Okaloosa County BOCC — July 21, 2015 — Proposed Resolution for Conveyance of Federal Land (USAF) to — agenda request — reading text

BOARD OF COUNTY COMMISSIONERS AGENDA REQUEST DATE: July 21, 2015 TO: Honorable Chairman and Members of the Board FROM: Sunil Harman SUBJECT: Proposed Resolution for Conveyance of Federal Land (USAF) to Okaloosa County for Airport Use DEPARTMENT: Airport BCC DISTRICT: 2 STATEMENT OF ISSUE: The Board of County Commissioners is requested to adopt a proposed resolution authorizing the Chairman to submit a request through the Federal Aviation Administration Administrator to the U.S. Secretary of Transportation to seek a conveyance of the land currently leased and used to operate Destin-Fort Walton Beach Airport (VPS) from the Department of the Air Force to the County, for the continued successful development, use and operation of the airport for public-benefit. BACKGROUND: On August 28, 1972 Okaloosa County entered into a land lease for 22 acres at $5,280 per year with the United States Air Force to site a joint-use airport terminal for the benefit of the military and its civilian employees. That initial lease was amended over the years to meet the growing requirements of the airport with additional acreage to 108.23 acres at $165,000 per year, for 30 years, beginning in February 26, 2001. That increase of 77.82 acres enabled the County, at the request of the Air Force, to construct the present terminal building with improved roadway access and increased public parking in 2004. In July 2007, the County entered into an Enhanced Use Lease (EUL) with the Air Force to further increase the leasehold to 130.83 acres. That additional 22.6 acres was needed to accommodate the construction of a consolidated rental vehicle service facilities, relocate the fuel farm and construct a replacement cargo building, apron and maintenance facility. Up until this time, federal law required lease payments to be deposited into the General Fund of the United States Treasury without benefit to Eglin. The EUL established an escrow account into which lease payments were deposited as “payment-in-kind” to fund operational capital improvements and maintenance projects at Eglin, contracted through the County. Furthermore, under the Joint-Use Agreement for the Airport’s use of Eglin's airfield, the landing fees paid to Eglin Air Force Base for commercial aircraft operations are treated as a reimbursement for the local operating costs and retained at the base level. The first annual rent payment under the EUL, beginning in October 2007, was established through negotiation at $318,000 with subsequent annual payments escalating at 3 percent per year through the duration of the lease. At that time, the completion of the new airport terminal and, robust master plan forecasts of growth in passenger enplanements and airline operations contributed to general optimism that the County's Airports enterprise could make the substantial EUL lease payments. Soon thereafter, the financial crisis of 2007-08, considered the worst financial crisis since the Great Depression devastated the global economy and the airline industry from 2007-2013. Locally, in May 2010 the new $300 million Northwest Florida Beaches International Airport was opened, after being constructed with State and Federal funds, on land entirely donated by the St. Joe Company and quickly saw service by Delta and Southwest Airlines, the latter drawn with revenue guarantee incentives backed by the St. Joe Company and Tourist Development Taxes. The local share for construction and only outstanding debt was covered and eventually satisfied from the environmental clean-up and sale of the old Panama City Airport site. To the west, Pensacola International Airport, already a strident competitor with all land owned and paid for by the Federal land surplus and grants program, undertook a $36 million renovation program and drew service from AirTran (later acquired by Southwest Airlines) and became the second airport for that carrier in the NW Florida Region. While the protracted financial downturn continued and competing airports expanded, the passenger activity demand at VPS remained steady, largely bolstered by military personnel deploying and returning from the wars in Afghanistan and Iraq. A brief aberrant period of growth in 2011-2012 from Vision Airlines' locating and operating a mid-west “hub” ended quickly when the airline went out of business. The master plan forecasts of 2007, predicting that 450,000 enplaning passengers and 52 flight operations for the current period, never materialized, with actual well below forecast levels with only 360,197 enplaning passengers and 42 flight operations in 2014. As early as 2012, VPS' financial advisors were already raising concerns to management about the unsustainable EUL lease obligations and suggesting alternatives, including capitalizing land lease payments and obtaining FAA approval to use Airport Improvement Grants (AIP) and/or Passenger Facility Charge user fee revenues (PFC's), as a way to shift the cost of the lease payment from the operating revenues generated from airlines through operating terminal, facility and equipment rental rates and fees, to AIP and/or PFC capital accounts. With the malaise that has gripped the airline industry since the economic downturn and the airline consolidation through bankruptcy and mergers, the passenger enplanement performance at VPS was and continues to be affected by changes in the airline industry business models and market leakage of over 42 percent to competition from Pensacola, Mobile, Panama City and even Atlanta. VPS's direct air service is extremely limited to serving traffic on three legacy carriers into four large-hub connecting airports Atlanta, Charlotte, Dallas/Fort Worth and Houston, with enplaned passengers on regional jets comprising a relatively large percentage of the total customer base. Carrier concentration remains elevated with Delta Airlines accounting for over half of total enplanements on mainline narrow body jets to a single destination: Atlanta. By the end of FY 2015 these EUL payments combined with payments since 1972 onward, exceed $4 million. The remaining EUL payments, if extended over the next 50 years are estimated to exceed $45 million, a growing and perpetual cost that other nearby airports do not have to account for and that VPS cannot shift to the airlines that already serve these nearby airports, as the airlines can and will simply leave VPS and increase their service from those airports. With these significant and increasing land lease payments being charged to the Airport’s operating accounts, the projected increase in cost per enplaned passenger for the airlines to meet the growing annual lease payments will be detrimental to airline service retention at VPS. The competitive position of lower operating costs currently enjoyed by VPS cannot be maintained and is rising with the EUL even as airline costs at competing airports are declining. As these competing airports own substantial land being monetized with developments for diversified non-airline dependent revenue streams. Furthermore, they are not burdened with a perpetually escalating annual land lease payment obligations as VPS is, in return for an extremely small developmentally restricted parcel of land. For these reasons, the airport's management through its financial advisor and consultants developed and proposed a compelling case to the FAA with alternatives. The proposed alternatives involved converting the EUL to a long term capitalized lease with payments from Airport Improvement Grants (AIP) and/or Passenger Facility Charge user fee revenues (PFC's) . The FAA however, has issued a Final Agency Determination rejecting those options and prompting this request for conveyance of title as an available option to ensure the long term competitiveness for airline service at VPS. Conveyance has long been an available option under federal law as provided by Section 47125 of Title 42 United States Code and prior to that in Section 2640 of Title 43. It was not considered previously for any particular reason except that a leasehold arrangement had been the standard option and was expedient. However, forecasts for increases in airport activity to cover lease costs have not materialized and the revised forecast is for little if any growth due to fewer airlines, less competition and significant regulatory (certification) and capital barrier for new airline ventures. With VPS' lease costs becoming extremely prohibitive, it is recommended that the County pursue the conveyance option, since it is in both military and the public’s interest to have reasonable expectations of continued air-service at VPS. The conveyance statute is a good example of the many ways where federal assistance to the advancement of aviation is a high priority. This is not to say that National Defense is any less a public priority, but the EUL is primarily designed for the lease of public land by private enterprise. Okaloosa County’s commercial service airport is a self-sustaining public service enterprise, as its revenues are required by law to be reinvested in the public use airports. Furthermore, the mission of Eglin and other military facilities in the County and region are significantly enhanced by having a viable commercial aviation airport readily available. It is also important to note that the County and the Air Force have participated in joint ventures for their mutual benefit. The most noteworthy recent project is the County’s $3.7 million funding of an Aircraft Rescue and Fire Fighting (ARFF) facility. It will serve both the Air Force and the Airport allowing the Eglin's fire fighting forces improved capacity to respond to emergencies. Another crucial safety project benefit the Air Forces mission at Eglin AFB, is the $5 million Air Traffic Control Facility (ATCT) at Destin Executive Airport, primarily intended to prevent airspace conflicts due to the close proximity and significantly different aircraft performance characteristics. Both of these projects are being funded entirely by Okaloosa County’s airports enterprise with federal, state and local resources. There are Federal AIP and MAP resources that will be available for eligible projects to continue the long and mutually beneficial partnership between the County and Eglin AFB. The Board of County Commissioners is requested to adopt the attached resolution requesting the U.S. Secretary of Transportation to seek a Section 47125 conveyance of 130.83 acres of land from the Air Force to the County for the continued development, use and operation of VPS. Section 47125 specifically authorizes the no cost transfer of land from the Federal government to a Public Entity (County) for the purpose of developing and operating its public use airport. The Joint Use Agreement for the payment of annual landing fees will remain in effect. If authorized, the request for the conveyance will be made from the Secretary of Transportation to the Secretary of the Air Force, who must respond no later than four months after receiving the request. OPTIONS: Approve, Disapprove, Table RECOMMENDATIONS: The Airports staff recommends the Board of County Commissioners approve and authorize the Chairman to sign the resolution. RECOMMENDED BY: APPROVED BY: John Hofstad, County Administrator