current FBO leases at PAO are long-term and have no incentives for capital investment. The leases do not include CPI adjustments and do not remit a percent of gross revenue with the exception of the north half of Roy Aero’s lease where the County receives 6 percent of the hangar rental. These leases are in effect until 2017. USGS 2100 global warming prediction. If San Francisco Bay rises one meter (the way current trend predicts) portions of the airport would be under water. All new buildings occupied by personnel would have to be elevated to eight feet above sea-level. Existing buildings and new hangars would not require elevation. Data Collection The collection of data will begin with information contained in the current Master Plan and the Master Plan files. Information not available from those sources will be sought from Airport Management and/or local agencies. Information from the following list will be kept confidential, but is needed for analyses: ® 0 ® The latest seven (7) years of existing airport expenses and revenues (2001 - 2007). The latest budget for the Airport. ~ A copy of all lease agreements. Airport mission statement, legislative resolutions concerning the airport, airport trusts, or special conditions defined for the Airport. Any proposed taxes collected by site, or payments- in, lieu-of-taxes (PILOTS) and/or, taxes to be paid by the Airport. List of rates and charges for aircraft storage facilities including: terminal building, conventional hangars, T hangars, and tie-downs paved and non-paved, (if available). List of all other rates and charges. For example: percent, or cents, charged per gallon of gas (jet or 100 LL); landing fee; consignment fees; special events, etc. Organizational chart, or reporting structure. Number of employees by type/function listed for both full and part time. Expenditures on payroll and operations. Average annual expenditure on capital improvements. List of businesses using the airport, e.g., air cargo, pilot training, corporate, medevac, etc. Information concerning industrial or commercial property adjacent or near to the Airport. i¢i~R.A. Wiedemann & Associates, Inc.4-3 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 ®List of all on-airport employers and aircraft tenants. List of major corporations, and notable groups and individuals that may use the Airport. In addition, a number of issues will be considered by the business plan including, but not limited to the following: Market Analysis: A market analysis will be performed for Palo Alto Airport including: a comparison of factors affecting the market service area airpolits including: facilities, services, aircraft, and operations; and rates and charges for aircraft storage, fuel, and other pertinent factors. This analysis would consider the comparative differences in costs at other airports along with the ability to attract and house aircraft at Palo Alto Airport of Santa Clara County. The results of this analysis will provide an overall idea of the competitive position of Palo Alto Airport. Financial Outlook: A baseline financial and economic outlook will be developed, based upon historical data and maintenance of the status quo. Also, the economic factors in the Airport service area that may lead to growth will be examined. The business plan will focus on a short-term and long-term planning horizon. In accordance with the RFP, the first term will consider proformas for the 2010 to 2017 timeframe, with the second phase extending 15 years from 2017. Revenue enhancement strategies: options for revenue enhancement will be described. These may include (but are not limited to) evaluations and projections of additional business aviation, possible very hght jet activity, increased fhght trmnlng via hagh school and college programs, new or improved terminal services or amenities, specialty FBOs, airport property development, marketing programs Coupled with local business parks and industrial sites, competitive rates and charges, and efficient use of federal and state grants. Expense data will be expanded to include the cost of implementing revenue enhancement strategies. Budget projections willbe provided based onknown factors and analyses including, but not limited to: City of Palo Alto cost structure for employees, inflation, development expenses, additional or less personnel, expected aircraft growth, leases, contracts, and the local match on grants. These expenses will then be compared with the future revenues in a net revenue analysis. Management Structure: Based upon the financial analysis of performance concerning what the Airport is capable of producing in the future, a detailed analysis of the potential management structure will be undertaken. This analysis will include the following significant points: iN R.A. Wiedemann & Associates, Inc.4-4 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 Pros and cons of airport management by the City contrasted to non-government Third Party management. Analysis of whether or not to terminate the current lease before 2017 and a recommendation what should be done with the two Fixed Based Operator’s. Resources required to manage and operate the Airport as a stand-alone cost center, independent of City subsidy. The analysis will present one or more options to the City for consideration, along with the potential impacts of each option. By giving decision makers the information on the costs and benefits of each potential option, they will posses the tools needed to make informed policy decisions about the Airport. 6.Recommendations: A recommended approach for the airport will be provided. As part of the recommendations, action steps will be identified and may include: ® o ® ® ® ® Identify options for the potential take over and management of the Airport by the City by the year 2010. Provide pro formas for each management option. Present detailed 7-year business plan of action (2010 - 2017) along with more general projections for an additional 15 years. Discuss capital investment options. Develop financial plan that City and County leadership can support. Identify the need for an advertising and!or marketing strategy for the airport. New business opportunities including developflaent/use of available airport lands. Potential partnering with local businesses, area schools, or other organizations. Detail the existing and future economic impact of the airport (potential task). 7.Presentations & Output A final meeting and/or presentation on findings will be held for the airport sponsor. In addition, 1 unbound copy of the final report and executive summary will be prepared. If desired, R.A. Wiedemann & Associates has the in-house capability of producing project videos and web sites or web pages in support of the Airport Business Plan. These services (video and web site) are optional and would be considered additional to this contract.. Similarly, we have often developed at least 1,000 copies of a high quality color brochure explaining the features of the Airport and its future plans. Such a brochure could be developed for the Palo Alto Airport as an optional task. Airport/Community, Value - Economic Impact Analysis (Optional Task): An Airport!Community Value - Economic impact analyses would be provided to identify ]fi(R.A. Wiedemann & Associates, Inc.4-5 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 jobs, taxes, and airport revenue generated to the community, if desired. It would also identify the amount of significant business use. This analysis allows the sponsor and interested parties to evaluate the overall airport value to the community against the operating cost of the Airport. In addition, the Airport/Community Value estimation would quantify the replacement value and existing value of airport facilities. This analysis would permit the City to estimate return on investment ratios related to the asset base at the Airport. If desired, the methodology for developing the Airport!Community Value and economic impact assessment will be provided to the City of Palo Alto. This process may be important for quantifying the value of the Airport to the City and its residents. ih~R.A. Wiedemann & Associates, Inc.4-6 Chapter 5 Proposed Innovations Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 CHAPTER 5 Proposed Innovations ~ ECAUSE OF OUR DEPTH OF EXPERIENCE IN performing airport business plans, we have learned a significant set of innovations from the various client airports Most airports have slight ~ differences m their operating procedures and each time we perform a study, we learn a little bit more about this intriguing business. With our background we can assist the City of Palo Alto in examining a number of new/innovative methods of operating or managing an airport. For this study, there are four primary innovations that we would offer: Development of Multiple Pro Formas: Instead of recommending one course of action, we have found that decision makers want information on the consequences of a number of different strategies. In this regard, we have proposed to present two or more options in the method of potential ownership or operation of the Airport, along with the pro formas associated with each option. This permits the City to make the policy decisions while we supply the needed information on each potential option. Such options could include City management, third party management, or FBO management. We would be open to discussion with the City about these options. Airport/Community Value: We have included an optional task that may be of interest to the City of Palo Alto. This is a new metric designed to examine both the economic contribution of the Airport (through economic impact analysis) and the asset value of the Airport (Airport/Community Value). Such an approach is a new innovation that we have introduced in the Dallas, Texas region (North Central Texas Regional Aviation System Plan). The approach is analogous to using both the income statement and the balance sheet to determine the economic health of a bus.iness. The IMPLAN modeling will reveal the "income" portion of the economic impact, while the asset valuation will r~eveal the "balance sheet" portion of the analysis. Marketing Program Development: If desired, we can assist with the City’s marketing and public information program concerning the Airport. We have the in-house capability to develop videos, project websites, web pages, or other media marketing or public information programs. Our company website has some of these videos available for viewing (www.rawiedemann.com). Innovative Development/FundingMethods: We have significant experience in formulating innovative development and funding methods. For example, if private investment is desired at the Airport, we have worked through plans with other airports whereby the airport sponsor takes immediate ownership of buildings constructed by private enterprise. The private developer receives a 20-plus year land lease without property tax on the hangars, while the airport sponsor gets desired capital development and a reversion of all development when the lease term is completed. These and other innovative methods can be brought to bear at Palo Alto Airport. !~R.A. ~Viedemann & Associates, Inc. Chapter 6 Project Staffing’ Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 CHAPTER 6 Project Staffing The Airport Business Plan for Palo Alto Airport of Santa Clara County will be staffed by R.A. Wiedemann & Associates project team of professionals. Inthis regard, Randal Wiedemann will lead the study effort as Project Director. He will guide and direct the efforts ofthe firm’s staffincluding the Project Manager, Rob Barber. In addition, both Scott LeCount and Paul Wiedemann will assist inthe development of plan. If the optional Airport/Community Value - economic impact assessment is desired by the City, GeoffHewings, PhD., will be added to the project team. Dr. Hewings works with R.A. Wiedemann & Associates on all economic impact assessment projects. The Project Organization Chart in Figure 6-1 shows the flow of authority from the City of Palo Alto through their representatives to Randal Wiedemann and down through the staff of the firm. We will not need other firms in assisting in this project. Organization Chart City of Palo Alto Project Represen at yes R.A. Wiedemann & Associates, Inc. Project Director .Randal Wiedemann R.A. Wiedemann & Associates Project Manager Rob Barber I I Scott LeCount, A.I.C.P,Paul Wiedemann Pro ect Staff Project Staff (Optional Task)Economic Impact Specialist Geoff Hewings, Ph.D. For this project, Randal Wiedemann will serve as a primary resource in the analysis and development of recommendations. In particular, he will participate in all Tasks. Rob Barber will assist in Tasks 1, 4, 5 and 6. Scott LeCount will participate in Tasks 2, 3, 4, and 6. Paul Wiedemann will participate in Tasks 2, 3, and 4. If the optional Task 8 is included, both Randal Wiedemann and Dr. Geoff Hewings will participate. Resumes of our project team are presented on the following pages. Figure 6-1 - Project Organization Chart ~ii!~R.A. Wiedemann & Associates, Inc~6-1 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 RANDAL A. WIEDEMANN As President ofR.A. Wiedemann & Associates, Randal Wiedemarm brings over 33 years of airport planning experience to the firm’s profile. Mr. Wiedemann concentrates his efforts in physical and economic planning areas with emphasis on airport business plans, airline service and marketing programs, economic impact analysis, military joint use and reuse studies, airport master planning, airport management services, environmental assessments, and aviation systems planning. Mr. Wiedemann has participated in and directed numerous air service studies, airport master plans, airport system plans, management studies, economic impact studies, environmental assessments, financial studies, and airspace utilization evaluations. Mr. Wiedemann’s technical areas of expertise include public information program coordination and direction, aviation demand forecasting, airport capacity determination, airport layout and Part 77 planning, economic impact analyses and financial planning, land use and noise analyses, and the identification and evaluation of airport alternatives. Mr. Wiedemann is one of the most experienced airport business planners in the nation, having developed over 40 airport business plans since 2000. These plans have been for a diverse set of airports. Both general aviation and air carrier airports have been included in the list of successful business planning projects. Examples include Camden County Airport Acquisition Project (NJ), Fort Smith (AR), Adirondack (NY), New Castle (DE), Sussex County (DE), Morehead (KY), Genesee County (NY), Summit Airport (DE), Oswego County (NY), Bennington (VT), East Hampton (NY), Mid-Ohio Valley Regional (WV), Brookhaven, (NY), Montpelier (VT), Millington (TN), Suffolk County (NY), Maury County (TN), Lee’s Summit (MO), Middlebury (VT), Canandaigua (NY), Cape May (NJ), Millville (NJ), Somerset (KY), Delaware Airpark (DE), Watertown (NY), Schenectady (NY), Rutland (VT), and many others. Mr. Wiedemann gained considerable experience in conducting economic impact analysis studies in his project management of the New Jersey System Plan. Mr. Wiedemann measured the economic impacts of development and operation of all 55 public use airports. In another study, Mr. Wiedemann assessed the economic impacts of Port Columbus International and its reliever airports including Rickenbacker Field, Bolton Field, Ohio State University Airport, and South Columbus Airport. Mr. Wiedemann has completed the Economic Impact Analysis for Dover Air Force Base and all public-use airports in the State of Delaware. This study examined the total impacts of civil and military aviation on the state’s economy. Other economic impact analyses were conducted for the Niagara Falls International Airport Master Plan Update, the Permridge Airport Master Plan, the Kenton County (KY) Airport Site Selection Study, the Lancaster Airport Master Plan, and the Whitley County (KY) Economic Impact Study. Mr. Wiedemann has developed a number of computer applications in the aviation planning field. In this regard, he has developed software that produces facility requirements for entire systems of airports, forecasting models that incorporate both objective (statistical) and subjective (judgmental) criteria in the decision process, an air service model that simulates airline costs over various route structures using different aircraft equipment, and a priority rating process that can be used to rank-order development projects for an entire system of airports. In prior work as Vice President of another national aviation consulting firm, Mr. Wiedemann i~li R.A. Wiedemann & Associates, Inc.6-2 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 gained considerable experience in master planning and aviation system planning through management roles in studies in New York, Tennessee, Louisiana, Arizona, Texas, Oklahoma, Kentucky, Michigan, South Carolina, Missouri, and South Dakota. In this regard, Mr. Wiedemann has participated in over 50 studies for both air carrier and general aviation airports. Through his extensive experience, Mr. Wiedemann is familiar with the complex procedures associated with airport master planning and site selection. In addition, Mr. Wiedemann has managed environmental assessment studies for the Seneca Depot Army Airfield Joint Use Feasibility Study, the Denver Metro Vertiport Site Selection Study, the Rochester-Monroe County Reliever Airport Needs Study (NY), Watertown International Airport (NY), Monticello-Wayne County Airport (KY), Carlsbad-Cavern City Airport (NM), and Ash!and-Boyd County Airport (KY). Mr. Wiedemann’s master planning and site selection study experience is complimented by his experience in aviation system planning and air service studies. Mr. Wiedemann has managed over 20 aviation system planning studies including those for Tennessee, Southern Tier New York, Central New York, Upstate and Downstate New York, the Austin/S an Antonio region, and the Waco Metropolitan region of Texas, as well as internationally for the Federated States of Micronesia, the Republic of Palau, and the Republic of the Marshall Islands. His air service experience is based on management and participation in~ statewide studies for Texas, Kentucky, South Carolina, Arizona, Louisiana, Colorado, Utah, Arizona, New Mexico, and Michigan. In addition, Mr. Wiedemann hag participated in air service improvement studies for individual airports including Somerset (KY), Del Rio (TX), Jamestown (NY), Fayetteville (NC), Jonesboro (AR), Manhattan (KS), Parkersburg (WV), and Idaho Falls (ID). Mr. Wiedemann’s work with military/civilianj oint-use studies has included the Seneca Depot Army Airfield and Dover Air Force Base’s Civil Air Terminal. Other studies that have had extensive interface with military operations areas on airports have included the Niagara Falls International Airport Master Plan, the Watertown International Airport Master Plan (with the influence of Ft. Drum), Killeen (TX) Airport Site Selection Study (with the influence of Ft. Hood), and the Big Spring (TX) Municipal Airport Master Plan (a former Air Force Training Command Base). Mr. Wiedemann received his Bachelor of Science degree in Marketing from the University of Colorado (1975) and his Masters of Business Administration (M.B.A.) degree from the University of Cincinnati (1979). In addition, Mr. Wiedemann served on the faculty at Northern Kentucky University where he taught evening classes relating to aviation (1980-1992). i~i R.A. Wiedemann & Associates, Inc.6-3 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 P.R. (ROB) BARBER III Mr. Barber expands the R.A. Wiedemann & Associates, Inc., capabilities in the areas of public participation, airport business planning, graphic production, and high-endmarketing products. P.R. (Rob) Barber III has more than 23 years experience in marketing; public/media relations; advertising; motion picture film and video production; script, speech and copy writing; still photography; graphic design; illustration; and business administration. Rob has written, produced and directed over 1,500 television commercials; 20 music videos; 2,600 radio commercials; 5 television programs and numerous corporate, industrial and marketing videos. He has photographed and designed more than 100 record album covers, 25 book covers, numerous print advertisements and promotional materials. Rob began his professional career in Nashville, Tennessee, as a photographer and graphic designer, working with some of the top artists in the music industry. In 1983, working as a writer, producer and director, Rob played a key role in the birth of the Country Music Video boom that led ultimately to the creation of CMT, and later the Contemporary Christian Music Video industry. Rob worked for a time as an art director and writer with Carden & Cherry Advertising in Nashville~ during the height of their popular "Ernest & Vern" syndicated advertising campaign. In addition to writing countless "KnoWhutImean Vern" commercials, Rob provided a variety of creative services for a number of national and large regional accounts including Blue Cross & Blue Shield ,Coca-Cola, Mello Yello, Sprite and A&W Root Beer. Now a Senior Associate with R.A. Wiedemann & Associates Inc. Rob provides services for Departments of Transportation in over two dozen states including: New York State, Pennsylvania, Arkansas, Alabama, Tennessee, Kentucky, West Virginia, Delaware, Maryland, Arizona, Texas, New Mexico, New Hampshire, and others. Rob has participated in the development of strategic business plans for airports including Delaware Airpark (DE), Cape May (NJ), Millville (NJ), and Somerset (KY). He is managing the marketing efforts under the Small Community Air Service Development Program for Jamestown, NY and Somerset, KY. Rob is a graduate of the University of Kentucky with a Bachelors Degree in Fine Arts (1982). Mr. Barber played baseball for the University of Kentucky varsity program. He was elected as the Art Student Representative to the Faculty. While at the University of Kentucky, Mr. Barber received a Lyndhurst Foundation Grant for excellence in art. Rob brings creative energy and passion for excellence to every project. i~i R.A. Wiedemann & Associates, Inc.6-4 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 SCOTT R. LECOUNT, AICP Mr. LeCount is an accomplished professional planner, with 11 years of experience serving as a consultant to local, regional, and state government agencies on a wide range of projects for two nationally recognized firms, including: aviation system and airport master plans; comprehensive land use and zoning studies; and, mu!ti-modal transportation plans. As a member of RoA. Wiedemann & Associates, Inc., Mr. LeCount’s primary areas of technical expertise include socioeconomic analysis and forecasting, public participation programs, and geographic information systems. He is certified by the American Institute of Certified Planners. Mr. LeCount has served as lead planner on a number of aviation/airport planning projects, including: St. Louis Metropolitan Area Aviation System Plan; Maryland Statewide and Metropolitan Washington Heliport Systems Study; Market Assessment and Conceptual Site Plan, Quonset State Airport (RI); Environmental Assessment, Millinocket Municipal Airport (ME); Regional Economic Impact Study, Columbus Regional Air port Authority (OH); Aviation Demand Projections for The Ohio State University Airport and Lebanon-Warren County Regional Airport (OH); Aviation Demand Projections for Barnstable Municipal Airport and Provincetown Municipal Airport (MA); Continuing Florida Aviation System Planning Process; Airport Managers Manual (MS); Regional Aviation System Plan (AZ); and Statewide Aviation System Plan (NJ). " Prior to Mr. LeCount’s aviation experience, he consulted with communities in Ohio, Kentucky, Indiana, West Virginia on over 20 land use and transportation studies, including: county and regional long range plans; corridor planning studies considering new roadways and reconstructions; parking studies; growth management plans; impact fee studies; and blight studies/urban renewal plans. During the course of Mr. LeCount’s career, he has contributed to nearly 40 unique projects, where he has gained valuable experience in understanding diverse communities and guiding them toward making sound decisions for their future. Mr. LeCount has additional experience in marketing, business development, and branding, ensuring thgt his contribution to each project is professional advice that responds to the demands of the market, resulting in a plan that can be implemented and effective. Scott is a graduate of the College of Design, Architecture, Art, and Planning at the University of Cincinnati, where he earned a Bachelor of Urban Planning, and was honored by the American Planning Association and the Ohio Planning Conference with an award for Best Undergraduate Thesis. He was published in PLANNING, The Magazine of the American Planning Association in June 2003, and is pursuing the development of a number of patents through his involvement in the Inventor’s Council of Cincinnati. He is also an active member of the Cincinnati USA Partnership Regional Business Retention Committee, whose primary focus is reaching out to businesses in ¯ Greater Cincinnati to maintain a strong and vibrant local economy. At R.A. Wiedemann & Associates, Mr. LeCount has participated in the New York Aviation System Plan development, and business plans for Schenectady Airport (NY), Watertown Airport (NY), Rutland Airport (VT), Montpelier (VT), Middlebury (VT), Bennington, (VT), Delaware Airpark (DE), and Springfield (VT). ~ii R.A. Wiedemann & Associates, Inc.6-5 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 PAUL N. WIEDEMANN Paul Wiedemann, brings fresh ideas and a new outlook to the firm. Paul is experienced in the areas of airport business plans, benefit cost analysis, air service feasibility, aviation system planning, airport demand forecasti~ng, economic impact analyses, airport capacity determination, web design, video production, airport surveys, and research. Paul Wiedemann has participated on the aviation system plan, inventory, demand capacity, and aviation video for the State of Delaware. He has worked on business plans for Tri-Cities (NY), Oswego County (NY), Canandaigua (NY), Fort Smith (AR), Cape May (NJ), Millville (NJ), Delaware Airpark (DE), Somerset (KY), Watertown (NY), Schenectady (NY), and Morehead (KY). He has also worked on the air service feasibility studies for Anderson (SC), and for the Big Sandy Region (KY). He has worked on the benefit cost analysis for Monroe (NC) and Sussex (DE), and the aviation demand forecasts for Mt. Sterling (KY). Paul heads up the firm’s web site development business and has conducted the web site and video design for Summit, (DE). Paul Wiedemann received his Bachelor of Science degree in Business Management from the University of Kentucky (2006). Several of the areas studied were business law, human resources~ small business management, international business management, computer sciences, decision and information sciences, economics, business ethics, and strategic management. Paul Wiedemann has been enrolled in the MBA program at Eastern Kentucky University since the fall of 2007 and anticipates a degree from that program in 2009. i~R.A. Wiedemann & Associates, Inc.6-6 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 GEOFFREY 3. D. HEWINGS, Ph.D. Dr. Geoffrey J.D. Hewings serves as an associate of R.A. Wiedemann & Associates and concentrates his efforts in the firm’s economic impact and econometric modeling disciplines. Dr. Hewings is a Professor of Geography and Regional Science and of Urban and Regional Plan_ning at the University of Illinois in Urbana-Champaign. In addition, he serves as Director of the Regional Economics Applications Laboratory (REAL), a joint venture between the Federal Reserve Bank of Chicago an the University of Illinois. His major research interests lie in the field of urban and regional economic analysis with a focus on the design, implementation and application of regional economic models. He has devoted considerable time to the way in which these models might become useful in policy formation and evaluation. In addition to the continuing development of regional econometric-input-output models for a number of US states and metropolitan areas, Hewings is working on several modeling projects in Brazil, Argentina, Austria, Colombia, Japan and Indonesia. Recent work in the Midwest has focused on the estimation of interstate trade flows as a prelude to the construction of a Midwest impact and forecasting model that is linked with a transportation network model. Additional funded research includes estimation ofintra-metropolitan trade flows within the Chicago region (MacArthui: Foundation) and an evaluation of the impact of air service on rural and small metropolitan communities (USDOT). Theoretical work remains directed to issues of economic structure and structural change interpreted through input-output, social accounting and general equilibrium models. Dr. Hewings is responsible for the overall direction of REAL, coordination with funding agencies and clients and supervision of graduate students who work for REAL on the Urbana campus of the University of Illinois. He has published nine books and over 100 articles and supervised over 30 doctoral students, about half of whom age now in the government or private sector in the US and several international countries. His consultancies include: Northern Territory Government (Australia), State of Queensland, Greece, Korea Research on Human Settlements (Seoul), Midwest Universities Consortium on International Activities, U.S. Department of Energy and several Illinois state agencies. He has been a long term consultant for the U.S. Army Construction Engineering Laboratory for the development of a county-based economic impact forecast system (EIFS). He has worked with R.A. Wiedemann & Associates on the New York Statewide Economic Impact Assessment, DuPage Airport Economic Impact Study (Chicago area), New York State Aviation Activity Forecasts Study, the Niagara Falls International Airport Master Plan Update, the Pennridge Airport Master Plan (PA), the Kenton County (KY) Airport Site Selection Study, the Delaware Airports Economic Impact Study, the Lancaster Airport Master Plan, Kupper Airport Acquisition Study (NJ), the Millville Municipal Master Plan (NJ), and the Whitley County (KY) Economic Impact Study. Dr. Hewings obtained his B.A. from the University of Birmingham (UK) and his M.A. and Ph.D. from the University of Washington (Seattle). Prior to coming to Illinois in 1974, he was on the faculty of the University of Kent at Canterbury (UK) and the University of Toronto (Canada). ~il~i R.A. Wiedemann &Associates, Inc.6-7 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 He has served as a visiting professor at the University of Queensland (Australia), Bar Ilan University (Israel), Tianjin University and Renmin University (China), University of Indonesia, Kagawa University (Japan) and Univefsidad Catolica del Norte (Chile). He has received Fulbright and Woodrow Wilson awards and, in 1995, the Regional Science Association International (for which he served as Executive Director from 1978-1996) recognized him with an award for Service to Regional Science as well as naming the Geoffrey J.D. Hewings Junior Scholar Award, annually awarded to exceptional scholars less than 10 years from completion of his/her Ph.D. For 2001 and 2002, he served as President of the Regional Science Association International. In 2003, he was made one of the inaugural Fellows of the Regional Science Association International. In 1996, he was made a University Scholar by the University of Illinois. In 2003, he was awarded Docteur Honoris Causa by the University of Bourgogne, France. In Chicago, he has been active in the arts, serving on the Board of the Near North Chapter of the Lyric Opera of Chicago and was a founding Board member for the Chicago Baroque Ensemble. He also served on the Board of the Environmental Law and Policy Center and was a member of the Technical Advisory Committee for the Northeastem Illinois Planning Commission. ~R.A. Wiedemann & Associates, Inc.6-8 Chapter 7 Proposal Exceptions’ Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 CJ~APTER 7 Proposal Exceptions R.A. WiEDEMANN & ASSOCIATES, INC. HAS REVIEWED the sample contract associated with this project and does not object to any of the provisions included. !i:ii R.A. Wiedemann & Associates, Inc. Chapter 8 Proposal Costs Sheet and Rates Palo Alto Airport of Santa Clara Coun& Airport Business Plan September, 2008 CHAPTER 8 Proposal Costs Sheet and Rates THE COSTS TO PREPARE ANAIRPORT BUSINESS Plan for Palo Alto Airport of Santa Clara County have been estimated to total $100,000, exclusive of optional tasks. If the optional Task 8 .~_ (Airport/Community Value) is undertaken, it would add $20,000 to the total contract. Table 8-1 presents a breakdown of costs by task for the proposed work effort. Information included in the table involves direct labor rates for the proposed staff, overhead rate and breakdown of overhead elements. Subconsultant costs for Dr. Hewings are proposed as lump sum amounts for the optional Ai~ort/Community Value task. Direct Salary Rates for R.A. Wiedemann & Associates per.sonnel include the following: Principal/Officer $68.00/hr. Senior Associate $49.50/hr. Associate $23.08/hr. to $30.58/hr. Our CPA-estimated overhead rate is 89 percent of direct labor. This rate conforms with Federal Acquisition Regulations Subpart 31.2 and is accepted by the State Departments of Transportation in New York and Delaware. Our low overhead rate lets us put more of your money into the actual work effort. Using the direct hourly rates, overhead percentage, and a 12 percent profit, overall billing rates for each category include the following: Principal/Officer $143.94/hr.~ Senior Associate $104.78/hr. Associate $43.62/hr. to $64.73/hr. ~q~R.A. I~Viedemann & Associates, Inc.8-1 Palo Alto Airport of Sanca Clara County Airport Business Plan September, 2008 Scope/Task # Task 1 - Initial Meetings Subtotal Task 1 Task 2 - Data Collection & Documentation Subtotal Task 2 Task 3 - Market Analysis Subtotal Task 3 Task 4 - Financial Outlook Subtotal Task 4 Task 5 - Management Structure Subtotal Task 5 Task 6 - Recommendations Subtotal Task 6 Task 7 - Presentations & Final Report Table 8-1 - Consultant Costs Labor Categories Principal Senior Associate Expenses - 2 Person Trips, Air Travel, Hotel, Rental Car, Subsistence Principal Senior Associate ~Associate Principal Senior Associate ~Associate Principal Senior Associate Associate Principal Senior Associate Associate Principal Senior Associate Associate Principal Senior Associate Associate Expenses - 2 Person Trips, Air Travel, Hotel, Renta! Car, Subsistence Est. Hours 30 30 20 40 120 20 20 80 80 60 100 60 20 40 80 60 80 20 20 40 Hourly Rate $143.94 $104.78 $143.94 $104.78 $54.18 $143.94 $104.78 $54.18 $143.94 $104.78 $54.18 $143.94 $104.78 $54.18 $143.94 $104.78 $54.18 $143.94 $104.78 $54.18 Total Cost $4,318.20 $3,143.40 $2,150.00 $9,611.60 $2,878.80 $4,191.20 $6,501.60 $13,571.60 $2,878.80 $2,095.60 $4,334.40 $9,308.80 $11,515.20 $6,286.80 $5,418.00 $23,220.00 $8,636.40 $2,095.60 $2,167.20 $12,899.20 $11,515.20 $6,286.80 $4,334.40 $22,136.40 $2,878.80 $2,095.60 $2,167.20 $2,150.00 Subtotal Task 7 $9,291.60 Total Project 1,020 $100,039.20 Total Not To Exceed $100,000.00 Contract Amount Principal Senior Associate Associate Subconsultant- Dr. Hewings $143.94 $104.78 $54.18 L.S. Optional Task 8 Task 8 - Airport Community Value 60 20 120 $8,636.40 $2,095.60 $6,501.60 $3,000.00 Subtotal Optional Task 8 $20,233.60 Total Not To Exceed Task $20,000.00 Amount il.,~i~R.A. Wiedemann & Associates, Inc.8-2 Appendix A Attachments & Forms ’ ATTACHMENT B Proposer’s Information Form PROPOSER (please print): Add,ess: ~, O. I~OV Contact perso., title, telephone and fax number: Taxpayer identification NO.(’~ ! ~/~0~q~, 7 (or Social Security Number If Sole’ Proprietorship) Proposer, if selected, intends to carry on the business as (check one) ~Individiual []Joint Venture Partnership Corporation When incorporated?/~ In what state?/~/~ When authorized to do business in California?: []Other (explain): ADDENDA To assure that all Proposers have received each addendum, check the appropriate bo×(es) below° Failure to acknowledge receipt of an addendum/addenda may be considered an irregularity in the Proposal: Addendum number(s) received: E~]I; []2; [] 3; [] 4; [] 5; []6; Or, ~.j~ No Addendum/Addenda Were Received (check ~n~ initial). PROPOS~R’S StfGNATUI{E No proposal shall be accepted which has not been signed in ink in the appropriate space below: 13 0503 By signing below, the. submission of a proposal shall be deemed a representation and certification by the Proposer that they have investigated all aspects of the RFP, that they are aware of the applicable facts pertaining to the RFP process, its procedures and requirements, and they have read and understand the R.FP. No request for modification of the proposal shall be considered after its submission on the grounds that the Proposer was not fully informed as to any fact or condition. Date: If Proposer is INDIVIDUAL, sign here Proposer’s Signature Pmposer’s typed name and title It Proposer is PARTNERSHIP or JOINT VENTURE, at least (2) Partners or each of the Joint Venturers shall sign here: Partnership or Joint Venture Name (type or print) Dale: Member of the Partnership or Joint Venture signature Date: Member of the Partnership or Joint Venture signature 3.If Proposer is a CORPORATION, the duly authorized officer(s) shall sign as follows: The undersigned certify that they are respectively: Title Of the corporation named below; that they are designated to sign the Proposal Cost Form by resolution (attach a certified copy. with corporate seal, if applicable, notarized as to its authenticity or Secretary’s certificate of authorization) for and on behalf of the be!ow named CORPORATION. and that they am authorized to execute same for and on behalf of said C~PORATION. - . Cor~:~t!on N.arr~ (type gr ~dnt) TJtle:~l~I~" Date: Title: 14 05031 o Att~chmen~ C Certification of Nondiscrimination As suppliers of goods or services to the City of Palo Alto, the firm and individuals tisted below certify that they do not discriminate in employment of any person because of race, skin color, gender, age, religion, disability, national origin, ancestry, sexual orientation, housing status, marital status, familial status, weight or height of such person; that they are in compliance with all Federal, State and local directives and executive orders regarding nondiscrimination in employment. 4. If Proposer is ~NDIVIDUAL, sign here: Date: Propeser’s Signature Proposer’s typed name and title If Proposer is PARTNERSHIP or JOINT VENTURE, at least (2) Partners or each of the Joint Venturers shall sign here: Partnership or Joint Venture Name (type or print) Date: Date: Member of the Partnership or Joint Venture signature Member of the Partnership or Joint Venture signature If Proposer is a CORPORATION, the duly authorized officer(s) shall sign as follows: The undersigned certify that they are respectively: Title Title Of the corporation named below; that they are designated to sign the Proposal Cost Form. by resolution (attach ~_ certified copy, with corporate sea!, if applicable, notarized as to its authenticity or Secretary’s certificate of authorization) for and on behalf of the below named CORPORATION, and that they are authorized to execute same for and on behalf of said CORPORATION. Corporation Name (type or print) ’ 050310 By: Title: Date: ATTACHMENT 2007 COUNTY OF SANTA CLARA FINANCIAL REPORT PALO ALTO AIRPORT. Attachment (An Airport Facility Included in the Airport Enterprise Fund of the County of Santa Clara) Statement of Revenues and Expenses for Fiscal Year ended June 30, 2007 and Summary of Changes to Funds Advanced by Santa Clara County as of June 30, 2007 DRAFT J Operating Revenues Aircraft Storage Lease Revenue Fuel Flowage Transient & Other Total Operating Revenues Operating Expenses Salaries & Benefits General Administration Aviation Services Levee Maintenance Project Consulting Services Depreciation Total Operating Expenses Net Operating Income (Loss) Non-Operating Revenues (Expenses) Master Plan Development Airport California Monitoring Group State Water Permit Fee Total Non-Operating Revenue (Expenses) Net Income (Loss) before Adjustment Add back Depreciation on Capital Improvements Net Income (Loss) (a) (b) (a- b) (c) (a-b+c) 506,122 129,953 82,664 42,713 761,452 377 014’ 159 281’ 148 382’ 20 788 2 636 214 001 922 102 (160,650) ~ (7,013), (1,975)- (830) (9,818) (170,468) 214,001 43,533 Outstanding Advance from County of Santa Clara as of July 1, 2006 Add Fiscal Year Adjustments for: Cost of Im.provements Less Federal Reimbursement Add Operating (Income) Loss for Fiscal Year Ended June 30, 2007 Outstanding Advance from County of Santa Clara as of July 1, 2007 77,878 (69,851) 808,915 8,027 (43,533) 773,408 IncStmt_PAO.xls page 1 of 1 10/17/2007 ATTACHMENT K 2008 COUNTY OF SANTA CLARA FINANCIAL REPORT Attachment K: PALO ALTO AIRPORT (An Airport Facility Included in the Airport Enterprise Fund of the County of Santa Clara) Statement of Revenues and Expenses for Fiscal Year ended June 30, 2008 and Summary of Changes to Funds Advanced by Santa Clara County as of June 30, 2008 DRAFT I Operating Revenues Aircraft Storage Lease Revenue Fuel Flowage Transient & Other Total Operating Revenues Operating Expenses Salaries & Benefits General Administration Aviation Services Depreciation Total Operating Expenses Net Operating Income (Loss) Non-Operating Revenues (Expenses) Master Plan Development Airport California Monitoring Group State Water Permit Fee Total Non-Operating Revenue (Expenses) Net Income (Loss) before Adjustment Add back Depreciation on Capital Improvements Net Income (Loss) (a) (b) (a- b) (c) (a-b+c) 506,728 134,905 110,974 81,560 834,167 420,567 179,147 114,800 143,2~2 857,746 (23,579) (8,735) (1,975) (830) (11,540) (35,119) 143,232 108,113 Outstanding Advance from County of Santa Clara as of July 1,2007 Add Fiscal Year Adjustments for: Cost of Improvements Less Federal Reimbursement Add Operating (Income) Loss for Fiscal Year Ended June 30, 2008 Outstanding Advance from County of Santa Clara as of July 1,2008 491,753 (399,763) 773,408 91,990 (108,113 757,285