Article VIII, Section 8, of the Pennsylvania Constitution is crystal clear on what the role of government should not be when it comes to financial interactions with the private sector:
“The credit of the Commonwealth shall not be pledged or loaned to any individual, company, corporation or association nor shall the Commonwealth become a joint owner or stockholder in any company, corporation or association.”
But that’s essentially what it keeps doing as it continues to turn taxpayers into venture capitalists by using public dollars to underwrite what should be solely private enterprises.
The most current (and recidivist offender) is the Allegheny County Airport Authority, where paying airlines a premium to begin service at Pittsburgh International Airport has become the rule rather than the exception and is lauded as “progressive” thinking.
One of the more arrogant episodes in corporate wealthfare involves public enticements to Qatar Airways to begin international cargo service. “Arrogant” because this public authority initially refused to make public the amount of public money it is giving Qatar.
“Arrogant” also because of the market-perverting attempt at command economics.
But Friday last, under Right-to-Know law pressure from the Tribune-Review and Post-Gazette, the authority relented. At least as far as making the deal public. And the details are as shocking as they are embarrassing.
The one-year deal calls for Qatar to be paid a guaranteed “support fee” of $15,500 for each flight for the first six months of twice-weekly flights. And if Qatar doesn’t meet a threshold of 60 tons for each flight? The public, via state gaming or state grant money, still would have to pay Qatar.
As the P-G details it, “In the second half of the year, if the airline meets the goal, the required support fee would be decreased,” based on ongoing negotiations.
And, as the Trib notes, “if the airline falls short of its goals, the authority will continue to pay $15,500 per flight. If it meets its goals” in the second six months, “a new incentive amount would be negotiated.”
But as the Trib also reports, “If the airline meets none of its tonnage goals in the second six months, it will end up with a $1.48 million incentive.”
Thus, taxpayers are incentivizing failure. Who dreams up this kind of utter nonsense? The Allegheny County Airport Authority.
Also last week, the authority announced it will pay Alaska Airlines $500,000 over two years to begin daily service from Seattle to Pittsburgh and back. That service is scheduled to begin in September 2018.
Such market-perverting and state Constitution-violating behavior has become standard operating procedure for the Airport Authority.
Most recently there has been $800,000 in corporate wealthfare for WOW Air to fly between Pittsburgh and Iceland. Then there’s the $500,000 given to Condor Airlines for a Pittsburgh-to-Frankfort, Germany, flight.
Authority CEO Christina Cassotis told the Post-Gazette that there’s always a risk for an airline to start up a flight in a new region. Yes, there is.
But that risk must be borne by those private enterprises seeking to enter a new market in pursuit of profit. Taxpayers have absolutely no business being forced to assume any of that risk.
Aside from tapping taxpayers for what they should not be tapped, it’s simply not a very good business practice for airports. As Brett Snyder reminded in a June 2010 CBS MarketWatch post:
“One of the favorite airport tricks these days is to throw out subsidies to try to get airlines to start flying new routes. Historically, this is a plan that has failed miserably. The airline comes in until the subsidy runs out and then runs away screaming.”
Continues Snyder:
“As a general rule, if you as an airport think there’s some insanely large untapped market that nobody knows about, you’re probably wrong. … In nearly all cases, it’s best to just work on lowering your operating costs as much as possible to try to attract service for the long run.
“Otherwise you’ll just end up paying for service for a couple of years and then end up with nothing,” Snyder concluded.
As Allegheny Institute scholars Frank Gamrat and Jake Haulk reminded nearly a year ago (in Policy Brief Vol. 16, No. 53), “Just because airports are eager to boost their portfolio of destinations served does not mean taxpayer dollars should be used to do so.
“Ultimately, it will be passenger demand that will keep (carriers) long term,” the Ph.D. economists noted. Or, in the case of Qatar Airways, cargo demand.
How sad that so many practitioners of government command economics continue to believe that the fundamental rules of economics don’t apply to them. It’s even sadder that government – local and state – pay lip service to the Pennsylvania Constitution’s clear prohibition of such behavior.
So much for sound economics. So much for the rule of law.
Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).
