City Closer to Taking Back Airport

The Palo Alto City Council approved an ambitious plan Monday night to take back airport operations from Santa Clara County by 2012, five years before a long-term lease expires that the county has no interest in renewing.

The council voted unanimously to set aside $300,000 to start an Airport Enterprise Fund that will cover the costs of taking over the 102-acre airport by July 2012. To make a smooth transition, City Manager James Keene said city staff needs to explore new pricing, possible changes in airport salaries and staffing, different management structures and the legal side of breaking the 2017 lease with the county, which has rented the airport from Palo Alto for 50 cents a year since 1967.

Half of the funding will also cover an environmental study to determine how hazardous materials, such as jet fuel, have impacted the airport land, according to a staff report. Although the Federal Aviation Administration dictates that profits from public airports be recycled into operations, the city is allowed to recoup the $300,000 from airport earnings within the next six years, city staff told the council. 

Councilman Larry Klein said the county has expressed no interest in renewing the lease since its board of supervisors voted against it in 2006. He said the city has no choice but to approve the airport fund and begin shifting the airport back to city control.

"The question on the airport is not whether," Klein said. "It is when."

The council also voted to accept the original takeover study, conducted by Kentucky-based aviation firm R.A. Wiedemann & Associates, that found the airport could be a profitable venture and a strong community asset if overhauled and managed differently.  

Based on Wiedemann's findings, city staff built three operations plans that are projected to bring in varying profits between 2017 and 2038: a city-run airport that could generate $13.5 million, a public-private model that could bring in roughly $22.6 million and an airport under third-party management that staff projects will net $17.8 million.

Before 2017, however, a city-run airport could result in a "worst-case scenario" deficit of $129,000, while operations under a third-party is projected to be $816,200 over, according to a staff report. Profitability before 2017 for public-private operations at the airport were not available.

Raising monthly tie-down and hangar rates will be tricky, however. Palo Alto already has the highest in the area—between $122-$188 for tie-downs and $400-$1,200 for hangar space. In a survey of airport users, 77 percent of respondents said they will relocate their airplanes if prices go up, according to the Wiedemann study.

Descibed by Keene as an "ambitious schedule," the transition timeline lists March as the launch date for negotiations with the county. The Palo Alto City Council first directed staff to approach the county about terminating the lease in 2007. The Santa Clara County Airports Department, however, has yet to receive any concrete plans, said Carl Honaker, department director. 

"The city has indicated to us that they are interested in taking over the airport before the end of the lease, and we told them we are open to discussing it," Honaker said. "But they haven't given us anything solid yet." 

The county expressed an interest in dropping the airport, even with the extremely low lease. The Federal Aviation Administration has described the $25, 50-year lease as "inapropriate" and bordering on "a gift of pubic funds."

"The county has indicated that it is not interested in running the airport, so the city has to make a choice," said Councilman Greg Schmid, who also serves on the finance committee. "The airport has been there a long time and is part of Palo Alto's recreational portfolio."  

Even so, it's hardly been profitable over the last decade, which could explain the county's willingness to walk away. According to the Wiedemann study, 2005 saw profits of just $7,323, the lowest in 10 years. In 2008, the airport generated $119,653, one of the best years in the same time span. The same report reckons that the airport generates roughly $63 million in outside community benefits.

Faced with the daunting task of making it more profitable, city staff has explored closing the airport, Schmid said. But the FAA opposes that choice, citing the airport's regional importance and also factoring in the millions of federal grant dollars the agency has spent on the airport, Schmid said. He said walking away isn't an option; instead, he said, the city has to find a way to make it more profitable.

The Wiedemann study lists several possibilities, including building new hangar space and negotiating new contracts with the airport's private contractors, all of which expire in 2017. New construction is limited at the airport by the surrounding Baylands Nature Preserve, which the city has protected. The airport has some extra space that could house new hangars, but the city will need to amend certain laws to build them.