"Anchorage: Costly, tardy airport project needs money or scaling down"

Tuesday, March 25, 2003

Costly, tardy airport project needs money or scaling down
OVERRUNS: Officials seek $63 million more in bonds, but some lawmakers balk.
By RICHARD RICHTMYER
The Anchorage (AK) Daily News


A massive construction project at Anchorage's international airport is
facing $186 million in costs over its original budget, and state
transportation officials say they'll need authority to borrow more money to
finish the work.

But some state lawmakers, who must approve new borrowing, and local
airlines, which ultimately would foot the bill, say the project is out of
control and needs to be scaled back.

The project involves a wide-ranging airport makeover that includes terminal,
road and parking improvements. The centerpiece is a new 447,000-square-foot
Concourse C that will house nine jet gates, a ticketing area, a baggage
claim, a security screening hall, offices and operations support space.

The construction originally was expected to cost $230 million. Now the total
estimated cost has risen to $416 million and the project is about two years
behind schedule, according to Dave Eberle, the state Transportation
Department regional director who is in charge of the project.

The construction has been beset by cost overruns and delays since the start
in 1999. A flawed design, a decision to start construction before permits
were in hand, post-Sept. 11, 2001, security changes and an expansion of the
project all contributed.

Originally slated to be completed and operating by last summer, it is now
expected to open in May 2004. Construction of the concourse was delayed more
than a year after the Anchorage Building Department in spring 2000 refused
to permit most of its structural design over worries that it could collapse
in an earthquake.

That delay, which Eberle blamed on flaws in the original plans submitted by
Coffman Engineers, the firm hired by the state to design the building, added
about $33 million to the total cost of the concourse, he said.

"It's our position that the delay related to permitting ties back to some
fundamental design errors created on their part, which gave rise to all
these added costs," he said.

The Transportation Department already had ordered some of the materials, and
some of the initial work had begun on the new concourse before the city had
issued the permits.

Will Veelman, a principal at Coffman in charge of the firm's Anchorage
operations, declined to comment.

Eberle also blamed much of the cost overrun on security-related redesigns
made after the 2001 terrorist attacks.

"Osama bin Laden is responsible for a good share of it," he said. The
Transportation Department estimates that $23 million of the added cost of
Concourse C is related to the increased security requirements.

Another $22 million was tacked on to the total cost of the concourse after
the planners added 90,000 square feet to its original layout.

The largest chunk of the overrun is $108 million for the reconstruction of
the airport's existing main terminal, most of which is related to seismic
upgrades and security measures, according to Eberle.

"Until we actually got into the building and started the design, we didn't
know the extent that was going to be required," he said.

With about 57 percent of the total project complete, the Transportation
Department so far has spent about $175 million of the $259 million currently
available for the project.

About $233 million of that came from revenue bond sales and interest earned
on investing the bond proceeds before spending them. The remaining $26
million came from federal transportation programs.

Eberle said the Transportation Department will ask legislators for approval
to sell another $63 million in revenue bonds this year to cover part of the
growing costs.

While it is a state entity, the airport is self-funded by passenger, airline
and tenant fees.

Though the airport doesn't tap the state treasury to fund its operations,
some lawmakers are concerned about the cost overruns and are cautious about
approving more borrowing in light of the current financial situation in
which many of the airlines find themselves.

"This project is out of control," said Sen. Donald Olson, D-Nome. "Here
we've got a project that's over budget, behind schedule, and they're asking
for more money."

Olson was one of several lawmakers who participated in a joint Senate and
House Transportation Committee meeting this month during which
Transportation Department officials detailed the scope of cost overruns.

He said he was worried that project managers were relying too heavily on
revenue streams that might dry up.

"What happens if some of these airlines go broke? How are they going to pay
for these improvements?" Olson said.

As for the airlines, the idea of borrowing more money to cover the rising
costs of the terminal redevelopment project isn't sitting well with some of
them. As users of the airport, they pay fees that repay the bonds.

Alaska Airlines, the airport's largest tenant, proposes that the state defer
other construction and reduce the scope of the terminal redevelopment
project until it gets a handle on the overruns.

"The main thing that we're hoping to see is the deferment of other capital
projects, and we're talking continually with the (Transportation Department)
about that," said Jack Walsh, a spokesman for the Seattle-based airline.

Northwest Airlines, another major tenant, urged the state to work with the
airline industry to get the project back within its original budget.

Northwest last week laid off nearly 5,000 employees and reduced its flight
schedule by 12 percent, blaming a drop in passenger demand due to the war in
Iraq. The cuts did not affect Anchorage flights.

"The airlines cannot afford increased expenses at any airport in light of
the current economic instability," said Mary Stanik, a spokeswoman for the
St. Paul, Minn.-based airline.

Attached Photo:

Redevelopment at the airport is $186 million over budget.

anchorage.jpg