The Role of U.S. Airports in the National Economy (2015)

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17 C H A P T E R 3 The economic calculations presented in the later stages of this report are based on research conducted in the early parts of this project, including a survey of literature, development of a NPIAS database, and a review of economic impact mod- eling packages. These tasks are summarized here and pre- sented in Appendices 1–5 that are available at www.TRB.org/ main/blurbs/172111.aspx. The review of the literature enabled the research team to evaluate a variety of approaches to measuring the role of the airport system in the U.S. economy, and to identify which tools were important and should be incorporated into this project. Approaches covered in the literature include MFP analysis, regression methodologies, and input-output analysis. The majority of airport economic impact studies use data of on-airport operations, combined with survey data of on-airport businesses, off-airport businesses, and visitors to develop estimates of impacts. Some studies, however, have used regression techniques to estimate the economic impact of airports. The regression studies identify data variables that were used by the research team in the subsequent regression analysis conducted in Task 5. Below are the categories and summaries of literature that were reviewed. The annotated literature review is found in Appendix 5 that is available at www.TRB.org/main/blurbs/ 172111.aspx. 3.1 National Studies and Regression Analyses The literature search included economic impact studies of airports based on regression modeling (primarily from academic sources); national level studies that do not employ regression; and a sample of the many economic impact studies of airports and airport systems that use input–output analysis. These studies were valuable resources, but they included research objectives that did not match the objectives of ACRP Project 03-28. For example: • Some of the literature quantifies the impact of civil avia- tion in the United States, including aircraft manufactur- ing, for example, whereas ACRP Project 03-28 examines the economic role of U.S. airports only; • Several studies are limited to the national economic impact of general aviation airports or to commercial air- ports, while ACRP Project 03-28 evaluates all 3,300 NPIAS airports; • Many studies are limited to a state/regional airport system or to a single airport; and • Some research did not attempt to separate the national impact from a compilation of local or regional impacts. The objective of the ACRP Project 03-28 is to find the con- tribution of U.S. airports to the national economy. Air Cargo The research team reviewed literature of air cargo studies, with an emphasis on the role of air cargo in the overall U.S. economy. Limited studies have been conducted to measure the gross impact of access to air cargo on the economy. Using data from 1980–2000, the studies found a high correlation between air cargo and GDP, and that growth in air cargo has outpaced growth of trade and GDP. They also found strong positive correlations between bilateral agreements9 and levels of air cargo, trade, GDP, and foreign direct investment. In general, the literature suggests that accessibility to air cargo services has positive effects on local (and national) econo- mies. Although the impacts vary by airport size and regional economic base, air cargo activity has been shown to increase job creation and regional productivity. Core Research

18 Productivity The research team reviewed literature that explores the relationships between infrastructure and productivity growth, and that evaluates the association between transportation and productivity growth. This part of the literature review pro- vided the foundation for evaluating the link between inter- modal connectivity and productivity growth, and became the basis for the multifactor productivity analysis conducted in this project. Research analyzing the relationship between intermodal connectivity and productivity is in preliminary stages. Cur- rent research is incomplete and relatively few researchers have addressed this topic, which has focused on surface transpor- tation modes. Some research specifically looks at how one mode of transportation influences productivity growth. How- ever, several studies find that the overall impact of multi- modal transport is greater than the impact from any of the individual transport modes. These studies provide useful starting points for isolating the productivity impacts of air- ports in the national economy. Value added by industry, and GDP nationally [or gross regional product (GRP), regionally] are used in this study as indicators of changes in economic productivity. Economic Data Sets The research team reviewed national economic data sets that potentially could be used to develop a standard national level approach for the impact analysis of airports. The data sets reviewed are summarized in Table 1. Airport Economic Impact Studies Based on Survey Data and Input–Output Models Airport economic impact studies that utilize survey data and input–output models10 were reviewed because they cover a range of types of airports and airport systems, study objec- tives, calculation methodologies, and modeling tools. The studies reviewed cover impacts of Lansing Capital City Air- port, Hartsfield-Jackson Atlanta International Airport, Gen- eral Mitchell International Airport (Milwaukee County), and the airport systems of South Dakota and Virginia. Economic Impact Models In estimating the national–level impact of airports, the research team reviewed the capabilities of two types of eco- nomic models: static input–output (I-O) analysis models Source Data Series Data Measured Highest NAICSD Levels Update FrequencyE Population Jobs Income Firms Sales/ Output GDP/GRP/C Value Added Census Decennial Census and American Community Survey x x x 6 Varies Census Economic Census x x x x 6 5 Years Census Foreign Trade Division 6 Monthly Census County Business Patterns x x x 6 Annual BLS Quarterly Census of Employment and Wages x x x 6 Quarter BLS Current Employment Statistics Survey x x 6 Monthly BLS Occupation Employment Statistics Survey x x 5A Annual BLS National Compensation Survey x 2A Varies BEA U.S. Economic Accounts x x x 4 Varies IRS Statistics of Income (SOI) x x 6 Annual Nielsen Claritas Business-Facts database x x x 6 Monthly IMPLAN, LLCF Aggregation of National data sets x x x x x 5B Annual Notes: A – Employment data are reported for detailed occupations, not industry; B – Data are in 2-5 digit NAICS (North American Industrial Classification System); C – Gross Domestic Product/Gross Regional Product; D – North American Industrial Classification System; E – Update frequency varies by program or data product; F – Formerly Minnesota IMPLAN Group, Inc. Table 1. National data sets.

19 and dynamic computable general equilibrium (CGE) mod- els. Examples of the former are the U.S. Bureau of Economic Analysis (BEA) national I-O model and its RIMS-II regional data product, and the IMPLAN model (from the IMPLAN Group). Examples of the latter are the REMI Policy Insight PI+ model (from Regional Economic Models, Inc.) and the INFORUM-LIFT model (from the University of Maryland). The static I-O models are most commonly used to calculate the existing economic role of airports in the economy and impact of changes in airport activity levels—both tied to levels of direct economic activities at the airport and in off- airport impacts such as visitor spending. The dynamic CGE models are most commonly used to calculate the broader economic impact of shocks to the economy that involve price or cost changes, though they can also be used to calcu- late the impact of simple activity level changes. Features of these model systems are summarized in Table 2. A notable feature is the trade-off between the high level of industry detail enabled in the static I-O models and the more aggre- gate level of industry breakdown provided in the dynamic models. Another notable feature is the difference in price, which in 2014 ranged from about $700 to $15,000 and up for a national level model. Tools were evaluated in the course of this research and it was determined that a static I-O model with its more detailed industry breakdown is well suited to calculate the existing role of the airports in the U.S. economy and for calculat- ing job equivalents of results of the multifactor productivity and consumer surplus analyses developed in this research. It should be noted, however, that a static tool cannot assess the national impact of investment scenarios, but neither can a CGE model that is limited to the U.S. economy. In the latter case, closed CGE models such as REMI (that operate just within the U.S. economy) can assess dynamic changes by shifting fixed labor and capital resources among industries and regions, with associated price changes. However, a CGE model that also includes bilateral international trade modules (such as INFORUM-LIFT) can also calculate the national impact on growth of the U.S. economy that comes from capturing a larger share of investment and output at the expense of international trading partners. However, that kind of policy research and modeling is far beyond the scope of this specific ACRP study. This project relies largely on statistical analysis outside of I-O or CGE modeling to derive productivity measures, and utilizes economic models and data primarily for allocation of productivity effects among elements of the economy. Given the scope of this project, the research team recommended and the project panel approved the use of the IMPLAN I-O model to aid in the industry analysis for ACRP Project 03-28. In addition, the detailed IMPLAN national metrics of employ- ment, labor income, and GDP are very close to the levels reported by the BEA, ranging from 98.4% to 100.5% of BEA totals (see Table 3). 3.2 Airport Database The research team created a comprehensive database for the 3,330 NPIAS airports (the database is in Appendix 3A). The database contains airport identifying information, facilities data, and aviation activity data for passengers, cargo, and air- craft operations, and airline service levels. It also includes the economic findings from the impact studies conducted for state and regional air systems and for single airports—accounting for 1,013 of the airports in the NPIAS system. These airports represent all segments of the NPIAS system, as noted in Table 4. The airport economic impact data include: • On-airport jobs, personal income, business sales (eco- nomic output) • Air reliant impacts (contribution of air cargo, both domes- tic and international) • Domestic and international visitor spending • Multiplier effects (supplier sales and spending of wages by workers, i.e., indirect and induced effects) As expected with data compiled from different sources for many airports, it was collected using similar but not identical methodologies and covered different years (studies added to the database range from 2006–2011). Some studies do not separate international and domestic activities. Also, studies vary in how air reliance of off-airport industries is addressed, if at all. Similarly, inclusion of impacts from airport construc- tion are not consistent among studies, including whether one year of expenditures is covered or if multiple years of expen- ditures are averaged for the analysis.11 Some studies count full- time equivalent workers, while others report head-counts. In addition, studies treat multipliers differently: some separate direct, indirect, and induced effects; others separate direct, but combine indirect and induced; while others provide one num- ber for both direct and multiplier impacts or combine direct and indirect. As study years vary, some findings are reported in 2011 dollars, while others are reported in earlier year dollars. Standardized Economic Impact Data To standardize data across studies, the research team: 1. Adjusted dollars to 2010 values using the Consumer Price Index (CPI) to adjust for inflation.12 2. Isolated and used direct effects only, thus avoiding con- fusion over multipliers. National multipliers are applied uniformly in the project analysis to gauge national eco- nomic contributions.

ASPECT RIMS-II multiplier data IMPLAN model REMI Policy Insight (PI+) model LIFT Model Vendor Bureau of Economic Analysis – U.S. Department of Commerce IMPLAN Group LLC, Huntersville, NC Regional Economic Models, Inc. Amherst, MA INFORUM, University of Maryland, College Park, MD Availability of Model Purchase Purchase Software lease (6- or 12-month) Subcontract to be run by INFORUM staff Type of Model Static I-O Static input-output Dynamic CGE – closed to U.S. economy Dynamic CGE – includes bilateral trade modules Adjustable production functions NO YES YES Partly # of Industries addressed 406 detailed; 62-aggregate 440 (can be aggregated) 23 or 70 51 value added industries; 97 commodities Temporal component NONE NONE Annual impact forecasting through 2055 Annual impact forecasting through 2040 Accounts for cost changes? NO NO YES YES Foreign export impact? NO NO YES (must be entered into model) YES Impact Results Resolution Industry-specific & aggregate economy Impact Result Metrics Jobs, labor income, gross domestic product, output Table 2. National economic impact analysis products.

21 Table 3. Comparison of 2012 U.S. BEA national data and data aggregated by IMPLAN, LLC (dollars in billions). Metric U.S. BEA IMPLAN LLC IMPLAN (as Percent of BEA) Employment 179,613,300 176,746,000 98.40% Labor Income $9,866.7 $9,844.9 99.78% GDP (Value Added) $16,163.2 $16,244.6 100.50% Sources: www.bea.gov, accessed August 2014: Tables 1.12 National Income by Type of Income; U.S. GDP in Current Dollars and Total Employment Table SA25N, and the National Data set of IMPLAN, LLC for 2012. Table 4. Economic data by classification of NPIAS airports. Airport Class NPIAS Airports Airports with Economic Study Data Percent of Airports with Economic Data Large Hub 29 14 48% Medium Hub 36 14 38% Small Hub 74 30 42% Commercial, Non Hub, and Non-Primary 360 101 28% Reliever 268 102 38% General Aviation 2,563 752 29% Totals 3,330 1,013 30% 3. Separated domestic and international visitor spending to estimate the value of visitor spending to the U.S. economy versus the redistribution of spending from one region of the country to another. Analyze Airport Impact in Consideration of Regional Socio-Economic Data A series of data was added to the database for each of the NPIAS airports. MSA data is relevant for large hub airports and, perhaps, medium hub airports,13 while county-level data is more appropriate for smaller airports.14 The follow- ing county and MSA level metrics were added to the data set: • Median household income • Poverty (percent below the poverty level) • Personal income • Population • Per capita personal income • Distress composite index (based on Appalachian Regional Commission) • Employment by industry, both full and part time based on the NAICS The research team used the sample of airports it assem- bled to estimate the national economic impacts of all NPIAS- designated airports in a regression analysis. Results include: • Compilation of a base of impact data, including individual airport analyses and groups of airports analyses when neces- sitated by data availability, for the bottom-up approach. • Tabular analysis of the incidence of positive/negative/nil impact cases and group results by impact type, airport type, and observation timing (analysis year). • Statistical analysis of the relationship between various local setting characteristics and various impact types, for each airport type. • Comparative analysis of the extent to which past studies support conclusions drawn from the tabular and statistical analysis of data compiled for this study. The database is provided in a spreadsheet in Appendix 3A.