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"Could privatizing airport services help resolve infrastructurewoes?"


 
Friday, April 28, 2017

Could privatizing airport services help resolve infrastructure woes? 
The Airport Privatization Pilot Program has attracted little interest from 
cities. But there are some signs that St. Louis' bid could foreshadow a wider 
movement toward public-private partnerships.
By Emily M Rasinski
The St. Louis (MO) Post-Dispatch
 

A St. Louis proposal to explore options for privatizing management of 
city-owned Lambert Airport was green-lighted this week by the Department of 
Transportation. It could be the first step toward making the airport the 
nation's second to operate under private management. 

The city had previously applied to the Airport Privatization Pilot Program 
(APPP), created by a 1996 federal law that allows city- and state-controlled 
airports to enter into leases and other agreements for services, development 
and management. St. Louis still needs to select and negotiate a deal with a 
private operator, and secure support from city boards and a supermajority of 
airlines.

Mayor Francis Slay, a Democrat, says leasing Lambert to a private operator 
could bring in a windfall of revenues, which the city could then sink back into 
its infrastructure projects. He's backed by Grow Missouri, a political action 
committee funded by conservative billionaire donor Rex Sinquefield that has 
pledged to pick up the tab for a legal and financial review of the proposal.

Mr. Sinquefield has made a name for himself in Missouri and Kansas as a local 
free-market crusader. But at least on paper, public-private partnerships, which 
preserve local governments' ownership while letting private companies benefit 
from long-term concessions, are bipartisan favorites for funding infrastructure 
projects.

And with the Trump administration promising legislation in support of his $1 
trillion infrastructure plan in coming months, St. Louis might be getting a 
head start down a path that countless other industrialized countries have 
pursued for years.

"I would bet that more cities will start to pursue similar schemes at the 
urging of the Trump administration," says Rick Geddes, director of Cornell 
University's Program in Infrastructure Policy in Ithaca, N.Y.

So far, President Trump has only proposed specifics on a privatization of the 
air traffic control system. But it's likely that the administration will lean 
on the private sector to break ground on a wide range of other projects.

In early April, National Economic Council director Gary Cohn suggested the 
administration could lend a hand with financing for cities that "sell off" 
infrastructure assets, according to Reuters.

And this week, infrastructure task force co-chairman Steven Roth told attendees 
at a Bloomberg panel discussion in New York that the administration would be 
studying Australia's "infrastructure recycling" program, which reinvests 
windfalls generated by the privatization of roads and public utilities into 
other kinds of infrastructure - with a 15 percent bonus kicked in by the 
national government. 

Infrastructure experts and advocates of public-private partnerships tend to see 
airports, especially larger ones located in urban hubs, as the ideal candidates 
for the model's application, because there are so many potential sources of 
revenue.

"There are lots of revenues coming in, so they're very attractive," says Rui 
Neiva, aviation policy analyst at the Eno Center for Transportation, an 
independent think tank based in Washington, D.C. "Medium and bigger airports, 
in general, are very lucrative."

In Europe and Canada, where tax policies are friendlier to private companies 
looking to take over management, and carriers exercise less influence over 
airport policy, airports have long been operated - and sometimes outright owned 
- by private interests.

"In the US, we've been moving very slowly compared to the rest of world in this 
regard," says Dr. Neiva.

In two decades of existence, the Airport Privatization Pilot Program has proved 
an awkward fit. Only 10 cities and states have sought approval. Of those, only 
two completed the process, and one of those, New York state's Stewart 
International Airport, later reverted to public ownership.

Last February, a Congressional Research Service (CRS) study concluded that the 
lack of interest was because of a several-year-long application process, 
restrictions on how much airports can increase rates and charges, and tax 
privileges for public bonds that make long-term financing costlier for the 
private sector, among other reasons.

The sole US airport that has stuck with the pilot program, San Juan's Luis 
Muñoz Marín airport, entered into it in 2009, as a way to gin up lagging 
investment and dig away at the $800 million of debt held by the Puerto Rico 
Ports Authority.

That's a common predicament among governments pursuing public-private 
partnerships, and in places like Chicago, it has led governments to enter into 
bad infrastructure deals in exchange for quick windfalls. Some skeptics note 
that although public-private partnerships may seem to transfer the burden of 
risks and costs from taxpayers onto private financers, the public often ends up 
footing the bill in other ways.

In Spain and Greece, too, taxpayers have gotten the short end of the stick on 
airport privatizations. And as the CRS noted, scaling back authorities' control 
over airports can lead to the loss of public-sector jobs.

"Hence, a public-sector owner may see few benefits from selling or leasing an 
airport to a private operator unless the facility is losing money - and in that 
case, private investors might not find the airport an attractive investment," 
it wrote. 

But Puerto Rico's medium-hub Luis Muñoz Marín has generally been able to 
balance these conflicting interests, as the Bipartisan Policy Institute wrote 
last fall: After agreeing to a $1.2 billion plan with an airport-management and 
infrastructure-investment group in 2012, the Ports Authority got $615 million 
up front, while three terminals were reopened or remodeled and new high-end 
retail shops and automated baggage scanners began appearing. And a collective 
bargaining agreement signed that same year ensured that airport workers kept 
their jobs, or moved to other positions within the Ports Authority.

Whether other airports pursue similar plans could hinge on the overall fate of 
Trump's infrastructure legislation. To expand the pilot program - the only 
federal path toward privatization of state- and city-controlled airports - 
Congress would need to pass legislation, notes Neiva. And even then, he adds, 
local and state authorities might be reluctant.
  
"On the local level, airports are normally owned by the local government or 
port authorities, and it's a very nice place to put your political friends," he 
says.

"Probably, governors and mayors won't want to change things unless they're 
faced with a crisis."
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