Airport Economic Impact Methods and Models (2008)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

14 METHODOLOGY To assess the current state of practice in analyzing aviation eco- nomic impacts, a limited literature review was undertaken cov- ering 31 pieces of literature. The focus was on reviewing actual airport economic impact studies. The full annotated literature review is presented in Appendix C. Literature sources include economic impact studies prepared by consultants, government agencies, and institutions. The intent of the literature review was to describe the current body of knowledge regarding the methods used to examine the economic impact of airports. Studies were obtained through online searches, government and university libraries, and from the consultant’s library. RESULTS The literature includes many approaches to estimating the eco- nomic contribution of an airport. The most common method- ology used is one that employs an input–output method that examines the sum of direct, indirect, and induced economic impacts. This methodology is consistent with the results of both the users and authors surveys. The three most commonly used input–output models are the U.S. Department of Commerce RIMS II model; the Min- nesota IMPLAN Group, Inc. model; and the Regional Eco- nomic Modeling, Inc. (REMI) model. Note that the U.S. DOT Office of Research and Special Programs has published a guide to these three input–output models, with in-depth descrip- tions and examples of their use (3). The following summarizes the salient points of each model, including approximate costs for analyzing a general aviation airport with one geographical unit, such as a county. 1. RIMS II: The RIMS II model is based on an input– output table that shows the industrial distribution of inputs purchased and outputs sold for any individual industry sector. In very simple terms, a particular indus- try (or organization within that industry) purchases goods and services from a number of other “input” industries. These include not only raw materials and supplies, but also labor (i.e., households). This indus- try then sells goods or services to other industries. As an aviation example, the revenue received by an FBO for fueling a personal aircraft is, in turn, used to pay for the fuel purchased from a wholesale supplier, the wages for the FBO ground worker to fuel the aircraft, as well as the necessary fueling equipment and other operating costs (such as insurance and utilities). An input–output table (for a given set of industries such as the U.S. econ- omy) indicates on a ratio basis how every dollar of input and output affects all other industries. Compared with the three models, this model is generally considered to be the most inexpensive ($2,000 to $5,000) and is widely used in public, private, and military applications. 2. IMPLAN: The IMPLAN model is a more complex (as compared with RIMS II) and somewhat more expen- sive ($5,000 to $15,000) application of the input–output approach in its dynamic application of multipliers. The primary source of data used in IMPLAN is provided by the U.S. Census Bureau and the BEA. 3. REMI: The REMI model is generally considered to be the most expensive ($20,000 to $100,000) and complex of the three models. The model consists of the follow- ing five components: (1) output; (2) labor and capital demands; (3) population and labor supply; (4) wages, prices, and profits; and (5) market shares. The detailed structure of the REMI model requires a large array of data including BEA employment, wage, and personal income data; the Quarterly Census of Employment and Wages (ES-202) business establishment, employ- ment and wage data; and U.S. Census Bureau County Business Plan data. The following are advantages and disadvantages of these methods: Advantages • The main advantage of the RIMS II model is the acces- sibility and detail of the main data source provided by the BEA. RIMS II is also relatively simple to under- stand and the most inexpensive. • IMPLAN and REMI are computer-based software-based models that allow for easy modification of variables. • Although REMI and IMPLAN are both fairly easy to use, IMPLAN has the advantages of easier data entry analysis. • IMPLAN divides impacts into the traditional subcate- gories: direct, indirect, and induced effects. • Data in RIMS II can easily be inflated or deflated depend- ing on the desired year of analysis. CHAPTER THREE REVIEW OF A SELECTION OF ECONOMIC IMPACT STUDIES

15 Disadvantages • RIMS II is a spreadsheet-based model where the user is responsible for setting up the multiplier worksheet. Each time a new variable is added the worksheet must be physically changed. • Data used in IMPLAN and REMI must be inflated or deflated before being entered. The multipliers used in these three techniques are based on the input geography applied for the study in question. If the study is measuring the impact of an airport on a single county and the input–output table for that county is used, then the output is measured over that basis. Similarly, if the impact on a state is desired, an input matrix is selected for all of the counties in that state, and the output multipliers apply to that. In other words, the BEA data used as the basis for the input– output matrices are typically collected and reported on a county-by-county basis and are then aggregated to larger geographical units. There are some differences among the three models in the geographic scope of their inputs. RIMS II is primarily county- based and the user must aggregate the data to larger geograph- ical units, as described earlier. IMPLAN uses a somewhat more varied set of geographical scales, including data aggre- gated at the metropolitan statistical area (MSA) level (where available). This depends in part on how the BEA collects the data, which is usually accomplished through agglomeration of county-level data. The REMI model can also be applied to city-sized geographical units when adjusted input–output data reflecting these sub-economies are available. REMI also uses several other sources of economic data (e.g., local unem- ployment statistics), which is one reason it is considered more sophisticated than the RIMS II and IMPLAN models. There is no indication from the literature (review or the survey) that any of the input–output models is better suited for a specific class of airport. However, the low cost of the RIMS II model makes it the preferred choice for many gen- eral aviation airports. In addition to the input–output method, two other methods were featured in the literature reviewed: • Collection of benefits method: A collection of facts or stated benefits related to an airport or aviation system’s connection to the local or regional economy. These are meant to capture aspects of airports that are significant in economic value, but difficult to quantify. For exam- ple, an airport might state that it contributes funds for local scholarships, provides medical flight services to local patients needing medical care outside the region, stimulates business, or provides access to the National Airspace System. • Catalytic method: Catalytic effects are defined as the net economic effects (e.g., on employment, incomes, and government finances) resulting from the contribution of air transport to tourism and trade and its long-run con- tribution to productivity and gross domestic product (GDP). Although most airport economic impact studies concentrate on the direct, indirect, and induced contri- butions of airports, catalytic (or spillover) impacts on the economy have received relatively little attention. Many variations of these approaches are worth noting. These variations differ primarily by the number and type of variables or indices analyzed. The most common variables or indices used are those identified in chapter one, namely employment, payroll, and output, as well as taxes, quasi- economic indicators, and qualitative descriptors. In many of the reviewed economic impact studies, the application of multipliers is a commonly accepted practice to account for the recirculation of direct and indirect impact dollars. However, there is little evidence in that literature documenting a standard application of economic multipliers. Although many studies cite the source and methodology behind the application of multipliers, others do not. The reviewed airport economic impact studies incorporated a variety of refinements on traditional approaches. These refinements included: • Incorporating examples of business establishments and testimonials from business owners regarding their eco- nomic relationship or linkage to a respective airport. • Estimating the amount of “new money” generated; that is, non-local demand for airport goods or services that could not be satisfied if the airport were not there. • Updating the results of economic impact studies at reg- ular intervals (every 3 to 5 years) to account for market shifts and changing business cycles, in addition to pro- viding a proactive decision-making tool. • Carefully delineating which impacts overlap and there- fore are not additive. • Incorporating several standalone measures (e.g., revenue, personal income, employment, and tax impacts) of air- port economic activity to further address the issue of overlapping impacts. • Incorporating only the proportional share of a respec- tive variable (e.g., employment) that supports aviation when estimating direct impacts. • Accounting for offsetting impacts (e.g., outflow of tourist dollars to overseas destinations made accessible by an airport). The catalytic method deserves special mention, as it does not yet appear to be common in the United States. Catalytic effects of air transportation can be defined as: The net economic effects (e.g., on employment, incomes, government finances etc.) resulting from the contribution of air transport to tourism and trade (demand-side effects) and

16 the long-run contribution to productivity and GDP of growth in air transport usage (the supply-side performance of the economy) (4). Examples of impacts on the supply-side of the economy include business investment and productivity gains. As such, this method takes a broader, yet quantifiable, view of aviation’s impact on the economy. This method captures the extent to which growth in air transport boosts the performance of other industries (e.g., through tourism, investment, or productiv- ity). Individual catalytic effects can be either positive or neg- ative. It should be noted, however, that the catalytic method does not replace traditional methods such as input–output mod- els, but is a supplementary tool for determining an airport’s impact on the economy. In particular, input–output models do not pick up the effects of aviation services on the supply-side potential of the rest of the economy, which is the focus of catalytic impact studies.