Costs are mounting for the Gary/Chicago International Airport's expansion and initiative to lure private investors.
The Gary/Chicago International Airport Authority plans to borrow up to $65 million – or about $30 million more than originally expected – for an expansion that includes a longer runway and the relocation of nearby railroad tracks.
Interest rates that have risen sharply in the last few weeks would increase the project's overall $166 million price tag by about $5 million if the airport were to sell bonds today, a financial consultant estimates.
Airport financial manager Carolyn Keith also wants to discuss her concerns about rising consulting fees with the ad hoc committee that is tasked with luring investors willing to pump at least $100 million into the airport and the surrounding area. The airport board approved spending up to $175,000 on two more consultants Monday, but Keith said it would be hard to find that much money in the budget.
Earlier this year, the board had anticipated borrowing $34.5 million to pay for long-planned expansion projects that include lengthening the runway to allow cross-country flights, but now is looking at selling bonds of up to $65 million after a July 8 public hearing.
Interest rates have skyrocketed recently, and the airport should build a cushion into the project's financing, said Phoebe Selden, a senior vice president at Acacia Financial Group. She advised the airport board to fund the expansion with two separate bonds that would cost about $41 million at the current market rates.
Raising the borrowing limit to $65 million will give the airport more flexibility in case additional grant funding can be lined up, or private investors would provide new sources of revenue, said attorney Richard Hill with Faegre Baker Daniels.
As it stands, the airport board would repay the bonds over 25 years with money from the Airport Development Zone tax increment financing, or TIF, district. The TIF district captures property tax revenue from any increases in property value in an area west of Burr Street that runs from the airport in the north to Ridge Road in the south.
Citigroup and other potential investors have expressed concerns about how much TIF revenue could be counted on, since half of the district consists of homes and foreclosures have been an issue, Selden said.
Keith voiced concerns about where the airport authority would find the money to pay American Appraisers Inc. about $100,000 to appraise the airport and its assets and to pay accounting firm Crowe Horwath up to $75,000 to perform a risk assessment for the upcoming capital projects.
"These costs are beginning to be huge," Keith said. "We have to try to identify where we have the funds to pay for it. They're bringing forth large expenditures in the middle of the year when we have no new resources. Now we're approaching $500,000 that wasn't in the original budget."
Board members said the consultants would be hired only if the money were available to pay their fees. Members also said they needed the appraisal to know the true value of the airport so they would have leverage over potential investors, and wanted a risk assessment to reassure investors due diligence had been done.
In other business, the board agreed to allow Eastlake Management & Development Corp. open a new aircraft service center. The firm plans to invest at least $3 million to renovate a hangar and build a new 19,000-square-foot canopy for two to four jets.
Eastlake will become the airport's second fixed-base operator, or a firm that offers services such as refueling, aircraft maintenance and charter flights. Gary Jet Center had been the airport's only fixed-based operator, though the airport has had two at the same time in the past.
Construction on the hangar renovations is expected to begin in the next 18 months.