Economy

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.

Workers cover the broken windows above the U.S. Airways booth after a tornado, on April 24, 2011 at Lambert-St. Louis International Airport in St. Louis.
Emily M Rasinski/St. Louis Post-Dispatch via AP file
|
Caption

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.”