Board of Directors Presiding Judge Mary Ann Leffel, Chair Gary Cursio Monterey County Superior Court Carl Miller*

Enplanements for the years 2014-2018 have consistently fallen short of the estimates used in the 2015 AMP. This has resulted in a calculated shortfall of $100,000 to nearly $200,000 each year in available AIP grant funding, with similar shortfalls in available PFC's. T (831) 648-7000 F (831) 373-2625 200 Fred Kane Drive, Suite 200 W www.montereyairport.com Monterey, CA 93940 The Honorable Julie R. Culver July 15, 2020 Response: Agree in part; Disagree in part. The enplanement forecast in the AMP is a federal mandate that is required as part of the overall FAA process. The AMP numbers are not intended to be used, and are not used, for any debt service calculations. The MPAD agrees that the annual enplanement totals have not aligned with the forecast in the 2015 AMP. However, the Grand Jury statement incorrectly assumes that the AMP forecast will be used throughout the financing process for any new capital project. New forecasts are required for any debt financing process related to a capital project. At the time that the financing is contemplated, a new and standalone financial analysis will be conducted to determine the level of debt that can be supported by PFC revenues at the time the actual lending will occur. It is important to note that MPAD has affirmatively and consistently maintained the position that no capital project contained within the AMP program will be undertaken unless and until all funding sources have been identified and secured.

Even without the funding shortfall noted in F1, sources of funding for the $62 million or more in local share costs have not been identified. As stated in the AMP, these funds are primarily for the construction of the new passenger terminal building. This was concerning to the Civil Grand Jury because the Board has not effectively communicated to the taxpayers that this large funding gap looms, and the taxpayers within MPAD are likely not aware that the solution to the unfunded portion may include additional taxes. Response: Agree in part; Disagree in part. While the MPAD agrees that complete funding sources will need to be identified for all components of the AMP program, the MPAD continues to maintain that no capital project exhibited as part of the AMP program will be approved by the Board or undertaken until and unless all funding sources have been identified and considered. It is important to note that the MPAD enabling legislation does not authorize parcel tax increases or the issuance of taxpayer secured debt to pay for airport district operations or capital projects. As the Grand Jury highlighted in their report, in 2019 the MPAD retained the services of a very qualified and respected financial planning consultant and has begun the process of developing its financial plan for each component of the overall CIP program. As the results of the financial planning efforts become known to the MPAD, that information will be shared with the Board of Directors and the general public through the traditional and required public processes and forums including properly noticed public Board Meetings and the publicly available website of the MPAD at www.monterevairport.com. Any debt, if issued by the MPAD to fund capital projects, would be securitized with current MPAD revenues, such as Passenger Facility Charges ("PFCs") or Customer Facility Charges ("CFCs"). The risk associated with PFC or CFC backed facility bonds is first borne by the general revenues of the MPAD, and then by the bondholders. At no time, and under no The Honorable Julie R. Culver July 15, 2020 circumstances, would the risk of these types of revenue bonds be shouldered by the taxpayers living within the jurisdiction of the MPAD.

The number of enplanements has been inconsistently reported in MPAD's financial statement package. This is a critical financial metric used to forecast available AIP grant funding available and should be as clear and accurate as possible for the public, especially those who live within the boundaries of the MPAD. Response: Disagree. The manner in which the MPAD reports enplanement numbers in prepared financial packages is consistent with Generally Accepted Accounting Principles ("GAAP"), as required during the audit process. It is important to note that there has always been, and will continue to be, discrepancies between the passenger data as reported by the MPAD and the passenger data that the airlines report to the Department of Transportation ("DOT"). The MPAD receives revenue and nonrevenue generating enplanement/deplanement data directly from the airlines monthly in mixed formats which are then summarized in various reports. The DOT, through their regulatory reporting requirements, has a much broader view of passenger activity. The FAA utilizes the DOT data to calculate AIP grant funding opportunities. Annually, the MPAD is provided with an Enplanement report prepared by DOT, rather than by the air carriers. The MPAD is afforded the opportunity to compare and comment on any discrepancy between the information provided in the annual DOT report and the information received monthly from the local airlines. Any material discrepancy in the various reports, whether timing related or report related, is reconciled annually in the required financial audit of the MPAD's financial affairs. The MPAD is confident the data reported is as clear and accurate as possible and is consistent with all industry accepted practices and GAAP requirements.