by Dr. Lynn 0. Michaelis
First, I must make perfectly clear that the comments contained in the testimony are my personal views and in no way reflect the opinion or position of my employer, the Weyerhaeuser Company. I am a professional economist that happens to have been adversely affected by the expansion of Sea-Tac airport and have actively followed the the third runway proposal. I am also a frequent flier and recognize the importance of a well run airport to the overall success of any regional economy.
Second, because of the time limitation of the testimony I have chosen to restrict my testimony to a few crucial issues. I will focus on whether the economics of the third runway are sound and whether federal funding is required. I believe that Federal funding is merely a way to avoid resolving the issue correctly--at the local level. The Port of Seattle has created an operations demand projection that is correct only if you use their current pricing scheme, which I feel is inappropriate for allocating a scarce resource-- operating slots.
Finally, I feel that the overall subsidization of the airline industry is forcing some individuals to pay a disproportionate share of the cost of airport operations. Government generally plays the role of correcting implicit subsidies that involve high uncompensated 'costs, such as air pollution, noise pollution or water pollution. For some reason, the airline industry has been immune from the corrective action imposed on other private production processes that pollute.
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The port of Seattle has created a scenario that scares local businessmen into believing that airport service will deteriorate dramatically in the next ten years if the third runway is not built. Because of a series of questionable assumptions, they estimate how many jobs will be lost, the extent of flight delays, and the flight "needs" of the Seattle area.
First, consider the estimated flight needs of the Seattle area. The pricing scheme employed by the Port (I assume a similar scheme is used at other airports as well since the FAA is involved) will not determine if there is in fact a shortage. The Port has gone to great lengths in defining the capacity of the airport and in showing that based on optimistic demand growth we will be out of capacity by the year 2000.. The Port however fails to address the crucial issue that is creating the "shortage", the pricing mechanics at the airport. The airport prices landings on a per pound system I can only believe was devised in a socialist country. All operations are of equal value, whether they occur at 8 a.m. or 11 p.m., whether there are 8 passengers or 300 passengers.
Under current pricing schemes there is no procedure for allocating space based on time of day or for more efficient operations to bid for landing space as in the open market. This approach is only possible in a government operation where costs are heavily subsidized. BPA estimated an energy shortage for the Northwest that led to the WPPS fiasco. Low prices of energy were used to forecast shortages and immanent doom for the Northwest unless we built a nuclear power system. Those projections also failed to take into account a variety of pricing schemes that would have dealt with the problem more efficiently, such as peak hour pricing. As it turned out, the plants were not needed.
There is a strong similarity to the third runway "crisis". Most of the growth at Sea-Tac has been in commuter traffic. Because of the extremely low cost of operations (about $80 for a round trip-takeoff and landing per plane), a small plane can take a time slot from a
large international flight, for instance. The pricing scheme encourages small inefficient plane operation. To demonstrate this fact, United Express and Horizon accounted for 35% of passenger operations in 1990, but only 8.7% of the passengers. (More recent data was not available, but would surely confirm the trend.) In fact the average operation of a United Express carried less than 10 passengers in that year, while a Horizon operation carried about 12 people. Further, the pricing scheme encourages inefficient operations just to hold an operating time slot.
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Suppose there really is an impending shortage, since the Port apparently can not limit operations and eventually will have the airport so congested delays will be disastrous. (The absurdity of this assertion also needs to be scrutinized.) Also, let us assume they are correct that immense job losses will result if the runway is not built. (They conveniently forget to include revenue lost to the community since people fly out and spend their money somewhere else as well. Net benefits are lower than estimated.) If all that is correct, then the local community should pass a bond levy for $500 million to build the runway. They recently voted to build a baseball stadium that could not be nearly as important to the long term economic health of the region as another runway.
But this could be a problem. Right now the Port can promise the majority of citizens of the Puget Sound that they will receive better and more efficient airport operations at no cost to them. That is only true if money comes from Federal coffers. But it is just this approach that is creating the crisis at the Federal level. Why should we use Federal money for a clearly local issue. This allows projects that could not possibly make sense if people had to pay for them to get done. The Port can duck just how weak the economics of the third runway are. If the issue had to be debated publicly and people recognized had to vote a tax increase to pay for it, the outcome might not be favorable.
At a time that the Federal Government is running huge deficits, it is also imperative, that we truly decide what is socially required. Using $500 million of America's scarce savings on a project that can not even generate 1% return on investment is clearly not in society's near term interest. But more important, building an ever bigger airport next to the heart of your city, probably is not even desirable in the longer term.
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The real debate of the third runway should involve not only if the local citizens are willing to pay for it, but if those that benefit from the airport operation are willing to compensate those who bear the cost. Airport operations are noisy and adversely affect those that live in the noise shadow. This is not an academic medical statement, but a very real personal experience. The night time operations drove us from a house that we lived in for over 20 years. It was a very nice quiet neighborhood when we moved in. Now it is difficult to sit outside on a summer evening or to get a complete nights rest.
So I would propose that any vote at the local level or even the additional runway should include a scheme to compensate individuals and local governments for the losses that will result from the additional operations. A study needs to be done to determine the exact cost. Declining property values have not even been considered. The Port of Seattle has been willing to purchase properties required for expansion, but does not compensate others that are adversely affected. I believe a careful assessment of adverse effects on home values in the South End in the Noise Shadow needs to be done. Data will show there has already been significant erosion in relative values as a consequence of the airport growth. With values of houses about $800,000 to $2,000,000 per acre, given home prices in some areas, I believe a 10% loss in relative appreciation over the next ten years will cost homeowners in the South End at least $800,000,000 dollars in opportunity cost.(This has to be refined. I assumed 21.5 sq. miles were adversely affect, which could be too small.) For some areas the likely decline could be significantly more than 10%.
An estimate of insulation and school construction costs have to be developed as well. Part of the final approval needs a more complete compensation scheme for affected individuals and communities. Highline School district has already submitted its estimates of costs associated with insulating existing schools. They have also estimated the higher costs required for newer schools to make them compatible with aircraft noise. Other school districts need to be solicited for their input and potential costs.
This current pricing scheme does not penalize for night time flights. These operations create extremely high costs for residents around an airport. If FAA restricts such pricing, then the rule needs to be changed. Heathrow airport prices night time flights at a very high level. Result: very few operations. Under the current system the Port is not required to compensate individuals that experience sleep loss or health loss as a result of night time operations. They merely see an empty runway going to waste. An operation at night may even be cheaper even though the social cost is much higher.
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First, use ONLY local money or airport revenue to build the runway. The money should be raised via a local bond issue. If it is truly needed for local growth, then Seattle will pay for it.
Second, compensate the people that live in the noise shadow of the airport. Since other residents benefit from the additional operations, they should be willing to compensate those that will be adversely affected. It is unfair to keeping taxing the residents of the South End via an implicit noise tax to subsidize the rest of the county. Use the analysis on property value loss to determine how much to compensate South End residents for noise.
A GREAT IDEA: For instance, eliminate all property taxes for houses within the 80 Idn band and lower rates for other adversely affected areas proportional to operation impact. This reduction in taxes would be picked up by those other local areas that believe the airport is essential. If so, people in King Co. might be voting on much more than a mere $500 million bond issue, but a fundamental shift in tax burden.
Estimate demand for take-off and landings at various price levels. Also, implement a peak hour pricing system. If these methods are used, the shortage will not be as critical and will
allow time to consider other alternatives with more complete information. For instance, ask how many commuter operations there would be at $500 per landing or at $1000 per landing or even, $3-4000, which would be closer to what it would take to cover the interest cost on those marginal flights.
Long term forecasts are risky at best. To reflect the uncertainty of long term forecasts, a number of scenarios need to be developed considering the a range of assumptions, such as:
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Because there is so much at stake for the long term economic health of Seattle and the South King County area, the economic data has to be fundamentally reworked. It has to be developed to include all costs, direct and indirect. The short term impacts and benefits have to be balanced with the longer term benefits. The airport has to internalize the cost of the pollution it is generating just like the rest of the manufacturing businesses.
Only when this is done, will we know the true demand for the product. Just like when a sawmill was free to burn its waste, neighbors bore the cost. Environmental regulation made us stop and find a way of disposing of the waste differently. In a similar vein, the airport takes, as a free good, its right to generate flight operations and the associated noise pollution. The cost associated with those operations have been shifted to the neighboring residents and communities. This has resulted in the price being set too low for airplane operations and has created excess demand.
Use of Federal money distorts the decision process. If the need is truly there, then either local people will pay for it or the airlines will be happy to pay higher fees to reduce delays. Passengers will be willing to pay higher ticket prices knowing flight operations will be more dependable. The incorrect use of Federal money is encouraged when it is viewed as a free resource that is easy to get and not have to meet standard market tests for rate of return.
If local communities need a project, especially prosperous communities like Seattle, then the community should pay for it. Also, we need to insure that those parts of a community that benefit from a project that creates large external costs are willing to compensate those that are adversely affected. It is just this type of decision and payment process the Port apparently hopes to avoid.
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