Official Statement Airport Commission City and County of San ...

Operating Expenses
Fiscal Year 2008-09 operating expenses of $478 million reflected a 6.1% increase from Fiscal
Year 2007-08 operating expenses of $451.3 million. The operating expenses in Fiscal Year 2006-07 were
$431.1 million. See also “AIRPORT’S FINANCIAL AND RELATED INFORMATION.”
The increase in total operating expenses in Fiscal Year 2008-09 in the amount of $27.3 million was
primarily due to base wage increases required by various Memoranda of Understanding between the City and the
various bargaining units ($14.3 million), an increase in other post-employment benefit obligations ($1.4 million),
increases in depreciation and amortization due to the addition of capital assets placed in service ($7.1 million),
increases in contractual service costs as a result of increase expenditures in international marketing services by the
San Francisco Visitors Bureau and cost escalation in the New Park South Parking services contract and operation of
the SFO shuttle bus service ($3.3 million).
Review and Adjustment to Operating Expenditures
Each quarter, the Airport produces a financial forecast for the operating budget. If this forecast projects
that the operating budget will be in a deficit by the end of the Fiscal Year, Airport management has historically
implemented cost control measures. These cost control measures have included, but are not limited to workforce
reductions or hiring freezes on positions except those that have a direct impact on safety and security, and cuts in
discretionary expenditures, such as professional service contracts.
Payments to the City
Annual Service Payment
Under the Lease Agreements and the Settlement Agreement with certain airlines, the Commission makes
an “Annual Service Payment” to the City to compensate the City for certain indirect services and facilities that it
provides to the Airport and the Commission. See “SAN FRANCISCO INTERNATIONAL AIRPORT–Existing Airline
Agreements–Lease Agreements.” The Annual Service Payment is equal to the greater of (i) $5 million, and
(ii) 15% of “Concession Revenues” (as defined in the Lease Agreements), and is paid by the Commission in
quarterly installments. The Annual Service Payment is made only after the payment of Operation and Maintenance
Expenses and debt service on outstanding revenue bonds of the Commission, including the Bonds, and certain other
expenditures. See “SECURITY FOR THE 2010A BONDS–Flow of Funds.” The amount of Annual Service Payment for
each of the last five fiscal years is set forth below.
There is no assurance that upon renewal of the Lease Agreements, that the FAA will permit the Annual
Service Payment to continue. See “San Francisco International Airport–Existing Airline Agreements–Lease
Agreements.” See “AIRPORT’S FINANCIAL AND RELATED INFORMATION–Historical Debt Service Coverage.”
Payments for Direct Services
In addition to the Annual Service Payment, the Lease Agreements and the Settlement Agreement permit the
Commission to compensate the City’s General Fund for the cost of certain direct services provided by the City to the
Airport, including those provided by the Police Department, the Fire Department, the City Attorney, the City
Treasurer, the City Controller, the City Purchasing Agent and other City departments. Set forth in the table below is
a summary of the payments made by the Airport to the City for the last five Fiscal Years. The Commission is
otherwise prohibited under the Settlement Agreement and the Lease Agreements from making any payments to the
City, directly or indirectly. See “SAN FRANCISCO INTERNATIONAL AIRPORT–Certain Federal, State and Local Laws
and Regulations–Federal Law Prohibiting Revenue Diversion.”
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