Microsoft Word - SFO FY23 Financial Statement MDA 12.20.23

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Financial Statements with

Schedule of Passenger Facility Charge Revenues and Expenditures

Schedule of Customer Facility Charge Revenues and Expenditures

June 30, 2023

(With Independent Auditor’s Report Thereon)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Table of Contents

Page

Independent Auditor’s Report 1

Management’s Discussion and Analysis (Unaudited) 4

Financial Statements:

Statement of Net Position 26

Statement of Revenues, Expenses, and Changes in Net Position 28

Statement of Cash Flows 29

Notes to Financial Statements 31

Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance

and Other Matters Based on an Audit of Financial Statements Performed in Accordance

with Government Auditing Standards 99

Independent Auditor’s Report on Compliance for Passenger Facility Charge Program and

Report on Internal Control Over Compliance Required by the Passenger Facility Charge

Audit Guide for Public Agencies 101

Schedule of Passenger Facility Charge Revenues and Expenditures 104

Notes to Schedule of Passenger Facility Charge Revenues and Expenditures 105

Schedule of Findings and Responses 106

Independent Auditor’s Report on Compliance for Customer Facility Charge Program and

Report on Internal Control Over Compliance Required by the Customer Facility Charge

Audit Guide for Public Agencies 107

Schedule of Customer Facility Charge Revenues and Expenditures 110

Notes to Schedule of Customer Facility Charge Revenues and Expenditures 111

Schedule of Findings and Responses 112

Crowe LLP

Independent Member Crowe

Global

INDEPENDENT AUDITOR’S REPORT

The Honorable Mayor and Board of Supervisors

City and County of San Francisco

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of the Airport Commission, City and County of San Francisco,

San Francisco International Airport, an enterprise fund of the City and County of San Francisco, California,

(the “Airport”), as of and for the year ended June 30, 2023 and the related notes to the financial statements,

as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material

respects, the financial position of the Airport as of June 30, 2023, and the changes in financial position and

its cash flows thereof for the year then ended in accordance with accounting principles generally accepted

in the United States of America.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of

America (GAAS) and the standards applicable to financial audits contained in Government Auditing

Standards (Government Auditing Standards), issued by the Comptroller General of the United States. Our

responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit

of the Financial Statements section of our report. We are required to be independent of the Airport, and to

meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our

audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our audit opinion.

Emphasis of Matters

As discussed in Note 1, the financial statements present only the Airport and do not purport to, and do not,

present fairly the financial position of the City and County of San Francisco, California, as of June 30, 2023,

and the changes in its financial position, or, where applicable, its cash flows for the year then ended in

accordance with accounting principles generally accepted in the United States of America. Our opinion is

not modified with respect to this matter.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in

accordance with accounting principles generally accepted in the United States of America, and for the

design, implementation, and maintenance of internal control relevant to the preparation and fair

presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are

free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes

our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore

is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards

will always detect a material misstatement when it exists. The risk of not detecting a material misstatement

resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,

intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered

material if there is a substantial likelihood that, individually or in the aggregate, they would influence the

judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.

• Identify and assess the risks of material misstatement of the financial statements, whether due to

fraud or error, and design and perform audit procedures responsive to those risks. Such procedures

include examining, on a test basis, evidence regarding the amounts and disclosures in the financial

statements.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the Airport’s internal control. Accordingly, no such opinion is expressed.

• Evaluate the appropriateness of accounting policies used and the reasonableness of significant

accounting estimates made by management, as well as evaluate the overall presentation of the

financial statements.

We are required to communicate with those charged with governance regarding, among other matters, the

planned scope and timing of the audit, significant audit findings, and certain internal control-related matters

that we identified during the audit.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s

discussion and analysis be presented to supplement the financial statements. Such information, although

not a part of the financial statements, is required by Governmental Accounting Standards Board who

considers it to be an essential part of financial reporting for placing the financial statements in an appropriate

operational, economic or historical context. We have applied certain limited procedures to the required

supplementary information in accordance with auditing standards generally accepted in the United States

of America, which consisted of inquiries of management about the methods of preparing the information

and comparing the information for consistency with responses to our inquiries, the financial statements,

and other knowledge we obtained during our audit of the financial statements. We do not express an opinion

or provide any assurance on the information because the limited procedures do not provide us with

sufficient evidence to express an opinion or provide any assurance.

Supplementary Information

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively

comprise the Airport’s financial statements. The accompanying schedule of passenger facility charge

revenues and expenditures and the schedule of customer facility charge revenues and expenditures, are

presented for the purposes of additional analysis and is not a required part of the financial statements. Such

information is the responsibility of management and was derived from and relates directly to the underlying

accounting and other records used to prepare the financial statements. The information has been subjected

to the auditing procedures applied in the audit of the financial statements and certain additional procedures,

including comparing and reconciling such information directly to the underlying accounting and other

records used to prepare the financial statements or to the financial statements themselves, and other

additional procedures in accordance with auditing standards generally accepted in the United States of

America. In our opinion, the schedule of passenger facility charge revenues and expenditures and the

schedule of customer facility charge revenues and expenditures are fairly stated in all material respects in

relation to the financial statements as a whole. The information marked “unaudited” has not been subjected

to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not

express an opinion or provide any assurance on it.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December 22,

2023 on our consideration of the Airport’s internal control over financial reporting and on our tests of its

compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.

The purpose of that report is to describe the scope of our testing of internal control over financial reporting

and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the

Airport’s internal control over financial reporting or on compliance. That report is an integral part of an audit

performed in accordance with Government Auditing Standards in considering the Airport’s internal control

over financial reporting and compliance.

Crowe LLP

Costa Mesa, California

December 22, 2023

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

The management of the Airport Commission (Commission), City and County of San Francisco, San Francisco

International Airport (the Airport or SFO), an enterprise department of City and County of San Francisco (the

City), presents the following narrative overview and analysis of the financial activities of the Airport for the fiscal

year ended June 30, 2023.

The Airport’s financial statements comprise the following components: (1) Financial Statements and (2) Notes

to Financial Statements. The Airport’s financial statements include:

The Statement of Net Position presents information on the Airport’s assets, deferred outflows of resources,

liabilities, and deferred inflows of resources as of the year end, with the difference between the amounts as net

position. Increases or decreases in net position may serve as a useful indicator of whether the financial position

of the Airport is improving or weakening.

While the statement of net position provides information about the nature and amount of resources and

obligations at the year end, the Statement of Revenues, Expenses, and Changes in Net Position presents the

results of the Airport’s operations over the course of the fiscal year and information as to how the net position

changed during the fiscal year. The statement can be used as an indicator of the extent to which the Airport has

successfully recovered its costs through user fees and other charges. All changes in net position are reported

during the period in which the underlying event giving rise to the change occurs, regardless of the timing of the

related cash flows.

The Statement of Cash Flows presents changes in cash and cash equivalents resulting from operating,

noncapital financing, capital financing, and investing activities. The statement summarizes the annual flow of

cash receipts and cash payments, without consideration of the timing of the event giving rise to the obligation or

revenue and exclude noncash accounting measures of depreciation or amortization of assets.

The Notes to Financial Statements provide information that is not displayed on the face of the financial

statements but is essential to a full understanding of the financial statements.

Highlights of Airline Operations at the Airport

Fiscal year 2022-23 passenger traffic at SFO concluded with approximately 47.1 million passengers, an

increase of 34.9% compared to the prior fiscal year (FY). Domestic enplaned passengers increased by 20.2%,

and international enplaned passengers increased by 101.0%. The year-over-year recovery was predominately

due to increased travel demand. Total cargo and U.S. mail tonnage decreased by 16.7%.

Published scheduled departing seats for SFO, Oakland (OAK) and Mineta San Jose International (SJC) were

26.1%, 17.4%, and 22.9% higher, respectively, for fiscal year 2022-23 compared to prior fiscal year. Total

scheduled departing seats for the Bay Area were 23.9% higher than the prior fiscal year.

4 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Passenger and Other Traffic Activity

The number of flight operations (takeoffs and landings) increased by 12.7% fiscal year over year. Aircraft

revenue landed weight, which affects revenue generated by landing fees, increased by 22.1% in comparison to

the prior fiscal year. Total airport passengers, which are comprised of enplaned, deplaned and in transit

passengers (defined as passengers who fly into and out of SFO on the same aircraft), were close to 47.1

million, which was 34.9% above last fiscal year. Overall enplaned passengers increased by 34.6% over the

prior fiscal year to 23.4 million. Domestic enplanements increased by 20.2% to 17.2 million, and international

enplanements increased by 101.0% to 6.2 million passengers. Total cargo and U.S. mail tonnage decreased by

16.7%.

The following table

presents a comparative summary of passenger and other traffic at the Airport for fiscal

years ended June 30, 2023 and 2022:

FY 2023 FY 2022

Flight operations (takeoffs and landings) 369,974 328,183

Landed weight (in 000 lbs.) 32,350,429 26,496,685

Total Airport passengers 47,052,180 34,890,102

Enplaned passengers 23,419,568 17,396,249

Domestic enplaned passengers 17,177,004 14,290,034

International enplaned passengers 6,242,564 3,106,215

Cargo and U.S. mail tonnage (in metric tons) 454,121 545,335

Passenger Traffic

Passenger enplanements in fiscal year 2022-23 increased by 34.6% from 17.4 million to 23.4 million. Domestic

passenger enplanements increased by 20.2%, and international enplanements increased by 101.0%. Overall

enplanements increased by 6.0 million passengers, comprised of 2.9 million in domestic and 3.1 million in

international enplanements. Passenger traffic continues to close the gap to pre-pandemic levels, and has

recovered 81.8%, with domestic and international recoveries of 80.6% and 85.3% respectively, compared to

fiscal year 2018-19 (pre-pandemic).

Except for Asia where COVID-19 restrictions were in place for a longer period of time, international sector

passenger traffic recovery was robust following the lifting and relaxation of COVID-19 restrictions worldwide,

with recovery of over 90.0% for all international regions. For fiscal year 2022-23, enplanements to Asia

increased by 199.6%, Europe increased by 84.0%, Latin America increased by 21.7%, Canada increased by

114.2%, Middle East increased by 44.4%, and Australia/Oceania increased by 272.4%, compared to fiscal year

2021-22.

Sources: Airport’s Analysis of Airline Traffic, Fiscal Years 2023 and 2022.

5 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

On a quarterly basis, enplanements increased by 55.7%, 35.5%, 39.0%, and 16.6%, relative to the same

quarter in fiscal year 2021-22.

Overall airline seat capacity increased by 26.1% during fiscal year 2022-23 as compared to fiscal year 2021-22,

with a domestic increase of 16.9% and an international increase of 59.7%. The overall load factor (the

percentage of seats filled on flights) increased by 5.3 percentage points to 84.4%. The domestic load factor

increased by 2.3 percentage points to 85.1%, while the international load factor increased by 17.0 percentage

points to 82.8%.

Flight Operations

During fiscal year 2022-23, the number of aircraft operations (takeoffs and landings) increased by 41,791 flights

(12.7%) as compared to fiscal year 2021-22. Scheduled passenger aircraft arrivals and departures increased

by 42,858 flights (13.5%). Civil and military traffic decreased by 1,067 flights (9.0%). The total number of

scheduled airline passenger and cargo landings increased by 14.3%, with an increase in revenue landed weight

of 22.1%. Domestic passenger landings increased by 10.6%, while domestic landed weight increased by

14.4%. International passenger landings increased by 38.7%, while international landed weight increased by

45.1%. Average passenger aircraft size increased from approximately 153 to 167 seats per flight. Domestic

scheduled seats per flight increased from 141 to 149, while international scheduled seats per flight increased

from 227 to 243. The overall balance between mainline passenger aircraft (wide body and narrow body) and

commuter aircraft (regional jets and turbo props) shifted 6.6% towards mainline aircraft, which increased to

78.1% for domestic and international operations combined. Mainline landings increased by 26,213 and

commuter landings decreased by 4,853.

Cargo Tonnage

Fiscal year 2022-23 cargo and mail tonnage decreased by 91,214 metric tons (16.7%). Domestic cargo and

mail decreased by 36,513 metric tons (16.6%), while international cargo and mail decreased by 54,701 metric

tons (16.7%). Tonnage shares of cargo-only carriers decreased by 2.6% to 20.2%. Tonnage on cargo-only

carriers decreased by 26.1%, while tonnage on passenger carriers decreased by 14.0%, due to overall decline

in shipments.

Financial Highlights

 Liabilities and deferred inflows of resources exceeded assets and deferred outflows of resources at the

close of the fiscal year by $822.9 million.

 Total revenue bonds payable by the Airport decreased by $81.4 million.

 Operating revenues were $1.1 billion.

 Operating expenses were $902.8 million.

 Nonoperating expenses, net of revenues from nonoperating sources were $197.4 million (including

revenues of $92.3 million from Passenger Facility Charges (PFC), $11.4 million from Customer Facility

Charges (CFC), and $23.8 million from the American Rescue Plan Act (ARPA)). Total Federal awards

received were $24.6 million. The Airport has $0.08 million remaining in Coronavirus Response and Relief

6 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Supplemental Appropriations Act (CRRSAA) and $3.9 million in ARPA funds remaining available for use in

fiscal year 2023-24.

 Capital contributions consist of grants from the Federal Aviation Administration’s (FAA) Airport

Improvement Program (AIP) of $28.7 million.

 Transfers to the City and County of San Francisco for the annual service payments were $48.7 million.

 Net position decreased by $162.7 million mainly due to the cumulative effect of accounting change from the

implementation of the Governmental Accounting Standards Board (GASB) Statement No. 91 - Conduit

Debt Obligations and the recognition of capital assets for the SFO Fuel System.

7 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Overview of the Airport’s Financial Statements

Net Position Summary

A condensed summary of the Airport’s net position for the fiscal years 2023 and 2022 is shown below (in

thousands):

FY 2023

FY 2022

Assets:

Unrestricted current assets $ 1,223,147 1,104,277

Restricted current assets 741,971 591,895

Unrestricted noncurrent assets 831,198 241,871

Restricted noncurrent assets 1,113,454 930,708

Net pension asset — 153,872

Capital assets, net 6,934,498 6,977,073

Total assets 10,844,268 9,999,696

Deferred outflows of resources:

Unamortized loss on refunding of debt 30,534 36,158

Deferred outflows on derivative instruments — 10,192

Deferred outflows related to OPEB 38,931 35,683

Deferred outflows related to pensions 105,957 82,086

Total deferred outflows of resources 175,422 164,119

Liabilities:

Current liabilities 648,266 527,812

Current liabilities payable from restricted assets 202,883 215,088

Noncurrent liabilities 9,440,484 9,102,113

Net OPEB liability 257,767 251,367

Net pension liability 162,200 —

Derivat ive ins t rument s — 10, 192

Total liabilities 10,711,600 10,106,572

Deferred inflows of resources:

Deferred inflows related to OPEB 50,948 50,638

Deferred inflows related to pensions 37,692 380,803

Deferred inflows related to leases 1,042,367 286,045

Total deferred inflows of resources 1,131,007 717,486

Net position:

Net investment in capital assets (1,603,694) (1,327,327)

Restricted for debt service 75,798 61,899

Restricted for capital projects 653,258 492,914

Restricted for other purposes 4,660 1,978

Unrestricted 47,061 110,293

Total net position $ (822,917) (660,243)

8 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Total net position serves as an indicator of the Airport’s financial position. The Airport’s liabilities and deferred

inflows of resources exceeded assets and deferred outflows of resources by $822.9 million and $660.2 million

as of June 30, 2023 and 2022, respectively, representing a decrease of $162.7 million (24.6%).

Unrestricted current assets consist primarily of cash and investments available to meet the Airport’s current

obligations. Unrestricted current assets increased by $118.9 million (10.8%), primarily due to higher operating

revenues as the Airport begins its recovery from the pandemic. As of June 30, 2023, the Airport has set aside

$156.7 million in a separate fund for purposes of its Other Postemployment Benefit (OPEB) obligations and

such amount is included in unrestricted cash and investments held in the City Treasury in the statement of net

position. The disposition of this fund is under management’s discretion and has not been placed in a trust fund.

Restricted current assets consist of cash and investments held in the City Treasury and outside the City

Treasury. Cash and investments held in the City Treasury consist primarily of PFCs collected, CFCs collected,

debt service funds held by the bond trustee, grants receivable, and PFCs receivable. Restricted current assets

increased by $150.1 million (25.4%). The increase was primarily due to the new CFCs collected, higher

investment earnings, increase of grants receivable and PFCs receivable.

Unrestricted noncurrent assets increased by $589.3 million (243.7%) due to the increase in lease receivable.

Restricted noncurrent assets increased by $182.7 million (19.6%), primarily due to the increase in interest

receivable and less capital project spending which increased the cash and investments held in the City

Treasury.

The net pension asset decreased by $153.9 million (100.0%). The decrease was primarily due to investment

losses that resulted in a net pension liability compared to a net pension asset in fiscal year 2021-22. See

additional information in note 12a.

Capital assets consist of land, buildings, structures, improvements, equipment, and intangible assets. Capital

assets, net of depreciation and amortization, decreased by $42.6 million (0.6%), primarily due to the

depreciation of assets.

Unamortized loss on refunding of debt decreased by $5.6 million (15.6%). The decrease was primarily due to

the amortization of the bond refunding gain/loss.

Deferred outflows on derivative instruments decreased by $10.2 million (100.0%), representing deferred

outflows of resources offsetting interest rate swap liabilities in accordance with GASB Statement No. 53 –

Accounting and Financial Reporting for Derivative Instruments (GASB Statement No. 53) and GASB Statement

No. 72 – Fair Value Measurement and Application (GASB Statement No. 72). The last remaining interest rate

swaps were terminated in fiscal year 2022-23.

Deferred outflows related to OPEB increased by $3.2 million (9.1%) primarily due to investment losses offset by

experience gains. See additional information in note 12b.

Deferred outflows related to pensions increased by $23.9 million (29.1%) primarily due to changes in the

discount rate, the Airport’s proportionate share, and actuarial assumptions. See additional information in note

12a.

9 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Current liabilities payable from unrestricted assets increased by $120.5 million (22.8%), primarily due to an

increase in unearned aviation revenue and current maturities of long-term debt.

Current liabilities payable from restricted assets decreased by $12.2 million (5.7%), primarily due to the

reclassification from a short-term liability to a long-term liability of commercial paper notes that were refinanced

with the proceeds of the Series 2023C/D bond issued on November 15, 2023. See note 17.

Noncurrent liabilities before net OPEB liability, net pension liability, and derivative instruments increased by

$338.4 million (3.7%), primarily due to the reclassification of commercial paper notes as described in the

preceding paragraph. See note 17.

Net OPEB liability increased by $6.4 million (2.5%) primarily due to investment losses offset by the actual

experience gain. See additional information in note 12b.

Net pension liability (NPL) increased by $162.2 million (100.0%) primarily due to investment losses resulting in a

net pension liability in fiscal year 2022-23. See additional information in note 12a.

Derivative instruments liabilities decreased by $10.2 million (100.0%) due to the termination of interest rate

swaps in fiscal year 2022-23.

Deferred inflows related to OPEB increased by $0.3 million (0.6%) primarily due to investment losses and the

amortization of deferrals. See additional information in note 12b.

Deferred inflows related to pensions decreased by $343.1 million (90.1%) primarily due to investment losses

which caused a reduction in deferred inflow of earnings. See additional information in note 12a.

Deferred inflows related to leases increased by $756.3 million (264.4%) due to the addition of new leases and

the adoption of GASB Statement No. 91 in fiscal year 2022-23.

The Airport’s net investment in capital assets decreased by $276.4 million (20.8%), primarily due to the residual

effect of the Airport depreciating its capital assets faster than repaying its bonded debt.

Net position restricted for debt service increased by $13.9 million (22.5%), primarily due to more cash and

investments held outside City Treasury for debt service.

Net position restricted for capital projects increased by $160.3 million (32.5%), primarily due to higher PFC

generated from the growth in air traffic and new CFC revenue.

Net position restricted for other purposes increased by $2.7 million (135.6%), primarily due to the Hotel's

operating revenues exceeding the Hotel's operating expenses due to higher occupancy levels.

Unrestricted net position decreased by $63.2 million (57.3%), primarily due to the cumulative effect of

accounting change from the implementation of GASB Statement No. 91 and the recognition of capital assets for

the SFO Fuel system. See note 10.

10 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Highlights of Changes in Net Position

The following table shows a condensed summary of changes in net position for fiscal years 2023 and 2022 (in

thousands):

FY 2023 FY 2022

Operating revenues

perating expenses

$ 1,064,104

902,750

821,253

809,830

Operating income 161,354 11,423

Non-Operating Expenses, net 197,389 179,955

Loss before capital

contributions and trans

ers

(

36,035

)

(

168,532

)

Capital contributions

Trans

ers to

ity and

ounty o

f S

an Francisco

28,679

(

48,701

)

40,998

(

37,906

)

Changes in net position (deficit) (56,057) (165,440)

Total net position (deficit) – beginning of year (660,243) (494,803)

Cumulative effect of accounting change (106,617) —

Total net position (deficit) – end of year $ (822,917) (660,243)

Operating Revenues

The Airport derives its operating revenues from rates, fees, and charges assessed to the airlines; the

operation of public and employee parking facilities; rents and fees assessed to concessionaires and

ground transportation operators; and fees assessed for telecommunication access services. Landing fees

and demised premise rental rates assessed to airlines are set periodically based on formulas and

procedures described in the Lease and Use Agreement (Agreement).

In fiscal year 2009-10, the Airport and airlines reached agreement on a new, ten-year 2011

Lease and Use Agreement that became effective on July 1, 2011, that originally expired June

30, 2021, and that was mutually extended to June 30, 2023. The 2011 Lease and Use

Agreement and the 2-Year Extension of said agreement are referred to generally as the “Lease

and Use Agreement,” and the airlines that are parties to those agreements are referred to as

“Signatory Airlines”. See note 2(i) and note 17 for a brief description of the new, ten-year 2023

Lease and Use Agreement.

11 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

A brief summary of the underlying rate-setting methodology under this Agreement is presented below:

The Agreement establishes a residual rate-setting methodology for the calculation of the landing fees and

demised premise rental rates using certain cost centers. Using this methodology, Rates and Charges (that

includes landing fees, demised premise rental rates, and other fees) are established each fiscal year to

produce projected revenues from the airlines equal to the difference between the Airport’s estimated nonairline

revenues and the Airport’s budgeted total costs, including operating expenses, debt service expenses and the

Annual Service Payment (ASP) to the City’s General Fund for that year. The Agreement provides for matching

revenues each fiscal year to the Airport’s expenditures by adjusting payments from the airlines. Differences

between actual revenues and expenditures and amounts estimated in the calculation of airline fees and

charges for that fiscal year result in adjustments of demised premise rental rates and landing fees in

subsequent years. Such differences are recorded on the statement of net position in the financial statements of

the Airport in the fiscal year to which such differences pertain. Net overcharges are recorded as liabilities and

net undercharges are recorded as assets.

The overcharge balance of $417.1 million as of June 30, 2022, increased to $461.7 million as of June 30, 2023,

and was recorded as unearned aviation revenue in the statement of net position. See note 2i.

12 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

The following table shows the air carriers that served the Airport in fiscal year 2022-23:

Domestic passenger air carriers Foreign flag carriers Cargo-only carriers

Alaska Airlines Aer Lingus 21 Air, LLC

American Airlines Aeromexico ABX Air

Breeze Airways Air Canada Air Transport International

Delta Air Lines Air France Atlas Air

Frontier Airlines Air India Limited Federal Express

Hawaiian Airlines Air New Zealand Kalitta Air

JetBlue Airways Air Transat

Southwest Airlines All Nippon Airways

Sun Country Airlines Asiana Airlines

United Airlines British Airways

COPA Airlines, Inc.

Cathay Pacific

China Airlines

China Eastern

China Southern

Condor

EVA Airways

Emirates

Commuter air carriers

Fiji Airways

Horizon Air (Alaska Airlines) Flair Airlines

Jazz Aviation (Air Canada) French Bee

SkyWest Airlines (Alaska Airlines) Iberia

SkyWest Airlines (American Airlines) Japan Airlines

SkyWest Airlines (Delta Air Lines) KLM Royal Dutch Airlines

SkyWest Airlines (United Airlines) Korean Air Lines

Lufthansa German Airlines

Philippine Airlines

Qantas Airways

Qatar Airways

SAS Airlines

Singapore Airlines

Swiss International

TACA International Airlines, S.A.

TAP Air Portugal

Turkish Airlines

Vietnam Airline JSC

Virgin Atlantic

WestJet

ZIP AIR Tokyo Inc

13 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

The following table shows a comparison of terminal rental rates and airline landing fees for fiscal years 2022-23

and 2021-22:

FY 2023 FY 2022

Effective average terminal rental rate (per sq. ft.) $ 187.47 196.45

Signatory Airline – landing fee rate (per 1,000 lbs.) 7.73 11.40

Non-Signatory Airline – landing fee rate (per 1,000 lbs.) 9.66 14.25

General aviation and itinerant aircraft – landing fee rate (per 1,000 lbs.) 9.66 14.25

During fiscal years ended June 30, 2023 and 2022, revenues realized from the following source equaled or

exceeded 5.0% of the Airport’s total operating revenues:

FY 2023 FY 2022

United Airlines 26.2 % 28.4 %

14 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

The following shows a comparative summary of operating revenues for fiscal years 2022-23 and 2021-22

(in thousands):

FY 2023 FY 2022

Aviation

Concession

Hotel

Parking and transportation

Sales and se

$ 630,250

128,019

37,377

183,520

rvices 84,938

468,840

113,261

29,251

132,253

77,648

Total operating revenues $ 1,064,104 821,253

100,000

200,000

300,000

400,000

500,000

600,000

700,000

FY 2023 FY 2022

Aviation

Concession

Hotel

Parking and transportation

Sales and services

Operating revenues increased by 29.6%, from $821.3 million in fiscal year 2021-22 to $1.1 billion primarily due

to increased passenger traffic.

Aviation revenues increased from $468.8 million in fiscal year 2021-22 to $630.3 million primarily due to

rebounding passenger traffic.

15 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

As determined by the calculation method in the Agreement, scheduled airline landing fees per thousand

pounds decreased from $11.40 in fiscal year 2021-22 to $7.73 in fiscal year 2022-23. The airline average

annual terminal rent per square foot decreased from $196.45 in fiscal year 2021-22 to $187.47 in fiscal year

2022-23, due to a 6.2% decrease in residual terminal rental revenue requirement combined with a 1.7%

decrease in airline leased space to 1.72 million square feet.

Before the unearned aviation revenue adjustment of $44.7 million, revenues from landing fees decreased by

$51.7 million (17.3%) due to a landing fee rate decrease partly offset by landed weight increase. Terminal

rentals decreased by $8.4 million (2.6%), due to decreases in terminal rental rates combined with changes in

airline leased space. In aggregate, all other aviation revenues increased by $9.3 million (9.2%), from $101.2

million in fiscal year 2021-22 to $110.5 million in fiscal year 2022-23, with net aviation rental revenue and

activity-based fees including aircraft parking, parking employees, common use gate fees and fixed base

operations (FBO) all showing increases.

Concession revenues, consisting of rentals and fees derived from food and beverage concessions, duty free,

retail merchandise (gifts, candy, tobacco, and news), rental car concessions, and other concession revenue

increased by 13.0%, from $113.3 million in fiscal year 2021-22 to $128.0 million in fiscal year 2022-23. The

higher revenues resulted mainly from a 44.9% increase in airport food & beverage and retail sales. Food and

beverage revenues increased by $4.3 million (26.1%) due to higher passenger volumes and the average spend

rate per passenger. The passenger food and beverage spend rate increased by 8.3% from $10.40 in fiscal year

2021-22 to $11.26 in fiscal year 2022-23. Retail merchandise revenues excluding duty free revenues increased

by $4.2 million (49.8%) for the same reasons. The Airport-wide per passenger spend rate for such merchandise

increased by 6.2% from $4.02 in fiscal year 2021-22 to $4.27 in fiscal year 2022-23. As of June 2023, all Duty

Free and Luxury Stores (DFS) locations have reopened, including the newly renovated DFS Duty Free Galleria

in boarding Areas A and G, and this, combined with the recovery of international passenger volumes, resulted

in a $0.9 million (6.6%) increase in revenues from duty free merchandise sales. On- and off-Airport rental car

revenues increased by $12.3 million (28.8%) as a result of increased passenger volumes. Other concession

revenues decreased by $1.5 million (4.6%), primarily due to lower rental revenue from an on-Airport COVID

testing site. During the pandemic, the Minimum Annual Guarantee (MAG) rent had been suspended due to

severe decline in enplanements. Through June 2023, MAG rent has been reinstated for approximately 63.0%

of all concession leases.

The on-Airport hotel operating revenues increased by 27.8% from $29.3 million in fiscal year 2021-22 to $37.4

million primarily due to the increase in high-end leisure travelers, individual business travelers, and the return of

group meetings.

Public parking and transportation revenues, consisting of rentals and fees derived from parking facilities and

ground transportation operations, increased by 38.8%, from $132.3 million in fiscal year 2021-22 to $183.5

million in fiscal year 2022-23. The combined net effect of a 13.2% increase in the average revenue per ticket,

from $37.48 in fiscal year 2021-22 to $42.43 in fiscal year 2022-23, and a 19.4% increase in parking

transactions resulted in a parking revenue increase of $33.6 million (35.7%). Ground transportation revenues,

including taxi trip fee revenue, increased by $17.7 million (46.5%) primarily due to increased passenger levels.

Transportation Network Company (TNC) operations at the Airport (including Uber Technologies Inc., Lyft, Inc.,

and Tickengo, Inc., d/b/a/ Wingz) increased by 50.4%. TNC Airport pick-ups/drop-offs totaled nearly 8.2 million

resulting in $45.1 million in trip fee revenue. Other modes of transportation also experienced increased activity

16 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

levels compared to fiscal year 2021-22, including hotel shuttles (up 12.1%), door to door pre-arranged vans (up

94.0%), limousines (up 35.6%), taxis (up 33.6%), scheduled buses (up 27.3%), charter buses (up 100.9%) and

off-airport parking vans (up 8.4%). The Airport continues to see a shift in passenger behavior where parking is

preferred over single or high occupancy mode transportation (such as taxis, TNCs, and buses), as compared to

relative market share of ground transportation options prior to the pandemic.

Sales and service revenues consist of revenue derived from utility services, telecommunication access fees,

badge and permit fees, rental car facility fees, and cost-based reimbursement of various services. Revenues

from sales and services increased by 9.4%, from $77.6 million in fiscal year 2021-22 to $84.9 million in fiscal

year 2022-23. Revenue from the sale of water sewage disposal increased by $1.5 million (29.3%).

Telecommunication fees were lower by $0.2 million (3.0%) due to decreased demand for telecommunication

access services. Licenses and permit fees increased by $0.4 million (19.2%) as a result of higher badging

activity by tenant employees and contractors. The transportation and facility fee (AirTrain fee charged on rental

car contracts) increased by $4.2 million (27.0%) due to a 26.6% increase in the number of rental car contracts.

Fees collected for the cost of the Rental Car Center increased by $2.3 million (14.7%) primarily due to lower

fiscal year 2021-22 fees resulting from credits provided through the Federal CRRSAA concession relief grant

and the Rental Car Center structure and surface rent annual Consumer Price Index (CPI) adjustments.

Revenue from penalties from the enforcement of airfield safety rules and regulations decreased by $0.5 million

(22.8%) due to the lower level of activity. Miscellaneous terminal fees increased by $1.1 million (11.7%),

reflecting billings per lease and permit terms. Governmental agency rent revenue decreased by $1.4 million

(22.3%) primarily due to the expiration of the U.S. Postal Service ground lease. Miscellaneous Airport

Revenues decreased by $0.1 million (32.0%) reflecting billings per lease and permit terms. Net revenue from all

other sales and services including sale of electricity, sale of natural gas, food court infrastructure/cleaning fees,

refuse disposal, collection charges and settlements decreased by $0.7 million (4.0%).

17 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Operating Expenses

The following table shows a comparative summary of operating expenses for fiscal years 2023 and 2022 (in

thousands):

FY 2023 FY 2022

Personnel

Depreciation and amortization

Contractual services

Hotel

Light, heat and power

ervices provided by other

departments

Repairs and maintenance

Materials and supplies

General and administrative

Environmental remediation

$ 283,669

355,475

97,718

32,161

28,771

27,247

59,081

13,384

3,883

1,361

216,842

356,649

81,424

24,969

27,554

26,949

56,189

12,560

4,567

2,127

Total operating expenses $ 902,750 809,830

Operating expenses increased from $809.8 million to $902.8 million primarily due to increases in expenses for

personnel, contractual services, hotel, light, heat and power, services provided by other City departments,

repairs and maintenance, and materials and supplies. In fiscal year 2022-23, the Airport capitalized $16.9

million of indirect costs related to construction of capital projects as overhead, compared to $14.0 million in

fiscal year 2021-22. The variances in the different categories are discussed below.

Personnel expenses increased by $66.9 million (30.8%), from $216.8 million to $283.7 million. The increase

was primarily due to an increase in pension expenses as a result of investment losses.

Depreciation and amortization decreased by $1.1 million (0.3%), from $356.6 million to $355.5 million. The

decrease was primarily due to assets becoming fully depreciated.

Contractual services increased by $16.3 million (20.0%), from $81.4 million to $97.7 million. The increase was

primarily due to increased expenses for various professional services contracts, such as parking, shuttle buses,

and technology services.

The on-Airport hotel operating expenses increased by $7.2 million (28.8%), from $25.0 million to $32.2 million.

The increase was primarily due to a rise in departmental expenses and undistributed operating expenses.

Light, heat and power expenses increased by $1.2 million (4.4%), from $27.6 million to $28.8 million. The

increase was primarily due to an increase in consumption and rates.

18 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Expenses of services provided by other City departments increased by $0.3 million (1.1%), from $26.9 million

to $27.2 million. The increase was primarily due to higher water usage and an increase in San Francisco Public

Utilities Commission (SFPUC) water rates.

Repairs and maintenance expenses increased by $2.9 million (5.1%), from $56.2 million to $59.1 million. The

increase was primarily due to the return of pre-pandemic service levels in maintenance contracts such as from

Airport-wide Emergency, SFO Checkpoint and Screening Room Sanitary, and Superbay Hose Reel.

Materials and supplies expenses increased by $0.8 million (6.6%), from $12.6 million to $13.4 million. The

increase was a result of inflation as well as increased spending on cleaning supplies due to higher passenger

traffic that occurred during fiscal year 2022-23.

General and administrative expenses decreased by $0.7 million (15.0%), from $4.6 million to $3.9 million. The

decrease was primarily due to a decrease in estimated bad debts expense related to the Airport COVID-19

Emergency Rent Relief Program for concession tenants and judgment claims.

Environmental remediation expenses decreased by $0.7 million (36.0%), from $2.1 million to $1.4 million. The

decrease was primarily due to fewer new capital projects.

19 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Nonoperating Revenues and Expenses

The following summary shows a comparison of nonoperating revenues and expenses in fiscal years 2023 and

2022 (in thousands):

FY 2023 FY 2022

Nonoperating revenues:

Passenger

acility charges

(

92,341 72,804

Customer facility charges (CFC)

Investment income

(

loss

)

11,441

42,540

—

(

64,113

)

Other 32,056 176,955

Total nonoperating revenues 178,378 185,646

Nonoperating expenses:

Interest expense 350,349 321,132

Write-o

s and gain

(

loss

)

on disposal 70 11,672

Other 25,348 32,797

Total nonoperating expenses 375,767 365,601

Total nonoperating expenses, net (197,389) (179,955)

Capital contributions

Trans

ers to

ity and

ounty o

28,679 40,998

San Francisco (48,701) (37,906)

Total $ (217,411) (176,863)

Nonoperating revenues consist primarily of PFC, CFC, and investment income, while nonoperating expenses

consist of interest expense, and write-offs and gain (loss) on the disposal of capital assets. Write-offs include

capital improvement costs that did not meet capitalization requirements. PFCs, which became effective in

October 2001, generated $92.3 million during fiscal year 2022-23, an increase of 26.8% compared to the $72.8

million received in fiscal year 2021-22. The increase in PFC revenues was primarily due to an increase in

passenger traffic and the easing of the COVID-19 restriction. CFCs, which became effective in July 2022,

generated $11.4 million during fiscal year 2022-23.

Investment income (loss) increased by $106.6 million (166.4%), from $(64.1) million to $42.5 million primarily

due to the investment fair value adjustments. Excluding the fair value adjustments, the actual investment

income (loss) increased by $40.4 million, from $22.7 million to $63.1 million.

Other nonoperating revenues decreased by $144.9 million (81.9%), from $177.0 million to $32.1 million

primarily due to the Federal CRRSAA grant award of $5.9 million and the Federal ARPA grant award of $169.0

million. The Federal ARPA grant was fully expended in fiscal year 2021-22.

20 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Interest expense increased by $29.2 million (9.1%), from $321.1 million to $350.3 million primarily due to an

increase in debt issued to fund capital improvement projects.

Write-offs and gain (loss) on disposal decreased by $11.6 million (99.4%), from $11.7 million to $0.1 million

primarily due to the sale of equipment.

Other nonoperating expenses decreased by $7.5 million (22.7%), from $32.8 million to $25.3 million primarily

due to a reduction in capital improvement projects costs under the capitalization threshold.

Capital contributions received from federal grants and other sources decreased by $12.3 million (30.0%), from

$41.0 million to $28.7 million. The decrease in capital contributions was primarily due to assets transferred from

SFO Fuel to the Airport in the prior year, which did not occur in fiscal year 2022-23. Capital contributions

received from federal grants and other grants increased by $11.7 million (68.8%), from $17.0 million to $28.7

million. The increase was primarily due to the increase in the Airport Improvement Program grant-funded

expenditures attributed to the rehabilitation of one of the airport runways.

The annual service payments transferred to the City increased by $10.8 million (28.5%), from $37.9 million to

$48.7 million. The increase was due to higher concession, hotel, and parking and transportation revenues

attributable to an increase in passenger traffic.

Capital Acquisitions and Construction

Under the Lease and Use Agreement, the Airport Commission is obligated to use commercially reasonable

efforts to finance all capital improvements (above certain de minimis amounts) through the issuance of Airport

revenue bonds, grants, Transportation Security Administration (TSA) funding, and Passenger Facility Charges

(PFCs). The Agreement also provides for airline review of capital projects that exceed the dollar thresholds

established within the Agreement.

The Airport maintains a Capital Improvement Plan to build new facilities, improve existing facilities, renovate

buildings, repair or replace infrastructure, preserve assets, enhance safety and security, develop systems

functionality, and perform needed maintenance.

21 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Expenses incurred during fiscal year 2022-23 with respect to major capital projects are listed below. The figures

below do not reflect the total project budget. Most major capital projects at the Airport are implemented over

multiple fiscal years (in thousands).

Amount

Terminal 1 Redevelopment $ 131,756

Runway Improvements 43,708

Terminal 3 Renovation 27,096

International Terminal Refresh Program 19,163

Waste Water System Improvements 18,859

Net Zero Energy Program 9,843

Courtyard 3 Connector 9,746

Energy and Efficency Improvements 7,268

Miscellaneous Terminal Improvements 6,250

Capital Improvement Plan Support 4,995

AirTrain Improvements 4,335

Technology Improvement 4,286

Parking and Garage Improvements 3,930

Taxiway Improvements 3,764

Capital Equipment 3,657

Support Facility Improvements 3,341

International Terminal Improvements 3,190

Power & Lighting Improvements 2,465

Storm Drain Improvements 2,380

Noise Insulation Program 2,256

Miscellaneous Airfield Improvements 1,923

Shoreline Protection 1,840

Airport Support Miscellaneous Improvements 1,773

Utility Improvements 1,749

Wayfinding 1,233

All Other Projects 1,536

COVID (5,428)

Total

316,914

22 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

Due to COVID-19 pandemic and the reduction in travel demand, the Airport initially reprioritized its Capital

Improvement Plan to focus on projects that were essential to Airport operations and resiliency priorities given

the present-day recovery landscape. Passenger enplanements and deplanements at the Airport were

approximately 57.4 million in fiscal year 2018-19, before dropping to 40.5 million in fiscal year 2019-20 and 13.7

million in fiscal year 2020-21, then recovering to 34.8 million in fiscal year 2021-22 and 46.9 million in fiscal

year 2022-23. This recovery has allowed construction activity to continue on major projects such as the

Terminal 1 (T1) Redevelopment Program, the Courtyard 3 Connector project, and the International Terminal

Phase 2 project, which will make improvements to the building and expand both departures level security

checkpoints.

The T1 Redevelopment Program completed the Harvey Milk Boarding Area B, for a total of 22 operational

gates, in May 2021. Construction activity continues in the Terminal 1 North area, and this work is forecasted to

complete in fiscal year 2023-24.

Notable projects that were completed in fiscal year 2022-23 included the completion of the Noise Insulation

Program 2019-2023 Phase and the 12KV Cable Replacement and System Upgrade.

Additional information about the Airport’s capital acquisitions and construction is presented in note 5 to the

financial statements.

Debt Administration

Refunding Bonds: On March 1, 2023, the Airport issued its fixed rate Second Series Revenue Bonds,

Series 2023A (AMT) and Second Series Revenue Bonds, Series 2023B (Non-AMT/Governmental

Purpose (collectively, the “2023A/B Bonds”), in aggregate principal amount of $241.9 million to refund a

combined $261.5 million of its Series 2010A Bonds, Series 2013A Bonds, and Series 2013B Bonds, to

fund the termination payment of an interest rate swap, and to pay costs of issuance.

Cash Defeasance: On June 28, 2023, the Airport legally defeased $28.8 million of its Series 2019D

Bonds, using monies previously deposited by the Commission in the Debt Service Fund.

Subordinate Commercial Paper Notes: During fiscal year 2022-23, the Airport issued $417.3 million in

commercial paper notes to fund capital improvement projects. As of June 30, 2023, the Airport had

$503.2 million in outstanding commercial paper notes including $497.8 million that was refunded by the

Series 2023C/D bonds that were issued on November 15, 2023. The $497.8 million has been reclassed

to long-term commercial paper notes on the financial statements as of June 30, 2023. See note 17.

Interest Rate Swaps: The Airport terminated interest rate swaps in fiscal year 2022-23.

More detailed information about the Airport’s subordinate commercial paper notes, long-term debt, and

interest rate swaps is presented in notes 6 and 7 to the financial statements.

23 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

1991 Master Bond Resolution Covenant Compliance: During fiscal year 2022-23, the Airport’s operating

revenues, together with the permitted transfers from the Airport’s Contingency Account, were sufficient to

meet the rate covenant requirements under the Airport’s 1991 Master Bond Resolution. See “Debt

Service Reserve and Covenants; Contingency Account” in note 7.

Credit Ratings and Bond Insurance

Credit Ratings: During fiscal year 2022-23, Moody’s Investors Service Inc. (Moody’s) and Fitch Ratings Inc.

(Fitch) affirmed their underlying long-term credit ratings on the outstanding debt of the Airport of “A1” and “A+”,

respectively. S&P Global Ratings (S&P) raised its underlying long-term credit ratings on the outstanding debt of

the Airport to “A+”. Refer to the notes below.

Ratings on each subseries of the Airport’s commercial paper notes reflect the short-term credit ratings of the

bank whose letter of credit supports that subseries.

On January 12, 2023, Moody’s affirmed the “A1” rating with a stable outlook and Fitch affirmed the “A+” rating

with a stable outlook for the outstanding fixed rate bonds and assigned these ratings to the Series 2023A/B

Bonds, which were issued on March 1, 2023. S&P did not provide a rating for the Series 2023A/B Bonds.

On July 20, 2022, S&P raised the rating for outstanding fixed rate bonds to “A+” with a stable outlook except for

those bonds that do not carry an S&P rating. Each individual bond’s rating is accessible through the Electronic

Municipal Market Access (EMMA) website.

Bond Insurance: There were no insured Airport bonds outstanding at the end of fiscal year 2022-23.

Fiscal Year 2023-24 Airline Rates and Charges

Terminal rental rates and airline landing fees for fiscal year 2023-24 have been developed as part of the annual

budget process that started in October 2022. The Lease and Use Agreement between the Airport and the

Signatory Airlines provides the rate-setting methodology for calculating the terminal rental rates and airline

landing fees. Not less than 60 days prior to the start of the fiscal year, the Signatory Airlines are notified of the

proposed rates and fees. These fees are subject to review by, but not the approval of, the Signatory Airlines.

The terminal rental rates and airline landing fees for fiscal year 2023-24, which became effective on July 1,

2023, are as follows:

Effective average terminal rental rate (per sq. ft) $ 225.62

Signatory Airline – landing fee rate (per 1,000 lbs.) 5.98

Non-Signatory Airline – landing fee rate (per 1,000 lbs.) 7.48

General aviation – landing fee rate (per 1,000 lbs.) 7.48

24 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Management’s Discussion and Analysis

June 30, 2023

The effecti

ve average terminal rental rate increased from $187.47 per sq. ft. in fiscal year 2022-23 to $225.62

per sq. ft. in fiscal year 2023-24. The fiscal year 2023-24 landing fee rate for Signatory Airlines decreased by

22.6%, from $7.73 per 1,000 pounds in fiscal year 2022-23 to $5.98 per 1,000 pounds in fiscal year 2023-24,

and the Non-Signatory Airline landing fee rate decreased by 22.6%, from $9.66 per 1,000 pounds in fiscal year

2022-23 to $7.48 per 1,000 pounds in fiscal year 2023-24. The fiscal year 2023-24 landing fee rate for general

aviation aircraft decreased by 22.6%, from $9.66 per 1,000 pounds in fiscal year 2022-23 to $7.48 per 1,000

pounds in fiscal year 2023-24.

Requests for Information

This report is designed to provide a general overview of the San Francisco International Airport’s finances.

Questions concerning any of the information provided in this report or requests for additional information should

be addressed to the Chief Financial Officer, San Francisco International Airport, P.O. Box 8097, San Francisco,

California 94128.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Statement of Net Position

June 30, 2023

(In thousands)

Amount

Assets

Current assets:

Cash and investments held in City Treasury

Cash and investments outside City Treasury

Cash – Revolving Fund

Accounts receivable (net of allowance for doubtful accounts of $1,446)

Lease receivable

Lease interest receivable

Accrued interest – City Treasury

Accrued interest – outside City Treasury

Inventories

Other current assets

Restricted assets:

$ 998,115

23,732

67,438

114,523

2,423

6,506

2,275

3,232

4,862

Cash and investments held in City Treasury

Cash and investments outside City Treasury

Accounts receivable

Accrued interest – City Treasury

Accrued interest – Other

Grants receivable

Passenger facility charges receivable

Other current assets

575,751

111,574

3,706

3,441

(161)

30,343

16,231

1,086

Total current assets 1,965,118

Noncurrent assets:

Lease receivable

Restricted assets:

831,198

Cash and investments held in City Treasury

Cash and investments outside City Treasury

Accrued interest – City Treasury

Capital assets, net

Land and other assets not being depreciated/amortized

Facilities, infrastructure and equipment, net of

depreciation/amortization

545,745

565,059

2,650

1,036,900

5,897,598

Total noncurrent assets 8,879,150

Total assets 10,844,268

Deferred outflows of resources:

Unamortized loss on refunding of debt

Deferred outflows related to OPEB

Deferred outflows related to pensions

30,534

38,931

105,957

Total deferred outflows of resources $ 175,422

(Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Statement of Net Position

June 30, 2023

(In thousands)

Amount

Liabilities:

Current liabilities:

Accounts payable

Accrued payroll

Compensated absences

Accrued workers’ compensation

Estimated claims payable

Unearned aviation revenue

Current maturities of long-term debt

Payable from restricted assets:

Accounts payable

Accrued payroll

Accrued bond interest payable

Commercial paper notes

Current maturities of long-term debt

$ 78,870

19,383

12,326

2,710

122

461,730

73,125

117,998

748

64,062

5,450

14,625

Total current liabilities 851,149

Noncurrent liabilities:

Compensated absences, net of current portion

Accrued workers’ compensation, net of current portion

Estimated claims payable, net of current portion

Other liabilities

11,861

9,857

4,150

370

Long-term debt, net of current maturities

Commercial paper notes - long term

Net OPEB liability

Net pension liability

8,916,471

497,775

257,767

162,200

Total noncurrent liabilities 9,860,451

Total liabilities 10,711,600

Deferred inflows of resources:

Deferred inflows related to OPEB

Deferred inflows related to pensions

Deferred inflows related to leases

50,948

37,692

1,042,367

Total deferred inflows of resources 1,131,007

Net position:

Net investment in capital assets

Restricted for debt service

Restricted for capital projects

Restricted for other purposes

Unrestricted

(1,603,694)

75,798

653,258

4,660

47,061

Total net position (deficit) $ (822,917)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Statement of Revenues, Expenses, and Changes in Net Position

Year ended June 30, 2023

(In thousands)

Amount

Operating revenues:

Aviation

Concession

Hotel

Parking and transportation

Sales and services

$ 630,250

128,019

37,377

183,520

84,938

Total operating revenues 1,064,104

Operating expenses:

Personnel

Depreciation and amortization

Contractual services

Hotel

Light, heat and power

Services provided by other City departments

Repairs and maintenance

Materials and supplies

General and administrative

Environmental remediation

283,669

355,475

97,718

32,161

28,771

27,247

59,081

13,384

3,883

1,361

Total operating expenses 902,750

Operating income 161,354

Nonoperating revenues (expenses):

Investment income (loss)

Interest expense

Passenger facility charges

Customer facility charges

Write-offs and loss on disposal

Other nonoperating revenues

Other nonoperating expenses

42,540

(350,349)

92,341

11,441

(70)

32,056

(25,348)

Total nonoperating revenues (expenses), net (197,389)

Loss before contributions and transfers (36,035)

Capital contributions:

Grants

Transfers to City and County of San Francisco

28,679

(48,701)

Changes in net position (deficit) (56,057)

Total net position (deficit) – beginning of year (660,243)

Cumulative effect of accounting change (106,617)

Total net position (deficit) – end of year $ (822,917)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Statement of Cash Flows

Year ended June 30, 2023

(In thousands)

Amount

Cash flows from operating activities:

Cash received from airline carriers, concessionaires, and others

Cash paid for employees’ services

Cash paid to suppliers of goods and services

$ 1,136,744

(328,397)

(280,170)

Net cash provided by operating activities 528,177

Cash flows from noncapital financing activities:

Transfers to City and County of San Francisco

Other noncapital financing revenues

Other noncapital financing expenses

(48,701)

31,692

(25,348)

Net cash used in noncapital financing activities (42,357)

Cash flows from capital and related financing activities:

Principal paid on revenue bonds and commercial paper notes

Interest paid on revenue bonds and commercial paper notes

Acquisition and construction of capital assets

Revenues from passenger facility charges

Revenues from customer facility charges

Proceeds from sale of revenue bonds

Proceeds from commercial paper notes

Lease payable

Capital contributed by federal agencies and others

(30,060)

(387,197)

(259,793)

84,458

11,398

1,064

417,250

752

8,713

Net cash used in capital and related financing activities (153,415)

Cash flows from investing activities:

Sales of investments with Trustee

Purchases of investments with Trustee

Interest received on investments

628,083

(659,908)

36,369

Net cash provided by investing activities 4,544

Net increase in cash and cash equivalents 336,949

Cash and cash equivalents, beginning of year 1,810,483

Cash and cash equivalents, end of year $ 2,147,432

Reconciliation of cash and cash equivalents to the statement of

net position:

Cash and cash equivalents held in City Treasury – unrestricted

Cash and cash equivalents held in City Treasury – restricted

Cash and cash equivalents outside City Treasury – unrestricted

Cash and cash equivalents outside City Treasury – restricted

Cash – Revolving Fund

$ 998,115

1,121,496

23,732

4,048

Cash and cash equivalents, end of year $ 2,147,432

29 (Continued)

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Statement of Cash Flows

Year ended June 30, 2023

(In thousands)

Reconciliation of operating income to net cash provided by

operating activities:

Operating income

Adjustments for noncash and other activities:

Depreciation and amortization

Cost of issuance paid from bond proceeds

Hotel expense

Changes in assets and liabilities:

Accounts receivable (net of change in allowance for doubtful accounts of $1,502)

Leases

Inventories

Other current assets

Net OPEB liability and OPEB related

deferred outflows and inflows of resources

Net pension liability/asset and pension related

deferred outflows and inflows of resources

Accounts payable and other liabilities

Accrued payroll

Compensated absences

Accrued workers’ compensation

Unearned aviation revenue

Net cash provided by operating activities

Noncash transactions:

Accrued capital asset costs

Bond refunding through fiscal agent

Amount

161,354

355,475

477

8,026

(4,325)

(1,053)

3,460

(50,910)

8,127

2,245

474

44,677

528,177

110,362

263,976

See accompanying notes to financial statements.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(1) Definition of Reporting Entity

The accompanying financial statements reflect the net position and changes in net position of the Airport

Commission (the Commission), City and County of San Francisco, San Francisco International Airport (the

Airport or SFO), a commercial service airport owned and operated as an enterprise department of the City

and County of San Francisco (the City). The Airport is a major origin and destination point and one of the

nation’s principal gateways for Pacific traffic. A five-member Airport Commission is responsible for its

operation, development, and maintenance. Airport Commission members are appointed by the City’s

Mayor for terms of four years.

The Airport is an integral part of the City and is reported as a major enterprise fund in the City’s

Annual

Comprehensive Financial Report. There are no component units considered for inclusion in the Airport’s

financial reporting entity. The accompanying financial statements present only the financial operations of

the Airport and do not purport to, and do not, present the financial position of the City, or the results of its

operations and the cash flows of its other proprietary fund types.

(2) Significant Accounting Policies

(a)

Measurement Focus and Basis of Accounting

The Airport’s financial activities are accounted for on a flow of economic resources measurement

focus, using the accrual basis of accounting in accordance with U.S. generally accepted accounting

principles (GAAP).

The Airport distinguishes operating revenues and expenses from nonoperating revenues and

expenses. Operating revenues and expenses generally result from providing services and producing

and delivering goods in connection with an organization’s principal ongoing operations. The principal

operating revenues of the Airport are charges to airlines, concessionaires, and parking and

transportation charges. Operating expenses of the Airport include personnel costs, administrative

expenses, and depreciation on capital assets. All revenues and expenses not meeting these definitions

are reported as nonoperating revenues and expenses.

As prescribed under the Governmental Accounting Standards Board (GASB) Statement No. 68 –

Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, net

pension asset/liability, deferred outflows/inflows of resources related to pensions, pension expense,

information about the fiduciary net position of the San Francisco Employees Retirement System

(SFERS) plan and additions to/deductions from the plan’s fiduciary net position have been determined

on the same basis as they are reported by the plan. For this purpose, benefit payments (including

refunds of employee contributions) are recognized when due and payable in accordance with the

benefit terms. Contributions are recognized in the period in which they are due pursuant to legal

requirements. Benefit payments (including refunds of employee contributions) are recognized when

currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

As prescribed under GASB Statement No. 75, Accounting and Financial Reporting for Postemployment

Benefits Other than Pensions (OPEB), Accounting and Financial Reporting for Postemployment

Benefits Other than Pensions (OPEB), net OPEB liability, deferred outflows/inflows of resources related

to OPEB, and OPEB expense are actuarially determined on a citywide basis. For purposes of

measuring the net OPEB liability and deferred outflows/inflows of resources related to OPEB, and

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

OPEB expense, information about the fiduciary net position of the Retiree Health Care Trust Fund

(RHCTF) and additions to/deductions from the plans’ fiduciary net position have been determined on

the same basis as they are reported by the plans. For this purpose, benefit payments are recognized

when due and payable in accordance with the benefit terms. Plan member contributions are recognized

in the period in which the contributions are due. Investments are reported at fair value.

As prescribed under GASB Statement No. 87 – Leases, a lessor is required to recognize, for each

lease, a lease receivable and a deferred inflow of resources. The lease receivable is measured at the

present value of lease payments expected to be received during the term of the lease. The deferred

inflow of resources is measured at the value of the lease receivable plus any payments received at or

before the commencement of the lease term that relates to future periods. Interest revenue is

recognized on the lease receivable and inflow of resources (revenue) is recognized from the deferred

inflows of resources in a systematic and rational manner over the term of the lease.

(b)

Effects of New Accounting Pronouncements

GASB Statement No. 91

In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations

. GASB Statement No. 91

clarifies the definition of conduit debt and establishes new recognition, measurement, and disclosure

requirements. The new standard is effective for periods beginning after December 15, 2021. Prior to

that, the Airport received contributed capital assets including two tanks, pump pad and control

replacements from the SFO Fuel Company LLC. Due to the implementation of GASB Statement No.

91, the Airport reclassified the assets’ net book value of $106.6 million from revenue to the deferred

inflow of resources, and will amortize over the bond term through 2047. See note 10.

GASB Statement No. 94

In March 2020, the GASB issued Statement No. 94, Public-Private and Public-Public Partnerships and

Availability Payment Arrangements. GASB Statement No. 94 establishes standards of accounting and

financial reporting for public-private and public-public partnerships (PPPs) and availability payment

arrangements. A PPP is an arrangement in which a government contracts with an operator to provide

public services by conveying control of the right to operate or use a nonfinancial asset, such as

infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or

exchange-like transaction. An availability payment arrangement is an arrangement in which a

government compensates an operator for services that may include designing, constructing, financi

ng,

maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or

exchange-like transaction. The new standard requires reporting of related assets and deferred inflows

that currently are not reported and is effective for periods beginning after June 15, 2022. Application of

this statement did not have a significant impact on the Airport for the year ended June 30, 2023.

GASB Statement No. 96

In May 2020, the GASB issued Statement No. 96, Subscription-Based Information Technolog

Arrangements. GASB Statement No. 96 defines such arrangements as contracts that convey control of

the right to use another party’s information technology software, alone or in combination with tangible

capital assets, as specified in the contract for a period of time in an exchange or exchange-like

transaction. The standard clarifies measurement and recognition of capitalizable costs, intangible

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

assets, and subscription liabilities for such arrangements and also requires additional disclosures

related to such arrangements. The implementation of GASB Statement No. 96 resulted in recognition

of $2.7 million in a right-to-use asset and a corresponding subscription liability in fiscal year 2022-23.

See note 11.

GASB Statement No. 99

In April 2022, the GASB issued Statement No. 99, Omnibus 2022. GASB Statement No. 99 addresses

a variety of topics. The requirements related to extension of the use of the London Interbank Offered

Rate, accounting for Supplemental Nutrition Assistance Program distributions, disclosures of

nonmonetary transactions, pledges of future revenues by pledging governments, clarification of certain

provisions in Statement No. 34, and terminology updates related to Statement No. 53 and Statement

No. 63 were adopted by the City for the year ended June 30, 2022. The requirements related to leases,

public-public and public-private partnerships, and subscription-based information technology

arrangements are effective for fiscal years beginning after June 15, 2022 and did not have a significant

impact on the Airport’s financial statements for the year ended June 30, 2023. The Airport is currently

analyzing its accounting practices to determine the potential impact of the requirements related to

financial guarantees and the classification and reporting of derivative instruments within the scope of

Statement No. 53 which are effective for fiscal years beginning after June 15, 2023 and effective for the

Airport’s fiscal year ending June 30, 2024.

GASB Statement No. 100

In June 2022, the GASB issued Statement No. 100, Accounting Changes and Error Corrections. GASB

Statement No. 100 defines various types of accounting changes and prescribes accounting, reporting,

and disclosure requirements for accounting changes and error corrections. The new standard is

effective for periods beginning after June 15, 2023. Application of this statement is effective for the

Airport’s year ending June 30, 2024.

GASB Statement No. 101

In June 2022, the GASB issued Statement No. 101, Compensated Absences. GASB Statement No.

101 requires that liabilities for compensated absences be recognized if the leave is attributable to

services already rendered and the leave is more likely than not to be used for time off or otherwise paid

in cash or settled through noncash means and establishes definitions, guidance, and disclosure

requirements related to compensated absences. The new standard is effective for periods beginning

after December 15, 2023. Application of this statement is effective for the Airport’s year ending June

30, 2025.

(c)

Cash, Cash Equivalents, and Investments

The Airport maintains its cash, cash equivalents, investments, and a significant portion of its restricted

cash and investments as part of the City’s pool of cash and investments. The Airport’s portion of this

pool is displayed on the statement of net position as “Cash and investments held in City Treasury.”

Income earned or losses arising from pooled investments are allocated on a monthly basis to

appropriate funds and entities based on their average daily cash balances.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

The City reports certain investments at fair value in the statement of net position and recognizes the

corresponding change in fair value of investments in the year in which the change occurred.

The Airport considers its pooled deposits held with the City Treasurer to be demand deposits and

therefore cash for financial reporting. The City considers highly liquid investments with original

maturities of three months or less to be cash equivalents. Restricted cash and investments held by the

bond trustees that meet these criteria are considered to be cash and cash equivalents.

The debt service fund, the debt service reserve fund, the costs of issuance fund, the debt service

holding fund, and the variable rate demand bond fee account for the Airport’s revenue bonds are held

and invested at the Airport’s direction by an independent bond trustee.

Certain accounts relating to the Hotel Special Facility Bonds are held and invested at the Airport’s

direction by an independent bond trustee.

(d)

Capital Assets

Capital assets are stated at historical cost, or if donated, at acquisition value at the date of donation.

The capitalization threshold for real property is $100,000 and $5,000 for personal property with a useful

life greater than one year.

Depreciation and amortization are computed using the straight-line method over the following

estimated useful lives:

Yea rs

Buildings, structures, and improvements 5–50

Equipment 5–20

Leases and SBITA Various

Intangible assets 3–20

Maintenance, repairs, and minor replacements are charged against operations in the year performed.

Major replacements that extend the useful life of the related assets are capitalized. No depreciation is

provided on construction in progress until construction is substantially completed and the asset is

placed in service. The Airport begins depreciation on capital assets the month following the date in

which assets are placed in service. Additionally, the Airport commenced allocating indirect costs on

self-constructed assets starting fiscal year 2006-07. The indirect cost rate applied is based on a cost

allocation plan developed in accordance with the terms of 2 CFR Part 200 Uniform Administrative

Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance), as

applicable. See note 5.

(e)

Derivative Instruments

The Airport has entered into certain derivative instrument agreements, which it values at fair value, in

accordance with GASB Statement No. 53 – Accounting and Financial Reporting for Derivative

Instruments and GASB Statement No. 72 – Fair Value Measurement and Application. The Airport

applies hedge accounting for changes in the fair value of hedging derivative instruments, in accordance

with GASB Statement No. 64 – Derivative Instruments: Application of Hedge Accounting Termination

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Provisions, an amendment of GASB Statement No. 53. Under hedge accounting, if the derivatives are

determined to be effective hedges, the changes in the fair value of hedging derivative instruments are

reported as either deferred inflows or deferred outflows in the statement of net position, otherwise

changes in fair values are recorded within the investment revenue classification. As of June 30, 2023,

the Airport did not have any outstanding derivative instruments. The Airport will implement the

provisions of GASB Statement No. 99 in the future if it is applicable.

(f)

Bond Issuance Costs, Discounts, and Premiums

Bond issuance costs related to prepaid insurance costs are capitalized and amortized using the

effective interest method. Other bond issuance costs are expensed when incurred. Original issue bond

discount or premium are offset against the related debt and are also amortized using the effective

interest method. Deferred outflows/inflows of resources from refunding of debt are recognized as a

component of interest expense using the effective interest method over the remaining life of the old

debt or the life of the new debt, whichever is shorter.

(g)

Compensated Absences

Vested vacation, sick leave, and related benefits are accrued when incurred for all Airport employees.

(h)

Net Position

Net position consists of the following:

Net Investment in Capital Assets – consists of capital assets, including restricted capital asse

ts,

reduced by accumulated depreciation and amortization and by any outstanding debt incurred to

acquire, construct, or improve those assets (including any unamortized original issue discounts or

premiums related to the debt). Deferred outflows of resources that are attributable to the acquisition,

construction, or improvement of those assets or related debt (such as deferred losses on refunding of

debt) are also included in this component of net position.

Restricted for Debt Service and Capital Projects – consists of restricted assets and deferred outflows of

resources reduced by liabilities related to those assets and deferred outflows of resources. Restricted

assets are those assets with restrictions on their use that are externally imposed (by creditors,

grantors, contributors, or the laws or regulations of other governments).

Restricted for Other Purposes – consists of the on-Airport Hotel’s assets and liabilities (including

the

Hotel Trust accounts) except the Hotel Debt Service Fund trust account, the Hotel Revenue

Stabilization Fund trust account, the Hotel Capitalized Interest trust account, and the Hotel’s capital

lease obligations.

Unrestricted Net Position – consists of the net amount of the assets, deferred outflows of resources,

and liabilities, of the Airport that are not restricted for any project or other purposes.

A significant portion of the Airport’s net position is restricted by the 1991 Master Bond Resolution and

1997 Note Resolution (the “Master Bond Resolutions”) and the Lease and Use Agreement with the

airlines for the purpose of capital improvements and contingencies.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(i)

Aviation Revenue, Unearned Revenue and Aviation Revenue Due

Aviation revenue is based on reimbursable expenditures as defined in the Lease and Use Agreement

with the airlines. Under the Lease and Use Agreement, the airlines are required to pay terminal rents

and landing fees in amounts that, when aggregated with certain other Airport revenues, will be equal to

the Airport’s expenditures for: operating expenses other than depreciation and amortization, principal

and interest on outstanding debt, annual service payments to the City’s General Fund, and certain

acquisitions of capital assets. Airline payments are also required to cover expenses treated as

“Operation and Maintenance Expenses” under the Master Bond Resolutions. Airport expenses that are

funded with sources not includable as “Revenues” under the Master Bond Resolutions are not treated

as “Operation and Maintenance Expenses” under the Master Bond Resolutions. Other capital asset

additions are funded with proceeds of revenue bonds for which the airlines are required to fund debt

service. During fiscal year 2022-23, the Airport and airlines reached an agreement on a new, ten-year

2023 Lease and Use Agreement that expires on June 30, 2033. Airlines that are not signatories to this

agreement operate under month-to-month permits. As of July 1, 2023, the signatory airlines to the

Agreement, 42 passenger airlines and 5 cargo airlines, represented over 96.9% of enplaned

passengers in fiscal year 2023-24.

Amounts billed to airlines are based on budgeted revenues and expenditures, including debt service,

pension charges and proportionate payments to such compensation and other insurances or outside

reserve funds as the Commission may establish or the Board of Supervisors may require with respect

to employees of the Commission. Noncash accrued pension obligations other than those actually paid

or budgeted to be paid during the fiscal year are excluded. Noncash accrued Other Postemployment

Benefit obligations are included. Unanticipated sources of Revenues, or unanticipated grant funding

available to apply to offset Airport expenses, can result in aviation revenue collected in advan

ce.

Aviation revenue collected in advance will be applied to reduce future billings and is recorded as a

liability in the financial statements. Aviation revenue due to be collected will be reduced by increases in

future billings and is recorded as an asset in the financial statements. Pursuant to the terms of the

Lease and Use Agreement, the Airport has a net aviation revenue collected in advance of $461.7

million as of June 30, 2023.

(j)

Concession Revenues

Concession revenues consist of rentals and fees derived from food and beverage concessions, duty

free, retail merchandise and rental car concessions. Revenues are based on terms of lease

agreements entered into between the Airport and concessionaires and are the greater of a percentage

of tenant’s gross revenues or, where applicable, MAG amount.

(k)

Hotel Revenues

Hotel revenues consist of rooms, food and beverage, garage, meeting and special event, and parking

services.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(l)

Parking and Transportation Revenues

Parking and transportation revenues consist of fees derived from parking facilities and ground

transportation operations. Parking revenues are parking fees collected from all public parking facilities

at the Airport. Transportation revenues are ground transportation trip fees assessed to commercial

vehicles that service the Airport.

(m)

Sales and Services Revenues

Sales and services revenues are collected for utility, security, and miscellaneous services provided to

the tenants. Utility services are provided by the City. See note 13.

(n)

Environmental Remediation Expenses and Recoveries

The Airport incurs costs associated with environmental remediation activities, which arise during the

normal course of business. These costs are recorded as a liability when the Airport is required to

perform the remediation and if the costs can be reasonably estimated. The Airport records

environmental remediation cost recoveries as nonoperating revenues in the financial statements.

(o)

Capital Contributions

The Airport receives grants for the purpose of acquisition or construction of property and equipment.

These grants are recorded as capital contributions when earned generally upon expenditures of the

funds.

(p)

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make

estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the

financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

(q)

Reclassification

Certain amounts have been reclassified to conform to the current year’s presentation.

(3) Cash, Cash Equivalents, and

Investments

Pooled Cash and Investments

The Airport maintains operating cash, cash equivalents, investments, and certain restricted cash and

investments as part of the City’s investment pool. The City’s investment pool is an unrated pool

pursuant to investment policy guidelines established by the City Treasurer and is treated as a cash

equivalent for financial reporting purposes as the Airport is able to withdraw amounts from the pool on

demand without notice or penalty. The objectives of the City Treasurer’s investment policy are, in order

of priority, preservation of capital, liquidity, and yield. The policy addresses soundness of financial

institutions in which the City will deposit funds, types of investment instruments as permitted by the

California Government Code and the City Treasurer policy, and the percentage of the portfolio that may

be invested in certain instruments with longer terms to maturity. The Airport’s unspent bond and

commercial paper note proceeds are also generally invested as part of the City’s investment pool.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

The Airport’s cash and investments, at fair value, held in the City’s pool as of June 30, 2023 (in

thousands):

Amount

Pooled cash and investments:

Cash and investments held in City Treasury – unrestricted $ 998,115

Cash and investments held in City Treasury – restricted

current 575,751

Cash and investments held in City Treasury – restricted

noncurrent 545,745

Total cash and investments held in City Treasury $ 2,119,611

The following table shows the percentage distribution of the City’s pooled investments by maturity:

Investment maturities (in months)

Under 1 1 – less than 6 6 – less than 12 12 – 60

21.5% 18.0% 14.5% 46.0%

(b)

Cash and Investments with Fiscal Agent

The restricted assets for revenue bond reserves, debt service and costs of issuance are held by an

independent bond trustee for the Airport’s senior lien bonds (the Senior Trustee) and a separate

independent bond trustee for the Airport’s subordinate lien bonds (the Subordinate Trustee, and

collectively with the Senior Trustee, the Trustees). In addition, restricted assets relating to the Hotel

Special Facility Bonds are held by an independent bond trustee for the Hotel Special Facility Bonds.

The unrestricted assets in the debt service holding fund and the variable rate demand bond fee

account are not pledged to the payment of the Airport Commission’s bonds, but are held by the Senior

Trustee for the convenience of the Airport Commission in the administration and investment of monies

delivered to the Senior Trustee prior to the time the Airport Commission is required to make deposits

into the Debt Service Fund or pay the fees of the remarketing agents for the Airport Commission’s

variable rate bonds, respectively.

Custodial Credit Risk - Deposits

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financ

ial

institution, the Airport will not be able to recover its deposits or will not be able to recover collateral

securities that are in the possession of an outside party. The California Government Code and the

City’s investment policy do not contain legal or policy requirements that would limit the exposure to

stodial credit risk for deposits.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

The California Government Code requires California banks and savings and loan associations to

secure the Airport’s deposits not covered by FDIC insurance by pledging government and/or local

agency securities as collateral. The fair value of such pledged securities must equal at least 110% and

be of the type authorized in California Government Code, Section 53651 (a) through (i). The collateral

must be held at the pledging bank’s trust department or another bank, acting as the pledging bank’s

agent, in the Airport’s name. At June 30, 2023, all banks with funds deposited by the Treasurer secured

deposits with sufficient collateral or FDIC insurance.

Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an

investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair

value to changes in interest rates. Information about the sensitivity to the fair values of the Airport’s

investments to interest rate fluctuations is provided by the following tables, which shows the distribution

of the Airport’s investments by maturity.

Credit Risk

Credit risk is the risk that an issuer of an investment will not fulfill its obligation to pay the holder of the

investment. This is measured by the assignment of a rating by a nationally recognized statistical rating

organization. The S&P Global Ratings (S&P) rating for each of the investment types are provided by

the following tables.

Custodial Credit Risk – Investments

Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a

transaction, the Airport will not be able to recover the value of its investment or collateral securities that

are in the possession of another party. The California Government Code and the City’s investment

policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk

for investments; however, it is the practice of the City Treasurer that all investments are insured,

registered or held by the Treasurer’s custodial agent in the Airport’s name. The Airport also has

investments with trustees related to the issuance of bonds that are uninsured, unregistered and held by

the counterparty’s trust departments but not in the Airport’s name. These amounts are included in the

investments outside City Treasury and are provided by the following tables.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Concentration of Credit Risk

The City’s investment policy contains no limitations on the amount that can be invested in any one

issuer beyond that stipulated by the California Government Code and/or its investment policy. U.S.

Treasury and agency securities explicitly guaranteed by the U.S. government are not subject to single

issuer limitation.

The Airport holds investments with trustees that represent 5.0% or more of the Airport’s investments

outside City Treasury as of June 30, 2023:

Federal National Mortgage Association 6.59%

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

As of June 30, 2023, the Senior Trustee held investments for the benefit of the Airport with maturities as

follows (in thousands):

Credit ratings

June 30, 2023

(S&P/Moody’s

June 30, 2023

Investments / Fitch) Maturities Fair value

Federal Home Loan Bank Notes AA+/Aaa/NR September 4, 2025 $ 1,029

Federal Home Loan Bank Notes AA+/Aaa/NR September 4, 2025 187

Federal Home Loan Bank Notes AA+/Aaa/NR December 8, 2023 7,215

Federal Home Loan Bank Notes AA+/Aaa/NR December 8, 2023 1,140

Federal National Mortgage

Association Notes AA+/Aaa/AA+ June 17, 2025 9,973

Federal National Mortgage

Association Notes AA+/Aaa/AA+ August 25, 2025 7,064

Federal National Mortgage

Association Notes AA+/Aaa/AA+ November 7, 2025 8,771

Federal National Mortgage

Association Notes AA+/Aaa/AA+ January 7, 2025 8,471

Federal National Mortgage

Association Notes AA+/Aaa/AA+ January 7, 2025 7,869

Federal National Mortgage

Association Notes AA+/Aaa/AA+ June 17, 2025 1,033

Federal National Mortgage

Association Notes AA+/Aaa/AA+ August 25, 2025 741

Federal National Mortgage

Association Notes AA+/Aaa/AA+ November 7, 2025 902

Federal National Mortgage

Association Notes AA+/Aaa/AA+ January 7, 2025 882

Federal National Mortgage

Association Notes AA+/Aaa/AA+ January 7, 2025 474

US Treasury Bill A-1+/P-1/F1+ October 26, 2023 39,335

US Treasury Notes AA+/Aaa/AA+ March 31, 2028 13,122

US Treasury Notes AA+/Aaa/AA+ March 31, 2026 11,747

US Treasury Notes AA+/Aaa/AA+ April 30, 2026 10,803

US Treasury Notes AA+/Aaa/AA+ April 30, 2026 9,003

US Treasury Notes AA+/Aaa/AA+ September 30, 2026 5,367

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Credit ratings

June 30, 2023

(S&P/Moody’s

June 30, 2023

Investments / Fitch) Maturities Fair value

US Treasury Notes AA+/Aaa/AA+ September 30, 2026 6,708

US Treasury Notes AA+/Aaa/AA+ November 15, 2024 15,704

US Treasury Notes AA+/Aaa/AA+ November 30, 2026 9,637

US Treasury Notes AA+/Aaa/AA+ June 30, 2027 5,769

US Treasury Notes AA+/Aaa/AA+ June 30, 2027 9,615

US Treasury Notes AA+/Aaa/AA+ June 30, 2027 7,692

US Treasury Notes AA+/Aaa/AA+ August 31, 2027 5,450

US Treasury Notes AA+/Aaa/AA+ August 31, 2027 9,465

US Treasury Notes AA+/Aaa/AA+ October 31, 2027 5,469

US Treasury Notes AA+/Aaa/AA+ October 31, 2027 14,916

US Treasury Notes AA+/Aaa/AA+ December 31, 2027 10,645

US Treasury Notes AA+/Aaa/AA+ April 30, 2028 18,454

US Treasury Notes AA+/Aaa/AA+ March 31, 2028 700

US Treasury Notes AA+/Aaa/AA+ March 31, 2026 1,355

US Treasury Notes AA+/Aaa/AA+ April 30, 2026 1,170

US Treasury Notes AA+/Aaa/AA+ April 30, 2026 900

US Treasury Notes AA+/Aaa/AA+ September 30, 2026 447

US Treasury Notes AA+/Aaa/AA+ September 30, 2026 894

US Treasury Notes AA+/Aaa/AA+ November 15, 2024 1,505

US Treasury Notes AA+/Aaa/AA+ November 30, 2026 901

US Treasury Notes AA+/Aaa/AA+ November 30, 2026 1,081

US Treasury Notes AA+/Aaa/AA+ June 30, 2027 769

US Treasury Notes AA+/Aaa/AA+ August 31, 2027 956

US Treasury Notes AA+/Aaa/AA+ August 31, 2027 526

US Treasury Notes AA+/Aaa/AA+ October 31, 2027 646

US Treasury Notes AA+/Aaa/AA+ October 31, 2027 1,492

US Treasury Notes AA+/Aaa/AA+ December 31, 2027 1,577

US Treasury Notes AA+/Aaa/AA+ April 30, 2028 1,894

US Treasury Notes AA+/Aaa/AA+ March 31, 2024 215

US Treasury Notes AA+/Aaa/AA+ April 30, 2024 215

US Treasury Notes AA+/Aaa/AA+ March 31, 2024 54

US Treasury Notes AA+/Aaa/AA+ April 30, 2024 54

US Treasury Notes AA+/Aaa/AA+ February 15, 2028 13,152

US Treasury Notes AA+/Aaa/AA+ May 15, 2028 7,700

US Treasury Notes AA+/Aaa/AA+ June 30, 2024 6,752

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Credit ratings

June 30, 2023

(S&P/Moody’s

June 30, 2023

Investments / Fitch) Maturities Fair value

US Treasury Notes AA+/Aaa/AA+ December 31, 2023 3,448

US Treasury Notes AA+/Aaa/AA+ December 31, 2023 8,078

US Treasury Notes AA+/Aaa/AA+ April 30, 2024 12,053

US Treasury Notes AA+/Aaa/AA+ May 15, 2027 14,895

US Treasury Notes AA+/Aaa/AA+ July 31, 2024 12,838

US Treasury Notes AA+/Aaa/AA+ August 31, 2024 5,025

US Treasury Notes AA+/Aaa/AA+ August 31, 2024 11,633

US Treasury Notes AA+/Aaa/AA+ October 31, 2024 6,835

US Treasury Notes AA+/Aaa/AA+ October 31, 2024 9,513

US Treasury Notes AA+/Aaa/AA+ January 31, 2027 4,528

US Treasury Notes AA+/Aaa/AA+ January 31, 2027 6,339

US Treasury Notes AA+/Aaa/AA+ January 31, 2027 11,319

US Treasury Notes AA+/Aaa/AA+ February 28, 2025 12,371

US Treasury Notes AA+/Aaa/AA+ April 30, 2025 11,182

US Treasury Notes AA+/Aaa/AA+ April 30, 2025 8,371

US Treasury Notes AA+/Aaa/AA+ April 30, 2025 8,896

US Treasury Notes AA+/Aaa/AA+ June 30, 2025 8,674

US Treasury Notes AA+/Aaa/AA+ July 31, 2025 16,377

US Treasury Notes AA+/Aaa/AA+ November 30, 2025 4,061

US Treasury Notes AA+/Aaa/AA+ November 30, 2025 3,610

US Treasury Notes AA+/Aaa/AA+ January 31, 2026 5,386

US Treasury Notes AA+/Aaa/AA+ January 31, 2026 6,284

US Treasury Notes AA+/Aaa/AA+ January 31, 2026 14,093

US Treasury Notes AA+/Aaa/AA+ January 31, 2026 3,591

US Treasury Notes AA+/Aaa/AA+ March 15, 2024 15,531

US Treasury Notes AA+/Aaa/AA+ October 31, 2023 6,943

US Treasury Notes AA+/Aaa/AA+ October 31, 2023 40,668

US Treasury Notes AA+/Aaa/AA+ February 15, 2028 752

US Treasury Notes AA+/Aaa/AA+ May 15, 2028 806

US Treasury Notes AA+/Aaa/AA+ June 30, 2024 482

US Treasury Notes AA+/Aaa/AA+ June 30, 2024

482

US Treasury Notes AA+/Aaa/AA+ May 15, 2027 1,210

US Treasury Notes AA+/Aaa/AA+ August 31, 2024 95

US Treasury Notes AA+/Aaa/AA+ October 31, 2024 709

US Treasury Notes AA+/Aaa/AA+ October 31, 2024 381

US Treasury Notes AA+/Aaa/AA+ January 31, 2027 906

US Treasury Notes AA+/Aaa/AA+ January 31, 2027 815

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Credit ratings

June 30, 2023

(S&P/Moody’s

June 30, 2023

Investments / Fitch) Maturities Fair value

US Treasury Notes AA+/Aaa/AA+ January 31, 2027 1,268

US Treasury Notes AA+/Aaa/AA+ February 28, 2025 1,246

US Treasury Notes AA+/Aaa/AA+ April 30, 2025 1,044

US Treasury Notes AA+/Aaa/AA+ April 30, 2025 2,111

US Treasury Notes AA+/Aaa/AA+ June 30, 2025 913

US Treasury Notes AA+/Aaa/AA+ July 31, 2025 1,183

US Treasury Notes AA+/Aaa/AA+ November 30, 2025 542

US Treasury Notes AA+/Aaa/AA+ January 31, 2026 1,167

US Treasury Notes AA+/Aaa/AA+ January 31, 2026 1,526

US Treasury Notes AA+/Aaa/AA+ January 31, 2026 269

US Treasury Notes AA+/Aaa/AA+ August 31, 2023 219

US Treasury Notes AA+/Aaa/AA+ September 30, 2023 219

US Treasury Notes AA+/Aaa/AA+ October 31, 2023 218

US Treasury Notes AA+/Aaa/AA+ November 30, 2023 218

US Treasury Notes AA+/Aaa/AA+ December 31, 2023 217

US Treasury Notes AA+/Aaa/AA+ January 31, 2024 216

US Treasury Notes AA+/Aaa/AA+ February 29, 2024 215

US Treasury Notes AA+/Aaa/AAA July 31, 2023 220

US Treasury Notes AA+/Aaa/AA+ August 31, 2023 55

US Treasury Notes AA+/Aaa/AA+ September 30, 2023 55

US Treasury Notes AA+/Aaa/AA+ October 31, 2023 55

US Treasury Notes AA+/Aaa/AA+ November 30, 2023 54

US Treasury Notes AA+/Aaa/AA+ December 31, 2023 54

US Treasury Notes AA+/Aaa/AA+ January 31, 2024 54

US Treasury Notes AA+/Aaa/AA+ February 29, 2024 54

US Treasury Notes AA+/Aaa/AAA July 31, 2023 55

Federal Home Loan Mortgage

Corp Notes AA+/Aaa/AA+ July 21, 2025 5,989

Federal Home Loan Mortgage

Corp Notes AA+/Aaa/AA+ July 21, 2025 3,649

Federal Home Loan Mortgage

Corp Notes AA+/Aaa/AA+ September 23, 2025 7,144

Federal Home Loan Mortgage

Corp Notes AA+/Aaa/AA+ December 4, 2023

1,272

Federal Home Loan Mortgage

Corp Notes AA+/Aaa/AA+ July 21, 2025 306

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Credit ratings

June 30, 2023

(S&P/Moody’s June 30, 2023

Investments / Fitch) Maturities Fair value

Federal Home Loan Mortgage

Corp Notes AA+/Aaa/AA+ July 21, 2025 182

Federal Home Loan Mortgage

Corp Notes AA+/Aaa/AA+ September 23, 2025 730

Federal Home Loan Mortgage

Corp Notes AA+/Aaa/AA+ August 1, 2025 4,936

Federal Farm Credit Banks

Funding Corp AA+/Aaa/AA+ April 8, 2024 7,839

Federal Farm Credit Banks

Funding Corp AA+/Aaa/AA+ June 23, 2026 5,082

International Bank for Reconstruction &

Development AAA/Aaa/AAA March 19, 2024 441

International Bank for Reconstruction &

Development AAA/Aaa/AAA January 15, 2025 521

International Bank for Reconstruction &

Development AAA/Aaa/AAA January 15, 2025 379

Inter-American Development Bank AAA/Aaa/AAA September 23, 2024 1,041

State of Oregon Department

of Tranportation AAA/Aa1/AA+ November 15, 2023 222

State of Wisconsin AA+/Aa1/NR May 1, 2024 155

State of Wisconsin NR/Aa2/AA May 1, 2024 228

State of Minnesota AAA/Aaa/AAA August 1, 2025 187

State of Mississippi AA/Aa2/AA November 1, 2023 128

City of San Jose AA+/Aa1/AAA September 1, 2023 487

Long Beach Community College AA/Aa2/NR August 1, 2023 224

Ventura County Community College AA+/Aa1/NR August 1, 2023 533

Los Angeles Community College AA+/Aaa/NR August 1, 2025 200

Los Angeles Unified School District NR/Aa3/AAA July 1, 2025 446

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AAA August 1, 2023 293

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AA+ April 1, 2027 513

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AA+ December 1, 2024 227

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Credit ratings

June 30, 2023

(S&P/Moody’s June 30, 2023

Investments / Fitch) Maturities Fair value

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AA+ March 1, 2025 352

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AA+ December 1, 2024 46

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AA+ May 1, 2025 515

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AA+ December 1, 2025 295

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AA+ January 1, 2026 284

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AA+ August 1, 2026 491

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AA+ November 1, 2026 352

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AA+ November 1, 2023 212

Freddie Mac Multifamily

Structured Pass AA+/Aaa/AAA June 1, 2025 33

Walmart Inc AA/Aa2/AA July 8, 2024 780

New York State Urban

Development Corp NR/NR/AA+ March 15, 2025 514

State Board of Administration Finance AA/Aa3/AA July 1, 2025 125

Rabobank Corporate Notes A+/Aa2/AA- August 22, 2024 783

California State Muni Bonds AA-/Aa2/AA March 1, 2027 219

Massachusetts Commonwealth Muni Bon

NR/Aa1/AAA July 15, 2025 507

Goldman Sachs Financial Square

Obligations Fund AAAm/Aaa-mf/NR - 21,740

First American Government

Obligation Fund AAAm/Aaa-mf/AAAmmf - 11,283

Cash and Cash Equivalent 15,477

Total $ 700,365

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Fair Value Hierarchy

The City categorizes its fair value measurements within the fair value hierarchy established by GAAP.

The hierarchy is based on the valuation inputs used to measure fair value of the assets. The inputs and

techniques used for valuing securities are not necessarily an indication of risk associated with investing

in those securities.



Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities

accessible to the reporting entity at the measurement date.



Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset

or liability, either directly or indirectly, for substantially the full term of the asset or liability.



Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the

extent that observable inputs are not available, thereby allowing for situations in which there is little,

if any, market activity for the asset or liability at measurement date.

The following is a summary of the fair value hierarchy of the Airport’s cash and investments with fiscal

agent as of June 30, 2023 (in thousands):

Fair value measurement using

Quoted prices

in active Significant

markets for other

Investments identical observable Unobservable

Fair value exempt from assets inputs inputs

June 30, 2023 fair value (Level 1) (Level 2) (Level 3)

Investments outside City Treasury:

State and local agencies

4,177 — — 4,177 —

upranationals 2,382 — — 2,382 —

U.S. agencies 96,493 — — 96,493 —

U.S. corporate bonds/notes (medium

term notes) 1,563 — — 1,563 —

. treasury securities 547,250 — 547,250 — —

ash and cash equivalents 15,477 15,477 — — —

Money market funds* 33,023 33,023 — — —

Total $ 700,365 48,500 547,250 104,615 —

* Investments exempt from fair value

Investments outside the City Treasury pool may consist of U.S. Treasury securities, U.S. Government

Agency securities, and other investments such as commercial paper, money market funds, negotiable

certificates of deposit, supranational securities, and other investments permitted under the applicable

bond documents. U.S. Treasury securities are valued using quoted prices in active markets and

classified in Level 1 of the fair value hierarchy. U.S. Government Agency securities are valued using

mid pricing and classified in Level 2 of the fair value hierarchy. Investments exempt from fair value

treatment consist of money market mutual funds with investment holdings having maturities of one year

or less at the time of purchase.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

The primary objectives of the Airport’s policy on investment of debt service reserve funds and debt

service funds (including principal and interest accounts) held by the Trustees are, in order of priority,

safety, liquidity, and yield.

Safety of principal is the foremost objective of the investment program. Investments undertaken seek to

ensure the preservation of capital in the overall portfolio. As one strategy to attain this objective,

investments are diversified.

The term of any investment is based on the cash flow needed to meet the Airport’s debt service

requirements. Consequently, investment of any debt service reserve funds is limited to seven years or

less, and all monies invested in any principal and interest payment accounts are to mature no later than

the dates on which the principal or interest payments are due.

The Airport will maximize the retainable earnings of all bond proceeds after meeting the requirements of

safety and liquidity. After these objectives are met, the Airport’s investment policy will attempt to

achieve net investment yield as close as practicable to each bond fund’s arbitrage yield, if any.

Funds held by the Senior Trustee in funds and accounts established under the Airport Commission’s

Resolution No. 91-0210 adopted on December 3, 1991 (as amended and supplemented, the “1991

Master Bond Resolution”), are invested in “Permitted Investments” as defined in the 1991 Master Bond

Resolution.

Funds held by the Subordinate Trustee in funds and accounts established under the Airport

Commission’s Resolution No. 97-0146 adopted on May 20, 1997, as amended and supplemented (the

1997 Note Resolution) are invested in “Permitted Investments” as defined in the 1997 Note Resolution.

The Airport had approximately $700.4 million in investments held by, and in the name of, the Senior

Trustee and the Subordinate Trustee, collectively, as of June 30, 2023.

All other funds of the Airport are invested in accordance with (1) the City Treasurer’s policy and, if

applicable, (2) the 1991 Master Bond Resolution or the 1997 Note Resolution, as appropriate.

(4) Grants Receivable

The Airport receives federal funding from the FAA, the TSA, and other federal agencies. Grants receivable

of $30.3 million as of June 30, 2023, were based on actual costs incurred, subject to federal reimbursement

limits.

When determining the distribution of discretionary grants, the Secretary of Transportation may consider, as

a militating factor, whether the Airport uses its revenues for purposes other than capital or operating costs,

when those revenues exceed the amount used by the Airport for such costs in the base year ending June

30, 1995, as adjusted for inflation. The Airport Commission pays a portion of the Airport’s revenues to the

City’s General Fund as an annual service payment, in part as compensation for indirect services,

management and facilities provided by the City to the Airport. The annual service payment is considered to

be a noncapital, nonoperating cost for this purpose. With the exception of five fiscal years, the annual

service payment has exceeded the base year payment when adjusted for inflation since fiscal year 1995-

96.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

In the past, the Commission has received a lower amount of FAA discretionary grants than it requested as a

result of the amount of the annual service payments. The FAA militated $6.7 million in discretionary grants

in the federal fiscal year ended September 30, 2023, and the Commission received $39.0 million in FAA

discretionary grants, which included Bipartisan Infrastructure Law Airport Terminal Program funding. The

FAA may reduce discretionary grants in the future. Furthermore, AIP funding may be reduced in the future

as a result of legislation or the failure of the U.S. Congress to pass an annual appropriation bill including

such funding. Reduction in grants awarded to the Commission could result in the delay or cancellation of

projects or the incurrence of additional debt by the Commission.

Grant-funded project costs are subject to audit by the funding agencies to ensure that the costs are

allowable under the grant agreements. If any project costs are disallowed, amounts recorded as grants

receivable will be reduced or refunded to the respective funding agencies.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(5) Capital Assets

Capital assets consist of the following (in thousands):

July 1, 2022 Increases Decreases June 30, 2023

Capital assets not being depreciated/amortized:

Land $ 29,813 — — $ 29,813

Intangible assets 6,881 — — 6,881

Construction in progress 771,911 310,492 (82,197) 1,000,206

Total capital assets not being

depreciated/amortized 808,605 310,492 (82,197) 1,036,900

Capital assets being depreciated/amortized:

Buildings, structures, and improvements 9,225,038 78,222 (16,503) 9,286,757

Equipment 939,236 3,020 (5,395) 936,861

Right to use asset 671 2,697 — 3,368

Intangible assets 37,610 740 (479) 37,871

Total capital assets being

depreciated/amortized 10,202,555 84,679 (22,377) 10,264,857

Less accumulated depreciation/amortization:

Buildings, structures, and improvements (3,587,917) (263,191) 16,504 (3,834,604)

Equipment (413,799) (88,100) 5,321 (496,578)

Right to use asset (278) (1,524) — (1,802)

Intangible assets (32,093) (2,660) 478 (34,275)

Total accumulated

depreciation/amortization (4,034,087) (355,475) 22,303 (4,367,259)

Total capital assets being

depreciated/amortized, net 6,168,468 (270,796) (74) 5,897,598

Total capital assets, net $ 6,977,073 39,696 (82,271) $ 6,934,498

In fiscal year 2006-07, the Airport adopted a cost allocation plan to capture indirect costs as a component of

a building or other capital asset to reflect the full and true cost of a capital asset. In accordance with the

Uniform Guidance, the indirect costs capitalized for the fiscal year ended June 30, 2023, were $16.9

million.

For details on leases for Airport as lessee, see note 9.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(6) Subordinate Commercial Paper Notes

On May 20, 1997, the Airport Commission adopted Resolution No. 97-0146 (as amended and

supplemented, the 1997 Note Resolution). The 1997 Note Resolution authorizes the issuance of

subordinate commercial paper (CP) notes in an aggregate principal amount not to exceed the lesser of

$600.0 million or the stated amount of the letter(s) of credit securing the CP notes.

The Airport issues CP notes in series based on tax status that are divided into subseries according to the

bank providing the applicable direct-pay letter of credit. In addition to the applicable letter of credit, the CP

notes are further secured by a pledge of the Net Revenues of the Airport, subject to the prior payment of

the Commission’s San Francisco International Airport Second Series Revenue Bonds (the Senior Bonds)

outstanding from time to time under Resolution No. 91-0210, adopted by the Commission on December 3,

1991 (as amended and supplemented, the 1991 Master Bond Resolution).

Net Revenues are generally defined in the 1997 Note Resolution as all revenues earned by the

Commission from or with respect to its construction, possession, management, supervision, maintenance,

extension, operation, use and control of the Airport (not including certain amounts specified in the 1997

Note Resolution), less Operation and Maintenance Expenses (as defined in the 1997 Note Resolution).

See note 8.

The CP notes are special, limited obligations of the Commission, and the payment of the principal of and

interest on the CP notes is secured by a pledge of, lien on and security interest in the Net Revenues and

amounts in the funds and accounts as provided in the 1997 Note Resolution, subject to the prior payment

of principal of and interest on the Senior Bonds. The CP notes are secured on a parity with any other bonds

or other obligations from time to time outstanding under the 1997 Note Resolution.

Events of default for the CP notes include nonpayment events, bankruptcy events, noncompliance with

covenants, and default under the 1991 Master Bond Resolution. The CP notes are not subject to

acceleration.

Events of default with respect to the letters of credit supporting the CP notes include nonpayment events

(both on CP notes and Senior Bonds), bankruptcy events, noncompliance with covenants, default on debt

in excess of a specified threshold amount, default under the 1997 Note Resolution, or a determination of

taxability of interest on the tax-exempt CP notes. A downgrade of the Commission’s Senior Bonds to below

“Baa1” by Moody’s or “BBB+” by S&P or Fitch is an event of termination with respect to all of the letters of

credit supporting the CP notes. In addition, the State Street Bank and Trust letter of credit supporting

$100.0 million of CP notes includes certain changes in law affecting the Commission’s payment obligations

to the bank as events of termination. Remedies include the letter of credit bank’s ability to stop issuance of

the CP notes it supports and to require a final drawing on the letter of credit. If not repaid when due,

drawings under the respective letters of credit supporting the CP notes are amortized over a three-, four-,

or five-year period.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

As of June 30, 2023, the CP program was supported by six direct-pay letters of credit with a combined

maximum stated principal amount of $600.0 million, from State Street Bank and Trust Company ($100.0

million, expires May 2, 2024), Sumitomo Mitsui Banking Corporation, acting through its New York Branch

($100.0 million, expires April 7, 2027), Barclays Bank PLC ($100.0 million, expires May 24, 2024), Sumitomo

Mitsui Banking Corporation, acting through its New York Branch ($100.0 million, expires June 6, 2028),

Barclays Bank PLC ($125.0 million, expires April 23, 2027), and Bank of America, N.A. ($75.0 million,

expires May 4, 2026). Each of the letters of credit supports a separate subseries of CP notes.

As of June 30, 2023, there were no obligations other than the CP notes outstanding under the 1997 Note

Resolution.

During fiscal year 2022-23, the Airport issued new money CP notes in the aggregate principal amount of

$392.0 million (AMT), $22.5 million (Non-AMT), and $2.8 million (Taxable) to fund capital improvement

projects.

The following table summarizes CP activity during the fiscal year ended June 30, 2023 (in thousands):

Interest rate July 1, 2022 Increases Decreases June 30, 2023

Commercial paper (Taxable) - short term 3.50%-5.45% $ 2,700 2,750 — 5,450

Commercial paper (AMT) - long term 2.32%-3.42% 65,225 392,000 — 457,225

Commercial paper (Non-AMT) - long term 2.42%-3.35% 18,050 22,500 — 40,550

Total $ 85,975 417,250 — 503,225

The table presents the commercial paper notes' net increase and decrease activities during fiscal year FY2022-23. This

excludes the issuance of commercial paper notes to repay maturing commercial paper notes.

As of June 30, 2023, the Airport had $503.2 million in outstanding commercial paper notes including $497.8 million that was

refunded by the Series 2023C/D bonds issued on November 15, 2023. The $497.8 million has been reclassed to long-term

commercial paper notes on the financial statements as of June 30, 2023. See note 17.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(7) Long-Term Obligations

Long-term obligation activity for the year ended June 30, 2023, is as follows (in thousands):

ue w

ly 1

2022

ncreases

ecrease

une

2023

one

ear

Revenue bonds payable $ 8,099,275 241,915 (291,525) 8,049,665 87,750

Add unamortized premiums 986,339 21,584 (53,367) 954,556 —

Total revenue bonds

payable 9,085,614 263,499 (344,892) 9,004,221 87,750

Commercial paper notes - long term — 497,775 — 497,775 —

Compensated absences 24,184 11,474 (11,471) 24,187 12,326

Accrued workers’ compensation 12,093 5,929 (5,455) 12,567 2,710

Estimated claims payable 2,158 2,136 (22) 4,272 122

Other liabilities and leases payable 469 2,697 (1,980) 1,186 816

Net OPEB liability (see note 12b) 251,367 6,400 — 257,767 —

Net pension liability (asset) (see note 12a) (153,872) — 316,072 162,200 —

Derivative instruments 10,192 — (10,192) — —

Total $ 9,232,205 789,910 (57,940) 9,964,175 103,724

Bond Transactions and Balances

On December 3, 1991, the Commission adopted Resolution No. 91-0210 (as amended and supplemented,

the 1991 Master Bond Resolution). The 1991 Master Bond Resolution authorizes the issuance from time to

time of San Francisco International Airport Second Series Revenue Bonds to finance and refinance capital

projects at the Airport. The maximum principal amount of such bonds is not limited by the 1991 Master

Bond Resolution, but the Commission must satisfy an additional bonds test prior to the issuance of any

such bonds. The 1991 Master Bond Resolution constitutes a contract between the Commission and the

registered owners of the bonds under which the Commission has irrevocably pledged the Net Revenues of

the Airport to the payment of the principal of and interest on the bonds.

Net Revenues are generally defined in the 1991 Master Bond Resolution as all revenues earned by the

Commission from or with respect to its possession, management, supervision, operation, and control of the

Airport (not including certain amounts specified in the 1991 Master Bond Resolution), less Operation and

Maintenance Expenses (as defined in the 1991 Master Bond Resolution). See note 8. Net Revenues

generally exclude revenues from Airport facilities that have been designated by the Commission as

“Special Facilities” and expenses of Special Facilities payable from such excluded revenues.

The bonds are special, limited obligations of the Commission, and the principal of and interest on the bonds

are payable solely from and secured by a pledge of, lien on and security interest in the Net Revenues and

amounts in the funds and accounts provided in the 1991 Master Bond Resolution. The payment of the

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

principal of and interest on all previously issued bonds under the 1991 Master Bond Resolution is secured

by a pledge of, lien on and security interest in Net Revenues on a parity with the pledge, lien and security

interest securing any additional bonds issued thereunder.

Events of default for the bonds include nonpayment events, bankruptcy events, and noncompliance with

covenants, including the rate covenant described below. The bonds are not subject to acceleration.

Payment of principal, interest and purchase price of bonds that bear interest at variable interest rates are

supported by letters of credit. Events of default with respect to the letters of credit supporting the bonds

include nonpayment events, bankruptcy events, noncompliance with covenants, default on debt in excess

of a specified threshold amount, default under the 1991 Master Bond Resolution, or a determination of

taxability of interest on tax-exempt bonds supported by the letter of credit. A downgrade of the

Commission’s Senior Bonds to below “Baa1” or “BBB+” or withdrawal or suspension of a bond rating for

credit-related reasons by any rating agency is an event of termination under the letters of credit supporting

the bonds. Remedies include the letter of credit bank’s ability to cause a mandatory tender of the supported

bonds or to accelerate amounts due and payable to the bank; provided that payments made on a parity

with the bonds are capped based on provisions in the 1991 Master Bond Resolution. If there are no default

events pending, drawings under the respective letters of credit supporting the bonds are amortized over a

three- or five-year period; provided that payments made on a parity with the bonds are capped based on

provisions in the 1991 Master Bond Resolution.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

As of June 30, 2023, long-term revenue bonds consisted of the following (in thousands):

Description Date of issue Interest rate June 30, 2023

Second Series Revenue Bonds:

Issue 2009D 11/04/09 3.00%-3.50% $ 51,615

Issue 2013A 07/31/13 5.00%-5.50% 241,790

Issue 2014A 09/24/14 5.00% 376,310

Issue 2014B 09/24/14 5.00% 97,290

Issue 2016A 02/25/16 4.00%-5.00% 139,020

Issue 2016B 09/29/16 5.00% 574,970

Issue 2016C 09/29/16 5.00% 165,155

Issue 2016D 09/29/16 5.00% 100,280

Issue 2017A 10/31/17 5.00% 339,580

Issue 2017B 10/31/17 5.00% 231,985

Issue 2017D 10/31/17 5.00% 72,015

Issue 2018D 05/30/18 5.00%-5.25% 722,800

Issue 2018E 05/30/18 5.00% 116,275

Issue 2018F 05/30/18 3.80% 7,025

Issue 2018G 05/30/18 5.00% 35,660

Issue 2018B** 06/06/18 Variable rate 138,170

Issue 2018C** 06/06/18 Variable rate 138,170

Issue 2019A 02/07/19 4.00%-5.00% 1,176,215

Issue 2019B 02/07/19 5.00% 91,280

Issue 2019C 02/07/19 3.51% 8,010

Issue 2019D 02/07/19 5.00% 373,295

Issue 2019E 09/10/19 4.00%-5.00% 773,475

Issue 2019F 09/10/19 5.00% 106,925

Issue 2019G 09/10/19 1.98%-2.39% 12,285

Issue 2019H 09/10/19 5.00% 148,195

Issue 2020A 08/20/20 4.00%-5.00% 109,520

Issue 2020B 08/20/20 4.00% 51,575

Issue 2020C 08/20/20 2.96% 130,180

Issue 2021A 04/21/21 5.00% 195,225

Issue 2021B 04/21/21 5.00% 129,070

Issue 2021C 04/21/21 3.35% 222,810

Issue 2022A 02/08/22 4.00%-5.00% 301,530

Issue 2022B 02/08/22 4.00%-5.00% 236,475

Issue 2022C 02/08/22 2.58%-3.33% 194,815

Issue 2023A 03/01/23 5.00% 161,165

Issue 2023B 03/01/23 5.00% 79,510

8,049,665

Unamortized premium 954,556

Total revenue bonds payable 9,004,221

Less current portion (87,750)

Total long-term revenue bonds payable $ 8,916,471

** The Commission used the proceeds of the Series 2018B/C Bonds to purchase $260.0 million of San Francisco

International Airport Hotel Special Facility Revenue Bonds; to finance the development and construction of an AirTrain

station adjacent to the on-Airport Hotel; and to pay costs of issuance of the Series 2018B/C Bonds.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Interest Rate Swaps

The Airport entered into forward starting interest rate swaps in connection with the anticipated issuance of

its Second Series Variable Rate Revenue Refunding Bonds, Series 2010A, on February 10, 2010. The

swap structure was intended as a means to increase the Airport’s debt service savings by setting a low

synthetic fixed rate in advance of the first date that tax-exempt variable rate refunding bonds could be

issued in the future to refinance callable bonds.

The Airport terminated these interest rate swaps on August 9, 2019 and March 1, 2023.

As of June 30, 2023, all swaps had been terminated.

Debt Service Reserve and Covenants; Contingency Account

The Airport Commission issues its senior lien San Francisco International Airport Second Series Revenue

Bonds under the 1991 Master Bond Resolution, which provides, among other things, the general terms and

conditions of the bonds, the funds and accounts relating to the bonds, and certain covenants made by the

Airport Commission for the benefit of bondholders. Such covenants include not creating or allowing

creation of liens on the Revenues or disposing of any property necessary to maintaining revenues or

operating the Airport and maintaining specified levels of insurance or self-insurance. The Airport

Commission may establish one or more reserve accounts with different reserve requirements to secure one

or more series of bonds. Accordingly, the Airport Commission has established three reserve accounts in

the Reserve Fund: the Issue 1 Reserve Account, the 2009 Reserve Account, and the 2017 Reserve

Account, all of which are held by the Senior Trustee. In conjunction with the defeasance of the Series

2010D Bonds on August 20, 2020, the 2009 Reserve Account was closed. As permitted under the 1991

Master Bond Resolution, the Airport Commission may establish separate reserve accounts for individual

series of bonds or may issue bonds without a reserve account.

Issue 1 Reserve Account – The Issue 1 Reserve Account is the Airport’s original parity reserve account

established in connection with the first issuance of bonds under the 1991 Master Bond Resolution and

which now secures most of the Airport Commission’s outstanding bonds. Specifically, as of June 30, 2023,

the Issue 1 Reserve Account secures all outstanding bonds except the series listed below as being

secured by the 2017 Reserve Account, and except for Series 2018B and Series 2018C. The Airport

Commission may designate any series of bonds as a “participating series” secured by the Issue 1 Reserve

Account. The reserve requirement is equal to the maximum annual debt service on the outstanding bonds

secured by the Issue 1 Reserve Account accruing in any year during the life of all participating series of

bonds secured by the Issue 1 Reserve Account.

2017 Reserve Account – The Airport Commission has established an additional pooled reserve account

identified as the 2017 Reserve Account in the Reserve Fund, as security for each series of bonds (a 2017

Reserve Series) that is designated as being secured by the 2017 Reserve Account. As of June 30, 2023,

only the Series 2017D, 2019B, and 2019D Bonds are secured by the 2017 Reserve Account. The reserve

requirement for the 2017 Reserve Account is equal to the lesser of: (i) the maximum amount of aggregate

annual debt service for all 2017 Reserve Series Bonds in any fiscal year during the period from the date of

calculation to the final scheduled maturity of the 2017 Reserve Series Bonds, (ii) 10.0% of the outstanding

aggregate principal amount of all 2017 Reserve Series Bonds (provided that the issue price of a Series of

2017 Reserve Series Bonds will be used in this calculation if such Series was sold with an original issue

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

discount that exceeded 2% of the principal of such Series on its original date of sale), and (iii) 125% of the

average aggregate annual debt service for all 2017 Reserve Series Bonds.

Reserve Policies – Under the 1991 Master Bond Resolution, the Airport Commission may satisfy a portion

of a reserve requirement by depositing with the Senior Trustee one or more reserve policies issued by a

credit provider meeting specified rating requirements. However, the 1991 Master Bond Resolution does not

require that those ratings be maintained after the date of deposit. As of June 30, 2023, the Issue 1 Reserve

Account contains reserve policies. Each of the providers of the reserve policies in the reserve accounts

was rated “AAA” at the time the policies were deposited. However, as a result of the financial crisis that

began in 2007, all of the major municipal bond insurance companies have been downgraded, and several

are no longer providing current financial and operating information. In addition, under the terms of several

of the reserve policies, the value of the policies is adjusted downward from time to time as related bonds

are refunded and such policies have experienced a reduction in value and may have experienced a

reduction in value to zero. The policies in the Issue 1 Reserve Account with remaining value have

termination dates. The Airport has periodically deposited additional cash in the Issue 1 Reserve Account to

satisfy the reserve requirement and compensate for the diminished value or downgraded providers of these

reserve policies.

Contingency Account – Under the 1991 Master Bond Resolution, the City Treasurer holds the Contingency

Account as an account within the Revenue Fund, and the Commission may deposit in the Contingency

Account such amounts, if any, as the Commission may determine from time to time. Monies in the

Contingency Account may be applied (i) to pay Operation and Maintenance Expenses; (ii) to make any

required payments or deposits to pay or secure the payment of the principal or purchase price of or interest

or redemption premium on the 1991 Resolution Bonds; and (iii) to pay the cost of any additions,

improvements, repairs, renewals or replacements to the Airport, in each case only if and to the extent that

monies otherwise available to make such payments or deposits are insufficient.

Rate Covenant – Under the terms of the 1991 Master Bond Resolution, the Airport has covenanted that it

will establish and at all times maintain rentals, rates, fees, and charges for the use of the Airport and for

services rendered by the Airport so that:

(a)

Net Revenues (as defined in the 1991 Master Bond Resolution) in each fiscal year will be at least

sufficient (i) to make all required debt service payments and deposits in such fiscal year with

respect to the bonds, any subordinate bonds, and any general obligation bonds issued by the

City

for the benefit of the Airport (there have been no such general obligation bonds outstanding for

more than 30 years), and (ii) to make the annual service payments to the City, and

(b)

Net Revenues, together with any transfer from the Contingency Account to the Revenue Account

(both held by the City Treasurer), in each fiscal year will be at least equal to 125% of aggregate

annual debt service with respect to the bonds for such fiscal year.

The methods required by the 1991 Master Bond Resolution for calculating debt service coverage differ

from those required under GAAP, which are used to determine amounts reported in the Airport’s financial

statements. For example, the 1991 Master Bond Resolution includes in the definition of Operating and

Maintenance Expenses (which is used to calculate Net Revenues) “the payment of pension charges … with

respect to employees of the Commission…” (emphasis added) and excludes a number of noncash accrual

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

items. Accordingly, the Commission excludes from its rate covenant calculations any noncash accrued

pension obligations and includes only pension obligations actually paid during the fiscal year. As another

example, the 1991 Master Bond Resolution excludes from the definition of Operating and Maintenance

Expenses “any expense for which, or to the extent to which, the Commission is or will be paid or

reimbursed from or through any source that is not included or includable as Revenues,” and excludes from

the definition of Revenues “grants-in-aid, donations and/or bequests.” Accordingly, the Commission

excludes from its rate covenant both grant funds used toward operating costs (such as the CRRSAA and

ARPA grant funds) and the operating costs reimbursed using such grant funds.

Post-Issuance Compliance with Federal Tax Law

The Airport follows certain federal tax law post-issuance compliance procedures that are intended to

ensure that proceeds of its tax-exempt bonds are invested and expended consistent with applicable federal

tax law, including the Internal Revenue Code of 1986, the Regulations promulgated thereunder, and other

applicable guidance from the U.S. Treasury Department and the Internal Revenue Service (IRS).

(a)

Second Series Revenue Bonds (Capital Plan Bonds)

Pursuant to resolutions adopted between fiscal years 2008 and 2022, as of June 30, 2023, the Airport

Commission has authorized the issuance of up to $10.8 billion of San Francisco International Airport

Second Series Revenue Bonds (Capital Plan Bonds) to finance and refinance the construction,

acquisition, equipping, and development of capital projects undertaken by the Airport, including retiring

all or a portion of the Airport’s outstanding subordinate commercial paper notes issued for capital

projects, funding debt service reserves, funding capitalized interest, and for paying costs of issuance.

As of June 30, 2023, $4.2 billion of the authorized capital plan bonds remained unissued.

(b)

Second Series Revenue Refunding Bonds

Pursuant to resolutions adopted between fiscal years 2005 and 2023, as of June 30, 2023, the Airport

Commission has authorized the issuance of up to $17.1 billion of San Francisco International Airport

Second Series Revenue Refunding Bonds for the purposes of refunding outstanding 1991 Master Bond

Resolution Bonds and outstanding subordinate commercial paper notes, funding debt service reserves,

and paying costs of issuance, including any related bond redemption premiums. As of June 30, 2023,

$7.2 billion of the authorized refunding bonds remained authorized but unissued.

During fiscal year 2022-23, the Airport issued the following bonds for refunding and other purposes

under the 1991 Master Bond Resolution:

On March 1, 2023, the Airport issued its fixed rate Second Series Revenue Refunding Bonds, Series

2023A (AMT) and Second Series Revenue Refunding Bonds, Series 2023B (Non-AMT/Governmental

Purpose), in an aggregate principal amount of $241.9 million to refund a combined $261.5 million of its

Series 2010A Bonds, Series 2013A Bonds, and Series 2013B Bonds, to fund the termination payment

of an interest rate swap, and to pay costs of issuance.

The proceeds of the Series 2023A and Series 2023B Bonds (consisting of $241.9 million par

amount

and original issue premium of $21.6 million, less an underwriters’ discount of $0.5 million), together

with $8.6 million accumulated in the debt service fund were used to deposit $265.0 million into

redemption accounts and escrow funds with the Senior Trustee to refund $261.5 million in revenue

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

bonds as described below (in thousands), $5.5 million to fund the swap termination payment, and $1.1

million to pay costs of issuance.

The Series 2010A bonds were redeemed on March 31, 2023, and Series 2013A bonds and Series

2013B bonds identified in the table below were redeemed on May 1, 2023.

The following table (in thousands) shows the outstanding balance after the bonds were refunded with

the issuance of Series 2023A/B bonds:

Second Series Revenue Bonds

mount

Issue: Interest Rate June 30, 2022 Refunded June 30,2023

Series 2010A1 (AMT) variable $ 71,845 71,845 -

Series 2010A2 (AMT) variable 47,900 47,900 -

Series 2013A (AMT) 5.00%-5.50% 295,650 53,860 241,790

Series 2013B (Non-

AMT/Governmental Purpose)

5.00% 87,860 87,860 -

Total

503,255 $ 261,465 241,790

In aggregate, the Series 2023A/B refundings resulted in the recognition of a deferred accounting loss of

$3.5 million for the fiscal year ended June 30, 2023. The Series 2023A/B refundings decreased the

Airport’s aggregate gross debt service payments by approximately $23.9 million over the life of the

bonds and obtained an economic gain (the difference between the present values of the debt service

on the old debt and the new debt) of $10.6 million.

(c)

Variable Rate Demand Bonds

As of June 30, 2023, the Airport Commission had an outstanding aggregate principal amount of $276.3

million, consisting of Second Series Variable Rate Revenue Refunding Bonds, Series 2018B and

Series 2018C, (collectively, the “Variable Rate Bonds”) with final maturity dates of May 1, 2058 (Series

2018B and 2018C). The Variable Rate Bonds are long-term, tax-exempt bonds that currently bear

interest at a rate that is adjusted weekly, and that are subject to tender at par at the option of the holder

thereof on seven days’ notice. Any tendered Variable Rate Bonds are remarketed by the applicable

remarketing agent in the secondary market to other investors. The interest rate on the Variable Rate

Bonds can be converted to other interest rate modes, including a term rate or fixed rates to maturity,

upon appropriate notice by the Airport.

The scheduled payment of the principal of and interest on, and payment of purchase price of, the

Variable Rate Bonds is secured by separate irrevocable letters of credit issued to the Senior Trustee for

the benefit of the applicable bondholders by the banks identified in the table below.

Amounts drawn under a letter of credit that are not reimbursed by the Airport constitute “Repayment

Obligations” under the 1991 Master Bond Resolution and are accorded the status of other outstanding

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

bonds to the extent provided in the Resolution. The commitment fees for the letters of credit range

between 0.34% and 0.37% per annum. As of June 30, 2023, there were no unreimbursed draws under

these facilities.

The letters of credit securing the Variable Rate Bonds included in long-term debt as of June 30, 2023,

are as follows (in thousands):

Series 2018B Series 2018C

Principal amount $ 138,170 138,170

Expiration date

Credit provider

June 3, 2026

Barclays

(1)

April 5, 2027

SMBC

(2)

(1) Barclays Bank PLC

(2) Sumitomo Mitsui Banking Corporation, acting through its New York branch

(d)

Hotel Special Facility Bonds

Pursuant to resolutions adopted in fiscal years 2017, 2018, and 2019, the Airport Commission

authorized the issuance of $260.0 million of Special Facility Bonds to finance an on-Airport Ho

tel.

These resolutions also designated the on-Airport Hotel as a “Special Facility” under the 1991 Master

Bond Resolution, which allows the hotel revenues to be segregated from the Airport’s other revenue

and used to pay hotel operating expenses and debt service on the Hotel Special Facility Bonds through

the Hotel Special Facility Bond trustee. On June 6, 2018, the Airport issued its fixed rate Special

Facility Revenue Bonds (San Francisco International Airport Hotel), Series 2018 (the “Hotel Special

Facility Bonds”), in the aggregate principal amount of $260.0 million to finance the on-Airport Hotel and

to fund a capitalized interest account.

The Hotel Special Facility Bonds are issued pursuant to a Trust Agreement (the “Hotel Trust

Agreement”). On February 26, 2021, the Hotel Special Facility Bonds and the trust agreement pursuant

to which they were issued were amended and restated, including to delay the initial principal repayment

until April 1, 2025 (instead of April 1, 2022) and temporarily reduce the interest rate on the Hotel

Special Facility Bonds from 3.00% to 0.086% from April 1, 2020 through September 30, 2023. The

interest rate will then increase incrementally until it is restored to 3.00% beginning on April 1, 2029. In

addition, the amendments provided that October 1, 2020 is no longer an interest payment date, and

there is no requirement to pay interest accrued on the Hotel Special Facility Bonds until October 1,

2023. The maximum principal amount of the Hotel Special Facility Bonds is not limited by the Hotel

Trust Agreement, but the Commission must satisfy an additional bonds test prior to the issuance of any

such bonds.

The Hotel Special Facility Bonds are limited obligations of the Commission. Under the Hotel Trust

Agreement, the Commission has pledged the Revenues of the on-Airport Hotel, together with other

assets, to the payment of the principal of and interest on the Hotel Special Facility Bonds. Revenues

are generally defined in the Hotel Trust Agreement as all revenue and income of any kind deri

ved

directly or indirectly from operations at the on-Airport Hotel (not including certain amounts specified in

the Hotel Trust Agreement). Operating expenses of the on-Airport Hotel are payable prior to payment

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

of principal of and interest on the Hotel Special Facility Bonds. The Commission does not maintain a

reserve account for the Hotel Special Facility Bonds. The Hotel Special Facility Bonds are subject to

acceleration upon the occurrence of an event of default. Events of default include nonpayment events,

bankruptcy events, noncompliance with covenants, condemnation of the hotel, or a failure by the

Commission to maintain a third-party manager for the hotel. The Hotel Special Facility Bonds are not

payable from or secured by the Airport’s Net Revenues (as defined under the 1991 Master Bond

Resolution). However, because the Airport is the owner of the on-Airport Hotel, the Airport is obligated

to repay the Hotel Special Facility Bonds from the net revenues of the hotel.

Because the Airport is the issuer of the Hotel Special Facility Bonds and the sole beneficiary of the trust

entity serving as holder of the Hotel Special Facility Bonds, neither the Hotel Special Facility Bonds

debt service payments nor the Airport’s receipts from the trust are included in the accompanying

financial statements. The financial statements net the interest income received from the trust against

the combined interest expenses of the Hotel Special Facility Bonds and the Series 2018B/C Bonds.

As of June 30, 2023, the Airport Commission had $260.0 million of outstanding Hotel Special Facility

Bonds.

(e)

Derivative Instruments

As of June 30, 2023, the Airport did not have any outstanding derivative instruments.

(f)

Debt Service Reserves and Requirements

Issue 1 Reserve Account

As of June 30, 2023, the reserve requirement for the Issue 1 Reserve Account was $534.9 million,

which was satisfied by $539.5 million of cash and investment securities, and reserve fund surety

policies in the initial principal amount of $108.6 million. All of the providers of such reserve policies have

one or more credit ratings below the Airport’s rating or are no longer rated. In addition, $27.5 million of

such surety policies have likely experienced a reduction in value in accordance with their terms.

2017 Reserve Acc

ount

As of June 30, 2023, the reserve requirement for the 2017 Reserve Account was $40.6 million, which

was satisfied by $57.1 million in cash and investment securities.

Series Not Secured by Reserve Accounts

The Airport Commission does not maintain reserve accounts for its Second Series Variable Rate

Revenue Refunding Bonds, Series 2018B/C, all of which are secured by letters of credit.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Debt Service Requirements

Revenue bond debt service requirements to maturity as of June 30, 2023, are as follows (in thousands):

Principal Interest Total

Fiscal year:

2024

2025

2026

2027

2028

2029-2033

2034-2038

2039-2043

2044-2048

2049-2053

2054-2058

$ 87,750

163,515

203,310

209,165

224,490

771,495

989,455

1,625,605

2,097,165

1,599,295

78,420

382,727

378,480

370,590

360,813

350,725

1,634,223

1,435,346

1,129,721

682,928

167,368

7,839

470,477

541,995

573,900

569,978

575,215

2,405,718

2,424,801

2,755,326

2,780,093

1,766,663

86,259

Total $ 8,049,665 6,900,760 14,950,425

The table below presents the revenue bond debt service requirements in the event the letters of credit

securing the Airport’s outstanding variable rate bonds had to be drawn upon to pay such bonds and the

amount drawn had to be repaid by the Airport pursuant to the terms of the related agreements with the

banks providing such letters of credit (in thousands):

Principal Interest Total

Fiscal year:

2024 $ 87,750 382,727 470,477

2025 163,515 378,480 541,995

2026 341,480 371,008 712,488

2027 346,625 355,997 702,622

2028 223,370

1,749 565,119

2029-2033 760,125

590,224 2,350,349

2034-2038 965,025 1,393,977 2,359,002

2039-2043 1,584,155

093,391 2,677,546

2044-2048 2,043,315 65

4,230 2,697,545

2049-2053 1,534,305 148,139 1,682,444

Total $ 8,049,665

6,709,922 14,759,587

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(g)

Cash Defeasance of Bonds

On June 28, 2023, the Airport defeased $28.8 million of its Series 2019D Bonds, using monies

previously deposited by the Commission in the Debt Service Fund.

The outstanding balance for Series 2019D Bonds for the year ended June 30, 2023 is as follows (in

thousands):

Bond Series

2019D

June 30, 2022

$ 402,115

Cash Defeasance

Amount

28,820

June 30, 2023

373,295

(8) Pledged Revenue

The Airport Commission has pledged all of the Net Revenues of the Airport to repay the following

obligations when due, in order of priority, (1) the San Francisco International Airport Second Series

Revenue Bonds and Revenue Refunding Bonds (collectively, Senior Bonds) issued and to be issued under

the Commission’s Resolution No. 91-0210 adopted on December 3, 1991 (as amended and supplemented,

the “1991 Master Bond Resolution”), and amounts due with respect to the letters of credit supporting the

Senior Bonds to the extent provided in the 1991 Master Bond Resolution, (2) the San Francisco

International Airport Subordinate Commercial Paper Notes and any other obligations (Subordinate Bonds)

issued and to be issued under the Commission’s Resolution No. 97-0146 adopted on May 20, 1997 (as

amended and supplemented, the “1997 Note Resolution”) and amounts due to reimburse drawings under

the letters of credit supporting the Commercial Paper Notes, (3) remaining amounts due to reimburse

drawings under the letters of credit securing the Senior Bonds, and (4) interest rate swap termination

payments. The Senior Bonds and Commercial Paper Notes are issued to finance capital projects at the

Airport (including the funding of reserves) and to refund previously issued Senior Bonds and Commercial

Paper Notes. The pledges of Net Revenues described above are in force so long as the secured

obligations are outstanding. As of June 30, 2023, the final maturities of the obligations secured by the Net

Revenues are Senior Bonds that mature in fiscal year 2057-58.

Net Revenues are defined in the 1991 Master Bond Resolution and the 1997 Note Resolution as Revenues

less Operation and Maintenance Expenses. Revenues are defined to include all revenues earned by the

Commission with respect to the Airport, as determined in accordance with GAAP. Revenues do not include:

(a) Investment income from monies in (i) the Construction Fund, (ii) the Debt Service Fund which

constitute capitalized interest, or (iii) the Reserve Fund if and to the extent there is any deficiency

therein.

(b) Interest income on, and any profit realized from, the investment of the proceeds of any Special

Facility Bonds (as defined in the 1991 Master Bond Resolution).

realized from the investment thereof unless designated as Revenues by the Commission.

(d) Any passenger facility or similar charge levied by or on behalf of the Commission unless

designated as Revenues by the Commission.

(e) Grants-in-aid, donations and bequests.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(f)

Insurance proceeds not deemed to be Revenues in accordance with

GAAP.

(g) The proceeds of any condemnation award.

(h) The proceeds of any sale of land, buildings or equipment.

(i) Any money received by or for the account of the Commission from the levy or collection of taxes

upon a

ny property of the City and, with respect to the 1991 Master Bond Resolution onl

(j)

Any Customer Facility Charge (as defined in the 1991 Master Resolution) or similar charge levied

by or on behalf of the Commission against customers unless designated as Revenues by the

Commission.

(k) Any Federal Subsidy Payments (as defined in the 1991 Master Resolution) unless designated as

Revenues by the Commission.

Operation an

d Maintenance Expenses are defined in the 1991 Master Bond Resolution and the 1997 Note

Resolution to include all expenses of the Commission incurred for the operation and maintenance of the

Airport, as determined in accordance with GAAP. Operation and Maintenance Expenses do not include:

(a) The principal of, premium, if any, or interest on the Senior Bonds or Subordinate Bonds (including

Commercial Paper Notes).

(b) Any allowance for amortization, depreciation or obsolescence of the Airport.

or through any source that is not included or includable as Revenues.

(d) Any extraordinary items arising from the early extinguishment of debt.

(e) Annual Service Payments to the City.

(f) Any costs, or charges made therefor, for capital additions, replacements or improvements to the

Airport which, under GAAP, are properly chargeable to a capital account or reserve for

depreciation.

(g) Any losses from the sale, abandonment, reclassification, revaluation or other disposition of any

Airport p

roperties. Operation and Maintenance Expenses include the payment of pension char

ges

and proportionate payments to such compensation and other insurance or outside reserve funds as

the Commission may establish or the Board of Supervisors may require with respect to

Commission employees.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

For fiscal year 2022-23, the calculation of Net Revenues excluded $23.8 million of revenue from the

American Rescue Plan Act (ARPA) grant reimbursements received by the Airport, which are not includable

as revenue, and excluded $23.8 million of operating expenses that were reimbursed using the ARPA grant

funds.

Amount

Bonds issued with revenue pledge $ 241,915

Bond principal and interest remaining due at the end of the

fiscal year 14,950,425

Commercial paper issued with subordinate revenue pledge 417,250

Commercial paper principal and interest remaining due at

the end of the fiscal year 504,135

Net revenues 511,495

Bond principal and interest paid in the fiscal year 400,509

Commercial paper principal, interest and fees paid in the

fiscal year 6,291

Pledged Revenue of the On-Airport Hotel

Pursuant to the Hotel Trust Agreement, the Airport Commission has pledged all of the Revenues of the on-

Airport Hotel and certain other assets pledged under the Amended and Restated Hotel Trust Agreement to

repay the Hotel Special Facility Bonds, all in accordance with the Hotel Trust Agreement. This pledge is in

force so long as the Hotel Special Facility Bonds are outstanding. The Hotel Special Facility Bonds will

mature in fiscal year 2057-58 and are subject to mandatory sinking fund redemption each year starting in

2025.

Revenues are defined in the Hotel Trust Agreement as the Total Operating Revenues, including any

insurance proceeds, condemnation proceeds, performance bonds and guaranties and all interest, profits or

other income derived from the investment of amounts in any fund or account established pursuant to the

Hotel Trust Agreement (except any subaccounts of the Construction Fund that are otherwise pledged and

the Rebate Fund).

Total Operating Revenues are defined in the Hotel Trust Agreement as all revenue and income of any kind

derived directly or indirectly from operations at the on-Airport Hotel, whether or not arranged by, for or on

behalf of another person or at another location, properly attributable to the period under consideration

(including rentals or other payments from licensees or concessionaires of retail space in the hotel, but not

gross receipts of such licensees or concessionaires), determined in accordance with the Uniform System of

Accounts and, to the extent consistent therewith, Generally Accepted Accounting Principles, but do not

include:

(a) Certain excluded taxes (such as sales tax) and other charges.

(b) Receipts from the financing, sale or other disposition of capital assets and other items not in the

ordinary course of the hotel’s operations and income derived from securities and other property

acquired and held for investment.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

under the threat of any taking, and other receipts in connection with any taking, but only to the

extent that such amounts are specifically identified as compensation for alterations or physical

damage to the hotel.

(d) Proceeds of any insurance or sureties, including the proceeds of any business interruption

insurance.

(e) Rebates, discounts, or credits of a similar nature (not including charge or credit card discounts,

which shall not constitute a deduction from revenues in determining Total Operating Revenues, but

shall constitute an Operating Expense of the hotel).

(f) Consideration received at the hotel for hotel accommodations, goods and services to be provided

at other hotels although arranged by, for or on behalf of, the hotel manager; provided, that such

consideration is recognized by such other hotels.

(g) Consideration received at other hotels for hotel accommodations, goods and services to be

provided at the Hotel arranged by, for or on behalf of, such other hotels; provided, that such

consideration is recognized by such other hotels.

(h) Notwithstanding any contrary requirements of Generally Accepted Accounting Principles, all

gratuities collected for the benefit of and paid directly to hotel personnel.

(i) Proceeds of any financing.

(j) The initial operating funds and working capital loans and any other funds provided by the

Commission to the hotel manager whether for hotel Operating Expenses or otherwise.

(k) Other income or proceeds that do not result from: (i) the use or occupancy of the hotel, or any part

thereof, or (ii) the sale of goods, services or other items by or from the hotel in the ordinary course

of business.

(l) Interest earned on funds held in any fund or account under the Hotel Trust Agreement.

(m) The value of any complimentary rooms, goods or services.

(n) Refunds to hotel guests of any sums or credits to any hotel customers for lost or damaged items.

(o) Refunds to parking customers of any sums or credits to any parking customers for lost or damaged

items.

Generally, the Hotel Special Facility Bonds are paid after provision for the Operating Expenses of the hotel

and payment of taxes and insurance premiums have been made. The Hotel Special Facility Bonds are not

payable from Net Revenues, as that term is defined in the 1991 Master Bond Resolution.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Pledged Facilities Rent from Fuel System Lease with SFO FUEL COMPANY LLC

The Commission entered into a Fuel System Lease dated as of September 1, 1997, as amended, with SFO

FUEL COMPANY LLC (SFO Fuel), a special purpose limited liability company formed by certain airlines

operating at the Airport. The facilities rent payable by SFO Fuel has been pledged and assigned to the

bond trustee to secure the repayment of the Commission’s San Francisco International Airport Special

Facilities Lease Revenue Bonds (SFO FUEL COMPANY LLC), Series 2019A and 2019B (the “Fuel

Bonds”), which were outstanding in the aggregate principal amounts of $96.7 million as of June 30, 2023.

The Fuel bonds were issued primarily to finance and refinance improvements to the jet fuel storage and

distribution system at the Airport. The pledge of the facilities rent will be in effect until the maturity of the

Fuel bonds on January 1, 2047. This date may be extended in the event additional bonds (including

refunding bonds) with a later maturity are issued.

(9) Leases

Airport as Lessor

As a lessor, the Airport leases terminal space (except for regulated leases), non-terminal buildings, and

land to tenants under various operating leases, a majority of which are non-cancellable and terminate at

various dates as late as 2053. In total, the Airport recognized lease revenue of $86.0 million and interest

revenue of $13.3 million for the year ended June 30, 2023, related to these leases. Due to refinements in

the methodology for the calculation of the annual payment, $1.5 million of lease revenue attributable to

fiscal year 2021-22 was recorded in fiscal year 2022-23.

Certain provisions of the Airport’s leases provide for variable rental payments that are not included in the

measurement of the lease receivable. Certain rental agreements with concessionaires specify that rental

payments are to be based on a percentage of tenant sales, but no less than a fixed minimum amount.

Concession percentage rents in excess of minimum guarantees (to the extent applicable) for the leases

subject to GASB Statement No. 87 were approximately $10.4 million for the year ended June 30, 2023.

Additionally, several leases include terms that allow for an adjustment of the rents to market at determined

intervals and at least upon renewal. As a result, variable rent revenue is recognized for the rent increases

due to CPI adjustments. During fiscal year 2022-23, the Airport recognized $1.8 million in total variable

lease revenue.

Information about lease revenues and interest revenues recognized during the year ended June 30, 2023,

is presented below (in thousands):

Buildings

Land

Principal

$ 83,539

2,497

Interest

13,274

Total

96,813

2,520

Total Revenue $ 86,036 13,297 99,333

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Below is a schedule of future principal and interest payment receipts that are included in the measurement

of the lease receivable, for each of the five subsequent fiscal years and in five-year increments thereafter

as of June 30, 2023 (in thousands):

Fiscal Year(s) Principal Interest Total

2024 $ 114,523 26,454 140,977

2025 113,953 23,350 137,303

2026 112,953 20,175 133,128

2027 112,262 16,974 129,236

2028 114,649 13,709 128,358

2029 - 2033 306,703 30,988 337,691

2034 - 2038 39,255 4,745 44,000

2039 - 2043 9,265 3,235 12,500

2044 - 2048 10,445 2,055 12,500

2049 - 2053 11,713 725 12,438

$ 945,721 142,410 1,088,131

Regulated Leases

Certain regulated leases are subject to external laws, regulations or legal rulings and are exempted from

recognition under GASB Statement No. 87, subject to the conditions that:

(a) Lease rates cannot exceed a reasonable amount.

(b) Lease rates should be similar for similar situated lessees, and

Such regulated leases at the Airport include:

(a) The Lease and Use Agreements with certain airlines regarding the use of terminal building and

equipment on an exclusive or preferential use basis, among other uses, which expired on June 30,

2023.

(b) Non-terminal aeronautical buildings and land leases. Based on the airlines’ operation needs, an

airline may lease terminal space such as office space, ticket counter space, baggage makeup

space, baggage claim space, and other operation spaces on a combination of exclusive,

preferential, and common use basis. The Commission provides holdrooms on a preferential or

common use basis to the airlines and adjusts the preferential assignment from time to time

pursuant to the Lease and Use Agreements. For the fiscal year ending June 30, 2023, United

Airlines accounted for 46.7 percent of total enplaned passengers at the Airport, followed by Alaska

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Airlines (12.3%), Delta Air Lines (7.9%), and American Airlines (6.3%), with no other airlines

accounting for more than 5 percent of enplaned passengers. Non-terminal buildings and lands are

leased on an exclusive basis. The Airport has entered new Lease and Use Agreements that

became effective on July 1, 2023 and expire on June 30, 2033.

The payments under the Lease and Use Agreements are recalculated at the end of each fiscal year and

therefore are variable payments. Total inflow of resources for regulated leases during fiscal year ending

June 30, 2023, was $215.6 million, including approximately $47.3 million of fixed payments and $168.3

million of variable payments. The additional exclusive and preferential use payments are the actual billed

amount during fiscal year 2022-23, which was adjusted down $14.5 million during year-end true-up

process.

Below is a summary of the total number of regulated leases for fiscal year 2022-23, including which assets

are subject to preferential or exclusive use by counterparties:

AULA (a)

Preferential and exclusive rental

Exclusive rental only

Non-space rental, only common use

# of Leases

Subtotal - AULA 38

Other Regulated (b) 8

Tot al 46

Notes:

(a) Airline-airport use and lease agreements

(b) Includes cargo, fuel, fixed-base facility leases, hangar

leases, ground leases, and flight support services lease.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Lease revenues and interest revenues recognized during the year ended June 30, 2023 for regulated

leases is presented below (in thousands):

Expected minimum payments (a) $ 45,277

Additional fixed payments (b) 2,024

Total fixed payments 47,301

Additional exclusive use payments (c) 127,086

Additional preferential use payments (d) 55,666

Year-end true-ups (14,465)

Total regulated lease payments $ 215,588

Notes:

(a) Doesn't include airline use and lease agreements, which are

recalculated annually and considered variable payments

(b) Includes additional rent above the expected minimum payments

after adjusted by CPI and reappraisals

leases that were charged by airport's rates and charges rate, and

percentage fee revenues above MAG

(d) Includes AULA preferential use rental revenues

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Below is a schedule of expected future minimum payments under these agreements for each of the subsequent

five years and in five-year increments thereafter (in thousands):

Expected Minimum

Payments (a)

FY 2024 $ 19,286

FY 2025 18,092

FY 2026 5,462

FY 2027 1,644

FY 2028 1,644

FY 2029-2033 8,221

FY 2034-2038 8,221

FY 2039-2043 8,221

FY 2044-2048 6,166

Total $ 76,957

Note:

(a) Doesn't include airline use and lease agreements, which are

recalculated annually and considered variable payments

Airport as Lessee

As a lessee, the Airport had entered into one lease agreement for the land and building located at 837

Malcolm Rd, Burlingame, CA. The total lease asset and related accumulated amortization at June 30, 2023

is as follows (in thousands):

Lease Asset $ 671

Accumulated Amortization (417)

$ 254

A summary of change in the related lease liability during the year ended June 30, 2023, is as follows (in

thousands):

Amounts Due

7/1/2022 Additions Remeasurements Deductions 6/30/2023 Within One Year

Lease Liability $ 409 - - (139) 270 145

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

The future principal and interest payments as of June 30, 2023, are as follows (in thousands):

Fiscal Year Principal Interest Total

2024 $ 145 2 147

2025 125 - 125

$ 270 2 272

(10) Conduit Debt

On February 26, 2019, the Airport issued San Francisco International Airport Special Facilities Lease

Revenue Bonds (SFO FUEL COMPANY LLC), Series 2019A (AMT) and Series 2019B (Federally Taxable)

(the “Fuel Bonds”), in an aggregate principal amount of $125.0 million to refund all of the then-outstanding

special facilities lease revenue bonds previously issued by the Commission for the benefit of SFO FUEL

COMPANY LLC (SFO Fuel), finance capital improvements to the jet fuel distribution and related facilities at

San Francisco International Airport, pay capitalized interest on a portion of the Series 2019A Bonds, make

a deposit to a reserve account for the Fuel Bonds, and pay costs of issuance. As of June 30, 2023, the

outstanding balance was $96.7 million. The 2019 Fuel Bonds have a final maturity of January 1, 2047.

SFO Fuel, a special purpose limited liability company formed by certain airlines operating at the Airport, is

required to pay facilities rent to the Airport pursuant to a lease agreement between the Commission and

SFO Fuel with respect to the on-Airport jet fuel distribution facilities in an amount equal to debt service

payments on the Fuel Bonds and any required bond reserve account deposits. The principal and interest

on the Fuel Bonds are paid solely from the facilities rent payable by SFO Fuel to the Airport. The lease

payments, and therefore the Fuel Bonds, are payable from charges imposed by SFO Fuel on air carriers

for into-plane fueling at the Airport and are not payable from or secured by the Net Revenues of the Airport.

The Airport assigned its right to receive the facilities rent to the Fuel Bonds trustee to pay and secure the

payment of the Fuel Bonds. Neither the Airport nor the City is obligated in any manner for the repayment of

the Fuel Bonds other than from the facilities rent received from SFO Fuel. The Fuel Bonds are therefore not

reported in the accompanying financial statements.

A summary of change in deferred inflows – capital asset during the year ending in June 30, 2023, is

presenting below (in thousands):

7/1/2022 * Additions Deductions June 30, 2023

Deferred Inflows - Capital Asset $ 106,617 - (4,352) 102,265

*Restated due to the implementation of GASB 91.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(11) Subscription-Based Information Technology

The Airport frequently procures IT products and services through the City’s technology marketplace

arrangements, which use substantially similar contracts, and issues purchase orders to specify the details

of desired products or services. Some purchases that cover a period of multiple years are subject to the

provisions of GASB Statement No. 96. There is typically no variable payment. The implementation of

GASB Statement No. 96 resulted in recognition of $2.7 million in a right-to-use asset and a corresponding

subscription liability in fiscal year 2022-23.

The total subscription asset and related accumulated amortization at June 30, 2023, is as follows (in

thousands):

Subscription Asset $ 2,697

Accumulated Amortization (1,385)

$ 1,312

A summary of change in the related subscription liability during the year ended June 30, 2023, is as follows

(in thousands):

Amounts Due

7/1/2022 Additions Remeasurements Deductions 6/30/2023 Within One Year

Subscription Liability $ 2,697 - (1,805) 892 671

The future principal and interest payments as of June 30, 2023, are as follows (in thousands):

Fiscal

Year Principal Interest Total

2024 $ 671 23 694

2025 221 5 226

$ 892 28 920

(12) Employee Benefit Plans

(a)

San Francisco City and County Employee’s Retirement System Plan

The San Francisco City and County Employee’s Retirement System (Retirement System) administers a

cost-sharing multiple-employer defined benefit pension Plan (SFERS Plan). For purposes of measuring

the net pension liability, deferred outflows/inflows of resources related to pensions, pension expense,

information about the fiduciary net position of the SFERS Plan, and additions to/deductions from the

SFERS Plan’s fiduciary net position have been determined on the same basis as they are reported by

the SFERS Plan. Contributions are recognized in the period in which they are due pursuant to legal

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

requirements. Benefit payments (including refunds of employee contributions) are recognized when

currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

Replacement Benefits Plan

The Replacement Benefits Plan (RBP) is a qualified excess benefit plan established in October 1989.

Internal Revenue Code Section 415(m) provides for excess benefit arrangements that legally permit

benefit payments above the Section 415 limits, provided that the payments are not paid from the

SFERS Plan. The RBP allows the City to pay SFERS retirees any portion of the Charter-mandated

retirement allowance that exceeds the annual Section 415(b) limit. The RBP plan does not meet the

criteria of a qualified trust under GASB Statement No. 73 because RBP assets are subject to the

claims of the employer’s general creditors under federal and state law in the event of insolvency.

GASB Statement No. 68 and 73 require that the SFERS Plan and RBP reported results must pertain to

liability and asset information within certain defined timeframes. For this report, the following

timeframes are used.

Valuation Date (VD) June 30, 2021 updated to June 30, 2022

Measurement Date (MD) June 30, 2022

Measurement Period (MP) July 1, 2021 to June 30, 2022

SFERS Plan

The City is an employer of the plan with a proportionate share of 94.87% as of June 30, 2022

(measurement date), 0.23% increased from prior year. The Airport’s allocation percentage was

determined based on the Airport’s employer contributions divided by the City’s total employer

contributions for fiscal year 2021-22. The Airport’s net pension asset/liability, deferred outflows/inflows

of resources related to pensions, amortization of deferred outflows/inflows and pension expense is

based on the Airport’s allocated percentage. The Airport’s allocation of the City’s proportionate share

was 6.20% as of the measurement date.

Replacement Benefits Plan

The Airport’s allocation percentage was determined based on the Airport’s total pension liabilities

divided by the City’s total pension liabilities for fiscal year 2021-22. The Airport’s total pension liability,

deferred outflows/inflows of resources related to pensions, amortization of deferred outflows/inflows

and pension expense is based on the Airport’s allocated percentage. The Airport’s allocation of the

City’s proportionate share was 2.47% as of the measurement date.

SFERS Plan Description

The Plan provides basic service retirement, disability, and death benefits based on specified

percentages of defined final average monthly salary and provides annual cost-of-living adjustments

after retirement. The Plan also provides pension continuation benefits to qualified survivors. The San

Francisco City and County Charter and the Administrative Code are the authorities which establish and

amend the benefit provisions and employer obligations of the Plan. The Retirement System issues a

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

publicly available financial report that includes financial statements and required supplementary

information for the Plan. That report may be obtained on the Retirement System’s website or by writing

to the San Francisco City and County Employees’ Retirement System, 1145 Market Street, 5

Floor,

San Francisco, CA 94103 or by calling (415) 487-7000.

SFERS Benefits

The Retirement System provides service retirement, disability and death benefits based on specified

percentages of defined final average monthly salary and annual cost of living adjustments (COLA) after

retirement. Benefits and refunds are recognized when due and payable in accordance with the terms of

the Plan. The Retirement System pays benefits according to the category of employment and the type

of benefit coverage provided by the City and County. The four main categories of Plan members are:



Miscellaneous Non-Safety Members – staff, operational, supervisory, and all other eligible

employees who are not in special membership categories.



Sheriff’s Department and Miscellaneous Safety Members – sheriffs assuming office on and after

January 7, 2012, and undersheriffs, deputized personnel of the sheriff’s department, and

miscellaneous safety employees hired on and after January 7, 2012.



Firefighter Members – firefighters and other employees whose principal duties are in fire prevention

and suppression work or who occupy positions designated by law as firefighter member positions.



Police Members – police officers and other employees whose principal duties are in active law

enforcement or who occupy positions designated by law as police member positions.

The membership groups and the related service retirement benefits are included in the Notes to the Basic

Financial Statements of San Francisco Employees’ Retirement System.

All members are eligible to apply for a disability retirement benefit, regardless of age, when they have

10 or more years of credited service, and they sustain an injury or illness that prevents them from

performing their duties. Safety members are eligible to apply for an industrial disability retirement

benefit from their first day on the job if their disability is caused by an illness or injury that they receive

while performing their duties.

All retired members receive a benefit adjustment each July 1, which is the Basic COLA. The majority of

adjustments are determined by changes in CPI with increases capped at 2%. The Plan provides for a

Supplemental COLA in years when there are sufficient “excess” investment earnings in the Plan. The

maximum benefit adjustment each July 1 is 3.5% including the Basic COLA. Effective July 1, 2012,

voters approved changes in the criteria for payment of the Supplemental COLA benefit, so that

Supplemental COLAs would only be paid when the Plan is also fully funded on a market value of

assets basis. Certain provisions of this voter-approved proposition were challenged in the Courts. A

decision by the California Courts modified the interpretation of the proposition. Effective July 1, 2012,

members who retired before November 6, 1996 will receive a Supplemental COLA only when the Plan

is also fully funded on a market value of assets basis. However, the “full funding” requirement does not

apply to members who retired on or after November 6, 1996 and were hired before January 7, 2012.

For all members hired before January 7, 2012, all Supplemental COLAs paid to them in retirement

benefits will continue into the future even where an additional Supplemental COLA is not payable in

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

any given year. For members hired on and after January 7, 2012, a Supplemental COLA will only be

paid to retirees when the Plan is fully funded on a market value of asset basis and in addition for these

members, Supplemental COLAs will not be permanent adjustments to retirement benefits. That is, in

years when a Supplemental COLA is not paid, all previously paid Supplemental COLAs will expire.

Funding and Contribution Policy

SFERS Plan

Contributions are made by both the City and other participating employees. Employee contributions are

mandatory as required by the Charter. Employee contribution rates varied from 7.5% to 12.0% and

7.5% to 13.0%, as a percentage of gross covered salary in fiscal year 2022-23 and fiscal year 2021-22,

respectively. Most employee groups agreed through collective bargaining for employees to contribute

the full amount of the employee contributions on a pretax basis. The City is required to contribute at an

actuarially determined rate. Based on the July 1, 2021 actuarial report, the required employer

contribution rate for fiscal year 2022-23 range from 17.85% to 21.35%. Based on the July 1, 2020

actuarial report, the required employer contribution rate for fiscal year 2021-22 range from 19.91% to

24.41%.

Employer contributions and employee contributions made by the employer to the Plan are recognized

when due and the employer has made a formal commitment to provide the contributions. The City’s

proportionate share of employer contributions recognized by the Retirement System in fiscal year

ended June 30, 2022 (measurement year) was $729.6 million. The Airport’s allocation of employer

contributions for fiscal year 2021-22 was $47.4 million, and $52.6 million for fiscal year 2020-21.

At June 30, 2023, the Airport reported $39.6 million as deferred outflows of resources related to

contributions subsequent to the measurement date, which will be recognized as an adjustment to net

pension liability/(asset) in the reporting year ended June 30, 2024.

Replacement Benefits Plan

The RBP is and will remain unfunded and the rights of any participant and beneficiary are limited to

those specified in the RBP. The RBP constitutes an unsecured promise by the City to make benefit

payments in the future to the extent funded by the City. The City paid $4.5 million replacement benefits

in the fiscal year ended June 30, 2023 and Airport’s allocation portion for fiscal year FY2022-23 was

$277.4 thousands.

Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to

Pensions

SFERS Plan – As of June 30, 2023, the City reported net pension liability for its proportionate share of

the net pension liability of the Plan of $2.6 billion. The City’s net pension liability for the Plan is

measured as the proportionate share of the net pension liability. The net pension liability of the Plan is

measured as of June 30, 2022 (measurement date), and the total pension liability for the Plan used to

calculate the net pension liability was determined by an actuarial valuation as of June 30, 2021 rolled

forward to June 30, 2022 using standard update procedures. The City’s proportion of the net pension

liability for the Plan was based on a projection of the City’s long-term share of contributions to the



  

 



  

 



 

   

 

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

pension plan relative to the projected contributions of all participating employers, actuarially

determined.

Replacement Benefits Plan – As of June 30, 2023, the City reported total pension liability of $156

million. The measurement date for the RBP is June 30, 2022. City’s total pension liability for the RPB

measurements is based on the total pension liability as of the valuation date, June 30, 2021 rolled

forward to June 30, 2022 using standard update procedures.

As of June 30, 2023, the SFO’s proportionate share and net pension liability/ (net pension asset) of

each plan were as follows:

June 30, 2022 June 30, 2021

(Measurement Date) (Measurement Date)

SFO Share of Net SFO Share of Net

Proportionate Pension Liability Proportionate Pension Liability

Share (Asset) Share (Asset) Change

SFERS Plan 6.20% $ 158,341 6.50% (158,952) $ 317,293

Replacement Benefits Plan 2.47% 3,859 2.31% 5,081 (1,222)

Total $ 162,200 (153,871) $ 316,071

For the year ended June 30, 2023, the City’s recognized pension expense/(benefit) was $1.8 million

including amortization of deferred outflows/inflows related pension items. The Airport’s allocation of

pension expense/(benefit) including amortization of deferred outflows/inflows related pension items was

$(11.3) million. Pension expense/(benefit) increased from the prior year, largely due to the amortization

of deferrals. At June 30, 2023, the Airport’s reported deferred outflows of resources and deferred

inflows of resources related to pensions from the following sources.

Schedule of Deferred Inflows and Outflows of Resources

Fiscal Year 2022-23

(in thousands)

SFERS Plan Replacement Benefits Plan

Deferred Deferred Deferred Deferred

Outflows of Inflows of Outflows of Inflows of

Resources Resources Resources Resources

Pension contributions subsequent to

measurement date $ 39,570 — — —

Difference between expected and actual

experience 14,453 — 509 488

Changes in assumptions 41,143 12,345 621 834

Net difference between projected and actual

earnings on pension plan investments — 19,683 — —

Change in employer's proportion 9,661 2,718 — 1,624

Total $ 104,827 34,746 1,130 2,946

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Amounts reported as deferred outflows, exclusive of contributions made after the measurement date,

and deferred inflows of resources will be amortized annually and recognized in pension expense as

follows (in thousands):

Replacement

SFERS Plan Benefits Plan

Year ended June 30:

2024 $ (8,460) (307)

2025 (8,967) (477)

2026 (21,308) (654)

2027 69,246 (378)

Total $ 30,511 (1,816)

At June 30, 2023, the SFO reported $39.6 million as deferred outflows of resources related to

contributions subsequent to the measurement date, which will be recognized as an adjustment to net

pension liability/(asset) in the reporting year ended June 30, 2024.

Actuarial Assumptions

A summary of the actuarial assumptions and methods used to calculate the Total Pension Liability for

both SFERS Plan and RBP as of June 30, 2022 (measurement year) is provided below, including any

assumptions that differ from those used in the July 1, 2021 actuarial valuation. Refer to the July 1, 2021

actuarial valuation report for a complete description of all other assumptions, which can be found on

the Retirement System’s website http://mysfers.org.

Key Actuarial Assumptions:

SFERS Plan

Valuation Date June 30, 2021 updated to June 30, 2022

Measurement Date June 30, 2022

Actuarial Cost Method Entry-Age Normal Cost

Expected Rate of Return 7.20% net of investment expenses

Municipal Bond Yield 2.16% as of June 30, 2021

3.54% as of June 30, 2022

Bond Buyer 20-Bond GO Index, June 24, 2021 and June 30, 2022

Inflation 2.50%

Projected salary increases 3.25% plus merit component based on employee classification and years of service

Discount Rate 7.40% as of June 30, 2021

7.20% as of June 30, 2022

Administrative Expenses 0.60% of payroll as of June 30, 2021

0.60% of payroll as of June 30, 2022

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

June 30, 2021 2.00 % 1.90 % 2.50 % 3.60 %

June 30, 2022 2.00 % 1.90 % 2.50 % 3.60 %

Changes of Assumptions SFERS Plan – For the measurement period ended June 30, 2022, the

discount rate was decreased from 7.40% to 7.20%. The municipal bond yield increased from 2.16% to

3.54%.

Key Actuarial Assumptions

Replacement Benefit Plan

Valuation Date June 30, 2021 updated to June 30, 2022

Measurement Date June 30, 2022

Actuarial Cost Method Entry-Age Normal Cost

Municipal Bond Yield 3.54% as of June 30, 2022

Bond Buyer 20-Bond GO Index, June 24, 2021 and June 30, 2022

Inflation 2.50%

Projected salary increases 3.25% plus merit component based on employee classification and years of service

Discount Rate 3.54% as of June 30, 2022

Administrative Expenses 0.60% of payroll as of June 30, 2022

Basic COLA:

Old

Miscellaneous

Old Police &

Fire

Old Police

& Fire

Charters

Old Police

& Fire

Charters

June 30, 2021

June 30, 2022

2.00 %

1.90 %

2.50 %

3.60 %

Changes of Assumptions RBP – For the measurement period ended June 30, 2022, the discount rate

and the municipal bond yield increased from 2.16% to 3.54%.

Mortality rates for health Miscellaneous members were based upon adjusted PubG-2010 Employee and

Retiree tables for non-annuitants and retirees, respectively. Mortality rates were then projected

generationally from the base year using the MP-2019 projection scale.

The actuarial assumptions used at the June 30, 2022 measurement date was based upon the result of

a demographic experience study for the period July 1, 2014 through June 30, 2019 and an economic

experience study as of July 1, 2021.

Old

Miscellaneous Old Police Old Police & Fire Old Police & Fire

and all New & Fire Pre Charters A8.595 Cha rters A8.559

Basic COLA:

Plans 7/1/75 and A8.596 and A8.585

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Discount Rate

SFERS Plan

The beginning and end of year measurements are based on different assumptions and contribution

methods that may result in different discount rates. The discount rate was 7.20% as of June 30, 2022

(measurement date).

The discount rate used to measure the Total Pension Liability as of June 30, 2022 was 7.20%. The

projection of cash flows used to determine the discount rate assumed that plan member contributions

will continue to be made at the rates specified in the Charter. Employer contributions were assumed to

be made in accordance with the contribution policy in effect for July 1, 2021 actuarial valuation. That

policy includes contributions equal to the employer portion of the entry age normal costs for members

as of the valuation date, a payment for the expected administrative expenses, and an amortization

payment on the unfunded actuarial liability.

The amortization payment is based on closed periods that vary in length depending on the source.

Charter amendments prior to July 1, 2014 are amortized over 20 years. After July 1, 2014, any Charter

changes to active member benefits are amortized over 15 years and changes to inactive member

benefits, including Supplemental COLAs, are amortized over 5 years. The remaining unfunded

actuarial liability not attributable to Charter amendments as of July 1, 2013 is amortized over a 19-year

period commencing July 1, 2014. Experience gains and losses and assumption or method changes on

or after July 1, 2014 are amortized over 20 years. The full amortization payment for the 2015

assumption changes is phased in over a period of 5 years. For the July 1, 2016 valuation, the increase

in the unfunded actuarial liability attributable to the Supplemental COLAs granted on July 1, 2013 and

July 1, 2014 are amortized over 17-years and 5-years respectively. All amortization schedules are

established as a level percentage of payroll so payments increase 3.25% each year. The unfunded

actuarial liability is based on an actuarial value of assets that smooths investment gains and losses

over five years and a measurement of the actuarial liability that excludes the value of any future

Supplemental COLAs.

While the contributions and measure of actuarial liability in the funding valuation do not anticipate any

future Supplemental COLAs, the projected contributions for the determination of the discount rate

include the anticipated future amortization payments on future Supplemental COLAs for current

members when they are expected to be granted. For members who worked after November 6, 1996

and before Proposition C passed (Post 97 Retirees), a Supplemental COLA is granted if the actual

investment earnings during the year exceed the expected investment earnings on the actuarial value of

assets. For members who did not work after November 6, 1996 and before Proposition C passed, the

market value of assets must also exceed the actuarial liability at the beginning of the year for a

Supplemental COLA to be granted. When a Supplemental COLA is granted, the amount depends on

the amount of excess earnings and the basic COLA amount for each membership group. The large

majority of members receive a 1.50% Supplemental COLA when granted.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Because the probability of a Supplemental COLA depends on the current funded level of the

Retirement System for certain members, an assumption was developed as of June 30, 2022 for the

probability and amount of Supplemental COLA for each future year. A full Supplemental COLA will be

paid to all retired members, and their beneficiaries, who were retired effective July 1, 2022. The table

below shows the net assumed Supplemental COLA for members with a 2.00% Basic COLA for sample

years.

Assumed Supplemental COLA

for Members with a 2.00% Basic COLA

Before 11/6/96 or

FYE 96 - Prop C After Prop C

2024 0.75% 0.70%

2025 0.75% 0.60%

2026 0.75% 0.60%

2027+ 0.75% 0.50%

The projection of benefit payments to current members for determining the discount rate includes the

payment of anticipated future Supplemental COLAs.

Based on these assumptions, the Retirement System’s fiduciary net position was projected to be

available to make projected future benefit payments for current members for all future years. Projected

benefit payments are discounted at the long-term expected return on assets of 7.20% to the extent the

fiduciary net position is available to make the payments and at the municipal bond rate of 3.54% to the

extent they are not available. The single equivalent rate used to determine the Total Pension Liability

as of June 30, 2022 is 7.20%.

The long-term expected rate of return on pension plan investments was 7.20%. It was set by the

Retirement Board after consideration of both expected future returns and historical returns experienced

by the SFERS Retirement System. Expected future returns were determined by using a building-block

method in which best-estimate ranges of expected future real rates of return were developed for each

major asset class. These ranges were combined to produce the long-term expected rate of return by

weighting the expected future real rates of return by the target asset allocation percentage and by

adding expected inflation. Target allocation and best estimates of geometric long-term expected real

rates of return (net of pension plan investment expense and inflation) for each major asset class are

summarized in the following table.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Long-Term

Target Expected Real

Asset Class Allocation Rate of Return

Global Equity 37.0% 4.8%

Treasuries 8.0% 0.6%

Liquid Credit 5.0% 3.5%

Private Credit 10.0% 5.8%

Private Equity 23.0% 7.9%

Real Assets 10.0% 4.7%

Hedge Funds/Absolute Return 10.0% 3.4%

Leverage -3.0% 0.6%

100.0%

Replacement Benefits Plan

The beginning and end of year measurements are based on different assumptions that result in

different discount rates. The discount rate was 3.54% as of June 30, 2022. This reflects the yield for a

20-year, tax-exempt general obligation municipal bond with an average rating of AA/Aa or higher. The

Municipal Bond Yields are the Bond Buyer 20-Year GO Index as of June 24, 2021 and June 30, 2022.

These are the rates used to determine the total pension liability as of June 30, 2022.

The inflation assumption of 2.50% compounded annually was used for projecting the annual IRC

Section 415(b) limitations. The actual IRC Section 415(b) limitations published by the IRS of $245 was

used for the 2022 measurement date.

The SFERS assumptions about Basic and Supplemental COLA previously discussed also apply to the

Replacement Benefits Plan, including the impact of the State Appeals Court determination that the full

funding requirement for payment of Supplemental COLA included in Proposition C was unconstitutional

and the impact is accounted for as a change in benefits.

On June 30, 2023, City’s membership in the RBP had a total of 327 active members and 160 retirees

and beneficiaries currently receiving benefits. The Airport has 7 active members and 2 retirees and

beneficiaries currently receiving benefits.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Sensitivity of Proportionate Share of the Net Pension Liability to Changes in the Discount Rate

The following presents the Airport’s allocation of the employer’s proportionate share of the net pension

liability/(asset) for the SFERS Plan, calculated using the discount rate, as well as what the Airport’s

allocation of the employer’s proportionate share of the net pension liability would be if it were calculated

using a discount rate that is 1% lower or 1% higher than the current rate (in thousands):

1% Decrease Share of Share of NPL/(NPA) 1% Increase Share of

Employer NPL/(NPA) @ 6.20% @ 7.20% NPL/(NPA)@ 8.20%

Airport $ 433,597 158,341 (68,574)

The following presents the Airport’s allocation of the employer’s proportionate share of the total pension

liability for the Replacement Benefits Plan, calculated using the discount rate, as well as what the

Airport’s allocation of the employer’s proportionate share of the total pension liability would be if it were

calculated using a discount rate that is 1% lower or 1% higher than the current rate (in thousands):

1% Decrease Measurement Date 1% Increase

Employer @ 2.54 @ 3.54% @ 4.54%

Airport $ 4,577 3,859 3,293

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(b)

Other Postemployment Benefits (OPEB)

The Airport participates in a single-employer defined benefit other postemployment benefits plan (the

Plan). The Plan is maintained by the City and is administered through the City’s Health Service

System. It provides postemployment medical, dental and vision insurance benefits to eligible

employees, retired employees, surviving spouses, and domestic partners. Health benefit provisions are

established and may be amended through negotiations between the City and the respective bargaining

units. The City does not issue a separate report on its other postemployment benefit plan.

GASB Statement No. 75 requires that reported results must pertain to liability and asset information

within certain defined timeframes. For this report, the following timeframes are used.

Fiscal year 2023

Valuation Date (VD) June 30, 2022

Measurement Date (MD) June 30, 2022

Measurement Period (MP) July 1, 2021 to June 30, 2022

The Airport’s proportionate share percentage of the Plan was determined based on its percentage of

citywide “pay-as-you-go” contributions for the year ended June 30, 2022. The Airport’s net OPEB

liability, deferred outflows/inflows of resources related to OPEB, amortization of deferred

outflows/inflows and OPEB expense is based on the Airport’s allocated percentage. The Airport’s

proportionate share of the City’s OPEB elements was 6.88% as of the measurement date.

Benefits

Permanent full-time and elected employees are eligible to retire and receive postretirement health

insurance benefits when they are eligible for retirement benefits from the City and County of San

Francisco’s Retirement System. The eligibility requirements are as follows:

Normal Retiremen

Miscellaneous

ge 50 with 20 years of credited service

ge 60 with 10 years of credited service

Safet

ge 50 with 5 years of credited service

Disabled Retiremen

ny age with 10 years of credited service

Terminated Vested 5 years of credited service at separation

Age 53 with 20 years of credited service, age 60 with 10 years of credited service, or age 65 for Miscellaneous members hired

on or after January 7, 2012 under Charter Section 8.603.

No service requirement for Safety members retiring under the industrial disability benefit or for surviving spouses / domestic

partners of those killed in the line of duty.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Retiree healthcare benefits are administered by the San Francisco Health Service System and include

the following:

Medical: PPO – Blue Shield (self-insured) and UHC Medicare Advantage

(fully insured)

HMO – Kaiser (fully-insured) and Blue Shield (flex-funded) and Health Net

(flex-funded)

Dental: Delta Dental, DeltaCare USA, and UnitedHealthcare Dental

Vision: Vision benefits are provided under the medical insurance plans

and are administered by Vision Service Plan

Projections of the sharing of benefit related costs are based on an established pattern of practice.

Contributions

Benefits provided under the Plan are currently paid through “pay-as-you-go” funding. Additionally,

under the City Charter, active officers and employees of the City who commenced employment on or

after January 10, 2009, shall contribute to the Retiree Health Care Trust Fund (Trust Fund) a

percentage of compensation not to exceed 2% of pre-tax compensation. The City shall contribute 1%

of compensation for officers and employees who commenced employment on or after January 10,

2009 until the City’s GASB Actuary has determined that the City’s portion of the Trust Fund is fully

funded. At that time, the City’s 1% contribution shall cease, and officers and employees will each

contribute 50% of the maximum 2% of pre-tax compensation.

Starting July 1, 2016, active officers and employees of the City who commenced employment on or

before January 9, 2009, shall contribute 0.25% of pre-tax compensation into the Trust Fund. Beginning

on July 1st of each subsequent year, the active officers and employees of the City who commenced

employment on or before January 9, 2009, shall contribute an additional 0.25% of pre-tax

compensation up to a maximum of 1%. Starting July 1, 2016, the City shall contribute 0.25% of

compensation into the Trust Fund for each officer and employee who commenced employment on or

before January 9, 2009. Beginning on July 1st of each subsequent year, the City shall contribute an

additional 0.25% of compensation, up to a maximum of 1% for each officer and employee who

commenced employment on or before January 9, 2009. When the City’s actuary has determined that

the City’s portion of the Trust Fund is fully funded, the City’s 1% contribution shall cease, and officers

and employees will each contribute 50% of the maximum 1% of pre-tax compensation.

Additional or existing contribution requirements may be established or modified by amendment to the

City’s Charter.

For the fiscal year ended June 30, 2023, the City’s funding was based on “pay-as-you-go” plus a

contribution of $45.2 million to the Retiree Healthcare Trust Fund. The “pay-as-you-go” portion paid by

the City was $215.4 million for a total contribution of $260.6 million for the fiscal year ended June 30,

2023. The Airport’s proportionate share of the City’s contributions for fiscal year 2022-23 was $17.9

million.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

OPEB Liabilities, OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB

As of June 30, 2023, the City reported net OPEB liabilities related to the Plan of $3.7 billion. The

Airport’s proportionate share of the City’s net OPEB liability as of June 30, 2023 was $257.8 million.

For the year ended June 30, 2023, the City’s recognized OPEB expense was $257.0 million.

Amortization of the City’s deferred outflows and inflows is included as a component of OPEB expense.

The Airport’s proportionate share of the City’s OPEB expense/(income) was $21.4 million.

As of June 30, 2023, the Airport reported its proportionate share of the City’s deferred outflows and

inflows of resources related to OPEB from the following sources (in thousands):

Deferred Deferred

Outflows of Inflows of

Resources Resources

Contributions subsequent to measurement date $ 17,934

Differences between expected and actual experience 5,723

Changes in assumptions 11,005

Net difference between projected and actual earnings on

plan investments 4,149

Change in proportion 120

—

42,915

—

8,033

Total $ 38,931 50,948

Amounts reported as deferred outflows, exclusive of contributions made after the measurement date,

and deferred inflows of resources will be amortized annually and recognized in OPEB expense as

follows (in thousands):

Fiscal Year:

2024 $ (7,610)

2025 (7,542)

2026 (4,953)

2027 (5,645)

Thereafter (4,201)

Total $ (29,951)

At June 30, 2023, the SFO reported $17.9 million as deferred outflows of resources related to

contributions subsequent to the measurement date, which will be recognized as an adjustment to net

OPEB liability/(asset) in the reporting year ending June 30, 2024.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Actuarial Assumptions

A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of

June 30, 2022 (measurement date) is provided below:

Key actuarial assumptions:

Valuation Date June 30, 2022

Measurement Date June 30, 2022

Actuarial Cost Method

The Entry Age Actuarial Cost Method is used to measure the

Plan's Total OPEB Liability

Healthcare Cost Trend Rates Pre-Medicare trend starts at 7.74% trending down to ultimate

rate of 3.93% in 2076

Medicare trend starts at 7.74% trending down to ultimate rate

of 3.94% in 2076

10-County average trend starts at 5.00% trending down to

ultimate rate of 3.94% in 2076

Vision and expenses trend remains a flat 3.00% for all years

Expected Rate of Return on Plan Assets 7.00%

Salary Increase Rate Wage Inflation Component: 3.25%

Additional Merit Component (dependent on years of service):

Police: 0.50% - 7.50%

Fire: 0.50% - 14.00%

Muni Drivers: 0.00% - 16.00%

Craft: 0.50% - 3.75%

Misc: 0.30% - 5.50%

Inflation Rate Wage Inflation: 3.25% compounded annually

Consumer Price Inflation: 2.50% compounded annually

Mortality Tables Base mortality tables are developed by multiplying a published

table by an adjustment factor developed in SFERS experience

study for the period ending June 30, 2019.

       

     

    

     

    

     

    

     

    



     

    

     

    

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Adjustment Factor

Non-Annuitants:

Published Table Male Female

Miscellaneous PubG-2010 Employee 0.834 0.866

Safety PubS-2010 Employee 1.011 0.979

Adjustment Factor

Healthy Retirees:

Published Table Male Female

Miscellaneous PubG-2010 Employee 1.031 0.977

Safety PubS-2010 Employee 0.947 1.044

Adjustment Factor

Disabled Retirees:

Published Table Male Female

Miscellaneous PubG-2010 Employee 1.045 1.003

Safety PubS-2010 Employee 0.916 0.995

Adjustment Factor

Beneficiaries:

Published Table Male Female

Miscellaneous PubG-2010 Employee 1.031 0.977

Safety PubG-2010 Employee 1.031 0.977

Change in Assumption – For the measurement date June 30, 2022, the healthcare cost trend rates

change as follow:

Healthcare Cost Trend June 30, 2022 (MD) June 30, 2021 (MD)

Pre‐Medicare

starts at 7.74% trending down to

ultimate rate of 3.93% in 2076

starts at 6.74% trending down to

ultimate rate of 4.04% in 2075

Medicare

starts at 7.74% trending down to

ultimate rate of 3.94% in 2076

starts at 7.24% trending down to

ultimate rate of 4.04% in 2075

10‐County average

starts at 5.00% trending down to

ultimate rate of 3.94% in 2076

starts at 5.50% trending down to

ultimate rate of 4.04% in 2075

The mortality rates in the base tables are projected generationally from the base year using the MP-

2019 projection scale.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Sensitivity of Liabilities to Changes in the Healthcare Cost Trend Rate and Discount Rate

The following presents the Airport’s proportionate share of the City’s net OPEB liability calculated using

the healthcare cost trend rate, as well as what the Airport’s allocation of the City’s net OPEB liability

would be if it were calculated using a healthcare cost trend rate that is 1% lower or 1% higher than the

current rate (in thousands):

1% Decrease Healthcare Trend 1% Increase

$ 220,515 257,767 303,972

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

Discount Rate

The discount rate used to measure the Total OPEB Liability as of June 30, 2022 was 7.0%. Based on

the assumption that plan member contributions will continue to be made at the rates specified in the

Charter, it was determined that the Plan’s projected fiduciary net position will be greater than or equal

to the benefit payments projected for each future period. As such, the long-term expected rate of return

on plan investments was applied to all periods of projected benefit payments to determine the total

OPEB liability.

The long-term expected rate of return on OPEB plan investments was 7.0% based on expected future

returns and historical returns experienced by the Trust Fund. Expected future returns were determined

based on 10-year and 20-year capital market assumptions for the Trust Fund’s asset allocation. Target

allocation for each major asset class and best estimates of geometric real rates of return are

summarized in the following table:

Long-term

Expected Real

Asset Class Target Allocation

Rate of Return

Equities

U.S. Large Cap 28.0% 6.8%

U.S. Small Cap 3.0% 7.4%

Developed Market Equity (non-U.S.) 15.0% 7.5%

Emerging Market Equity 13.0% 8.4%

Credit

Bank Loans 3.0% 4.0%

High Yield Bonds 3.0% 4.4%

Emerging Market Bonds 3.0% 4.2%

Rate Securities

Investment Grade Bonds 9.0% 2.4%

Long-term Government Bonds 4.0% 2.8%

Short-term Treasury Inflation-Protected Securities (TIPS) 4.0% 1.9%

Private Markets

Private Equity 5.0% 10.0%

Core Private Real Estate 5.0% 6.1%

Risk Mitigating Strategies

Global Macro 5.0% 5.0%

Total 100.0%

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

The following presents the Airport’s proportionate share of the City’s net OPEB liability calculated using

the discount rate, as well as what the Airport’s proportionate share of the City’s net OPEB liability would

be if it were calculated using a discount rate that is 1.0% lower or 1.0% higher than the current rate (in

thousands):

1% Decrease

6.0%

Discount Rate

7.0%

1% Increase

8.0%

$ 300,091 257,767 223,043

City issues a publicly available financial report that includes the complete note disclosures and required

supplementary information related to the City’s postemployment health care obligations. The report may

be obtained by writing to the City and County of San Francisco, Office of the Controller, 1 Dr. Carlton B.

Goodlett Place, Room 316, San Francisco, California 94102, or by calling (415) 554-7500.

(13) Related-Party Transactions

The Airport receives services from various other City departments that are categorized in the various

operating expense line items in the statement of revenues, expenses, and changes in net position. The cost

of all services provided to the Airport through the City’s work order system totaled approximately $186.4

million. These services included $56.9 million in utilities provided to tenants (see note 2m) and the Airport.

Included in personnel operating expenses were approximately $97.2 million related to police and fire

services and $5.5 million in worker’s compensation claims. The remaining expenses were categorized as

Repair and Maintenance or capitalized with construction projects.

The Lease and Use Agreement with the airlines provides for continuing annual service payments to the

City equal to 15.0% of concession revenues (net of certain adjustments), but not less than $5.0 million per

fiscal year. The annual service payments to the City were $48.7 million in fiscal year 2022-23. The annual

service payments are reported as transfers in the statement of revenues, expenses, and changes in net

position.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(14) Passenger Facility Charges

As of June 30, 2023, the FAA has approved several Airport applications to collect and use PFCs (from PFC

#2 to PFC #9) in a total cumulative collection amount of $2.3 billion and the cumulative use amount of $2.3

billion, with a final charge expiration date estimated to be December 1, 2030. During the fiscal years ended

from June 30, 2014 to June 30, 2023, the following changes occurred to the Airport’s PFC collection

authorizations.

In October 2013, the FAA approved the Airport’s fifth PFC application (PFC #5) for $610.5 million to pay for

debt service related costs associated with the reconstruction and reopening of Terminal 2 and Boarding

Area D. The earliest charge effective date was January 1, 2017 and was based upon the estimated charge

expiration date of PFC #3. The FAA estimated the charge expiration date for PFC #5 to be June 1, 2023. In

November 2014, the FAA approved an amendment to PFC #5 that increased the impose and use authority

by $131.2 million from $610.5 million to $741.7 million. The estimated expiration date for PFC #5 was

changed from June 1, 2023 to October 1, 2024. The Airport worked with the FAA to change the expiration

date for PFC #3 and the charge effective date for PFC #5 from January 1, 2017 to November 1, 2013,

because PFC #3 was fully collected earlier than originally anticipated due to increased passenger levels.

In June 2015, the FAA approved the Airport’s sixth PFC application (PFC #6) for $141.1 million to pay for

debt service related to the Runway Safety Area Program and the installation of ten passenger boarding

bridges at Boarding Area E. The FAA estimates the charge expiration date for PFC #6 to be March 1, 2026.

In May 2017, the FAA approved the Airport’s seventh PFC application (PFC #7) for $319.7 million to pay

for debt service associated with the AirTrain Extension and Improvements Project at the Airport. FAA

estimates the charge expiration date for PFC #7 to be February 1, 2030.

In February 2018, the FAA approved the Airport’s amendment to PFC #6 for an additional $76.0 million of

impose and use authority for a new total PFC #6 authority of $217.1 million.

In October 2018, the FAA approved the Airport’s eighth PFC application (PFC #8), which combined PFC

#6, as amended, and PFC #7, for a new combined total of $536.8 million of impose and use authority. The

estimated charge expiration date is March 1, 2029. PFC #6 and PFC #7 were closed, and the projects and

collections in those applications were transferred to PFC #8.

In October 2019, the FAA accepted the closeout documents, as amended, and closed PFC #3. This

application was authorized to impose and use $609.1 million of PFC revenue on the Boarding Areas A and

G and International Terminal Building Projects. The Commission certified that all collections were identified

as received and expended on the approved projects, in accordance with the Acknowledgement Letter and

any subsequent amendments to the Acknowledgement Letter.

In January 2021, the FAA approved the Airport’s ninth PFC application (PFC #9) with a total impose and

use authority of $208.6 million. The estimated charge expiration date is December 1, 2030. The PFC

revenues will be used to pay principal and interest on bonds issued for certain eligible costs associated

with the Design and Construction of Interim Boarding Area B at the Airport.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

PFC collections and related interest earned (loss) for the year ended June 30, 2023, are as follows (in

thousands):

2023

Amount collected $ 92,341

Interest earned (loss) 7,075

Total $

99,416

Interest earned (loss) on PFC revenues is included in investment income in the accompanying financial

statements.

(15) Customer Facility Charges

A Customer Facility Charge (CFC) is a user fee imposed on rental car users. There are no federal

regulations that govern the collection of CFCs, so CFC collection is regulated by each state.

On March 1, 2022, the Airport Commission adopted Resolution No. 22-0031. This resolution allowed for the

implementation of a CFC at a rate of $10.0 per rental car transaction. The CFC was imposed by the

Commission in accordance with Sections 50474.21 and 50474.3 of the California Government Code, as

they may be amended or supplemented. The Commission started to collect CFCs on July 1, 2022.

CFC collections and related interest earned (loss) for the year ended June 30, 2023, are as follows (in

thousands):

2023

Amount collected

Interest earned (loss)

$ 11,441

(204)

Total $ 11,237

Interest earned (loss) on CFC revenues is included in investment income in the accompanying financial

statements.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(16) Commitments, Litigation, and Contingencies

(a)

Commitments

Purchase commitments for construction, material, and services as of June 30, 2023, are as follows (in

thousands):

Construction

Operating

Total

$ 40,615

47,693

$ 88,308

The Airport’s Noise Insulation Program was implemented to mitigate the aircraft noise impact in the

surrounding communities. This involved execution of a Memorandum of Understanding in 1992 with

neighboring communities to insulate eligible properties and acquire easements for noise, vibration, and

other effects resulting from aircraft operations at the Airport, and implementation of a supplemental

program in 2000 to complete the work. This program was managed by the local communities with

Airport funds (using bond proceeds, operating and other internally generated funds), as well as federal

grants.

In fiscal year 2007-08, these components of the program were finalized, and a new phase was started,

with the Airport managing all new noise insulation work directly. In fiscal year 2022-23, the Airport

disbursed approximately $2.4 million in the new phase of the program ($1.4 million in federal grants

and $1.0 million in Airport funds). As of June 30, 2023, the cumulative disbursements of Airport funds

under this program were approximately $130.0 million.

(b)

Security Deposits

Each Signatory Airline is required to post security with the Commission to guarantee its performance

and payment. Such security generally consists of a surety bond or a letter of credit in an amount equal

to two months of terminal area rentals, landing fees, and usage fees. Other forms of security deposits

acceptable to the Commission, such as cash deposits, have on occasion been accepted in very limited

amounts and circumstances, such as when an airline bankruptcy occurs or where other forms of

security deposits are temporarily unavailable. Airlines operating at the Airport pursuant to 30-day

permits are required to post security bonds or letters of credit in an amount equal to six months of its

estimated rentals and fees under such agreements.

(c)

Litigation

The Airport is a defendant in various legal actions and claims that arise during the normal course of

business. Insurance policies cover certain liabilities and defense costs. Only those potential liabilities

not covered by insurance are included in the financial statements, and they have been estimated and

reported in conformity with GAAP.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(d)

Risk Management

Under the 1991 Master Bond Resolution, the Airport is required to procure or provide and maintain

insurance, or to self-insure, against such risks as are usually insured by other major airports in

amounts adequate for the risk insured against, as determined by the Airport. The Airport is not required

to nor does it carry insurance or self-insure against any risks due to land movement or seismic activity.

The Airport has an ongoing loss prevention program, a safety officer, property loss control, and

ongoing employee training programs. The Airport has instituted an Enterprise Risk Management

Program by implementing a comprehensive risk identification, assessment, and treatment protocol to

address key risks that may adversely affect the Airport’s ability to meet its business goals and

objectives. The Airport carries aviation liability insurance coverage of $1.0 billion with $250.0 million in

War Perils Liability, subject to a deductible of $10,000 per occurrence. Immediately following the events

of September 11, 2001, insurers canceled the coverage for war, terrorism, and hijacking for all airports,

including the Airport. A number of insurers now provide this coverage through the Federal Government

Terrorism Risk Insurance Act. However, the scope of the coverage is limited and the premiums are

high. Due to these factors, the Commission, in consultation with the City’s Director of Risk

Management, has elected not to secure such coverage but to purchase War Perils Liability Coverage

as part of its aviation liability program.

The Airport also carries commercial property insurance coverage for full replacement value on all

facilities at the Airport owned by the Airport, subject to a limit of $1.0 billion per occurrence subject to a

deductible of $500,000 per occurrence. This policy includes flood coverage up to a $10.0 million sub-

limit. The Airport also carries business interruption and extra expenses insurance up to a $100.0 million

pooled sub-limit.

Additionally, tenants and contractors on all contracts are required to carry commercial general and

automobile liability insurance in various amounts, naming the Airport as additional insured. The Airport

is self-insured as part of the City’s workers’ compensation program. From current revenues, the Airport

pays losses from workers’ compensation claims of Airport employees, the deductible portion of insured

losses, and losses from other uninsured risks. The Airport carries public officials and employment

practices liability coverage of $5.0 million, subject to a deductible of $100,000 per occurrence for Public

Officials’ and Public Entity Liability matters, and $250,000 per occurrence for Employment Practices

Liability matters. The Airport also carries insurance for excess auto, public employee dishonesty, fine

arts, cyber liability, and watercraft liability for Airport fire and rescue vessels, and target range liability

for the San Francisco Police Department’s firearms range located at the Airport.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

The estimated claims payable are actuarially determined as part of the City’s self-insurance program.

Changes in the reported amount resulted from the following activity (in thousands):

Balance as of June 30, 2022 $ 2,158

Claim payments (22)

Claims and changes in estimates 2,136

Balance as of June 30, 2023 $ 4,272

The Airport is self-insured as part of the City’s program for workers’ compensation. All self-insurance

claims are processed by the City. Liability and risk are retained by the Airport. Accrued workers’

compensation includes provisions for claims reported and claims incurred but not reported. This

accrued workers’ compensation liability is actuarially determined as part of the City’s program and is as

follows (in thousands):

Balance as of June 30, 2022

Claim payments

Claims and changes in estimates

$ 12,093

(5,455)

5,929

Balance as of June 30, 2023 $ 12,567

(e)

Grants

Grants that the Airport receives are subject to audit and final acceptance by the granting agency.

Current and prior year costs of such grants are subject to adjustment upon audit.

(f)

Financial Guarantees

The Airport participates in the City and County of San Francisco’s contractor development program,

previously referred to as the surety bond program, which provides training, support and City-funded

surety bond guaranties for local business enterprise (LBE) contractors who want to bid on construction

contracts for City departments (including the Airport), but cannot qualify for the required surety bonds

on their own. If program parameters are met, the Airport may guarantee the lesser of $750,000 or 40%

of the face amount of the surety bond, which would enable the LBE contractor to bid on Airport

construction work. There were no outstanding Airport guaranties under the program as of June 30,

2023.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(g)

Concentration of Credit Risk

The Airport leases facilities to the airlines pursuant to the Lease and Use Agreement (see note 2i) and

to other businesses to operate concessions at the Airport. For fiscal year ended June 30, 2023,

revenues realized from the following source exceeded 5.0% of the Airport’s total operating revenues:

United Airlines 26.2 %

(h)

Per- and Polyfluoroalkyl Substances (PFAS)

For its aircraft rescue and firefighting vehicles and fire suppression operating systems, the Airport uses

Aqueous Film Forming Foam that contains Per- and Polyfluoroalkyl Substances (PFAS), as required by

the FAA. PFAS are a group of more than 3,000 synthetic chemicals. The U.S. Environmental

Protection Agency (EPA) determined that, due to the widespread use and persistence in the

environment of PFAS, most people in the United States have been exposed to PFAS. The EPA also

found evidence that continued exposure to certain PFAS above specified levels may lead to adverse

health effects.

On March 20, 2019, the California State Water Resources Control Board (the “State Board”) issued an

order pursuant to California Water Code Section 13267, for the Determination of the Presence of PFAS

to all airports in California (the “Order”), including the Airport. The Order identifies the Airport as a

facility that accepted, stored, or used materials that may contain PFAS. The Order requires the Airport

to test soil, sediment, and groundwater for 23 types of PFAS. The Airport has completed the sampling

required under this Order, which identified the presence of PFAS in soil, sediment, and groundwater at

several locations at the Airport.

In March 2021, the State Board issued the Investigative Orders to Refineries and Bulk Fuel Terminals,

which ordered certain facilities, including two facilities located at the Airport, to conduct a one-time

sampling effort to determine whether soil, groundwater, surface water, and influent/effluent wastewater

were impacted by PFAS. The Airport completed the required testing for these two facilities and

submitted the final reports to the San Francisco Bay Regional Water Quality Control Board (the

Regional Board) in February and April 2023. The Airport anticipates that additional orders will be issued

requiring further testing and/or delineation of the presence of PFAS at the Airport.

The State Board and the Regional Board have not yet established cleanup standards for PFAS or

otherwise indicated what actions will be required for PFAS found in soil, sediment, and groundwater

exceeding the levels they specify. As of June 30, 2023, it is uncertain whether and to what extent the

levels of PFAS discovered at the Airport will trigger a remediation obligation. It is possible that the

ultimate costs of remediation and third-party liability for PFAS could be extensive.

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Financial Statements

Year ended June 30, 2023

(17) Subsequent Events

A new ten-year 2023 Lease and Use Agreement became effective on July 1, 2023 and is set to expire on

June 30, 2033.

On November 15, 2023, the Airport issued $794.3 million of its Series 2023C and Series 2023D Bonds, for

the purpose of refunding $497.8 million in outstanding commercial paper notes, refunding $241.8 million in

outstanding Series 2013A bonds, funding deposits to a debt service reserve account, and paying costs of

issuance. The financial statements reflected the refunded amounts as noncurrent liabilities. Moody’s and

Fitch assigned credit ratings of “A1” and “A+” to these bonds.

Crowe LLP

Independent Member Crowe

Global

INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND

ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS

PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

The Honorable Mayor and Board of Supervisors

City and County of San Francisco

We have audited, in accordance with the auditing standards generally accepted in the United States of

America and the standards applicable to financial audits contained in Government Auditing Standards

issued by the Comptroller General of the United States, the financial statements of the Airport Commission,

City and County of San Francisco, San Francisco International Airport (the “Airport”), an enterprise fund of

the City and County of San Francisco (the “City”) as of and for the year ended June 30, 2023, and the

related notes to the financial statements, which collectively comprise the Airport’s financial statements, and

have issued our report thereon dated December 22, 2023. As discussed in Note 1, the financial statements

present only the Airport and do not purport to, and do not, present fairly the financial position of the City,

the changes in its financial position, or where applicable, its cash flows in accordance with accounting

principles generally accepted in the United States of America.

Report on Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the Airport’s internal control

over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in

the circumstances for the purpose of expressing our opinion on the financial statements, but not for the

purpose of expressing an opinion on the effectiveness of the Airport’s internal control. Accordingly, we do

not express an opinion on the effectiveness of the Airport’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management

or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,

misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in

internal control, such that there is a reasonable possibility that a material misstatement of the entity’s

financial statements will not be prevented, or detected and corrected on a timely basis. A significant

deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a

material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this

section and was not designed to identify all deficiencies in internal control that might be material

weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any

deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses

or significant deficiencies may exist that have not been identified.

Report on Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Airport’s financial statements are free from

material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,

contracts, and grant agreements, noncompliance with which could have a direct and material effect on the

financial statements. However, providing an opinion on compliance with those provisions was not an

objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed

no instances of noncompliance or other matters that are required to be reported under Government Auditing

Standards.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance

and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal

control or on compliance. This report is an integral part of an audit performed in accordance with

Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly,

this communication is not suitable for any other purpose.

Crowe LLP

Costa Mesa, California

December 22, 2023

100

Crowe LLP

Independent Member Crowe

Global

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO

THE PASSENGER FACILITY CHARGE PROGRAM; REPORT ON INTERNAL CONTROL OVER

COMPLIANCE; AND REPORT ON THE SCHEDULE OF REVENUES AND EXPENDITURES OF

PASSENGER FACILITY CHARGES

The Honorable Mayor and Board of Supervisors

City and County of San Francisco

Report on Compliance of Passenger Facility Charges

Opinion on Passenger Facility Charge Program

We have audited the Airport Commission, City and County of San Francisco, San Francisco International

Airport (the “Airport”) compliance with the types of compliance requirements identified as subject to audit in

the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation

Administration (“Guide”), that could have a direct and material effect on its passenger facility charge

program for the year ended June 30, 2023.

In our opinion, the Airport complied, in all material respects, with the compliance requirements referred to

above that could have a direct and material effect on its passenger facility charge program for the year

ended June 30, 2023.

Basis for Opinion on Passenger Facility Charge Program

We conducted our audit of compliance in accordance with auditing standards generally accepted in the

United States of America (GAAS); the standards applicable to financial audits contained in Government

Auditing Standards issued by the Comptroller General of the United States (Government Auditing

Standards); and the audit requirements of the Guide. Our responsibilities under those standards and the

Guide are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our

report.

We are required to be independent of the Airport and to meet our other ethical responsibilities, in

accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we

have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for the

passenger facility charge program. Our audit does not provide a legal determination of the Airport’s

compliance with the compliance requirements referred to above.

Responsibilities of Management for Compliance

Management is responsible for compliance with the requirements referred to above and for the design,

implementation, and maintenance of effective internal control over compliance with the requirements of

laws, statutes, regulations, rules and provisions of contracts or grant agreements applicable to the Airport’s

passenger facility charge program.

101

Auditor’s Responsibilities for the Audit of Compliance

Our objectives are to obtain reasonable assurance about whether material noncompliance with the

compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion

on the Airport’s compliance based on our audit. Reasonable assurance is a high level of assurance but is

not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS,

Government Auditing Standards, and the Guide will always detect material noncompliance when it exists.

The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from

error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of

internal control. Noncompliance with the compliance requirements referred to above is considered material,

if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made

by a reasonable user of the report on compliance about the Airport’s compliance with the requirements of

the passenger facility charge program as a whole.

In performing an audit in accordance with GAAS, Government Auditing Standards, and the Guide, we:

• exercise professional judgment and maintain professional skepticism throughout the audit.

• identify and assess the risks of material noncompliance, whether due to fraud or error, and design

and perform audit procedures responsive to those risks. Such procedures include examining, on a

test basis, evidence regarding the Airport’s compliance with the compliance requirements referred

to above and performing such other procedures as we considered necessary in the circumstances.

• obtain an understanding of the Airport’s internal control over compliance relevant to the audit in

order to design audit procedures that are appropriate in the circumstances and to test and report

on internal control over compliance in accordance with the Guide, but not for the purpose of

expressing an opinion on the effectiveness of the Airport’s internal control over compliance.

Accordingly, no such opinion is expressed.

We are required to communicate with those charged with governance regarding, among other matters, the

planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal

control over compliance that we identified during the audit.

Report on Internal Control Over Compliance

A deficiency in internal control over compliance exists when the design or operation of a control over

compliance does not allow management or employees, in the normal course of performing their assigned

functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a

federal program on a timely basis. A material weakness in internal control over compliance is a deficiency,

or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility

that material noncompliance with a type of compliance requirement of a federal program will not be

prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over

compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type

of compliance requirement of a federal program that is less severe than a material weakness in internal

control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the Auditor’s

Responsibilities for the Audit of Compliance section above and was not designed to identify all deficiencies

in internal control over compliance that might be material weaknesses or significant deficiencies in internal

control over compliance. Given these limitations, during our audit we did not identify any deficiencies in

internal control over compliance that we consider to be material weaknesses, as defined above. However,

material weaknesses or significant deficiencies in internal control over compliance may exist that were not

identified.

Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control

over compliance. Accordingly, no such opinion is expressed.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing

of internal control over compliance and the results of that testing based on the requirements of the Guide.

Accordingly, this report is not suitable for any other purpose.

102

Report on Schedule of Revenues and Expenditures of Passenger Facility Charges

We have audited the financial statements of the Airport as of and for the year ended June 30, 2023, and

the related notes to the financial statements, which collectively comprise the Airport’s financial statements.

We issued our report thereon dated December 22, 2023, which contained an unmodified opinion on those

financial statements. Our audit was conducted for the purpose of forming an opinion on the financial

statements that collectively comprise the financial statements. The accompanying schedule of revenues

and expenditures of passenger facility charges is presented for purposes of additional analysis as required

by the Guide and is not a required part of the financial statements. Such information is the responsibility

of management and, except for that portion marked "unaudited," was derived from and relates directly to

the underlying accounting and other records used to prepare the financial statements. That information

has been subjected to the auditing procedures applied in the audit of the financial statements and certain

additional procedures, including comparing and reconciling such information directly to the underlying

accounting and other records used to prepare the financial statements or to the financial statements

themselves, and other additional procedures in accordance with auditing standards generally accepted in

the United States of America. In our opinion, schedule of revenues and expenditures of passenger facility

charges is fairly stated in all material respects in relation to the financial statements as a whole. The

information marked "unaudited" has not been subjected to the auditing procedures applied in the audit of

the financial statements and, accordingly, we do not express an opinion or provide any assurance on it.

Crowe LLP

Costa Mesa, California

December 22, 2023

103

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Schedule of Passenger Facility Charge Revenues and Expenditures

Year ended June 30, 2023

(In thousands)

Revenues over

Passenger

(under)

Facility

Expenditures expenditures

Charge

Interest Total on approved on approved

revenues

earned revenues projects project

Program to date as of June 30, 2022 (Unaudited)

$ 1,572,417 35,931 1,608,348 (1,123,240) $ 485,108

Fiscal year 2022 – 23 transactions:

Reversal passenger facility charges accrual (8,394) - (8,394) - (8,394)

Quarter ended September 30, 2022 22,039 1,551 23,590 - 23,590

Quarter ended December 31, 2022

17,294 2,245 19,539 - 19,539

Quarter ended March 31, 2023

20,557 3,136 23,693 - 23,693

Quarter ended June 30, 2023

24,614 4,122 28,736 - 28,736

Unrealized loss on investments

- (3,979) (3,979) - (3,979)

Passenger facility charges accrual

16,231 - 16,231 - 16,231

Total fiscal year 2022 – 23 transactions 92,341 7,075 99,416 - 99,416

Program to date as of June 30, 2023 (Unaudited)

1,664,758 43,006 1,707,764 (1,123,240) $ 584,524

See accompanying independent auditor’s report and notes to schedule of passenger facility charge revenues and expenditures.

104

AIRPORT COMMISSION

CITY AND COUNTY OF SAN FRANCISCO

SAN FRANCISCO INTERNATIONAL AIRPORT

Notes to Schedule of Passenger Facility Charge Revenues and Expenditures

Year ended June 30, 2023

(1)

General

The accompanying schedule of Passenger Facility Charge (PFC) revenues and expenditures includes

activities related to applications 02-02-C-00-SFO, 03-03-C-01-SFO, 11-05-C-01-SFO, 18-08-C-00-SFO

and 21-09-C-00-SFO of the PFC program of the Airport Commission, City and County of San Francisco,

San Francisco International Airport (the Airport). The level of PFCs authorized, charge effective dates,

and approved collection amounts of the Airport’s PFC program are as follows:

Amounts approved for

Level of PFCs Charge effective date

collection

Application number authorized for collection

(in thousands)

02-02-C-00-SFO

4.50

October 1, 2001 $ 224,035

03-03-C-01-SFO 4.50

November 1, 2005 609,108

11-05-C-01-SFO 4.50

November 1, 2013 741,745

18-08-C-00-SFO 4.50

October 1, 2024 536,799

21-09-C-00-SFO 4.50

March 1, 2029 208,629

Total $ 2,320,316

(2)

Basis of Accounting – Schedule of Passenger Facility Charge Revenues and Expenditures

The accompanying Schedule of Passenger Facility Charge Revenues and Expenditures (the Schedule)

has been prepared on the accrual basis of accounting which is described in note 2a of the Airport’s basic

financial statements.

105

SAN FRANCISCO INTERNATIONAL AIRPORT

SCHEDULE OF PASSENGER FACILITY CHARGES FINDINGS AND QUESTIONED COSTS

Year ended June 30, 2023

SUMMARY OF AUDITOR’S RESULTS

Financial Statements

Type of report the auditor issued on whether

the financial statements audited were prepared

in accordance with GAAP: Unmodified

Internal control over financial reporting:

Material weakness(es) identified? Yes X No

Significant deficiency(ies) identified? Yes X None reported

Noncompliance material to financial statements noted? Yes X No

Passenger Facility Charge Audit Guide for Public Agencies

Internal control over major federal programs:

Material weakness(es) identified? Yes X No

Significant deficiencies identified not

considered to be material weaknesses? Yes X None reported

Type of auditor’s report issued on compliance with the

Passenger Facility Charge Audit Guide for Public Agencies: Unmodified

Any audit findings disclosed that are required to be

reported in accordance with the Passenger Facility Charge

Audit Guide for Public Agencies? Yes X No

106

Crowe LLP

Independent Member Crowe

Global

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO

THE CUSTOMER FACILITY CHARGE PROGRAM; REPORT ON INTERNAL CONTROL OVER

COMPLIANCE; AND REPORT ON THE SCHEDULE OF REVENUES AND EXPENDITURES OF

CUSTOMER FACILITY CHARGES

The Honorable Mayor and Board of Supervisors

City and County of San Francisco

Report on Compliance of Customer Facility Charges

Opinion on Customer Facility Charge Program

We have audited the Airport Commission, City and County of San Francisco, San Francisco International

Airport (the “Airport”) compliance with the types of compliance requirements described in the California Civil

Code Chapter 1.5 (commencing with Section 1939.01) to Title 5 of Part 4 of Division 3, and California

Government Code Section 50474.1 through Section 50474.3 (“CFC Code”), that could have a direct and

material effect on its customer facility charge program for the year ended June 30, 2023.

In our opinion, the Airport complied, in all material respects, with the compliance requirements referred to

above that could have a direct and material effect on its customer facility charge program for the year ended

June 30, 2023.

Basis for Opinion on Customer Facility Charge Program

We conducted our audit of compliance in accordance with auditing standards generally accepted in the

United States of America (GAAS); the standards applicable to financial audits contained in Government

Auditing Standards issued by the Comptroller General of the United States (Government Auditing

Standards); and the audit requirements of the Guide. Our responsibilities under those standards and the

Guide are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our

report.

We are required to be independent of the Airport and to meet our other ethical responsibilities, in

accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we

have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for the customer

facility charge program. Our audit does not provide a legal determination of the Airport’s compliance with

the compliance requirements referred to above.

Responsibilities of Management for Compliance

Management is responsible for compliance with the requirements referred to above and for the design,

implementation, and maintenance of effective internal control over compliance with the requirements of

laws, statutes, regulations, rules and provisions of contracts or agreements applicable to the Airport’s

customer facility charge program.

107

Auditor’s Responsibilities for the Audit of Compliance

Our objectives are to obtain reasonable assurance about whether material noncompliance with the

compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion

on the Airport’s compliance based on our audit. Reasonable assurance is a high level of assurance but is

not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS,

Government Auditing Standards, and the CFC Code will always detect material noncompliance when it

exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting

from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the

override of internal control. Noncompliance with the compliance requirements referred to above is

considered material, if there is a substantial likelihood that, individually or in the aggregate, it would

influence the judgment made by a reasonable user of the report on compliance about the Airport’s

compliance with the requirements of the customer facility charge program as a whole.

In performing an audit in accordance with GAAS, Government Auditing Standards, and the CFC Code, we: