January 01, 2015
Branson isn’t for
everyone. Those seeking unique and edgy entertainment don’t dig the Lennon
Sisters. Or Tony Orlando. Or Yakov Smirnoff.
privatization wonks, the capital of cheesy entertainment, nestled in the Ozarks
on the Missouri-Arkansas line, is beyond cool. It has, as the Government
Accountability Office (GAO) noted in a recent report, the only “commercial
service airport in the United States … privately developed and … privately
correct -- in “hypercapitalist”
America, the GAO documented, “Nearly all of the 3,330 commercial service or
general aviation airports designated as part of the national airport system are
under city, state, county or public-authority ownership.”
than a little curious, given the air-travel industry’s massive size. The major
carriers’ revenue reached $150 billion in 2013. Annual traffic at the nation’s
busiest hub, Atlanta’s
Hartsfield-Jackson, exceeds 90 million. (Ten airports top 30 million in
passenger volume.) The five most active cargo airports handle more than 12
million tonnes of goods per
people and stuff through the skies is big business. On the ground, though,
demand curves, pay-for-performance, and P/E ratios are absent. During the
Clinton administration, the president and a GOP-controlled Congress took a
surprising step to transition a handful of airports to economic reality. They
established the Airport Privatization Pilot Program (APPP), which offered
guidance and rewards for five government entities to reduce or eliminate their
roles in aviation. Big participants were encouraged to relinquish control to
private mangers, while small fry could either lease or sell themselves to
two decades later, the GAO dispatched its auditors to examine the program’s
results. Here’s the money stat: 0.3 percent. That’s the share of eligible
airports that submitted APPP applications to the FAA. Ten, in all, but just
three -- Chicago Midway International Airport, Puerto Rico’s Luis Munoz Marin
International Airport, and Louis Armstrong New Orleans International Airport --
had annual boardings in the millions.
worse. Successes were even skimpier. Stewart International Airport, in New
York’s Orange County, was leased for a time, but reverted to full government
control in 2007. Puerto Rico’s effort alone jumped all the hurdles, and
engineered a transfer to private management.
went wrong? The GAO dutifully chronicled the APPP’s failings. Coveted tax perks
were a major villain. An expert consulted by the office “stated that one
obstacle … is the private-sector airport operator’s lack of access to
tax-exempt bond financing increasing the borrowing costs when compared to
public-sector airport owners.” Avoiding local levies provides another advantage
for government. In Chicago’s failed attempt at outsourcing, “officials had to
negotiate with state lawmakers to maintain Midway’s property tax-exempt
daunting barrier was the application process. It was cumbersome and pricey. The
FAA’s red tape was vexing. Airlines had to be asked for permission to
privatize. “Community” groups erected opposition. Unions weren’t happy.
Political winds shifted. Economic conditions changed. Months gave way to years.
Every day that passed brought another expense.
specifics, read the full report.
But you’ll probably be left a bit unsatisfied. The GAO barely addressed
something fundamental to privatization resistance: The men and women who run
government aren’t interested in downsizing. Quite the opposite is true --
mission creep is their goal.
are “quasi-public” creatures. Policies are set by elected officials and
bureaucrats. But operating income is derived from fees assessed to carriers and
concessions granted to firms that operate parking lots, restaurants, and gift
shops. Capital expenditures are covered by bonding, federal subsidies, and
passenger charges. An airport enables a region’s political class to play with
an important piece of infrastructure, boast about its architectural
characteristics and role in local “economic development,” and dodge the risk of
a taxpayer revolt. Pols get to serve on oversight boards. Career bureaucrats
often nab lucrative, lifetime gigs. Consultants, lawyers, and economists get
plenty of work. And media scrutiny is reliably light.
concluded that “for an airport privatization to occur, the private operator
must be able to make a profit and the public-sector airport owner must believe
that more will be gained than lost in the transaction.” Power, prestige,
substandard transparency, slim accountability, and jobs for the politically
connected -- airports’ decisionmakers have plenty to lose, and very little to
gain, from deferring to private management or surrendering to private
incentivization through the APPP has wholly failed to get state and local
governments to abandon their aero-fiefdoms. It will take a bottom-up approach, driven
by discriminating flyers and informed taxpayers, to vanquish airport socialism.
D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.
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