Airport Economic Impact Methods and Models (2008)

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The economic impact study is a tool frequently used by airport operators, planners, and regu- latory agencies to measure the economic value that an airport contributes to its local and regional surroundings. It has become one of the standard airport planning documents, along with the airport master plan update, noise compatibility study, and required environmental documents. The traditional methods used in airport economic impact studies are based on guidance material provided at least 20 years ago. These methods, which focus on applying multipliers to airport jobs and visitor spending, may be inadequate today for capturing the unique value of an airport to its community. A new guide might be desirable in the future. This synthesis study documenting the state of practice today is the first step toward a new guide. The focus of this synthesis is on how airport economic impact studies are conducted today. This project focuses specifically on methods and models used to (1) define and identify, (2) eval- uate and measure, and (3) communicate the different facets of the economic impact of airports. This report synthesizes information received from nearly 70 organizations that were surveyed to collect information on the extent of these studies, their motivation, and use. This report also contains a review of more than 30 examples from the literature of studies on economic impacts and community benefits of airports. Finally, this report presents four case studies to illustrate the various analysis methods, models, and tools that are available and used for local airport eco- nomic studies. Based on the survey results, literature review, and case studies, this synthesis doc- ument discusses the applicability of the various methods and models, including their limitations. Currently, the principal methods for determining the economic impact of an airport include the following: • Input–output method: Typically measures three separate effects—direct, indirect, and induced effects. Direct effects include employment and output generated directly by the airport. Indirect effects represent employment and output generated by firms primarily off-airport, but whose activities are attributable to the airport. Induced effects are the multiplier effects caused by successive rounds of spending throughout the economy as a result of an airport’s direct and indirect effects. In this method, an airport’s total eco- nomic impact is the sum of the direct, indirect, and induced effects. • Collection of benefits method: Quantitative or qualitative measures of benefits and costs brought about by an airport, including time saved; costs avoided by using air trans- portation; capacity improvements from reliever airports; and stimulation of business, recreation, commercial activities, and community benefits. • Catalytic method: Measurement of spillover impacts or how the airport benefits per- formance in the supply-side of the economy including impacts on investment, trade, and overall productivity of the economy. Unlike the collection of benefits methods, catalytic impacts are usually quantified in monetary terms. Of these, the first two are older methods, whereas the third is relatively new and does not commonly appear in the U.S. literature. By far the most prevalent of these methods is the input–output method, which is borne out both by the survey results and the literature review. SUMMARY AIRPORT ECONOMIC IMPACT METHODS AND MODELS

The surveying effort consisted of two separate online surveys administered as part of this synthesis study. The first was intended for users of economic impact studies. These users can be categorized as belonging to one of four groups: • General aviation airports • Non-hub commercial airports • Hub airports • State and regional aviation, transportation, or planning agencies. A total of 58 recipients participated in the user’s survey. The second survey was directed at authors of economic impact studies, primarily consulting firms. Eleven recipients participated in the author’s survey. The survey recipients were distributed broadly across the United States. According to the survey results, the main reason for conducting an economic impact study was to measure the airport’s significance to its local community, most commonly to justify airport investment or expansion. The most frequently measured variables included employ- ment, wages, local and regional spending, tourism, and air traffic levels. The most commonly cited methods were the economic input–output model and collection of benefits method, sup- plemented by qualitative surveys. A clear majority of survey recipients, both users and authors, expressed confidence in the validity of the results of economic impact studies and rated them as useful or very useful. However, an equally clear majority reported that no follow-up or assessment was done. Also, a narrow majority of users reported that economic impact studies are only sometimes used as a factor in encouraging substantive change. A number of trade-offs and limitations in the practice of airport economic impact studies were identified through the survey and literature review. These do not necessarily represent shortcomings in the methods, but instead highlight the risk of misapplying a method, the chal- lenge of collecting proper input, or the possibility of misinterpreting results. They include: • Cost of preparing economic impact studies and/or purchasing economic data; • Insufficient data, sometimes caused by the lack of participation by fixed-base operators; • Complexity of existing models; • Lack of standards regarding definition of variables, impact areas, and application of multipliers; • Omission of offsetting impacts; • Static nature of results, causing them to quickly become outdated in part because studies rarely incorporate periodic updates; and • Lack of validation or assessment; that is, the inability to corroborate the results of the airport economic impact study. Aviation trends that have received specific attention in airport economic impact studies include growth in air freight; non-aviation commercial development attracted to the vicinity of the airport; use of air transportation in supply chains and just-in-time delivery; and reliance on aviation by specific industries, such as research and development, biotech, banking, and universities. However, only a minority of respondents replied taking into account growth in business aviation and fractional ownership, globalization, or the emergence of very light jets. A number of refinements to existing methods were documented in the survey and literature review. Most of these represent evolutionary improvements to address existing limitations. Examples of such improvements include: • Defining which impacts can clearly be linked to the operations of the airport, • Relying more on direct and indirect impacts, and less on multiplier effects, 2

• Focusing on the incremental value of the airport by considering the opportunity cost of using the airport property for aviation purposes, • Defining which impacts are additive, and • Assessing offsetting impacts in addition to positive ones. There have also been innovations in defining new impact areas that previously have not been considered in traditional methods. Examples of these include investment impacts and tax revenue impacts. The catalytic method takes a more comprehensive look at spillover effects on the supply-side of the economy, quantifying a broad range of effects including investment, trade, and productivity improvements. As of the time of this writing, there is no standardization of these refinements and inno- vations. Also, no central clearinghouse exists for information directed at users or authors of economic impact studies. Consequently, the topic of airport economic impact studies is ripe for developing guidance and conducting research. 3