Palo Alto Weekly

News - October 8, 2010

Palo Alto to consider early airport takeover

New report claims city could profit by taking airport operations from Santa Clara County

by Gennady Sheyner

After a brief layover, Palo Alto's divisive debate about the future of the municipal airport is scheduled to take off later this month, when city officials debate what to do with the small and bustling Baylands facility.

The future of the Palo Alto Airport has split the local community in recent years, with some residents and council members calling for abolishment of the aged 102-acre facility and others urging more investment in the airport. Santa Clara County has been managing the airport since 1967 under a 50-year lease.

But county officials have been looking to lessen their role in the municipal airport since at least 2006, when they approved a business plan limiting the county's investment in the facility to only the most essential projects. The county estimated the costs of running the airport exceeded the facility's revenues by about $600,000 between 1967 and 2009.

A new study, however, suggests that with a modest investment, a city-run airport could bring a long-term windfall to the city.

The analysis by the Kentucky-based firm R.A. Wiedemann & Associates estimates the city could realize a profit of $13.5 million from Palo Alto Airport by 2037 if it were to take over operations before 2012. But to get to this point, the city would have to endure a deficit of $129,200 for the years 2012-17.

The report, which the council commissioned last year, largely back up persistent claims from airport proponents that the busy facility could be a robust revenue generator. But it also stresses that any profits the city makes from the airport would have to stay in the airport. Federal Aviation Administration regulations prohibit transfer of airport revenues to other municipal uses.

"In short, the City of Palo Alto could not earn any money from the Airport to use elsewhere," the report states. "All money made at the facility would have to be reinvested in the Airport."

The report recommends that the city end the county lease and either take over airport operations by 2012 or hand over airport management to a third party. The firm estimated that the city could claim a $17.8 million profit by 2037 if it allowed a third-party operator to manage the facility — an option that would lower the city's financial risk but also limit local control over the facility's day-to-day operations.

If Palo Alto officials were to decide to take over airport operations from the county by 2012, the city would have to hire an airport manager and assistant airport manager and assign a part-time city worker to assist with airport operations, the report states. It would also need to set up an Enterprise Fund for airport revenues and set up a billing system for airport tenants, according to the report.

The Wiedemann analysis, which the City Council's Finance Committee is scheduled to discuss on Oct. 19, also recommends that the city appoint an advisory group composed of aviation experts that would regularly report to the council.

Before the county stated its disinterest in continuing to operate the airport, it made efforts to expand the airport's runway system and build new hangars. But the city, whose land-use policies prohibit intensification of activity in the Baylands, rejected those plans.

Now, the 2017 expiration of the county's operating lease gives the county little incentive to make long-term investments in the facility.

These factors have prompted the council to ponder an early takeover of the airport. Last year, the city's Senior Financial Analyst Joyce White wrote in a report that the county's decisions to limit its investment in Palo Alto Airport and to raise aircraft-storage fees at the airport "are forcing the City to take back the PAO early."

"If the City were to wait until 2017, there is concern that the airport's condition will be severely impacted without an efficient source of income," White wrote.

Ralph Britton, president of the Palo Alto Airport Association, said the new report demonstrates that an early takeover of the airport by the city would be both feasible and potentially lucrative. Even though the city would not be able to divert airport revenues to other uses, it would be able to use these funds to replace the airport's terminal, develop new hangars and invest in landscaping that would both benefit the facility and create a more scenic entrance into the Baylands.

"The most important thing in the report is that under almost any scenario, the airport is solvent and capable of making money and supporting itself," Britton said. "Instead of having an airport that's underfunded and undermaintained, we can end up with a first-class facility that everyone is proud of."

Staff Writer Gennady Sheyner can be e-mailed at gsheyner@paweekly.com.

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