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    In Depth / Perspective

    City Mgt's Airport Financing Report Downplays Risks...Despite City Hall's History

    (May 20, 2006) -- Following a City Council request in December 2005 (item by Councilmembers Gabelich, O'Donnell & Reyes Uranga) and an initial management response in late March 2006 that angered Gabelich and others as being non-responsive, city management has agendized a follow-up report -- a four page memo appending management's original report -- that adds estimated costs and offers a financial risk assessment for each of the alternatives outlined in management's Environmental Impact Report regarding expansion of the Airport's permanent terminal area facilities.

    The new report by Public Works Director Christine Andersen, scheduled for presentation at the May 23 Council meeting estimates the cost would be roughly $158 million but acknowledges this figure (and others in the report) are preliminary and subject to multiple caveats, assumptions and unknown variables.

    Management's report reiterates a point from its initial response: City Hall plans on long-term contractual commitments (leases) with air carriers instead of the current month-to-month arrangements now in effect.

    "In order to shield the General Fund from any downside risk relative to Airport Fund debt service, the primary source of funding Terminal improvements would be Insured Airport Revenue Bonds," Public Works Director Andersen writes. "In the airport industry, this is by far the most common source of pre-funding major capital improvements. This form of bonding pledges airport revenue and insures such coverage with no liability to non-airport fund entities." And among several items on which financing would be based, Director Andersen indicates City Hall would enter "into longer term leases with all airlines (likely in the 5-year range) versus the current month-to-month structure."

    But the leases themselves aren't the only commitments entailed by a Council decision on the facility's size.

    As first reported in April 2003 (after spotting a "consent calendar" item agendized by LB's now soon-to-be-former City Auditor), City Hall tacitly used General Fund revenue to provide the Airport with revenue when Airport operating funds fell short of meeting expenses in the 1990s. This was despite the fact the Airport is supposed to be self-sustaining. City Hall's action meant taxpayer money that might have been used to provide police, fire, parks and library services was diverted to make up for Airport shortfalls. This was the same period during which City Hall found endless reasons not to provide LB taxpayers with police officer levels recommended in a City Hall created police "Strategic Plan."

    [Story broken by in April 2003: click here. Management replies at Council meeting, coverage click here]

    Despite City Hall's history of using the General Fund to provide Airport revenues when they came up short, management's latest report on the permanent terminal expansion's risks is generally optimistic...and doesn't mention what would happen if City Hall's financing assumptions (already filled with caveats) turn out to be too rosy, too other words, if the bond-financed expansion turns out to be too costly for Airport revenue to cover.

    A similar scenario has occurred before.

    In 1995, the O'Neill administration, the City Council and much of LB's establishment brushed aside critics and applauded saddling the public with the risk of repaying Aquarium bonds after then-City Manager Jim Hankla indicated he considered it extremely unlikely that Aquarium revenue wouldn't cover its bond debt service. [To see and hear (audio coverage) what the City Council and the public were told, click here..]

    Ten years later, LB's Tidelands Fund now shells out over $5 million annually because City Hall's predictions were wrong. As a result, public money that could today be used to clean and improve beaches is instead spent to repay Aquarium bondholders.

    Although Airport bonds may not explicitly commit LB's General Fund to repay bondholders, if the project were too costly and/or forecasts of the Airport's ability to meet bond payments are too optimistic, the result could result in a future City Council facing poor options: a General Fund backfill of Airport operating expenses (as in the 1990s) or a bondholder bailout...or increasing Airport activity to produce more revenue to service the bonds for a city entity (and arguably reflecting on the city's creditworthiness).

    One of the O'Neill administration's first actions (with Council approval) on taking power in mid 1994 was to back settlement of prior Airport litigation...and a federal court approved LB's current noise-budgeted Airport Noise Compatibility Ordinance (considered one of the most progressive in the country by allowing more flights as aircraft become quieter).

    Once the ordinance was in place, City Hall proceeded to reverse years of previous city policy. Instead of treating then-vacant flight slots as a worst-case scenario to avoid (LB was under no affirmative legal obligation to fill the slots), City Hall sought to fill them...something other airport-impacted cities seek to avoid. This suited some downtown interests and brought the prospect of future Airport revenue, which under federal rules can only be used to fund Airport operations...or to fund future Airport "improvements."

    The new policy effectively left LB largely dependent on LB's Noise Ordinance to protect the city from an Inglewood-style scenario of nearly unlimited round-the-clock flights.

    City Hall pursued its new flight-slot filling policy behind closed doors, even creating a so-called "Red Team" working out of the 5th district Council office to try and bring in more flights. Its efforts proved largely unsuccessful.

    Then in May 2001, a benign-appearing item appeared on the City Council agenda. Management sought Council approval to change City Hall's flight slot allocation rules (not affecting the number of slots but changing the rules for allocating them). On motion by 5th district Councilwoman Jackie Kell, the Council voted 8-1 (Carroll dissenting) to extend the time in which a air carrier could hold flight slots before flying them. Within hours, City Hall announced that JetBlue had taken all of LB's then-vacant large-aircraft flight slots, instantly maxing them out. (which had begun publishing on the internet a few months earlier) soon reported "the rest of the story." Kristy Ardizzone, then-chair of a City Hall-selected "Airport Advisory Commission," mentioned the benefits of LB Airport to JetBlue execs. JetBlue spoke with City Hall officials. Then came the city management's agenda item.

    Once again, the public wasn't told about the potential consequences of their City's action until after it was done.

    Some consequences came quickly. The May 2001 Council vote put LB's Airport Noise ordinance at risk. An FAA administrative proceeding and threatened litigation ensued. LB City Attorney Bob Shannon retained special aviation counsel Mike Gatzke...and the legal team skillfully hammered out a settlement. (The FAA also told the Council it had violated federal rules by its May 2001 action and directed the Council to reverse it, which the Council did.)

    But by then, JetBlue was in LB and sank roots in the city. Airport Advisory Comm'n chair Ardizzone, who became a consultant to JetBlue in July 01, eventually exited her Airport Advisory role in taking a full-time JetBlue position in June 02. In May 02, JetBlue hired the powerhouse LB lawfirm Keesal, Young & Logan.

    Longer-term consequences of the O'Neill/management/Council policy were also becoming clear. Filling the flight slots meant LB Airport had to accommodate them...with larger Airport facilities.

    LB homeowner Rae Gabelich, a veteran of 1980s Airport battles, became alarmed at City Hall developments and formed LBHUSH2. Armed only with a microphone at the Council Chamber public speaker's podium, she and others successfully pressed the Council to require an EIR for the Airport terminal's permanent facilities expansion ["temporary" facilities facilitated by JetBlue were allowed without an EIR.] That was in August 2002.

    Over a year later in September 2003, management proposed expanding the Airport's permanent facilities to roughly 93,000-98,000 sq. ft. and issued a formal EIR Notice of Preparation for this. Airport management said this was sufficient to handle filling all of LB's flight slots (41+25=66 daily flights) + new TSA requirements, producing an expected total of roughly 3.8 million annual passengers. At scoping meetings, homeowners and LBHUSH2 voiced alarm at nearly doubling the size of the Airport terminal area's current facilities.

    In October 2003, 4th district then-Councilman Dennis Carroll proposed sending the hot potato Airport issues to some kind of blue ribbon committee; the Council referred the issue to City Hall's "Airport Advisory Commission." The Council action effectively ensured that the Airport EIR wouldn't come to a Council vote until after April-June 2004 city elections.

    In December 2003, the Council declined to press for production of a city management report on the Airport's effects on health and home values -- which management hadn't delivered despite a unanimous May 2002 Council vote to seek it [going into the previous citywide election cycle]. That was the last straw for Ms. Gabelich, who blasted the Council's conduct from the podium. A few weeks later, she announced that she would seek to replace incumbent Rob Webb on the Council.

    Incumbent Webb was backed by Mayor O'Neill and the LB Area Chamber of Commerce. Voters elected Gabelich in June.

    In the meantime, Airport management hired HNTB (a major firm that has built Airports and other big public works projects including the Alameda Corridor) to advise Airport management on sizing the Airport facilities. HNTB's advice was for a terminal project of roughly 133,000 square feet...which it called less than "industry standards."

    Asked by at a public meeting to explain why Airport management had officially proposed a roughly 90,000+ square foot facility as sufficient in September 03 which ballooned into a recommended 133,000 square feet recommendation in spring 2004, Airport Manager Chris Kunze said newer aircraft designs, plus increased load factors, led to refiguring expected annual passengers, now roughly 4.4-4.5 million annually.

    The "Airport Advisory Commission" voted 6-3 to recommend the 133,000 sq. ft proposal to the Council, a recommendation that was purely advisory and legally non-binding.

    By this time, Ms. Gabelich was Councilwoman Gabelich...and 4th district voters had replaced incumbent Carroll (endorsed by Mayor O'Neill, the Chamber and The Beachcomber) with Patrick O'Donnell (backed by the LBPOA). Prior to the election, garish orange signs sprouted in both the 4th and 8th districts (independent of the candidates, the brainchild of former LB activist Traci Wilson-Kleekamp) that declared "Say NO to Airport Expansion."

    In early 2005, the Council voted 9-0 to evaluate an Airport terminal expansion project of up to nearly 103,000 square feet, not as larger as desired by the LB Area Chamber of Commerce and JetBlue but larger than city management originally proposed in September 2003.

    The EIR, recently certified by the Mayor-appointed, Council-approved Planning Commission, is now headed back to the City Council in June on likely appeals.

    In early May 2006, as previously reported by, Mayoral runoff finalists Bob Foster and Frank Colonna indicated at a Wrigley-area forum that they believe the Airport EIR doesn't sufficiently address neighborhoods' concerns. Coverage: click here

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