As Palo Alto prepares to take full control of its namesake airport for the fist time in nearly half a century, city officials are wrestling with gaping uncertainties about how much it will cost to fix up the small but bustling Baylands facility -- and where the money will come from.
The city has been preparing to take over the airport from Santa Clara County for about eight years, a process that is finally expected to be completed later this year. Both the City Council and the county's Board of Supervisors are scheduled to consider in August a transfer agreement for Palo Alto Airport, which hosts about 180,000 landings and takeoffs annually.
Following the operation's transfer, however, the city will still have to navigate its way through bureaucratic obstacles before the airport becomes economically viable, as council members had envisioned when they directed staff in 2010 to negotiate an early termination of the county's 50-year lease.
The county, which runs three airports, has had a hard time making Palo Alto Airport profitable. According to a 2006 business plan, the county's investment in the facility has exceeded revenues by $808,000 in the first 39 years of the lease, which was originally set to expire in 2017.
Even in the best case scenario, the airport's operations will be fueled for at least three years by loans from the city's General Fund. The council agreed last year to loan $325,000 to the newly created Airport Fund. Earlier this month, the council adopted a budget that raises the sum by $235,000 for a total loan amount of $560,000. The airport plans to hire a new management analyst (who will earn a salary of $155,000) and spend close to $300,000 on maintenance work, inspections and ground support for the airport's control towers, according to the budget.
The facility is expected to stay in the red at least until fiscal year 2018.
The city has at least one big reason for optimism, though. In 2010, the council commissioned a business plan to determine whether the airport can be profitable. The plan, produced by Kentucky-based firm R.A. Wiedemann & Associates, was predicated on the city taking over the airport by 2012. It predicted that the airport can generate a cumulative profit of either $13.7 million or $16.2 million by 2037, depending on whether the facility is run in-house or by a third party, respectively.
At the May 27 meeting of the council's Finance Committee, City Manager James Keene cited three glaring issues that the city faces when it comes to the airport takeover. First is the issue of deferred maintenance and how to pay for it.
According to a letter Keene submitted in November to Santa Clara County Executive Jeffrey V. Smith: "The city is ... aware the county has engaged in substantial deferred maintenance at PAO, which has resulted in deterioration of PAO's runway, taxiways and apron. The city hopes the county will have sufficient time to fully address the city's concerns regarding these matters before the transition is completed."
One thing that is clear, Keene told the Weekly, is that the city "is not going to have a fully modern airport turned over to us." The city and the county, he said, are still working out the details of who will pay for the needed repairs.
"There seems to be a reticence for them (the County) to meet us where we believe it should be," Keene said, referring to the level of investment that needs to be made.
A draft transfer agreement calls for the county to make numerous repairs to the airport, including the remediation of contaminated portions of the airport, and to help fund some of the repairs, the November letter stated.
According to a report released by the Public Works Department last week, the county's deferred maintenance "appears to create the potential for safety concerns to arise after the city gains management and control of PAO."
A second issue is the potential pressure to increase services at the airport.
"We've always acknowledged that once Palo Alto takes it over, we'll probably have more demands from folks to do things and feel compelled to be more responsive than the county," Keene said.
Third is the issue of the two fixed-base operators that serve the airport: Roy-Aero Enterprises, which manages offices, hangars and tie-down rentals at the airport; and Rossi Aircraft, which provides fueling and aircraft-maintenance services. Both operators have leases from 1969 that are set to expire in 2017. Once the leases expire, the city is expected to raise rents and bring in more revenue. Exactly how much more money the city could bring in remains unknown. At the May 27 meeting, Councilman Pat Burt asked for a range of potential increases. The city's Airport Manager Andrew Swanson declined to give an estimate, noting that the city is preparing to conduct a "full evaluation" of the airport's condition and that citing specific numbers would be premature. But given the high level of activity at Palo Alto Airport and the high demand for airport services, the increases could be significant. The 2010 Wiedemann report notes that "a minimum 50 percent increase in rents will be assessed" after the leases with the two operators are reappraised.
On the more-immediate revenue front, city officials hope that they will be able to apply for and receive Federal Aviation Administration funding by August. The FAA has encouraged the city to apply for $610,000 in "entitlement funds" that are earmarked for deferred pavement maintenance, with the understanding that if the transfer of airport ownership does not take place in August, the funding request will not be considered.