Airport Economic Impact Methods and Models (2008)

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5BACKGROUND This report summarizes the results of ACRP Topic S03-03, Airport Economic Impact Methods and Models. This chapter reviews the study’s objectives, provides some background, and summarizes the traditional methods for conducting airport economic impact studies. This synthesis documents how airport economic impact studies are conducted today, specifically covering methods and models used to (1) define and identify, (2) evaluate and measure, and (3) communicate the different facets of an air- port’s economic impact and the benefits that it provides to communities and regions. Note that economic impact stud- ies are quite different from the cost–benefit analyses per- formed to justify specific investments in airport projects. However, economic impact analyses can be used as inputs to cost–benefit decisions, and are also frequently used as background material for letters of intent and environmental planning documents. In this report, “method” means a basic approach to mea- suring economic impact, such as the input–output method. “Model,” on the other hand, means a specific implementation of a method, such as the Regional Input–Output Modeling Sys- tem (RIMS II) or Impact Analysis for Planning (IMPLAN). One hypothesis framing this synthesis study is that tradi- tional methods for airport economic impact studies may have become inadequate for capturing the unique value of the air- port to its local community. Some newer studies have moved beyond the traditional method, promulgated more than 20 years ago, that focused on applying multipliers to airport jobs and visitor spending. This synthesis study documents the newer issues and tools that comprise the state of practice today, but also confirms that the majority of studies still use traditional methods. This study relies on three distinct data collection efforts, which were conducted in parallel. The first is a surveying effort, targeting both users and authors of economic impact studies, to collect information on the extent of the studies, their motiva- tion, and use. These surveys are described in more detail in chapter two. The second is a review of the literature of newer studies on the economic impacts and community benefits of airports. A summary of the literature search is provided in chapter three. The third is a case study analysis, in which four specific studies were selected to illustrate various approaches assessing economic impact. These case studies are described in chapter four. Findings derived from all three data collec- tion efforts are summarized in chapter five, focusing on a dis- cussion of limitations and trade-offs, a description of new methods and models, and recommendations for future research. TRADITIONAL METHODS FOR ECONOMIC IMPACT ANALYSIS Agencies, including airport operators and managers, con- duct economic impact studies for several reasons: to demon- strate the significance of their airport, to persuade policy mak- ers to protect airports against adjacent incompatible uses, and as a rationale to pursue projects and business lines that would add vitality to regional interests. The results of economic impact analyses are also used by the FAA as back-up docu- mentation in letters of intent, required environmental docu- ments, and evidence in cost–benefit analysis for specific airport improvements. The three most common methods to analyze aviation impacts are: • Input–output method—measures the sum of: – Direct impacts, – Indirect impacts, and – Induced (i.e., multiplier) impacts. • Collection of benefits method—describes beneficial economic activities associated with an airport or airport system (e.g., one in three workers employed in Montana works for a company that uses the Smith Airport). • Catalytic method—spillover effects on the supply-side of the economy, such as increased investment and pro- ductivity improvements. Of these, the input–output and collection of benefits meth- ods should be viewed as an older generation of methods. Guidance on these methods has been provided by the FAA since at least the mid-1980s, through work sponsored by the FAA and prepared at the U.S. DOT Volpe Transportation Systems Center (1). The catalytic method can be considered as one of the newer methodologies of measuring economic impact. Some studies also use multiple methods or perform “what if” analyses based on the results of one or more of the methods described previously. CHAPTER ONE INTRODUCTION

Of these three methods, by far the most prevalent is the input–output method, which typically measures the sum of direct, indirect, and induced economic impacts (or multiplier effects). Each input–output study has specific definitions of impact areas that are related to economic activity measured as a flow of dollars. In general, these impact areas are defined as: • Direct impacts: The direct impact results from spending in the local area by visitors who arrive by air, as well as spending in the local area for goods and services by air- port tenants. • Indirect impacts: The estimated flow of dollars gener- ated from the supply of materials, goods, and services attributable to the airport by off-airport entities. • Induced impacts: The multiplier effect of respending the dollars generated through direct and indirect activ- ities. Spending resulting from direct and indirect activ- ities is spent again by the recipient employees and local businesses. Employees use their salaries and wages to purchase goods and services from other businesses. Businesses make their own purchases and hire employ- ees, who also spend their salaries and wages throughout the local, regional, and state economies. It should be noted that individual studies vary in their exact definitions of these impact areas. Direct, indirect, and induced impacts are sometimes referred to as first-, second-, and third- round impacts. The third round of impacts is typically the largest, because it represents a recirculation of the first two rounds. Variables or indices used to measure the flow of dollars within each of the three methods typically include the following: • Employment—jobs in the aviation industry, jobs in sec- tors that support aviation or use aviation, etc. • Payroll—wages paid to workers employed in the avia- tion industry or workers who support or use the aviation industry. • Output—value of goods sold, value of services sold, capi- tal expenditures, spending by visitors, operating budgets for aviation-dependent government agencies, etc. • Multiplier effect—respending of dollars attributed directly or indirectly to an airport. • Quasi-economic—loosely associated economic facts (usually collected through surveys). • Qualitative—economic impacts related to safety, agri- culture, medical uses, protection of open space, pest con- trol, fire control, recreation, access to the national aviation system, military, wildlife management, disaster relief, traffic reporting, search and rescue, etc. EVOLVING TRENDS IN AVIATION THAT AFFECT ECONOMIC IMPACT METHODOLOGIES The role of local airports in regional and state economies has substantially changed in the past two decades and continues to evolve. The increased efficiency of air travel has led to changes in the relationship between airports and regional economies. Air cargo has the fastest growth rate of any freight mode, and has gained economic importance with the growth of national and global markets and supply chains for manu- factured goods. General aviation specialty segments, such as corporate jets or aircraft maintenance, have also emerged. Passenger air travel has taken on increased importance for education, research and development (R&D), technology, and tourism clusters. The economic role of larger airports has also changed with the growth of international gateways, shifts in passenger and freight hubs, and changes in airline business practices. Fractional ownership has established itself as a busi- ness model and, at the time of this writing, there are expecta- tions in parts of the industry that very light jets will create significant business opportunities. Maybe more significantly, aviation has become embedded in an increasingly globalized economy in a way that was not predicted when the traditional economic impact methodologies were developed. The intricate role of airports in the economy has made the science of economic impact analysis more complicated, jus- tifying a new look at how such studies are conducted. This synthesis report attempts to document to what extent users and authors of economic impact studies have begun to address these evolving trends. The survey, in particular, contains specific questions addressing evolving trends. The results of these and a broad range of questions documenting the use of economic impact studies are summarized in chapter two. 6