Report Title:

Airports; Concessionaires; Economic Relief

Description:

Provides further economic relief for airport concessionaires. (SB44 SD2)

THE SENATE

S.B. NO.

44

TWENTY-SECOND LEGISLATURE, 2003

S.D. 2

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to transportation.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that the September 11, 2001, terrorist attacks have had a profound and lasting impact on air travel in the United States. For a brief period, the nation's airports were shut down completely, and since reopening, security has been at heightened levels.

The enactment of the federal Aviation and Transportation Security Act in November 2001 has meant the implementation of new security measures at airports across the country to protect the public. These new security measures, however, have not come without a price.

The legislature further finds that concessionaires historically have contributed over sixty per cent of the revenues to Hawaii's public airports while airlines have contributed about ten per cent. The department of transportation (department) at the time of the Third Special Session 2001 had surplus funds of about $390 million in its airport division special fund account. It is noted that in years immediately prior to the tragic events of September 11, 2001, airlines received waivers in landing fees totaling approximately $76 million dollars while the concessionaires received no similar benefit. In addition, the United States Congress has assisted airlines (and may do so again) but has provided no assistance to concessionaires and is not likely to do so.

The ongoing problems for some concessions, especially those selling to international (eastbound) passengers or those severely affected by ongoing security restrictions, may never change and will continue to suffer hardship in the future. The department must provide further relief to concessions still suffering hardship from the events of September 11. These concessions should continue to provide services and opportunities to arriving and departing passengers, which in turn will generate rental income for the department.

During the continuing relief period provided for in this Act, the department shall continue to waive the guaranteed rent payments and allow qualified concessionaires to pay a percentage rent or, alternatively, concessions can seek to reach an agreement with the department on appropriate relief. If the department and concessionaire cannot reach an agreement on appropriate relief, then the concession should be provided relief by the department that will at least allow the concession to remain in business at no profit but without suffering operating losses until the concession's gross receipts return to pre-September 11th levels. By giving such relief allowing the concession to break even at no profit in its operations and thus suffer no operating losses, the concessionaires should be able to survive. However, in exchange for such no-profit relief the department shall have the option of terminating the concession agreement if there is someone willing to pay the department at least ten per cent more than what the existing concessionaire is paying the department. This option will ensure some level of continuing income to the department with a possible upside if a new concession operator is willing to pay more. Some continued income from concessionaires to the department is clearly better than no income. With this right to terminate by the department, it will be assured of fair market rent at all times during the relief period since it will have the discretion to terminate the concession if someone is willing to pay more.

Obviously a concession will seek to avoid having its contract terminated. For when a contract is terminated, the concessionaire will suffer the loss of its unamortized improvements, jobs, contractual damages, and possibly other losses and damages. Under this Act, the concessionaire shall have no recourse against the department for any and all such damages and losses. However, upon such termination, the concessionaire shall be allowed to recover its performance bond, security deposit, or similar instrument without penalty and will not be barred from doing business with the State for five years as provided under present law.

When a concession is terminated, for purposes of avoiding discretionary mistakes or abuse, the department may only award the new concession operator a contract by way of either:

(1) A revocable permit not to exceed two years upon terms negotiated by the department at its sole discretion (present law limits such discretionary actions by revocable permits to only one year); or

(2) A public-sealed bid under present law for a period longer than two years as deemed appropriate by the department.

The existing concessionaire would be allowed to compete with others for a new contract by way of such a public-sealed bid process. These two options limit the possibility of discretionary mistakes and abuse and provide the department with the flexibility of temporarily allowing a new operator to pay it more revenues until economic conditions improve, at which point the concession can be put out to public-sealed bid for a longer term in accordance with present law.

Deliberations and the passage of Act 15, Third Special Session Laws of Hawaii 2001 (Act 15), provided general relief to concessionaires at the total discretion of the department. Unlike the Third Special Session of 2001, where there was a tight schedule for considering a number of legislative bills, the legislature now has the time to consider additional relief due to the events of September 11, 2001.

In particular, the legislature finds that some concessions since September 11, 2001, have not been afforded rent relief by the department that allows the concession to break even at no operating profit. At least one concession has reported that due to lack of adequate relief from the department, it has had to borrow funds to survive, which it cannot continue doing. This concerns the legislature. Furthermore, the legislature notes that the department has reported that some concessions are permanently damaged and may not return to pre-September 11, 2001, business levels. It is not acceptable to this legislature that any concession should suffer the loss of its performance bond and be barred from doing business with the State for five years on account of the events of September 11, 2001. Thus, the legislature finds that if the concessionaire and the department cannot reach an agreement on appropriate relief, the department must provide relief to concessionaires at a no profit, break even basis as noted above with the understanding that the concession contract can be terminated by the department if the department finds someone else willing to pay at least ten per cent more in rent. The legislature finds that this is fair given the circumstances and clearly some income to the department is better than no income until the department can find someone willing to pay more rent.

The legislature notes that various concerns have been raised by the Federal Aviation Administration (FAA) regarding legislation guaranteeing profits to concessionaires, providing relief to concessionaires at below fair market rents, and providing permanent relief to concessionaires. That is not the intent nor the meaning of the language in this Act. This Act addresses the concerns expressed by the FAA. There are no guaranteed profits to a concession in this Act since if the State cannot reach an agreement with the concessionaire, the concessionaire must operate at a no profit, break even basis which can reportedly last as long as four or more years. This is clearly not an attractive situation for any concessionaire or business to be in.

Further, rent relief is not being provided to a concessionaire at below fair market value as the FAA suggests, since if the parties cannot reach an agreement rents are set at a no profit, break even basis, subject to termination of the concessionaire if the department can find someone to pay more. Clearly, the rent relief provided in this Act is arguably above fair market value since no business or concession wants to continue to operate at a rent level that affords no profit.

Finally, this Act does not provide permanent relief because relief is provided only to the extent necessary to afford relief for September 11-related losses, and in any event, concessionaire leases are typically no longer than five years.

Given the foregoing, and the facts that:

(1) The Denver airport has let concessionaires terminate their contracts without penalty;

(2) The Los Angeles airport is negotiating relief with concessionaires which will be resolved by the courts if the parties cannot agree on what is fair relief;

(3) Boston's Logan International airport has cut capital improvement spending and staff while providing relief to concessionaires; and

(4) The Los Angeles, Dallas, and Portland airports, while providing continuing relief to its concessionaires also raised landing fees,

the legislature finds that this Act is within the bounds of FAA regulations and guidelines.

This Act seeks to ensure income for Hawaii's public airports given the circumstances while seeking to avoid unfair penalties to concessionaires for the events of September 11, 2001.

The governor and department are requested not to collect guaranteed rents from the concessionaires still in need of relief due to the events of September 11, 2001, starting as soon as possible. The governor and department are urged to provide relief to concessionaires in keeping with this Act.

The purposes of this Act are to:

(1) Provide further economic relief for airport concessions still suffering from the terrorist events of September 11, 2001;

(2) Allow airport concessions still suffering from those events but whose concession agreements are terminated due to a new concession operator, to recover their bonds and deposits and not be barred from doing business with the State for five years as provided by present law; and

(3) Require that such concessions suffering any losses and damages due to such termination have no right to make any claim for damages or losses against the State.

SECTION 2. Section 102-2, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The bidding requirements of subsection (a) shall not apply to concessions or space on public property set aside for the following purposes:

(1) For operation of ground transportation services and parking lot operations at airports, except for motor vehicle rental operations under chapter 437D;

(2) For lei vendors;

(3) For airline and aircraft operations;

(4) For automatic teller machines and vending machines, except vending machines located at public schools operated by blind or visually handicapped persons in accordance with section 302A-412;

(5) For operation of concessions set aside without any charge;

(6) For operation of concessions by handicapped or blind persons; except concessions operated in the public schools by blind or visually handicapped persons in accordance with section 302A-412;

(7) For operation of concessions on permits revocable on notice of thirty days or less; provided that no such permits shall be issued for more than a one year period; provided further that revocable permits issued by the department of transportation for use of state airports may be valid for a period not to exceed two years if the director of transportation determines that an extension to the term of a contract or revocable permit is necessary in light of:

(A) A natural disaster; or

(B) A continuation of an adverse economic condition occurring within the previous twelve months that would adversely affect, in the assessment of the director of transportation, the State's ability to solicit and obtain favorable bid proposals;

(8) For operation of concessions or concession spaces for a beach service association dedicated to the preservation of the Hawaii beachboy tradition, incorporated as a nonprofit corporation in accordance with state law, and whose members are appropriately licensed or certified as required by law;

(9) For operation of concessions at county zoos, botanic gardens, or other county parks which are environmentally, culturally, historically, or operationally unique and are supported, by nonprofit corporations incorporated in accordance with state law solely for purposes of supporting county aims and goals of the zoo, botanic garden, or other county park, and operating under agreement with the appropriate agency solely for such purposes, aims, and goals;

(10) For operations of concessions that furnish goods or services for which there is only one source, as determined by the head of the awarding government agency in a writing that shall be included in the contract file; and

(11) For operation of concession or concession spaces at the convention center under chapter 201B.

For purposes of this subsection, "adverse economic condition" means a reduction of fifteen per cent or more in the gross receipts of a concession as set forth in section 102-10(b)."

SECTION 3. Section 102-10, Hawaii Revised Statutes, is amended to read as follows:

"§102-10 Modification of contract terms. [If] (a) With respect to contracts for construction projects, if during the term of the contract (including contracts which have been executed and are presently in force) there has been a reduction of fifteen per cent or more in the volume of business of the concessionaire for a period of sixty days or more, computed on the average monthly gross income for the eighteen months just prior to the period or as long as the concessionaire has been in the business, whichever period is shorter, and such reduction as determined by the officer letting the contract is caused by construction work conducted during the period of time on, or within or contiguous to, the public property upon which the concession is located by either the state or county governments, or both, the officer, with the approval of the governor in the case of a state officer and the chief executive of the respective county in the case of a county officer, may modify any of the terms of the contract, including the agreed upon rent, for a period which will allow the concessionaire to recoup the amount lost by such reduction; provided that if the contract includes provisions allowing modification for the above contingencies, this section shall not be applicable thereto; provided further that this provision shall not apply to any particular concession if the application thereto may impair any contractual obligations with bondholders of the State or counties or with any other parties.

(b) With respect to economic relief, if following the terrorist events of September 11, 2001, a public-airport-concession contract has suffered a reduction of fifteen per cent or more in gross receipts of the concession for a period of thirty days or more, computed on the average gross monthly receipts for the six months immediately prior to the thirty-day period or as long as the concessionaire has been in business, whichever period is shorter, and that reduction, as determined by the state official letting the contract, is caused by a reduction in the east bound or west bound passengers arriving during the period of time on, or within or contiguous to, the public property upon which the concession is located by state government, the state official may modify the concession contract as agreed to with the concessionaire by granting rent relief to the concessionaire by waiving guaranteed rents and collecting during the period of relief only percentage rents as set forth in the concession contract. If a contract has no percentage rents, or if such reduction in gross receipts is at least twenty-five per cent for ninety days and the concession has suffered major difficulties in being able to conduct future sales due to security changes or for other reasons, the state official may modify the concession contract by waiving guaranteed rents and granting rent relief for percentage rents as agreed to with the concessionaire, which may be below percentage rent amounts set forth in the concession contract, and also by extending the term of the contract for a period not to exceed two years.

(c) With respect to the inability to make a profit, for public-airport concessions qualifying for economic relief as provided for in subsection (b), if the State does not provide relief or if the State and concessionaire cannot agree on appropriate relief in accordance with above subsection (b), the State shall provide relief to such a concession by waiving guaranteed rents and providing other rent relief that will allow the concessionaire to break even at no profit from its concession operations during the period of relief. If the State and concessionaire cannot agree as to the amount of such relief, the amount shall be determined by a sole arbitrator who shall be a certified public accountant who shall base the decision in accordance with generally accepted accounting principles. The accountant shall have no conflict of interest and shall be selected by the circuit court having jurisdiction over the geographic region in which the concessionaire is situated. The decision of the accountant shall be final and binding unless an abuse of discretion can be clearly demonstrated. The fees and costs to be paid to the accountant by each party shall be decided by the accountant at the accountant's sole discretion. All documents and information exchanged between the parties, the accountant and the circuit court shall be kept strictly confidential notwithstanding any other law to the contrary. Any and all disputes relating to the selection of the accountant, the accountant's decision and all matters related thereto shall be decided by the respective circuit court.

(d) The period of relief provided under this section shall commence with the first day of the thirty-day period demonstrating a reduction of at least fifteen per cent in gross receipts as set forth in subsection (b) and shall continue until gross receipts for three consecutive months are equal to or greater than the average gross monthly receipts computed and used for the six months prior to the start of the relief period, or a shorter period if the contract was not in existence for at least six months; provided in no event shall relief last longer than necessary to compensate for losses resulting from the terrorist events of September 11, 2001, or the reduction in concession business incident thereto.

(e) Throughout the period of relief, the concessionaire shall provide the State monthly with written evidence supporting its request for relief and continued relief due to the terrorist events of September 11, 2001. In accounting for such relief, the State shall offset any insurance or federal benefit or assistance received or anticipated to be received by the concessionaire as a result of the terrorist events of September 11, 2001, or matters related thereto.

(f) If a concession is receiving relief from the State under subsection (c), as a condition for such relief, the State may terminate the concession contract and require the concessionaire to vacate the concession premises when the State has a new concessionaire for the premises who is willing to pay the State at least ten per cent more than the latest rental amount the concessionaire receiving relief was paying to the State. The new concessionaire may take over the premises pursuant to a revocable permit which shall not exceed two years, or if for a period longer than two years, the takeover of the premises shall be pursuant to the award of a public bid in accordance with this chapter. A concessionaire receiving relief pursuant to subsection (c) shall be allowed to participate in such a public bid. A concessionaire whose contract is terminated pursuant to this subsection shall have no claims for damages or losses against the State for losses due to equipment leases, vehicle leases, warehouse leases, or anything else and shall forfeit to the State all of its leasehold improvements in the premises. As an alternative to the foregoing right of termination by the State, a concessionaire receiving relief pursuant to subsection (c) and the State may agree to terminate the concession contract on terms mutually agreeable to both parties.

(g) Upon termination in accordance with subsection (f), the State shall return to the concessionaire the entire and full amounts of all deposits, collateral, bonds, or similar instruments securing the concessionaire's performance except for such amounts as may be owed to the State prior to the commencement of the period of relief.

(h) All laws and rules inconsistent with this section shall be suspended during the period of relief to the extent the suspension is necessary to effectuate the purposes of this section during such period.

(i) All actions taken under this section shall comply with applicable federal laws and regulations and shall not jeopardize the receipt of any federal aid or impair the obligation of the State or any agency thereof to the holders of any bond issued by the State or any such agency. However, if a concessionaire requests termination because the provisions of this subsection do not allow the State to grant relief in accordance with the above subsections, then the concessionaire's contract with the State shall be immediately terminated and the security or collateral as described in subsection (g) shall be immediately returned to the concessionaire, except for such amounts as may be owed to the State prior to the commencement of the period of relief. In the event of such termination by the concessionaire, the concessionaire shall not be deemed in default and shall not be barred from doing business with the State for five years as provided for in section 171-13.

(j) The department shall submit monthly reports to the legislature to keep the legislature apprised of the relief granted under this section. The reports shall include such information as the reasons for granting relief, the names of businesses primarily benefiting from such relief, the benefits provided by any insurance or federal agency, amount of relief, and the source of funding for such relief."

SECTION 4. Section 171-13, Hawaii Revised Statutes, is amended to read as follows:

"§171-13 Disposition of public lands. Except as otherwise provided by law and subject to other provisions of this chapter, the board may:

(1) Dispose of public land in fee simple, by lease, lease with option to purchase, license, or permit; and

(2) Grant easement by direct negotiation or otherwise for particular purposes in perpetuity on such terms as may be set by the board, subject to reverter to the State upon termination or abandonment of the specific purpose for which it was granted, provided the sale price of such easement shall be determined pursuant to section 171-17(b).

No person shall be eligible to purchase or lease public lands, or to be granted a license, permit, or easement covering public lands, who has had during the five years preceding the date of disposition a previous sale, lease, license, permit, or easement covering public lands cancelled for failure to satisfy the terms and conditions thereof[.] except for a termination which occurs pursuant to section 102-10(f) or (i) and provided the concessionaire has paid to the State the amounts owed prior to the commencement of the period of relief."

SECTION 5. For purposes of qualifying for and receiving economic relief under this Act, only a concessionaire who qualified for and received relief pursuant to Act 15 of the Third Special Session Laws of Hawaii 2001 shall be deemed qualified.

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 3003; provided that sections 1, 2, 3, 4, and 5 shall apply retroactive to September 11, 2001.