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Flying into the future: With finances in order, city sees airport as economic anchor

Posted: Tuesday, January 18, 2011

The Kenai Municipal Airport is poised for more growth as it adds land and solidifies its financing.

Photo By Molly Dischner
Photo By Molly Dischner
A plane waits on the tarmac at Kenai Municipal Airport on Monday afternoon. The air freight industry is an expanding piece of Kenai's economy --and the city is making room for more growth.

According to city manager Rick Koch, the growth has already started.

"We have an expanding presence in the air freight industry," Koch said at last week's economic forum.

He made a plug for interested companies to do business at the airport, and added that undeveloped land near the airport could be an industrial park.

And there's more undeveloped land to come.

On Jan. 5, Kenai's city council unanimously approved ordinances that provided funding to purchase land near the airport for future airport growth. The land will also act as a buffer between the airport and nearby residents, and provide room for a future trail system.

The two parcels are adjacent to each other near the float plane road, on the west side of the airport. One is a 40-acre parcel, the other is 20 acres.

Those land purchases were split between the airport fund and the city's general fund, with each contributing about $103,000 for the purchases.

Henry Knackstedt, a 16-year member of the airport commission, spoke in favor of the ordinances and said the airport commission had been interested in the land for a while.

At the meeting, mayor Pat Porter asked if some of the land might be divided and sold to help pay for the purchases later on. Koch said it might not be cost effective to subdivide it, and added that the city isn't in the land speculating business.

Regardless of how the land is used, its not the only sign that the airport has room for growth.

For the first time in about a decade, the airport is on solid financial ground, Koch said.

So far in FY11, which began in July 2010 and ends this June, the airport is on track to come out in the black.

For the last ten years, the airport has had to dip into its reserves to make ends meet, Koch said. But the reserves weren't unlimited.

"The end was in sight," he said.

Had the reserves run out, the city would have had to decide whether or not to cut services or use the city's general fund to pay for the airport.

Instead, Koch and airport staff looked at the airport's sources of revenues, primarily the vendors who operate out of the airport.

"We negotiated increases in those leases," he said. And bit by bit, the airport collected a fair amount of revenue.

Koch attributed much of the airport's financial success to the airport manager, Mary Bondurant, saying that she has done a "very good job protecting and safeguarding" the airport.

Koch said the city also looked at how it was investing the airport's land sale money.

"We absolutely changed our investment strategy on a permanent fund we have," he said. The city opened an endowment with Alaska Permanent Capital Management in 2008. The beginning balance was $17.4 million. At the end of 2010, the fund is worth a little more than $21 million, according to documents provided by that management firm.

The change paid off. For the last three years, the fund made about $50,000 to $100,000 a year, Koch said. This year, that fund is expected to make about $2 million.

Ideally, it will continue to make about 8 percent a year. Koch said about 5 percent of that could be spent, and 3 percent would go back into the fund to help inflation-proof it. The exact figures are based on a averaging formula similar to the one used to determine Alaska residents' dividends from the Alaska Permanent Fund.

During the council's Jan. 5 meeting, investment manager Bert Wagnon gave a presentation about the investment fund. Instead of making 8 percent, the fund is predicted to make an average of 7.2 percent over the next five years, Wagnon said. The change is due to a prediction that low interest rates will rise, which means that fixed income assets will decrease in value. Fixed income assests are generally considered fairly low-risk, and are about 40 to 50 percent of the fund's investment portfolio. Because of that, the city has shifted its investments slightly, but will mostly stick to their original investment plan, Wagnon said.

The council also unanimously approved a resolution authorizing the fund's investment policies. According to the resolution, the council will re-evaluate the fund annually.

Molly Dischner can be reached at molly.dischner@peninsulaclarion.com.



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