So, if the Kansas City Council and KCI developer Edgemoor finally agree on a memorandum of understanding Thursday, everybody lives happily ever after, right?
Think of the memorandum of understanding, or MOU, as an engagement. And the actual KCI groundbreaking, scheduled for the fall, as the wedding.
But we all know how engagements can go.
For all the dithering and drama surrounding the MOU, it is actually only a starting point –– an outline of everything that has to happen before construction can begin this fall.
“It’s a framework for all the work that needs to take place,” said attorney Charles Renner, who represents the city in its airport negotiations.
Edgemoor has to design a significant portion of the new KCI terminal, come to agreement with the city and airlines on a price, then borrow the money to pay for it. Among the city’s obligations is to reach agreement with the airlines on how much they are willing to pay to use the new KCI and do its best to attract federal dollars to the project.
But once the MOU is signed, the city can exit the agreement for any reason. That window is open until Sept. 30, the date tentatively set for formal closing of the deal. If the memorandum is approved by a slim margin, say 7-6 or 8-5, it means the partnership will be only a vote or two away from dissolution.
Edgemoor can also break the engagement, but only if the city commits some serious breach or wrongdoing.
In any event, the city is obligated to pay Edgemoor for costs it has run up since it was selected as the city’s airport developer on Sept. 21. This includes legal fees, surveys, testing, consultants, travel and financial advisers, up to a limit of $23 million.
So that the city doesn’t have to start from square one with a new developer, it would receive Edgemoor’s “work product,” meaning designs, specs, drawings, environmental studies and the like.
Here’s a rough –– possibly very rough –– schedule of what is supposed to happen between now and closing.
April: Edgemoor is expected to complete enough of the terminal design (about 30 percent) to present a lump sum cost. This means Edgemoor and its construction partners, Clark, Clarkson and Weitz, commit to finishing the terminal for a fixed cost, covering labor, materials and profit. Any overruns would be their responsibility.
While $1 billion is the figure most often cited, it is also a number that was developed in 2015, which means it has been overtaken at least somewhat by inflation. Look for the price to grow. If the council gets sticker shock, it could send Edgemoor back to try again, or pull the plug.
March-April: Around the same time, Edgemoor will be putting together a financial plan. The developer promised a “debt only” model, which means it will borrow all of the money for construction through the sale of bonds. This method is supposed to be less costly than using equity from private investors.
Edgemoor is expected to use conduit financing, which allows a private company to sell bonds through a public agency. Under such a set-up, the agency functions only as a go-between, or conduit, between the bond purchasers and the company. It has no responsibility if Edgemoor defaults. Only airport revenues will be used to pay off the bonds.
No final decision has been made on which public agency might serve as the conduit. Possibilities include Port KC, the city’s port authority, the KCATA (the Kansas City Area Transportation Authority) or the Platte County Economic Development Corp.
June-July: Edgemoor and city officials promise to brief the council no later than July 1 on the progress of the project.
August: The city will finalize a new “use and lease” agreement, establishing what the airlines will be willing to pay to use the new KCI. It will set price tags on everything from landing fees to rental rates for terminal space and overnight parking for planes.
The current agreement pays the city’s Aviation Department $33 million a year. Aviation director Patrick Klein said the new pact will be for considerably more money, possibly around $85 million. Some of that revenue will be used to pay off Edgemoor’s debt. The agreement will be reviewed by the City Council.
September: After a “road show” to woo investors, Edgemoor sells the bonds. Construction costs are funded, and the parties close the deal. A final, detailed development deal is struck, and demolition and construction begin soon after.