COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON TRANSPORTATION AND PUBLIC UTILITIES Room 400, City Hall Philadelphia, Pennsylvania Tuesday, June 4, 2024 2:05 p.m. PRESENT: COUNCILMAN MICHAEL DRISCOLL, CHAIR COUNCILMAN JEFFREY YOUNG, JR., VICE-CHAIR COUNCILWOMAN KENDRA BROOKS COUNCILMAN CURTIS JONES, JR. COUNCILMAN ANTHONY PHILLIPS
I now note that the hour has come. Ms. McDonald, will you please call the roll to take attendance. Members who are in attendance, will you please indicate that you are present when your name is called. THE CLERK:: Councilmember Brooks.
Present. Thank you. A quorum of the Committee is present and this hearing is now called to order. This is a public hearing of the Committee on Transportation and Public Utilities regarding Bill No. 8 240429 and Bill No. 240433. Ms. McDonald, will you please read the titles of the bills.
Bill No. 13 240429, authorizing the Procurement Commissioner and the Chief Executive Officer of the Department of Aviation, on behalf of the City of Philadelphia, to enter into an amendment to a concession agreement for the development, operation and maintenance of an airport advertising program at Philadelphia International Airport; all under certain terms and conditions. Bill No. 240433, authorizing the Procurement Commissioner, on behalf of the City, to enter into a lease and concession agreement with Aero Center Northeast Philadelphia, LLC in connection with certain property at Northeast Philadelphia Airport to facilitate the development and operation of a new fixed-based operator, all under certain terms and conditions.
Ms. McDonald, will you please call the first panel we have to testify this morning on Bill No. 240429.
Good afternoon. Could you please state your name for the record and proceed with your testimony.
Good afternoon. My name is Adam Mitchell, Vice-president of Properties and Business Development of the Department of Aviation. I'd also like to extend my appreciation both to yourself, Chair Driscoll and to all of the members of the Committee on Transportation and Public Utilities. Again, my name is Adam Mitchell, Vice-president of Properties and Business Development of the Department of Aviation, which manages both Philadelphia International and Philadelphia Northeast Airports. I'm here today to testify in support of Bill No. 15 240429, which would authorize the Procurement Commissioner and the Chief Executive Officer of the Department of Aviation, on behalf of the City of Philadelphia, to enter into an amendment to a concession agreement for the development, operation and maintenance of an airport advertising program at Philadelphia International Airport; all under certain terms and conditions. , was the selected respondent of an RFP process leading to a seven-year concession agreement to develop and manage the Airport's advertising program. The concession agreement is currently effective from May 1, 2019 through April 30, 2026. This amendment to the concession agreement with Clear Channel provides for an additional renewal period of three years with modifications to the financial arrangement between the parties pursuant to which Clear Channel will continue to develop, operate and maintain an airport advertising program. The basis for the term extension request is threefold. First, based on current performance the additional term is anticipated to allow Clear Channel more time to achieve financial projections in its initial proposal to the City, which are drastically impacted by the decrease in passenger enplanements during the COVID-19 pandemic, while also allowing the City to avoid interruptions to the advertising program. S. Semiquincentennial. Second, the proposed amendment will require Clear Channel to complete a capital program totaling $2 million prior to 2026 in order to elevate the digital wayfinding and advertising experience for our passengers. Under this approach, Clear Channel will deploy capital funds that were deferred during the pandemic and add $1,492,396 in new capital investment above the 2019 contract requirements. Per the Airport and Clear Channel's mutual agreement, capital will be deployed to fund two upgrade projects. The first project scheduled for completion in Q2 of FY25 entails Clear Channel funding certain digital wayfinding kiosks near the Terminal D-E checkpoint that will complement the new Chase Sapphire Lounge entrance. This project allows the airport to redevelop that entry point as an elevated grand entrance area in a location that has seen strong growth due to the low and ultra low-cost carrier segment based in Terminal E, all while limiting development costs to the City. The second project scheduled for completion in Q2 of FY26 entails upgrades to Clear Channel's existing digital columns at the B-C Food Court, which are the highlight of the advertising program located in a legacy high- traffic area that is also an essential touchpoint for food, beverage and retail sales. Finally, as a condition for the term extension, the Airport has required that Clear Channel develop a strategic advertising plan to enhance the Airport's appeal to passengers attending the City's 2026 signature events, which is due later this year. That plan will contemplate recommendations for more experiential programs, digital advertising offerings and sponsorships. Importantly, it must also include commercially, reasonable recommendations to implement advertising campaigns benefiting small local startups, nonprofit and community-based organizations at an affordable cost.
We believe this approach will offer a strategic benefit to the City by piloting new programs that leverage airport assets in partnership with Clear Channel to meaningfully raise the profile of local companies and help facilitate economic opportunity for all. With respect to additional economic considerations, the proposed term extension will also extend the MAG, requiring a total minimum of $11,550,000 in concession fee payments to the City during the renewal term. Solely in terms of concession fee payments to the City, the proposed amendment will increase the total minimum contract value from approximately $18 million to 29,600,000. In conclusion, we truly appreciate your consideration of the Airport's recommendation regarding this initiative. I kindly request adoption of these amendments related to this ordinance. These amendments include adjustments to the overall capital expenditure requirement by Clear Channel. I'd like to thank you for the opportunity to present testimony today on Bill No. 240429. I respectfully ask the Committee for adoption of the amendments, a favorable recommendation of the ordinance and that the rules be suspended to allow for a second reading at the next session of Council. Thank you.
Thank you. Ms. McDonald, I just want to note for the record the presence of Councilmember Curtis Jones. Are there any questions from the Councilmembers? Vice-Chair Young.
Thank you. Just looking at the amendment and at the minimum annual guarantee, so does that mean that it's a possibility that Clear Channel could pay more than -- that's just a minimum. That's just a floor. Can they pay more, and what triggers them to pay more?
Thank you, Vice-Chair. That is a really good question. So you're absolutely correct. The minimum annual guarantee or MAG is a -- essentially, it's a floor of payments that are required to be paid to the City during the program. That floor can be exceeded based upon Clear Channel's ability to essentially sell the assets that are within the program to a greater degree than what is being proposed for the MAG. And so, the incentive for Clear Channel is that the more that they are able to perform, the greater sales revenue that they are also able to collect. But from a percentage perspective, the City -- and this isn't included in the testimony and I'm happy to provide additional information to you at a future time with respect to the revenue share -- there is an additional percentage that the City can collect should the minimum annual guarantee requirement be exceeded by the concessionaire.
And is that in, I guess, the original full contract? You only have part of it. So I'm trying to figure out what the scale is and what's the threshold for the City to say, okay, you owe us more than 3.85 mil basically. What is that based on? What's the scale for that?
So essentially the simplest way that I would feel comfortable communicating about it now -- I'm happy to provide additional information to you in more detail for your review -- would be that the MAG requirement is set on an annual schedule. And for the schedule for the renewal term, I believe the amount is approximately 3.85 per year. That amount is prorated at a monthly basis. So you divide that amount by 12 and Clear Channel is required to pay that amount. Now, for each month should they actually generate more than what that fee is in sales that were approved for the month, then Clear Channel will be required to pay an additional percentage above what the floor was set for that month to the City.
So that's what I'm asking for. If you can provide to the Chair what's that amount that they need to exceed in order for us to get more than that 3.85 million a year.
If you could provide that in a timely manner because we're trying to get this through.
We only have time -- time is short. Well, hearing no further questions from the members and there's no other panels to testify, we will call witnesses on Bill No. 23 240433. Ms. McDonald, will please call the first panel we have to testify this morning on Bill No. 2 240433.
And once again, could you state your name for the record and proceed with your testimony.
Good afternoon, Chair Driscoll and members of the Committee on Transportation and Public Utilities. My name is Adam Mitchell, Vice-president, Properties and Business Development of the Department of Aviation, which manages both Philadelphia International and Philadelphia Northeast Airports. I'm here today to testify in support of Bill No. 240433, which would authorize the Procurement Commissioner, on behalf of the City, to enter into a concession agreement with Aero Center Northeast Philadelphia, LLC in connection with certain property at PNE to develop and operate a new fixed-based operator or FBO campus, all under certain terms and conditions. To provide some context around the crucial role this project will have at PNE, a fixed- based operator or FBO is a company authorized by an airport to provide a range of aeronautical services such as aircraft fueling, hanger storage, tie-down and parking, maintenance, de-icing, flight planning and similar services benefiting the general aviation and corporate travel industry. Currently, Atlantic Aviation is the sole FBO serving PNE. And while Atlantic is an experienced national operator and longstanding partner to the City, the airport is required by the Federal Aviation Administration to facilitate competition amongst fixed-based operators. We also believe the approach of bringing in an additional FBO will stimulate economic competition benefiting the City and PNE users while enhancing the City's capacity to serve growing demand at what is now the Commonwealth of Pennsylvania's third busiest airport. During the early stages of the COVID-19 pandemic, the City issued an RFP that was retracted due to a low level of responses, which was attributable to the uncertain business environment. A new RFP was reissued in 2022 and we are pleased to recommend SAR-Trilogy Management, LLC, operating under the trade name Aero Center Northeast Philadelphia as the selected respondent. SAR-Trilogy Management brings substantial industry experience developing and managing a national portfolio of FBO sites, including the Dekalb-Peachtree Airport in Georgia, Spokane International Airport in Washington, Wilmington International Airport in North Carolina and the Lakeland Linder and Tallahassee International Airports in Florida. The PNE Aero Center project will allocate up to acres of 12 land to develop a first-class FBO 13 facility, serving the general and 14 corporate aviation industry. The 15 lease will contemplate a base term 16 of 20 years plus additional renewal 17 options of 5 years and 4 years and 18 11 months respectively. 19 Phase of the project 20 generates -- oh, excuse me, 21 includes a general aviation 22 terminal containing a minimum of 23 5,000 square feet, an aircraft 24 hanger containing a minimum of 25 20,000 square feet, a minimum of 10 t-hangers and an additional ancillary support facility or facilities and operational infrastructure. Phase 2 of the project allows the tenant to develop expansion aircraft hanger and maintenance facilities. Scope to be determined as necessitated by market demand and growth over the next three to five years. The Airport, through our Community Relations and Government Affairs teams, has facilitated briefings with the West Torresdale/Morrell Park Civic Association about the project and will continue to remain engaged throughout the design process to reasonably accommodate community input. Additionally, the RFP and lease require that any tenant improvements be designed to achieve LEED Gold certification, Envision certification or other relevant rating system certification.
Finally, we believe that the PNE Aero Center project offers significant value to the City with regard to the economic structure of the agreement, which includes capital investment, minimum expenditure of $10 million for design and construction of the Phase FBO facilities and $6 million for the Phase expansion facilities, ground rent, monthly payments to the City at a rate determined by a fair market value appraisal, including annual escalations determined by CPI adjustment and formal rent revaluations every 10 years for parity with the then current fair market value. Concession fee, the tenant will pay a concession fee to the City for the privilege of providing FBO services. Economic Opportunity Plan, the agreement is subject to an Economic Opportunity Plan that has been reviewed and approved by the Office of Economic Opportunity. The tenant's project was also featured at the Airport's annual Business Opportunity Forum in 2023 to raise local awareness about the forthcoming project. In conclusion, we truly appreciate your consideration of the Airport's recommendation regarding this initiative. Developing the proposed facility enables the Airport to facilitate new private sector investment in city-owned assets in a manner well- aligned with the Administration's goals. It will also help to propel the City's national competitiveness and impact by enhancing the strategic mix of tenants at PNE with specific strengths providing either top-tier aviation manufacturing, aviation training and workforce development, aviation operational services or aviation maintenance services. I'd like to thank you again for the opportunity to present testimony today on Bill 240433. I respectfully ask the Committee for a favorable recommendation and that the rules be suspended to allow for second reading at the next session of Council. Thank you.
Well, thank you, Mr. Mitchell. Are there any comments or questions from the panel? Councilmember Phillips.
Thank you, Adam, for your testimony. I noticed that -- so we have Atlantic Aviation as the FBO serving the airport currently. What has been their thoughts on wanting to remain with the airport? And was it just that grueling that we just couldn't remain with them at all as opposed to the new one?
Okay. Thank you, Councilmember, for your question. Again, that's a very thoughtful question. So Atlantic Aviation is a highly-engaged partner at the airport and they will continue to be an engaged partner at the airport. Atlantic Aviation is providing FBO services at both the PHL campus and the PNE campus today. And to my knowledge, Atlantic Aviation is committed to continuing throughout their term and interested to propose in future RFPs for FBO development. In the case for PNE, the airport is again required to facilitate competition if there is another FBO that is interested to operate at the airport. And PNE is not subject to the same space constraints that we are subject to at the PHL campus. Thus, we're entering into an agreement to have two FBO operators at PNE.
Okay. That was helpful. Thank you. We're looking forward to seeing what, SAR-Trilogy?
Thank you. So you mentioned competition. Can you tell us how many folks or how many entities applied for the RFP or responded to the RFP officially?
That's another good question. So for this RFP for PNE, SAR-Trilogy was the only respondent for the RFP, and there's a reason why that occurred. This RFP included three schedules. The schedules contemplated minimum required services for the provision of FBO operations, a schedule for an expansion facility and a third schedule which contemplated the development of a four-star hotel on the campus. A part of the reason for the recommendation to include the option to propose for a hotel is because of some of the inquiries that we have received from a subset of PNE campus tenants who offer national trainings and are unable to secure hotel accommodations in proximity to their facility for those trainings. During the RFP process, we received declinations from several potential proposers because of the inclusion of the hotel option, that they did not believe they would be able to meet and that they believed would make their proposal less competitive. SAR-Trilogy ultimately became the sole respondent under the requirements for the FBO phase and they did not propose for the hotel.
So in the spirit of competition and realizing that you're not going to get, I guess, competitive bids, was it possible or is it possible to just have two separate RFPs where the hotel proposal will be one and then you'll have the other two schedules and another one?
The way that the RFP was structured, that wasn't an option for us to be able to pull --
Well, what I'm saying is could you have restructured the RFP, right, into two separate RFPs? Was that a possibility or is that a possibility to create more competition to get a better price for the City essentially is what I'm asking?
So my response to that question is I believe that it would be possible or it would have been possible before the recommendation for the selected respondent to have essentially pulled the RFP, if that's what you're asking, and to re-issue it. The way that the RFP was structured, however, is that -- and why I think that it's still within the best interest of the City to proceed with what was proposed is that the RFP language the way it was structured did explain that if entities were interested to propose, that the City had the option to look at the proposals under the separate schedules rather than require everyone to propose under all three schedules. That information was communicated to proposers that attended the public meeting regarding the RFP and that asked follow-up questions regarding their proposals and how they would be treated.
I mean, I understand that process, right. But if I'm being told this is what we want and I'm trying to bid on it and I see that what I can provide doesn't meet that standard, I'm going to back away. I'm not going to waste my money, my energy on trying to bid on something where I know the City has these specific criteria. For me, it just makes it look like that the RFP is designed for a certain responder. That's all. And that for me looks like it creates less competition. Thank you, Mr. Chair.
In that spirit, did you have an idea of what to expect pricing-wise? Was it in the range of what you were expecting? I'm concerned as the Vice-Chair to make sure we get the best price possible.
Yes. Again, when we let the RFP in the 2020 time period during the pandemic, we performed initial analyses with respect to what we anticipated the industry response would be. We did consult with RFP developers and operators in the industry with regard to what a baseline presumption would be in terms of concession fee structure and rent structure and also capital investment. At that time because of the financing environment and the uncertainty with respect to the public health situation and how that impacted the aviation industry, we received no proposals at that time. Because we are also subject to time-constraints as demand utilization is increasing at PNE, we did want to go back to market as soon as possible. Our view of the approach that we took and we believe that we gave a very fair and flexible approach by adding the additional schedule that potentially could have allowed other development partnerships to respond in a teaming approach to consider not just the FBO but also the maintenance expansion facilities and the hotel. We did receive a high level of participation in the public meeting process, but the outcome wasn't what we anticipated with respect to the amount of actual proposals received. And I do know and I can state that the consideration of that additional schedule was a factor that was considered. I don't want to misread into how the interpretation of the language that we included in the RFP was interpreted by potential respondents, but I do believe that the document that was crafted had a very fair analysis of the potential business case. It was structured in a way that gave as much flexibility as possible. And the outcome again, I believe, is also indicative of the current state of the market with respect to how entities are perceiving this specific type of development opportunity at PNE.
Thank you, Mr. Chairman. And thank you for this well-presented analysis. I just have a few questions: One, when you let this bid in 2020, you said?
What was your anticipated implementation and construction schedule? How long from the award to the ribbon- cutting did you anticipate it being?
That's a very good question as well. And the anticipated development schedule that we are projecting would be an 18- to 36-month schedule, not just including the actual award but also considering FAA review of the development requirements for the site, which is still in process. And we don't have a firm date as to when that would be achieved.
In today's economy under today's construction restraints, do you still anticipate it being an 18- to 36-month construction schedule?
So are we doing this bid in anticipation of the celebration of the country and the World Cup and all of this? Is that one that --
That was a complimentary consideration and should we be able to beat the projection, which admittedly is conservative, it would be an added value. However, the need and the basis for this type of facility will extend beyond the 2026 --
It's a good infrastructure improvement for the City of Philadelphia. So briefly tell me again. The two sides of the RFP was the hotel and what was the other one, the other side?
So there are three schedules that were included in the RFP. Schedule 1 essentially is the minimum required scope of services, which is for the fixed- based operator facility that includes a terminal building, a hanger and some ancillary maintenance facilities. Schedule was for an expansion hanger or maintenance facility. Schedule was for a 2 four-star hotel. 3
So in my days as Finance Deputy Finance Director in charge of procurement, in difficult compound bidding do you think it's feasible to break the bids up into three different smaller packages?
Conceptually I think that it could be approached in that way, yes.
Do you think -- so I'm willing to go with what the group says, but I think a consideration should be that if we need one of those hangers in time for the celebration and you may say, well, we'll break it up and we can get that. And then there might be a hotel chain that's willing to put up the upfront capital to build that kind of infrastructure in light of the robust number of events this City has scheduled. And I just heard a -- the word is that after the World Cup we're not done. We have a whole series of other world-class events. So my question becomes can we do it that way? But the second part of that question is if you put out an RFP and I only do Philadelphia, then I'm going to get this number of respondents. If I do a worldwide- search from the Hilton to the, you know, the W or whoever in almost an international scope, we might get a greater number of respondents. What was the marketing for this RFP?
I apologize, Councilmember. Could you please repeat the question? What was the market --
Sometimes I can be long-winded. I'm sorry. When you put the RFP out, who did you put it out to, how far-reaching was the request for proposal?
Okay. Thank you for your question. That is also a very thoughtful question. So this RFP was circulated and the target audience for the RFP is the fixed-based operator community. It was circulated to the industry overall and presented to the major national developers in the aviation space that would contemplate this type of program.
My only final comment would be that this is the kind of investment we don't get to do over again, not in our lifetime. So we might want to consider, and we trust you to tell us if it's better, to break it up and go strictly after hotel developers for one portion of it and then the other portion to the more specific service providers that you seek for airports. That might be a way to get a wider number of respondents and better quality responses. Thank you, Mr. Chairman.
Well, if there are no other questions from the members of the Committee and hearing this panel and there are no other panels to testify, we will now transition to our public comment session. Ms. McDonald, will you please call the first person making public comment we have to testify this afternoon on the bill before this Committee today?
I would like to thank you for joining us today, and that will conclude our hearing and we'll now go into a public meeting. There being no further questions from members of the Committee and no other witnesses to testify on Bill No. 240429 or Bill 3 No. 240433, I will ask if there is anyone else present at this hearing whose name we failed to call and that wishes to offer testimony on the bills being considered today? (No response.)
Hearing none, I want to thank the panel and the witnesses for their participation. We value your opinions. This concludes the public hearing of the Committee. We will now go into a public meeting to consider the action to be taken on the bill before this Committee today. We will now convene the public meeting. Ms. McDonald, will you please call the roll to take attendance. Members that are in attendance will please indicate that you are present when your name is called.
Present. The Chair recognizes Councilmember Young for a motion on the amendment to Bill No. 240429.
Thank you, Mr. Chair. I offer an amendment to Bill No. 240429. A copy of the amendment has been circulated to all members of the Committee and I move the amendment to Bill No. 6 240249. (Duly seconded.)
The Chair notes for the record that Councilmember Squilla seconds the motion. It has been moved and properly seconded that the amendment to Bill No. 240429 be approved. All those in favor of the motion will signify by saying aye. (Aye.)
The ayes have it. The motion carries. The Chair recognizes Councilmember Young for a motion on Bill No. 240429 as amended.
Thank you, Mr. Chair. I move that Bill No. 240429 as amended be reported from this Committee with a favorable recommendation and further move that the rules of Council be suspended to permit first reading of this bill at our next session of Council. (Duly seconded.)
The Chair notes for the record that Councilmember Squilla seconds the motion. It has been moved and properly seconded that Bill No. 17 240429 as amended be reported from this Committee with a favorable recommendation and further move that the rules of Council be suspended to permit first reading of this bill at the next session of Council. All those in favor of the motion will signify by saying aye. (Aye.)
The ayes have it. The motion carries. The Chair recognizes Councilmember Young for a motion on Bill No. 240433.
Thank you, Mr. Chair. I move that Bill No. 240433 be reported out of this Committee with a favorable recommendation and further move that the rules of Council be suspended to permit first reading of this bill at the next session of Council. (Duly seconded.)
The Chair notes for the record that Councilmember Squilla seconds the motion. It has been moved and properly seconded that Bill No. 25 240433 be reported from this Committee with a favorable recommendation and further move that the rules of Council be suspended to permit first reading of this bill at the next session of Council. All those in favor of this motion will signify by saying aye. (Aye.)
The ayes have it. The motion carries. And that concludes the business before this Committee today on Licenses & -- on Public Transportation and Public Utilities.
Thank you. (Committee on Transportation and Public Utilities concluded at 2:55 p.m.) C E R T I F I C A T I O N I, hereby certify that the proceedings and evidence noted are contained fully and accurately in the stenographic notes taken by me in the foregoing matter, and that this is a correct transcript of the same. __________________________________ TANEHA CARROLL