BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 446
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: dutton
VERSION: 4/7/11
Analysis by: Art Bauer FISCAL: yes
Hearing date: May 3, 2011
SUBJECT:
Ontario International Airport
DESCRIPTION:
This bill creates the Ontario International Airport Authority.
ANALYSIS:
The City of Los Angeles's Board of Airport Commissioners,
referred to as Los Angeles World Airports (LAWA), owns and
operates Ontario International Airport (ONT), which is situated
in the City of Ontario in San Bernardino County. ONT is about
35 miles east of downtown Los Angeles between Interstate 10 and
State Route 60, two significant regional highways. ONT was
established in1929, and LAWA began operating the airport for the
City of Ontario under the terms of a joint powers agreement
(JPA) in 1967. In 1985, LAWA acquired ONT from the city.
The Revenue Bond Law of 1941 establishes uniform procedures for
issuing revenue bonds by public agencies in California. It
defines the terms of the covenants, defines the various agencies
that may issue revenue bonds, establishes procedure to imposing
revenues and a variety of other conditions necessary to issue
bonds.
This bill:
1. Establishes the Ontario International Airport Authority
(authority) with a seven member board of directors, four of
whom are appointed by the city and three of whom are
appointed by the County of San Bernardino. The term of
office is three years and the terms are staggered.
2. Establishes as officers of the board selected from its
membership a chair, a vice-chair, and other board offices
as the board deems appropriate.
3. Requires the authority to be subject to the opening
meeting requirements of the Ralph M. Brown Act.
SB 446 (DUTTON) Page 2
4. Provides that the authority may enter into an agreement
with the City of Los Angeles to "facilitate the transfer of
management and operational control" of ONT to the
authority.
5. Stipulates the transfer is contingent upon the approval
of the Federal Aviation Administration and the Federal
Transportation Security Administration.
6. Mandates the authority "in cooperation with" the cities
of Los Angeles and Ontario to develop a transition plan for
transferring ONT to the authority.
7. Authorizes the cities of Los Angeles and Ontario, San
Bernardino County, and other local and regional agencies to
develop effective surface transportation access to ONT.
8. Provides that upon completion of the transfer the
authority may sue and be sued, received federal grants.
9. Provides that the authority shall, to the extent
"practicable," maximize revenue generated from businesses
located on its property.
10. Defines the authority as an "enterprise," meaning
that the authority is a revenue producing entity.
11. Authorizes the authority to acquire, accept, lease
and hold real and personal property within and outside its
jurisdiction, without exception.
12. Authorizes the authority to issue revenue bonds
under the terms of the Revenue Bond Law of 1941 with the
following exceptions:
a. Prohibits the authority from exercising the
discretionary authority in the Bond Act to place
revenue bonds before the voters.
b. Exempts the authority from including the
covenants required when issuing bonds under the terms
of the Bond Act.
c. Exempts the authority from the requirement of
existing law capping the interest rate of local agency
bonds at 12 percent.
13. Provides that this bill is "a complete,
additional, alternative" to issuing bonds under the terms
of the Bond Act, and any provisions of the Bond Act that
are "inconsistent" with this bill shall not be applicable.
14. Authorizes the authority to form benefit
assessment districts consistent with existing law.
COMMENTS:
1. Purpose . This bill will transfer the ownership of ONT
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from the City of Los Angeles, which acquired the airport
from the City of Ontario in 1985. According to the author,
transferring the airport back to Ontario would provide
local governments the ability to restructure the airport's
operations, reduce costs, and increase marketing and
promotion of the airport to ensure that Southern California
has the airport capacity it needs in the long term to
protect its economy. Control by Ontario would avoid the
internal competition for resources between ONT and Los
Angeles International Airport (LAX) that distracts LAWA
from offering both airports equal benefits. It will also
place the responsibility for ONT's success in the hands of
the party that has the most to gain from it and the most to
lose from failure, the authority.
2. Background . Along with ONT, LAWA manages LAX, the
fourth busiest airport in the country, and Van Nuys
Airport. LAWA began managing ONT under a joint powers
agreement with Ontario in 1967. At that time, ONT was
primary a relief airport for LAX when for various reasons
air traffic at LAX was backing up and an alternative
location was necessary for aircraft to land. In 1985, LAWA
acquired ONT from the City of Ontario. During the 1990's
LAWA reconstructed the entire terminal complex, building
two new terminals and allocating for space the construction
of an additional three terminals, when warranted by demand.
The reconstruction of the terminals included designing and
constructing an entire new automobile circulation system
for accessing the terminals. The modernization required
close cooperation between LAWA and Ontario. Both parties
agree that their cooperation has been successful. It
should be noted ONT is the only passenger airport in the
Los Angeles region that is operating without infrastructure
or legal constraints on aircraft operations.
Much of the dispute between LAWA and the City of Ontario is
over the decline in passengers using the airport. Ontario
argues that LAWA has not been attentive to the management
of ONT by pointing to the cost per enplaned passenger
(CPE), at approximately $15.36 for 2010, which is among the
highest in the country. The high CPE is the result of the
high operational cost of ONT, which Ontario asserts is due
to LAWA's mismanagement and has resulted in a decline of
airline service at ONT. New management, Ontario argues,
would have a better chance of turning around the
performance of the airport. Moreover, new management, the
SB 446 (DUTTON) Page 4
proponents of the bill argue, would be more focused on
marketing to the Inland Empire travel market.
It is difficult to make a correlation between the CPE and
the recent experience in the loss of passengers at the
airport. Between 2007 and 2009, the state's six medium hub
airports-Burbank, Oakland, Ontario, John Wayne, Sacramento,
and San Jose-had decreases in passengers ranging from 12
percent to 33 percent. The number of passengers using
Oakland for the period dropped by 35 percent, yet the
airport's CPE was only $9.25. ONT loss of passengers was
32.5 percent. On a national basis, St. Louis, for example,
has a relatively high CPE of $13.70, but only lost 8.2
percent of its passengers. Finally, the airlines currently
operating at the airport had an opportunity to discontinue
their service, but signed agreements to continue operating
through 2014.
The Ontario market has been strongly impacted by the
recession. The metropolitan statistical area of
Riverside-San Bernardino-Ontario, commonly referred to as
the Inland Empire, had among the highest foreclosure rates
and unemployment rates in the country. Even now Riverside
County has the sixth highest rate of foreclosure in the
country. The areas unemployment rate stood at 13.9 percent
in March of this year. This compares with an unemployment
rate of 12.3 percent for California and 9.2 percent for the
nation. The decline in airline passengers and the number
of flights may in large measure be due to both the weak
regional economy and the national economy. The airlines
response to the sour national economy has been to mothball
the number of planes in their fleets and emphasize serving
the stronger markets. Both the weak national and regional
economies have worked against Ontario maintaining high
passenger utilization.
3. LAWA's plans for ONT . LAWA recognizes the cost issues
associated with the management of ONT. In an effort to
address them, LAWA issued a Request for Expressions of
Interest in assuming the management of ONT from airport
operators. Several experienced firms responded. LAWA is
considering what the next steps it should take regarding
the operations of ONT. Conceivably, should this bill be
enacted, the authority could file an expression of interest
in managing ONT. For the authority to operate ONT either
under terms of a management contract or as the owner of the
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facility, it would require certification by the Federal
Aviation Administration of both the airport management and
the facility.
4. Establishing the authority . The bill creates the
Ontario International Airport Authority, but does not
define the authority's area of jurisdiction. Based on the
documentation Ontario provided to the committee, the
authority's area of jurisdiction is Ontario International
Airport, but there is no legal description of ONT. The
1985 sales agreement between the City of Los Angeles and
the City of Ontario includes a legal description of ONT,
including the meets and bounds, easements, and other
relevant terms and conditions. The committee may wish to
amend the bill to provide a more precise description of
ONT. To this end, a reference to the document entitled
"Agreement between the City of Los Angeles and the City of
Ontario for the Acquisition of the Ontario International
Airport by the City of Los Angeles dated June 19, 1985" may
be amended into the bill to define the authority's area of
jurisdiction.
5. Officers of the authority . Another issue associated
with establishing the authority relates to the officers.
The only officers the bill provides for are the chair and
vice-chair. The bill does not provide for the appointment
of a general manager, a chief counsel, or a chief financial
officer, the three most significant management positions.
The committee may wish to amend the bill to include the
three positions.
6. Appointments and contracts . In addition, the bill
should authorize the general manager to appoint other
officers and employees according to procedures adopted by
the board of directors. The only contracts the bill
authorizes the authority to enter into are federal or state
grant-in-aid. There is no other contracting authority.
The committee may wish to amend the bill to authorize the
general manager to enter into contracts on behalf of the
board, consistent with policies adopted by the board.
7. Negotiating framework . This bill's authorization for
the authority to enter into negotiations with the City of
Los Angeles or LAWA for the transfer of and management and
operational control of ONT is discretionary. It is unclear
exactly what are the objectives of the negotiations. Are
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they to acquire ONT or to enter into an operating agreement
with LAWA to manage the airport? The bill indicates that
the transition plan should include "appropriate amendments
to the existing contract between the City of Los Angeles
and the City of Ontario for the joint exercise of powers in
relations to Ontario International Airport." While Ontario
and Los Angeles still conduct their business under the
terms of the JPA, Los Angeles owns ONT. As drafted this
section may be unworkable. The committee may wish to amend
the bill as follows:
a. Page 4, line 23, after "facilitate" add the
"acquisition of or." This would allow the
negotiations to consider both the acquisition, or
transfer of
management responsibilities.
b. Page 4, line 27, after the period add "Upon the
agreement of the City of Los Angeles,"
c. Page 4, line 29, after "facilitate" add "either the
sale of or the"
1. Transfer of ONT to the authority . The bill provides
that after the authority becomes responsible for the
operations of ONT it assumes all revenues generated at the
airport. It does not mention that the authority shall
assume all debts and obligations of the City of Los Angeles
associated with the airport. The committee may wish to
amend the bill to include language that would ensure that
pre-existing debt guaranteed by ONT revenues.
2. Ownership of Property . The bill provides that the
authority may acquire property within and outside of
jurisdiction without limitation. This is a broad grant of
authority, and the reason the authority would want to
acquire property outside of its area of jurisdiction is
unclear. As the bill is currently written, the authority
could possible acquire another airport in or outside the
region. If the authority anticipates becoming a
multi-airport operator, it should be explicitly included in
the bill, as it is a major policy issue that the
Legislature should consider. Otherwise, the only possible
acquisition of property that the authority may be required
to make outside of its area of jurisdiction is for aviation
safety technology, such as radar and other technologies
that provide for the safety of aircraft operations
associated with the airport.
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The committee may wish to amend the bill to limit
acquisition of property outside of the authority's area of
jurisdiction to purchase of land for the installation of
equipment related to the safe operation of the airport and
the aircraft using the airport, environmental mitigation,
or environmental remediation.
3. Conformity with the Revenue Bond Law of 1941 . The
Revenue Bond Law of 1941 establishes uniform procedures for
issuing revenue bonds by public agencies in California. It
defines the terms of the covenants, defines the various
agencies that may issue revenue bonds, establishes
procedure to imposing revenues and a variety of other
conditions necessary to issue bonds. This bill addresses
the Bond Law in two ways. First, this bill authorizes the
authority to issue revenue bonds under the terms of the
Bond Law of 1941, but the bill proceeds to provide
exclusions for the authority from certain provisions of the
law, including the standard covenants and a exemption from
the statutory 12 percent cap on interest. It is difficult
to understand the sponsor's reason for this language.
Revenue bonds are tax exempt, so no need exists to remove
the 12 percent cap.
Second, the bill allows the authority to issue bonds
outside of the Bond Law by providing that the bill " is a
complete, additional, and alternative method of performing
the acts authorized by the section, and the issuance of
bonds. . .need not comply with any other law applicable
to borrowing or the issuance of bonds. Any provision of
the Revenue Bond Law of 1941 that is inconsistent with this
section or this division shall not be applicable ."
A representative of the bill's sponsor made the point that
Revenue Bond Law of 1941 may require a vote of people. As
no one permanently resides within the boundaries of ONT, no
electorate exists. It may be appropriate to exempt the
authority from the vote requirement.
The committee may wish to amend this bill to authorize the
authority to issue revenue bonds according to the terms and
conditions of the Revenue Bond Law of 1941 without having
to call for a vote.
SB 446 (DUTTON) Page 8
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
April 27, 2011)
SUPPORT: City on Ontario (sponsor)
County of San Bernardino
Lomalinda Chamber of Commerce
Montclair Chamber of Commerce
Ontario Chamber of Commerce
San Bernardino Area Chamber of Commerce
Upland Chamber of Commerce
OPPOSED: None received