Walking the High Finance Wire
Bergstrom Costs Going Up and Up
First of all, while the costs of actual construction for the airport total $624.9 million, the Federal Aviation Administration (FAA) is footing the bill for $134.7 million of this amount for its own facilities: "control tower, radar equipment, etc.," according to Charles Gates, director of the city's Aviation Department. This leaves $490.2 million the city will pay with a combination of bond money and other sources we'll get into later.
Next, while issuance of $356 million of the approved $400 million in bonds was approved for construction of the airport and debt service, the Aviation Department is now asking for an increased issuance of $372 million. Why? Gates explains that of the extra $16 million, $13.5 million is needed for the reserve fund (explained below), and this increase will necessitate a proportional rise in the approximately $100 million in "capitalized interest fund," money that will pay insurance, premium, and miscellaneous fees on the bonds and interest on the debt until the new airport brings in revenue.
Third, there is an extra 10% in "contingency money" built into the cost of each proposed construction project.
There are a number of reasons why the total cost has increased in the last two years. What follows is a brief synopsis of those increases, based on figures from a city Aviation Department document entitled "Revised Forecast vs. Master Plan." The Master Plan numbers come from original cost forecasts made in April 1993, while revised forecasts were made in October 1994.
Costs That Have Gone Up:* The estimated cost of land acquisition at Bergstrom has more than doubled, from $5.6 million in the Master Plan to $11.5 mil-lion now. This is largely due to the fact that original appraisals were made in 1992, while the higher price is based on more recent appraisals. This figure could rise even more if the Air Force Reserve Base, which currently resides in the center of the planned airport and is on the federal list for closure, is shut down and the city decides to purchase the property.
* Noise mitigation costs have more than tripled from $12.4 million to $37.5 million, largely because of a recommendation by city consultants that the Del Valle Schools be purchased and moved rather than simply soundproofed.
* Demolition costs rose from $12.5 million to $20.5 million, after the city's environmental consultant issued a revised estimate that approximately $17.6 million will be required for additional cleanup after the city demolishes unused buildings.
* The costs of utilities have nearly quadru-pled from the original estimate, from $6.7 million to a current $24.5 million. The city found that the entire 40- to 50-year-old utility system, which currently services Bergstrom, will have to be replaced, while the initial estimates assumed the system was viable.
* Support facilities, which include fire and police service, have risen slightly in cost from $8.9 million to $9.5 million. The city originally assumed that an existing fuel farm - a facility used for storing vehicle and airplane fuel - could be used, but contamination from fuel leakage at the farm will require construction of a new one. Interestingly, the support facilities cost initially jumped to $12.7 million as of August 1994, but was reduced in the revised plan issued later that fall, since the city has found it can use an existing hangar to house support personnel and equipment instead of building a new facility. It's a common theme and one that accounts for much of the airport's decrease in costs of certain areas. "When we did a review of the project in August of '94, we found some costs coming in higher than we imagined, so we reduced the scope of the project," Gates says.
* The costs of program management - the money the city pays its consultant to oversee construction - have risen from $25 million to $33.5 million. According to the revision document, "The program management consultant will also provide resident construction inspection services which were not included in initial estimates."
* The Aviation Department also plans to ask for an increase in the
fund, which essentially provides collateral against the
$400 million debt. Technically, this cost has been decreased from $20 million in the
Master Plan to $11.5 million, but the financial bond houses in New York have made it clear that $25 million in the reserve fund is much more desirable. Since the overall airport
cost is rising, the amount in the reserve
fund must rise to reflect those increases; it'll cost $16 million to bring the reserve fund and the capitalized interest fund to a comfortable level.
Costs That Have Gone Down:* The cost of the terminal complex has dropped from $137.1 million to $127.9 million, says Gates, again due to a reduction in the scope of the terminal, which will still include the planned 20 gates. The terminal's central plant - the power unit which runs the terminal's utilities - will now be privatized, however, and concession space will have to be finished by the companies that will use it. Gates notes that "there could be another issuance of bonds if there's a need to increase the size of the facilities in the first five years." A likely candidate for expansion would be the number of terminal gates, from 20 to 24. Bonds to pay for that could come out of whatever is left of the $400 million after the initial bond issuance.
* Airfield facilities - which include the new east runway and improvements on the existing west runway - have dropped in cost from $144.5 million to $128.9 million.
In the August, 1994, evaluation, this cost had ballooned to nearly $170 million. But the city reduced the length of the new runway from 9,000 to 7,000 feet, reduced the number of high-speed runway exits, and eliminated cross-taxiway bridges. A news release from the mayor's office dated April 28, however, states that "the city will continue to plan and work to receive [FAA grants] for the additional 2,000 feet."
* The elimination of a proposed underpass along the terminal access road has reduced the cost of landside facilities from $63 million to $54.4 million.
* Preliminary planning costs have been shaved to $6.1 million from $8.7 million, and other costs listed under "supplemental" have been cut nearly in half, from $14.6 mil-lion to $7.9 million.
Funding That Has Increased:* Estimated revenues from the $3 surcharge on all tickets at Mueller have risen to $26.8 million from original estimates of $18.6 million, as outgoing traffic from Mueller continues to rise.
* Other capital generated from Mueller operations, including money left over from a 1989 airport bond issue, has increased from $49.2 million to $62.3 million.
* The bond issue itself: According to Gates, the city Aviation Department never planned to shoot the whole approved bond issue wad at once. Even the jump in initial bond issuance from $356 million to $372 million has not yet been approved by the city council, and the rest of the bonds, as Gates points out, may go for later expansion.
Funding That Has Decreased:* Uncle Sam has not smiled on Bergstrom. While the city originally expected to get $118 million in various federal funds through the FAA, this amount has since dwindled to $94.9 million. These figures do not even include the $30 million dollars in "noise reduction" money that the city was counting on to purchase the Del Valle Schools. "If we don't get those monies," Gates says simply, "we won't be able to acquire the Del Valle Schools." Presumably, the schools would then remain where they are and have to settle for soundproofing measures.
However, according to Senator Gonzalo Barrientos' office, he may attempt to make amendments to the current education bill that would allow industries locating in property-poor districts to make payments in lieu of taxes to the school districts to encourage growth in the those areas and improvements to those schools. In Del Valle's case, Barrientos' legislative aide, Richard Hamner, says that such an amendment could allow industry to donate land to the school district to facilitate the relocation. n All of this leads to the current airport budget which has risen to $624.9 million from the original 1993 estimate of $582.8 mil-lion. After digesting all of this information, a few points become salient: First, construction costs have not been the major factor leading to the inflated budget. In fact, in many cases these costs have actually gone down. Things like the Del Valle Schools recommendation, the ancient utility system at Bergstrom, and financing charges have been the main culprits. Little comfort can be taken in this, however, since hardly any ground has yet been broken at Bergstrom for actual construction, and these costs are almost certain to fluctuate some more.
Second, while the expected FAA funding dropped dramatically, the city is still - at least for the time being and at least on paper - well within its $400 million bond parameter. "The guesses we made at the beginning [with the Master Plan] were just that - guesses," says Councilmember Gus Garcia. "But we're not outside the range of normal variations. We expect some things to go higher; some will go lower." Councilmember Brigid Shea, meanwhile, noting that the airport's Master Plan was essentially rushed out so the city would have some figures to show the public before the1993 referendum vote, adds that cost fluctuations "point up some of the concerns I had with the accuracy of the Master Plan... there will definitely continue to be fluctuations."