It seems miraculous. Even as a deep recession froze construction around the region, Sacramento County pulled off the biggest public works project in local history, a $1 billion airport expansion.
The bold effort has awarded travelers with a gleaming palace, set to open Oct. 6. But it also has saddled the airport with $950 million of debt a sum that will leave airport finances on the thin edge for years if Sacramento doesn't snap out of its economic doldrums soon.
Who will pay? Travelers need look no further than the ticket in their hand. One-third of the cost will be shouldered by passengers through an existing $4.50 ticket surcharge.
The airlines will kick in the second largest portion via rents and fees to the airport. People who park their cars at the airport also will pay a sizable sum. Supplemental revenues will come from federal grants, food and store concession leases, and car rental surcharges.
The next five years will be critical, a review of documents and interviews with bond and airline experts indicates.
By 2014, the airport's expected revenues, after operating expenses, will be just 14 percent higher than its required annual debt payment. Airports in Sacramento's credit category typically have 33 percent more net income than debt service.
Bond expert Marilyn Cohen, president of Envision Capital Management in Los Angeles, said Sacramento's 14 percent margin will be "skinny."
"There is a bit of wiggle room," she said. "Unless we are going into double-dip recession, they probably will scrape along."
Airport officials say they're confident their financing plan is solid and can weather economic turbulence.
"I'm optimistic," said county airports director Hardy Acree. The project had the misfortune of breaking ground just as the dipping economy sent air travel into a tailspin. Acree said there was nothing to do but push forward. He predicts a turn-around soon. "Our (region's) recovery will be a bit slow, but we will grow ourselves out of this."
The airport has set aside tens of millions of dollars in reserve accounts. If needed, the airport could cut annual operating expenses more, possibly by privatizing some work, Acree said.
Analysts point out that several years of tight finances are typical for airports after major facility upgrades. It causes rating agencies some unease, however.
Moody's rating agency last year listed the airport's short-term financial outlook as "negative." It gave the airport positive marks, though, for keeping the expansion project on time and budget. It also noted that, long-term, the region is expected to grow.
Standard & Poor's analysts cited the airport's "very high debt burden" at the top of a credit report issued last month but nonetheless rated the airport's overall outlook as stable.
Although the airport is run by Sacramento County, its finances are separate, and the county general fund cannot be tapped for funds if the airport fails to make debt payments, according to bold-faced print in the airport loan documents.
Nor are airport facilities being used as loan collateral. But the airport's credit rating, and ability to borrow money for future projects, would be harmed if the airport couldn't maintain its payment schedule.
Fewer people flying
Much depends on when passenger numbers start growing again after three down years.
Airport officials predicted a slight rise this year, followed by increases in the 2 percent range the following few years. But ridership instead dipped slightly this year. Officials said the resulting loss of anticipated revenue was offset in part by lower-than-expected airport operations expenses.
National airports analyst Kurt Krummenacker of Moody's said industry projections are for ridership growth in the 1 to 2 percent range the next few years.
"We see pretty strong economic head winds," he said. "That will make it difficult for most airports to see any kind of significant (increase)."
Dropping passenger levels already have had a significant effect on the look of the new airport. Officials were forced during construction to scrap what was to be one of the airport's signature elements, a hotel on top of the terminal. "Very disappointing," Acree said. "But you move on."
They also postponed construction of a second multi-level garage.
Sagging passenger numbers aside, Sacramento officials say the airport needed to be modernized for current use and expanded for future growth. The 1967-vintage Terminal B complex, which closes Oct. 5, was deemed too outmoded to be renovated or expanded. Terminal A will continue to operate.
The new facility should be usable for the next half-century, officials said, with options for expansion. It boasts a four-story terminal with a vaulted atrium, a double-deck roadway and people-mover shuttles taking fliers on an elevated guideway to a new concourse building.
The new buildings will showcase local food, including an Old Soul cafe and bakery and a full-service Esquire Grill restaurant, as well as an $8 million art program.
Sacramentans who have gotten a sneak preview call the terminal impressive.
"You forget you're in Sacramento," said Doug Sanders, a SureWest sales manager. "It's kind of a surprise. It's world-class."
Shooting for the moon
Airlines, however, complained the facility is more expensive than needed. Airlines will pay about 26 percent of the expansion costs, making Sacramento among the most costly airports nationally for airlines in cost-per-passenger terms for at least several years.
After some sniping, airline and airport officials are negotiating a new lease agreement. Officials with Southwest, the airport's leading carrier, declined to discuss the issue but released a statement, saying, "We feel that a new lease deal is critical to our ability to be successful at Sacramento."
Airport executive Acree also declined to discuss the potential financial impact of those meetings.
In an interview in his office overlooking the airfield, Acree readily acknowledged he brought a "shoot for the moon" approach to the project, something he says Sacramento needs to do more often.
"I've never been any place that had so much to work with and did so little with it," he said of the region. "I wanted to raise the bar. I'm excited how this has turned out."