Comprehensive Annual Financial Report (CAFR) Analysis

The governmental entity selected by our group for the Comprehensive Annual Financial Report (CAFR) Budget Analysis project is the Dallas-Fort Worth International Airport, Texas (DFW). DFW, referred to as the DFW Metroplex, is the largest metropolitan area in North Texas.

Population

The Metroplex includes the cities of Dallas and Fort Worth as well as several smaller cities with populations greater than 100,000. The population is roughly 6 million citizens, making this the fourth most prevalent metropolitan area in the United States (DWF CAFR, 2007). The Metroplex accounts for 26% of the population and 27% of the labor force for the state. DFW supplies approximately 305,000 jobs annually with an economic impact to the metropolitan area of $16.6 billion. Dallas-Fort Worth was the quickest developing metropolitan area within the United States in 2007 with an increase in population of 162,250 (Clifford, 2008).

Government Structure

The Government structure of DFW is very unique. The Airport was created by a joint arrangement among two Cities, Dallas and Fort Worth, and is thereby governed by both cities and a Board of Directors (DWF CAFR, 2007). Several key documents outline how DFW controls manage business and financial dealings (DFW CAFR, 2007). According to the 2007 DFW CAFR,

DFW is a residual airport meaning Signatory Airlines reimburse the residual net cost of operating the Airport. The general ledger maintains a sequence of “cost centers” allowing accumulation of costs in order to establish sufficient fees to tenants, airlines and other airport users, the total will be equivalent to the amount of expenses to operate the airport, minus depreciation, debt service and debt service coverage will be included.

The airport is classified as an Enterprise and Pension Trust Fund. Had DFW received funding through taxes or other government generated funding it would not be classified as an enterprise fund. In addition, “although DFW refers to the term ‘fund’ assigning their resource and potential proceeds for use, the enterprise fund and doesn’t perform established ‘fund accounting’ regularly viewed by government organizations” (DFW CAFR, 2007). Instead, financials for both the Enterprise fund and Pension Trust Funds focus on measurements of economic resource and maintain the accrual basis of accounting. The primary fund for DFW is the operating account for which a budget is submitted for approval to the Board of Directors and the Cities annually. This is interesting because of the fact the airport makes use of a corporate management style with a CEO and Board overseeing operations while the cities themselves play a key factor in how the airport is run.

Budget and the CAFR

The management of DFW Airport sets an annual budget of estimated expenditures of the Operating Revenue and Expense Fund each year (frequently called the “102 Fund”). The 102 Fund is managed in accordance with the controlling documents and is where all day-to-day operations are accounted for. In addition, management determines how much of the anticipated expenditures and revenues will be allocated to each “cost center” for mandatory calculation of airline revenues (primarily terminal rentals and landing) essential for collection. This happens is “Landing Fee Revenue.” This pertinent information is reviewed by management to prepare the annual forecast and schedule of charges, rates and fees which are accepted by the Board, the source for billing tenants, airlines, and other airport users for services or goods used (DFW Budget, 2007).

According to DFW’s 2007 budget, landing fees and terminal rents were projected to decrease because of a decrease in overall expenses and an increase in non-airline revenue. Per review of DFW’s 2007 CAFR, actual landing fees and terminal rents were lower than budgeted by approximately $12 million. In addition, total budgeted operating revenues were budgeted at approximately $619 million but in comparison to the DFW’s 2007 CAFR, operating revenues stood at approximately $568 million, $50 million less than budgeted. With regard to the expense budget of Fund 102, budgeted expenses were approximately $619 million, but turned out to be $543 million.

Departmental budget is set annually and divided by the different divisions at DFW. Divisions are divided by major departments such as the legal, accounting, finance, marketing, and administration departments. Other departments include airport operations, revenue management, and audit services. Departmental budgets are presented using data from the prior two years and the current year.

The last section of DFW’s 2007 budget discusses the capital budget. Since control documents require DFW to collect “25% of accrued aggregate debt service for coverage as part of rates, fees, and charges each year, on the first day of the following fiscal year, any unused coverage balance is transferred to the appropriate capital improvement fund (CIF)” (DFW Budget, 2007). Excess revenues are “used for any extraordinary or major operation and maintenance expenses, repairs, or to pay debt service if the Airport is in default. Historically, the Airport has primarily used these funds for capital projects” (DFW Budget, 2007). These projects are disclosed in detail in both the 2007 Budget and CAFR for DFW.

Major Industries

DFW has a few major industries within the five terminals located at the airport. Each terminal contains numerous shops, restaurants, and bars for entertainment. The airport has incorporated two hotels on sight which include the DFW Grand Hyatt and the DFW Hyatt Regency hotels. The DFW Grand Hyatt is located in Terminal D of the airport, an international terminal. Across from Terminal C is the DFW Hyatt Regency hotel. Passengers from all five terminals have two ways to access both hotels easily, by the use of the “Skylink” automated people mover (a high-speed train that connects all five terminals) or the “Terminal Link” (a van service that operates throughout the airport). DFW made $155.5 million in revenues related to landing fees and operating revenues of approximately $568,000 for 2007.

Recently DFW agreed to a lease between the Airport and Chesapeake Energy Corporation to begin natural gas exploration on 18,000 acres owned by the airport, with the FAA approving the lease between all the entities involved. DFW was paid a non-refundable bonus of $185.6 million to drill for natural gas to be paid over two years starting in 2006 and 2007. DFW is also receiving a 25% royalty fee beginning 2008.

Demographic Information

Demographic information for the City of Dallas-Fort Worth International Airport is based between the cities of Dallas and Fort Worth and it is considered part of the international community.

In June 2007, DFW received an award for the ‘Highest Customer Satisfaction for Large Airports’ by J.D. Power and Associates, on behalf of airports who annually had 30 million passengers or greater. DFW was recognized by ‘Best Airport in the Americas’ by Airports Council International (ACI) as the individual airport to materialize in ACI’s topmost five ‘Best Airports Worldwide’ outside of ASIA (DFW CAFR, 2007).

The City of Dallas-Fort Worth, International Airport maintains a highly dynamic population based on the two cities, yet is constantly impacted internationally and has to combat the dramatic changes occurring in the airline industry. The Comprehensive Annual Financial Report shows DFW is capable as a city of managing their financial performance within their budget.