Port Financial Staff Has No Concrete Plan
For Financing Third-Runway Construction

The Port's contract with low bidder TTI Constructors, LLC, for third-runway work in 2004 and 2005 requires a total payment of $192,600,000. That far exceeds the Port's entire cash reserve. Financial staff at the Port of Seattle have not produced a concrete plan for finding the necessary cash. And that $192,600,000 million is just part of the total needed to complete the project – estimated as $767,980,000, in a Port document from late-March. RCAA President Larry Corvari said “After 10 or 12 years of study and planning, the sticker price for this project is now more than five times the original estimate [$229 million], and the Port of Seattle still has not figured out where the money will come from to pay for it.”

Asking for Another Federal Hand-out

With cash running low, staff are talking another grant from the FAA. The Port has a lobbyist (McBee Strategic Consulting, LLC) on retainer, at $15,000 per month, to handle Federal issues. Getting more third-runway money is a “priority” for McBee, & the Port. As of early June, Port staff were hoping for a grant of $216 million (up from an earlier hope for $198.1 million). With the support of the local FAA office, the Port is asking for an “amendment” to its previous grant from FAA. Our understanding is that all funds under that grant have been received & expended. A new grant would be subject to new, tougher requirements for rigorous cost/benefit analysis, which this project cannot possibly satisfy. Hence, the tactic of calling a new request an “amendment”.

More Passenger Fees?

Staff have also mentioned passenger-facility charges (“PFCs” or “head taxes”) as a source of additional money. The existing PFCs at Sea-Tac are at the highest allowable amount, $4.50 per departure. Sea-Tac has already borrowed against its future PFCs into the next decade. There seems to be little hope of raising big money from PFCs in the near future.

Sock It to the Airlines

Landing fees & terminal rent from the airlines usually provide a large part of the money needed for major airport capital projects, like new runways or new or rebuilt terminals. But there is a limit to how much the airlines can afford to pay. Rents & fees at Sea-Tac are on a steep upward curve. Principal tenant Alaska Airlines has already told Airport staff that it cannot operate out of Sea-Tac at the cost-levels projected for 2007 & beyond. Alaska figures that in 2009 its costs for using Sea-Tac would have to be 22 percent lower in order to meet its business plan. No other airline tenant comes close to Alaska for efficiency in operations, so if Alaska cannot make it here, none of the others can either.

Thus, as the new rents & fees kick in, airline costs of operation into & out of Sea-Tac Airport will become unbearably high. At present, airlines are unwilling to pass on their true costs of operation to the passengers. And if airlines did pass on these new high rents & fees, passengers would soon figure out that it would be cheaper to drive to Portland or Vancouver to catch a flight. And some airlines – perhaps a regional start-up or two – would realize that the costs of operating out of Boeing Field or Paine Field were negligible, compared to Sea-Tac's costs. If costs are too high, customers will find other ways to meet their needs.

Of course, the new fees & rentals don't kick in this year, or next, so they can't be used directly to pay TTI Constructors. But the Port can issue more bonds, with the future revenues from the airlines identified as the source of repayment. Bonds like that would be risky, given that the airlines say that they cannot pay such high rents & fees. The Port could issue general-obligation bonds, which would be backed by future property-tax proceeds, as well as airline rents & fees. Wall Street would accept those bonds.

So, the true financing plan is simple.

Fall-back Plan: Sock It to King County Property Owners

Without enough income from airlines, the Port's only hope is to issue bonds that can be charged against future, higher, county property taxes. There is no-one else left to pay.

What will property owners have to pay in the years ahead to retire $500 - $700 million of additional bonds issued for runway work? That is a great unknown, depending on future, unforeseeable circumstances. Port staff have not analysed this issue.

It is known that in 2003, the Port paid out $95 million to service $3 billion in debt. In 2004, the figure for debt service is expected to be $111 million, growing to $392 million in 2013, when bonded indebtedness is projected at $4.7 billion. Of course, non-tax revenues will be available to cover portions of this debt service, but the over-all picture is that most of it will be met with tax money.

RCAA regards the estimate of $4.7 billion in debt by 2013 as being too low by somewhere between $500 million and $1 billion, because the figure does not include a realistic amount for runway construction. Part of the problem is that the Port has a habit of rolling-over its debt, rather than retiring it. This strategy cannot continue forever, for people expect to be repaid. When interest rates return to normal, higher levels, the Port will pay much higher amounts for debt service on new bonds issued to roll-over old debt, & the risk is that then the cost of debt service will swallow any & all profits -- & more.

This is NOT the story that Port staff tell - they are assuming that there will be no significant loss of airline tenants or revenue from airlines; they assume that the airlines somehow will find ways to pay $378 million a year in 2009, & more in following years. And they assume that a few years from now the Airport will actually have a big net profit that can be used for debt service. RCAA does not accept that analysis, & we believe that most Sea-Tac airlines do not accept it either. But the airlines are perfectly happy to have the taxpayers of King County pay for the terminals & runways that the airlines use. The airlines' support of the runway project is based on confidence that they won't have to pay for it – at least not the full cost. Meanwhile, King County's taxpayers are unaware of this huge burden of debt that the Port plans to dump on them.

Who SHOULD Pay?

Most of this article is based on the presentation & discussion at the Port Commission retreat on June 9. Toward the end of the discussion, one Commissioner posed a question that stumped the other Commissioners, staff, & observers: Why should the taxpayers pay for these facilities that the airlines use, rather than the airlines & their passengers – what is the gain for the taxpayers in all of this?

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