The Airport’s Misguided $3 Million Subsidy to British Airways

Summary: On July 25, Pittsburgh International Airport (PIT) officials announced that British Airways would begin nonstop flights from Pittsburgh to London’s Heathrow airport. $3 million in subsidy is being provided to the airline to offer service at PIT.  This Policy Brief describes the deep flaws in the subsidy of British Airways.

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British Airways is set to begin flights in April 2019 with one flight per day on Tuesdays, Wednesdays, Fridays and Saturdays. Flights will arrive at 8:15 p.m. and depart at 9:50 p.m. PIT will become the 27th U.S. destination for the carrier and is by far the smallest airport in terms of enplaned passengers (ranked 47th in the U.S. in 2017).

To get the airline to resume operations at PIT after a long hiatus the Airport Authority will pay British Airways $1.5 million each year for two years. This after handing WOW Air $800,000 to fly to Iceland and on to Europe and $500,000 to Condor for seasonal flights to Germany. Note, too, that American Airlines offers one-stop service to London through Philadelphia and Charlotte with several flights to choose from each day. Those airports are American Airlines hubs and can gather travelers from many cities to fill planes flying to Heathrow. Then, too, American is already posting fares at PIT to match the British Airways fares for next April.

The obvious question—will the British Airways service create new passengers at the airport or take them away from existing flights, some of which are receiving airport subsidies? According to the British Airways spokesperson, there is pent-up demand for travel to Europe. If that’s the case, why are subsidies necessary and why haven’t U.S. airlines jumped at the chance to offer nonstop flights to serve the pent-up demand?  Something does not add up here.

Indeed, the only possible justifiable reason to subsidize any carrier is to create demand by foreigners to fly to PIT. Subsidizing passengers to fly out of the country on a foreign carrier to spend money as tourists abroad is folly.

And that leads to the worst part of the airport’s presentation announcing the subsidy arrangement with British Airways. Airport executives said the authority estimates there will be a $57 million economic impact resulting from the British Airways presence.  To be clear, the economic impact estimates were provided in a study prepared by the EDR Group of Boston.

Apparently, most of the estimated impacts in the EDR study are based on assumptions about non-U.S. passengers using the flights. The study does not provide figures for spending on baggage handling, gate services, or purchases of fuel, food and beverages. EDR assumes 40,562 arriving and departing passengers annually on 234 roundtrips (81 percent occupancy).  Presumably those figures are from British Airways. Of those, 29 percent (11,763) are assumed to be from the United Kingdom or other Europeans whose destination is PIT and are not connecting to another city. How the 29 percent figure was determined is not explained.

Spending by the UK/European visitors in the Pittsburgh region seems to account for the bulk of the economic impact of the carrier’s flights. All told, the study predicts the 234 yearly roundtrips will lead to 564 added jobs in the 10-county Southwestern Pennsylvania region with average worker income of $37,776 and a total labor income boost of $21,306,000. This will be accompanied by a value-added increase of $33,879,000 according to the study. The $57 million economic impact figure quoted by airport executives is for gross sales and not net value produced.

Before evaluating the study estimates in more detail, it is important to note three large potential differences in economic impact depending on passenger count assumptions. Obviously, the total of 40,562 passengers matters because it will determine the amount of services needed at the airport. The assumption of 29 percent (11,763) non-U.S. passengers is critical because that drives the bulk of the local economic impact. And third, the British Airways passenger count assumptions do not factor in the percentage of travelers that would have flown other airlines to and from England or Europe.

Note that most of the projected new jobs in the study will be at restaurants and hotels as a result of the increase in foreign visitors to the region. Bear in mind, however, that 11,763 visitors to the region over 365 days is an average of only 33 per day.  Even if they stay seven days on average that represents only 82,000 hotel or other accommodation room nights. The city alone has around 2.6 million room nights available per year and the rest of the region likely has at least half that many. Thus, UK/European visitor stays would make up only two percent or so of the region’s available room nights.

And in that regard, it is highly improbable that a two percent uptick in room nights would create a commensurate number of new hospitality jobs. Indeed, stats from “The Economic Impact of Travel and Tourism in Pennsylvania 2016”, prepared by Tourism Economics a division of the Oxford Economics Company, show that for Allegheny County in 2016, on average, $143,297 was spent by tourists/travelers for each job in the tourism related industries. If that figure is still anywhere close to the present ratio, the 11,763 visitors would have to spend over $80 million, or $7,000, each to produce 564 new jobs.

What’s more, most newly created jobs resulting from these foreign travelers would likely be low-paid hotel room attendants and restaurant wait staff for which pay levels are about $23,000, a far cry from the $37,776 pay level used in the EDR report. The figure EDR used for average worker pay would include salaries of managers, sales reps, engineers, security, repairmen, etc. It seems extremely unlikely that additional staff in these higher paid categories would be needed to handle an average of 224 people per night—assuming seven-day stays per visitor—at all the hotels in the 10-county region or even if they are concentrated in Allegheny County hotels.

And it gets worse. There is no estimate of how many of the 28,800 local passengers will be additional travelers to the UK/Europe or will be passengers that would have traveled on other airlines such as the already subsidized and very inexpensive WOW Air or from folks who would have flown one stop on American through Philadelphia or Charlotte—or United through Newark or Dulles. But it is almost certain that a large percentage will be passengers that would have taken other carriers. Likewise, it is not known how many Europeans will use British Airways instead of American or some other airline to come to Pittsburgh. If as few as half of Pennsylvania travelers to Heathrow are net new passengers and half of UK visitors are net new travelers that would mean the net effect of British Airways flights would be 15,000 more locals headed to London with 5,900 additional UK or other Europeans coming to the Pittsburgh area. Other assumptions about the ratio of new additional to total passengers could be made but this one will serve to illustrate the point.

If 5,900 is a better measure of the net additional UK/Europeans visiting Southwestern Pennsylvania, then the impact on the economy will be far lower than even a realistic estimate of the impact of 11,763 visitors, which the EDR estimate clearly was not.   Consider, too—assuming foreign visitors to Southwestern Pennsylvania spend about the same as local travelers spend abroad—that the outflow of dollars from the region to foreign-owned enterprises caused by 28,800 local travelers flying to London and perhaps visiting other European destinations will be far greater than the inflow of money associated with 11,763 foreign visitors to the region.  Using the EDR estimate of 29 percent of the passengers to be UK/Europe residents—which seems high—then U.S. residents make up 71 percent, a ratio of almost 2.5 to one. Thus, spending by Pennsylvania travelers would be 2.5 times greater than foreign British Airways travelers to the Pittsburgh region. That is not a win for the region. Indeed, it is just the opposite. Moreover, if the percentage of UK/European travelers turns out to be only 20 percent of total, the ratio of U.S. spending abroad to foreign spending in the region rises to four to one. And so forth if the percentage of foreign passengers is even lower.

Then too, the money spent by local residents to fly on British Airways will end up in that airline’s bank account.  And for that matter so will all the fares purchased by UK/European passengers. Using British Airways’ estimate of 28,800 Southwestern Pennsylvanians (and maybe some from out of the area) who will pay a low-side estimate of $1,000 or more for the trip means British Airways will collect $28,800,000 in fare revenue from area residents. And those dollars are leaving the region even before the travelers land in England. Note that British Airways’ basic economy fares at $716 will be available but these fares are accompanied by fees for luggage. And, the passengers cannot select their seats and must board last. Prices are significantly higher for other seat classes. The $1,000 figure is used for demonstration purposes as an estimate of average fares but the actual average is likely to be significantly higher and the regional outflow of dollars higher as well.

Even if half the passengers would have flown other airlines absent the arrival of British Airways, the British carrier would still collect $28,800,000 in fare revenue. And if average fares for the other carriers are close to British Airways, they would lose almost $15 million in revenue. Obviously, any reductions in U.S. airline revenue will lower the economic benefits of the arrival of British Airways.

The fact that PIT is not a major hub and that the area is not world famous as a tourist destination—certainly not a on a scale such as Orlando, Miami, Las Vegas, Tampa, Phoenix or even New Orleans—makes it harder to induce UK/Europeans to fly to PIT as tourists.

All these factors make the airport’s $3 million misguided taxpayer investment unlikely to ever pay for itself unless British companies with significant investment and potential employment that otherwise would not have located facilities in the region decide to place operations in Southwestern Pennsylvania.  And in the meantime, with the most probable effects of the subsidy being to damage competitors while increasing the net outflow of resources from the region, it is hard to see any upside to handing over tax dollars to the airline.

The OneJet travesty

What a mess. And, oh, how sadly rich:

The Allegheny County Airport Authority, grand giver of millions of dollars in corporate wealthfare to just about anything that claims to be an airline, is licking a very big wound these days.

Friday last in Common Pleas Court, the authority was forced to bring suit against one of the highly touted beneficiaries of its attempts at command economics with the public purse.

You might recall that it was in June 2016 that the authority gave OneJet a cool million dollars in state gambling tax proceeds to launch 10 routes by the end of 2017. As the Tribune-Review reminds, part of the deal was that OneJet was to fly each of the routes five days a week for at least five years.

But the airline fell a tad short of the agreement. While it did briefly have eight destinations and talked of adding service to three more locales, it now only flies to two destinations – Indianapolis and Hartford.

The Airport Authority’s lawsuit was filed after OneJet refused to return $736,000 of the $1 million subsidy. And the lawsuit also says the carrier has not paid a $54,000 security deposit and hasn’t been timely in paying fees and lease payments.

Certainly doesn’t sound as if OneJet was very appreciative of the public’s largess. It appears to claim that part of its non-performance is its conversion to larger jets with more seating capacity.

All that said, perhaps the richest part of this failed exercise is this paragraph from the Airport Authority’s complaint:

“As a result of OneJet’s breach, (the authority) has suffered and will suffer monetary damages … lost customers, lost revenue, lost profits and/or lost customer and industry goodwill, without limitation.”

The airline has been “unjustly enriched” at the authority’s expense, the lawsuit says.

Gee, no mention of taxpayers being unjustly fleeced and despoiled of a portion of their wealth, eh?

Of course, that $1 million is not the only money OneJet received from the public tax kitty. There are loans valued at $1.5 million from the county and a $500,000 state loan.

Nobody seems to be talking about the status of those other corporate wealthfare line items.

And as the Trib also reminds, “Robert Lewis, an Airport Authority board member, was also a member of OneJet’s board of directors as of December.” He is a non-voting member.

But, and as the Post-Gazette points out, Lewis now finds himself involved with one entity suing another entity in which he’s also involved.

No conflict of interest there, right? In fact, multiply the conflict times two.

A primary issue for the Airport Authority – and based on a letter to OneJet, the P-G reports – appears to be the authority’s serious reservations about the airline’s management.

So, here’s the $1 million-plus question: Were their no concerns about management all the way back in 2016?

An aviation consultant flippantly told the newspaper that such disputes are the reason “God gave us the court system.”

Really? Or is it that such disputes are the product of poor decision-making by public officials throwing public money at private concerns having no business receiving it and those officials never being held accountable for it?

Yet, the Allegheny County Airport Authority’s Great Subsidy Machine keeps shoveling money at airlines. Never mind that it is abundantly clear that such subsidies are bad economics. Such a public policy travesty should not be abided.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

 

School Tax Rate Changes in Allegheny County

School district tax rates changes for 41 school districts in Allegheny County that operate on a July 1st-June 30th fiscal year show tax increases in 27 districts, no change in 13 districts, and a decrease in one compared to 2017-18 rates.

This fiscal year marks the twelfth in which school district tax increases are controlled by the Act 1 index.  A district that enacts an increase that exceeds the upper limit of the index must either be granted an exception from the PA Department of Education or submit a referendum question to the voters of the district.  For this year the index ranged from a high of 3.9% to a low of 2.4% for the districts.

Of the 27 tax increases 10 districts enacted increases that stayed below the index, 7 districts enacted increases that equaled the index, and 10 districts exceeded the index.  Chartiers Valley School District did have a ballot question (the first one in Allegheny County under Act 1) which was defeated but also applied for an exception which allowed taxes to increase 2.8% compared to the Index of 2.4%.  The largest increase was in the McKeesport School District where taxes increased 2.11 mills from 17.37 mills to 19.48 mills (12.1%).  Districts that increased to or below the index did not have to take any special action.

Taxes remain the same in such districts as Bethel Park, East Allegheny, and Pine-Richland.  The Wilkinsburg School District, which only operates elementary schools, reduced its millage rate from 32.63 to 29.5 mills.  Based on budget documents each mill in the district generates $311,322, so overall collections of current property taxes should decrease from $10.1 million to $9.1 million.

For homeowners, school property taxes are offset by homestead exemptions paid for by slot machine gaming funds.  For 2018-19, the estimated relief ranges from $73 per homestead in the Avonworth School District to $414 in the Duquesne School District.

Pittsburgh Land Bank Buys First Property

Our most recent Brief detailed the changes brought about by new state legislation on land banks and redevelopment authorities and recent activities of some of the land banks in Pennsylvania.  In counties other than Philadelphia and Allegheny it will be possible to designate a redevelopment authority to perform land bank functions as a result of the new law.

That means the Pittsburgh Land Bank will continue to operate as an independent entity (a memorandum of agreement between the City of Pittsburgh, the Urban Redevelopment Authority (URA), and the Land Bank details how all three parties will work together on properties and provides for URA staffing for the Land Bank).

This past week the Land Bank board authorized its first purchase.  A search of the property record shows that it is vacant land and is exempt from property taxes due to City of Pittsburgh ownership (the City purchased it for $1,643 in 2016 and it previously owned the property from 1982 to 2000). The Land Bank bought it for $1 plus “necessary costs”. The property is to be sold to a private owner who had tried to buy the property from the City (it is not clear why that did not occur).

Based on the Land Bank’s 2018 budget it has budgeted $135,000 for acquisition costs as part of its overall expenditures of $798,512

Notes on the (troubling) state of things

The City of Pittsburgh real-estate manager sold himself an under-priced tax-delinquent home — effectively becoming the seller and the buyer, the Post-Gazette reports.

At least one other prospective bidder, an Upper St. Clair duo, appears to have been shut out of the process. And that short-circuited a required public auction, the newspaper says.

The sales price was $2,500 for the Beechview house and property; the shut-out duo says it was prepared to pay up to $40,000.

It smacks of a clear conflict of interest, despite the fact that an internal city investigation cleared the city official. The city says it might take another look-see.

Sound public policy demands fairness and transparency. If any public processes are rigged, or even appear to be rigged, the public can have no trust in the processes.

Here’s to a planned city controller audit disinfecting this process.

Speaking of public policy and public trust, the Duquesne City School District, operating in state receivership, paid out $300,000 last year to settle negligence claims involving a teacher aide’s sexual abuse of a 9-year-old girl.

The P-G reports the school board did not have to authorize settlement. Neither is the settlement noted in any of the state receiver’s business meeting minutes.

The newspaper reports that district Solicitor William Andrews said a resolution (to approve the settlement) does not appear in the minutes because the district’s insurer paid its share of the settlement, not the district itself.

Conveniently, missing from the solicitor’s rationale is one pertinent fact – this is a public school district expending public resources. After all, taxpayers footed the bill for the insurance policy, did they not?

State receivership should absolve neither the state nor the district from being transparent.

Here we go again? The Irish Times first reported that Ireland’s Aer Lingus airline is considering Pittsburgh for a nonstop flight to Dublin.

Which, given the proclivity of corporate wealthfare being handed out by the Allegheny County Airport Authority, forces this question:

How much public money will be thrown at the Irish carrier to “win” the route and extend the authority’s string of paid “progress”?

By the way, Aer Lingus is owned by the same company that owns British Airways. Oh, and the former posted an operating profit of just more than $120 million (104 million euros) for the six months ended June 30, nearly double the same period last year.

By all means, let’s open the public purse, right?

In other airline news, American Airlines says that, come Dec. 18, it will end its daily nonstop flights between Pittsburgh and Boston. JetBlue and Delta will continue to offer their nonstop daily services.

American says poor demand no longer justifies its Pittsburgh-Boston flights. What, the Airport Authority didn’t offer to subsidize the route?

For anyone who thought the perversion of taxpayer-funded stadiums for the barons of sport had abated, witness what’s going on in Seattle and Safeco Field, home to baseball’s Mariners.

Government there is mulling whether to pour hundreds of millions of dollars for upgrades to the 19-year-old facility. Among the publicly financed amenities being sought – a four-slice toaster for the American League franchise clubhouse priced at $501.

Then there’s $50,000 for new furniture for each of the ballpark’s 60 luxury suites.

And let’s not forget adding on to a parking garage with a per space cost of up to $100,000.

As Seattle Times columnist Danny Westneat (who detailed the aforementioned numbers in an Aug. 3 column) put it:

“Look, the public owns this stadium. So like it or not, we have an interest in helping fix it up. It’s one reason that subsidizing sports billionaires is such an unending sucker’s bet. Once they lure you, you’re on the hook for good.”

By the way, Pittsburgh’s PNC Park and Heinz Field, built with hundreds of millions of snookered taxpayer dollars, are 17 years old.

Stay tuned.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

Weekend essay: Seasons change …

The sun sets ever earlier these days; at this point in August, it’s about 8:24 p.m. The day that once lingered well past 9 p.m. cannot stay out to play as long as it did a mere month ago.

That sunrise whose first hints not long ago cued the chorus of songbirds shortly after 5 a.m.? It has taken to sleeping in as the summer closes in on being two-thirds spent.

Mr. Sun has become Mr. Weary. Ah, seasons change. But those aren’t the only changes in the air.

“Car!” I heard the rear “spotter” of a high school cross-country team recently as the harriers were getting in some post-dinner road work. “Hill miles” logged now will pay wonderful dividends come fall.

Then, from two different directions, the drum cadences of a pair of high school marching bands settling into camp echoed off the hills and through the dales. They might sound discordant now but they will be driving those marchers’ precision in short order.

On the air – as in on the radio and television – the coming Christmas, still more than four months off, has been previewed far too early for most.

The Hallmark Channel concluded a run of holiday flicks at the end of July. It was a promotion to remind viewers that, this year, it will begin its real Christmas programming a few days before Halloween.

And on the radio, one oldies station took to playing a few Christmas tunes each hour recently. It appeared to coincide with its parent corporation’s announcement of its coming all-things-holidays cell phone app.

(Yeah, I gave it a spin for the snirts-and-giggles quotient, pretending I was a kid again with a transistor radio to my ear.)

While the “ding-dong-dings” of the chorus in Burl Ives’ “Holly Jolly Christmas” indeed are catchy and Christmastide truly can be, as Andy Williams professes, “the most wonderful time of the year,” even this lover of all things Yule-ish was struck by the seasonal incongruity.

The holidays will come soon enough. And there’s more than enough to do in the meantime.

Inside, there’s one fireplace to build and there’s another to have its chimney swept.

Outside, there are plenty of driveway cracks to seal, a few deck floorboards to replace and a tractor-mounted snowplow to design and build.

In the gardens, there are cold frames to site and insulate and there are hoop houses to ready knowing it’s always easier to cheat the first frost of the fall with preparation.

But no matter the chores, rest assured plenty of time will be carved out to take to the glider of one front porch and to the rocking chairs of another in order to bade the long, hot and humid summer farewell, to greet autumn’s subtly brisk charms and, when the holiday season really arrives, to smile broadly upon hearing Burl and Andy in the proper seasonal context.

After all, their crooning will signal that even though winter is nigh, spring cannot be far behind.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).  

 

 

Will Interest in Land Banks Continue to Grow?

Summary: A new law amends the statutory language of the land bank law to allow redevelopment authorities to carry out the functions of a land bank, which is a public entity that is empowered “to facilitate the return of vacant, abandoned and tax-delinquent properties to productive use.”

When we first wrote about land banks in 2014 there were four in existence in Pennsylvania. Today there are 22. The ones that have been operating for a few years have been quite active—last year’s annual report for the Westmoreland County Land Bank (created in December 2013) shows that 91 properties had been acquired and 55 sold since 2014; in 2017 the land bank in Schuylkill County (created in September 2015) earned $46,000 from property sales according to its audit; and as of last year the Philadelphia Land Bank (created in December 2013) had over 2,000 properties worth $25 million held for sale.

Operating expenses ranged from a low of $27,000 in Lackawanna County (created in June 2015) to over $2.6 million in Philadelphia. A review of audits shows that the majority of expenses are related to administrative, accounting, advertising, insurance and legal functions. The source of operating and non-operating revenues are quite varied with membership contributions, foundation and government grants, property sales, and shares of property tax revenues on properties that have been sold and are now producing property tax revenue are present in the statements of revenues, expenditures and changes in net position in the land banks. Land banks submitting audits that did not engage in any activity and did not collect any revenue or expend any funds noted that fact.

Despite the sharp increase in the number of land banks it still takes time and expense to establish one. Initially a local government has to pass an ordinance, the Department of State has to issue a certificate of incorporation and by-laws have to be drafted before the land bank gets involved in thinking about property transactions.

Four years ago we wondered why the task would not be assigned to a redevelopment authority instead of creating another quasi-governmental body. Based on a search of Department of State entities, there are over 100 redevelopment authorities in existence and all of them are dedicated to stemming the growth of blight.

Recently approved legislation now known as Act 33 of 2018 fulfills that by allowing land bank jurisdictions in all counties except for Philadelphia and Allegheny (where there are three land banks total) to designate a redevelopment authority to do the job a separate land bank would perform.

If a redevelopment authority was designated as such, it would have to follow several key provisions of the land bank law, finances would have to be accounted for in a separate fund and in exercising the land bank’s powers, a redevelopment authority could not use eminent domain to acquire property. That would still have to come through donation, purchase and by tax sale—and only within the boundaries of the land bank jurisdiction. Real property and income of a land bank are exempt from state and local taxes. It can then dispose of property it holds in a manner determined by the land bank. A redevelopment authority acting as a land bank could be dissolved in the same manner as a land bank currently inasmuch as it applied to the redevelopment authority’s land bank designation, not its entire corporate and politic existence.

In many of the operating land banks there is such an interwoven arrangement between the land bank and the redevelopment authority in regards to board membership and staffing that the act in some sense is legitimizing present practices. In the Southwestern Pennsylvania counties of Westmoreland and Washington, for instance, land bank board seats (five of seven in Westmoreland and five of five in Washington) are reserved for the appointees serving on the redevelopment authority board. Both land banks are staffed by employees of the redevelopment authority.

In places where there is no land bank currently, the option of designating a redevelopment authority to do the job could be utilized under the new law. Only 11 counties do not have a redevelopment authority (there may be a municipal redevelopment authority in these counties, however) and in 10 of those there is no land bank. Venango County has a land bank but no redevelopment authority. Its ordinance states that staffing can be provided by contract or memorandum of understanding with a municipality if it does not have its own employees.

Land banks might be a useful tool in helping turn around blighted, run down properties. But in light of the powers they have been given, they must be held to account. The law requires an annual audit and activity report, but what’s to ensure that the parties that receive these documents are reading them? Monitoring tax increment financing, the ICA in Pittsburgh and the initial years of the Commonwealth Financing Authority should serve as reminders of the need for follow up.

As part of the reporting requirements there should be metrics that evaluate the success of the land banks. For example, what percentage (or number) of long time tax delinquent run down properties are being returned to the tax rolls? Is the land bank operating efficiently in terms of costs relative to value being produced? Are the land banks financially sound in terms of liquidity and their net asset and cash flow situations? Finally, are the activities of the land bank successful in improving the neighborhoods where they have acquired property?

The Allegheny Institute will continue to look at and analyze land banks in the future to chronicle successes and note any shortcomings.

A ‘load of’ British Airways ‘gibberish’

It once was written that public policy is a study in imperfection. That it involves imperfect people with imperfect information facing deeply imperfect solutions. Thus, it’s not surprising that they get imperfect results.

But when public policy is built around demonstrably flawed data, it’s the public that always pays the price for such mistakes – with their wallets and lost trust in policymakers.

It was on July 25 that Pittsburgh and Allegheny County officials announced with great fanfare that British Airways (BA) would, beginning in April 2019, resume direct flights between London and Pittsburgh for the first time in 20 years.

And like so many other recent announcements about new airlines and new flights out of Pittsburgh International Airport (PIT), the British Airways flights will be publicly subsidized. The airline will be given $3 million over two years.

Part of the rah-rah-sis-boom-bah-ing over the British Airways deal was a claim by Allegheny County Chief Executive Rich Fitzgerald that the flights would result in a local annual economic impact of $57 million. The media took the assertion at face value.

The county Airport Authority was asked to document the claim. It hemmed and hawed for nearly 10 days. Finally, this past Monday, it produced a two-page “memo,” undated, from a Boston company, EDR Group. And the assessment from Jake Haulk, president of the Allegheny Institute for Public Policy, was as swift as it was succinct:

“What a load of gibberish,” the Ph.D. economist concluded. “Virtually all the estimated impacts are based on questionable assumptions about passengers arriving at PIT.”

Here’s a small (but detailed) taste of the exposed gibberish (to be more fully explored in a forthcoming Policy Brief):

It is “assumed 40,562 arriving and departing passengers annually on 234 roundtrips (81 percent occupancy).  Of those, 29 percent of passengers (11,763) are assumed to be from the United Kingdom or other Europeans whose destination is PIT and are not connecting to another city.

“Spending by those visitors in the Pittsburgh region apparently makes up the bulk of the economic impact of the carrier’s flights. There is no breakdown of dollar mounts for that spending or the outlays for cabin crews, ground crews or catering purchases.

“All told, the airline projects the 234 roundtrips will lead to 564 added jobs in the 10 county Southwestern Pennsylvania region with average worker income of $37,776 and a total labor income boost of $21,306,000. This will be accompanied by value-added increase of $33,879,000, according to the BA study.

“Most of the jobs will be at restaurants and hotels. However, 11,763 visitors to the region over 365 days is an average of only 33 per day.  Even if they stay seven days on average that is only 82,000 room nights. The city alone has around 2.6 million room nights available per year and the rest of the region likely has at least half that many.

“Thus, UK visitor stays would make up only 2 percent or so of the region’s available room nights. It is improbable that 2 percent would create a commensurate number of new hospitality jobs. Indeed, stats from Pennsylvania tourism officials show that for Allegheny County in 2016, on average, $143, 297 was spent by tourists/travelers for each job in the tourism-related industries. If that figure is still anywhere close to the present ratio, the 11,763 visitors would have to spend over $80 million or $7,000 each to produce 564 new jobs.

“What’s more, any added jobs would likely be low-paid hotel room attendants and restaurant wait staff for which pay levels are about $23,000, a far cry from the $37,776 pay level used in the BA study.  The BA figure would include salaries of managers, sales reps, engineers, security, repairmen, etc.”

Furthermore, one part of the economic impact memo, instead of offering data that could be used in support of the public subsidy, actually serves as an argument against it, Haulk says.

Based on the memo’s assumptions, the outflow of dollars would be greater than the inflow. Spending by Pennsylvania travelers would be 2.5 times greater than foreign British Airways travelers to the Pittsburgh region.

“That is not a win for the region,” Haulk says. “Indeed, it is just the opposite.”

Yet the memo is used by the county and Airport Authority officials to defend “investing” millions of public dollars.

And as Haulk sees it, myriad flawed assumptions “make the airport’s $3 million subsidy a high-risk gamble that is unlikely to ever pay for itself unless British companies with significant investment and potential employment that otherwise would not have located facilities in the region decide to place operations in Southwestern Pennsylvania.”

“And in the meantime, if the most probable effects of the subsidy are to damage competitors” – many of whom also have been subsidized with public dollars – “while increasing the net outflow of resources from the region, it is hard to see any upside to the handing over tax dollars to the airline,” Haulk says.

Simply put, the economic impact “study” used to defend Allegheny County’s latest multimillion-dollar exercise in turning taxpayers into venture capitalists to deliver corporate wealthfare is indefensible.

No wonder it took the Airport Authority so long to cough it up.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

 

Assessment Task Force Concludes its Work

The Assessment Reform Task Force, a project of the Local Government Commission, recently wrapped up its work according to the Commission.  This past weekend the Task Force was saluted with a resolution by the County Commissioners Association of Pennsylvania, which, in part, stated its work will be included in “educational programming and training for all county officials and assessment staff across the commonwealth.”

The Task Force’s products include a self-evaluation tool and model RFP for counties that contract with vendors to undertake countywide reassessments. The self-evaluation guide notes “this document is not intended to indicate whether a reassessment is appropriate for any county, but is instead more of a survey of the many questions, observations, and discussions that must occur prior to reaching such a conclusion”.

Of course, in the nearly ten years since the Allegheny County decision by the Supreme Court and the report by the Legislative Budget and Finance Committee on the state’s assessment practices, there is still no movement in the General Assembly to prescribe a regular reassessment cycle.  A similar panel that finished up in 2012 could not agree on assessment solutions.

This year new values went into effect in Lancaster County (the appeal date for next year just arrived last week). In the meantime there is a court case over reassessments in Beaver County and updated values coming next year and in 2021 in Monroe and Delaware Counties, respectively.

Two New Casinos in SW PA Pick Locations

Back in the wintertime the second and third Category 4 casino licenses were auctioned to bidders that chose to set up shop in southwestern Pennsylvania.  Under the law, a winning bidder has six months to submit the formal application to the Gaming Control Board.  That time period just recently expired for the two winning bidders, who announced they will locate in Westmoreland County and Beaver County.

This map shows the protected areas existing casinos created under the original 2004 law and those created in the 2017 expansion law enjoy.  Even though the center of the protected area for the winner of the third license was in Lawrence County, the casino could be located anywhere within a 15 mile radius from that point but not within 25 miles of another licensed casino–that is how it can be built in Beaver County.

Once the slot machines and table games are up and operating, the tax distribution formula for the revenues generated from play are for the varied uses of property tax relief, the state’s general fund, economic development, and money for the host county and municipality.