March 5, 2014

City blames Orr for airport parking rate increase

The Charlotte city manager’s office said in a report Wednesday that inadequate planning for construction costs under former Aviation Director Jerry Orr prompted the recent 40percent to 50percent increase in parking rates at Charlotte Douglas International Airport.

The Charlotte city manager’s office said in a report Wednesday that inadequate planning for construction costs under former Aviation Director Jerry Orr prompted the recent 40 percent to 50 percent increase in parking rates at Charlotte Douglas International Airport.

Orr disputed the report’s conclusions. “It does not seem accurate to me,” he said of the report.

The city said the parking rate increases are needed to fulfill the airport’s profit-sharing deal with the airlines. Charlotte Douglas International Airport splits 40 percent of its profits, including those from parking, with the airlines that fly there, with most of the money going to American Airlines, which recently merged with US Airways.

The cost to park at the airport has become a point of contention under Interim Aviation Director Brent Cagle, who was named to replace Orr last year. Under Orr, Charlotte Douglas had parking rates that were well below those at comparable airports.

Last month, the airport increased business valet, curbside valet and daily rates to be at the median for comparable airports, and plans to raise hourly rates in November, when a new deck opens, and higher long-term rates next year. The increases were necessary to cover the cost of debt issued to build a new hourly deck in front of the terminal and to cover higher operating costs, officials said.

City Manager Ron Carlee, who joined the city last year, prepared the report after City Council member David Howard asked staff to look into the rate increases.

Wednesday, the city manager’s office said the airport didn’t plan for the debt costs and misrepresented the effects of tearing down the old hourly decks. Taking down the decks temporarily removed thousands of parking spaces, causing traffic to snarl and parking revenue to dip.

“When the replacement and expansion of parking was approved, the Aviation Department represented to the Council, the airlines serving Charlotte, the Rating Agencies, and bond investors that the capital program would be revenue neutral,” the report said. “This has not been the case, however, resulting in the need for the Aviation Director to take action to raise rates to offset higher debt costs.”

The airport’s internal projections showed parking revenue would drop from $42.6 million in fiscal 2013 to $38.7 million in fiscal 2014. Without the increased parking rates, profits from parking would decrease from $7.4 million in fiscal 2014 to $6.8 million the following year.

Such a drop would jeopardize the airport’s bond rating and hurt profit-sharing with the airlines, the city manager’s report said.

“The result would be higher cost to the carriers, which is contrary to what they were told when the capital program for parking was initiated,” the report said. The airport would risk its advantage as a low-cost hub for airlines. “The profit-share program is a critical component of Charlotte’s low cost advantage. The sharp decline in net parking revenues is in conflict with this policy goal.”

With the increases to parking rates, the airport predicts that parking profits will rise to $10.6 million in fiscal 2014 and $14.2 million in fiscal 2015.

The $120 million new parking deck is being paid for with bonds, $65 million of which are funded with airport revenues and $55 million of which are funded directly from a daily fee charged for car rentals. The project is part of almost $1 billion worth of work planned or underway at Charlotte Douglas.

“A rate plan should have been presented when the capital plan was originally presented,” the city manager’s office said. “Had this been done, the rate increases would have been planned and timed in a manner that would not have been a surprise and the Airport could have increased parking rates gradually.”

Orr, who lost his city job amid a fight last year over whether the city or a new, independent commission should run Charlotte Douglas, said that the 2011 bond issue documents included estimates of the airport’s revenue and expenses for parking decks and their construction going forward. The bond documents Orr cited do not appear to list a specific plan for raising rates.

Orr also put some of the blame for higher costs on the city’s decision to transfer control of the airport’s police to the Charlotte-Mecklenburg Police Department, which he said raised costs and ate up more of the airport’s profits.

Last week Cagle told the Charlotte Airport Commission – which exists but is blocked by a judge from using its power – that raising the parking rates 40 percent to 50 percent all at once was a better approach than increasing them gradually.

“It was better to take action once rather than prolong the increases,” Cagle said. “That approach should have started in 2011. Because we are where we are now, we had to take more drastic action.”

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