Aug. 20, 2003 – The Port Authority governing board voted unanimously on Wednesday, on the recommendation of VIPA staff, to roll back, effective Oct. 1, the controversial 25 percent increase in landing and passenger fees it imposed last Feb. 1.
The action came after the board decided to use money from its Sinking Fund to liquidate the remaining $6.1 million of the authority's bond debt from the early 1990s. Those bonds were floated to fund the construction of the new Cyril E. King Airport terminal, which replaced an old World War II hangar.
The Sinking Fund is an investment account of reserve funds established years ago with revenues generated by VIPA's Marine Division and earmarked for capital projects.
Dean Plaskett, commissioner of Planning and Natural Resources, offered the motion to decrease the airport fees, and Kent Bernier, economic adviser to the governor, seconded it.
Pamela Richards, who as Tourism commissioner chairs the VIPA board, said: "We made this decision in response to a reluctant increase of the fees which we had to do to satisfy requirements of the bond agreement."
The bond note has been costing VIPA $2.2 million a year in principal and interest. Darlan Brin, executive director, said the lump-sum payout will put some financial restraints on the authority for Fiscal Year 2004, which begins on the date that the fees are to be reduced. However, he said, "our budget has been adjusted to reflect that anticipated reduction."
Brin said the rollback and other incentives under consideration could lead to an increase in air traffic which could pump new revenues into the Port Authority's coffers. On the other hand, he said, the expenditure of the reserve funds could result in a freezing of salaries for all staff.
"We will have to meet and discuss this with the unions," he said, noting that VIPA's bargaining agreements "call for salary increases in the next fiscal year."
Fee increases slow incoming, quick to spark protest
Thirteen months ago, then-executive director Gordon Finch said VIPA was looking at a $5 million shortfall for Fiscal Year 2002 and would have to raise landing fees to balance its budget. In September, plans called for 35 percent increases in landing and passenger fees. However, in the face of adamant opposition by airlines, the Port Authority board voted on Oct. 16 to postpone any such increases for six months and to tighten its budget belt in the meantime.
Just three months after that, the board — with Brin on board as executive director following Finch's retirement — reversed itself and voted on Jan. 29 to raise both fees by 25 percent effective three days later — on Feb. 1.
Reaction from the airline and hospitality industries was swift. American Airlines and Delta Air Lines vowed to cut service almost immediately and the executive director of the St. Thomas-St. John Hotel and Tourism Association said the result would be fewer flights, fewer tourists, fewer tourist dollars and more unemployment. US Airways, United and American Eagle joined the chorus of protests.
The VIPA board met again with the airlines on Feb. 26, but this time it didn't give an inch, except for voting, at Brin's request, to reduce the salaries of 63 management employees. In February, American, long the territory's dominant mainland carrier, announced cutbacks in service. In March, American announced it would shut down its ground operations at Henry E. Rohlsen Airport on St. Croix as of April 15 and contract them out to its subsidiary, American Eagle.
Then American Eagle announced it would discontinue all service between St. Thomas and St. Croix as of May 1. American subsequently announced it also was closing down ground operations at Cyril E. King Airport, effective April 26, again contracting the work out to American Eagle, which continued to provide service connecting both airports with San Juan.
Meanwhile, Seaborne Airlines, with a fleet of amphibious aircraft that land on water, not at the airports, expanded its inter-island schedule and added service between Charlotte Amalie and Frederiksted — where the Legislature meets on St. Croix. Recently, Seaborne announced it will be adding more flights in the fall.
In June, in the hopes of attracting new air service, the VIPA board voted to waive passenger and landing fees over the next year for a second stop in the territory made by any flight coming from outside the territory.
Hospitality industry insiders have noted all along that the cutbacks in air service were not exclusively due to the Port Authority fee increases — that the general economic straits in which the airlines have found themselves since the terrorist attacks of Sept. 11, 2001, were also a factor.
VIPA said it was justified in raising the rates on the basis of the bond agreement to which the airlines are signatories. The agreement provides for increasing fees to balance a deficit, as well as for decreasing them when revenues exceed expenses. And, officials noted, such a decrease was, in fact, implemented several years ago.
Lieutenant governor takes credit
On Wednesday afternoon, Lt. Gov. Vargrave Richards, serving as acting governor in the absence of Gov. Charles W. Turnbull, who has been off-island for a week and a half, claimed credit for the landing-and passenger-fee rollbacks.
A statement from Richards' office said that he had written to Pamela Richards on Tuesday asking that "she add to the meeting agenda the previously discussed rollback and that the board pay special attention to the plight of St. Croix."
He stated that he and the Tourism commissioner had discussed the need to move swiftly on the matter "in the presence of Gov. Turnbull and other VIPA board members."
Had the board not taken the action, the acting governor said, "the potential further negative effect on the economy could only serve to undermine recovery efforts, and the entire territory would suffer as a result."
He said that St. Croix, especially, stands "to profit greatly" by the move. "The rollback can only improve our relationship with the airlines," he said. "We must pave the way for redeveloping good relationships with the airline industry to achieve mutually beneficial ends."
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