Wednesday, April 13, 2011

Replacement airport costs keep rising

As cost estimates soar, funding options change

Express Staff Writer

With the latest total cost estimates for a new airport soaring to more than $300 million, local leaders attempting to bring expanded and reliable air service to the region find themselves in an expected position during difficult economic times—searching for funding.

A preliminary financial presentation given to the Friedman Memorial Airport Authority April 5 by Jeff Wheeler and Kevin McPeak of Ricondo & Associates, and Scott Carey of Jviation, showed a replacement airport project that is possible but facing stiff funding challenges as its full costs come into focus.

"While these numbers are still preliminary, it's clear the financial challenges ahead are sobering," said Airport Authority Chair Tom Bowman.

The latest estimates include costs not specified in an earlier airport engineering study. Included in the latest analysis are "soft costs" such as design, administration and debt financing, as well as the costs of offsite utilities, land acquisition, equipment and cost escalation due to inflation during the project. Adding those costs brings the total for a new airport at Site 10A in southern Blaine County, the preferred site, to about $327 million. That's way up from the $185 million estimate that appeared in a preliminary engineering report in February, and the increase has changed the discussion surrounding the new airport.

"Six months ago, every discussion said, 'This airport will cost less than St. George (Utah), which cost about $160 million,'" said Blaine County Commissioner Larry Schoen. "Now we're looking at an amount that is twice what St. George cost and it has totally changed the discussion about how to fund a replacement airport for Friedman."

In addition to higher costs, another surprise for local leaders was a consultant's conclusion last week that an airport revenue bond, long thought to be the best option for funding the local portion of a replacement airport, would not raise the necessary funds.

Wheeler said that because of Friedman's relatively low passenger numbers and its limited capacity, using airport revenue to back an airport revenue bond would not be successful.

"Based on your current numbers, Moody's or Standard and Poor's would probably rate that bond as not investment grade," he said.

That conclusion has left the Airport Authority looking at funding sources it hoped to avoid, such as a general obligation bond tied to a property tax levy.

The earliest estimates provided to the Airport Authority by consultants suggest that a general obligation bond raising between $35 million and $40 million—the local contribution to a replacement airport—would increase annual property taxes by $29 per $100,000 of property value in Blaine County for a period of 20 years. That has raised eyebrows on the Airport Authority and caused at least one member to take a fresh look at the project.


"Since the beginning of this project, I have stated that I am fundamentally opposed to funding it through a property tax," Schoen said. "I worry that such a measure could turn into a black hole."

But, he said, the Airport Authority must now consider the option because of the absence of other options.

"This funding option must be seriously considered because assumptions about funding that we have relied on up to this point—like an airport revenue bond—are no longer available to us," he said.

Site 10A—near the Lincoln County line—is receiving the most detailed analysis because it's considered the least expensive of the possible replacement airport sites.

Of the $327 million total project cost, a maximum of about $192 million would be federally funded. About $89 million would come from "third-party" sources that use airport facilities, such as the airport's fixed base operator, the Forest Service and BLM, and private investors who would build facilities to be leased at the new airport.

That leaves about $45 million in funding to the airport's sponsor, the Friedman Memorial Airport Authority.

A significant portion of local funding for the project would come from the sale of the existing airport. While that could net $20 million, the county's share would only be a portion of that. Also, proceeds from that sale will not be realized for many years since Friedman will remain open until a new airport is opened. That looks like 2019 at the earliest.

The Airport Authority has about $5 million in reserves that can be used toward construction of a new airport. Airport revenues, which are historically $200,000 to $400,000 annually, would amount to no more than $1.4 million by 2019. Revenue from passenger facility charges would bring in about $1.6 million by 2019 if they remain at current levels.

Adding other, less lucrative funding sources brings the amount that would still need to be covered by local funding to about $38 million. Funding that portion of the project is the big challenge now facing the Airport Authority.

As cost estimates have risen over the years—initial estimates made in 2005 put the cost of a replacement airport at under $100 million—so has the chorus of voices calling for a re-examination of the entire project. Why, these voices ask, isn't the Airport Authority looking more seriously at less expensive options, such as expanding operations at the current airport site?

They say that by adding as few as 13 acres of land at the southern end of the airport, Friedman could be redesigned to accommodate larger aircraft in a safe environment for much less than these new estimates. While it would not be a new, first-class airport, it would allow for increased aircraft size and more commercial traffic.

Expansion at the current site has not been seriously discussed because of two main reasons.

First, both the city of Hailey and Blaine County have written resolutions that firmly state they will not expand the current airport site. But those resolutions were made under the assumption that a replacement airport would cost far less than current estimates indicate.

Second, Friedman currently suffers from a trio of critical shortcomings that, the FAA contends, no amount of redesign will solve. The runway/taxiway separation does not meet the FAA's standards, the surrounding terrain limits flight operations (especially in foul weather) and Friedman's service capacity is limited by diverted flights.

Airport leaders have scheduled a workshop for Tuesday, April 19, during which they will discuss the financial report given on Tuesday evening as well as ideas for funding the local portion of a replacement airport. The public workshop will be at 5:30 p.m. at the Old County Courthouse in Hailey.

Airport Authority divided on powers

Blaine County commissioners and Hailey City Council members this week inched closer to a new agreement defining the powers of each body in their co-sponsorship of a new airport.

County and city leaders have been working for months on a new joint powers agreement, attempting to solve a slew of governance issues related to a planned move from Hailey to a new, more reliable site.

That's proved tricky because a replacement airport would be the sole responsibility of the county, not a joint venture with the city of Hailey as the Friedman airport is. Deciding exactly how and when Hailey's membership on the authority will terminate is the issue causing the most concern.

As it currently stands, the amended joint powers agreement gives Hailey membership on the Airport Authority until the last parcel of land is sold at the current airport site, an undefined and presumably lengthy period of time.

County commissioners want Hailey's membership to end as soon as the new airport opens and Friedman closes, arguing that Hailey should have no influence over an airport that is solely the county's obligation. That did not stop them from voting 2-1 this week to approve the joint powers agreement as it stands. Commissioner Larry Schoen dissented in the vote.

The agreement now goes from the commissioners to the Hailey City Council, which is scheduled to review the document on April 25.

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