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HomeMy WebLinkAboutStaff Report 460-08City of Palo Alto ,City Manager’s Report TO.: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT :ADMINISTRATIVE SERVICES REPORT TYPE: REPORT OF COMMITTEE AND COMMISSIONS DATE: DECEMBER 8, 2008 CMR: 460:08 SUBJECT:Policy and Services Committee Recommendation to Approve Staff’s Recommendation Regarding City Oversight of the Palo Alto Airport: A) Receive Staff’s Progress Report on Negotiations with Santa Clara County Regarding the Palo Alto Airport Lease; B) Approval of the amended Airport Mission Statement; C) Recommend the City Manager negotiate a contract with Wiedemann & Associates for Development of an Airport Business Plan and Airport Community Value Analysis; D) Adopt Budget Amendment Ordinance to Increase Appropriations by $80,000 from the City Council Contingency account to the Capital Project Fund to fund the Contract for Wiedemann and Associates Services. (CIP Project AS-09000, City of Palo Alto Municipal Airport Transition Project) RECOMMENDATION: Staff and Policy and Services Committee recommend that the Council: A) receive staff’s biannual progress report on progress with negotiations with Santa Clara County; B) review and approve the Airport Mission Statement proposed by the Palo Alto Airport Joint Community Relations Committee (PAAJCRC); C) accept the attached proposal from R.A. Wiedemann & Associates for preparation of the Palo Alto Airport Business Plan and Community Value Analysis (Airport Business Plan) and direct staff to negotiate and authorize the City Manager or designee to execute a $105,000 contract with R. A. Wiedemann & Associates based on its proposal to provide a business plan and community value analysis; and 4) adopt the attached Budget Amendment Ordinance 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 BOA and attachment A-1 Capital Improvement project (CIP) Report. CMR: 460:08 Page 1 of 4 POLICY AND SERVICES COMMITTEE REVIEW AND RECOMMENDATION At the November 18, 2008 meeting the Policy and Services Committee: A) received staff’s biannual progress report on progress with the negotiations with the Santa Clara County; B) reviewed and voted 3 to 1 to accept staff’s recommendation that the Council review and approve the Airport mission statement proposed by the Palo Alto Airport Joint Community Relations committee (PAAJCRC) with an amendment, which states that the Airport operate in conformity with all applicable laws, the City of Palo Alto Baylands Master Plan and FAA requirements. The amended Airport mission statement now shall read as follows: 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, the City of Palo Alto Baylands Master Plan, and FAA requirements. To be self-supporting and operate without cost to the City’s General Fund; The Policy and Services Committee also recommended C) acceptance of the attached proposal from R.A. Wiedemann & Associates for preparation of the Palo Alto Airport Business Plan and Community Value Analysis (Airport Business Plan) and D) direct staff to negotiate alad authorize the City Manager or designee to execute a $105,000 contract with R.A. Wiedemann based on its proposal; and adopt the attached Budget Amendment Ordinance 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. The minutes from the November 18, 2008 Policy and Services meeting are inctuded as Attachment B. Council direction to staff on November 13, 2007 was "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 13, 2007 staff report" assuming a condition’~f the airport use but based on the discussion by the Policy and Services Committee there is still doubt as to whether an airport is the best use of the property. The majority of the committee agreed that the Business Plan and Economic Analysis will provide the answers to the future of the airport. RESOURCE IMPACT The amounts budgeted in the Fiscal Year 2009 for both the Airport Business Plan and the Hazardous Materials Analysis is $25,000 each for a total project budget of $50,000 and is 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 Council adoption of the attached Budget Amendment Ordinance which will result in the transfer of $80,000 from the City Council Contingency account to the Capital Project Fund. The balance of the Council contingency amount after the transfer will be $42,040. CMR: 460:08 Page 2 of 4 POLICY IMPLICATIONS This progress report is consistent with previous Council direction which is to begin negotiations with Santa Clara County for an early termination of the lease and to commence work on the items set forth in the November 13, 2007 staff report. 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-l: Capital Improvement Project Report Attachment B: Excerpt from the Minutes of November 18, 2008 Policy and Services Committee Attachment C: CMR 440:08 CMR: 460:08 Page 3 of 4 PREPARED BY: WILLIAM W. FELI~MAN,,fO..JO~@-W~’i’I~g Manager, Real Property Seni~" Financial Analyst DEPARTMENT HEAD APPROVAL: LALO PEREZ Director, Administrative Services CITY MANAGER APPROVAL: City Manager CMR: 460:08 Page 4 of 4 Attachment A ORDINANCE NO. Ordinance Of The Council Of The City Of Palo Alto Amending The Budget For Fiscal 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 Municipal Airport Transitipn 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 County (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 f~und~ 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 J~ND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM: City Manager Senior Asst. City Attorney Director of Administrative Services CIP 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 CIP FACTS: - New ¯ Project Status: Pre-Design ¯ Timeline: FY 2008-2010 o Managing Department: Administrative Ser- vices ¯ Comprehensive Plan: Policy C-24 ¯ Board!Commission Review: PTC IMPACT ANALYSIS: ¯ Environmental: This project is categorically exempt from CEQA under Section 15301. o 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 Design Costs Construction Costs Other $130,000 $130,000 Revenues: Source of Funds:Infrastructure Reserve ($50,000); City Council Contingecny Account ($80,000) ]2] Cita, of Palo Alto 2008-09 B~t.dget ATTACHMENT B Excerpt from the November 18, 2008 Policy and Services Committee Meeting. POLICY AND SERVICES COMNITTEE Special Meeting November 18, 2008 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). Bill Fellman, Real Property Manger with th6 Administrative Services Department noted that the report’ is basically the second bi-annual report for the Palo Alto Airport and it also contains a mission statement which is why they are before the Policy and Services Committee. Staff is also looking for additional funding for the business plan. He gave a brief history: In 1967, the City entered into a fifty cent per year lease with the County to manage the Palo Alto Airport along with the County’s two other airports. In 1987, the City and the County created the Palo Alto Joint Community Relations Committee which was set up to deal with a noise issue, and the committee has broadened its scope to where it covers just about everything that happens at the airport. He introduced David Cremer, current chair of the Palo Alto Joint Community Relations Committee. In November 2005, the County airport plan was proposed to raise tie-down rates and fuel fees at the Palo Alto Airport to pay for an outstanding advance, and the rates would be higher than the other two county airports. This is what spurred the City’s interest in what was going on. In June 11/18/2008 P&S: 1 2006 the City Auditor reviewed the Palo Alto Airport financial situation and declared that the County was unable to document the outstanding advance and a fee increase was not warranted. In December 2006 the County Board of Supervisors adopted the county staff recommendations to: not manage the airport beyond 2017; offer the City the opportunity to take back the airport prior to 2017; not spend any money at the Palo Alto Airport on repairs or improvements that were not safety related or do not increase revenue; and increase tie-down and fuel fees to pay back the outstanding advance. In December 2006 the City Council appointed the Palo Alto Airport Working Group (PAAWG); and Chuck Byer and Ralph Britton are here and they are the co-authors of that report. In 2007 the City retained the services of R. Austin Wiswell as an advisor to staff on airport matters. In November 2007 Council accepted the PAAWG report declaring the Palo Alto Airport as an important economic asset and Council directed staff to begin negotiations to terminate the lease with the County prior to 2017 and report back to Council on a bi-annual basis. In June 2008 the first bi-annual report and budget for 2009 established a CIP of $50k to hire contractors to prepare a business plan and a hazardous materials investigation. Chairperson Kishimoto asked what is being asked of Council for action. Mr. Fellman stated to approve and adopt the mission statement and a recommendation for approval to the full Council on the Budget Amendment Ordinance. Council Member Espinosa asked what the timeline over the next year would be for this process. Mr. Fellman said that if Council approved the budget for the report, it would take 6-7 months to prepare. Staff would probably be back November 2009 with recommendations on the report. Council Member Espinosa asked whether staff recommendations would be whether the business model made sense for Palo Alto. Mr. Fellman said the report would include a lot of things, and that’s were they ran into trouble and underestimated what the cost of the report would be. The scope changed to include recommendations on whether it should be run by City staff or by a third party to look into the County’s claim about the outstanding balance, make a recommendation on that, to compare Palo Alto Airport with airports in general. The person who responded to the bid, 11/18/2008 P&S: 2 Weidemann, was just dead-on with everything they were looking for. He’s done forty of these reports, and this will be an outstanding report that we can use not just to decide whether we want to take the airport on now or in 2017, but also to guide us beyond that and to make recommendations on ways the airport may be able to generate more income. Lalo Perez, Director of Administrative Services said the other concern was that in that timeline, there is activity that is going to cease or slow down in terms of maintenance for work. The hope is that we get some information back that alerts us to what potential areas we need to be concerned about that the County may not address, that we will take on as a liability once we take possession. Council Member Espinosa said that what he read was that by next year the City needs to make these tough decisions. We need to make sure we have all the information needed to make these decisions and it’s going to cost us more to get that information. Mr. Fellman said yes. Council Member Barton said that he has no idea why we would want to operate the airport, or have anything to do with it. He has left his mind open and that is why he voted to send out the Request for Proposal (RFP). He said he would support a Motion to do this, because we need to see the business plan, and he could be proven wrong. He didn’t think anything the Council has done has locked them into doing any.thing. If this business plan comes back and it says the m.argin is too narrow and.there is potential risk to the general fund, we still have the ability to do something else. Vice Mayor Drekmeier said that he is also torn. He has tremendous admiration for Ralph Britton. He said he is a big believer in local self reliance and one of our challenges is money and the other even bigger challenge is land. When he thinks of what we can do with these 104 acres for zero waste, with. resource recovery and composting all of our food waste, and still have land for generating renewable energy locally and revenue generation, it seemed to him from the report we would be looking at a million dollars profit annually. Mr. Fellman said that was approximately what the County is generating now. Vice Mayor Drekmeier said there are people who feel very passionately 11/18/2008 P&S: 3 about it and the arguments about the importance of it for the Stanford Hospital and other things. He feels that if we want to give future generations a fighting chance, we have to be the role model in Palo Alto and it may mean making some tough decisions, and he didn’t see the airport as being the best use of the land. Council Member Barton said this is going to give us some numbers to have that discussion. It’s a reasonable amount of money, and he thinks it is worth doing. He thinks that going ahead with this makes a lot of sense and encouraged Council to support a Motion. Chairperson Kishimoto said that one thing it does not do is compare it with alternatives to an airport. Council Member Espinosa said that is correct. The question is here is an important part of Palo Alto in terms of a resource, and it is very visible and will garner a lot of attention. What they are really talking about is getting the Council to a point where a study can be done so they are able to get all the information they need on the table. Council Member Barton said the report would tell them a lot, from a business point of view of an airport. It’s not fair to ask staff to also say, compare that to flight fields or compare that to composting at this point. The Council’s direction as much as he might disagree with it, is that this is going to be an airport, and to figure out the best way to keep it an airport. If the business plan comes back and the m. ajority of the Council is convinced that this isn’t a good use of this land, then we should have that conversation about what else it should be. Chairperson Kishimoto stated that Council did adopt a policy to move in this direction. Mr. Fellman confirmed that direction from Council was to start negotiations to take back the airport before 2017. Mr. Perez stated that was why they didn’t present any alternatives, because they were going based on that policy direction. Vice Mayor Drekmeier said the direction was to take control of the airport and that could be interpreted that we want to run it ourselves or maybe we want to use it for something else. 11118/2008 P&S: 4 Mr. Fellman read the Motion from the original staff report. Chairperson Kishimoto said that if Council would get the report by November and there are a serious number of people on the Council who are interested in alternatives, that would set staff back another six months on this project. Mr. Fellman said that from a staff level they tentatively talked about June, 2011 as the transfer time, so in his opinion, there is still plenty of time once the report gets back to do whatever Council wants to do. Council Member Barton said they need to be respectful of the Council’s approach, in that this being an airport, they were going to cover all the bases, and it would be unwise of them to change that without going back to the full Council. Chairperson Kishimoto asked that in looking at the revenue side of the equation, would they also look at costs. Mr. Perez said they would have to review the existing agreements that are in place between the County and the Fixed Base Operators (FBOs), and that is part of the analysis. Chairperson Kishimoto said that she was talking about the potential rents. Mr. Perez said that the people we would charge the rent to would be the FBOs and because they have an existing contract.with the County, we would have to take a look at the contract wording. Chairperson Kishimoto asked about going to a third party manager of the airport. Mr. Perez stated that, post 2017, when the contracts expire it would all be fair game. Staff would be able to put in place any agreement or rent that Council approved. Chairperson Kishimoto said she had a suggestion on adopting a mission to add some wording about compatibility with the mission of the Baylands Master Plan (BMP). Council Member Espinosa asked what they thought that does, and what did they think was in the BMP that might run afoul of the airport plan. 11/18/2008 P&S: 5 Chairperson Kishimoto said that, for instance, the BMP talks about no new runway, no increase in-the intensity of the lighting, and it’s really telling those who are on our airport advisory groups that they should read the BMP and be aware of the sensitive environment they operate within. Vice Mayor Drekmeier agreed that it should be compatible and not conflict with the BMP. He asked if that was the understanding going into the study, because obviously densifying the airport could bring in more revenue. In a way we want to increase revenue, but we really don’t want to change anything. Mr. Fellman said the simple way to increase revenue is to provide hangar space, and that would actually cut down on the number of planes that can be stored at the airport, because a hanger takes up more space than using a tie-down. Vice Mayor Drekmeier asked if the BMP restricted hangars. Mr. Fellman said it didn’t restrict hangars, but where they got into issues with the County was the development of the eight acres, the vacant spot on Embarcadero. There are things that can be done that can create more hangar space without developing the eight acres. Council Member Barton said he had no problem with the mission statement and appreciated Chairperson Kishimoto’s addition to it, and asked why we need the mission statement now. Mr. Fellman said it could be modified later on, but by adopting the mission statement early on is setting the goal of what we think the airport should be and how it should be run. Council Member Barton said that it was if they were putting bounds or limits on this economic study. Council Member Espinosa noted that he feels strongly about the BMP. In doing research about business modeling and revenue generation, he just wanted to make sure we are allowing for creativity and getting all options on the table. The intention is to ensure the airport is conforming to the framework of a plan that values the Baylands. Mr. Perez said that it was staff’s obligation to report that to Council if that’s 11118/2008 P&S: 6 the findings in the business plan. Mr. Fellman said that the scope of the business plan also counts for the inconsistencies between the current master plan and the current County airport plan. Mr. Keene said that a concern that he wanted .to put on the table was an honest assessment of staff’s ability to absorb the running of an airport is really important. We have so many things on our plate, so many commitments we have already made in areas we are hard pressed to fulfill. Staff needs to be realistic on the impact of this on all the other initiatives and obligations we have as an organization. Chairperson Kishimoto referenced Page eight of ten, and the County keeping the excess funds every year rather than using it for local matching, and were we able to do anything about that. Mr. Fellman said that we can’t do anything now, but that it would be part of - the negotiations with the County. MOTION: Council Member Barton moved, seconded by Council Member Espinosa to accept staff recommendation 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 executea $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 for the Airport Business Plan. MOTION PASSED: 3-1 Drekmeier no. 3.Discussion of Upcoming Meeting Dates and Topics December 9th-Prevailing Wage ADJOURNMENT: Meeting adjourned at 8:10 p.m. 11/18/2008 P&S: 7 In compliance with the Americans with Disabilities Act of 1990, listening assistive devices are available in the Council Chambers and Council Conference Room, Sign language interpreters will be provided upon request with 72 hours advance notice, 11/18/2008 P&S: 8 ATTACHMENT C City of Palo Alto C .ty 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 recommend 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 conclusions led the PA~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 Worldng 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 11 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 Valfie of the Palo Alto Airport The Palo Alto Airport is an important civic asset for the nearby communities of Palo Alto, East Palo Alto, Menlo Park, Mountain View, Los Altos, and Los Altos Hills, as welt 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 formal 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 Attaclm~ent G.). Warren has yet to prepare any similar airport business plan. The Wiedemaim proposal was ve.ry responsive to the RFP with much detail regarding how its proposed businbss 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 indicates 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 wi!l 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 cost and the State funds 2.5%, malting 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 workload 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 party 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 eagt 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 workload 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 m’e 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 responsibilities 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 workload 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-d0wn 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 indrease the tie-dc;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: DEPARTMENT HEAD APPROVAL: WILLIAM W. FELLMA~--&-JQY~J~’V~2I.~’T~ w -"-- Manager, Real Property Sentaa~’/rFinancial Analyst LALO PERI~Z Director, Ad~ninistrative Services CITY MANAGER APPROVAL: 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 NO. Ordinance Of The Council Of The City Of Palo Alto Amending The Budget For Fiscal 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 Municipal 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 County (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 lP ATTACHMENT C TY OF PALO ALTO MUNiCiPAL AIRPORT TRANSYr ON PROJECT (AS.o09000) 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 ¯ Board/Commission Review: PTC IMPACT ANALYSIS: ¯ Environmental: This project is categorically exempt from CEQA under Section 15301. o 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 Design Costs Construction Costs Other $130,000 $130,000 Revenues: Source of Funds:Infrastructure Reserve ($50,000); City Council Contingecny Account ($80,000) I21 Ci1~, q]~Pa[g A[to 2008-09 Budget ATTACHMENT B June 8, 2008 Informational Report (CMR: 247:08) Attachment B: City of PaloAlto City Manager’s Report. TO: FROM: HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:JUNE 2, 2008 cMR: 247:08 SUBJECT: 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 of the lease expiration in 2017. ’ ThePlan 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, Airpor{ 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 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 ir~cluded’ representatives from the City Council, City staff,, the Palo Alto Airport Assoc!a~ion, Stanford Hospita!, the Joint. Community Relations Committee .for the Palo Alto Airpo~ 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 the PAAWGreport included: 1) that airport operations were profitable; 2) that, based on PA:AWG’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 PAAWOconcluded: ¯ 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; 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; find. 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), 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 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 November 13, 2007, this is the first biannual progress report. Included in this first ~eportis 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 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. Ttie audit leads to thepossible conclusion that if pooled overhead cost had been .proportioned con!ectly 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 Ci!y 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 Administ~:ation (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. 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 2) Purchase FOD Sweeper and Portable Runway Closure Lighting COST $150,000 $60,000 YEAR 2009 2009 CMR: 247:08 Page 3 of 12 3) Reconfigure Taxiways G and Z $.400,000 2010 to comply.with FAA Standards 4) Construct He!icopter Landing $250,000 2010 Pad and Parking ~. 5) Construct Exit Taxiway D $120,000 2010 6) Pavement. Maintenance for.$300,000 2011 Existing Runway, Taxiways and Aii’craft parking 7) Overlay Existing Runway and $2,000,000 -.2012 Taxiways 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 staffthreereasons 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; and 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 1999-20~)0 fiscal year report. Federal Funding for 2008-09 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 majorconcern 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 no funding for the projected AIP, I~AA 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~rel~gth of PAO How to maximize current income potential and the income potential beginning in 2017 when the-current contrac_ts expire. 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 anticipates that the business plan. will be available for the next 6 month update in November, 2008. 3. Current agreemen~ 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 tl~an those who risk a capital investment. The two current FBO leases at PAO are long-term, and have no incentives for capital investment. Theleases do not include CPI, adjustments and do not remit a percent of gross revenuewith the exception of ttie 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 serqe 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 several. airportson operations, management, the number of tie,downs, hangars and based aircraft, runway ,length, type of airport, and other pertinent inforn~ation in order to asses~ 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 f~inds, 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 fundsfor 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 reque.sts. 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 staft~n~ Consists of two full,time airport operations workers and a part- time supervisor. Future s~affing 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 .operations. 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 top6graphical map is anticipated to be completed in September of this year. 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 ofb0th the CES and HMA is about $50,000, which is being proposed in the Fiscal Year 2008-09 ASI~ budget. 8. Metropolitan Transportation Commission general aviation review The MTC has been holding meetings to see if there is some way the ~.~0n-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. 1l.Council consideration and development of the Airport mission statement The Palo Alto Airport Joint Community Relations Committee is assisting staff in drafting a prc~posed missionstatement to be considered by the council. Staff anticipates that the Mission Statement draft will be available for Council review and approval in the November2008 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 t6 the upcoming fee increase, that the vacancy rate is similar to the other two County airports and is not unusual given the currentl .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 halve 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 ~hree main reasons .for terminating its lease for PAO: A. inability to generate additional revenue to 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 for FAA grant each year in an amount of $150,000. However, the use ofthefunds is limited, and must be thoroughly justified as r~ot 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.) FEMA flood control requirements. The County’s position is that the Federal Emergency Manage, ment Agency (FEMA) will iequire all the buildings at PAO to be elevated to. eight feet above~ sea-level, cresting significant cost implicat!0ns. 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. Strong likeiihood 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. Als0, 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 Theresource impacts of the transition of PAO operations and management from the County to the City will be consider.ed 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 directioh. ENVIRONMENTAL REVIEW An environmental impact assessment (EIA) .Env.ironmental Quality Act (CEQA) and will Council decisions regarding PAO. may be required by the ’California be performed in connection with future ATTACHMENTS Attachment A: Attachment B: Attachment C: .Progress Report Items ¯PAO Revenue and Expense Comparison CMR 418:07 and 361:07 " WILLIAM W. FELLM, AN /" ¯ . Manager, Real property ~.~_~./ " DEPARTMENT HEAD APPROVAL:LALO P~~’~- " "~ Director, Administrative Services CITY MANAGER APPROVAL: ~ STEVE EMSLIE and KELLY MORARIU Deputy City Managers co:County of Santa Clara JCRC Chair of the PAAWG CMR: 247:08 Page 9 of 12 ATTACHMENT A i~ROGRESS 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.Me?tropolitan Transportation commission General Aviation Review 9.U.S. Army Corp. of Enginee.rs 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 it operates the PAO or contracts it out. 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 & Expeiise Statement Lease Revenue Aircraft Tie Down . Fuel Flowage Transient &.Other $134,000 $561~600 $ 50,000 $ 60,000 .Re#enue $129,000 $506,122 $ 82,000 $ 42,000 Total Revenue.$805,600 Operating Expenses $761,000 Salaries & Benefits $3 64,000 General & Admin.$169,000 AviationServices $100,000 Maintenance/City Reserve $100,000 PAO Capital Expense $ 30,000 Depreciation $ -0- " Levee Maintenance $ -0- Contract Services $ -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 ($9,818) Net Income before Adjustment Add Back Depreciation on Capital Improvements Net Income ($170,468) $214~001" $ 43,533 CMR: 247:08 Page 11 of 12 * The $214,001 is liighlighted 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 WORKING GROUP REPORT AND OPTIONS REGARDING THE FUTURE OF THE PALO ALTO AIRPORT RECOMMENDATION Staff requests Council direction regarding 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 Wo~’king 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 full Council for its review. The Committee also had a list of questions that required additional research by staff and directdd that responses to these questions be forwarded to Council with the report. SeeAttachment A. WILLIAM W. FELLMAN Manager, Real Property DEPARTMENT HEAD: CARL YF_~TS Director, ’Administrative Services CITY MANAGERAPPROVAL: HARRISON Assistant City Manager ATTACHMENTS Attaclvnent A: Questions from the 9/18/07 Finance Committee Meeting Attachment B: CMR:361:07 CMR:418:07 Page 1 of 1 . ATTACHMENT A Questions from the Finance Committee Meeting: 1)What is the current status of e~tablishing Safety Zones at Pali~ Aito Airport aPAO" and do the safety zones have any bearing on future development in San Mateo County and East Palo Alto? The safety zones at PAO are currently being created to recent FAA requirements. 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.yerified. 2). Wlll the Army CorpS of Engineers levee report recommend a realignment of San .Francisquito Creek?..Will the Army Corps buy any required fight 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 of Engineers Levee Report is un~lerway 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. Anon/her 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 -factor ina business deciding ~o locate in that community.. Central to a public agency Owning a business-use airport, are. community employment and the. resulting tax base. - An airport that is supportive of business provides good accommodations an~l services such as a pilot lounge, 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 tl~e heart of Silicon Valley since it is close to Stanford and severa! large corporations. Givefi this fact, PAOis desirable for local airportaccess and it is reasonable if fees are higher than .at o.ther local a!rpo~ts. Mr. Wiswell recommends ~hat a comprehensive economic impact survey and assessment of PAO be conducted to help develop a long-termrevenue model that will not only meet Feder~i1 and state requirements but also. provide the revenue for infrastructure requirements not funded 15y 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 ne~v light jets and the short single runway make PAO obsolete?. 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 service.s: Business. aviation is the fastest growing segment of air travel at local airports because ofconvenient 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. 5) 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 to complete Commission 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 ¯ 6. months 9 months’ 9 months " 9 months 12 months 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 6f 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? 8) 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. 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 r.elationship to t.he County’s increase in tie down fees? At the Finance Committee meeting on. September 18th, staff responded that it was too early to tell if 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 p0.ssible 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 o£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: Loca¢ion 1) Palo Alto 2) Nut Tree 3) Hayward 4) Livermore 5) Reidhillview 6) South County. 7) Livermore Tie-Down Vacancy Rate !0% 15% 30% 43% 50% ~ 79% 6O% 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 tie-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 s~ch a plan v~ould have to be condticted. " " 11) Why did stafffeel that the County use of depreciation was misleading? The city Auditor stated in her report that "Although depreciation expense does not affe.ct .the Cour£ty"s annual calculation of the outstanding advance, it has sometimes been included in l~ublic 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 $41965,000, 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 ttie 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 c~n dramatically impact the appearance of profit or loss. at the Airport in any given year. Hov~ever, 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? Tge 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 tlie City does the same, including a!lowing, 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 Alto.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 bacl~ 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 should not be Undertaken. o Direct Adml~istration 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 .1, 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 the development plan currently in force under the County’s lease with the City of Palo Alto. o Approve termination of invelvement-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 f’~uture 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: ATTN: FROM: HONORABLE CITY COUNCIL FINANCE COMMITTEE CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:SEPTEMBER 18, 2007 CMR: 361:07 .SUBJECT:STAFF RESPONSE TOTHE 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; present) 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 Cotmty 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 overv.iew 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 ~vith operating the PAO; that the PAO has historically operated at a deficit; and that 0pportunities.to generate additional revenue were extremely limited due to physicM, environmental, and policy constraints. The Plan recommended that the .County: 1) terminate its involvemeniin 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 Pian, but delayed action on the disposition Of the PAO for six months in order to provide the City an Opportunity to present ~he County with viable ~evelopment options for the PAsO and time for the County staff to negotiate those options. PAAWG Report On December 18, 2006, Council authorized the creation of the Palo Al~o Working Group (PAAWG) to analyze PAsO operations and devetop one or more v_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 As.sociation, 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-sustaining, 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 ha~l the capacity to generate a positive bottom line plus a $100,~)00 "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 locM ju{isdictii~ns; 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. Ti~ prove these benefits, the PAAWG cites a variety of statistics on airport employment, sales-and property taxes, fees genei:ated, 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 f{om 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 fo’r the long-term malaagement of the PAO, which will ensure its asset value to the community is maintained and will preserve its economic valueinto the future. ’~ ......07~Mr~.~ua.Page 2 of 8 County Action FOllowing the PAAWG report,- County staff reported to the Board of Supervisors on June 19, 2007 that the City had agreed to consider, as long as the dounty 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-ie PAO lease). The County indicated it would proceed with the preliminary work necessary 4o prepare such an application; but would most likely not proceed to final design because of project costs and dntil the City Council made a decision on recommendations contained in the PAAWG report. A formal request from the County has not yet-been 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 inspecti0nsof 243 public use airportsand!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 genera! manager of an airport management company that operated a county-owned airport in Sedona,. Arizona; managed, the Yolo County Airport for 4 years; worked, for Allied-Signal: Aerospace Company; and served for .23 year~ in the U.S.Air Force as a fighter pilot and headquarters .staff officer. .. Mr. Wiswell prepared two reports:, one f0cus~ng on Federal and Sta~{e requiremen(s for operating an airport (Attachment C); and the second c6mmenting o~i 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 County or run by the City. Citing Federal and State circulars and re.gulations, the consultant stat.es, "It.is a Federal obligation to have revenues exceed expenses such that the airport is financially self-sufficient and .~. self-sustaining." This requirement is a direct 8onsequence 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 benoted 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 of the °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 ser~ie in light Of Federal and State mandates. A ciea~vision of a 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 manage it. In-Mr. Wiswell’s view, the airport’s primary value and overall purpose is as a "t~ansportation node," a departtire and arrival . point. He compares th{s 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: .2. Early termination: .The consultant supports exploring direct Operational control l~y 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 obligatic~ns and compliance refluirements 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 gupervisor," 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. 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 a not-for-profit entity, run by itself, provides more control over personnel issues. It is interesting to note 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 eaiqier. 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 bage 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 impr0Yements 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 flightsl and it is not certain that use will intensify. Moreover, he states that there have beenarchitectural modificaiti0n-s ~o 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 tkie terminal facility. Additional hangars represent an enhanced and steady revenue base. One FBO op.erator gas 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 includit~g 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 :07 ~Page 5 of 8 hazardous"materiails, Staff is recommending a hazardous materials investigation be undertaklen as oneofthe steps in determining the future of the PAO. .. .. Staff Response io the County and PAAWG Reports and Consideration Of Options The County staff’.s proposal to terminate the lease .in 2017 and offer toterminate 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 0f the lease) and building cash for future grant funding match~s, the County has alienated its customers with higher fees than surrounding airports and is forcing the City tO make some untimely and. d~fficult decisions. City staff does not have the County’s exper[ise in o~,erseeing or running an airport and it will take ti.me to build a viable ~kno~w!edge base. Staff acknowledges the PAAWG’s concerns about the County’s 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 ciosely and cooperatively with the. County On Federal and. State grants. This would enhance staff’s knowledge, fulfill a basic. City o.bligation to understand the implications and terms of receiving a grant, and pr.ovide a realistic transition into eventual oversight of the airport. Based on government requirements and the County;s work to (elg.;, a complete repaving of the airport in 2001, repaying 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.ofcurrent 0n-site staffing levels. In addition, the County has been cooperative in meeting fireand storm water run-off .regulatlons. 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 oversight; and taking a more active, immediate role in the PAO operation. .¯ 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 the 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 ¯responsibilities 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 ~f these trends: requires evaluation. AS stated, due diligence is requited in any new business venture. Being self-sustaining is not only a Federal and State requirement, but a neeessity given the financial challenges the General-Fund faces, To assure the financial viability of the airport, the City will need to explorefuture financial relationships ~ith the two FBO’s, carefully weigh the B aylands 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 past 4 years (page 5 of i~s. report) ~ndicates that the County is receiving a relatively low 22.6 percent of a~rport, total net earnings with the remainder going to the two FBOs. This relationship, while understandable from an historical 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, gs 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 ore)sight. The transition could occur in approximately 3 years. This will allow time for: Council consideration and development of the airport’s mission. " Staff work w~th the County tO master basic lnfdrmatlon 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 ofg RESOURCE IMPACT Staff will return.to Council with estimates and a budget request for the option chosen by Council. POLICY IMPLICATIONS Staff’s recommendations .are consistent with City policy and based on information included in the reports by the CityAudi~or, 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: WILLIAM W. FEI_~LMAN Manager, Real Property - DEPARTMENT HEAD APPROVAL: CARL Director. dministrative Services CITY MANAGER APPROVAL: ATTACHMENTS Attachment A: PAAWG report Attachment B: Auditor’ s Report. Attachment C: June 14, 2007 Consultant Report Attachment D: July 6,2007 Consultant Report County of Santa Clara JCRC Chair of the PAAWG EMILY HARRISON Assistant.City Manager Page 8 of 8 ATTAC~T-A. (Without Appendices) Palo Alto Airport Working GroUp.(PAAWG) Report to Palo Alto City Council: The Community Value, . Economic Vl’abilit~ and Future Management of Palo Alto Airport May2007 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: I - The Palo Alto Airport is an important transportation,basiness, economic, recreational and emergency prepai’edness asset and resource for the City of Palo Alto and its residents. 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 recomniends that the City Council direct the City Manager to negotiate an early termination of lhe existing Palo Alto .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 l~y 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 drea~ion of the Palo Alto Airport Working Group (PAAWG) to advise th~ Council on two basic questions: ¯Is the Palo Alto airpo~ an importanl community asset?. ¯Can the Palo Alto ai~ort be run on a profitable basis? .The PAAWG was ta~ked ~vith providing this assessment to the City Council within 6 months. The information contained in these pages represents the Output .from the PAAWG efforts and hopefully provides the Palo Alto Cily 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.economic value and other benefits of the airport to theCity of Palo Alto andits residents. Purpose: This repor~ is the PAAWG response to the City Council’s i’equest for information and a recommendation to the City Council about Palo Airport management vis-a-vis Santa Clara County (the current lessee); regarding the impact and timing of a structural change in the operations lease. This report addresses:. The airport’~ value as an essential ommuniw asset The airport’s actual and derived economic contribution The airport’s operations and management The airport’s future alternatives and management recommendations.. Notwithstanding its very interesting and profitable h.i.sto~y; the Palo Alto ¯Airport has ~’ecently been judged by the Santa Clara Count3, 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)i and it also ignores the value of many Other economic benefits such as tax revenue and the economic value of emergency support ac}ivities at 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 andthe 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 oomponent Of the local transportation network and has many important community benefits: 1.Support for local business travel requirements 2.Transpc~rtation of patients and transplant organs to Stanford Hospital 3.Initial pilot training, certi.fication, and bi-annual reviews 4.Recreation space for the local community 5.. Serves as an impc~rtant 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 Apper~dix 1 -A: 29alo Alto Ai~’port - 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 annuaI 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 PaloAIto Airport is an essentia! community asset, addressing many community. needs and interests, as well as, providing an array of important economic benefits to the CityofPalo Alto. PAO has the economic potential to be self-sustaining, fund necessary improvements, and cover the City management overhead associated with the 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, andmany of our neighbors. -3- Summary Economic Overview of Palo Alto Airport (PAO) today - Actual airport revenues total about $1 .’~51VI, of which 94% are sourced fi’om rental and leaseinc0me,, with the ~emaining income from fees {edeived for transient ¯ parking, and airport fuel flowage (a common sourceof~-evenue for an airport " operator). The total direct expenses are for per~0nnel, tgtaling $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- govemmenta!) entity associated with airport services, operations or maintenance. This provides a. gross margin of nearly 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 ~ountry are applied for and covered under the.FAA Federal grant system. .Siaffing and operational costi for the FAA Tower at PAO are not paid by Santa Clara County or the City. of Palo Alto, but are.seParate and also co.vered by the Federal Budget. ThePAO tower facility and the professionalism of its ATC (Air Traffic Control) staff are ;what make the number of anmial flight operations at this airport po.slsible. PAO is part of the regional and national transportation system. It is simply the ’.’on-ramp" to the vast network of airports and airw.ays leading throughout the nation andthe world. As such, it supports the business, medical, emergency, and personal transp0r[ation needs for the community. But, there are direct local benefits as Well, .such as pilot 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 ttie 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) Estimated Average Annuat Composite .P.~ o-.Fm ma. Income Statemenr c.~..~.~ ~nt’q--,’ d~.lla~-~ ~ ""s; averaged. ,_ over the period 20002004) ~Revenue (Income) Lease Income Transient income Fuel Flowage Tota! Revenue Operating Expense (Salaries,Benefits; And Maintenance) Net Earnings (Loss) SC County FBO-1 FBO-2 PA 0 Total % Rev, $563,344 $94.6,168 $57,402 $0 $49~50 $O $670;496 $946,168 $274,~00 $1,784,012 $0 $57,402 $O $49,750 $274,500 $1,891,164 - 94.3% 3.0% 2.6% 100.0% $422.255 "$338,048 $100,000 .$880,303 46.5%" $174,500 $1,010,861 53.5%$228,241 $608,120 -5- Currer~ S~ate Of the Cjity/County relati~nship 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 ~f the tax-supported general fund. The .County. has clearly sta;~ed 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 r&~enue). A bulk of the total revenue at PAO is collected.by the two FBO sub-lessees who hav~ long-term lease agreements with the County, which al~o 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 C~unty collects today. All of the hangars a~ PAO were built by and are further sub-leased by the FBOs to aircraft own.ors, as agreed under the County to FBO sub-lease~. Hangarsare 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 satisfactory.profit due to its hangar rentals, which the County rents directlyto aircraft owners and Operators. At PAO, the County.’s lease agreement with the two FBO’s generates only modest reverme for the County with most of the cash flow from the rental bfhangar space flowing to the FBO sub-lease holders. Recognize that the lease agreement between the County and the FBO’s was cdrnpleted 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. Some Sources of Conflict Split Ownership and Management with Conflicting Decision Making In 1978, the City adopted a Baylandi Plan wl~ich stated, relative to the airport, that "no changes~re planned which would take over a significalnt amount of the airport, )and that a second runway would not be built. The.Airport will have two Fixed-Base Operatoi’s, but a third will not l~e built." There is no included definition of"Fixed Base Operator," thus the e.xac~ 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 tie-down space beyond 510 spaces could occur withot~t 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 mare into line with FA_A 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.and 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 hangars closer to Embarcadero Road, but made no recommendation in this regard. If these hangars were built, it would raise the total number of new l~angars to 29. Significantly, the plan did not call for any increase in runway length or width. The design and location of the terminal are.thought 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 important 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 conflic~ 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 all-port at the end of the lease. O]eariy the Roads and Airports Department is frustrated by constraints placed on PAO, which are not under County control. Without the potential income fi-om the new hangars and.due to the perceived constraints, the County argues that the Airport will likely lose money in the future and ci,ed various -7- other "business.risks" in continuing to operate PAO~ The County’s Business Plan states: ~The airport is severely cor~strained from physical, environmental and policy ~tandpoints; existing City policies specifica~lly pr0hib{t physical expansion of the airport into open spgce"ai<eas [on the airport property], signit]canfly increasing .the intensity of operations, or adding a third FBO. In light of these constraints,.only minor changes to the Airport’s air:field area were identified in theMaster Plan." odd]Y,the Ro~ids and AirportsDepartment paints.a mUch rosier picture for South County Airport (El6), Which has always recluired a subsidy from the Enterprise Fund and has been far more costly to manage in terms of land acquisition.and fi~citity improvement expense -South County .revenues have not.covered these costs to thi~ 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 County airport system because each a~rport’s aeronautical activities are independent." With this view, the Roads and Airports Department is {mposing a7.5% 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 long-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 the local match necessary for essential, non- deferrat)Ze, (emphasis added) AIp eligible mair~tenance project~ or security related projects..." The.plan further predicts that the ~ie-down rate and fuel flowage increases will recover an additional $1 Million during the remaining period of the lease. Wi}hout other action,.~hese policies willseverely impact the quality~ofPal0 Alto Airport facilities the County returns to City control i~ 2017. The County Board of Supervisors will, in the next few m(~nths, be asked to make a policy determ{nation allowing The Roads find Airports Department to abandon its invol:vement ir~ PAO in 2017 or sooner by agreement with the City. -Absent a Board of Supervisors decision compelling the Roads and Airports Department to operateits three airports as a Countywide SYstem and spreadthe cost burden in abalanced manner, theBoard of Supervisors.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 }evenue during the remaining period of the lease. If this new construction is not approved by the City, it is possible that "{he Roads and Airports D~partment will consider this %ause" for early termination of the lease and exit sooner than 2017. -8- 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. The 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 Sduth County Airport (El 6) and Reid Hillview Airport (R_I-IV), at the ’expense’ of Palo Alto Airport (PAO) via ignored grants and deferred maintenance. The Palo Alto Airportwould 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 ~vill 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 incr.ease in flowage rates, and it is not c.lear that this willprodice any extra revenue. Plannedtie/down rates at PAO will have increased bY a factor.of 2,06 by 2017, with the smallest (and typical) rate th;n being $248/month. Other County airports will be at an estimated $154/month by that date. Only... "non-deferrable" maintenance ~yil! be .performed Which will .likely result in a maintenance backl6g and a further deterioration of PAO airport facilities.. The increased tie-down rates, coupled with the disinvestment in the airportl will pi-obably cause some reduction in flight.tralning and flying club activity 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 wilt be much greater in 2017, if the City inherits and assumesresponsibi!ity for the operation of considerably depreciated PAO facilities, it could be many years before profitable rental and service activities are realized. An alternative ix fc~r ~.he Ci~ to request the County Board of Supervisors to reject its Roads and Airpo~s Department recommendation to terminate the lease in 2017 and force renegotiation of terms accep!able to both partie~. Act now - grant the.County wish to end their management responsibility for thePalo Alto Airport. Negotiate terms favorable for a balanced reversibn back to City control. Manage the financial transition well, including capital, accoiants and claimed accruals. Manage the transition pursuant to a spec~c City ¯ ¯ designated Palo A!to Airport management authority which would receive policy guidance from Palo Alto City Counci!. Under this scenario, there are two ¯ alternative paths, either at the option of the City or because the County feels it has legal grQunds for early termination: " implications of ending the lease with the County early where the Cit,! of Pa]o Alto operates the airport. Under this option, PA0. 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 balance.for the City and the airport in the long-ran. The City could schedule maintenance and apply for the coriesponding 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 FB0s ~youid likely expect compensation corresponding to the benefit they derive from their business through2017.) An analysis (see Appendix l-D) shows that the airport could be run profitably by the City until 2017, while honorlng {he existing County FBO sub-leases and.yielding income of $100,000 which could, defray City management costs and/or create a maintenance reserve needed for d, eferred maintenance and code upgrades When the leaseholds revert to the City. After 2017, the airport would generate sufficient cash to provi.de for any .contingency. Implications ofending the lease with the County earl?, where the City of Palo Alto contracts operation to 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 would have minimal responsibility for it. Nevertheless, the City would have oversigh{ 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 grants 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 ai~po~ 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. -!0- -3.Wait, study, deliberate for 3 to 5 years. The costs of transition will continue to increase over time. Uncertainty of 0perat[ng expense management will continue (i.e., fue! 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 necessaryI for effective Control assuming a transition from County to City Control. Should the County acI m 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 Vall.ey Flying Club to manage short-teim operations at the airport. These oiganizations have the capability and computer power to facilitate such an interim 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 Cityto 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 tI~e West Valley .Flying Club and using their facilities, eqmpment, and personnel to facilitate transition to City control. A second alternative would be for the Paio Alto City Council to form a special districL although this may create additional, complex control issues for the City of Palo Alto. Finally, there are a few external, independent airport ma.nagement companies, but their work is.often 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 Working Group does not recommend forming a special district, or assigning management responsibility to one of the FBO’s, or hiring an outside commercial airport (i.e., real estate developmeht) management 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 set-yes as the foca! point to prepare grant requests to the Federal~o~ "ve~’-~.men~.~ -j_/- O[, a non-profit co~poration ~ould be contracted to runPAO airport. The airport community-includes mariy 15eople with the interest, commitmen.t, and ability to form and operate a non.-profi~ 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 neede.d for airport ¯ operation collected from users with no burden on Palo.Alto taxpayers. Taxes Coliected at the airport would Ylow to the City, County, and schools as they do now, with none of these funds used to support the airport. The City woutd be paid for management ¯ functions required ar~d reimbursed for expenses incurred by. the City Attorney, Auditor, City Clerk, etc. ¯ The PAAWG did note [hat a local non-profit management company.eliminates the need to add direct City staff at Palo Alto beyond what they would cur[ently do in conjunction with managing via the county to su~tain 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 spot on the airport property ~vith secure attachment points where airplanes are secured by ropes or chains to prevent movement. Hangar- An enclosed building, for storage of aircraft, with.a ro~fl 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 aflnual inspections and sometimes for major repairs. .. Shelter - An open-sided, covered structure for aircraft storage which provides shade for parked aircraft. Generally considered inferior t.o 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, {hese 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 (belbw). FBO - Fixed Base Operator - These 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 0nly 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, whidh are generally more restrictive than Part 91 (se.ebelow). 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 at! US flying. Terminal - A place, often a building, through which passengers pass to access aircraft. Palo Alto has a terminal on.the San Francisco Bay side of the airport. Flying Club - A group 0fpe0ple 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 services 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 communication.s, 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 conIrol and advisory services. -_/3- City of Palo Alto ATTACHMENT B June 6, 2006 Honorable City Council Palo Alto, California " cc: Joint Community Relations Commissi.on 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 prol~osed 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 supportthe~irport. Ou~ analysis of the financial statements, County documents, and City records indicates that Palo Alto Airport operations have generated more than $400,000 in adjusted net income2 over the last 37 years that has been used to offset the County’s original !nvestment of $1,085,134 ($681,349 as of. 6/30/05). In recent years, the -Airport has remained profitable, aithough County pooled and overhead costs total over 40% of tl~e Airport’s opeFating expenses. Because the Palo.Alto Airport is.bearing more than30% ofz~he County’s pooled airport costs for its three airports, the operating income for the remaining, two County airports would be adversely affected if the Palo Alto Airport lease were to be terminated. However, Co.unty staff indicates that significant budge{ reductions would offset the loss of Palo Alto revenue. The proposed tie-downfees 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 Baytands levee repairs. Our analysis also indicates depreciation calculations should be cited with caution because depreciation expense does not affectthe County’s annual calculation of the outstanding advance. In addition, we suggestthat 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 eStimate’the 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 fees. Before 2017, the viability of the Airport may be impacted by: developments in the San Francisct~ito Creek project; implementation of some of the more feasible aspects o.fthe County’s proposed 1 Tie-dowr~ fees are charged to aircraft tenants for outdoor storage of their aircraft. The County operates 362 of the 468 tie-down spaces at the Palo Alto Airport. The other tie-downs and all of the hangars at the Palo A!to Airport are owned and operated by the FB.Os. 2 We are using the term "adjusted net income" to mean operafing revenues (not including federal and state grants), less operating expenses (not including depreciation), plus net non-operating revenue/expense (including capital expenditures net of federal and state reimbdrsements). -1- master plan; and/or the advent of new very light jet aircraft. 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 CoUnty .Beard of SOperv!sors that: 1)TheCity. of Palo Alto st~pports moderate increases in tie-down fees at th.e Palo AltoAirport, bU! the fees should be competitive with fees at nearby ai~-ports. 2)Because it is a regional resource, the City expectsand encourages the C6unty to continue operating the Airport per the terms of the lease through at least 2017. 3).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 Sante Clara (County) and the.City entered into an agreement under which tlie 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 fur expenditures made to construct and maintain the Palo Alto .Airport, and for continuing operations, maintenance; and capital.improvements on the airport premi.ses. 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 the Airport, and were expected to be re.p.aid by future revenue. DeJoitte & ToucJ~e audit: In 1997, the City and County jointly/funded a Deloitte & Touche audit of the County’s financial statements for the Palo Alto.~ Airport tosettle quest:ions about ¯ the appropriate accounting for Palo AitoAirP0rt and the outstanding advance. Proposed Airport business.plan (Attachment 3): In FY 2005-06‘ the Airports Division3 hired a consultant to upda’~e the 1982 Master Plan for the County’s three airports, and prepare business plans fo~ the three airports. The proposed Palo Alto Airport business plan recommends that the County terminate its involvementin the Airport after the lease expires in 20t 7. 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. Cityshoutd be required to~ provide any assurances that exceedthe 2017 expiration date on the lease (ile. the 20-year assurances needed for future airport improvement project grants): Finally, the proposed business plan recommends that the County raise tie-down fees to help make th-e Airport financially self-sustalning, 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 vacant 8-acEe parcel fronting Embarcadero Road should be developed. City Planni_ng staff The Airports Division is part of Santa Clara County’s Roads and Airports Department. -2- indicates that improvements consistent with current Airport operations a~e within the scope of the City’s Comprehensive Plan and theBaylands Master Plan. However, parts of the plan intensifying:use or intruding intoopen space areas would not.be consistent. A response letter from the Planning Director is attached (A’itachment 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 operations. We conducted our. review in March and April 2006 in compliance with government auditirig 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 Airport (the outstanding advance), 4 For our rewew, 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). of Palo Alto Air usted uet ~ncome and advance Pi-ior ¯ FY 1968-69 FY 1969-.70 FY 1970-71 FY 1971-72 FY 1972-73 FY ;1973-74 FY 1974-75 FY I975-76 FY 1976-77 FY 1977-78 FY 1978-79 FY 1979:-80 FY 1980-81 ¯ P¥ 1981~82 F¥ 1982-83 FY 1993-84 FY. 1984z85 FY 1985-86 FY 19d6-~7 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 19.95-96 .FY 1996-978 FY 199?-98 FY 1998-99 F¥ 1999200~ ;FY 2000-01 FY 2001-02l° .FY 2002-03 FY 2003-04 FY 2004-05 TOTAL Source: $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 23%470 288,678 313,807 346,267 343,626 369,880 364~268 366,968 392,8~8 378,027 397,788 "426,542 505,306 430,-105 385,542 438,722 .430,238 439~377 488,062 474,680 647,857’ 75~,760’ 727,657 723,065 725,478 $12,788,443 ($69,949) (78,384) . (88,525) -{97,353) (105,903) (124,276) (120,790) (153,142) (183,606) (20;I ,432) (209,553) (24~I,835) (302,663) (238,752) . (246;570) (268,681) (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) (54~,914) (834,677) (663,106) (617.,.6461 (73~,448) ($12,330,037) ¯(6,007) 5,358 (1,000) 47,863 ;’ 27;864 19,578 26,87,1 27,964 64,222 (1 5,785) (26,112) (479,929) (445) 207,705 (649) (~,166) 49,047 ($54,621) ($8,119) (-14,598) (9,889) (4,015) (4,~42) (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. 24,718 107,494 97,755 97,607 107,988 51,796 91,819 ! 13,400 (50,226) (86,4~1) (588,365) 98,498 125,788 63,902 104,253 39,077 $403,785 Compiled by Palo Alto city Auditor’s Office from various County reports $1,085,1347 ’1,093,253 1,107,851 1,117,740 ¯1,121,755 1,126,697 1,14},821 1,153,118 1,187,059¯ 1,235,053 1,283,914 1,316,523 1,363,477 1,434,670 1,384,744 !,317,~07 1,239,921 1,223,778 1,192,005 1,167,866 1,164,532 1,080,392 1,055,674 -948,180 850,425 752;8!8 644,830 593,034 501,215 387,815 438,041 524,502 1,112,867 1,014,369 888,581 824,679 720,426 $681,349 Does not include federal or state reimburs.ements for capital projects Data not available prior to 1989 $2,186,793 in imprc[vements, less $1,101,659 federal and state reimbursements Deloitte & Touche LLP audited 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 County po_oled andoverhead charges now average more than 40% of Palo Alto Airport expense. The County cha~ges some costs directl~ to the Airport, and allocates i.ts.poo!ed co~ts based on .a formula. Over the last three years, the County’s direct costs at the Palo Alto AirPort averaged $391,791 per year.11 As shown in Table 2, the Cour~ty’s pooled and. overhead, costs at the Palo Alto Airport a~/eraged $280,561 per year - or about 41.7% of Palo Alto Airpod operating expenses. 12 Table 2: Percent County pooled and overhead expenses allocated io Palo A lto Airport " $378,345 $360,744 $436,285 $391,791 $284,761 $257,759 $299,163 $280,56? $663,106 $618,503 $735,448 $6[2,352 Di[ect County costs to operate E’alo Alto Airport Pooled County operating costs and overhead charged to the Palo Alto Airport Total (not includir~g depreciation) Percent County pooled and-overhead costs 42.9%41.7%40.7%41.7% Pooled Count~ expenses for salaries, benefiis, and. general administration overt~ead have increased in recent yea~s, reducing.Palo Alto Airport operatingincome. For example, general and administrative County expenses increased 85.6%, fromS94,031 inFY.1997-1998 to $17,~,533 in FY 2004-20051, 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 s’ame 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 foul factors: (1) the number of operations staff, (2) aircraft operations (t~ke-offs and landings), i3) aircraft. based at the airport, and (4) number of principal tenants; (or FBOs).~3 The percentages change each year as shown below: Table 3: Percent of pooled County costs allocated to.each airport Palo Alto 32.5%31.3%31.3% Reid-Hillview 58.6%56.6%56.6% South County 8.9%12.1%12.1% Allocated costs ShOL~ld be trued up at the end of eachyear. 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:14 ~ 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 costs. Theseemployees staff the terminal at the airport. This does not include ~irport tower expenses Which are borne entirely by the FAA. ~,2 The P.alo Alto Airport’~ share of pooled-County costs and overhead included $125,500 in salaries and benefits, and $174,500 in insurance, professional services, internal departmental charges (e.g. legal expense), tools and instruments, transportation, and other general administration costs.13 "]: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 FY 2002-03 : 33% FY 2003-04 33% FY 2004-05 31.3% TOTAL! versus 31:3% 31.3% actuat pooled and overhead cost allo.cation percentages $2,588 $13.,278 0 $15,866 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 the 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 wbuld 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 andSouth 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 2004-0.5. County staff has indicated that County expenses would be dramatically reduced if the lease were terminated, 0f(setting the loss ofrevenue from Palo Alto: Depreciation expense does not affect the outstanding advance. Although depreciation expense does not affect the County’s annual calculation Of the outstanding advance, it has sometimes been included in public discussion in a Waythat can mischaracterize the Airport’s curren:t 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 oosting over $4,965,000, of which $3,383,000 was funded by Federal and State grants. Federal and State grants covered as muChas 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.~ This can dramatically.iml~act the appearance of profitability (or toss} at the Airport in any given year. However, depreciation is not a fl0w of cash., and is irrelevant to the calculation 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, but must use any additional revenue to im prove and maintain the Airport. While the lease requires Airport revenues be reinvested i.n the Airport or applied against the outstanding advance, there is no formal loan agreement requiring 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 s{aff reports that the acfual 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. is 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 $1,883,000 book value could be fully depreciated in 6 years. -6- Fund.18 However, if..the lease were to be terminated there is, to ourknowledg.e no formal 10an agreement.for repayin.9 the amount, .and the City is noirequired to repay the outstanding adyance t6 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) ~emains in theAirpofl Enterprise Cund. ’ .. The outstanding advance amount is increased Or deoreased according to whether the Airport generates a pro.fit 6rloss each year. No interest accrues on the balance, As shown earlier (inTable 1), after incu.rring losses in its start-up year.s,the A.irport genera!ed positive adjusted net income in 21 of the last 24 years (1982-2005). The Airport has. reducedthe 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 bsers. Our aria ysis of the outstanding advance indicated the County bharged the Airport $194 500 for realigning Embarcadero Road and moving its related utilities.. The Airport lease specifically states these were to be County expenses. It should be noted that the Embarcadero Road ~msrovements benefited both the County-run yacht harbor and the County-run a~rport. Levee repairs were charged to Airport users. In FY 2005-06, levee maintenance and repairs totaling $125.454 (for construction contracts consultant payments, and reimbursements for work done by the Roads .Division) was charged to the Palo Alto Airport.2° According to the 1979 agreement for maintenance of levees in the Baylands21, the obligation to repair the levees appears to be an obligation of tr~e 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 Pr6posed tie-down fees would be significantly higher than nearby general aviation airports. The business plan [~roDoses 30% tie-down fee ir4creases at Palo Alto - cc~mpared to proposee 3% fee increases proposed at the other two County airports,. Reid-Hi.llview and South County This would put Palo Alto fees s~nificantly aoove other nearby general aviation airports, and could jeopardize Palo Alto revenues if users ChOSe ;o move their aircraft to other airports. Table 5 compares the present and proposed fees for aircraft tie-downs. 18 Un.der generally accepted governmental accounting standards, the aavance would technically be considered atransfer not a loan since it has not been reported as an inted:und receivable or payable. ~g The county share of the $2.8 million in capital improvement projects was $550,900. Federal and State grants covered [he remaining $2:3. million used for electrical rehabilitation and upgrades, slurrysealing the pavement, ad~ir~g safety fencing, rehabilitating the apron, and repaving the runway. 20 Up to $.50,000 in additional expense i[qcurred by the SafitaCla~a Valley Water District for the project is still pending. " 21 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 man,~ years, and the levee appears as part of the regional Bay Trail on the Bay Conservation and Development Commission’s curretqt maps. However; there does not appear to be any written agreement on the part of the City or the County for that access. Table.5: Current versus Santa Clar~_ County Airports Palo Alto Reid-Hillview ¯ South County Nearby Airports San Carlos Half Moon Bay Hayward ’ osed tie-down fees at nearby )orts23 $111.50 $111.50 $79.50 $115.00 $59..00 $60,00 S144.95 (+30%) ’ $114.85 (+3%) . $.8~.89 (+3%) Justificatioh for increases: The business plan justifies the proposed fee increases by stating that. the Palo Alto Airport has historically operated at a financial loss and thatthe dei[iciis arising from operations at the Palo Alto Airport are being subsidized by surplus revenues generated byReid-Hillview Airportl In our opinion, these statements mischaracteriz~ the operating results of the Palo AltoAirport. 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.2~ We estimate that if various adjustments to the outstanding 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 increa&es in tie-down fees.2~ Future viability of the Palo Alto Airport. Between now and 2017, theAirpo~t 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.generated sufficient revenue to cover.the.required match for federal grants so that some of the modest improvements to taxi-ways and runway that are suggested in the master plan could be imptemerjted. .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 Ti~-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 Qakland (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 weighing 0 - 3,500 Ibs. 2s 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 rela~ed expenses. than operating revenues (an average of 7.6% per year). 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). On.the 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 runway.s, cbuid change the general aviation marketplace. Fur[he[more, actions by:the San Francis-qt~ito Creek Joint Powers .Auth?rity, working with the Army Corps of Engineers to address flooding from the creek, could impact the Palo Alto Airport. After 2017, FBO leases could generate higher revenues. Palo Alto Airpert 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 periods 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 orily or~e 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 only 17 to 18% of the total Airport revenues. Once the leases expire in 2017,these types of claLises could be incorporated into the lease terms to ensure higher revenuesfrom lease rents. palo Alto is a regional 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.2~ Regional Civil Air Patrol and Stanford Life Flight operations use the Airport.., along wi.th fly.ing clubs and other aviation-related tenants. Accord!rig to the General Aviation Element of the Regional Airport Scstem 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 of the County by meetiog, the needs of the General Aviation community and the traveling public.." Ti~irty-seven years ago,the City agreed to lease.the Airpqrt to the County for a nominal sdm; the County agreed to operate the Airport and to maintain and invest in Airport facilities, During otJr review, City staff indicated that they expect and encourage the County to continue operating and maintaining the Airport until at least 2017. Our recommendation is shown on page 2. t Would like to express~my appreciation to County and City staff for their cooperation and assistance during:our review. A response from Santa Clara County’s Director of Roads and Airpor!s 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 111h year onwards, was set at 8.5% of the fair nqarket value of the premises, excluding the buildings and improvements made by the FBO. The lease for the second FBO (Roy-Aero) was signedin 1969 and assigned toa 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 space.s 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. -9- ATTACHMENT 1 Response fromDirector Roads and Airports County of Santa Clara 1Roads and Airporls l)eDarlm~nt San ,;os(~, California 95; I O- 1302(4-08) 573.2,100 June 6, 2606 Ms. Sha’ron WJnslow Erickson, City Auditor City of Pale Alto 250 Hami/to~i Ave. .. Pale Altoo CA 94301 Review of the Pale Alto Aiz-porffs Financial C0ndi6on Dear Ms. Erickson, ¯Thank you for the opportunity to review the draft report regardihg your analysis of the financial condition of Pale Alto Airport (PAO). The following comments are provided: 1).Opera ti#_? i~come The data presented support the County’s cpnclt;sion stated in the draft Business P~an that since inception of the airp6r.t lease,, the C0unty’s inves~nent in the ¯ a.irport has exceeded net revenue by $681~,000 despite the.fact that the great majgrity of Capital projecf ~osts have been funded by others and the fact that the County’s unrecovered in%estment (th.e ’-’Out, landing Advance") does not accrue interest. 3~hese facts are compel]tug indJca~ons ofthe financial subsidies requi.red to operate the airport. N~ar!y half of ~e meager $400;000 in total net:opera ling income generated over the.t~st 37 Years willbe wiped out:by the projected ~Y 2.0.06. (~per#tmg loss, due in large part to the leyee project. An 9pera~ng loss is also¯ projected for FY 2007. The record clearly demonstrates that.operating .profits generab~d m.year~ when no additional capital investments Were made .are inevitab!y off,el by the tnfusio~ .of addilional capital required to maintain and-improve the airport. Because these additional investments do not occur every year, they tend to-be overlooked by some:even fhough they have the same effect, dollar for dollar, as an .Operating loss¯ The OuLstand~ng Advance (OA) is quite handy.in this regard as a met-tic of the airP0r(s ~ong-berm financial peffo.rmance because it represents the difference income. BOard of SklpOrvl.gors:¯Donald F. Gage, Bianca Alvarado,Pote ~4cHt~gh, James ’F. tSeaIl, Jr., OOllllly I~,×CCulIvC: Polar Kutras, Jr. -I0- 2) 3) 4) Overhead The overhead costs allocated to PAO are the overhead cosis generdted by PAO. Thes~ co}ts would not be incurred by the County if the County did not ope1~ate the airport and.will be eliminated when the County ceases to operate f_he airpotl, Some costs, suct~ as intra~departme.n-tal charges, County Counsel charges, insurance, etc. will shrinlk immediately upon expiration of the lease. " Management staff c6s~swill be reduced as the management struc[-ur@ is adjusted to reflect the reduced scope of responsibility. Any ~l]odated o~verhead not eJiminated as a resnli of !_he lease expiration would be.small and offset many ~imes over by the elimina~ion.of the business risk associated w~th running the airport. It is important to note that no adjustment is made in the overhead allo4ation to reflect the additional administralJve burden imposed on staff due to ~he lease arrangement with theCity of Palo Alto, a burden which is not present with" respect.to the two airports owned and op.erated by the County, .D~precia ~on. We agree with the report’s c0nclusion.tha.t the .County ~s correctly excluding depreciation from the caku~ation of the Outstanding Advance, but.not for the reason suggested i.e. be~ause.~epre¢iation.is not a cash transaction. Depreciat{on related to the grant-funded portion of capital projects is not included inthe calculation of the OA because the OA isa benchmark ofthe Coun _ty’s financial" exposure resulting fr6m its involvemen~t in the airport; the pass-through of outside grant funding does not impact the Count*isfinancml ~ta.ke m the airport. The AEF-funded.por.t~On Of capital projects is approp~iatel~ include4in the cakulation o~the OA. !n otherwords, the~relevant iss,ie isthe source o~ capital " that was nsed..to fund thedmpi-ovemen~s being .depre~.i~ied. Dep~:eciation is the mee.h, ani~m by which costs f6r longqife assets are alloca~d over time and; o~ cofir~e/a, re.entireIy relevant to any dis.c.ussion abo~t .the airport’s financial.-posi~6n and performance, The fact that }_he County’s investment in the airport has exceeded net revenue by $6811000 over 37 years (not including intereg}) despite the fact-that the great majority of capital project costs were ~unded by others highJight’s airport’s reliance-on subsidies to ~und maintenance and improvements. Embarcadero Road.impgovements and levee repairs There ~eems to be ~oniSnuing confusion over references to "County" expenses in the airport~ : ",ease, wfth LEe implication that these expenses shouldsomehow be -11 - 5) funde.d by some County fund source other thanthe AEF. As wehave-discnssed a number of t~mes1the Airport Enterprise Fund is not a legal ~n~ity in. and of itself and therefore cannot be a party to an agreement. The County of Santa Clara is the.legal en~i.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 Enteipr~se 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~ respeciJvely, simply reflects this basic legal concept. The r~epor[ states that the Embarcadero !Road improvements benefited both the Yacht Harbor and the airport but does not establish the basis to.support thi~ claim. The Yacht Harbor was accessed from Embarcadero Road pyior to the ~proyements, so the improvements were not essential to pro~iide, access to the Yacht Harbor; The salient issue is that the Embarcadero IRoad!mproveme.n. ts were made because they were required to be made by the airport lease. Since the improvements ~ere 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 ~e Yacht Harb6r, il iS 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 use on a go-forward basis. .. The same reasoning applies to the levee repairs. Because the County is a party to the levee maintenance agreement due solely to its involvement in the airport, it is appropria.t~ that the County’s costs of complying with the agreement becharged to }he Airport.En..terpr~se Fund. No case Canbemade to chdrge thos~ cost~ to .any o her County tuna source. Issues related {o where,: i~is appi~opriate fc~r the C6unty to .be a .paltryto the levee maintenance agreement inthe first place and how part of the leasehold came to be used.:fbr other.:purp, o~es without the C6unty’s consent .as required by the ldase will be addressed under separate cover. Tiedow.nrates and the future viability of PAO The report does not provide any calculations to support the conclusion that the airpor.t can generate sufficient reven~ae to cover expenses Oncl~dSng modest capi.taI improvements) and reduce the OA to zero prior to expira~on of the lease ~euown rues, Thank No accounting adjustments to teduce the existing OAare warranted as discussed above, nor Js there evidence presented that overhead costs are unreasonable, unnecessary 6r misallocated. As mentioned ea.rlier, the OA is projected to increase substantially ~n FY 06 and FY 07 as escalationin operating cos~ outstrips growth in.revenue. An increase in tiedown fees is the o£ly viable 0ppor~unity to generate additional revenue. The draft letter from the Director of ~]anning and Community Development attached to be repo’rtindicates that no increase in aircraft bas!n~ 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 in the lease. " . you again for the opportunity to review and comment on your draft rep6rt.- Sincerely, ]Director Murdter ATTACHMENT 2 Draft letter from Paid Alto’s Director of Planning and Community Environment to Santa Clara County’s Director Roads and Airports i4,200s Michael ]. Murtder Director, Roads & Airports County of SarRa Clara ] 0 ] Skyport Drive . San 7ose, California 95 llO- 1302 DRAFT. Dear Mr. Murdter: This is in response to the County’s Airport Master Plan for the Palo Alto Airpo~. The Master Pla~ 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 Pla~, ~,hich is attached for yot~r future reference. ¯ In genera! the City’s Baylands Master Plan suppor{s the continued operation of the airpmt in its current configuration. All aspects of the County’s Master Plan re] ated to the maintenance of the existing facilities as well as some ofth8 proposed new construction activities are compatible with the City’s plan. These include the additional aircraft wash rack, the replacemer~t of the existing helipad with a new heliport, a new Taxiway D and reconfiguration ofTaxJway G. The Baylands Master 21an, however, does not allow changes in airpo~ activities that will increase the intensity of airport use or will signffidantly int}ude fnto open space. Speci~c, aily, the expansion of permanent aircraft is in conflict with the Baylands Master Plan. ~ I hope this clarifies flxe application of existing City land use policies app]icab]e ~o.the Airport. Please feel free to contact me if you have any additional questions. I can be reached at s~eve.emslie@cityofpaloalto,org or 329-2354. VeW Truly Yours, Steve Emslie Director of Plarming & Community Environment City of Pa]o Alto .CC:}?ran]< B enest, City Manager City Council -14- ATTACHMENT 3 Draft Palo Alto Airport Business Plan provided by SantaClara County Business P!an INTRO D"U C:T! O-N of d~e aixp6~. ~.he M:a~te.~ Rl:~n J., ~.n ob~ec.dv% ~and-~lo~¢ docu- po~t ~ega~d~ss of ~/he~b~r the. Cou.uty is dtavo.[~ed Ja }es ope.ra~on bRAF r dbn U~y 2.006 .5-- ! the drport’s future capir,~l, in.~est~ment .a-e.eds; ;>Recornme~>ds. Conn.% actions. Jn andcjp~t:{on of the Ciry/County l.e.ase, ekpi.~a don [n 20! 7_ CITY]COUNTY LEAS5 OVERVIEW acco~d.i.hgI ~o Ci~ d.ocumerrts. T.tse. ten.e :i,g ~;-25 fo.t" the ~.nei~e term .the .[ea, s e. UsE A.N:D DS.VE!<OP.~ENT Og- A~POR7 REAL ope~gng a:~d ~a~.ainJng .an a~ot~ a~d ~f~po.~t J~ci]id~s; non- aviagon, indt~t~l o: m~n.tr~ac.t.u.g~g :ises ~re p~ohibJ.ted. J~ p~ovem-fi~ls ms~t conform to the (’,iCLs ~l~}idMg codes a-~d s.nb~ect to City p}an .appk~val.. A devdo~m¢~,: plan was {ndo.ded an e.~:hi~ to ehe’od~nd Jeas% e~eantibn of&e d.eveJopment .pith ’r2on needs. :a~d ec.Qn.o.m~c }us~E~ca~o.q ~,a~tan,. such .d.ev:etopmeneJ’ ¯ Th:e dg~ddpme:~-t plan w~s snb,s~que.~gy m.o~Sed ~vice and Mc.o> po.~ated..~nto ~e lease by lease ~me~d’me~t n~mbea .¢.ue i~ Oc.mbe~ 1.968. ahd. am.e.n,~.en: numbe~ two .Ja Degemgeg 1969. The Ci~ req~J~ed ~o .~.p~xt the. C-ounU ~ ~ ap£p~cado.ns to ~n~cJ.aL assis. tance agencies concerN.ng :the de~do>m.en.t .and opera, on of Fede:r~l .Avian.on .Ad~>i~isv~.do4. ()E&A) .~¢~lagi.o.t~s ~:d b.as fnJ.I pow% an.~godB," a.n.d, respo~as.i.i~jh~, )a :r.eg~,.r:d to the ope~udo.o, man~gemel~x and malnt~aace of the-ai~.o~ %s th0ug.la ]t ~,ere the so,i-e owhex ~hereoL" 5-2 -i6- PAO BUSINESS PLAN In a-d~don to ¯tBe ~o b~se. ~mcndma!~.s discussed ~bo’ve that co~om-t¢.d .t~ .revised de~cl-opmen~ p~.~ into the. ]case, ~me.ndme-nt numbe~ d~.~e.~ in Mzy 1980 est~b~shcd ~ ze-quJr~-mem fo~ t~e CoF.n~y m obt~{~ Ci,~ concur.fence to ~pply m ehe ~edow=s abov.e 510 ~paces, The fovrth and float .amendment *~b .~.1i~ cb.a.tgcs rd~tzed to ~he smxm:waa:er pumping ~et-0pe~a’dng .~ewn~e gen-er..’ated a~ ~h~ ~]:.po.r% 1[-~-3% .is .~rSt p!ied ~g~{n~t the. running balance o~ t{~ Counits nn.~ecove~d m- reconp ’d~.e CounW~a inves~ea.rJn, el~e ~i~po~, ~ny a.ddhio~d nee AS$1Gib~MER’T AND SUBL.ETTI!NO b~t t~iel C0~:nry m.~’~ suble.t t~e p:tem,ises w’itt~om ~h.e. Ciry’~ The ¯lease m~y be {E~mLqar~d by e.ither P~W in. J.~e event of bye.a.ch by d~e. other pa~.cy, The pa~ty ~n de~tu].v.h~s 30 days ~o r.~medy t~¢ B~e:aoh {~m~ d].e d~te of n.ot~ce b:v tb.e othet par~,. ~hm~c g ~o pro- vj-sJo.n :got unilat.e.r~l .t.<mnia.atJoa of t~e ]~ae i~ the ~b.sance of a The le.ase c]~-a£y p];~ces a[l businc.ss Jsk~rel,a~ed co ~.pe.m.doA of .~i~o.e~ on eke Co~. T~)e. C~b’ h~ nc~ Bnanci.a[ obligation o.r ~vi*~..cespecz ro the ai~ottb op.e.ration..Mo~eov~% ~f tb’¢ Comic’ ORAFT’Ja’nua~ .2.006 6---3 -i7- and co’u.ld n.ot’ b~ ex,~)ozt~ci 1o ~Se other C.p~.nty ~itport.s, Tot:a[ annual .p~pjecled .&EF,tcv¯:,an~ is approxio,ratdy ~3,.2 .mJNon~;" 76% of-wNd~ i.s generated ~wan sp~ces (Le. bangn~; ~hej~:e~ ,nd . Co~niy-owaed ~t~.r~ fl’ .slo~ge Fpace.s¯ ~:hel.te~g), flmi ~ow~.gc ~¢es :and ~the~ "Cotlh ty AJrpO.’tt. oRaF~JanuerY 2006 -18- T.he .~e:~:t la:~ges~ ~ven~e com.po.nem’ (1 l%) is Je~s~ z¢~.~.ne from ~he 1.2 N.~ed B~.s~ OFer~o:ts2 (FIB0). N.os~ o~" the EBO sp~ci.~v a~ ~nna-~l ground ~en~ equ~[ ~o -8,5% o~ tJ~e fee. si~pJe of t:he le~se~oid peerages (not.ifl.d~diag imp~ove~ent0~ t.he premises. G}ven ~be l.o~8-te~m nature o{ the F~O le~ses, the don-al ~.ino.r ~d~s~me~t ~ ~he lease rate (the .rea:pp-:dsal com~ .pieced in December 200~ :~gsult~d in no zate inc:~v~.se), .A,[I ~eveaue c.amgo~ie~ indOding pro.pezty .retrial, furl fox, age fees, t~n~ie:nt airc~ff fees n.nd-imtere~.t income coB~ecdvely ’13% of AEF rca,enucs. Re.id HilJ’view AJ-~po-rt (TLHV) ge.ne~1.tes apprO’~m:atdy 56~,¢ of t~tat ATEF ~even.ue p.dm~d~}~ d~d m O~ income ~om ~$~e- "L45 ConnD’-owned bm.~.g~s~ P~io.r to t:he &~nth Com.~<y AStpo~ ~’l.~) h,ngar pmj-ecc ca.t~ently n~,ing co.n}pi<~on,-.jt w~, the o~:~.y ~V ~evu.nwe. h.~s ~xceeded e~pendi~n:tes ~na the su~plu.s.h.as been s~s PAO ~REV:E-~N U E A.N ;0 EX P5 N DfT U R ES In. N~vembe: ’I997, the Cky con.r~m~:c-.d, wiz¼ Ddoitm & To’uche :~&~, an ~ndependen~r au~t~g ~tm, to a~di/ the Counb’:’~ clhl da~m ~da.t:ed {o the d~p¢~ -and pze.pa~e ~"sc-( o:~ fiuaa.ciat meats in response.m concerns ~p.te~sed by the Ig~l.o. Assc~a~ion ~.,~A) ~nd the air,pair’s JNn-t Com.mum~ C~mnhtee. 0CR:C) ten, ling th~ Comw’s ~ceonnd~ag fo~ cost~ ~d ~evcaues as~ocizaged ~.Jth .PA.O,~ The D~’T audit, whirls. ,x, as .fun’deal join@ by he G-r:y ~fld ff~e Co~w .~t ~ tota~ cos~-o~ ~39,~00, ptod.ue.ed..a ~et of ba,s<Une fi oa~* ci~! s-mcemen.rs andaDevJaed the co~,c¢~ ~.sed by :t~e 7PA~ a*~d 0CRC, Sub;sequentty, County s<aff.and CJt7 sra£f~ag~eed on a. for- DRAFY-.Ja:4.uary 2006 5-5 men ~n t~e ai.~o~t h~s .e:xcee.ded net teven-u~ by $668,000. E[~cal .jo~s of:~34.8,0C~ .nea.dy ba:l£ o~ which i.~ d.ue to ~ one-{me e~.pendL tu~.~ fo.t .a. ~.¢vee mdnten~n.ce pto}e.ct. Thereforg~ -the Oz~m~n.d].nfi Adv~nv.e ]$ p:r.o~ected ~o ~ow to .~l]ghtfy ove~ gl m~Illon by tl~e end of~Plsc~l Ye~ 2~6. - " the Out~ar~.ng Adva0c.e doe~: not ~efl.~ct c~rent The -£ac~ th.at the Out$,~.n.dlng Achmnce does not ao¢:tue make.s J~ .~ ~h~ anq~e sign.ifica~t-th~.t -the C~u~U,~ inves~mems ve~~em:.s. ffp:anced by ioao,s .from thd C.ounw G-m~e.tgl. Fn~d ~t by .revenue bonds atcm.e-Jnm~.~ R~ mns:t be paid .fo.~ as part of the opcm£ng budge:t, If a dmi)~ scenajo a.pp~ed at RAO, .t:he st~nd~g: Advagc¢.wo01d be ran& highc.r, ’-£~e aigpOrf.s pmje~.re.d .FY :2{)06 r~ev.e~m’~ i,~ (~>p.ro~ma.tely 22% o~ ~oml A~F ~e.~’~me) a~smn].~g d~:t ~i~p~.t ~ei=~i~ n.aa:~ f~[l. cipad~. Each .teven~e compo.nenr ,a.~d ks doJJa~ amotmt and ,perceotage of ’tol:~J PAO ;evemm i~ as ORAF’T JanuaO, 20~6 -20 - entities the C<~my to 6% o~ th~ FBO’s ~ev-e:~u~ ~o.m $0,202~7SF (approxim~a~,l.y $SS00iacr(0, which .Fuel-. fI.owag-6 ltee.~ - $.50,000 (7%), The ~0.10 p~ ga~o~ fbd. flowage fee fo.r Coun.~ ~ir.c,r~afl’.{~.-e, :Fi;r~8~ .~3o15~sed .t PAO) ;~-te ~eq3f~ed tO pay ~ fee: d,esign.~ed ~o~ t~ansienr nsm .Mis.{}{{ll-a:l:ae.otl$ - ~:~5,.000 (9.2~,), "1~h;z categc, zS, .capmt.e.~ all not att~b~e,ab]e t:o onb, of the ~bove cu,~%ories~ *ucb ~ .p~ng c.ba ~g#.¢, ,etc. 2Reven.ue gen.e.~.~ed at the. cd@ort..from saiea a~e.6 a.nd personal proper~ ~xvS d.Oes n-oe ~cd.c~.e to the A.EF, C.it}-d.oc~a~at~ta estimate. ~h.gse ~m.ouats ~s $150,000 and $200.,000, ~eq~cdvdy: All haCga,~-~ ,a’t P)!,O ,~re own.ed ~.nf! operated b), the FBO~’, 5~7 -2i - FUTURE CAPITA,L INVEST~£NT NEEDS The ~irpoo: s#~ngor is [espons~ble 1) fl~ teq.ditedmatch ,fmxdin D 2) the ovet-a~, pr6ject costs. For exampte~. compo.n.en~ ~p.proad,]~d 20% o# the $2.8 mi./lb~ %pi..t~ p~oje,ct eomplp:ted at P-AO i:n £001. .A.i, rpoit .lmprbx~e~a;e.nt P:rogr,~m g~m:s ~re aeco.mpa’aie.d by-a .~eq.ui~eme.ny ~o keep t.i.~e aixpo~ ope9 ?br 20 7ea~s and th.e .p,~ohiBi~ d.on on ~v¢.tdng "~(po~trevenue m non-airport, p~poses,. ~~mv T~’xhvay D ~.’I.(econ~igu~,~doa o~ T~xwy G ° l?hys.i~.l security e.nt~a,~:cemenrs DRAFT Jan uaW 2006 - 22 - FUTURE COUNTY IN.VOLVE~ENT .IN PALO ALTO AI!RP ORT fb~ ad~ai ~e:ve.n.~.e:-ge~dng &ve!o,pment A on a porfl.on of ¯ the v~acam: dghva~.r.e pa~cd fro~r~ng ga~bacqde.m Rozd, The Ci~g has dae ~.naj s~y reg-a.rding the e:zt.e~c Co w!~ivh th~ parcel .is devd~ upd, [~ at all ~.4 o=~y’ de.vqlopme~t option b~v]ng Ieve-nue- generating po~e~ ~aJ fh.at, is .idm]t:b~.ed ~n ~he &aft .~te, la]a~ Js tb: adc~.fion, of 29 new hang~:~s.. .~oweve’% skytockeffng oongt:nction costa,..rising i.nteres.t r~t~,s an,d th.e ..high ¢6sL of’fl~¢ ~el:y ~ga ~ioat8 ¯ d~O~ {S "drt:aMly gpa~:a.nt¢cd aa.~d tha app~dva[ process is a.n:dd- p~Ved t:o be. le:ogthy; a~d.uou~ ~*~d ex:pensive, Duo ~o the. nonsmnc~a~d de.,q~:~rme.s between t,-~xila.ne,4 ~d p~:ked MTc.>aft, ~ny .co,n.ve~sian o.f e~isf{ng ~e.d.o.¢,n <ows m T.:baaDrs would zesul:t in ~ @gr~fi.cm~t ~eductl.<m. of avaiiab .e aa~cmfc" basing DRAFT’J~noaO"5-9 -23- .5-70 ~O~m a~ J~he~afl.y poo~ ~c~.n~¢ ~he d~-d:owm~ ~t womJ.d, bc e~ln:a~ed cu~te~.dy g~.nerate a~:u.t one-quatte~ the ~eveaum o6 :p9~ cotdd e:~pe~Je~c-e,tedn-:ed dem,~nd fet~m ~i.~craf~t :ownea:s due to wse, whJ,ch weujd "have a. ~eve~.e negative impact o~ The t.0~s of PAO ~;ould not p~.esent ~n}:, op~ea6onaI "impacts ~:o the. age J~depend~m.. Fi6~nei~L e~mina:~n:g .PAO fao:m c~e A.EF wodld te~u.it .i~ {he ,[o~s of ~.h.e ~i~dr~’~ m~e0u.d~ which. more than of£~t b.y the .te~]ue~~on. in direct operad~g co~es, poasib.i~w [h~t ~tV wi[i. ~.eed to ~>bs.dJze PAO J~ the £umte allow Cou.~ .akpOmt~ .~taffm ~)c~ss ot~ execudn.g the mas-ter foz RH’V and EJ 6- ba~i~ oz bas~s the ai{po~r to a .~:ex~ ies,se.e ~,[te.~ 2017, ~-t:mc.ta}~l ~]~andd pmbtem. ~nd b~sJ:n-es,~ .rl.sk. must- be Restocking ~ome of.the D~sh~egs d~k fzom the. 2006 Opamdng ~osts cou]~ be. ]gwere.d. by .h]ring ~ contractor having bwer J~!~o~ ~nd overh.~t, costs {h~n fhe (~ounty oz ~1~ CAy [o op- the drpO.r[ on ~, d~),-to-d~y: b~ds. RECOMMENDED AoT~ONS Th.e C o~ ~), s~!~uld~ - Continue to .[ulfill he. lease ob.Eg~:no.ns nnfi!. cx~.h:~t]O~ .of the ]eas~ w~th t;h¢ C~b" in ~0I?" b~ .t~.t~n~te i~ involve- .Ci~,~ Li;:~,-~ :[u:m~e Coon,ty c;~pkaJ, inve.~tmeat jq the dx.port to tke local m~m.h mee:es~" .[o.r es-s6ntial, nob-d~[¢vt’a:~o, .AtP- <~gi.bIe: m.~ate.~z~ce p::ojec.~:s or s¢c~iU-~:d~te:d p~o}ectS m-an0~ted- by rb.e ~z~ or T:cansporl~on Seen.6W Ad~fini.~ a~r-atJ.on ~SA): P,o:jects ]fie~g[b-[e. got kip fm~.d.ing ~hould ~o~ be nnde=t.aken. d-on,~, SJ.~c¢ d~e 2O-.yta~ g~amt a~:su~.nces w~tl a-e~aM in f~tce v#elt beyond the expiz~tbn of the le.a..se .in 20t7] ~:h.e Chy Ernst: detetmh~e whe&.et t9 appJy foe ~.nd. ~cc.ej?r ihe -sn~a:nces ~ffter e,pir.adon of the ieas& l.a~ t_ ou:ory" gooia t~Lai~’~. ~:~_.~,’po.oa,L~mt), .... {-:01~ compa.~aa,~vc~: wi th fin.e P\&A g:~:an t as.su eance.s"0 0 d! expi=xtio.m o fthe i.ease. ]’]~e gca~t~ assQ~nce.~ ld.4d% to .p~ject i~mlt, teme0t~a.t{on (consubant se].ecti.o;% const~gdba .ecmtmcts., wage. r~te.s in-. ~pectio.n, record k".~ep.~ng, envfmnn~enm~, comDl:i.ance, etc.) .DRA£ Y J2,auary 2006 5-1 ~ - 25 - open ~,~d ~h:~. p.~oh~.on 6n, ~xp~.tfing ~o~ wfl! -~em,~fn o~e~adve for the ~nt~e 20-Tear ~fe a~ DRAFT January -26- ATTACHMENT C William W. Fellman Manager, Real P~operty Real Property Division City of Palo Alto P.O. Box 10250 Palo alto, CA 94303 June 14, 2007 Dear Mr. Fellman: As you ~-equested, 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, specificaltythe Federal Aviation Administration (FAA), and to the State of California, specifically the Aeronautics Division. of the Departmenrof Transportatio.n (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 (AIP)grant.assistance funds for projects, the City wilI. have to comply with the Grant Assurancesthat are made part of any FAA AIP grant. acceptance. This obtains even though; in the pasL the CoutaCy of Santa Clara (County) sought the FAA AIP grants, with the concurrence of the City. The Grant 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 AIP 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,.)lirport Safety Self-Inspection; 150/5370-2D, Operational Safety On ’ Airports During Construction; 150/5050-7, Establishment of Airport Action Groups; 150/5050-4, Citizen 2~articipation 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, wt~le "advisory", often turn into "non-compliance" issues unless a good faith effort has been exerted bythe airport owner-sponsor to comply. ¯Airport pavements, runways, taxiways, and parking aprons/ramps ai-e a major owner- sponsor and federal investment, and are, literally, the heart and soul.of an airport. Maintaining or repairing pavement is a.compliance requiremen~ for federally obligated airports where AlP 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, Guidelines. and Procedures for Maintenance of A irport Pavements; 150/53 80-7A, Airport t~avement Management _Program; 150/5380-7B, Pavement 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 projects. 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 ofthe runway and taxiways, and parking apron/ramp. The above is intended to demonstrate a major area of own4r-sponsor obligation that can not be dismissed as perpetual owner-sponsor involvement. Then there are State obligat!ons 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 2.51 Chapters 4 & 5, California Aid to Airports _Program and Airport Loan Program, provide "compliance requirements" for applying for and for accepting State grant funding assistance (copy attached hereto)i There aretw0. FAA reqmrem~nts that the. State t~as adopted as airport owner-sP0nsor obligations, both bearing, on holding a State operating permit. One is. the Advisory Circular 150/53 O0 - 13, AirportDesign, and .Federal Aviation Regulations Part 77, Ot)jects Affecting Navigable Airspace. The State expects compliance with.the guidelines of 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" th,e airport, .the airport owner-sponsor is.ultimately and always obligated to comply with federal and state requirements. An entity contracied by the airport owner-sponsor to conduct day-to-day operationofthe 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 anadditional insured. The city; as a public entity probably can acquire liability insurance, at.a ,cheaper rate than can a private entity contracted to opera*e the airport. The City has a risk exposure as a "deep pocket", even if the airport is operated by a contracted entiiy.. 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 funds, 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. Eve .rything that is reined, leased, or used should have some chargeor 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 FAA 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 ~ts own permitting process, a further owner- sponsor obligation is to expeditiously correct discfepancies 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 responsibiiity to ensure compliance, by itself and its tenants and users, with environmental protection re, quirements stemming from the National Environmental Protection Act (NEPA) and the CNlifornia 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 s~orage 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 ~br emergency and contingency recovery; repairs and maintenance of pavements and facilities: necessitated bs? normal wear and. tear; and improvements and replacements, ¯ and additions of facilities¯ and pavements prompted by increased use, or changes in use of the airport. Third, environmental protection and compliance with laws to that effect must be an everyday ¯practice. Sho~ald you desire more explanation, piease feel free to contact me. Sincerely, R. A~nstin Wiswell Attachments: 1. Federal Aviation Administration Airport Improvement Program Orant Assurances for Airport Sponsors, 03/2005. " 2 Advisory Circular 150/5 t 90-6, 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.rt Action Groups. 7.Advisory Circular 150/5050-4, 09/26/75, Citizen Participation In airport Planning. 8.California Public Utilities code, Sections 21001 et ~eq 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 Biii. Fellman Manager, Real Property Real Property Division City of Palo Alto P.O. Box 10250 Palo Alto, CA.94303 ATTACHMENT D July 6, 2007 Dear Mr. Fellman: As requested by you, I’ve reviewed the Palo Alto Airport Work.ing Group’.s (PAAWG) May 2007 report to the Palo Alto.City Council that purports to advocate the City expeditiously regain operational authority, responsibility, and control of the City-owned airport. 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 valueinto the future. ’ The PAAWG report is long.0n optimism, and naivet4, but that is not condemning of the effort. may be an indication of thoughtful and confident consideration of:the responsibilities for the variety of operating tasks: Or it may reflecta lack ofunders{anding of the.business aspects of running an airport of any. size. Most of the 292 page reportis attachments without substantive comment of their respective impogance, purpose, and utility in ~eaching any conclusions, or in making any recommendations, i will later comment on specific statements, assertions; allegations, and sliggestions made by the PAAWG. FirsL I will address the three elements ofthe 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 tha~ c~rse ~f action sh~uid be fully explored as so~n aS p~ssibleo It may well take a few years to settle all of the "minor" details, such as.the 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, especialiy, it may be, since the County’s South County Airport is growing in use andtenancy, 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. ]1 do be~ieve~ even at tMs early time~ Chat direct operationa~ contro~ by the City of Pa~ A~to of fits ow~ a~rp0rt has meriL 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 anddetracto, rs; and having direct hands-0n management of a City-ownedtransportation andeconomic engine asset. Further, both the State of California"s Aeronautics Divisio.n andthe 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 pa~t State and federal grants; etc.) incurred by the County on behalf of the airport, ~nd the City, are known, resolvedl and properly transferred. Finally, tl~e City should expeditiously apprise itself of the fui1 breadth and depth state and federal obligations, and risk exposure and liability obligations and responsibiliti~sit would assume when operational authority is obtained by the City. In a previous submission to you, I discussed the many and varied obligations mad responsibilities the Citynow 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 policyTs, etting or contracting authority, as examples; or a "business and property administrator", who has .autIaority 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 supergision, or administration is marked!y different. The City needs to decide what it wants, in light of what it can afford (financially, as weli 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. 1[ believe that initiMly an Operations Supervisor iS the objective, with future job enrichment and expansion ~o Airport 1V[anager after ~he City eva~u~les 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 associated with, 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 h~re is professional management, profesdional by experiencb and education/training, mad involvement in professional airport management organizations. Beingan ah’port managey.,, or an operations supervisor, foi- that matter, is much more that watching airplanes drone by the window ¯ or having morning .coffee with pilQt friends each day.. : I previously advised you to contact the City of Oceanside, in non’them San Diego Coanty, to ask them about their plan, and progress, to. seek an airpdrt management entity for their CRy-owned small General Aviation airport. Odem.nside, and the airport users and fenants both have become somewhat, disenchanted with operating the airport from withinthe City’s Public Works Department: FurtherS.! apprised you ofthe County of Los A_ngeles’ long-standing single contractor operation of their five County-owned GeneraIAviation airports. I also suggested you contact Riverside County’s aviation office to find out why they cancelled their five airport operating contrac[ with the. same cbntractor as Los Angeles County continues to empldy. ][ strongly recommend contacting at~ ~f these t~ g~ve you. a broad flavor of t~e ~s~e: hiring someone to run your airpor~ f~r you. Much more needs to be ~earned by the Ci~T before c]~oosing any course of action, whether operating their own airport or contracting for an operator. It sh0uld 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 . airpo~Zon behalf0fthe City. The reason for the pilots association proPosing this operating agreement WaS their dissatisfaction with theCity’ s attention to the airport, especially as regards basic upkeep and. maintenance, and applying for federal and State grantsZin-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 of 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; whether, on-airport FBO or not; whether City-chartered entity or not. I Will now tUrn my attention to specific comments made by the t~AAWG that warrant my viewpoints. One thing the City must reconcile b~fore 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 tA, 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 depa~-ture 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 pumoses of flight training and local ",’..,;.,p.!lot "recreational" and h~)bby flying. Those, as examples, are tangential pro-poses and values to ,.’., the Cityl Once the airport’s ~alue is understood, and its overarching purpose accepted, and, then, ¯ !’,l":~the commitment to the airport,s li~ng-tenn yvelfare .is made, the negotiations with the County can .. commence in earnest and the search for a private-public partnerslfip to operate the airport can be initiated., First thing~ first: What d~es the City Want the airport to be, as regards clear value and benefit to the City? I offer th~at the airport is a transportation facility first and foremost. 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". Comi~aring tie-down ~fees across several airports is little morethan 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 reflected 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 farther decision as to 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, maintengnce, 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 f!owage 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 ovmed 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 s)istem of many sources equitably applied across all airport tenants, users, and uses. ][ suggest this be more fully explored by the City before committing ~o assuming responsibility for setting revenue generationpolicy. The airport, n~st be made fi~a~cia~ly " self-sufficient, and financially se~f-sustaining in shor~ order after the City would assume 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 ~egards, .specifically; building 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 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 AirportI nor does it have to accommodate every entrepreneur who .w.ishes to place their aviation business on. the airport. Again, it is a "seller’s market", not a "buyer’s." Having ~aid tha¢,.however, l[ recommend an. in-dep..th, no holds barred re-think of the City’s Baylands Nlaster P|an re~ative to allowing construction of hangars (s. ome 29 are proposed in the recent A!rport Master Plan, and some number of that might 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 ir~crease 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 intrusion .Occurring it its truest sense).. There is a lot of m’chitectural 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 fiood 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 muchbigger 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 operat~ 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 future "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 (especially 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 lcfrocedures, 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 andpavements..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 projecting.inflation, each year to cover replacement in twenty years. In the public sector depreciation doesn’tmean much more than that since there are no tax implications in play. An accelerated depreciation schedule can be employed with the same fm~ds set-aside commitment to fund replacement at the end of useable life - which still may be based on a twenty-year life span. !~dy present inclination is t(~ embrace the City Auditor’s reper~ a~ regards its c(~nc~usio~S, criticis~as, and revenue a~d expense his~ and pr~jec~io~so When the Ci~ assumes ~pera~i~a~ c~tr~ of ~ts a~rp~ ~he C~’s a~ditor wi~ be ~ responsible audit age~cy~ a~d the J~e ~ 2096, Ci~ auditor’s rep~ ca~ sere as a baseline a~d depa~nre point f~r subseque~ audit~. A Second area of PAAWG criticismof the Countyhas tO do withthe County’s staffing of the Pa!o Alto Municipal A!rport, 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 benefits, unionization to deal with~, all in the context of a three airport, rather homogenous -. staffing regime. Stiould the City of Palo Alt0 assume operational control Of their airport,, staft~ng can be tailored.to the situation: hire .staff as "independent contractors", not City employees; use . City employees in tl~e context of °~additional duties"; or pay a named person, or persons of the n0t-for-profit.corporation recommended by the PAAWG a.base monthly rate burwithout pension contribution and health benefits (i.e. medical, dental, and ~ision): In ~ither of the aboveoptions, the employee "tai!" is absent-(e.g. Social Security; workmen’s compensation; state and federal tax withholding; post-empl0yment pension; and long-term )ost-employment health care). In a related matter, in charging the airport for %ervices", the City can treat those differently than has the County, which would reduce operating cost~. The City can use its own administrative and operating agencies and charge for just time-and~ma~erials; or for time-and-materials and staff/personnel time. The City’s "o~erhead" for legal, accounting, humanresources, grounds maintenance, etc. is likely to be somewhat less.than the County’s has been..City agencies can be used for basiemaintenance and repairs at the airport and do a charge-back fog them: Finally, the staffing ~or :the 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 suggestii~n, based ~ my earlier discussion 0f l~iring an airport m~nager, whetherinterim or ~ong term~ is to start with persons to oversee the airport: one to deal with operational matters, such as safety and mai~tenance~ and one to deal w~th admiMstrative matters, such as grants and collections and disbursements. There is no requirement to staff the airport 12 to 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, bf 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. sugges~ e~gag~ng a ~re e~perieneed professional e~t~ty ~t~ co~ducta comprehensive economic impact survey and assessment of the airport’s va~ue to the Polo Alto area busfiness aud commerce community. It is mildly impressive to define the direct economic impacts of salaries and services at the airport woper. 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 0ff-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-airp.ort staff/personnel hires due to increased off-airport business and commerce fostered by airport use. The City needs to know much more about the value of the airport off-airport. In closing, I’ti address the validity, and.optimism, 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 ~0wth in revenue at the Palo Alto Municipal Airport will mirror, any traffic (i.e. use) increases proj coted by the Federal Aviation Administration, the State .of California’s Department ofTransportation’s Division o.f 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 muct~ 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 requi~ed periodic inspections and replacement parts); a relatively stagnant active pilot population (new start.s 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 gro,~h, if not degrade current traffic levels. The fixed runway length, ~he 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 ~bjectfive remains for the airport to be financia~y se~f-sufficient as soon as possiMe, and over the ~onger term be financially serf-sustaining. It is nibMi~g around the edges ~f expe~ases combined with justified revenue generation, in balance, that is the business approach required, at ~east ~nit~M~yo 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 7 ATTACHMENT E MISSION STATEMENTS FROM OTHER AIRPORTS w = Sample 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 7.John Wayne Airport 8.Santa Clara Co. Reid-Hillview, South County, and Palo Alto Airports Attachment E: Municipal Airport MissionStatements 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. Tile 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 1 ATTACHMENT F BUSINESS PLAN RFP SCOPE OF SERVICES Attacl~rnent 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 a~rcraft 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 cods 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 & Associatels 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}-t, ing 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 ma’.nagement or FBO management; ¯Assisting the City’s marketing and punic information program for the PAO; ¯Formulating imaovative 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 forrnal 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 als0 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 (Airpol~/Community Value- Economic Impact Analysis) Charles B. Warren~ ASA -Urban Real Proper ,ty 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; ¯Valuation of the impact of an oil spill on a shopping center; °Testimony in a case involving the valuation of a leasefiold ¯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) proj ecting existing cash flows to 2017; 5) identifying probaNe 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 onsultation 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 Ca lifo rn ia 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 formedy 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 properiiy 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 Alto. Airpo.r.t .... ..... .:. ’ ...... :~:v. , ,.:-:.:..."..:.. ¯ . ..:~:~ .... . : ..... -..--.-:...:-- ....... Looking forward to working with .you. harles B. P arren, ASA Web email - www.charlesbwarren.com cbw@apo.com 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 inurban 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 Istanb.~l Technical University; member of International Right of Way Association, the American Real Estate S(~ciety~ 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 fac’-t, 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 interesting.assignment was the appraisal of vacant mars.h 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- corn 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-corn 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. Lu~vardi 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 proof g:ubmitted .in .e~enttl~~a-n~/~rvice~:are con~r~:~ed with"the"ci.t~"6fPalo Alto. Non-collusion: This submittal is genuine and made only in the interest of the parties named herein, nor is it intendedto induce any behavior of any other parties who might offer their services pursuant to this.RFP. ¯ . -7: Charles B. Warren, ASA (urban real property) 2033 Powell Street San Francisco, CA 94133 www.charlesbwarren.com 415.433.0959 vox 4t 5.433.0959 fax cwarren @batnet.com Submitter: Charles B. Warren, ASA San Francisco - Principal RFQ Airport business plan References. RFP 128288 5 Daniel T. Clewley, Supervis.or, Property Management, The Metropolitan Water District of Southern California. Tel: (213) 217-7576; dclewley@mwdh2o.com Sherman Hom, 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@ya~hoo.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 OF APPRAISERS URBAN REAL PROPERTY CHAELES B. WARP, EN CURRICULUM VITAE vox: 415.433.0959 FAX: 415.982.1441 EMAIL:. CBW@APO.COM RFP 128288 6 \’VEB ~ WWWoCHARLESBWARREN.COM 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. Proiect 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 feasibility 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 PROFESSIONAI_LY RELATED EDUCATION Basic, intermediate and advanced appraisal ¯ Income property analysis ¯ Land economics ¯ Statistics ¯ Applied regression analysis ¯ 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: AG00g171 California teaching credential in real estate American Society of Appraisers Real Property Committee USCG Master (100 ton) FAA Private Pilot /~EMBERSHIPS 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 AnaJysts Microcomputer Users Group, American Real Estate Society, Bay Area Automated Mapping Association PUBLICATIONS Real Estate Review ¯ Real Estate Issues ¯ USC Law Journal. Environmental Claims Journal ¯ Assessnwnt 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, BLisiness 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, 1985 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 Iournal (July 2000) "The Dose Makes the Poison: Environmental Phobia or Regulatory Stigma?" Appraisal lournal (Dec. 1999) "But Is It Market Value? Market Appr~aisal vs. Liability Model," Appraisal Journal (Jan. 1999) "Appraising Preservation Land in Extinct Markets," Appraisal Iournal, (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 ]ournal of Planning and Markets (Sept. 2002) - (USC S.chool of Real Estate Development and Public Policy- peer reviewed). ~ Pseudo Damages: DaubeR-Compliant Appraisal Research Design for Property Damages," Environmental Claims ourJ_Q_U£D_~ Sept. 2001. "What Price a Fiber Optic Easement? Public Utilities Fortnightly (Sept. 2001). "The Stigma Enigma: Doublespeak, Double Standards and Double Compensation in Toxic Tort Property Damage Claims," Journal of Property Economics (joint publication of the American Society of Appr&isers, 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 & 11, Inland Feeder, Allen McCullough Pipeline, etc.). Litigatlon/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 owner. 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.~unty 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 Electrfc Power Board of said government (DBA Nashville Electric Service) vs.CSX Transportation, a Virginia Corporation, 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 - Principal 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 plan~s 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 will be provided upon award of contract ; ATTACHMENT I WIEDEMANN & ASSOCIATES PROPOSAL Attachment.I: Proposal to Prepare a Business Pla~ ~or Alto Airport of Santa Clara County Prepared for: Prepared by: R.A. Wiedemann & Associates, Inc. AVIATION CONSULTANTS P.O. Box 621 Q Georgetown, KY 40324 Q (502) 535-6570 FAX (502) 535-5314 www.rawiedemann.com Chapter 1 Proposal Summary Polo Alto Airport of Santa Clara County Airport Business Plan September, 2008 CHAPTER 1 Proposal Summary THE FIRM OF R.A. "~VIEDEMANN & 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 ~,e~ u~i,~llfi~ L~, ul,,~e, Lc~e ~,e proposeda~,~,,,,cn~.°~°: ..... 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 requ, ested 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 & As;ociates, 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 tM1 resumes in Chapter 6): Randal Wiedemann - Project Director. Contact Information: Phone - 502-535-65~0 Internet - randai@rawiedernann.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- Hewings@illi~ois.edu Other Staff- The remaining proj ect team will consist of the other two staff members of R.A. Wiedemann & Associates Contact Information: Phone - 502-535-6570 iNJ R.A. tViedemann & Associates, Inc.1-2 Chapter 2 Profile of R.A. Wiedemann & Associates, Inco Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 CHAPTER 2 Profile of R.A. Wiedemann & Associates, Inc. l~,~afiv.A. WIEI~EMANN & ASSOCIATES, iNC. iS CONSIDERED a leading edge, high quality, specialized rm 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. Wiedemarm 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 financial performance, economic development, and operation. Airport sponsors are continually exploring revenue producing opportunities including development of airport real property.reserves and concession development. While the overall airport master p!an 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 20tu 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. ii~RoAo Wiedemann & Associates, Inc,2-] Chapter 3 Qualifications of the Firm Palo Alto Airport Airport Business Plan September, 2008 CHAPTER 3 Qualifications of the Firm t~.A. WIEDEMANN ~ ASSOCIATES STAFF HAS EXTENSIVE experience in the area of financial anagement and business planning studies. Airport business plan studies are intended to ovide an overview analysis the airport. This includes financial planning analysis, assessment of business/economic deve!opment opportunities, and recommaend 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 te~-n look at financial performance. Strategic plarming 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. W.e invite you to contact the study sponsors to determine the quality of our work, our timeliness, and our adherence to budgets. ~!~i’R.A. Wiedemann & Associates, lnc.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 T HE PROPOSED SCOPE OF WORK FOR THIS airport business plan conforms to the request for proposal outline 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 oppo~anities, 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 enteidng 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/managemenK 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, 6ppormnities, 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. 1.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. i¢~i R.A. ~Viedemann & Associates, Inc.4-1 Palo Alto Airport of Santa Clara County AbTort Bus.iness 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~inent data such as: the most recent financial history, lease agreements, list of tenants, list of business clients, and ALP. Project lssues 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 hag 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~i R.A. Wiedemann & Associates, 1he.4-2 Falo Alto Airport of Santa Clara County Airport Business Plan September, 2008 Project Considerations: Outstanding adv. ance 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. Cu~ent Leases: the two cun’ent FBO leases at PAO are !ong-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: o ® ® ® ® The latest seven (7) years of existing airport e~penses 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, chargedper 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~g I~oA. Wiedemann & Associates, Into 4-3 Palo Alto Airport of Santa Clara County Airport Business Plan September, 2008 o 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 numbei 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 airports 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 alongwith 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 bus~ness aviation, possible very hght jet activity, increased fl~ght training via high 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 will be provided based on known 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: i~it t~.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 man.agement. 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 wil! prese~-X 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. Recommendations: A recommended approach for the airport will be provided. As part of the recommendations, action steps will be identified and may include: 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 developrhent/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). 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 iNf 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/Corranunity 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. ~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 pians, we have learned a significant set of innovations from the various client airports. Most airports have slight ~ differences iv. their operating procedures and each time we perform a study, we learn a liRle bit more about this imriguing 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 business. The IMPLAN modeling will reveal the "income" portion of the economic impact, while the asset valuation will rjeveal the "balance sheet" portion of the analysis. Marketing Program Development: If desired, we can assist with the City’s marketing and punic information program concerning the Airport. We have the in-house capability to develop videos, project websites, web pages, or other media marketing or punic 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 throughplans 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. i¢~R.A. Viiedemann & Associates, lnc. ] Chapter 6 Project Staffing Polo Alto Airport of Santa Clara County Airport Business Plan September, 2008 CHAPTER 6 Project Staffing The Airport Business Pian for Palo Aito Airport of Santa Clara County will be staffed by R.A. Wiedemann & Associates project team of professionals. In this regard, Randal Wiedemann will lead the study effort as Project Director. He wi!l guide and direct the efforts of the firm’s staffincluding the Project Manager, Rob Barber. In addition, both Scott LeCount and Paul Wiedemann will assist inthe development of plan. Ifthe 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. Wiedema~n & Associates on all economic impact assessment projects. T~he Project Organization Chart in Figure 6-1 shows the flow of authority from the City of Polo 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 I City of Polo A~to Project Representatives I R.A. Wiedemann & Associates, Inc. Project Director .Randal Wiedemann R.A. Wiedemann & Associates Project Manager Rob Barber IlScott LeCount, A.I.C.P. l Paul Wiedemann Project 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 recommendation£ 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 ’i~i~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. V~iedemann & Associates, Randal Wiedemann brings over 33 years of airport planning experience to the firm’s profile. Mr. Wiedemarm 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 Pennridge 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~’~’~R.A. Wiedemann & Associates, Inc. Palo Alto Airport of Santa Clara County Airport Busit~ess 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. Tlirough his extensive experience, Mr. Wiedemarm 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 Airfieid 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), Car!sbad-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 platming studies including those for Tennessee, Southern Tier New York, Central New York, Upstate and Downstate New York, the Austir~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 ha~ 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 workwith military/civilianj oint-use studies has included the SenecaDepot 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 Mgster 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, airportbusiness planning, graphic production, and high-end marketing 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 i00 record aibum 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 andwriter with Carden & Cherry Advertising inNashville~ 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, Ar!zona, 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 1LA. ~Viedemann & Associates, Inc.6-4 Palo Alto Airport of Santa Clara Coun& Airport Business Plan September, 2008 SCOTT R. LECOUNT, AICP Mr. LeCount is an accomplisl~ed 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; a_n_d, mu!ti-moda! transportation p!a_n_s, As a member of R.A. Wiedemann & Associates, Inc., Mr. LeCount’s primary areas of teclmical 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 aviatio!!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 P)ojections for The Ohio State University Airport and Lebanon-Warren County Regional Airport (OH); Aviation Demand Projections for B arnstable 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 thdt 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). i~i 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 freshideas 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 forecasting, 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 workedon 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 Wiedemarm 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. iNi R.A. Wiedemann & Associates, ~rnc.6-6 Polo Alto Airport of Santa Clara County Airport Business Plan September, 2008 GEOFFREY J. 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 Regiona! Science a_n_d of Urban and Regiona! Pla_n_n_ing 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 additionto 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 o fintra-metropolitan trade flows within the Chicago region (MacArthu’r 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 nir~e books and over 100 articles and supervised over 30 doctoral students, about half of whom ar~ 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). ’i~i R.A. V/iedemann & 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), B ar Ilan University (Israel), Tianji.n University an.d Renmin University (China), University of indonesia, Kagawa University (Japan) and Universidad 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 Geoffi’ey J.D. Hewings Junior Scholar Award, annually awarded to exceptional scholars less than 10 years from completion ofhis~%er 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 Scholarby the University of Illiriois. 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 Northeastern Illinois Planning Commission. i~i R.A. ff/iedemann & Associates, Inc. Chapter 7 Proposal Exceptions Palo ARo Airport of Santa C~ara County Airport Business Plan Sepgember, 2008 ~p.A. WiEDEMANN & AS SOCIATES, INC. HAS REVIEWED the sample contract associated with this roject and does not object to any of the provisions included, !i~i ~oA. ~Viedemann & Associates, zrnco 7=J~ Chapter 8 Proposal Costs Sheet arid Rates PMo A[~o Airport ~f Sam~ Clara County Airport Business Plan September, 2008 CHAPTER 8 Broposal Costs Sheet and RaZes 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 inthe 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 Airport!Community Value task. Direct Salary Rates for R.A. Wiedemann & Associates per, sonnel include the following: 0 Principal/Officer Senior Associate Associate $68.00/hr. $49.50/hr. $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 inNew 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 cfitegory include the following: ® ® Principal/Officer Senior Associate Associate $143.94/hr. ~ $104.78/hr. $43.62/hr. to $64.73/hr. ~i;,ii~ R.A. Wiedemann & Associates~ Inc. Palo Ag~o Airport of Sanga Clara County Airporg Business Plan September, 2008 Scope/Task # Task 1 - Initial Meetings i Subtotal Task 1 Task 2 - Data Collection & Documentation Subtotal Task 2 Task 3 - Marke~ Analysis Subtotal Task 3 Task 4 - Financial Outlook Subtotal Task 4 Task 5 - Management Structure Subtotal Task Task 6 - I~ecommendations 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 i Senior Associate Associate Est. Hours 3O 30 20 40 120 :Principal 20 Senior Associate 20 Associate 80 Principal 80 Senior Associate 60 Associate 100 Hourly R~e $143.94 $104.78 $143.94 $104.78 $54.18 $143.94 $104.78 $54.18 $143.94 $104.78 $54.18 Principal 60 $143.94 Senior Associate 20 $104.78 Associate 40 $54.18 Principal Senior Associate Associate Principal Senior Associate Associate Expenses - 2 Person Trips, Air Travel, Hotel, Rental Car, Subsistence 80 60 80 29 20 40 $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 Proj’~ct ....1,020 $100,039.20 Total Not To Exceed $100,000.00 Contract Amount 60 20 120 $143.94 $104.78 $54.18 L.S. Optional Task 8 Task 8 - ~rp.o~ Comanunity Value Principal Senior Associate Associate Subconsultant - Dr. Hewings $8,636.40 $2,095.60 $6,501.60 $3,000.00 Subtotal Optional Task 8 $20,233.60.".’". Total Not To Exceed Task $20,00tl.00 Amount i~:i~R.A. Wiedemann & Associates, ~rnc. 8=2 A ~.~A~ A Attachment~ & Forms - ATTACHi ENT Pz poser’s Information FoF PROPOSER (please print): Co.tact person, title, telephone and fax number: _~-~ (,~./~ ~’~ Ta}~payer identification No.., Social Securi~ Number ff Sole Propdeto~hip) Preposer, if selected, intends to carry on the business ,as (check one) [3 ~ndividiuai []Joint Vemtute Partnership Corporation When incorpor,ted? ,n what state? When authorized to do business in California?: Other (explain): ADDENDA To assure that all Proposers have received each addendum, check the appropriate box(es) below. Failure to acknowledge receipt of an addendum!addenda may be considered an irregularity in the Proposal: Addendum number(s) received: r-J1; [] 2; [] 3; [] 4; [] 5; [] 6; or, ~ ~ No Addendum/Addenda Were Received (check ~nd i~itia~). P~O}’OSER’S SEGNATU]~E No proposal shall be accepted which has not been signed in ink in ~he appropriate space below: 13 0503 m 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 RFPo No request for modification of the proposa! sha~! 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 Proposer’s typed name and title ff Proposer is PARTNERSHIP or JOINT VENTURE, at least (2) Partners or each o’f the Joint Venturers shall sign here: Partnership or Joint Venture Name (type or print) Date: 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 follow~: 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 below named_ CORPORATION, and that they am authorized to execute same for and on behalf of said ¯ ~_.~PORATION. - . Corporation N.a~ (type 9r pri£t) Tit le:~L~~ ~y:,,Date: Title: 14 oso3 ) o As suppliers of goods or services to the City of Palo Alto, the firm and individuals listed 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, familia~ status, weight or height of such person; that they are in compliance with all Federal, State and ~ocal directives and executive orders regarding nondiscrimination in employment. 4. If Proposer is I}NDIVaDUAL, sign here: Date: Proposer’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 Partne[ship or Joint Venture signature .Member of the Partnership or Joint Venture signature if Proposer is a CORPORATION, the du~y authorized officer(s) shal~ 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 msnlutinn (a~ach ~ certified C,’,n,, with n~r~t~r~f,~ ~ea., if =,,,,~i,~,u= notarized as to its authenticity or Secretary’s certificate of authorization) for and on behalf of the below named CORPORAT!ON, and that they are authorized to execute same for and on behaff of said CORPORATION. Corporation Name (type or print) ’ 15 Title: Date: Date: ATTACHMENT J 2007 COUNTY OF SANTA CLARA FINANCIAL REPORT Attachment J: (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 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 ImProvements 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 I ncStmt_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 th& 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 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, ! 19) 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 49I ,753 (399,763) 773,408 91,990 (108,113) 757,285