Report Title:

Transportation; Airport Concessions

Description:

Provides further economic relief for airport concessionaires who have not yet received relief. PROPOSED(SD1)

THE SENATE

S.B. NO.

3080

TWENTY-SECOND LEGISLATURE, 2004

S.D. 1

STATE OF HAWAII

PROPOSED


 

A BILL FOR AN ACT

 

RELATING TO TRANSPORTATION.

 

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

SECTION 1. The legislature repeats and reaffirms all findings in previous legislation passed relating to the events of September 11, 2001 that recognized in part that the terrorist attacks had a profound impact on air travel in the United States and that the subsequent events of the Iraq War and severe acute respiratory syndrome further reduced air travel to Hawaii and other major airports in the United States.

The purpose of this Act is to provide further relief to previously qualified concessionaires who received relief following the events of September 11, 2001 but have not yet negotiated further relief with the State. While most concessions since the ending of the regular session of 2003 have negotiated relief with the State, some have not been able to complete negotiations due to the fact that these concessions may have been permanently damaged by the new federal security requirements imposed after September 11, 2001 and because the State may need added authority to provide necessary relief to those concessions.

Shortly following the events of September 11, 2001, the legislature during its Third Special Session of 2001 provided short-term relief to Hawaii's airport concessions and various airlines. The 1egislature indicated it would consider extending such relief at its next session. The United States Congress subsequently provided relief to the airline industry but not airport concessions. In legislation passed during the regular sessions of 2002 and 2003, the legislature extended relief for airport concessionaires recognizing the historically significant role airport concessions played in contributing over sixty per cent of airport revenues compared to about twenty-five per cent by the airlines. The legislature believed it was important to try and support qualified airport concessions needing relief, since some income from concessions was better than no income until the airport system could find tenants willing to pay more rent.

The legislature further recognized that while Hawaii's airport system had provided significant benefits and waivers to the airlines over the years (by some estimates in excess of $200,000,000), no similar benefits have been provided to concessionaires especially during their time of greatest need, i.e. the events of September 11 and subsequent events of the Iraq War and severe acute respiratory syndrome. Two nationally recognized experts during the 2003 sessions testified that from its reported $575,000,000 in unrestricted surplus funds, the airport system could afford to provide relief to airport concessionaires. These experts also recognized that the relief being provided was consistent with and, in at least one case, far less than the relief provided by one major airport in the United States that allowed concessions to terminate their contracts without penalty. These experts pointed out that Hawaii's airport concessions are very unique in generating about sixty per cent of airport revenues when concessions at most other airports generate about twenty per cent of those revenues.

The legislature believes that the State as a landlord must set an example and be fair to all of its airport tenants. It should not seek or support favoring various tenants over others by providing relief opportunities and benefits to some airport tenants and not others who are in dire need of relie1f for survival and who historically have contributed sixty per cent of all airport revenues. This fairness helps to correct Hawaii's negative image and seeks to promote Hawaii as a reasonable and fair state to do business.

In addition, the legislature finds that fifteen or more airport concessions did not have multi-year contracts but rather month-to-month contracts since their long-term contracts had expired more than one year prior to the events of September 11, 2001. Many of these concessions had been on month-to-month contracts for two or more years and contrary to state policy and law that require such contracts be for no longer than one year and put out to bid for multi-year contracts. These fifteen or more concessions have been allowed to escape any dire consequences due to the events of September 11, 2001, the Iraq War and severe acute respiratory syndrome since their month-to-month contracts allow them to terminate their contracts on thirty-day notice without penalty if they could not afford or do not want to continue paying their full rents to the State. By failing to follow public policy and state law, these fifteen or more concessions benefited from the actions by the State as its landlord. For the State to ignore public policy and to favor such concessions in this way and not seek to provide fair relief to qualified concessions on multi-year contracts has not been fair treatment to all airport tenants by the State as a landlord. For the State to demand that such multi-year tenants suffering operational losses due to the events of September 11, 2001 pay fill rent or risk being evicted, forfeiting their bond/deposit and being barred from doing business with the State for five years is not fair treatment of all airport tenants by the State. Due to the State's failure to follow public policy, it has allowed certain airport tenants to receive benefits that it has not been willing to extend to other tenants.

The legislature finds that as a landlord, the public expects the State to treat all of its airport tenants fairly and the State must seek to do so. If the State, by failing to follow public policy, has allowed fifteen or more tenants, if they so desire, to escape eviction by the State without penalties following the events of September 11, 2001, to be fair, the State must likewise afford qualified airport tenants on multi-year contracts a similar opportunity. The legislature supports fair treatment by the State of all airport tenants. The public expects public policy and state laws to be followed by the State in its dealing with all airport tenants.

In keeping with the foregoing, the legislature last session provided fair relief to qualified multi-year airport tenants seeking rent relief due to the events of September 11, 2001. However, the governor vetoed the bill in spite of the fact that her administration indicated that one or more concessions on multi-year contracts may be permanently damaged and that a bill may be necessary to provide added authority and flexibility for relief. Since vetoing the bill, the governor and her administration, to their credit, have managed to provide relief to most of the concessionaires who qualified for relief. However, one or more qualified concessions have not been provided relief by the State in spite of the many months that have passed since the last legislative session.

The purpose of this Act is to provide additional authority that will allow the State and such concessionaires to reach an agreement as to relief and to provide a mechanism for resolving their differences if an agreement cannot be reached.

Concessions who have received additional relief after the regular session of 2003 or whose sales have increased significantly since September 11, 2001, will not qualify for relief under this Act. One such concession that received relief and does not qualify for relief under this Act is Duty Free Shoppers Group Ltd. (DFS) who testified and stated that if it negotiated relief with the State, it had no objection to the State being more generous to smaller business concessions needing relief.

The only concessions entitled to relief under this Act are concessions that previously qualified for relief due to the events of September 11, 2001, by suffering a reduction in gross receipts of fifteen per cent or more and who have continued to suffer a reduction of gross receipts of fifteen per cent or more. Thus, such concessions appear to be permanently damaged due to the events of September 11, 2001, due to new federal security measures, which in part now require a person to have a plane ticket before being allowed to shop or eat at airport concessions.

During the continuing relief period provided for in this Act, and if the department of transportation and concessionaire cannot reach an agreement as to payment of only percentage rents, the department may either terminate the concession contract or continue to waive the guaranteed rent payments and allow the concession to remain in business. This option will ensure some continuing income to the department if it cannot find someone willing to pay more rent and replace the concessionaire.

While the concessionaire is receiving relief, the department shall have the option of terminating the concession agreement at any time. With this option to terminate, the department 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 rent.

Obviously, a concession will seek to avoid having its contract terminated by someone willing to pay more rent and thus will try to pay maximum rents to the State. 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 the terms of this Act, the concessionaire shall have no recourse against the department for any and all such damages and losses. However, upon termination, the concessionaire will 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.

If a concessionaire's contract is terminated by the department, it would be allowed to compete with others for a new contract by way of a public-sealed bid process or revocable permit. 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 by way of a revocable permit 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.

If the department does not have someone willing to pay more rent and wants the concession to remain in business and service the traveling public, this Act provides that if a fair percentage rent cannot be agreed upon by the parties, the department must either terminate the concession contract or require the concession to remain in business at a no-profit, break-even basis with the understanding that the concession contract may be terminated by the department at any time. The department is assured of continuing income until it can find someone wil1ing to pay more rent. If the parties cannot agree on what is appropriate rent on a no-profit, break-even basis, this Act provides that a court appointed arbitrator shall expeditiously resolve all such disputes and thereby avoid costly and lengthy court trials and appeals which could take many years to resolve.

The legislature further notes that various concerns have been raised by the Federal Aviation Administration regarding legislation guaranteeing profits to concessionaires, providing relief to concessionaires at below fair market rents, and providing permanent relief to concessionaires. Clearly, that is not the intent, nor the meaning of the language under this Act. This Act seeks to address the concerns expressed by the Federal Aviation Administration. There are no guaranteed profits to a concession in this Act since, if the State cannot reach an agreement with the concessionaire, it can terminate and re-bid the contract. This is clearly not attractive to any ongoing concessionaire.

Further, rent relief is not being provided to the concessionaire at below fair market value as the Federal Aviation Administration suggests, since the department at any time can terminate the concession contract if someone is willing to provide more value by paying higher rent.

Finally, this Act does not provide permanent relief because relief is provided only until gross receipts return to pre-September 11, 2001 levels, and the department may terminate the concession any time during the relief period. Given the foregoing, and the facts that:

(1) The Denver airport has let concessionaires terminate their contracts without penalty at the option of the concessionaire;

(2) Rather than going to court, Los Angeles airport provided relief to a concessionaire to the end of its term in 2005 with a possible two-year option to extend;

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

(4) The Dallas, Portland, and many other airports, while providing relief to their concessionaires, also raised landing fees;

the legislature finds that this Act is within the bounds of the Federal Aviation Administration 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, by causing them to forfeit their security and concession bonds and be barred from doing business with the State for five years.

The governor and department of transportation are requested not to collect guaranteed rents from qualified concessionaires still in need of relief following the expiration of Act 15, Third Special Session Laws of Hawaii 2001, on April 30, 2002. The governor and department are urged to provide relief to qualified concessionaires in accordance with this Act.

It is not the legislature's intent to interfere with any claims or ongoing negotiations between the concessionaires and the department. However, the parties acknowledge that such negotiations may not result in an agreement and it would be harsh to unfairly punish the concessionaires in the event no agreement is reached, by demanding the concession's performance bond and barring it from doing business with the State for five years. The legislature has the authority to grant relief where it deems such relief appropriate. Such negotiations may continue to take place after the legislature has adjourned, and the department may ask the governor to veto this measure if it so chooses. This Act, however, provides authority to the department to assist in its negotiations that it may not have pursuant to the terms of its agreements with concessionaires, which appear to provide limited alternatives to providing relief.

In summary, the purposes of this Act are to:

(1) Provide retroactive relief for previously qualified airport concessions still suffering from the terrorists events of September 11, 2001, who have not negotiated relief with the department and whose gross receipts are still reduced by fifteen per cent or more when compared to pre-September 11, 2001, gross receipts;

(2) Allow airport concessions 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;

(3) To ensure that the department as a landlord treats all of its airport tenants fairly and does not, contrary to public policy, provide benefits to some tenants while not providing similar benefits to other tenants;

(4) To clarify that lei vendors may also sell Hawaii floral products;

(5) To provide the department of transportation with flexibility to negotiate lei greeting service contracts;

(6) To clarify that the period from which relief may be measured is the date a person submits a bid, since tragic events such as a war in Iraq and severe acute respiratory syndrome can take place after a bid is submitted;

(7) To provide flexibility to the department so that it may grant economic relief to concessionaires if certain conditions are met; and

(8) To give the department flexibility to further extend revocable permits for an additional period of up to one year, when the director of transportation determines that such additional time will allow the department to solicit and obtain more favorable bids or proposals.

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[;], which include Hawaii floral products and lei greeting services;

(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 by 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) relating to economic emergency relief."

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 adversely affected by construction work, if during the term of the contract (including contracts [which] that 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] from the date the concessionaire [has been in the business,] submitted its bid to the start of the period, 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] that 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 emergency relief, if a public airport concession contract has suffered a reduction of fifteen per cent or more in gross receipts for a period of sixty days or more, computed on the average gross monthly receipts for the twelve months immediately prior to the date relief is requested or from the date the concessionaire submitted its bid to the start of the period, whichever period is shorter, and that reduction was substantially caused by a reduction in the eastbound or westbound 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, including, without limitation, by waiving guaranteed rents and collecting during the period of relief only percentage rents as set forth in the concession contract or rents less than those percentage rents, or by providing other relief."

SECTION 4. An airport concession that qualified for and received relief pursuant to Act 15, Third Special Session Laws of Hawaii 2001, and who meets the conditions of this Act shall be entitled to further and other relief retroactive to September 11, 2001, as follows:

(1) If the concession suffered a reduction of fifteen

per cent or more in gross receipts for a period of seven hundred twenty days or more starting on September 11, 2001, computed on the average gross monthly receipts for the six months immediately prior to the seven hundred twenty day period or as long as the concessionaire has been in business under its current contract, whichever period is shorter, and that reduction was substantially caused by a reduction in the eastbound or westbound 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, or was substantially caused by new security measures required by the federal government after September 11, 2001, and the concessionaire has not:

(A) In writing modified or rebid its contract

with the department which resulted in an increase in its gross receipts reported or a reduction in its rents owed to the department during the sixty day period following September 11, 2001;

(B) Following the end of the regular session of

2003 in exchange for certain relief with the department, agreed in writing not to accept further relief for itself or any of its other concessions in Hawaii; or

(C) Entered into a revocable permit with the

department after May 1, 2002, when the last relief provided by the department ended; the state official may modify the concession contract, as agreed to with the concessionaire, by granting relief to the concessionaire, including, without limitation, by waiving guaranteed rents and collecting during the period of relief only percentage rents as set forth in the concession contract, by waiving contract requirements, and also by extending the term of the contract for a period not to exceed two years at mutually agreed to rents and terms;

(2) If the State and concessionaire cannot agree on relief, the State may either:

(A) Terminate the concession contract and issue a new contract in accordance with this chapter and following reasonable notice to the concessionaire; or

(B) 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. The difference between monthly income and expenses for the concession, if any, shall be paid as rent to the State with no profit to the concession. Even if monthly expenses should exceed income and the concession suffers a monthly loss, the concessionaire shall continue to pay monthly rent to the State at an amount to be determined by a court appointed arbitrator, as described in clause (ii); provided that the rental amount for the month of those losses shall not exceed thirty-three per cent of the applicable percentage rents for gross receipts as set forth in the concession contract; and provided further that if the rental payments during those months of losses continues for a period more than six consecutive months, any time after the effective date of this Act, the concessionaire, after at least thirty days advance notice to the State, may terminate its contract unless some other agreement as to rent or other relief is mutually agreed to between the concessionaire and the State.

(i) In case of termination pursuant to this paragraph, the concessionaire shall have no right to assert any claims against the State provided the concessionaire shall be entitled to the rights and benefits set forth in paragraphs (6) and (7) relating to termination of a concession contract.

(ii) In accounting for the difference between income and expenses, and the amount to be paid to the State with no profit by the concessionaire, historical and reasonable administrative and support expenses may be claimed by the concessionaire. If the State and concessionaire cannot agree as to the amount of the relief or the amount of the rent that should be paid to the State on a break even, no profit basis, the amount of relief or rent 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 with consideration of applicable industry practices for such a concession. The accountant shall have no conflict of interest and shall be selected by the circuit court of the circuit in which the concessionaire is situated. The decision of the arbitrator shall be final and binding unless an abuse of discretion can be clearly demonstrated. The reasonable fees and costs to be paid to the arbitrator by each party shall be decided by the arbitrator with any and all disputes as to the fees and costs decided by the circuit court. All documents and information exchanged between the parties, the arbitrator, and the circuit court containing business, proprietary, and commercial information shall be kept confidential in accordance with applicable state laws. Any and all disputes relating to the selection of the arbitrator, the arbitrator's handling of the arbitration process and decision, enforcement of the arbitrator's decision as a judgment in a court of law, and all matters related thereto shall be decided by the applicable circuit court;

(3) The period of relief provided under this section shall commence with the first day of the seven hundred twenty day period demonstrating a reduction of at least fifteen per cent in gross receipts as set forth in paragraph (1) 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;

(4) Throughout the period of relief, the concessionaire shall provide the State monthly with a written report supporting its request for present and continuing relief. In accounting for that relief, the State shall offset the relief received by the concessionaire pursuant to Act 15, Third Special Session Laws of Hawaii 2001, together with any insurance or federal benefit or assistance received or anticipated to be received by the concessionaire for the particular concession seeking relief;

(5) If a concessionaire requests relief from the State pursuant to paragraph (1), as a condition for that relief, the State, following reasonable notice, may terminate the concession contract any time during the period of relief and require the concessionaire to vacate the concession premises. A concessionaire whose contract is terminated pursuant to this paragraph or paragraph (2) shall have no claim for damages or losses against the State for losses due to equipment leases, vehicle leases, warehouse leases, or any other reason 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 paragraph (1) from the State may agree with the State to terminate the concession contract on terms mutually agreeable to both parties;

(6) Upon termination in accordance with paragraphs (2) and (5), 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. As to rents due and owing to the State as a result of termination of the concession contract by the State pursuant to above paragraphs (2) and (5), or termination provided in paragraph (8) a concessionaire whose gross receipts suffered a reduction of fifteen per cent or more, as set forth in paragraph (1), shall pay the State as rent only the amounts set forth in paragraph (2)(B) from September 11, 2001, up to the time the concessionaire vacates the concession premises;

(7) 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;

(8) 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 the State cannot provide relief in accordance with this section, then the concessionaire's contract with the State shall be immediately terminated, and the security or collateral as described in paragraph (6) 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 that termination, or other termination as provided for in this section, the concessionaire shall not be deemed in default and shall not be barred from doing business with the State for five years as provided in section 171-13, Hawaii Revised Statutes; and

(9) 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:

(A) The reasons for granting relief;

(B) The names of businesses primarily benefiting from such relief;

(C) The benefits provided by any insurance or federal agency;

(D) The amount of relief; and

(E) The source of funding for the relief.

SECTION 5. Notwithstanding section 102-2(b)(7), Hawaii Revised Statutes, and given the recent incidents of the war in Iraq and severe acute respiratory syndrome, the department of transportation may continue to issue revocable permits for an additional period of up to one year when, in the assessment of the director of transportation, such additional time will allow the department to solicit and obtain more favorable bids or proposals.

SECTION 6. Concessionaires receiving relief pursuant to section 4 of this Act may not receive duplicate relief or benefits under any other provisions of this Act.

SECTION 7. For purposes of qualifying for and receiving economic relief under section 4 of this Act, only a concessionaire who qualified for and received relief pursuant to Act 15, Third Special Session Laws of Hawaii 2001 and who meets the conditions of this Act shall be deemed qualified.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 2004; provided that sections 4, 6, and 7 shall apply retroactively to September 11, 2001.