HomeMy WebLinkAbout5/15/2002 - STAFF REPORTS (30) DATE: May 15, 2002
—`, TO: City Council
FROM: Executive Director-Airports
REDUCTION OF AIRPORT'S OPERATION AND MAINTENANCE RESERVE
RECOMMENDATION:
It is recommended that the City Council reduce the Airport's Operations and
Maintenance (O&M) reserve requirement from 25% to 15% of O&M.
SUMMARY:
This action would result in a lowering of an Airport reserve account and release
approximately$1 million ofAirportdollars to help respond to post"9/11"requirements
at the Airport.
BACKGROUND:
The Installment Sale Agreement securing the 1992 Airport Revenue Bonds and the
1998 Airport Revenue Bonds require the Airline Rates and Charges be set so as to
provide net revenues equal to 125% maximum annual debt services on the Bonds as
well as in an amount sufficientto provide net revenues equal to(1)debt service on the
Bonds, (2) all payments required to comply with the Agreement, (3) all payments
required to meet any other obligations of the Airport Enterprise, and(4) all operations
and maintenance cost of the Airport Enterprise. The requirement to maintain the
Maintenance Reserve Account falls under clause (2) of the Rates and Charges
covenant.
"The Treasurer shall establish the Maintenance Reserve
Account at an amount initially equal to 25% of total current
annual Operations and Maintenance Costs, which may be
changed from time to time by the Director. The funds may be
used to pay extraordinary or unforseen costs of Airport
Operation and Maintenance."
The Airport inquired of the City's financial consultant, Harrell and Company, as to the
meaning of the above agreement section. Suzanne Harrell provided, "After
September 11, we are clearly in a period where the Airport is experiencing
extraordinary and unforseen costs. As Director, you may use the funds to pay such
costs as well as, based on the language of the Agreement, make the determination
to reduce Maintenance Reserve Account requirement below 25%."
Based on the documents and the financial consultant, it is clear that the O&M reserve
may be lowered. Staff asked Ms. Harrell for a recommended procedure which was
offered as follows:
"I recommend that you take the following actions to
memorialize the reduction in the Maintenance Reserve
Account requirement prior to the beginning of the fiscal year
when new rates and charges are established:
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May 15, 2002
Page Two
1. Determine the new Maintenance Reserve Account
requirement. I suggest that the requirement be set at an
amount not less than the estimated Airport operating deficit for
FY 2001/02, excluding any one-time expenses such as the
matching payments forgrants that were paid by the Airport this
year.
2. Establish the new Maintenance Reserve Account
requirement for 2002/03 by Resolution of the City Council."
The post 9/11, 01/02 deficit that the Airport experienced is expected to equal $2.2
million. Of the $2.2 million shortfall, $800,000 was to cover one-time grant matches
for projects that all came to completion in this fiscal year. Therefore, to set a reserve
greater than the post 9/11 deficit, as suggested in item#1 above, a minimum of$1.4
million would be required. The 2002/03 proposed operating budget is $9,791,892.
The current 25% O&M reserve would equal $2,447,973 for 02103. If the reserve
requirement was reduced to 15% of O&M, it would equal $1,468,783. The 15% level
allows for a reserve in excess of our post 9/11 deficit. This reduction in reserve
requirement will result in approximately $1 million one-time savings to the Airport
which will help hold down airline rates and charges by eliminating the $600,000
projected operating deficit for 2002/03 and allow for full funding of other reserves
which would have otherwise had to have been forgiven in fiscal 02/03.
This item was on the May 1,2002, Airport Commission meeting and is recommended
unanimously by the Commission for City Council approval.
Attached is a proposed Resolution which would establish the new reserve at 15% of
O&M.
ALLEN F. SMOOT, AAE
Executive Director-Airports .
APPROVED:
City Manager
ATTACHMENT:
1. Resolution
REVIEWED BY DEFT. OF FINANCE
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RESOLUTION NO.
OF THE CITY COUNCIL OF THE CITY OF
PALM SPRINGS, CALIFORNIA, REDUCING
THE AIRPORT'S MAINTENANCE RESERVE
ACCOUNT FROM 25% TO 15% OF
OPERATIONS AND MAINTENANCE COSTS
(O&M).
WHEREAS the Installment Sale Agreement securing the 1992 and 1998 Airport Revenue
Bonds states that "The Treasurer shall establish the Maintenance Reserve Account at an
amount initially equal to 25% of total current annual Operations&Maintenance Costs, which
may be changed from time to time by the Director"; and
WHEREAS the first year's O&M costs were $4,692,078 and the initial reserve was set at
$1,173,019; and
WHEREAS over the years, as the O&M costs rose, the reserve also rose to its 2001/02 level
of$2,335,364; and
WHEREAS in the aftermath of the terrorism attacks of September 11, 2002, the Airport, like
all airports in the Country, experienced dramatic reductions in commercial flights which
resulted in an operating deficit of over$1.4 million; and
WHEREAS the City's financial consultant, Harrell and Company, has recommended that a
reduction in the Maintenance Reserve Account should not result in a reserve balance less
than the post 9/11 deficit which, at Palm Springs, was $1.4 million; and
WHEREAS, based on a projected O&M cost for 2002/03 of $9,791,892, a Maintenance
Reserve amount of 15% of the O&M cost would result in a Maintenance Reserve Account
balance of$1,468,783; and
WHEREAS on May 1,2002,the Palm Springs International Airport Commission reviewed the
reserve level issue and took action to recommend City Council approval of a 15% O&M
reserve,
NOW THEREFORE BE IT RESOLVED by the City Council of the City of Palm Springs,
California,that the Palm Springs International Airport Maintenance Reserve Account funding
requirement is hereby reduced from 25% to 15% of Operations & Maintenance costs.
May 15, 2002
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ADOPTED this day of , 2002.
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
City Clerk City Manager
REVIEWED&APPROVEDAS TO FORM
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