Table of Contents

Introduction

Section 1

Section 2

Section 3

Section 4

Section 5

Section 6

Section 7

Section 7c

Section 8

Appendix

Letter

Management Audit of the Airports Division

Airport Division Audit
12/11/99

2. Hangar Lease Rates

• By applying the highest prevailing rate for each group of similar hangars, the Department could realize an additional $87,758 in annual revenue the first year, and more in subsequent years as the lease inflation adjustment is applied. Adjusting the lease rates on the Old County Hangars to the highest rate per square foot currently obtained for these types of hangars would result in a further increase of $20,956 in annual revenues.

• The County Airports Ordinance does not include all of the lease rates currently charged at Reid-Hillview Airport. The Board of Supervisors should amend the Ordinance to include all rates and consider an amendment to allow Department staff to make minor adjustments to lease rates to reflect changes in market conditions.

Hangar Types and Current Rates

There are two basic types of hangars owned and operated by the Department at Reid-Hillview Airport: 1) transportable hangars constructed by two private companies between 1987 and 1990; and 2) older hangers built by the County prior to 1987 ("Old County Hangars"). The transportable hangars were constructed under an arrangement in which two private companies, Nunno and Port-a-Port, leased tie-down spaces from the County, erected hangars on these spaces and entered into lease agreements with individual airplane owners to store their planes.

The Department purchased all 85 of the transportable hangars in 1991 with a loan from the County General Fund, and adopted the 16 lease rates then being paid to Nunno and Port-a-Port. These lease rates have been carried forward to the present, adjusted by an inflation factor each year. Nunno and Port-a-Port negotiated separate leases with each tenant, with different financial and other terms and, as a result, many hangars of the same size and with the same amenities have different lease rates. As a result, there are currently 16 different lease rates for the transportable hangars. This arrangement results in unfairness among lessees, many of whom pay different rates for identical facilities. This rate structure also creates administrative costs, as Department staff have to keep track of the many separate rates. Finally, the grant restrictions imposed by the Federal Aviation Administration State that charges for airport facilities be applied without unjust discrimination. This appears to the auditors to imply that the Department should charge all tenants the same price for substantially identical facilities.

The 60 Old County Hangars were constructed by the Department in 1964, at which point a single lease rate for all of these hangars was set. This rate has been adjusted each subsequent year according to an inflation index. Subsequently, an additional charge of $160.50 was added to the lease for the twelve Old County Hangars at the end of each hangar building that has an extra space, approximately 10 feet by 10 feet in size.

Table 2.1 details the type, number, square footage and lease rates, both per month and per month per square foot, for the hangars currently being leased at Reid-Hillview Airport. There are two types of hangars, "box" hangars and "tee" hangars. Tee hangars are shaped like a "T" when viewed from above, similar to the shape of an airplane, and generally accommodate a single airplane more or less exactly. Box hangars are shaped like a square when viewed from above, and are generally larger, and therefore able to accommodate multiple aircraft. The hangar codes listed are alphanumeric designations applied to each lease rate for accounting purposes.

The transportable hangars have been grouped by size in Table 2.1. As can be seen, all of the hangars in each group are comparably sized though different lease rates are charged for each code category. The "Others" group is comprised of hangars that are uniquely sized. The County hangar lease policy provides that only one of the aircraft stored in a hangar with capacity for more than one need be registered to the lessee of the hangar.

The lease rates for the transportable hangars range from $270.50 to $1,030.50 per month, reflecting a cost per square foot of between $0.25 and $0.46. As illustrated in Table 2.1, there are differences of 20-33% in the lease rates of comparably sized hangars (Groups I-III as shown on Table 2.1). The Old County Hangars are less expensive than transportable hangars of equivalent size, even though the Old County Hangars have more amenities, including a foundation, avoiding the flooding problem that occurs in the transportable hangars, and electrical hookups. There are two rates for Old County Hangars, $0.32 per square foot for 48 of the hangars and $0.42 per square foot for the twelve hangars that have more space. These larger hangars are considerably more expensive per square foot, but the Department reports that it has had no trouble leasing them.

Table 2.1

Hangar Rates by Type of Hangar at Reid-Hillview

Hangar Code Transportable	Type	Number	Square Feet (approximate)	Current Rate	Monthly Revenue	Monthly
						Rate/sf
Group I (all 1,034 square feet)
X-2	Tee	26	1,034	365.50	$9,503	0.3535
W-1	Tee	1	1,034	300.50	301	0.2906
W-5	Tee	1	1,034	275.50	276	0.2664
Group II (all 1,720-1,776 square feet)
U-5	Box	1	1,720	442.50	443	0.2573
U-6	Box	34	1,728	476.50	16,201	0.2758
X-5	Box	5	1,764	579.50	2,898	0.3285
U-7	Box	3	1,776	490.50	1,472	0.2762
Group III (all 3,000 square feet)
W-2	Box	2	3,000	1,030.50	2,061	0.3435
X-7	Box	2	3,000	995.50	1,991	0.3318
W-4	Box	1	3,000	778.50	779	0.2595
Others (various sizes)
U-2	Tee	4	585	$270.50	1,082	0.4624
U-8	Tee	1	960	340.00	340	0.3542
U-4	Tee	1	1,151	438.00	438	0.3805
W-3	Tee	1	1,341	445.50	446	0.3322
U-3	Tee	1	1,374	344.50	345	0.2507
U-9	Tee	1	1,512	375.50	376	0.2483
Old County
1-A4	Tee	48	934	$298.00	14,304	0.3190
1-A5	Tee	12	1,089	458.50	5,502	0.4209
Total Maximum					$58,753.50

Hangar Lease Rate Determination

Hangar lease rates are currently set by County Airport Ordinance Section B2-20, which allows for an annual cost of living adjustment on January 1st of every year, equal to the increase in the Consumer Price Index for the San Francisco-Oakland area. The Ordinance does not address lease rates for the transportable hangars although the same cost-of-living adjustment is applied to them as the Old County Hangars. Staff have adopted the practice of raising the lease rate of any particular transportable hangar to the highest rate in effect for that size hangar whenever a hangar becomes available for lease. Given that the lease agreements are month-to-month, the Department can make such changes in lease rates at any time, with one month’s notice. However, under the current lease rate ordinance, Department staff do not have the authority to change lease rates for existing tenants, other than an annual cost of living adjustment.

The rate schedule for tie-down spaces, the Old County Hangars and transient parking in the most recent version of County Airport Ordinance Section B2-20 is detailed in Table 2.2. "Tail-in" parking is for spaces that a plane has to back into, while "taxi-in" parking is for spaces that a plane can taxi into forward. The Department currently charges the lowest Hangar Rate, $298.00, for 48 of the Old County Hangars because none of the aircraft stored there are in a higher weight classification. The rate schedule in the County Ordinance covers Old County Hangars only and has never been updated to reflect the rates charged for the 85 transportable hangars purchased from Nunno and Port-a-Port. The Ordinance should therefore be amended to include these rates.

Table 2.2

County Ordinance Section B2-20

Aircraft Tie-down and Storage Rates

Monthly Tie-down Charges				Monthly Storage Charges
Gross Weight
Pounds	Tail-In	Taxi-In	Daily	Shelters	Hangars
3,500 or less	$92.00	$114.50	$2.50	$183.50	$298.00
3,501-5,200	105.50	142.00	3.50	206.50	321.00
5,201-10,200	119.50	197.50	4.50	229.50	344.00
10,201-17,000	133.00	234.00	7.50

It should be noted that the $458.50 rate charged for 12 of the Old County Hangars as shown in Table 2.1 includes an additional $160.50 over the $298 base rate for an additional 100 square feet on the ends of these hangars. In addition to the rates stated, the Ordinance provides for an annual cost of living adjustment. The Ordinance also specifies that tenants may use airport facilities for aircraft storage purposes only, and for no other purposes, unless written approval is obtained from the County.

Rate Adjustments

Aircraft storage spaces are leased on a month-to-month basis, and the terms provide for cancellation by either party upon five days advance written notice. When vacancies occur, prospective tenants are drawn from a waiting list for hangars and shelters and contacted to see if they wish to begin occupying the vacant storage space. To be put on a waiting list, County Ordinance Section B2-20.1 requires that the prospective tenant pay a $20 fee and provide a refundable first month’s fee, in the amount of the first month’s lease payment. Waiting list procedures provide that a prospective tenant must also supply proof of aircraft ownership and evidence of insurance within three days of notification by the Department of an available space.

There are 114 names on the waiting list for hangars at Reid-Hillview. The survey of other general aviation airports conducted as part of this management audit indicates that all of the hangars available in the Bay Area are currently occupied, and there are waiting lists for hangars at all of the other airports surveyed, some consisting of as many as 200 names. There are plans to build additional hangars at Watsonville, Hollister, Hayward, Livermore, Buchanan Field in Concord and Byron Airport in Byron, Contra Costa County. While this represents a substantial increase in capacity, it appears that, judging from the existing waiting lists, the planned additional capacity will not meet excess demand.

Table 2.3 illustrates the additional revenue to be realized by charging the highest current rate for similarly sized hangars, adjusting the rates of the four "Other" transportable hangars to make their rates comparable and raising the lease rate for the Old County Hangars to the rate for the equivalent transportable hangars, category X-2. Category X-2 hangars are 1,034 square feet and leased for $365 per month, or $0.3535 per square foot per month. The 48 comparably sized Old County Hangars, at 934 square feet, are leased for $298 per month, or $0.3190 per square foot per month. As illustrated by the table, simply rationalizing the hangar lease rates in this way would result in an additional $87,758, or 12.45%, in annual revenues.

Table 2.3

Hangar Revenues After Adjustment of Rates to

Highest Prevailing Rate for Each Hangar Type

Number of Hangars		Number of Sq. Ft.	Current Rate/sf	Proposed Rate/sf	Current Monthly Rev	Proposed Monthly Rev	Monthly Difference	Annual Difference
Group I (all 1,034 square feet)
W-1	1	1,034	$0.2906	$0.3535	$300.50	$365.50	$65.00	$780.00
W-5	1	1,034	0.2664	0.3535	275.50	365.50	90.00	1,080.00
X-2	26	1,034	0.3535	0.3535	9,503.00	9,503.00	$0.00	0.00
Group II (all 1,720-1,776 square feet)
U-5	1	1,720	0.2573	0.3369*	442.50	579.50	137.00	1,644.00
U-6	34	1,728	0.2758	0.3354*	16,201.00	19,703.00	3,502.00	42,024.00
U-7	3	1,776	0.2762	0.3263*	1,471.50	1,738.50	267.00	3,204.00
X-5	5	1,764	0.3285	0.3285*	2,897.50	2,897.50	0.00	0.00
Group III (all 3,000 square feet)
W-2	2	3,000	0.3435	0.3435	2,061.00	2,061.00	0.00	0.00
X-7	2	3,000	0.3318	0.3435	1,991.00	2,061.00	70.00	840.00
W-4	1	3,000	0.2595	0.3435	778.50	1,030.50	252.00	3,024.00
Other Transportable Hangars (various sizes)
U-2	4	585	0.4624	0.4624	1,082.00	1,082.00	0.00	0.00
U-3	1	1,600	0.2153	0.2800	344.50	448.00	103.50	1,242.00
U-4	1	1,151	0.3805	0.3300	438.00	379.83	-58.17	-698.04
U-8	1	960	0.3542	0.3542	340.00	340.00	0.00	0.00
U-9	1	1,512	0.2483	0.2900	375.50	438.48	62.98	755.76
W-3	1	1,341	0.3322	0.3100	445.50	415.71	-29.79	-357.48
Old County Hangars
1-A4	48	934	0.3190	0.3912	14,304.00	17,544.00	3,240.00	38,880.00
1-A5	12	1,089	0.4209	0.3912	5,502.00	5,113.67	-388.33	-4,659.90
Total Maximum					$58,753.50	$66,066.69	$7,313.19	$87,758.34

* These rates per square feet vary, because all are to be charged at the same monthly rate and each is a slightly different size

Another option is for the Department to set the lease rate for the Old County Hangars, per square foot, at the highest rate currently being charged, $0.4209 per square foot, as detailed in Table 2.1 above. This would result in an increase of $108,405.45, or 15.38% in annual lease revenue, $20,647.11 more than the adjustments detailed in Table 2.3. Table 2.4 details the increased revenue from such an adjustment in lease rates.

Table 2.4

Hangar Revenues After Adjustment of Rates to Highest

Prevailing Rate for Each Transportable Hangar Type and Adjustment

of Old County Hangar Lease Rate to Highest Rate Charged

Number of Hangars		Number of Sq. Ft.	Current Rate/sf	Proposed Rate/sf	Current Monthly Rev	Proposed Monthly Rev	Monthly Difference	Annual Difference
Group I (all 1,034 square feet)
W-1	1	1,034	$0.2906	$0.3535	$300.50	$365.50	$65.00	$780.00
W-5	1	1,034	0.2664	0.3535	275.50	365.50	90.00	1,080.00
X-2	26	1,034	0.3535	0.3535	9,503.00	9,503.00	0.00	0.00
Group II (all 1,720-1,776 square feet)
U-5	1	1,720	0.2573	0.3369*	442.50	579.50	137.00	1,644.00
U-6	34	1,728	0.2758	0.3354*	16,201.00	19,703.00	3,502.00	42,024.00
U-7	3	1,776	0.2762	0.3263*	1,471.50	1,738.50	267.00	3,204.00
X-5	5	1,764	0.3285	0.3285*	2,897.50	2,897.50	0.00	0.00
Group III (all 3,000 square feet)
W-2	2	3,000	0.3435	0.3435	2,061.00	2,061.00	0.00	0.00
X-7	2	3,000	0.3318	0.3435	1,991.00	2,061.00	70.00	840.00
W-4	1	3,000	0.2595	0.3435	778.50	1,030.50	252.00	3,024.00
Other Transportable Hangars (various sizes)
U-2	4	585	0.4624	0.4624	1,082.00	1,082.00	0.00	0.00
U-3	1	1,600	0.2153	0.2800	344.50	448.00	103.50	1,242.00
U-4	1	1,151	0.3805	0.3300	438.00	379.83	-58.17	-698.04
U-8	1	960	0.3542	0.3542	340.00	340.00	0.00	0.00
U-9	1	1,512	0.2483	0.2900	375.50	438.48	62.98	755.76
W-3	1	1,341	0.3322	0.3100	445.50	415.71	-29.79	-357.48
Old County Hangars
1-A4	48	934	0.3190	0.4209	14,304.00	18,876.27	4,572.27	54,867.21
1-A5	12	1,089	0.4209	0.4209	5,502.00	5,502.00	0.00	0.00
Total Maximum					$58,753.50	$67,787.29	$9,033.79	$108,405.45

* These rates per square feet vary, because all are to be charged at the same monthly rate and each is a slightly different size.

It appears, judging from the current lease rate structure, that the annual inflation adjustment provided for in the County Ordinance is not sufficient to keep lease rates abreast of market conditions. FAA regulations provide that all leases with a term exceeding five years must provide for periodic review of the rates and charges to reflect the then current values, based upon an acceptable index (FAA Order 5190.6A, Section 4-13, October 2, 1989). Although the term of the hangar leases is month-to-month, the fact that the rates themselves are specified by ordinance, and seldom change apart from an inflation adjustment, suggests that an additional means ought to be available to maintain lease rates at market levels. The Board of Supervisors should consider altering the County Ordinance to allow Department staff to periodically adjust the hangar lease rates to account for changes in market conditions or airport operators. The County Ordinance could provide for minimum and maximum prices, or specify a maximum yearly increase, for example. This would allow the Department to maximize revenue (by making increases where they are appropriate) and minimize vacancies (in the event that market conditions dictate a lower lease rate). The County Ordinance could provide for minimum and maximum prices, or specify a maximum yearly increase, for example.

Conclusions

There are currently 16 different lease rates charged for hangars at Reid-Hillview Airport, even though many of the facilities with different rates are similar in size and have few differences in amenities. In addition, it appears from the existence of an extensive waiting list that the current hangar lease rates are lower than the market rate. As a result, the Airport Enterprise Fund is receiving less revenue from hangar leases than is possible.

Recommendations

It is recommended that the Board of Supervisors:

2.1 Request that County Counsel prepare a draft amendment to the County Airport Ordinance Section B2-20 to adjust hangar lease rates to the highest rate for each class of hangars so that the lessees of similar types of hangars are all paying the same rate;

2.2 Consider increasing the lease rates on the Old County Hangars to approximately the same level as equivalent Transportable Hangars to reflect the fact that the Old County Hangars have more amenities;

1. Request that County Counsel prepare draft amendments to the County Airport Ordinance for approval by the Board of Supervisors to include lease rates for Transportable Hangars, now omitted from the Ordinance;
   
   
2. Request that County Counsel prepare a draft amendment to the County Airport Ordinance to allow Department staff to periodically, such as every five years, make adjustments in lease rates to reflect market conditions.

Costs and Benefits

Adjusting the hangar lease rates to provide that the Department charges the same amount for substantially identical hangars would result in an increase of $87,758 in annual revenues the first year, and more in subsequent years as the inflation adjustment is applied. Further adjusting the lease rates on the Old County Hangars to the highest rate per square foot currently obtained for such hangars would result in a further increase of $20,956 in annual revenues for a grand total increase of $108,714.

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Last updated on 3/26/02