SMO — An ongoing disagreement between city officials and the Federal Aviation Administration concerning when City Hall regains control of Santa Monica Airport may mean that public coffers will have to maintain an $8 million subsidy to the Airport Fund far longer than planned.
City officials maintain that the city is done with its obligations to the FAA for money received for improvements to the airport in 2015, while the federal agency holds that the city has to continue operating the facilities under conditions imposed by the FAA through 2023.
That includes maintaining “reasonable rates” on the leases to fixed base operators, companies that provide services like fueling and airplane storage.
What’s “reasonable” in FAA terms may be considered artificially low in others, and when the grant obligations run out, City Hall will have the freedom to raise rents on aviation clients and, by the conditions of some of the leases, will also receive the buildings on some properties and the rents of subleases.
It should be a windfall for the General Fund and begin the repayment of over $8 million loaned to the Airport Fund by the 2016 fiscal year, said Finance Director Gigi Decavalles Hughes.
“That’s part of our plan,” she said. “It’s not showing up in the forecast, but we would like to make (that subsidy) up. It would definitely be a good thing.”
However, if the FAA prevails, lease rates at the airport would have to remain close to current levels when they’re renegotiated in 2015. Those rates are determined by surveying the rents on aviation users at other airports like Hawthorne or Van Nuys.
Even if the rents on the flight companies can’t go up, the financial situation could still be rosey for City Hall by dint of the lucrative subleases already at the sites.
The subleases held by two of the three fixed base operators — Gunnell and Atlantic, and Krueger Atlantic — bring in considerably more revenue than the companies pay in rent.
Atlantic, for example, holds 28 different leases, including three with actor and comedian Jerry Seinfeld. Atlantic pays $8,167.50 per month according to its lease with City Hall.
Atlantic charges Seinfeld almost twice what it pays in monthly rent for the use of those three hangars, at $16,723.05 total. Atlantic’s rent charges for other individuals and companies range in value, but tend to range between $1,000 and $2,000.
Krueger Aviation only has one additional sublease, while Gunnell has four.
Santa Monica officials are preparing for the 2015 lease renewal, regardless.
The Public Works department, which took over responsibility for the airport in 2011, is investing in the buildings that it owns and leases to the other aviation clients like the flight schools in order to make them more attractive for future lease negotiations, said Martin Pastucha, director of Public Works.
“The buildings have got their wear and tear,” he said. “It’s time to make sure that they’re doing all right, because of the age of them. They’re old buildings and need some work. It’s a point staff has been trying to make for a while.”
There’s a lot of focus on the airport right now given the impending nature of 2015 and the “visioning” process that City Hall launched to gather ideas and information about what a post-2015 airport could look like and offer to Santa Monicans.
What that means for the lease negotiations is unclear.
“It’s coming up,” Pastucha said. “The 2015 deadline is in everybody’s mind. Whatever that means, it garners thoughts about different issues associated with the airport and its different uses.”