COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COUNCIL COMMITTEE ON FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, 5/7/01 1:15 p.m. - - - BILL NO.'S 010258, 010259, 010260 - Related to Airport Revenue Bonds (Full text of all ordinances attached hereto.) PRESENT: COUNCILWOMAN JANNIE L. BLACKWELL, Chair COUNCILWOMAN MARIAN B. TASCO, Vice Chair COUNCILMAN DAVID COHEN COUNCILMAN FRANK DICICCO COUNCILMAN JAMES F. KENNEY COUNCILMAN MICHAEL A. NUTTER - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 /00 FINANCE I N D E X Folasade Olanipekun, City Treasurer . . . . . Dan Cantu-Hertzler, Chair . . . . . . . . . . 12 Corporate and Tax Group, City Law Department 6 Charles Isdell, Director of Aviation. . . . . 18 Bob Hazel, Vice President . . . . . . . . . . 30 Properties and Facilities, USAirways Chuck Stipancic, Director . . . . . . . . . . 33 Airport Affairs and Corporate Real Estate USAirways James Roundtree, Director, MBEC . . . . . . . 46 Janice Davis, Director of Finance . . . . . . 87 City of Philadelphia 3 5/7/00 - FINANCE - BILLS 010258, 59, 60 P R O C E E D I N G S
Good afternoon. We'll now begin or Committee on Finance public hearing on Bill No.'s 010258, 59, and 60. We note that a quorum is present: Councilman David Cohen, Councilman James Kenney, and Councilman Michael Nutter are here. We will now ask that those who are going to testify -- our City Treasurer; Charles Isdell, our Director of Aviation; our Deputy Solicitor Dan Cantu-Hertzler; our Director of Airport and Corporate Real Estate Charles Stipancic; and Jim Roundtree, Director of MBEC. Would the clerk please read the title of Bill No. 010258. And thank you all for coming.
Bill No. 010258, an ordinance constituting the Fourth Supplemental Ordinance to the Amended and Restated General Airport Revenue Bond Ordinance; authorizing the Mayor, the City Controller and the City Solicitor, or a majority of them, to issue one or more series of Airport Revenue Bonds of the City of 4 5/7/00 - FINANCE - BILLS 010258, 59, 60 Philadelphia, and to take certain actions with respect to Qualified Swap Agreements, Exchange Agreements, and similar instruments; determining the sufficiency of pledged amounts of available for Debt Service; covenanting the payment of interest and principal; authorizing the Bond Committee to take certain action with regard to the terms and conditions of the Airport Revenue Bonds and Related Agreements; authorizing the Director of Finance of the City to take certain actions with regard to the sale of such Airport Revenue Bonds and the City's continuing disclosure obligation; and specifying applicability of sections of the First Class City Revenue Bond Act and the Amended and Restated General Airport Revenue Bond Ordinance.
Thank you very much. I think that we should maybe have a discussion of all bills in concert, so would you read now the title of Bill No. 010259.
Bill No. 010259, an ordinance constituting the Third Supplemental Ordinance to the Amended and Restated General Airport Revenue Bond Ordinance; authorizing the 5 5/7/00 - FINANCE - BILLS 010258, 59, 60 Mayor, the City Controller, and the City Solicitor, or a majority of them, to issue one or more series of Airport Revenue Bonds of the City of Philadelphia, and to take certain actions with respect to Qualified Swap Agreements, Exchange Agreements, and similar instruments, setting forth the use of such Airport Revenue Bonds; providing for the pledge of certain passenger facility charges for this and certain subsequent series of Airport Revenue Bonds; determining the sufficiency of pledged amounts available for debt service; covenanting the payment of interest and principal; authorizing the Bond Committee to take certain actions with regard to the terms and conditions of the Airport Revenue Bonds and related agreements; authorizing the Director of Finance of the City to take certain actions with regard to the sale of such Airport Revenue Bonds and the City's continuing disclosure obligation; and specifying applicability of sections of the First Class City Revenue Bond Act and the Amended and Restated General Airport Revenue Bond Ordinance. And Bill No. 010260, an ordinance 25 authorizing the Director of Commerce, the Director 6 5/7/00 - FINANCE - BILLS 010258, 59, 60 of Aviation, and other officials of the City to enter into certain lease amendments, amended agreements, or other agreements with the Philadelphia Authority for Industrial Development ("PAID"), and other parties, necessary to permit the completion of two airport terminals and other airport improvements.
Thanks. So you've read the titles of all three bills?
All right. Thank you again, everyone, for coming. Now we will call on our City Treasurer to enter her statement and have her testimony presented. Thank you.
Thank you, Madam Chair. Good afternoon. My name is Folasade Olanipekun, and I'm the City Treasurer. I'm here today to provide in many support of Bill No.'s 7 5/7/00 - FINANCE - BILLS 010258, 59, 60 258, 259 and 260. With me today is Charles Isdell, Director of Aviation, who will describe the airport expansion project; and Dan Cantu-Hertzler, on behalf of Ken Trujillo, the City Solicitor, who will provide testimony describing the amendments to the leases and access agreement; Charles Stipancic, Director of Airport and Corporate Real Estate; and Bob Hazel, Vice President of Property and Facilities will provide additional testimony for USAirways; as well as Jim Roundtree, Director of MBEC. Also here today is Janice Davis, Director of Finance and certain members of the bond finance team Blackwell.
Excuse me one moment. Let me note that Frank DiCicco is also here. Thank you.
Thank you. In terms of the order of testimony, will provide testimony first; then Dan Cantu-Hetzler of the City Solicitor's Office will provide a summary of his testimony; then Charles Isdell, Director of Aviation will provide his 8 5/7/00 - FINANCE - BILLS 010258, 59, 60 testimony by way of a presentation; then the folks from USAirways will provide testimony also as part of the presentation; and then MBEC will provide their testimony in that order.
Madam Treasurer, the last -- I think we had a water revenue hearing on bonds and the request from the committee was that the professional service list would be here. Do you have it, or is it in this packet somewhere?
No, it's not, sir. I have it to provide to you this afternoon.
Okay, great. Thank you. Thank you, Madam Chair. 9 5/7/00 - FINANCE - BILLS 010258, 59, 60
The purpose of Bill 5 No. 258 is to authorize the City to issue general airport revenue bonds, Series 2001B, in one or more series under the General Revenue Bond Ordinance of 1978 in an amount not to exceed $40 million, exclusive of original issue discount, capitalized interests, and cost of issuance. The proceeds of the bonds sale will be used to finance the cost of expansion and improvements to Terminal E at the Philadelphia International Airport. The purpose of Bill No. 259 is to authorize the City to issue general airport revenue bonds, Series 2000A, to PAID in one or more series in an amount not to exceed $175 million, exclusive of original issue discount, capitalized interest, and the cost of issuance. The Series 2001- A GARBs will finance the completion of the airport's new international and commuter terminals and other related projects. The financing is needed because of unanticipated delays and the subsequent additional costs associated with completing this project. 10 5/7/00 - FINANCE - BILLS 010258, 59, 60 Bill No. 260 authorizes the City to execute certain documents, including the terminal lease and ground lease -- it authorizes -- amends certain documents, including the terminal lease and ground lease and access agreement that were entered into in 1998 to facilitate the financing and completion of the international and commuter terminals. This bill also authorizes the City to enter into agreements with PAID in connection with revenue bonds to be issued by PAID in connection with this project. As required by the First Class Revenue Bond Act and the new general ordinance, I am submitting on behalf of the Finance Director her financial report, which is based on the analysis of the airport system conducted by Leigh Fisher Associates, the feasibility consultant, and Urban Engineers, Inc., the consulting engineers. Copies of both reports are being transmitted along with the Director of Finance's report. And I am transmitting that herewith. Subject to necessary approvals, we anticipate selling the Series 2001A and 2001B bonds in late June 2001. Closing is scheduled to 11 5/7/00 - FINANCE - BILLS 010258, 59, 60 occur late in July in order to meet the target completion date. Therefore, we respectfully request approval of Bills No. 258, 259, and 260 before City Council's summer recess. We are also respectfully requesting suspension of the rules so that first reading can be had this Thursday, May 10th. Finally, included in with my testimony is a listing of the bond finance team actually. And this actually concludes my testimony, and I'll be happy to answer any questions. I am transmitting the Director of Finance's report on the ordinances.
Thank you very much, and we would like to hear all of the testimony and then go have questions and answers, if that's okay with members of the committee. Thanks. Mr. Isdell?
Good 12 5/7/00 - FINANCE - BILLS 010258, 59, 60 afternoon.
I'm Dan Cantu-Hertzler, and I'm the Chair of the Corporate and Tax Group of the City Law Department. I'm here on behalf of Ken Trujillo, the City Solicitor. I'd like to also introduce a couple members of my staff that actually did much more of the work on this than I: Joe Messina, who's the Divisional Deputy City Solicitor for Transportation right here; and sitting behind him is Brian Levin, an Assistant City Solicitor who probably did more than the work. If anything is wrong with his testimony, it's my responsibility but I wanted to give them credit for the substantial work that they did.
I am pleased to appear before you to testify on behalf of these three airport bills. As you're aware, the Airport experienced tremendous growth in passenger traffic during the 1990s. In response to that growth, in 1998, the City and PAID agreed to a conceptual plan that was formulated in the first instance by 13 5/7/00 - FINANCE - BILLS 010258, 59, 60 USAirways for the design, construction, and financing of a new international terminal and a commuter/regional terminal as well as renovations to some of the facilities that the Airport already had. In this testimony, I'm call that "the project." In 1998, City Council approved the project, and during the past three years, USAirways, PAID, and the City have implemented the plan, and USAirways has completed a great deal of the required construction. In order to complete the project, USAirways has applied to PAID for additional assistance in financing, and we have resulting new documents, some of which we're asking City Council to approve and others which we think you ought to know about in approving these transactions. The three basic project structures are: Terminal 1, the new international terminal; Terminal F, the new commuter terminal; and a new ramp control tower. And there are also quite a few renovations that were approved in 1998. Now, do you have copies of my testimony? 14 5/7/00 - FINANCE - BILLS 010258, 59, 60
Okay. The City Solicitor testimony, at the top of , lists a number of changes that are being added, the scope changes. And just for the sake of time, I'm not going to go through all of those in detail. On pages --
Okay. These are items that were a part of the original project or just the stuff that was added on?
And, Councilman, if you would like it all read into the 15 5/7/00 - FINANCE - BILLS 010258, 59, 60 record, we can --
No, no, no. I don't want to start following him down the road and not be on the right path. Thank you.
Pages and kind of list how the transaction was structured originally. It's separately set forth beginning on , summarizing the key documents, and maybe it would be more helpful to move there again for sake of time. The bottom of lists four parts of the Airport expansion project that are not being financed by these bonds and are not affected by what we're doing today. Most of those have to do with roadway modifications. And there's also parking garage facilities. Those are being separately financed. Okay. The basic document, I think, is the ground lease. In 1998 Council approved and the City entered into a ground lease with PAID, a ground and improvements lease. The City leased to PAID the sites that the Airport needed for the construction of the two terminals. It also 16 5/7/00 - FINANCE - BILLS 010258, 59, 60 licensed to PAID certain special rights so that the renovations could be completed. And the term is the same as the lease -- as the term of bonds that PAID issued. This is a lease leaseback transaction. PAID issued bonds, the City also issued a bond to paid. Now it's proposed that the City and PAID amend the ground lease to address the scope changes that were described on the top of of my testimony and to reflect the issuance of the new bonds that PAID is going to issue as well as the bond that the City proposes to issue to PAID. That's under Bill 259. Bill 260 is the bill that authorizes the specific amendments, or authorizes the City to enter into these. There's a related access agreement in 1998 for access to the ground outside of the specific projects but to do utility work and other work to facilitate the project. Again, that's to be amended, and the Administration is requesting your approval of that. There's a terminal lease. This is the leaseback from PAID to the City. And, again, 17 5/7/00 - FINANCE - BILLS 010258, 59, 60 approval is being requested of that. There is the development lease pursuant to which USAirways is acting as developer of this project. That's one of the reasons, I think, this has been completed so quickly; USAirways has done largely an incredible job on this. That's proposed to be amended, I think, for the second time. Now, that's between PAID and USAirways, so there's no specific Council approval required. But, again, that's an important part of the transaction, and I believe you have copies of that document as well as the -- the 1998 document as well as the draft amendment. There's a guarantee by USAirways parent. There's also a four-party agreement between USAirways, its parent, PAID, and the City. Those are both for the benefit of the City or PAID. And then there's an intergovernmental agreement between the City and PAID pursuant to which the City is agreeing to indemnify PAID. That's basically what is being approved by Bill 260. The other two bills -- Bill 259 is authorizing the City bond, the financing for this 18 5/7/00 - FINANCE - BILLS 010258, 59, 60 transaction. And then there's also Bill 258, which is authorizing expansion to Terminal E at the Airport. That's unrelated to the two new terminals, but it's another way of increasing the Airport's capacity, by adding four gates at the end of Terminal E. I'll be happy to try to answer any questions you may have.
-- Madam Chairwoman and the members of the Committee on Finance. First I want to thank you for giving us this time to make our presentation to you. We know how busy you are. In the interest of that time, rather than summarizing my testimony, what we thought we could do is move right into a presentation which covers the cogent points, and we can start that immediately with your approval.
Thank you. 19 5/7/00 - FINANCE - BILLS 010258, 59, 60
The first is a very quick snapshot of where our airport is today. We set a new record last year with million passengers, 5 24,918,000 to be exact. That was the highest 6 total we've ever had. We're ranked 20th in the US 7 in terms of total passengers. 8 We also set a record with takeoffs and 9 landings last year at our airport: 485,000. 10 We're ranked 12th in the US. 6 billion. 13 We are a 100 percent self-sustaining 14 operation. 15 Our passenger mix is 60 percent 16 business travelers. We also know that 60 percent 17 of our travelers originate or end their 18 destination in Philadelphia. 19 Currently, we have 68 employers on the 20 Airport, employing approximately 20,000 people. 21 There are 25 air carriers who operate 22 650 daily departures to over 100 cities. And 23 currently, at least Wednesday of this, week we 24 will have 13 daily nonstops to nine European 25 cities. That includes USAirways' inaugural flight 20 5/7/00 - FINANCE - BILLS 010258, 59, 60 to Brussels this Wednesday evening. Our passenger amenities, including our concession program, have been acknowledged and noted most recently by the Wall Street Journal, which named us "The Best Airport in America" in January. To give you a graphic illustration of our passenger growth over the last decade, this chart shows domestic traffic in blue, international traffic in red. And as the testimony points out, there's been growth in all of these areas, particularly within the last five years and particularly 130 percent growth in the international passenger area. Back in 1998, our testimony emphasized the need for the Airport to compete with other airports in terms of its gate capacity. The numbers of the gates at some of the airports ahead of us have actually increased since 1998, but currently, you see that JFK Airport, for example, has 173 gates, Chicago with 172, and Atlanta with 170. We're down at 63. We actually have fewer gates right now than Charlotte, Pittsburgh, and Baltimore-Washington and certainly far less that 21 5/7/00 - FINANCE - BILLS 010258, 59, 60 Newark. These are airports that theoretically compete with us. The good news is that in June of this year, when our regional Terminal F opens, we will add 38 gates, to go from 63 to 101. And in about a year after that, when we open the international terminal, we'll get another gates. So we'll be 9 up to 114, which we believe gets us back to a 10 competitive position but certainly, you know, does 11 not put us ahead of some of our competitors. So 12 this needs to happen as quickly as possible. 13 We have a quick summary here of our total construction program that's ongoing at the current time, and you will hear reference from time to time to us having a billion-dollar ongoing program. These are the elements that make up that roughly billion dollars. And the two biggest single elements at the top are the two terminals just mentioned, at a 100 million for the regional terminal and 450 for the international terminal. The parking facilities that are referenced at 110 million were financed through a separate Parking Authority bond issue. This is a quick picture of an artist's 22 5/7/00 - FINANCE - BILLS 010258, 59, 60 rendering of the international terminal and a current photograph in the lower right-hand corner showing how it's beginning to take ship. Some facts about this terminal: It encompasses 800,000 square feet; It's producing 3800 construction and 3500 other permanent jobs; As I said, new international gates, 10 12 of which will be wide-body-compatible with the 11 new generation the wide-body aircraft; 12 68 ticket counter positions; 13 56 federal inspection positions; 2800 passenger-per-hour (indiscernible), and those are triple the current capacity of our existing international Terminal A, likewise the baggage claim capacity. We are providing for club space for a USAirways club and at least one additional club, which we hope to negotiate with one of the foreign flag carriers.
And we will be extending our award-winning concession program into the new terminal as well. A separate project is a $15 million ramp control tower, which was precipitated by the 23 5/7/00 - FINANCE - BILLS 010258, 59, 60 simple geographic fact that you cannot see the entire apron area from one location at our terminal complex anymore, so we're actually going to have a ramp control tower at each end of the facility. Those are staffed by airline employees who take planes from the gate to a hand-off point where they're transferred to the federal air traffic control tower and vice versa. There is a $30 million 1500-space parking garage under construction to attach to this terminal, and we are calculating the opening for the summer of next year. A quick picture, again up to the minute, of our regional Terminal F, the artist's rendering on the left and an actual picture from a couple weeks ago on the right. You can see that it is virtually completed on the outside. Some facts about this terminal: It's another 185,000 square feet of facility added to our complex; It's producing 1100 construction jobs as well as 1800 permanent jobs; It will have 38 gates, 24 of which will be compatible with regional jets 24 5/7/00 - FINANCE - BILLS 010258, 59, 60 It will have an additional provision for the concession program in Terminal F and A larger parking garage at that end, because we currently only have four garages A, B, C and D. We do not have an E garage to match up with Terminal E, so we're building an E-F addition along with an interior roadway within the garages so that people will not have to do what they do now, which is drive in and out of the garage, each individual garage. If they can't find a space, they'll be able to connect to all of the garages through an interior roadway; And a new toll plaza and operations building that is under construction currently. This terminal will open with a ribbon-cutting on June the 19th of this year. This is a very quick summary of the DBE participation, which will be elaborated upon by both USAirways and Executive Director Roundtree of the Minority Business Enterprise Council, but a snapshot picture is 20 percent participation on the A and E costs, percent on construction 24 management costs, 27 percent on actual 25 construction contracts, and workforce hours, a 25 5/7/00 - FINANCE - BILLS 010258, 59, 60 total of 25 percent participation, 23 percent minority, and 2 percent female. This is a quick explanation of the financing structure, which, I believe, the City Treasurer and the City Solicitor have explained sufficiently, so we'll move to the next slide. I wanted to give you some quick facts about Terminal E, which is a separate project we've embarked upon to provide as many as four additional domestic gates in a hammerhead type of addition at the end of the pier of Terminal E. It will add another 100,000 -- I'm actually having difficulty seeing that far, so I'll turn to my booklet. 100,000 square feet of terminal space, 14 additional ticket counter positions at an estimated cost of $30 million. And this particular project is being handled separately because it is a totally City initiative, and it's a part of our overall goal to get enough gate capacity so that we can actually attract some low-fare carriers into our airport. The next slide is quick artist's renderings of the I-95 access ramp project. This project is well underway; it's actually three 5/7/00 - FINANCE - BILLS 010258, 59, 60 weeks ahead of schedule right now. It's being carried out by PennDOT. The City provided the costs -- or funded the costs for the design of these ramps. The major improvement will be that you will be able to enter our airport directly from I-95 in both directions.
Currently if you're coming from the Blue Route or from the western or southern suburbs on I-95 North, you have to exit 95 North prior to arriving at the Airport and stop at four stoplights before you actually get into the complex and the Airport roadway system. The new ramps will allow access directly without any stoplights, and they are also necessary so that the roadway in front of the new international terminal will be at ground level rather than in an elevated situation at that point. Again, for purposes of comparison with other Philadelphia development projects, we think that our two projects together are of major significance to the economic health and development of our region. Certainly the international terminal almost dwarfs any other project going on at the present time, including the two new stadiums. And this is being done with 27 5/7/00 - FINANCE - BILLS 010258, 59, 60 no local tax dollars, which I think is very significant as well. So, finally, the things that we think are most important to carry away from this presentation are the fact that it is being done with no local tax dollars, that it produces -- the two terminals together produce 5300 construction jobs and 4900 permanent jobs. They also will be producing $12 million in new annual City tax dollars, a total of $40 million for the entire region, and 51 new gates in half the time. Before I end, I would just like to mention a couple of significant points that weren't mentioned here. One is that the last time we built a terminal at our airport, the bonds were actually sold in 1985, but the terminal did not open until 1991; that was Terminal A. That was a six-year period. For these projects, even though the bonds were sold in the summer of 1998, construction did not beginning until August of nine. Ground-breaking was actually August the 2rd. That was four months behind the target date. But if you count from the August ground- 28 5/7/00 - FINANCE - BILLS 010258, 59, 60 breaking date, we will be opening a $185,000 commuter terminal with 38 gates in less than two years. I think that's quite an accomplishment. And assuming with your indulgence that we're able to continue with the international terminal construction and get it done by next summer, we will have built an 800,000 square foot facility that will be a true gateway to the Airport in less than three years by next summer. To put it all into perspective, I just want to make a final comment, that it's appropriate, sitting in this chamber in this building, and I know that we're all celebrating the 100th anniversary of City Hall this year. My son mentioned to me yesterday when we jogged by here during the Broad Street Run that he had read that this building took 30 years to build. 4 billion, and took 30 years to build a 630,000 square foot facility, the only place where we would fall short with our three-year program of constructing almost a 29 5/7/00 - FINANCE - BILLS 010258, 59, 60 million square feet is that our terminal building and our ramp towers, if you could put the ramp tower on top of the terminal, they'd only be 335 feet high, whereas William Penn sits 510 feet above the City of Philadelphia, but I think that helps to put the whole process into some perspective. And I thank you for your time.
Actually, Madam Chair, Chuck Stipancic from USAir is going to continue.
Before he continues, Dan Cantu wants to complete his testimony.
I just neglected to request that the City Solicitor opinions from Ken on Bills 258 and 259 be officially included as part of the record. I handed up, I believe, seven copies of each, and I have the originals here also for the clerk.
And I have the report 30 5/7/00 - FINANCE - BILLS 010258, 59, 60 to the Director of Finance as well with copies.
Thank you very much. We will make it an official part of the record, per your request.
And this is also a copy of the (indiscernible) lease for Councilman Kenney and other members of the Finance Committee.
Thank you. We will copy this information and make it available to all members of the committee. Oh, we have enough copies, thank you. All right.
Good afternoon. My name's Bob Hazel, Vice President of Properties and Facilities for USAirways. With me is my colleague Chuck Stipancic, Director of Airport Affairs; and my other colleague (indiscernible) Johnson, Manager of Public Affairs.
Good afternoon. We appreciate the Committee's consideration of this important issue. We are here seeking approval of the issuance of bonds necessary to complete the 31 5/7/00 - FINANCE - BILLS 010258, 59, 60 new international and commuter terminals. Based on current projections, bonds must be issued by later this summer to ensure that the project does not run out of funds. The cost of these projects, just to reiterate, is paid by fees charged the airlines and by passenger facilities charges paid by passengers using the Airport. No Philadelphia taxpayer dollars have been spent on this project, nor will any be required in the future. The projects are very important to USAirways, but they are also important to the City. Philadelphia is competing with other major cities undertaking major airport projects, and to list just a few other airports that have underway billion-dollar-plus projects, they included: John F. Kennedy, Miami International, Detroit, Newark, Baltimore, and Dulles. And I would mention that four of those six are completing their projects in the same manner that we are here; that is to say, using the airline as the developer. Airports drive economies. The development of USAirways' major hub at Philadelphia is critical to Philadelphia's 32 5/7/00 - FINANCE - BILLS 010258, 59, 60 competitiveness as a business and financial center, a leading center of learning and medical research, and a tourist destination. And if you look back over the past five years, USAirways' own employment in Philadelphia has almost doubled since 1996, from 3300 to 6400 employees. The number of passengers we carry has grown by 76 percent, from 1996 to the year 2000. And we've added 34 new nonstop destinations since 1996 and built a trans-Atlantic hub that now provides nonstop service to most of the major capitals of Europe. And we would have expanded even more if the facilities had been available. A visit to the airport any day at 6 p.m. will confirm the critical need for additional facilities as soon as possible. More flights and the economic activity they bring requires more gates. Our goal has been to complete the projects quickly, while embracing the important goals we share with the City. Both Chuck Stipancic and Jim Roundtree will provide presentations on our record to date in meeting MBE/DBE goals. I'm confident you'll find we've 33 5/7/00 - FINANCE - BILLS 010258, 59, 60 made a strong commitment in this area. Finally, let me point out that United Airlines, which is awaiting a government approval to acquire USAirways, has committed not only to honor USAirways' contractual commitments but also to add service to additional destinations from Philadelphia upon approval of their acquisition. With that, Chuck Stipancic will provide more details about our projects and about our DBE/MBE status, and we'll be glad to answer any questions. Thank you.
Madam Chair and other members of the committee, I appreciate the opportunity to appear before you here today. As Bob mentioned, my name is Chuck Stipancic, and I'm Director of Airport Affairs and Corporate Real Estate for USAirways. There's really two things I'd like to focus on in my presentation. One is just to give you a quick snapshot of the status of the international and the commuter terminal projects. And the second is just to discuss the need for a 34 5/7/00 - FINANCE - BILLS 010258, 59, 60 completion funding. Charlie went through -- Director Isdell went through a number of these statistics already, but I'll just point out one that we're very proud of, and that is, we're going to develop a 23,000 square foot USAirways lounge as part of this facility. That will supplement an existing 24,000 square foot USAirways club that we have in the B-C connector. Again, we've already seen an artist's rendering of Terminal 1. The current estimated project cost for Terminal 1 is $442 million. The estimated completion date is the summer of 2002. Again, some statistics on Terminal F, two that are pointed out here. One is that this facility will be the first of its kind to actually have passenger loading bridges. This is a type of equipment that people can -- customers can leave the building enclosed, fully enclosed, to board the airplane. And of those gates, of the 38 22 gates, will have these new loading bridges on them 23 the best. And ultimately, we think this will be 24 the best and most modern commuter terminal in the country. We think it's something that USAirways 35 5/7/00 - FINANCE - BILLS 010258, 59, 60 certainly will be proud of and the City of Philadelphia should be proud of as well. Next slide. The current estimated project costs for Terminal F is $99 million. The project is virtually complete. We expect to open it on June 17th, in just about a month and a half from now. Another element that I'll just briefly touch on is the new ramp control tower. And the only significance of this is that when you come into the Airport, it's virtually the first thing you see 'cause it stands about 200 feet in the air, it's about 10 stories high. This will replace an existing ramp control tower that's really just insufficient to meet the needs of the Airport today. And this is where we control all of the ground-control functions in and around the gate areas. The current estimated project cost for the ramp control tower is 17 million, and that project is expected to be completed in later September of this year, which is about three to four months ahead of schedule. Here's a basic snapshot comparing the 36 5/7/00 - FINANCE - BILLS 010258, 59, 60 original budget that we established for the facilities and in the current budget. And essentially, it amounts to about a $158 million shortfall, or about 40 percent of the total cost. And what I'd like to do is just kind of walk you through briefly the reasons for the additional costs as well as the delay in finishing the projects, and it really can fall into three categories: The first one would be the delay on actually stating construction, and I'll speak about that in a moment. Secondly is we found ourselves in a rather competitive construction market, competing with a lot of other projects. Secondly, as with any project of this magnitude, we fully expect to have some scope changes and there were some scope changes in the project that I'll talk about as well. And lastly, we added some additional professional services to the project to help us through the project in the form of program and construction management. Let me just touch briefly on 37 5/7/00 - FINANCE - BILLS 010258, 59, 60 construction delay. Of the $158 million, roughly $35 million we've attributed to the delay in getting started with construction. We had estimated to start in April of 1999; in reality, we didn't start until December of 1999, almost eight months late, for a number of reasons.
The first is, we didn't receive the final environmental approval from the FAA until August of 1999. We had hoped to get that in April, but unfortunately, it just a monumental effort between the FAA, the Federal Highway Administration, as well as PennDOT. We were optimistic that it could be done in April, but unfortunately, the project just took us the amount of time that it took. Secondly, as we -- especially with Terminal 1, which sits in Delaware County, Tinicum Township is the entity which issues construction permits and demolition permits and other permits. And unfortunately, those permits were not issued until December of 1999, which is the first point in time that we could get started with the projects. As a result of those first two items, we missed the whole entire first summer season of 38 5/7/00 - FINANCE - BILLS 010258, 59, 60 construction, where we had hoped to do a lot of site work and other work associated with the project, but we missed that, so it forced us to do a number of these items in the middle of winter. Another element that contributed to the delay primarily with the international terminal is the rupture of Sun Oil pipeline. That cost about a month delay in getting started, and Sun Oil has a pipeline that ran underneath the Terminal 1 construction site that had to be relocated. Unfortunately, there was a completely coincidental pipeline that was unrelated this one that ruptured in the John Heinz Wildlife Refuge, and when that rupture occurred, they put a stop to relocating the Sun Oil pipeline. Again, completely unrelated, but unfortunately, just added to a little added delay. And I talked about the winter weather. Unfortunately, that particular winter when did get started, the winter was rather cold, and there was only a limited amount of activity that we could do outside at that time. The biggest component to the cost issue is the adverse market conditions, which attributed 39 5/7/00 - FINANCE - BILLS 010258, 59, 60 to about $50 million of the 158 million, or roughly a third of the total shortfall, for a number of reasons. One is, there were only a limited number of bidders that we could get on the project. We thought we'd have five, six, seven, eight bidders on projects, where we found out we had one or two. Construction cost escalations were greater than expected. Normally, we budget and expect to be in the to percent range. Unfortunately, we found ourselves in the 8 to 10 percent range. Many bids were significantly higher than estimated. And one in particular was the general trades package. This was a package where the work to finish the drywall and the carpeting and plumbing and the electrical work and things like that. We had sent this out as a single package to be bid. Unfortunately, we got no 21 bidders to bid on that piece of work. So what we had to do was to break that package down into 11 separate packages. And the project that -- that piece of the project that we estimated would cost about $40 million came in at about 40 5/7/00 - FINANCE - BILLS 010258, 59, 60 $80 million as a result of having to break it into a number of different packages. And, lastly, there was a great deal of competition with other projects in the area. There's just a couple listed there, but we found ourselves competing with a number of other projects. I think the important thing for the project delay and the adverse market conditions, that encompassed about close to 60 percent of the $158 million shortfall, things that were completely out of anyone's control. Scope changes accounted for another $39 million of the 158 million. These were changes to the project that were requested by both the City and USAirways. Some examples include busing for contractors. Because the Airport is so landlocked and land-starved, there was no place to park contractors, and we had to set up a shuttle operation to shuttle contractors to and from the Airport. That added about $5 million to the cost.
In addition, there were some unanticipated utility relocations. The concession 41 5/7/00 - FINANCE - BILLS 010258, 59, 60 fed out, which is normally funded by the concession developer, it was decided they would it fund through the project because it was a better cost of borrowing. As well as a shield over the SEPTA line. I would add that all of these changes were agreed to by the City, and the represent only about -- the change orders in total represent only about 7 percent of the total project cost. In our experience, it is not uncommon to experience project changes of 10 to 20 percent in projects of similar magnitude. And, lastly, we needed to supplement and add some additional program management and construction management services where we needed it. Because there were existing operations, we had to coordinate with the federal inspection authorities, and the list just goes on and on. But the projects are very complicated. In addition, there was a requirement for greater coordination with the City, the City Controller's Office, Tinicum Township, and others that weren't anticipated at the outset of the project. Another reason was the City's desire for 42 5/7/00 - FINANCE - BILLS 010258, 59, 60 greater project oversight. As we got into this, I think we found ourselves perhaps closer and more arm-in-arm with the City, which resulted in greater coordination effort through the City itself. In addition, because the projects are taking longer to build, we'll require those services for a greater period of time. That also led to some of the additional -- could we go back one slide Jeff, please. I would add that the total -- revised total professional service budget now accounts for about percent of the total project cost. And 15 in our experience, it's not uncommon to experience 15 to 20 percent for projects of similar magnitude, so we feel that even though there's been a significant increase in that area, we're still in line with other projects. The good news is we now have the PM/CM and resources in place to complete the projects. And in summary, we've heard this from Director Isdell as well as Bob Hazel, but in order to complete the projects on the current schedule, we need funding because the projects are estimated 43 5/7/00 - FINANCE - BILLS 010258, 59, 60 to run out of funding this summer. In addition, there are no tax dollars involved. The additional debt will be fully paid through user fees and PFCs. And, lastly, Terminal 1 and Terminal F, when they're finished, allow USAirways, as well as the other airlines, to continue to grow in Philadelphia, which ultimately leads to more destinations and jobs and greater economic benefits. That concludes the presentation discussion of the need for completion funding as well as an overview of Terminal 1 and Terminal F, but what I'd like to briefly transition into is a quick summary of our DBE and MBE participation in the project. And I have a handout here, if I could make it available. )
Back in 1998, when we were before City Council, USAirways made a couple statements then, which I'll just reiterate now. At the time, we said we share Philadelphia's commitment to minority and disadvantaged business 44 5/7/00 - FINANCE - BILLS 010258, 59, 60 goals. That was then, and we still share that same commitment today. USAirways, from day one, has been a willing and supportive participant -- again, then as well as now. Our objective all along has been to meet and exceed all stated goals whenever we can. Throughout the project, we've worked closely with the City, with Jim Roundtree and the Minority Business Enterprise Council and the Greater Philadelphia Urban Affairs Coalition. While we still have a lot of work to do, we're very proud of the progress that we we've made to date. And I think, as you'll hear from Jim Roundtree a little bit later, he can confirm our record in this regard. Just let me briefly walk you through the status of goals that were established in the project in 1998 and kind of where we are to date. The first slide shows the architectural and engineering design. Again, the professional services, where we had a goal of 20 percent, broken down by 15 percent minority and 5 percent women. To date, we at about 18 percent. About $3.4 million has been awarded to date to 45 5/7/00 - FINANCE - BILLS 010258, 59, 60 disadvantaged and minority contractors. In Terminal F, the goal was 4 percent. Actual to date is about 16 percent. A 5 million dollars has been awarded to date to 6 minority and disadvantaged contractors. 7 The overall program. In construction 8 management for the project, our goal was 9 20 percent; to date, we're actually at 27 10 percent. $3.3 million has been awarded to date to 11 DBE and MBE contractors. 12 With respect to construction 13 management, our goal was 30 percent; our actual to 14 date is about 26 percent. About 4.2 million has 15 been awarded to date to the various contractors. 16 With respect to construction of 17 Terminal 1, our DBE/MBE goal is 30 percent. 18 Broken down, that's 20 percent minority, 8 percent 19 women, and 2 percent disadvantaged. Our actual to 20 date is 22 percent. And I would just add here 21 that the majority of work where we could take 22 advantage of minority and disadvantage businesses 23 has yet to begin, so we expect that number to get 24 closer to 30 percent if not exceed it. And $20 million has been spent to date on disadvantaged 46 5/7/00 - FINANCE - BILLS 010258, 59, 60 and minority contractors. In addition to DBE and MBE are workforce goals for the project. Broken down by minority and female, they are to 33 percent in 6 range. To date, we're actually meeting the 7 25 percent goal. And, again, we still have a fair 8 amount of the project to do and we expect to get 9 closer towards the upper end. 10 With respect to Terminal F, our goal 11 was 30 percent. I'm pleased to report in this 12 regard, our actual to date is 39 percent. 13 $17 million has been spent to date for DBE and MBE 14 contractors. And with respect to the workforce 15 ranges, our goal is 25 to 33 percent, and we're 16 currently at 24 percent today. 17 Again, this is something that we're 18 very proud of at USAirways, and I think we've 19 worked very closely with Jim, and I think Jim will 20 add testimony that will certainly support our 21 commitment to the project in that regard. 22 Thank you. 23
Good afternoon, 24 everyone. My name is James Roundtree, and I'm the 25 Director of the Minority Business Enterprise 47 5/7/00 - FINANCE - BILLS 010258, 59, 60 Council. Thank you for this -- I'd like to thank you for this opportunity to submit my testimony on Bill 258, 259, and 260. Unfortunately, when Chuck and I talked this morning, he said he was going to be brief in his remarks, but he's actually included all of the percentages and participation levels that I would have had in mine, so I won't bore you with reading those over, but I would like to at least read a couple of highlights that I think are important. The percentage that Chuck talked about with regard to participation from professional services -- that's the design and engineering project and construction management -- $11.8 million of those dollars were awarded to minority women and disadvantaged businesses. And, yes, USAir has been a willing and staunch participant in leading the effort to include minority women and disabled businesses in all of their activity. As it relates to construction, as Chuck said earlier, $37.1 million has been awarded to minority women and disabled businesses. Currently, there are 2,531 construction 48 5/7/00 - FINANCE - BILLS 010258, 59, 60 jobs, which represents percent of all the hours that have been performed on the project. I have the same graphs that Chuck had. But I'd like to go to the -- to my 3, which represents 35 minority and women and disadvantaged businesses have participated on the project that represents the 37 percent -- I'm sorry.
Excuse me, I'm 11 sorry. Just so we can clarify your testimony, you 12 had mentioned the issue of person hours on the job 13 site? 14
But they represent 25 21 percent of the construction hours. 22
I'm sorry, that is 25 wrong. 49 5/7/00 - FINANCE - BILLS 010258, 59, 60
Thank you for clarifying that; that is wrong. Let me slow down. Twenty-five percent of the construction hours have been performed by minority and women trade people. To date, 2,500 total workers have worked on the site.
And my testimony will have that broken down by zip code areas and the number of actual minorities and females that have worked on it.
Okay? Thank you. 22 of my testimony breaks down to 23 actual workforce by Philadelphia SMSA, 24 Philadelphia Standard Metropolitan Area. For 25 Philadelphia County, Pennsylvania, Delaware, 50 5/7/00 - FINANCE - BILLS 010258, 59, 60 Maryland, New Jersey, and other states that workers have come from. Now, understand that these are the total workforce, not just minority and female, but this is the total workforce. And then I have also included zip code maps that will identify where many of the workers come from. At this time, I would just like to thank you for the opportunity of being here and providing some testimony, and I'm available for any questions.
Thank you very much. Is there any more testimony? (No further testimony.)
All right, thank you very much. We have a few questions here. Maybe I'll start with Mr. Roundtree since you were the last who testified.
We did submit questions and we would like to ask that the, name, dollar amounts and start and finish dates as well as the scope of work be submitted to the committee; otherwise, we are satisfied with your 51 5/7/00 - FINANCE - BILLS 010258, 59, 60 testimony and with the questions that we supplied in advance.
Yes, ma'am. We're committed to have that information to you by Wednesday.
Thank you very much. In 1998, City Council gave the Airport authorization to issue $453 million in bonds for the Airport expansion project that included building a new international and commuter terminal. Now, in 2001, you're asking for an additional 175 million. Would you explain to the committee what has happened and, again, why you are requesting authorization to issue additional debt on this project? I know it's been touched, but certainly we want to -- (Chairwoman Blackwell confers with other committee members off the record.)
The committee is asking about the 175 million as well as the 40 million, so include that in your question, the difference in the two amounts and also why you're 52 5/7/00 - FINANCE - BILLS 010258, 59, 60 asking for additional debt, if you would.
Okay, just to clarify, in 1998, the bond ordinance authorized up to $500 million of bond proceeds to be sold; and in reality, 400 million were sold for project costs. The estimate of the two projects at that time together totaled 400 million. There was another 443 million in that initial bond issue, for a total of -- I'm sorry, the total was 443 million: 400 for project costs, 43 million was for the various costs of the underwriting, bond counsel fees, etc., and a significant amount of capitalized interest. That left us with a $57 million authorization in the event that we would need additional bonding to complete the projects. When we began to review the total dollars needed, we felt that it was going to be necessary to come back to Council. We were not going to be able to finish the two projects for 57 million or less because we knew probably as much as a year ago that we would need more money than that. So we began to plan at that time and 53 5/7/00 - FINANCE - BILLS 010258, 59, 60 try to find ways, first of all, to reduce the costs, if that was possible between the present and conclusion of construction. We also looked at other possible ways to finance the shortfall that we had. And we ultimately decided last fall, at a time that it was too late to get into the legislative agenda for the fall, that we were going to come back to Council for a new bond issue, and that the amount would be determined as close as possible to our appearance here today so that we would not have to come back again next year. So even though, as Mr. Stipancic and Mr. Hazel pointed out, the current shortfall is approximately 157 million or 155 million, I believe they testified, we're asking for 175 million so that we have enough contingency to finish this project and not have to come back for further authorization. The distinction of the $40 million separate ordinance for an addition to Terminal E is really a separate project that the Airport is initiating. We would not really -- in good conscience, I don't think we would ask USAirways 54 5/7/00 - FINANCE - BILLS 010258, 59, 60 necessarily to build that addition through the same financing structure or the same development arrangement that we are doing for the two terminals that they're already working on, primarily because our goal in building these four additional gages, with no offense to USAirways, would be to bring in competition on those gates. So our goal with that four-gate addition to Terminal E is to build gates in a traditional bonding structure that will require the debt service be paid by rates and charges of all of the airlines at the Airport, and that is done through a majority and interest vote of all of the airlines. And I don't know if I'm answering your question or not, but Mr. Hazel wanted to respond as well.
In other words, Bill No. 010259 258 that relates to Terminal E --
-- is not going through PAID. It's separate, it's through the traditional bonding structure -- 55 5/7/00 - FINANCE - BILLS 010258, 59, 60
-- we usually do to allow for competition since USAirways is the one who is paying for all monies that deal with the other two bills. Am I correct? My committee, they're kind of grumbling about the --
Yeah, they're not clear on what the refinancing and why there's a 175 million. They're not clear on the response, so we need another explanation.
Was there a contingency number in the original request?
Well, obviously. 56 5/7/00 - FINANCE - BILLS 010258, 59, 60 But I guess the question is, if there is a contingency number in the original request, not only is this a $215 million additional request, it's 215 plus the contingency that you went through already on the project. I mean, that's what the contingency's for. And if that, I hear, is anywhere from 60 to 70 million, it's actually not a $215 million, it's 215 plus the contingency amount. I mean, that's why we put contingencies aside so when we come up against bad weather and pipelines and other kinds of things, you have the contingency. If you spent the contingency already, you got to add the contingency, at least in my view, to the additional request for additional financing. That's, I think, only fair. Why'd we put the contingency there in the first place, in '98?
Before you respond, let me note that Vice Chair Councilwoman Tasco is here and let me thank her and all of the representatives. All but one committee member was represented at the tour and briefing last week. Thank you very much. 57 5/7/00 - FINANCE - BILLS 010258, 59, 60
The one clarification, if I may, for Councilman Kenney. It's not -- the 175 and the 40 are two totally separate things. So it's not 215, it's 175.
The 40 million is to build four new gates at the end of Terminal E separate and apart from --
You can assume that -- (Unintelligible, parties talking over each other.)
It had to be an original part of the budget, wasn't it? Wasn't there a specific line item?
We can go dig it out, but let's assume it's in the 10 range, okay? 10 to 15 percent. And I'm not going to disagree that if you want to go back and say, you know, take -- your increase relative should include your contingency. If you want to look at it that, you certainly can.
But it doesn't mean you have to spend the contingency.
That's why it's called "contingent." 59 5/7/00 - FINANCE - BILLS 010258, 59, 60
Not at all. You mentioned that cost overruns caused this request for additional money. What part does the Department of Aviation play in the issuance of additional bonds? I assume that you were involved in the planning stages as well, and that will help clarify some of the questions here as well.
Yes. As Mr. Stipancic pointed out in his testimony, the main areas that we participated in in terms of scope changes and amendments as the project went along, that's done when a need for something unforeseen comes up, there is a process whereby USAirways, again, as our construction manager brings that to our attention, and the City Division of Aviation has to review those types of scope changes and increases. And occasionally they actually result in decreases -- not as often as we'd like, of course. But those -- any changes like that have to be approved by the Division of Aviation 60 5/7/00 - FINANCE - BILLS 010258, 59, 60 representing the City as well as USAirways. And they are also -- I believe they're reviewed by the City Controller prior to any processing of the amendment or ultimate payment of that amount.
Why are we doing this bond issuance, which is part of the confusion, at the same time as the PAID bonds? Why are we doing this $40 million bond issues at this time?
We had two reasons for, again, asking for your indulgence to do this together. And one is simply that the cost of simply assembling a bond team of the size and scope of the one that we have right now, in itself, we get an economy of scale by doing the two bond issues while the team is already assembled. And the second reason is that we are aware -- and I'm sure that you're all aware -- that we have a very good window of opportunity with interest rates right now, and if we were to do this as a separate ordinance in the fall, we would most likely pay higher interest rates. So that, again, those were our two 61 5/7/00 - FINANCE - BILLS 010258, 59, 60 primary motivating factors. And I would say overriding all of that is the simple fact that Philadelphia International Airport was one of, I believe, 29 airports that were required by the FAA last fall to do a competition plan, detailing what we would do as an airport to try to bring competition and low-fare carriers into our facility. And one of the things that we committed to do at that time was to build some additional gates both at the end of Terminal D, which are currently under construction, using PFC revenues, and at the end of the Terminal E, where we, as I said, are going to use a traditional airport revenue bond structure. But those total of eight additional gates are really an Airport initiative to bring competition and lower fares to our region. And, again, I say that with all due respect to USAirways, who has been a great partner, but we think there's a need for some additional gate capacity in our domestic terminals as well. Those were our motivating reasons.
How soon do you expect to issue the bonds and when will debt 62 5/7/00 - FINANCE - BILLS 010258, 59, 60 service be paid on these bonds? Can you explain the nature of the debt service payments? I understand that a portion of the bonds will be paid by the rates and charges from planes landing and taking off.
Councilwoman, if the committee reports this favorably -- if the Finance Committee reports these ordinances favorably out of committee and City Council as a whole approves the three ordinances, we anticipate being in the market sometime in late June. If we are successfully able to market these bonds and sell them, we assume paying debt service on the PAID bonds and the Airport bonds beginning July 2002. There's going to be a period of time where we're going to capitalize the interest. And what that means basically is we're going to borrow money to pay debt service during construction since there's no cost center in existence; or rather, if it's not completed, we needed a period of time to complete the construction, after which time we can then begin to pay debt service. So for a period of one year, we will borrow money to pay the debt service that's 63 5/7/00 - FINANCE - BILLS 010258, 59, 60 actually factored into this bond financing, and then we'll begin paying debt service in July of 2002 on the PAID bonds and the general airport revenue bonds. Oh, and you're asking about rates and charges. For the PAID bonds, up to 75 percent of passenger facility charges will be used to secure the bonds and percent will come from rates and 10 charges, and on the GARB bonds, the 40 million 11 bonds will be straight rates and charges. 12
Thank you. 13 How soon do you expect this project to 14 be completed? 15
July of next year is the 16 target completion date for the international 17 terminal, and for the Terminal E gate addition, 18 the projected completion date is July of 2003. 19
And if I could add -- 20 this is Chuck Stipancic. With respect to Terminal 21 F, which is the new commuter terminal, that's June 22 17th of this year. And then the ramp control 23 tower is September 26th of this year. 24 And -- 25
With respect 64 5/7/00 - FINANCE - BILLS 010258, 59, 60 to USAirways equal opportunity requirements, can you tell us how Philadelphia compares with other cities that you are in? And with respect to your corporate citizenship, can you tell us what you have done for the City beyond the airports and whether or not you have any plans for additional activities?
Let me try to answer that. In terms of Philadelphia, percent of 11 our employees are minority employees, 44 percent 12 of our employees are women. System-wide, the 13 figures are lower. Fifteen percent of our 14 employees system-wide are minority employees, and 15 approximately -- I'm sorry. Slightly over 16 40 percent are women, I can get you the exact 17 figure. 18 In terms of the corporate citizenship, 19 we've tried to be an active participant in the 20 community and have sponsored a variety of events 21 and (indiscernible) Johnson, who's with me, could 22 give you a short list of some of those events if you'd like. There's a long list, starting with Welcome America. There's a long list. We try to be active in the community and we certainly will 65 5/7/00 - FINANCE - BILLS 010258, 59, 60 continue to do so. You know, Children's Hospital, Welcome America, Philadelphia Cares, Philadelphia Community Health Alternatives, Philadelphia Academy, Philadelphia 2000, MANNA. The list goes on. We could give you a full list. We try to be a good corporate citizen and we certainly will continue to do so.
Thank you. We would like a copy of that equal opportunity report for our records.
Thank you. Back to this lease. Can you explain to us -- and this was a part of the questions that the committee had about why -- the nature of them and why they needed to be amended. And then I have one final question before I turn it over to the other members of the committee who have other questions.
Thank you, 66 5/7/00 - FINANCE - BILLS 010258, 59, 60 Mr. Isdell.
I can probably answer the question more in general than in specific. But in general, the lease and the other documents provided specific things that were to be done by specific dates, had the scope of work. And as indicated in my testimony, the scope has changed, the financing is proposed to change. So that's the basic idea.
Okay. It is my understanding -- my final question -- that USAirways is in merger talks with United Airlines. Can you explain the nature of the merger and where you are in that process. Also can you explain how that merger will affect this transaction.
We have signed an agreement with United Airlines to be acquired by United Airlines. That agreement is currently being reviewed by the Department of Justice, and we are awaiting approval of that acquisition. If the agreement is approved, United Airlines' parent company will acquire USAirways and ultimately merge USAirways into United Airlines. 67 5/7/00 - FINANCE - BILLS 010258, 59, 60 In our view, that merger will be extremely good for the City of Philadelphia because the City of Philadelphia will not only have the benefits of the north-south strength that USAirways has in terms of flying within the East Coat and north-south in the US, but also the advantages of United's worldwide global network. So that Philadelphia residents will be able to fly all over the world on the airline that has the largest worldwide network. In addition, our employees have a guaranteed no-furlough provision so that we think this is an opportunity for our employees to have greater job security with an employee-friendly company. Finally, United is extremely excited about the City of Philadelphia and is committed to add new service upon approval of the merger, including two destinations that we could not successfully serve. In terms of contractual commitments, United will honor all of our contractual commitments, including completing the terminals, etc. Thank you. 68 5/7/00 - FINANCE - BILLS 010258, 59, 60
Thank you very much. There are -- I will now turn -- open the questioning to other members of the committee. Councilman Kenney.
Thank you, Madam Chair. I just want to touch a minute on this issue that keeps on being raised throughout the course of this hearing, that there's no tax money being used to fund any of this stuff. While I agree with you, who in fact is paying for all of what goes on at the Airport?
I could answer it from an airline perspective and then I'm sure Charlie can answer from an airport perspective, but the way that the use and lease agreement is structured at the airports, it's as if it's own self- sustaining cost center. All costs and expenses at the Airport are treated as kind of a single cost center that are not impacted by the City finances whatsoever.
So the revenue comes from where? 69 5/7/00 - FINANCE - BILLS 010258, 59, 60
Revenues come from the airlines in the form of landing fees and rents for facilities, from concessionaires from your fixed-base operators, etc., etc.
But realistically out of the pocket of the people who use the Airport.
And those charges and costs are passed on to the customer.
As most businesses do. How's Philadelphia rank in the price of traveling out of Philadelphia? I know we've had a lot of problems lately and a lot of competition with BWI, Newark, Atlantic City, and I understand we've been losing significant amounts of passengers to those airports. And what does the effect of the cost of flying out of Philadelphia 70 5/7/00 - FINANCE - BILLS 010258, 59, 60 -- I flew out of Philadelphia recently to Pittsburgh, and it cost me $648, which seemed to be a bit odd. Maybe we -- part of what I'm concerned about is that when you say it's not coming out of the taxpayers' pocket coming, it's coming out of the riders', the flyers' pocket. And what effect do these kinds of issues for requests for money have on the cost of tickets? How is it passed through? how is it passed through in the concessions? And in the end, aren't our regional population paying for all this in the end? So it is somewhat public money.
Those are good points. Let me just try to address some of them. The cost of operating an airport is obviously a cost that we need to recover if we're to make a profit. The cost of operating in familiar Philadelphia is about average for airports of its size. And if you look at what we project the cost will be when this project is completed, we will still be operating at a medium-priced airport. If you look at other projects around 71 5/7/00 - FINANCE - BILLS 010258, 59, 60 the country, you can find airports that are much more expensive and you can also find some that are less expensive.
But it's fair to say that the public's paying -- that the riding, flying public is paying for all that goes on at the Airport.
Okay, all right. I would like to request from the Airport a detailed and itemized accounting of each of the cost overruns, change orders, increased labor costs that have resulted in this request for $175 million in new money to complete project. I'd also like to know what the amount of the contingency in the original approval was and how much that was to add to the project. And for now, if you can't give it to me -- obviously you have to give it to me at a different date because I know it's a lot of information. But for now, what's the general nature of cost overruns, change orders, and increased labor costs, and why do they occur and 72 5/7/00 - FINANCE - BILLS 010258, 59, 60 who controls that? Is there a project manager? I know in the presentation we learned that we have a project manager, a construct manager on board now, but did we always have one? Who oversaw these projects. And one other issue as it relates to one of the costs -- for higher cost overrun was the issue of cold weather. On one hand, PGW will come in here and tell us that the winters weren't cold enough; on the other hand, the Airport comes in and tells us that the winters were too cold to get the work done. So Councilman Nutter and I are somewhat accused.
I don't think it was that the winter was so harsh. It may have been a little harsh but not particularly. The issue was a phasing issue. What you want to do is start your project and do the outside work, the utility -- move the utilities, do the heavy earth work when the weather is good. If you start that in the middle of the winter, it puts you off phase. 73 5/7/00 - FINANCE - BILLS 010258, 59, 60 And that was the point on the weather. That's the main point on the weather, just so we're -- we're not trying to --
Okay. Additionally for the Airport, I'd like to know, what were the amounts of each of the Bond offerings relative to the Airport over the last ten years and what was the purpose of each bond offering? How much was spent and was each project on budget? And what were the cash reserves for each bond offering? And how much funds were actually left over. I mean, are there areas within Airport bond issues that we have not spent all the money on that are sitting there in various accounts that we would have access to, to perhaps cover the cost of these overruns rather than going to the market again to borrow?
I will certainly get that information for you, Councilman Kenney, but the quick answer to your question is, there is some -- there are small amounts of money left over from previous bond issues but nowhere near enough to cover the amount of money that we --
Well, if you know 74 5/7/00 - FINANCE - BILLS 010258, 59, 60 how much it is, we'll be able to determine whether or not -- and are those funds legally available for operations at the Airport?
We will check that out for you, Councilman Kenney, but I might also point out that the bonds that we're request -- the authorization that we're requesting from City Council under Bill No. 259, the PAID structure, you cannot commingle the funds 'cause the other outstanding series of bonds that we've issued are your straight general airport revenue bond issues. So with respect to PAID, the PAID bond transaction, we cannot use the funds -- if there are any prior funds outstanding under the GARB structure, you can't use them under the PAID structure. But we will check that out for purposes of the $40 million request for Terminal E. There may be some opportunity there.
All right. Is there currently going on now, I understand, the construction of a Parking Authority administration building at the Airport?
Yes. That was mentioned 75 5/7/00 - FINANCE - BILLS 010258, 59, 60 as part of the E-F Parking Authority garage project.
And the funds for that construction is coming from where?
The Parking Authority issued its own parking revenue bonds in 1999.
And that's going for the construction of the administration building?
The administration building, two new garages, and new roadway.
-- being used for the construction of the administration building.
We're strictly prohibited from using parking revenue bonds for Airport purposes.
What is the percentage of the revenue that the Parking Authority takes from parking at the Airport? The 76 5/7/00 - FINANCE - BILLS 010258, 59, 60 passenger pays the -- the parker pays a fee?
And what percentage of that fee leaves the Airport and goes to the Parking Authority?
It's currently capped at, I believe. . . The administrative fee is capped at 28 percent of the total revenue collected.
How does that compare to other airports around the country?
Or maybe I should ask USAir how that compares to other airports around the country.
I don't know, but I know that that number was the result of a settlement that was reached with the FAA. I believe the settlement was signed in 1999.
And it was the result of a dispute that arose, I think, back in 1996 where the FAA Office of Inspector General reviewed the amount of money and the methodology used to 77 5/7/00 - FINANCE - BILLS 010258, 59, 60 compute that amount of money by the Philadelphia Parking Authority, and ultimately it was resolved with this cap in 1999.