Kenai airport agreements signed with Soldotna contractor, Hilcorp

Several public-private partnerships using Kenai airport land where discussed during the City of Kenai’s Wednesday meeting.

The measures included the terms of an airport land lease with Legacy Electric LLC, along with two others relating to airport parking and agreement between Hilcorp Energy, the city and a private airport lessee.

Legacy Electric, a Soldotna-based electrical and construction contractor, leased a section of airport property from the city in August 2014 with plans to create two hangar buildings on it. Council member Brian Gabriel explained the purpose of the lease from the city’s perspective.

“What happened is that the city is sort of sharing the developmental cost (of the hangars) …the cost of developing a piece of property, getting the infrastructure, the buildings, and the utility there,” Gabriel said.

After constructing the hangars, Legacy would earn returns on its estimated $500,000 investment by operating the hangars for profit during the rest of its 35 year lease (with an optional 20 year extension) before the land and the hangars are returned to city control. Gabriel described this development method as “a common practice for city governments that manage land.”

First, however, Legacy has to pay the cost of constructing the hangars — a project made more expensive by the fact that the leased land is a former dumping site and the ground is softened by a layer of silt and organic waste materials, according to a city memo added to the original lease documentation.

To encourage Legacy’s investment, the city gave it a non-standard lease which awarded them a credit, equal to the value of the work of excavating and refilling the land, on fees for the first five years their lease. Now, Legacy wants this portion of the agreement changed based on the discovery that the land has more contamination than previously thought.

The initial lease was based on a 2008 survey of the land by engineering consultants Wince-Corthell-Bryson which estimated that the ground would need to be excavated and filled to a depth of 8 feet to provide a foundation for the hangar buildings. After beginning excavation, Legacy discovered areas that would need to be dug to a depth of 15 feet, as well as a sewer line that needed to be graded differently, incurring further expense. Because the cost of Legacy’s excavation exceeded what it could recover as lease-fee credit over five years, the council resolved to extend Legacy’s lease credit period to 10 years.

“What we had already agreed to was to share the cost, but this (resolution) is to amend that lease to reflect the additional cost of excavation,” Gabriel said.

The council also considered a pair of action-approval items related to airport parking. Hilcorp Energy requested a special use permit for 37 airport parking spaces, to be used for the vehicles of Hilcorp employees flown to shifts on platforms and facilities on the west side of Cook Inlet. City Manager Rick Koch worked with the Hilcorp director of aviation to develop the terms of the special-use permit, which gives the spaces to Hilcorp for a monthly fee of $2158.33, and also includes permission for Hilcorp to use additional parking space on busy shift change days.

Before approving the permit, the council amended the monthly fee, which was originally $4000, according to a memo issued by Koch on Dec. 2nd that recommended a monthly fee of $2,158.33. According to the memo, the rate was altered for consistency with the city’s Schedule of Rates, Charges, and Fees, which prices an annual airport permit at $700.

The altered monthly fee of $2,158 is roughly equal to $700 for each of Hilcorp’s 37 spaces, divided by each month of the year. Koch said he was unaware of this fee schedule when offering Hilcorp the original monthly fee.

The council’s consent was also requested for a sublease given to Hilcorp by Dan Pitts, a private airport property lessee who said he was also asked by Hilcorp to provide airport parking on his leased lot, and negotiated separately with them to do so. According to an October 30 memo from Koch to the council, the rent that Pitts had proposed to Hilcorp for the parking sublease was less than the monthly fee the city requested from Hilcorp for the 37 parking spaces in the municipal lot. The memo also quotes the lease between Pitts and the city, saying “the rate charged for vehicle parking shall not be less than the rates charged by the City for airport parking.”

Discussion of Pitts’ sublease was originally scheduled for the Nov. 5 council meeting, but was delayed due to Pitts’ trip out of state for family business. On Wednesday, the council approved the sublease with the alteration that it allow “uses consistent with the lease between Dan O. Pitts and the City of Kenai,” requiring that Pitts charge Hilcorp a rate no less than the city’s.

Pitts addressed the council after the item was approved.

“These are competing proposals, and the one that the city has approved undercuts what I’m currently charging Hilcorp for parking,” Pitts said.

In total, the council passed two ordinances and two resolutions, which in addition to the Legacy lease amendment included the acceptance of state granted travel reimbursement for Kenai’s librarians, acceptance of a donation by Hilcorp for the Kenai Senior Center’s annual Thanksgiving dinner, and adoption of an allocation plan for taxes paid by fishing businesses.

Other discussions held Wednesday night concerned two internal personnel decisions. First, council member Brian Gabriel was elected to succeed Ryan Marquis as Kenai’s vice mayor. Later, at the conclusion of the meeting, the council went into a closed executive session to discuss renewing the contract of city clerk Sandra Modigh. After the negotiation, Modigh’s contract was renewed and the council adjourned.

 

Reach Ben Boettger at ben.boettger@peninsulaclarion.com

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