Airport loss doesn’t fly with everyone

(April 24, 2015) Ocean City government is planning to conduct a review of the fee structure at the municipal airport, after a debate during recent budget hearings over exactly how far the city can take the trickle-down economics argument used to justify the operation.

While owners may pay only $12 per day to tie down their aircraft at the facility, city taxpayers will probably subsidize the facility to the tune of $264,791 in the coming fiscal year.

This deficit could be increased by $306,471 if debt service on the 2006 bond taken out for the airport is included, although it can be argued that this money actually goes toward running the golf course. It’s an unusual arrangement stemming from the city’s land use dispute with the federal government.

“I’m having a hard time justifying this much public liability for something that’s a luxury,” said Councilman Wayne Hartman. “It’s cheaper to park your private airplane for a day than it is to park your car at the inlet lot.”

However, a majority of Hartman’s colleagues defended the operation as a “loss leader,” bringing in a net positive in visitorship despite operating at a deficit.

“I see the airport as one of those things that brings in business growth far beyond what it costs us to run,” said Councilman Tony DeLuca.

The publicly run airport and golf course are somewhat unique operations for Ocean City, given that they are located on a large swath of land outside the city limits, several miles down Route 611. The prevailing theory is that both operations will bring in customers who will, in turn, spend money on in-town hotels and restaurants.

In 2006, the two amenities were somewhat problematically tied together when the city bought additional land to be designated as a “buffer zone” for the airport’s runways. This purchase was heavily subsidized by the Federal Aviation Administration, which pays for 90 percent of all capital costs associated with the municipal airport as a federally sponsored transit hub.

Obviously, large buildings can’t go in an area that is intended to serve as clearance space for planes that are landing or taking off. However, the city apparently believed they could use the land to expand the municipal golf course, which is located next to the airport.

This did not go over well with the FAA. As Mayor Rick Meehan put it, the FAA “changed the rules on us after the land was purchased” and the city had already started building tees and greens.

The FAA, on the other hand, basically accused the city of ripping it off by using federal airport funds to build a golf course. The agency even threatened to sell the land, since it was bought with federal money, and drop support for Ocean City’s aviation program.

“[The golf course] was a compatible use, they said,” said Councilman Dennis Dare, who was city manager at the time.

After the dispute, Dare said, “the FAA said ‘we don’t need [the buffer zone] anymore, we’re going to sell it, and if you want to keep your golf course, you’re going to have to buy it from us.’ So we we’re buying something we already owned, but we had bought with FAA money.”

The city borrowed $5 million to pay back the federal government for the golf course expansion. The FAA did not cease to support the city’s airport, but put the $5 million into a separate fund that is now used to support capital projects at the facility.

Thus, it could be argued that the $306,471 debt repayment in the coming year’s budget is for either operation.

On one hand, it repays the money used to buy the golf course’s land. But that money is also earmarked expressly to pay for the airport’s capital costs, as the FAA is essentially allocating the city’s own money back to it whenever it picks up a capital cost share.

But because the bond was taken out against the city’s general revenues, the cost is not assigned to either the golf course or airport budgets.

“Bottom line, with this included, the airport is either losing more money than is shown, or the golf course is actually operating at a loss instead of breaking even,” Hartman said.

The question, then, is how big of a hit the city is willing to take to provide a service.

Meehan likened the airport to other budget-deficient city operations.

“We have a number of things we provide that don’t make money. Garbage, recreation and parks…these are not all break-even,” Meehan said.

Council Secretary Mary Knight pointed to the FAA’s 2013 economic study that estimated $7.3 million in local spending generated by the airport.

“When constituents ask about the airport and see it as a loss, this really substantiates [its value],” Knight said.

However, it was unclear if this amount was zero-sum, or if the impact was relative to the same visitors arriving by more conventional means. According to Airport Manager Jaime Giandomenico, the facility sees about 38,000 operations each year. Knowing that each plane that takes off must also land, or vice-versa, this would equate to 19,000 flights per year, or about $385 in local spending per flight.

According to Giandomenico’s price sheet, Ocean City’s hangar rental costs, and fuel charges, are roughly in-line with other small airports in the region. The airport profited $140,000 last year on fuel sales.

There is, however, a waiting list for hangar leases.

“I think, if you’ve had a waiting list going for a while, that’s probably a sign that the market will support higher rates,” Hartman said.

Additionally, Ocean City does not increase the parking fee for visiting aircraft – or “tie down” – as the size of the aircraft increases. The current city rate of $12 per night is comparable to the starting fee at most other airports, but these airports boost the rate to up to $60 for larger planes, which Ocean City does not.

Ultimately, Hartman’s inquiry gained some traction, with Giandomenico to come back in a few weeks with ways to increase income at the facility.

“If it’s something we can put in place before the summer to increase revenue a little bit, I think that would be preferable,” Meehan said.

“I don’t think we’re going to chase away anyone who has a plane [by raising tie-down fees],” Hartman said. “The airport is a great product, but I don’t think we should be selling it short [by running it at a loss].”

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