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.

17 Four studies were selected from the literature review to illus- trate the different facets of economic impact and approaches used to assess impact. The focus here is to highlight specific methodologies, particularly innovative ones. A detailed nar- rative has been provided for each study summarizing the salient points relative to the methodology used and the final results. The first study was completed by the Association of Mon- terey Bay Area Governments and is an assessment of the economic impact of six airports in three California counties. This study is unique in that it employs the California Airport Economic Impact Model—a model that only considers the net amount of dollars that remain in the local economy. The second study, completed by Breitenbach Weiss and Martin Associates for the General Mitchell International Air- port in Milwaukee, was selected as an example of an airport economic impact study that does not attempt to reduce the economic impact to a single number. Instead, airport activity creates several impact areas including revenue, employment, personal income, and tax. The third study was an examination of the impact of the Capital City Airport on each of the three counties in the Tri- County Region (Michigan) and was completed by the Eco- nomic Development Research Group and Mead and Hunt. Relying heavily on surveys for primary data, this study was selected because of its comprehensive approach. This study measured six types of business activities that comprised the airport’s total economic contribution. The fourth and final study, completed by the Common- wealth of Virginia, evaluates the economic contribution of Virginia’s airport system. Although many aviation economic impact studies evaluate two or three impact categories, this study is unique in that it quantifies total economic impacts based on four impact categories: on-airport direct impacts, off-airport direct impacts, airport dependent impacts, and spin-off impacts. Airports Economic Impacts Study for Monterey, San Benito, and Santa Cruz Counties—Association of Monterey Bay Area Governments, California, 2003 This study evaluated the economic impact of each of six airports in Monterey, San Benito, and Santa Cruz counties (California), as well as a regional combined picture of the importance of the facilities to the three-county economy. The study uses the California Airport Economic Impact Model developed for the California DOT, Division of Aeronautics, to assist local medium- and small-size airports to assess eco- nomic parameters useful in defining the airport’s contribu- tion to the total economy. The model measures net economic impact by considering only the net amount of dollars that remain in the local economy, which means the model only considers those economic activities that would not have taken place without the availability of the local airport. The model reports impacts in three categories: direct, indi- rect, and induced impacts. The sum of the three categories comprises the total economic impact of the airports studied. The induced economic impact category looked at the gross revenues and jobs lost should the airport(s) cease to exist. A more detailed description of each type of impact is as follows: • Direct impact: The direct impact results from spending in the local area by visitors who arrive by air, and spend- ing in the local area for goods and services by airport ten- ants (airport administration, FBOs, airlines, airport con- cessions, and a variety of non-aviation-related businesses located on airport property). Only visitors who indicated that they would not have visited the area without the availability of the airport were taken into account. • Indirect impact: Within the context of this study, indi- rect impact is defined as the business community’s per- ception of the airport’s impact on local business opera- tions. Only data from businesses that responded they would lose revenue, lay off workers, or relocate out of the area if the airport were closed were included in the calculation of the indirect impact for the airports. Local businesses that indicated tourism as their business type were excluded from the indirect impact calculations. The airports’ impacts on tourism-based businesses were accounted for in the direct impact category. • Induced impact: The induced impact consists of the mul- tiplier effect that results from the respending of the direct impact. The study uses a set of multiplier coefficients for more than 500 industries developed by the U.S. Depart- ment of Commerce. The study summarizes the economic impact of each of the six airports relative to jobs, payroll, state and local taxes, and spending. Also, aggregate estimates are provided that accrue to CHAPTER FOUR CASE STUDIES: PRACTICES IN AIRPORT ECONOMIC IMPACT ANALYSIS

more than $1.3 billion in overall economic activity, including $307 million in payroll, $11.5 million in taxes, $1.1 billion in spending, and more than 10,000 jobs. The most interesting part of this methodology is that the values indicated are the “net con- tribution” to the regional economy and represent those values that are contributed owing to the existence of the six airports. Breitenbach Weiss and Martin Associates—The Local and Regional Economic Impacts of Milwaukee County’s General Mitchell International Airport, Milwaukee County, Wisconsin, 2005 The county of Milwaukee retained Breitenbach Weiss and Martin Associates to measure the economic impact of airport activity generated by the General Mitchell International Air- port in 2005. This study is unique in that, unlike many other studies, it is based on the assumption that the impact of an airport on the local, regional, or national economy cannot be reduced to a single number. Instead, airport activity is mod- eled as several impacts (that are not additive) including: • Revenue impact—Business revenue is generated by air- port businesses that provide air passenger service, freight service, and ground support services for aviation activ- ity. This revenue is dispersed throughout the economy by such activities as hiring staff to provide the aviation services, purchasing goods and services, paying for the use of the airport, etc. The remainder is used to retire debt, make investments, or is held as retained earnings. Only revenues that can be definitely identified as remaining in the state (salaries to direct employees, state and local taxes, local purchases, and airport fees) are used. • Employment impact—The study considers four levels of job impacts: – Direct employment—jobs directly generated by air- port activity that would vanish if activity at the airport were to cease. – Indirect employment—jobs generated as a result of the purchase of goods and services by firms dependent on airport activity. – Induced employment—jobs created throughout the regional economy because individuals directly em- ployed owing to airport activity spend their wages locally on goods and services. – Related employment—jobs with firms in the regional economy. These firms use the airport for air cargo shipments, etc. Related jobs are not as directly depen- dent upon the airport as the direct and induced jobs, but reflect the importance of the airport as a catalyst for economic development. • Personal income impact—a measure of personal wages and salaries received by individuals directly employed as a result of airport activity. This income is then re-spent throughout the region. • Tax impact—tax payments to the state and local gov- ernments by both firms and individuals involved in pro- viding services in support of airport activity. 18 As stated, these impacts are not additive. For example, the personal income impact is part of the revenue impact, and adding these impacts together would result in double counting. Airport-generated, visitor-generated, and total-airport impacts were estimated based on interviews with 160 tenants and firms that provide services to General Mitchell Inter- national Airport. These firms were categorized into five sectors: • Airline/airport service, • Freight transportation, • Passenger ground transportation, • Contract construction/consulting services, and • Visitor industry services. As the economic impacts are not additive, airport- and visitor-generated estimates for each area (i.e., revenue, employment, income, and tax impact) are provided separately (see Table 7). Economic Development Research Group, and Mead and Hunt—Economic Impact Study: Preliminary Final Report, Capital Region Airport Authority, Michigan, 2004 This comprehensive report quantified the economic impact of the Capital City Airport on each of three counties in the Tri-County Region, as well as the combined region. As with many studies, surveys were relied on to collect wage, employ- ment, and spending data. In this study, surveys were distrib- uted to airport managers, tenants, airport travelers (both res- idents and visitors), regional businesses, and institutions. The most valuable contribution this report makes lies in its com- prehensive methodology. It measured six types of business activities that comprised the airport’s total economic impact, including: • Airport-based economic activities, including airlines and terminal services. • Off-airport businesses serving airport travelers. • Airport-dependent businesses that rely on the airport to transport personnel and cargo. • Off-airport businesses that provide goods and services to the airport, airlines, other on-airport agencies, and airport-dependent businesses. • Off-airport businesses that provide goods and services to employees who earn their income on the airport. • Local tax revenues generated by all of these types of business activities. These data were put into a three-county IMPLAN economic model to understand business sales activity inside the three- county region. Although some airport economic impact studies do not aggregate each of the individual economic measures (in this case the six types of business activities), this study aggregates the total of each measure to obtain an overall airport economic

19 impact estimate. According to the study, the airport accounts for $45.4 million in business activity and provides 450 jobs. Off-airport business activities increase the airport’s impact to $358 million in sales, which, in turn, support 4,021 jobs. When the economic activity of businesses that provide goods and services that directly affected businesses is added in, the airport’s total economic impact is approximately $652 million in sales, $239 million in wages, and 7,400 jobs in the region (see Table 8). Virginia Department of Aviation, Virginia Airport System Economic Impact Study: Final Technical Report, Commonwealth of Virginia, 2004 Using a base year of 2001, this study quantifies the economic impacts of public use airports in Virginia, and describes the relationship between the airports and the Commonwealth’s economy. Although most studies analyze two or three impact categories, this study is unique in that it quantifies total eco- nomic impacts based on four impact categories: • On-airport direct impacts: impacts that would not occur if the airport did not exist (e.g., airlines and FBOs). • Off-airport direct impacts: financial transactions that occur primarily off-site and are associated with visitor spending (lodging, food, entertainment, etc.). • Airport-dependent impacts: businesses that are depen- dent on an airport and would relocate or suffer substan- tial loss if the airport were not available. • Spin-off impacts: an estimate of the recycling of dollars through the economy, calculated using impact multipliers. Each of the four impact types were measured in three ways: • Jobs—total number of individuals employed (not full- time equivalent positions). Im pacts Airport Generated Visitor Generated Total Impact Jobs Direct 6,340 18,956 25,296 Induced 3,807 5,667 9,474 Indirect 3,174 651 3,825 Total 13,321 25,274 38,595 Personal Income (millions) Direct $262.7 $279.6 $542.3 Induced $318.2 $209.6 $527.8 Indirect $107.1 $10.6 $117.7 Total $688.0 $499.8 $1,187.8 Average Income/Direct Employee $41,432.0 $14,752.0 Business Revenue (millions) $977.4 $820.5 $1,979.9 Local Purchases (millions) $243.1 $16.5 $259.6 State and Local Taxes (millions) $78.4 $86.8 $165.2 Federal Government Aviation Specific Taxes (millions) $69.9 N/A $69.9 N/A = not available. TABLE 7 SUMMARY OF IMPACTS GENERATED BY GENERAL MITCHELL INTERNATIONAL AIRPORT Category of Economic Impact Jobs Wages ($millions) Sales ($millions) On-airport activity 540 26.76 45.44 Off-site visitor spending 1,324 20.38 51.15 Off-site air-dependent business activity 2,157 85.78 261.46 Suppliers of goods and services 1,192 39.39 126.55 Wage spending 2,186 67.07 167.49 Total im pact 7,399 239.38 652.09 TABLE 8 OVERALL ECONOMIC IMPACT OF THE AIRPORT

• Wages—payroll expended for employees, including all taxes and benefits. • Economic activity—commonly referred to as output, this represents business sales. For government or non- profit entities, output represents their annual budget; for visitor spending, output represents visitor expenditures. Although many studies utilize surveys to generate eco- nomic data, this study employed an extensive array of surveys of the following groups: • Airport managers • Airport tenants • Airport-dependent businesses • Corporate-based aircraft owners • Air carrier visitors • General aviation visitors. Total economic impacts were derived from the sum of on- airport direct impacts, off-airport direct impacts (visitor spend- ing), and spin-off impacts (multiplier effects). As detailed in Table 9, the total economic impact of all Virginia airports, including Ronald Reagan Washington National Airport and Dulles International Airport, is greater than $14 billion. This is, interestingly, an aggregation of total wages and spending activity. Impact estimates are also provided for each public use airport in the Commonwealth. Additionally, whereas many studies recognize the quali- tative benefits of airports simply by mentioning the notion, this study quantifies the “value-added” contributions of air- ports. This is achieved by showing each airport’s qualitative impacts based on 22 different impact areas (recreational fly- ing, ballooning, search and rescue, etc.). Type of Impact Jobs Wages Activity On-Airport Direct 8,190 $275,372,000 $610,059,000 Off-Airport Direct (Visitor Spending) 17,103 $266,432,000 $695,768,000 Spin-Off 13,451 $379,577,000 $1,093,312,000 Total Economic Impact* 38,744 $921,381,000 $2,399,139,000 Airport-Dependent Business 23,606 $773,179,000 $2,268,056,000 Ronald Reagan Washington National Airport (Virginia Impacts) 35,779 $1,026,891,000 $1,715,653,000 Dulles International Airport (Virginia Impacts) 65,961 $2,122,560,000 $4,368,960,000 Total Economic Impact for All Virginia Airports 164,091 $4,844,011,000 $10,751,808,000 Source: EDRG and HNTB Analysis. *All airports except Ronald Reagan Washington National and Dulles International. Note: Totals may not add as a result of rounding. TABLE 9 TOTAL ECONOMIC IMPACT FOR VIRGINIA PUBLIC USE AIRPORTS 20