Working Session

MAYOR COUNCIL WORK SESSION
Wednesday, July 23, 2008 - - 4:30 p.m.
A101

Present: Mayor Brown, Bjerke, McNamara, Glassheim, Gershman, Christensen, Kreun.
Absent: Bakken.

Gershman called the meeting to order at 4:40 p.m. He stated that the Airport staff has worked with local firm Johnson Laffen Galloway (JLG) and Springsted, the financial advisor, and has brought the cost of the project down from $29 million to $20 million, which is the target amount for cost of a new terminal set a couple of years ago and that the presentation today will show the reasons why a new terminal is needed today.

Matter of Airport Terminal.

Steve Johnson, Executive Director of the Grand Forks Airport, stated that the Airport operates under the Airport Authority which is made up of members appointed by the City and County and includes Gershman as the City Council rep. He states that the Airport is proposing to pay its local share of the project through the issuance of bonds, which will require the approval of both the City Council and the County Commission and are here today to brief the City Council Members on the project.

Johnson continued that a comparison of other airports in the state was done and we have the oldest and smallest terminal of the major North Dakota cities, Bismarck, Minot, and Fargo. He explained that the original terminal was constructed in 1964 and then has been expanded or renovated in 1974, 1985, and 1993, which has led to the 24,820 sq. ft. current size. He continued that the other cities have all received assistance from the FAA in the reconstruction of their terminals and while they do not state a rotation is done between cities, it seems to work that way and they are now recommending support for assistance to us for a new terminal. He added that while the assistance package is not yet approved at the federal level, it has been included in the budget for the local area that has been submitted to the regional office and have been told it will be included in the budget that will be submitted for final approval.

Johnson explained that a consultant was hired to study the current terminal and the section of the report dealing with facility deficiencies is provided as a handout for this meeting. In brief the issues are: mold growth, roof leaks, settlement, line of sight, ground boarding, water table, building codes, fire protection, systems age, passenger circulation, energy, ADA, landlocked, asbestos, seating, queuing space, TSA space, and screening. Johnson explained that to the FAA the line of sight is probably the most important. He stated that with the current terminal there is not a clean line of sight for pilots to see each other from the east-west runway to the north-south runway and that was up to standard at time built, but that now to meet current standards, terminal should be further back to open up the line of sight for pilots. Other items pointed out were:

There is congestion and crossover in passenger traffic flow due to the design of the terminal.
Ground Boarding-Currently there is not the ability for some types of flights to board straight from the terminal and passengers have to walk out to the aircraft and up the steps to board. A new terminal would have a different design so will allow all boarding to take place from the terminal.
TSA space – currently the TSA officers have a small breakroom adjacent to their screening area, but the office is about a ¼ mile away. The new terminal will allow all to be located together.
Water table – the airport is located on alkali land with a water table very near the surface. This results in constant water in the basement of the terminal building, mold growth, and the need for two redundant sump pumps that are always functioning. Johnson noted that if something were to occur that would have both pumps fail there would be danger to los of furnace and crucial wiring for the terminal building.
ADA – as the terminal was constructed before the passage of the ADA Act, those requirements were not included. He stated that they have made some changes to the building where possible to add as much accessibility as they can, however there are some that have not been able to be made due to the terminal design and the need to move weight bearing walls in order to implement the necessary changes.
Seating – Currently the terminal has a small seating area and if there were overlapping flights there would not be enough seating to accommodate everyone in the area for those already processed and about ½ would be standing or waiting outside the processing area. Johnson added that this has not been a large concern before, but with the addition of Allegiant Air and other charter traffic, could be more probably to occur.
Baggage – Most terminals screen baggage behind the scenes. We do not have that capability and passengers have to carry their bags to separate screening area.

Johnson displayed a map showing the airport buildings and the four options that were considered for the new terminal placement. The location determined to be the best choice is the option that locates the terminal between the current Federal Express building and the fixed base operator building. Johnson added that the FAA requires that once the move is made to the new terminal that the old terminal be torn down and the hole filled in.

Johnson reviewed architects renderings of the proposed new terminal, both interior and exterior views. He pointed out that the new terminal would be 2 story with escalators, stairs and elevator; that the building was located without any changes needed to airport drive, which keeps costs down; that there is a car rental ready area near the terminal, 2 boarding gates (current terminal only has 1); and noted the layout within the terminal building. Gershman pointed out a location on the second floor where the intent had initially been to have the airport authority offices, but as a cost saving measure had eliminated that and if the Council would agree to the necessity of having that within the terminal building, would increase the cost by about $300,000.

Johnson showed letters of support from the congressional delegation and the Chamber of Commerce for the project. He continued by reviewing a proposed project schedule: Plans and specs done by January 2009; Phase 1 construction June to October 2009; Phase 2 June 2010 to March 2011; Phase 3 June to September 2011; Occupancy expected in August 2011. He noted that once the move is completed in August, the month of September would be for demolition of the old terminal building as per FAA requirements. Johnson continued that the schedule is on hold right now pending approval by the City and County and awaiting finalization of funding from FAA, but would expect once all those occur would move right into Phase 1 construction.

Johnson explained the anticipated funding ratio: 2009 – Federal Share $7,300,000 and Local Share $2,300,000; 2010 – Federal Share $7,300,000 and Local Share $2,300,000; and 2011 – Federal Share $1,300,000 and Local Share $400,000. He explained that the federal share includes entitlements, amounts that we are due because of the level of boardings and cargo that flows through our airport and that the matching local share is based on what the federal funding level is per year. Johnson distributed a handout that details the financing of the project and shows that there is adequate revenue to the airport to support the bond payments. He explained that Springsted Inc., financial advisor to the Airport and City, had designed the capital improvement plan for them and shows the airport has the ability to meet its obligations for the bonds.

Johnson stated that in beginning discussions of a new terminal the authority board had decided that they would like to keep the cost to $20 million and had not factored in creep from inflation, so when started reviewing the project knew that some cuts would need to be made. Johnson continued that they worked with the architect to come up with a facility that would come in under the $20 million and then a list of desired components with individual prices that the board could review to determine a priority list of items to add back. Johnson reviewed the list including both items that had been included in the project and those that were eliminated, but would still like to add if funding becomes available. Johnson stated that at this time the plan is to sell $4.1 million in tax contingent bonds pending approval by the City and County.

Bjerke inquired whether there was any assistance available from the State of ND and if there is, if that would be used for additional items to the project or would be used to decrease the amount of bonding. Johnson stated that they plan to apply for assistance and hope to secure some, but there is not a guarantee on whether we get it or how much we could get and that it was not yet determined how any state assistance would be used and would be discussion for board, but at this time are planning to sell $4.1 million in bonds in the fourth quarter. Johnson stated that the application to the state has to be done on a yearly basis.

Bjerke inquired how secure the airport is on maintaining the Federal Express hub at our location. Johnson replied that the last communication he had was interest in at least a 3-5 year extension on their lease, but that even if they sign that, could still leave and just pay us the lease amount.

Bjerke inquired whether geothermal heating had been explored for the facility. Johnson stated that the current plan includes natural gas system that has a burner that can be switched out to methane gas burner. He continued that there is technology that gathering methane produced by the landfill and using that as fuel, but so far there is not ability to do that with our landfill. Bjerke stated that he has researched heating system and that geothermal is a larger up front cost, but significant saving in the long term and may make sense to explore given the increasing prices for natural gas. Personnal from JLG were present and stated that they had not included geothermal, but could and one thing would require bringing in dirt as part of project, as the land on the terminal footprint is alkali.

Gershman commented that while there are some things that have been eliminated at this point, if Council feels that they would be an enhancement to the project, they could be added back into the project, it would just raise the cost by the amount of the item added and if Council is o.k. with that can be done. Schmisek added that if group is comfortable with the project and that the airport can carry it, maybe have a couple of years with tight cash flow, and may need to work with Airport Authority on that if needed, and if Council would be comfortable adding more cost to the project should still be able to carry with Airport revenues as projected. Gershman added that the financial model does not include the addition of Allegiant Air, which will be an increase in revenue for the airport. Bjerke stated that he would like to see the group explore adding the geothermal heating. Christensen asked what the change in cost would be. Behm stated that they would need to research the cost, but that they did include within the project that ability to switch out to methane if it becomes available.

Bjerke asked what the square footage of the new terminal will be. The answer was about 50,000 sq. ft.

Bjerke inquired whether the airport is getting an adequate amount from UND based on the high level of service that they receive or if there is a potential to increase this. Rich Becker, President of Authority Board, stated that on behalf of the board he believes that they are. Gershman added that presently they are reviewing all leases and proposing a slight increase in ground rent. Bjerke commented that he always favors having user fees cover the cost of projects where appropriate. Johnson stated that if you look at whether the University is paying the same that a commercial counterpart would be, they are not at the same rate, but feel that the economic impact that having the students here brings is a good offset to the lower rate. He added that having a lower rate also allows the University to be competitive in recruiting students in competition with other flight schools.

Christensen inquired what the cost is for the bond financing. Schmisek replied that it is around $75,000 per million so approximately $300,000. The group discussed that perhaps it would be better to include all the items and increase the cost to the $23,000,000 and then have all done right and last terminal was over 40 years old and can assume that this will be at least as long and possibly longer. Another topic of discussion is that there has been talk of an increase in passenger facility charge (pfc), but that so far have maintained the fees without an increase, but not something that we have control over so still may see that come through. Christensen inquired when the decision on including any of the add-ins would need to be made. Johnson replied that it would depend on which add-in you wanted, as some must be put in from the start, but some could even be added years after the terminal was completed. Becker stated that Springsted is very comfortable with the project at the $20 million level, but will not give a range as to an upper limit that they would be comfortable with. Christensen stated that we need to look at this as a long term project, and are concerned if we come up short and where that money would come from or what the potential risk level is for that to the City versus how that changes if we just add the $3 million more to the project.

Schmisek reiterated that at this time Springsted is very comfortable with the $20 million project and can read that to assume there is also a comfort level for slight increase in project level. He continued that he can work with the airport and Springsted on the cash flow end of it depending on where the Council and Authority Board want to go, how far can increase cost before it doesn’t seem comfortable. Gershman pointed out that the financial plan does not include the full increase that comes from property tax, the pfc charges without an increase, current levels of rental revenue, and does not include Allegiant Air. He continued that the Authority discussed this at length and strived to keep at the $20 million level to be fiscally prudent, but decided to bring to you to discuss the comfort level of adding and subtracting from the project as Council sees fit.
Kreun stated that it appears the project is good on cash flow and bonding at the $20 million level, and would also like to see the effect the adding geothermal has or whether methane would be a possibility. He suggested that perhaps any money obtained from the state could also be used to cover the cost of add-ins and maybe prioritize the list of remaining add-ins so know where going if more funds come in and he would see after the heating item, next would be including the authority offices in the terminal on the second floor and then work on others as can.

Schmisek replied that part of discussion is where is the comfort level of the Council and that current bond plan is for a 25 year payback period, but could potential explore increasing that to a 30 year, as the building will most likely be more like a 50-60 year facility. He continued that this will change the annual cash requirements and might make it possible to do all. Christensen stated that if other scenarios are considered would like to see them without an increase in the pfc’s.

Feland stated that in regards to the potential to use methane gas generated at the landfill, there is a study underway by EERC funded through a DOE grant to do tier 2 testing and that a report will be coming to Service Safety Committee on this in September or October to see if there is interest in proceeding with further research on this matter. He continued that if the City gets past the feasibility study phase there are potential grants available for further work. He added that initially this exploration began with the thought of using the methane as a fuel source for the nearby Wastewater Treatment Plant, but could explore whether there is also ability to supply the terminal as well, but until the initial study is complete do not want to give false promise that will be possible alternative in the future.

Becker agreed that given the life of the old terminal building it seems logical that the new one would also be used at least the same number of years and was hoping that perhaps Springsted would have suggested that, but haven’t and so perhaps we need to just ask them about that option and think that it would be reasonable to go to 30 year bond term, but wanted to come to the Airport’s partners the City and County to discuss and Airport has been striving to be conservative with project and get a functional useful facility and think that the plan have is very good.

Johnson said that there is some time available to work on some of these aspects of the project, as Phase 1 will primarily be parking apron, road and foundation work with the rest of main construction in the years to come and also gives some time to explore state grants as a means to bring in additional funding for the project. Kreun inquired what the amounts of typical state grants are. Johnson replied that $300,000 seems to be the maximum, typical amount such as for a runway that we have seen in Bismarck and Fargo was $200,000.

Gershman restated that the Authority worked hard to bring in a conservative project and want Council to be aware of that. McNamara stated that he appreciates the effort to live within the parameters initially set, but can see where there are some areas that could be more aggressive within the model and maybe let Airport staff work with Schmisek and Springsted to see what impacts are with some tweaking. Gershman thanked the Council for the input and is in favor of exploring the 30 year bond term and see what that does to project. Christensen commented that it may be difficult to look at much tweaking with reliability until the amount of the federal grant is known, because that could be potential $1.5 million more.

Kreun commented that the Authority appears to have done an excellent job reviewing the list of add-ins and selecting those that seem to bring the most value to the project and restated that he would see adding in the LEED component and then administration offices as the next to look at and perhaps run to see if add that $1 million more to the project could be enough, as some of the others are aesthetic or could be added later. Consensus of the group seemed to concur.

Christensen agreed and stated that perhaps add those in and run the model and see where at then bring back to the Council and can assess the level of risk to the community in case the revenue assumptions, but does think there is room to be a little more aggressive on fees. Schmisek recommended that staff work with Springsted and the model and then bring report back. Gershman summarized that work on including some add-ins as discussed, look at a 25 year and 30 year bond term, leave at 4% for property valuation increase, do not include Allegiant Air, and to not include increases in revenue from leases or passenger facility charge at this time. Glassheim suggested to maybe footnote those items and if it was possible to add what effect would be if had been included. Bjerke would also like to see what potential benefit we get with what’s added.

Meeting adjourned at 6:00 p.m.

Respectfully submitted,

Sherie Lundmark
Administrative Specialist Senior