Airport Governance and Ownership (2009)

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21 the County. However, other communities have evalu- ated a change in governance and determined not to change, including airports in Denver, Baltimore,120 St. Louis, and Milwaukee. As examined in detail below, the evidence is equivocal regarding whether different gov- ernance models provide clear advantages in securing airport objectives. Third, a change in governance may be imposed or induced from above. State legislatures (or the states' electorates if constitutional changes are needed) gener- ally have the power to order state internal affairs, in- cluding what state subdivision controls an airport. Thus, while relatively rare, state legislatures have re- quired or facilitated a shift in the ownership or opera- tion of airports from one subdivision to another. For example, the Minnesota Legislature formed the MAC and took control of MSP from the City of Minneapolis. The Michigan Legislature compelled a shift from Wayne County to the Wayne County Airport Authority. In con- trast, the Louisiana Legislature created an airport au- thority in 2008 that could take over the Louis Arm- strong New Orleans International Airport, but only upon approval of the City of New Orleans.121 So long as Grant Assurances and other requirements are met, fed- eral law is unlikely to affect a state’s ability to affect these changes. Privatization is a special subset of these principles. Under current law, complete privatization of an airport or its major functions is difficult to achieve in light of the revenue diversion principles, outside of the Airport Privatization Pilot Program. If the public operator of an airport cannot recoup its investment in a facility for other governmental purposes, it is unlikely to cede sig- nificant control of a major public asset, unless the air- port is a consistent drain on governmental resources or there is a clear perception that the public operation of the airport is failing to meet its objectives. Similarly, the existence of revenue diversion requirements limits the attractiveness of airports to private investors. In- stead, forays into privatization outside of the Airport Privatization Pilot Program are likely to be limited to management agreements or leases of subcomponents of an airport, such as those at the Bob Hope Airport in Burbank, California (terminal operations); the Orlando Sanford Airport (terminal construction and operations); JFK International Airport (terminal construction and operations); or Westchester County, New York (airport operations, terminal operations, and ground services). C. Conclusion There are several options for transferring or delegat- ing power over airports. Historically, the two most common approaches have been the transfer of power from a general-purpose to a single-purpose government 120 The Baltimore-Washington International Airport is oper- ated by the Maryland Department of Transportation. 121 The City of New Orleans has not approved any such take- over plan. and the commercialization of airport functions and fa- cilities. Privatization has a limited track record; how- ever, the legal and administrative structures are in place to accommodate further privatization, and pend- ing efforts may help shape its future. Neither state nor federal law presents insurmount- able obstacles to transfers and delegations of power. In several instances, state legislatures have specifically authorized the creation of an airport authority to as- sume control of an airport, and these laws almost uni- versally have withstood challenge. While federal law imposes procedural and substantive constraints that create some disincentives to change governance, a mo- tivated public entity almost certainly could navigate these obstacles. Like the multiplicity of governance models described in Section I, the multiplicity of choices for changing governance yields its own lessons. Just as there is no one-size-fits-all governance model, there is no single solution to the problems that are perceived to exist with an existing governance structure. Indeed, as examined in detail in the next section, it may be exceedingly diffi- cult to identify and isolate performance goals for an airport and to correlate airport governance with opti- mizing those goals. V. THE EFFECTS OF GOVERNANCE FORM ON AIRPORT PERFORMANCE A particularly difficult question is determining whether the form of governance makes a significant difference in achieving the goals of airport operators and local communities. The question is complicated by the fact that public airport operators have a wide range of goals for their airports that are not always coexten- sive with the goals of other stakeholders. This section 1) identifies general categories of goals for airport opera- tors; 2) discusses potential metrics for assessing per- formance of airports in meeting these goals; 3) identifies existing studies and theories regarding the performance of different forms of governance; and 4) examines air- port governance models in a limited quantitative fash- ion. This report concludes that there is no clear evi- dence that one form of governance is superior to others, but that more research is warranted using more exten- sive data and more sophisticated statistical methods. A. Airport Performance Goals One of the critical challenges in considering the suit- ability of airport governance structures is that airports provide a mixture of public goods (e.g., access to a city, general economic development, and public safety mis- sions) and private goods (e.g., specific airline opera- tions, particular consumer trips, and concessions). Dif- ferent airport operators place different values on these different categories of goods. However, the following are some of the primary categories of goals that public air- port operators have identified for their airports: Transportation Infrastructure/Access. Airports are transportation assets that provide access to and from a

22 community. Thus, airports are regularly judged based on the adequacy of the capacity they provide to meet demand for aviation services. This assessment of ade- quacy can include an analysis of congestion stemming from insufficient runway or terminal capacity or the inability to use runways for certain aircraft (such as larger, heavily loaded aircraft for international flights). The provision of nonstop or one-stop access to as many regional, national, and international markets as possi- ble is also critically important at many airports. For example, airports serving tourist destinations are often expected to help stimulate better service to more mar- kets. Similarly, airports provide critical capacity for general aviation, cargo, and other aeronautical uses. The ability of reliever airports to provide relief to larger airports depends on their capacity both in the numbers and types of aircraft that may be served. Financial Performance. One critical goal for a suc- cessful airport operation is to perform well as a busi- ness entity. Federally-obligated airports have an aspi- rational goal under the grant assurances to be self- sustaining, i.e., not to require subsidy from general- purpose funds.122 Even without the federal grant assur- ances, local governments have a strong incentive to make an airport self-sufficient, because any general tax revenues or assets put into an airport that are not spe- cifically characterized to be loans generally cannot be recovered as a result of the revenue diversion prohibi- tion.123 Also, tight budgets and increasing demands for other city services may limit opportunities for and in- terest in general-fund subsidies to airports. Beyond the point of self-sufficiency, airports face primarily practical, rather than legal, incentives to minimize costs or increase revenues. Federal law re- quires that rates and charges on aeronautical uses be kept at levels that reflect reasonable costs for providing service, but it does not require minimization of costs. Nonetheless, airports face pressure from aeronautical customers (especially airlines) and the bond investment community to keep costs low. In addition, airports that are interested in maximizing economic development or access to their cities have an incentive to minimize air- line rates and charges to make it more likely that air- lines will expand services to the area. Economic Development. General economic develop- ment is one of the most significant goals for many air- ports. The goal overlaps with the transportation goal of 122 49 U.S.C. § 47107(a)(13) (2006). 123 See 49 U.S.C. § 47107(l) (2006); FAA Policy and Proce- dures Concerning the Use of Airport Revenue, 64 Fed. Reg. 7696, 7718, Policy Statement § V(A)(4) (Feb. 16, 1999) (airport revenue may be used for [t]he repayment of the airport owner or sponsor of funds con- tributed by such owner or sponsor for capital and operating costs of the airport and not heretofore reimbursed. An airport owner or operator can seek reimbursement of contributed funds only if the request is made within 6 years of the date the contri- bution took place.). access, because greater access to regional, national, and international destinations contributes to overall eco- nomic development. This is particularly the case for the location of corporate headquarters, shipping operations, and service jobs. Airports generate economic activity and jobs through direct airport activity; the operations of tenants, and businesses attracted to the vicinity of airports such as hotels, freight-forwarders, and manu- facturing and service industries. To best understand how airport proprietors and others in a state or region judge an airport’s performance, it is essential to under- stand both the gross levels of economic development generated by an airport and how these benefits are shared in a region. Environmental/Land Use. Operation of airports with current technology necessarily involves significant environmental impacts, especially from noise, air pollu- tion, and traffic. These impacts may be experienced by residents of the public entity operating the airport and by neighboring jurisdictions. Opposition to new projects based on an airport’s environmental impacts can delay and complicate the ability to provide additional airport capacity, such as new runways. Airport environmental issues can also lead to litigation, and to regulatory and legislative efforts that affect the airport sponsor’s abil- ity to meet its objectives. Thus, airport sponsors gener- ally have an incentive and a goal to minimize environ- mental impacts associated with their operation. Consumer Service/Consumer Protection/Social Goals. Because the residents of and visitors to an area will be chief users of an airport, government operators have an interest in providing a reasonably high-quality experience for airport patrons and protecting them from perceived high charges. Thus, airport operators invest in comfortable and convenient terminal and other air- port facilities. Airport operators also regularly conduct customer satisfaction surveys and studies to determine how well they are faring in keeping passengers happy. Some airport sponsors impose “street pricing” and other limitations on the cost of concessions at an airport, while other airports have had more interest in maximizing the concessions revenue from captive customers. Political pressures also constrain parking prices at a number of airports. Airport operators often also seek to promote general social goals through employment and contracting at an airport. Thus, for example, equal opportunity programs have been a staple at airports for decades and are an element of the Grant Assurances. The City of San Jose approved “living wage” requirements for employees of certain airport contractors. San Francisco requires its contractors to provide health and other benefits to do- mestic partners of employees, regardless of sexual ori- entation. Obviously, control of the airport expands the pool of entities subject to these provisions aimed at ac- complishing nonaeronautical social and political goals. Public Services. Airports provide direct public service by hosting police, firefighting, rescue, National Guard, mosquito control, civil air patrol, and other public

23 health and safety functions.124 The provision of space for these services at some airports can constrain the facili- ties available for other uses, which oftentimes must be balanced against the important services provided to the airport and surrounding community. Security/Safety. Protecting public health and wel- fare from accidents, terrorism, and crime is an impor- tant goal that airports share with the federal govern- ment, airlines, and police services. Accountability/Control. Because of the public nature of most airport functions, public entities also place a high value on public accountability. This goal is compli- cated by the variety of constituencies served by an air- port, including aeronautical users such as airlines, other aircraft owners, passengers, nonaeronautical ten- ants, immediate neighbors, bond holders, electors of the entity operating the airport if it is a general-purpose government or elected authority, and residents of the wider region that may benefit from the airport service and related business. An element of this goal is the need to detect and avoid corruption, conflicts of interest, and other practices that, like in many other government enterprises, adversely affect operations. There are inherent tensions among some of the goals, as well as some synergies. Thus, for example, the desire to maximize financial performance (i.e., increase revenue) from nonaeronautical sources such as conces- sions or parking may run contrary to a goal to protect consumers from perceived overpricing. Maximizing ac- cess and economic development through additional flight operations can be contrary to the goal of minimiz- ing environmental impacts associated with airport op- erations. Lean airport operations may reduce the num- ber of local jobs created at an airport, but also may lead to lower operating costs for airport users, which, at least in the case of airlines, may lead to expanded ser- vice. Many of these tensions can reflect a distinction between the welfare of the airport as an airport, as op- posed to general public welfare. Different metropolitan areas, as well as different communities within a metropolitan area, value these different public goods differently. Thus, judging general airport performance on only one or two of these goals would likely be incomplete and misleading. Indeed, it is quite possible that there is no single method of airport governance that would maximize performance in all settings. Instead, the variety of airport governance structures may serve individualized needs based on a particular community’s balance among goals for the airport. It is also important to note that the attainment of these varied goals is only partly in the hands of the air- port operator. Airline service to and from an airport primarily is a function of the overall economy and air- line decisions, not the infrastructure decisions of the 124 Note that the provision of these services is still subject to limitations and guidance regarding the use of airport revenue and self-sufficient airports. airport proprietor. Perceptions of customer service at an airport are a function of services and facilities provided by, among others, the airport operator, airlines, FAA, the TSA, concessionaires, parking concession operators, and ground service providers. This makes it difficult to separate the effectiveness of airport proprietors from the other entities involved with the provision of airport- related services. B. Airport Performance Metrics A number of different metrics are or can be used to assess how well airport sponsors are meeting their goals and to compare the performance of different gov- ernance models. Many of these metrics are straightfor- ward and easy to calculate, particularly financial per- formance statistics. Others, such as environmental impacts and accountability, are more difficult to assess quantitatively. While it is valuable to evaluate airport performance based on available metrics, it is critical not to overly weight certain factors such as financial per- formance just because more statistics may be available. Transportation Infrastructure/Access Metrics. Air- ports, the FAA, Airports Council International (ACI), and others regularly collect information that can be used to assess the extent to which an airport is supply- ing capacity that is necessary to meet demand. These data collection efforts start with basic information about the runway lengths, pavement strength, total operations, and other technical information, but can progress to detailed information about additional needed capacity based on demand projections. Among metrics that are of interest in the assessment of airport performance are: • Total operations. • Enplanements. • Number of destinations served with one or more stops. • International service. • Based aircraft. • Trends in airport use. • Access for new entries and competition. • Project completion (especially major airfield pro- jects) and timing. • Congestion and delay (at a particular airport or as part of a system). As an example of a provider of such statistics, ACI’s Performance Benchmarking Program performs a num- ber of ratings studies each year. ACI looks at total pas- senger traffic, cargo traffic, and total movements. The General Information Survey, or GIS, is a comprehen- sive survey of the general characteristics for approxi- mately 130 North American airports. The GIS provides detailed information on airport ownership and govern- ance, physical characteristics, activity statistics, air- port/airline use and lease agreements, and financial and economic characteristics. The FAA creates Terminal Area Forecasts annually that provide FAA’s projections for future aeronautical

24 demand for airports and metropolitan areas. FAA also examines airport capacity and delay at many of the larger airports. For example, FAA’s Future Airport Ca- pacity Task (FACT) analyzed airport capacity needs by airport and by metropolitan area.125 The FACT studies evaluate the adequacy of current airport infrastructure, both current facilities and planned improvements. These reports provide a means to evaluate which air- ports are keeping up with increases in demand. Financial Performance Metrics. There are a number of ways to measure the success of an airport’s financial performance. One threshold question is the extent to which an airport is self-sustaining, i.e., whether and how much of a subsidy is required for an airport from nonairport funds. Beyond this threshold consideration, analysts often focus on either an airport’s total revenue or, to adjust for airport size, the cost and revenue per enplaned pas- senger. Enplaned passengers serve as a measurement of the potential financial performance of airports, be- cause passengers drive a commercial service airport’s revenues through food and retail sales, parking fees, car rentals, facility use charges, passenger ticket taxes, and other services sold to a captive collection of custom- ers.126 Based aircraft and aircraft operations can serve as metrics for general aviation airports. As with opera- tional information, ACI collects and publishes bench- marking information regarding airport financial mat- ters.127 An airport’s bond rating (or ratings) is another use- ful financial metric, because it reflects the underlying financial performance of the airport and indicates the extent to which the airport sponsor will be able to se- cure credit for necessary capacity expansions. There are three primary bond rating agencies that assess airports and related facilities: Fitch, Moody’s, and Standard & Poor’s. These agencies assess and grade the creditwor- thiness of companies and public entities—such as air- port authorities and municipalities—that issue debt, as well as the debt itself. All three have teams of analysts who investigate airports’ operations, finances, and management plans, then process the data to arrive at a rating. 125 See FED. AVIATION ADMIN., CAPACITY NEEDS IN THE NATIONAL AIRSPACE SYSTEM 2007–2025: AN ANALYSIS OF AIRPORTS AND METROPOLITAN AREA DEMAND AND OPERATIONAL CAPACITY IN THE FUTURE (May 2007), http://www.faa.gov/about/initiatives/nextgen/defined/why/cap% 20needs%20in%20the%20NAS.pdf. 126 Ronald D. Utt, FAA Reauthorization: Time to Chart Course for Privatizing Airports, June 4, 1999, available at http://www.heritage.org/research/budget/bg1289es.cfm (Last visited May 4, 2009). 127 See Airports Council International–North America Home Page, http://www.acina.org/index/toolbox_benchmarking_main (last visited Dec. 18, 2008); Airports Council International, Airport Benchmarking to Maximize Efficiency, July 6, 2006, at 5, http://www.airports.org/aci/aci/file/Press%20Releases/Airport% 20Benchmarking%20to%20Maximize%20Efficiency_final.pdf These ratings determine the interest rate an entity must pay on its debt and the price at which its debt trades. Equity analysts and investors generally regard ratings as a key measure of an entity’s financial health.128 Indeed, airport bond ratings have been espe- cially important in the recent credit crunch, as airports (like other entities) have struggled to secure credit for infrastructure improvements. For example, the Atlanta Hartsfield International Airport has indicated that it might have to suspend construction on international terminal facilities if it continued having difficulties se- curing financing in the bond market.129 The Air Transport Research Society (ATRS) is an in- ternational group that has an Airport Benchmarking Task Force focused heavily on airport efficiency and airport charge competitiveness. ATRS produces a yearly report on airports throughout the world. In 2007, 55 U.S. airports were included in the analysis. ATRS is focused more on the financial aspects of airport man- agement, including “the main aspects of airport opera- tions and management” such as labor productivity, soft cost input productivity, residual variable factor produc- tivity, and revenue generation. ATRS evaluates the ownership and institutional forms of the subject air- ports.130 Economic Development Metrics. Assessing the eco- nomic development performance of an airport is of par- ticular interest to public entities, because of airports’ large potential for spillover economic benefits. Economic impact studies highlight the total economic benefit of an airport (in dollars and jobs) measured in terms of the amount of money spent because of the airport, the amount earned by local residents, and the number of full-time equivalent jobs generated due to the airport.131 Customer Satisfaction/Consumer Protection Metrics. Consumer satisfaction analyses are increasingly used to gauge the quality of the services provided to the travel- ing public at an airport, whether those services are pro- 128 Amy Borrus, The Credit-Raters: How They Work and How They Might Work Better, BUSINESSWEEK ONLINE, Apr. 8, 2002, http://www.businessweek.com/magazine/content/02_14/b37770 54.htm. (Last visited May 4, 2009). 129 Benet Wilson, New Hartsfield International Terminal Hurt by Bond Market Woes, AVIATION DAILY, Nov. 24, 2008 (subscription needed). 130 Air Transportation Research Society Home Page, http://www.atrsworld.org/airportawards.html (Last visited May 4, 2009); see also Tae-Hoon Oum, Jia Yan & Chunyan Yu, Ownership Forms Matter for Airport Efficiency: A Stochastic Frontier Investigation of Worldwide Airports, 64 J. URBAN ECONOMICS 422 (2008) (using ATRS database). 131 American Society of Airport Executives, GA Economic Im- pact Statements, available at http://www.aaae.org/federal_affairs/regulatory_affairs/general_ aviation_office/ga_economic_impact_statements (Last visited May 11, 2009). For a comprehensive treatment of the state of airport economic impact study today, see TRANSP. RESEARCH BD., ACRP SYNTHESIS 7: AIRPORT ECONOMIC IMPACT METHODS AND MODELS (2008), http://onlinepubs.trb.org/onlinepubs/acrp/acrp_syn_007.pdf.

25 vided by the airport owner, by federal agencies like TSA, or by private companies that are tenants or agents of the airport owner. Factors often considered include customer satisfaction with airport accessibility, security check, baggage claim, check-in/baggage check, terminal facilities, immigration and customs control, and food and retail facilities. A number of entities conduct consumer satisfaction surveys or studies across a number of airports. For ex- ample, J.D. Power and Associates released its eighth North America Airport Satisfaction Study in 2008. The company measures overall airport satisfaction in three segments: large airports (30 million or more passengers per year), medium airports (10 to 30 million passengers per year), and small airports (fewer than 10 million passengers per year). The study addresses attributes such as airport accessibility, baggage claim, check- in/baggage check, terminal facilities, security check, food and beverage, retail services, and immigra- tion/customs control.132 There are also several airport rating services on the Internet that allow for public feedback and review of airports and airport services. These sites may provide an airport or service provider with unvarnished feed- back regarding their services, even if it should be viewed with some skepticism. One, Skytrax, is found at www.airlinequality.com. It claims feedback on more than 594 airports all over the world. Another, Flight- Stats, is found at www.flightstats.com, and offers feed- back on a range of factors: airport user ratings, parking services, delayed flights, airport scorecards, and secu- rity wait times. Other travel Web sites offer similar rating services. In addition, many airports either conduct their own customer satisfaction surveys or engage consultants to do so on their behalf. Such surveys may be conducted in person, in writing, or through focus groups.133 However, these individual airport surveys are of limited value in comparing airports. Average fares and concessions prices are of interest for assessing whether airlines or concessionaires are unreasonably impairing competition or taking advan- 132 J.D. POWER AND ASSOCIATES, 2008 NORTH AMERICA AIRPORT SATISFACTION STUDY (2008); see J.D. Power and Asso- ciates, Customer Satisfaction With Airports Declines Sharply Amid an Industry Fraught With Flight Delays, May 20, 2008, available at http://www.jdpower.com/corporate/news/releases/pressrelease.a spx?ID=2008050 (Last visited May 4, 2009); J.D. Power and Associates, Airport Ratings, http://www.jdpower.com/travel/ratings/airport-ratings (Last visited May 4, 2009). 133 For two sample airport customer service surveys, see, e.g., SAN DIEGO INT’L AIRPORT, 2006 SAN DIEGO PASSENGER SATISFACTION SURVEY RESULTS (2006), available at http://www.san.org/documents/airport_authority/advisory_com mittee/2006%20Passenger%20Satisfaction%20Survey%20 Results.ppt (Last visited May 4, 2009); see also DENVER INT’L AIRPORT, BENCHMARK NEEDS/WANTS PROFILE (2007), http://www.flydenver.com/diabiz/bizops/documents/concessions Survey.pdf. tage of a lack of competition. FAA and the U.S. De- partment of Transportation have tracked average fares and gate usage (exclusive, preferential, or common use) as part of their efforts to enhance competition among airlines across the United States. Local authorities have also examined concessions prices relative to “street prices” as part of efforts to keep airport conces- sions prices reasonable. Finally, external special-interest groups sometimes provide comparisons of aspects of airport services in an attempt to promote particular consumer or airport changes. For example, the Physician’s Committee for Responsible Medicine surveys food choices at large air- ports to determine the availability of vegetarian food at airport restaurants.134 Environmental/Land Use Metrics. FAA, airport sponsors, state environmental agencies, and other enti- ties track a number of environmental metrics, including population exposed to greater than Day Night Level 65 decibels, air quality emissions, discharges to water sup- plies, and waste generation. However, these metrics are generally not used for comparison between airports with different types of airport governance. This is be- cause the environmental performance is dependent on a host of factors that may be completely independent of the structure of airport governance, including the size of the airport footprint, historic land use, and airspace and carrier operations. Accountability/Control Metrics. There are few useful metrics currently available that capture the need for public airport proprietors to provide accountable, trans- parent operations or assess the proper level of govern- ment control. These are inherently political judgments that appear more qualitative than quantitative. C. Theories and Available Assessments of Airport Governance Structures A number of entities have assessed different forms of airport governance through a combination of statistics, anecdotal information, and theory, although only a few have done so in a systematic fashion. This subsection describes a sample of the research and opinions that have been identified regarding the advantages and dis- advantages of different forms of governance structures. Statistical Studies. A few researchers have con- ducted statistical analyses of different forms of airport governance. One of the most recent and comprehensive was a study conducted by Tae Oum, Jia Yan, and Chunyan Yu that was published in the Journal of Ur- ban Economics in 2008.135 The Oum study evaluated the 134 See PHYSICIAN’S COMMITTEE FOR RESPONSIBLE MEDICINE, AIRPORT FOOD OFTEN HEALTHFUL: FIRST-PLACE TIE HIGHLIGHTS EFFORTS IN DALLAS AND DETROIT TO OFFER LOW- FAT VEGETARIAN OPTIONS; OTHER CITIES LAG BEHIND (2008), available at http://www.pcrm.org/health/reports/Airport_Food_Review_08.h tml (Last visited May 4, 2009). 135 Tae-Hoon Oum, Jia Yan & Chunyan Yu, Ownership Forms Matter for Airport Efficiency: A Stochastic Frontier In-

26 effect that ownership structure has on airport efficiency (based on total airport outputs (operations, concessions, etc.) and inputs), using a sample of 109 airports from around the world. The study sought to test theories that private airports would be more efficient than public airports and that public airports with more autonomy would be more efficient than those with less. The study noted that neither empirical nor theoretical evidence had been conclusive on this front prior to the analysis. The study concluded that: • Airports owned or controlled by majority-interest private firms, autonomous public corporations, or inde- pendent authorities are more efficient than those owned or controlled by general-purpose governments or port authorities. • “Although average efficiency of the airports owned and operated by cities/states are lower than those oper- ated by independent airport authorities, the difference is not statistically significant. As such, this issue needs careful further examinations.”136 These results, while perhaps supporting conven- tional wisdom on this issue, should be viewed with some care. Most importantly, the focus on financial efficiency and performance does not account for the other goals of the airport sponsor and other stakeholders or other cri- teria for airport performance. In addition, the authors acknowledge the desire and need for more research on the potential efficiency differences between airport au- thorities and general-purpose governments. It appears that additional analyses using a variety of methodolo- gies and with additional data may permit better as- sessments of the efficiency of various forms of airport governance. In an unpublished study from November 2005, economists Steven Craig, James Airola, and Manzur Tipu also used airport financial data to assess how mu- nicipally-operated airports performed compared to air- ports operated by airport authorities.137 In particular, the authors sought to compare how the two categories of airports performed with regard to their overall effi- ciency (i.e., costs per operation, per enplanement, and per unit of cargo); the allocation of costs among capital and labor; and their adoption of technological changes over time. The authors set out to test theoretical propositions regarding the advantages or disadvantages of single- purpose versus multipurpose governments. For exam- ple, one hypothesis was that, because airport authori- vestigation of Worldwide Airports, 64 J. URBAN ECONOMICS 422 (2008) (using ATRS database). 136 Id. at 432; see also Tae-Hoon Oum, Air Transport Re- search Society, Key Results of the 2008 ATRS Global Airport Performance Benchmarking Project (2008), available at http://www.atrsworld.org (Last visited May 4, 2009). 137 Steven Craig, James Airola & Manzur Tipu, The Effect of Institutional Form on Airport Governance Efficiency (Nov. 2005), http://www.uh.edu/~scraig2/CraigAirolaTipu.pdf. ties are specialized institutions that focus on managing airports, they may bring more specialization, prompt decision-making, and flexibility in decisions relating to worker employment and purchase of inputs.138 However, the authors noted the potential that greater autonomy from the electorate and from a single accountable body may make authorities more prone to “greater rent seek- ing by bureaucrats in the authority, e.g., purchase of a favored input at a cost higher than opportunity cost, or at a quantity greater than optimal.”139 The authors also noted the theoretical potential that cities and other multipurpose governments may be more sensitive to voter demands than authorities and that multipurpose governments “may pursue more cost effective strategies, or provide levels of output in greater demand.”140 However, the authors identified potential inefficiencies with municipal operations, in- cluding inefficiency in procurement and hiring prac- tices, their lack of focus on airport issues, and their need to procure services (e.g., fire and police) from other departments of the same jurisdiction rather than the most cost-effective source. Based on a statistical analysis of 52 airports, the au- thors concluded that airport authorities have a higher level of efficiency (i.e., they cost less per enplanement or operation) than municipal governments. However, the authors also found that airport authorities often di- rected a portion of these efficiencies into higher pay and other benefits for authority employees. On balance, they concluded that “authority run airports demonstrate cost savings of almost 20% per flight.”141 Here again, the study is inherently limited because it looked at only one factor in the portfolio of public in- terests in airport operations, i.e., financial efficiency. Perhaps more importantly, the data set covered only the years from 1979 to 1992 and may not well reflect current airport and airline industry conditions. Fur- ther, the data set omitted many of the large U.S. air- ports (including DEN, MIA, JFK, EWR, SEA, STL, SAN, BOS, PHX, PDX, and OAK) and contained only 9 of the 20 largest airports. As noted in the more recent Oum study, the Craig study looked only at one primary output (aircraft operations), which also requires more caution. Airport-Specific Studies. A number of airports have considered shifting from one form of governance to an- other and identified considerations for or against mak- ing such a change. The analyses conducted as part of these processes are instructive regarding the possible strengths and weaknesses of different forms of govern- ance. The Allegheny County Airport Authority in Pitts- burgh recently released a report detailing accomplish- ments at the airport since the authority was formed in 1999 after a shift in governance from direct county 138 Id. at 2. 139 Id. 140 Id. at 3. 141 Id. at 21.

27 management.142 The Authority highlighted financial management, origin and destination passenger growth, air service development from new carriers (nearly all of whom are now out of business), lower fares, and eco- nomic development activities as major accomplish- ments. While the report notes the many accomplish- ments of the Authority since 1999, it does not demonstrate whether such accomplishments were the direct result of the change in governance or why. In 2005, the City of Denver appointed a working group to evaluate the possible effects of a change from city management to an airport authority or other form of management. The city ultimately did not change the operation of the airport as a subdivision of city govern- ment. However, the city identified some benefits and disadvantages of the city-run airport approach.143 Among the advantages were: • Lower costs of some services. • Access to city expertise. • No disruptions to the current political process. • The lack of major problems requiring change. Among the advantages cited for a more independent entity were: • More authority to operate, purchase, plan, and hire expeditiously (the “authority to manage its pur- chasing, personnel and contractors and to react to mar- ket conditions is constrained by rules, policies and pro- cedures that apply to all City departments”). • Reduction of costs and increased efficiencies (“Cur- rent processes drive inefficiencies and slow reaction times that keep costs and fees unnecessarily high”). • Better focus on the needs of the traveler and ten- ants. The Denver working group subcommittee concluded from an assessment of other airports’ experience that “[g]overnance structure has not had an influence on levels of service or bond ratings in other cities” and that a “change in governance may or may not result in abil- ity to lower cost of debt.” In 1999, a nonprofit think tank in New Orleans as- sessed the potential benefits of changing the govern- ance structure for the New Orleans International Air- port in a thoughtful and extensive report.144 The study 142 ALLEGHENY COUNTY AIRPORT AUTHORITY, RESULTS AND ACHIEVEMENTS (March 2008), http://www.pitairport.com/UserFiles/File/pdf/Success_Report.p df. 143 DENVER INT’L AIRPORT, AIRPORT MANAGEMENT WORKING GROUP ON AIRPORT SUBCOMMITTEE REPORT (2005), available upon request from author at Kaplan, Kirsch & Rockwell, LLP. 144 BUREAU OF GOV’T RESEARCH, NEW ORLEANS INT’L AIRPORT GOVERNANCE, REG’L COOPERATION AND AIRPORT (“BGR Report”) (1999), available at http://www.bgr.org/reports/neworleans-international-airport (Last visited May 4, 2009). It is worth noting that funding for the study was provided by business interests that were likely found the following, primarily based on anecdotal evi- dence: • The New Orleans airport had two major structural challenges that threatened its ability to provide needed capacity expansions: (1) expansion required land-use approvals from neighboring jurisdictions that opposed expansion; and (2) there was a lack of broad-based re- gional support for expansion and other airport initia- tives, because entities outside the City of New Orleans were not engaged. • The report concluded that city-owned airports were more liable to political interference than other forms of governance and that they were less efficient. As noted in the Denver assessment, the effectiveness of munici- pal management is also impaired by citywide hiring and procurement rules. Nonetheless, the report noted that “some very effective airports are operated on this model,” including Atlanta, Charlotte, and Miami.145 • The report found that state governments were less effective as airport managers, because they were more liable to be bureaucratic and management was more distant from the communities that airports serve. The report noted that state governments can be effective when they have the power to preempt local land use or other impediments to development, but noted that such power could be provided to authorities as well. While the report did not acknowledge it, such power can also be given to cities or counties. Thus, for example, the Illinois Legislature preempted efforts to block the O’Hare Modernization Project in Chicago.146 • The report identified a number of potential advan- tages for airport authorities, including: 1) less red tape, 2) a single purpose and focus, 3) greater freedom from politics, 4) the ability to run the airport like a business, 5) ability to develop more creative financing ap- proaches, and 6) the ability to bypass local procurement and hiring provisions.147 • However, the report also stressed that [t]he fact that an airport is owned and operated by an au- thority will not in and of itself result in better manage- ment and less political interference. The success of a given authority depends to a large extent on who the members are, what their true interests are, and the his- tory and culture of the community. One of the critical as- pects in the success or failure of an authority is the qual- ity of the people appointed to the board. Politically motivated appointments leave an institution vulnerable to changes in administration and to the exertion of politi- cal decisions of a business nature.148 frustrated with City of New Orleans management of the air- port. 145 BGR Report at 11. 146 See O’Hare Modernization Act, 620 ILL. COMP. STAT. 65/1- 99 (2008). 147 BGR Report at 11. Note that these advantages are not in- herent in the authority model. Hiring and procurement provi- sions can be self-imposed or directed by state law, as well. 148 BGR Report at 11.

28 • “A switch to an authority can eliminate patronage; it can merely change the source of patronage; or it can result in the continuation of an existing patronage scheme, with politicians acting through their appoint- ees.”149 • Authorities can be particularly useful vehicles in a re- gional context, since they provide a framework for par- ticipation on a similar footing, if not in equal proportions, by multiple jurisdictions. A sense of ownership and par- ticipation by right, as opposed to participation through the largess of another, is added to the advantage provided by the more business-oriented framework.150 However, the authors noted counter examples—such as the Burbank-Glendale Airport Authority—where such an approach had not achieved regional peace and air- port capacity expansion. • The New Orleans report found that port authori- ties provided no particular advantage above and beyond airport authorities. • The report also noted potential value with the use of private management contracts for all or part of air- port operations, including the ability to operate as a business and the access to expertise from overseas. However, more recent experience, including the early termination of BAA airport management contracts in Indianapolis and Harrisburg, casts some doubt on the extent to which this model has provided unambiguous advantages in the United States. • Finally, the study identified a number of mecha- nisms that could assist in providing broader-based management of an airport in order to overcome inter- jurisdictional constraints on construction, including placement of multiple jurisdictions on airport boards, the use of intergovernmental agreements, redistribu- tion of zoning and eminent domain authority, more in- clusionary master planning processes, use of metropoli- tan planning organizations to oversee airport development, and strategic use of noise and other envi- ronmental programs. Almost 10 years later, New Orleans and other re- gional stakeholders are still wrestling with issues re- garding the long-term management of the airport. Recent changes in airport management, such as the creation of the Wayne County Airport Authority and the San Diego Regional Airport Authority, appear to be driven by distinct weaknesses in the incumbent man- agement (based on perceived poor operations or the inability to develop new airport capacity). It is unclear whether these changes reflect more general lessons regarding airport management structures, as opposed to dissatisfaction with the particular management of the airports. It is striking that all recent shifts in airport govern- ance have been from general-purpose governments to 149 Id. at 12. 150 Id. single-purpose (or at least limited-purpose) govern- ments or private entities or from one single-purpose structure to another. This is suggestive of possible ad- vantages of authority structures, but far from determi- native. It is probably much more difficult politically to shift from an authority structure that may have mem- bers from multiple jurisdictions to consolidated author- ity in one jurisdiction. The flow of political control may be a one-way street. D. Relationship of Airport Governance Structures to Some Performance Outcomes Partly as a result of the limitations in prior studies noted previously, the authors identified data from a few of the performance metrics identified in Section V.B to determine if there are any clear patterns of perform- ance between different types of airport governance structures. This assessment is very simple and prelimi- nary in nature and should not substitute for more rig- orous statistical studies that may be conducted in the future that could better control for factors other than governance structures. As discussed below, we do not discern any clear evidence from a facial review of differ- ent types of data that special-purpose authorities (in- cluding airport authorities and port authorities) per- form differently than general-purpose governments that operate airports (including states, counties, and mu- nicipalities).151 Airport Infrastructure and Capacity. The FAA has analyzed airports in which capacity will be needed in 2025 and earlier through its FACT program. In its 2007 FACT report, FAA specifically assessed 56 airports in the largest metropolitan areas in the United States. Of these airports, 26 (46 percent) were operated by special- purpose entities and 30 (54 percent) were operated by general-purpose governments. In comparison, the FACT study indicates that 11 airports had recently completed new runways or exten- sions or were building new runways or major exten- sions. Of these, seven airports (or 63 percent) were op- erated by special-purpose entities and four airports (37 percent) by general-purpose governments.152 This shows an advantage for the special-purpose entities, but it is based on a small sample that makes it hard to draw meaningful conclusions. For the assessment of needed capacity, the study identified six airports in 2015 that would need addi- tional capacity beyond planned improvements, split 151 There are different ways that airports could be catego- rized, such as providing different treatment to state agencies or port authorities. For the sake of simplicity and due to the small number of airports falling into these categories, we have relied on a dichotomy between special-purpose and general-purpose government entities. 152 FED. AVIATION ADMIN., CAPACITY NEEDS IN THE NATIONAL AIRSPACE SYSTEM, 2007–2025: AN ANALYSIS OF AIRPORTS AND METROPOLITAN AREA DEMAND AND OPERATIONAL CAPACITY IN THE FUTURE (“FACT Report 2”) (2007), available at http://www.faa.gov/airports_airtraffic/airports/resources/public ations/reports/media/fact_2.pdf.

29 evenly with three airports operated by special-purpose entities and three operated by general-purpose govern- ments.153 The study identified 14 airports that would need ad- ditional capacity beyond planned improvements. Of these, six airports (43 percent) were operated by spe- cial-purpose entities and eight airports (57 percent) were operated by general-purpose governments.154 These percentages are almost the same as the percent- ages of special-purpose and general-purpose govern- ments in the entire sample. Again, given the relatively small number of airports involved, it does not appear that there is any obvious difference between these types of airport operators in terms of the ability or need to provide additional capac- ity. Reviewing Bureau of Transportation Statistics (BTS) on-time percentages leads to the same conclusion. Ap- pendix E reports recent (September 2008 year to date) arrival and departure on-time percentage statistics for BTS “major airports,” broken down for airports oper- ated by special-purpose entities and general-purpose governments.155 The averages for special-purpose and general-purpose governments show little difference and mixed results for arrivals and departures. For arrivals, the average on-time percentage for general-purpose government airports was slightly better, at 75.8 per- cent, as opposed to 74.3 percent for special-purpose en- tities. For departures, the averages were reversed: the on-time percentage was 77.3 percent for general- purpose governments and 78.3 percent for special- purpose entities. Use of the simple analysis of variation (ANOVA) statistical tool indicates that there is no sta- tistically significant difference between these two sam- ples. These averages and simple comparisons should not be viewed as conclusive. Some elements of on-time per- formance are affected by the capacity of airfield and terminal. However, many other factors relating to on- time performance (e.g., weather, airspace, or airline networks) are not within the control of the airport pro- prietor and, therefore, unlikely to be affected by the choice of governance structure. Nonetheless, the aver- ages are of interest because it is not obvious that either category of airports is disproportionately affected by weather, airspace, or other factors affecting delay. Fur- ther statistical research using different metrics and additional data would be useful to determine if there are meaningful differences. For example, it would be useful to compare the number of nonstop destinations served by airports, controlling for variables reflecting the host city’s size and economic conditions. 153 FACT Report 2, at 11. 154 FACT Report 2, at 17. 155 See Bureau of Transportation Statistics, Airline On-Time Tables, http://www.bts.gov/programs/airline_information/airline_ontim e_tables (Last visited May 4, 2009). Financial Condition. As a simple summary means of evaluating the overall financial health of airports, we evaluated the Moody’s general airport revenue bond ratings of a sample of large airports identified in a pub- licly available Jacobs Consultancy general airport reve- nue bond rating analysis of 58 airports from August 2007.156 That timeframe was chosen to predate the ef- fects of recent credit market instability. To capture some of the variability in bond ratings, the Moody’s ratings were converted into a 2–10 scale, with Baa3 rating as 2 (lower rating) and Aa1 as 10 (higher rating). Some airports had more than one rating, based on dif- ferent series of debt. These ratings are reflected in Ap- pendix E. The average rating of the bonds from airports oper- ated by general-purpose governments was 6.4 (or be- tween A1 and A2 on the Moody’s system), while airports operated by special-purpose entities scored 6.6 (also between A1 and A2 on the Moody’s system). These re- sults are sufficiently close that it is impossible to iden- tify any meaningful difference between them. Use of ANOVA also indicates that there is no statistically sig- nificant difference between these two samples. As with delay and capacity issues, bond ratings re- flect a number of factors beyond the control of the air- port operator, including economic conditions in the air- port region, the health of dominant carriers in a market, and the overall economy. However, again, it is not obvious that there is any systemic bias in these fac- tors in favor of either category of governance. As discussed above in Section V.B, additional statis- tical research regarding the efficiency of airports oper- ated by general-purpose governments versus special- purpose entities would be necessary to conclusively es- tablish a causal relationship between governance struc- ture and performance. Customer Service. We also compared airport cus- tomer service performance using the readily available 2008 J.D. Power airport surveys.157 To maximize the amount of variation in the sample, we summed the seven categories of scores reported by J.D. Power for each airport in its large and medium airport categories for a possible range for each airport between 7 and 35 points. Both for large airports by themselves and for the pool of large and medium airports, the average cus- tomer service score for the general-purpose government 156 See Jacobs Consultancy, Credit Update Airport Bond Rat- ings (Aug. 2007), http://www.jacobs-consultancy.com/pdfs/ publications/AIRPORT_BOND_RATINGS_AUG2007.pdf. 157 See J.D. Power and Associates, Airport Ratings, http://www.jdpower.com/travel/ratings/airport-ratings (last visited Dec. 18, 2008). Note that the use of the J.D. Power ratings does not constitute an endorsement for the methodol- ogy of the survey or its results. It is chosen simply as an exam- ple with a large number of peer airports for which the same methodology has been applied to see if there are any apprecia- ble differences between airports with different types of airport governance structures.