Reason Foundation

Puerto Rico's Infrastructure Renaissance Continuing in 2012

Posted on May 15, 2012, 4:40pm | Leonard Gilroy

Under the leadership of Gov. Luis Fortuño, Puerto Rico continued to emerge as a leader in attracting private investment in public infrastructure in 2011, with public-private partnerships (PPPs) undertaken or underway that include a modernization of 100 K-12 schools, a $1.5 billion toll road lease and an ongoing procurement for a long-term lease of San Juan's international airport. As I wrote in Reason Foundation's recently released Annual Privatization Report 2011 (see Puerto Rico excerpt here):

In two short years, the administration of Governor Luis Fortuño has turned Puerto Rico into a privatization leader among its state peers. To address the territory's chronic deficits and unsustainable debt, the administration has advanced a range of reforms that include major spending reductions, optimization of government operations and the enactment of a new law in 2009 inviting private investors to modernize or develop new infrastructure across a variety of sectors.

That law, Act No. 29, is now bearing fruit. It authorized government agencies to enter into public- private partnerships (PPPs) with private firms for the design, construction, financing, maintenance or operation of public facilities, with a set of priority projects that include toll roads, transit, energy, water/wastewater facilities, solid waste management and ports. The law also established a new Public Private Partnership Authority (PPPA), a new center of excellence within the Puerto Rico Government Development Bank responsible for identifying, evaluating and selecting PPP projects and for monitoring and enforcing the terms of PPP contracts.

Despite its short life, the PPPA has built a world-class PPP program utilizing global best practices, and it has already seen some major successes advancing projects through the procurement pipeline.

Read the rest of the Annual Privatization Report 2011 article here for more on Puerto Rico's schools, toll road and airport PPP initiatives that advanced in 2011.

I'm pleased to report that momentum has continued into 2012. Earlier this year, Puerto Rico's Public-Private Partnership (PPP) Authority announced what will become the next PPP project in their infrastructure pipeline—a design-build-finance-maintain project for a new 600-bed, privately-financed juvenile correctional detention and treatment facility, a project estimated to potentially save the commonwealth over $4 million annually. This will be Puerto Rico's first social infrastructure project in corrections, and upon completion, operations of the facility will remain in the public sector (though the private developer will continue be responsible for ongoing facility maintenance). The PPP Authority decided to move forward into procurement for this project based on the results of a feasibility and value-for-money analysis prepared for the project, available here. Statements of qualification from interested bidders were due last week. More information on this project is available here.

Also, earlier this month, the PPP Authority and the Ports Authority announced two consortia— Grupo Aerpuertos Avance (a team combining Ferrovial and Macquarie) and Aerostar Airport Holdings (a team combining Aeroportuario del Sureste and Highstar Capital)— as finalists for a long-term lease of San Juan's international airport. Six consortia were shortlisted last September out of 12 applicants, and the winning bidder is expected to be announced next month.

For more on Puerto Rico's robust and impressive PPP program, see:

• My February 2012 live, video interview with PPP Authority director David Alvarez at Reason Weekend in San Juan.
• My August 2011 print interview with Alvarez.
• Puerto Rico's PPP Authority website.

For more of the latest in state and local government privatization, see the full Annual Privatization Report 2011.

The Year 2011 in Surface Transportation and Aviation Privatization

Posted on April 26, 2012, 10:53am | Baruch Feigenbaum

The rollout of Reason Foundation’s Annual Privatization Report 2011 continues today with the release of the Surface Transportation Privtization and Aviation Privatization sections authored by Reason’s Bob Poole. The Surface Transportation section provides a comprehensive overview of the latest on toll roads, HOT lanes and other news on privatization and public-private partnerships in surface transportation. The Aviation section provides a comprehensive overview on the latest news on domestic and international airport privatization and privatization of airport security. Topics include:

 Surface Transportation

• In 2011, infrastructure finance continued to recover from the credit market crunch of 2009. The amount of capital available in infrastructure equity investment funds reached a new all-time high.
• Over the past five years, the 30 largest global infrastructure investment funds have raised a total of $183.1 billion dedicated to financing infrastructure projects, with the bulk coming from U.S., Australian and Canadian inventors. 
• Eight major privately financed transportation projects were under construction in the U.S. in 2011 totaling over $13 billion investment, including megaprojects in Virginia, Texas and Florida. 
• In 2010 CalPERS, the largest U.S. public employee pension fund, purchased a 12.7% equity stake in London Gatwick Airport, and public pension funds in Arizona, Louisiana, Oregon, Texas and San Diego are seeking similar investments. 
• Puerto Rico’s Public-Private Partnership Authority announced a $1.5 billion lease of the PR-22 and PR-5 toll roads, their as its first large-scale project.  Ohio officials are considering a similar lease of the Ohio Turnpike.
• Other topics include the federal role in private infrastructure finance, an update on high-occupancy toll and express lane projects in the U.S., and a review of toll road developments in the states and across the world.

Aviation 

• In the aftermath of the credit markets crunch of 2008–2009, the airport market continued its recovery in 2011, with efforts including Puerto Rico's current plan to privatize San Juan’s Luis Munoz Marin International Airport and Chicago's continued interest in a potential Midway Airport lease. 
• A total of 48% of European air passengers were handled by partly or fully privatized airports in 2011, with that share likely to grow with impending privatization initiatives in Spain and Greece. 
• Amid public outrage over TSA’s introduction of body scanners and aggressive pat-downs, the administration and Congress continued to battle over proposals to allow airports to opt-out of TSA security and hire private screeners. However, some progress was made in Washington D.C. over reviving the trusted traveler program, advancing a more risk-based approach to security.
• Since 1990, 51 governments have commercialized their air traffic control systems, separating the air traffic control functions from regulatory bodies, removing them from civil service, and making them self-supporting from fees charged to aircraft operators. However, there was no significant progress in 2011 toward commercializing air traffic control in the United States. 
• Other news on domestic and international airport privatization and air traffic control commercialization 

Public Employees Spurn Concessions in Connecticut

Posted on July 5, 2011, 3:59pm | Harris Kenny

According to the latest budget analysis by the Center for Budget and Policy Priorities, Connecticut faces a $2.9 billion budget deficit in FY 2012 and a $2.7 billion budget deficit in FY 2013. In order to balance the budget, Gov. Malloy emphasized a two-pronged approach of tax increases and negotiated concessions for public spending cuts.

In February the governor introduced an unprecedented slate of tax increases through which the Hartford Courant reports, “Taxes would increase on virtually all taxable items.” (For more on this proposal see my previous post here.) Lawmakers complied in passing $2.6 billion in tax increases that Bloomberg describes as “the biggest increase in state history.” However, the second prong of his approach failed to materialize. Rank-and-file union members rejected a range of wage and benefit concessions negotiated with labor leaders leaving Gov. Malloy with a $1.6 billion budget deficit to balance.

Last week lawmakers granted the governor authority to cut spending in all three branches of state government by as much as 10 percent over the next three months. If last week is any indicator, it’s going to be a contentious three months. An estimated 5,500 state workers face layoffs with layoff notices being sent shortly after rank-and-file union members rejected the concessions, while another 1,000 unfilled positions will be eliminated.

Gov. Malloy is pursuing expanding the use of privatization in addition to layoffs. He’s requested legislative changes to the State Contracting Standards Board, specifically suspending legal restrictions and procedures inhibiting privatization. He told newspaper editorial writers and editors in a conference call last Wednesday:

I'm asking for additional ability to privatize services. There are a whole bunch of people in the world who think they are the only people who know how to operate a plow. I got news for you; other people know how to operate a plow.

According to the Hartford Courant:

(This) was an apparent reference to Department of Transportation snowplow operators, who are part of one of the state employee unions that voted in recent weeks to reject the concessions agreement that would have provided a four-year no-layoff guarantee in exchange for changes in employee health care and pension benefits.

The governor faces a daunting task and is moving forward with several reform efforts. First, he fulfilled a promise made in his state of the state address to divest Bradley International Airport into an independent entity. This is a proven and welcome reform that will save the state money, improve airport operations and reduce taxpayer liability. The newly established Connecticut Airport Authority now has day-to-day control of the airport. Second, he is moving forward with closing the Bergin Correctional Institution in Mansfield-Storrs, Connecticut. After ending public operation of this facility, Gov. Malloy should consider leasing or outright selling the facility to a private operator interested in using it.

For ideas on how to cut spending and streamline government, Connecticut policymakers should consult Privatizing “Yellow Pages” Government, a thorough study released this spring identifying dozens of opportunities for privatization in neighboring Pennsylvania. The study is a collaboration between Reason Foundation and Commonwealth Foundation and is available online here.

New at Reason: Annual Privatization Report 2010

Posted on February 10, 2011, 3:32pm | Leonard Gilroy

I'm pleased to announce that today marks the launch of Reason Foundation's Annual Privatization Report 2010 (reason.org/apr2010). Now in its 24th year of publication, the Annual Privatization Report is the world's longest running and most comprehensive report on privatization news, developments and trends.

Readers will notice that we've made a significant change with APR 2010, publishing it as a series of reports arranged by topic, rather than one consolidated report as in previous years. We expect that this will make it easier to use as a resource and find the information you're looking for. The individual sections of APR 2010—which will be released over the next two weeks—include:

• Air Transportation
• Surface Transportation
• Federal Privatization
• State Privatization
• Local Privatization
• Education
• Telecommunications
• Corrections
• Water

We started the rollout today with the APR 2010 Air Transportation section. It provides a comprehensive overview of the latest news on domestic and international airport privatization, the privatization of airport security - including passenger and baggage screening and the federal Registered Traveler program, and domestic and international trends in air traffic control reform. 

» Annual Privatization Report 2010: Air Transportation [pdf, 800kB]

» Complete Annual Privatization Report 2010

Rethinking the FAA Budget

Posted on February 7, 2011, 2:20pm | Robert Poole

I have a new column up on TheHill.com about the FAA reauthorization bill:

The House and Senate are both making the long-overdue reauthorization of the Federal Aviation Administration a high priority. Unfortunately, the bills they are writing seem blissfully ignorant of the fiscal crisis facing the federal government—a climate in which discretionary general fund spending is in for serious cutbacks.

Like most other federal transportation programs, aviation has traditionally been funded largely by user taxes, including the passenger ticket tax, fuel taxes on private planes, and a variety of other aviation excise taxes. These monies are accounted for in the Aviation Trust Fund, which is the source of capital spending on airports and air traffic control, as well as a large portion of the FAA’s operating budget (roughly corresponding to its air traffic control workforce). Traditionally, aviation user taxes brought in more than 80 percent of the FAA’s budget.

But the last five year have seen an alarming increase in general fund support of FAA. For FY 2011, bills enacted in the last Congress but never reconciled would have required 37 percent (S 223) or 41 percent (HR 915) of the FAA’s total to come from the general fund. Both houses now seem to be on course to pass very similar bills, from a budgetary standpoint. With our current debt and deficits, making the FAA even more dependent on discretionary general fund spending is not sustainable.

Read the rest here.

Volcano Eruption and Air Travel's Economic Importance

Posted on April 23, 2010, 1:30pm | Robert Poole

My new post at The New York Times' Room for Debate blog on aviation's importance to the world economy:

The disruptions to air travel caused by a hasty overreaction to the volcano eruption in Iceland illustrate how our global economy depends on aviation.

Nearly one-third, by value, of all world trade moves by air. Components for BMW’s South Carolina auto plant arrive daily by air. Summer fruit from Chile reaches our supermarkets all winter by air and flowers from Kenya reach the whole world by air via The Netherlands. Global tourism, made possible by aviation, is by some measures the world’s largest industry.

Airlines lost nearly $2 billion in revenues from the European shutdown, European Union airports an additional $400 million, and air traffic control providers another $160 million.

All had a stake in reopening airspace as rapidly as possible — but they were stymied by confused and panicked government policymakers. Officials relied on generic computer models rather than sending up test planes from day one to more precisely map the ash cloud in real time.

Full Column

Highway Trust Fund Solvent for Another Nine Months

Posted on March 21, 2010, 11:01am | Shirley Ybarra

In the midst of the health care debate, the President signed the HIRE Act (Hiring Incentives to Restore Employment Act) containing several transportation provisions including an extension of the authorization for federal highway and transit programs through December 31, 2010 as well as providing $19.5 billion to the Highway Trust Fund.

According to the American Association of State Highway and Transportation Officials AASHTO) organization, the measure will:

1. Extend surface transportation authorization until the end of this calendar year. The previous extension of the 2005 surface transportation authorization law known as "SAFETEA-LU" was scheduled to expire March 28.
2. Deposit $19.5 billion into the Highway Trust Fund to reimburse the trust fund for interest payments not received since 1998. This will ensure the trust fund's solvency into next year. 
3. Restore in this fiscal year $8.7 billion in highway contract authority to the states that had been rescinded at the end of Fiscal Year 2009. 
4. Fund the federal highway program's contract authority for FY 2010 at $42 billion, up from $30 billion, returning the program to its FY 2009 funding level.
5. Provide $4.6 billion in additional federal subsidies for Build America Bonds, a program created by the American Recovery and Reinvestment Act of 2009. The bonds allow states and municipalities to finance infrastructure projects with an interest subsidy from the federal government. State and local governments have issued $78 billion worth of Build America Bonds during the program's first year. (The House Ways and Means Committee this week approved a further expansion of Build America Bonds
6. Allow the Highway Trust Fund in the future to collect interest on its deposits, as all other federal trust funds are authorized to do.
7. Restructure fuel-tax exemptions for government vehicles currently paid out of the Highway Trust Fund so future payments come out of the General Fund rather than the trust fund, increasing money available for highway and transit projects in future years.

Then just as the legislation was being signed the House of Representatives approved a measure by voice vote Wednesday that would make two funding distribution changes to the HIRE Act signed Thursday by the President. Bottom line was to distribute the Fiscal Year 2010 funding for Projects of National and Regional Significance as well as the National Corridor Infrastructure Improvement programs among all states based on each state's share of FY 2009 highway apportioned funds.(The current language in the HIRE Act would distribute these funds to 29 states that received such funds under the 2005 surface transportation reauthorization law known as "SAFETEA-LU.")  The bill would also distribute additional highway formula funds provided for FY 2010 among all 13 of the highway programs rather than among just six of the programs as the current HIRE Act language would require.

The bill would also extend the Federal Aviation Administration's authority for three months, from March 31 to July 3. The Senate is still debating a longer-term FAA reauthorization measure; however that is not expected to be reconciled with the House version before the end of this month, requiring a 12th short-term extension for FAA

And so the story goes.

The good news is the extension on the highway bill gives time for the debate that is needed as we have discussed here before.

Chicago Business and Labor Leaders: Time to Privatize Midway Airport

Posted on February 17, 2010, 1:44pm | Leonard Gilroy

It's rare and interesting when business and labor can find common ground on an issue, and even more so when that issue is advocacy for privatization. But that's exactly what's happening in Chicago right now, where Chicagoland Chamber of Commerce CEO Jerry Roper and Chicago Federation of Labor president Dennis Gannon are jointly calling on Mayor Daley to re-launch his initiative for a long-term lease of Midway Airport.

In their recent Chicago Tribune op-ed, Roper and Gannon cite the success of the Mayor's earlier asset leases to support their call for a Midway lease (emphasis mine):

Mayor Richard Daley should affirm his commitment to a public-private partnership at Midway Airport, an initiative that could provide money for infrastructure improvements and shore up public pensions. Earlier privatization partnerships have saved Chicagoans from sharp tax increases, higher unemployment rates and cuts in city services. [...]

Not long ago, Midway was a virtual ghost town. Under Daley's leadership, the airport has become a phenomenal success story, giving Chicago the rare chance to capitalize on this potential investment for the benefit of nonairport purposes like roads, schools and pensions. Only through [the federal airport privatization] pilot program can the city tap into Midway's value. Failing to take advantage of this exclusive partnership means Chicago may lose close to $1 billion.

The City Council authorized the partnership deal in the fall of 2008. However, due to the global credit crisis, the winning bidder could not arrange financing.

Today, conditions are significantly better, evidenced recently by two successful airport transactions in England: the long-term lease of London Gatwick Airport and the sale of a one-third interest in Bristol Airport.

Midway's lease value is bolstered by the fact that passenger traffic has rebounded and interest rates have plummeted. If borrowing costs rise in the future, as many predict, the value of the Midway lease could be negatively impacted.

We applaud Mayor Daley for working with business and labor on these partnerships. The parking meter initiative has been a great success for Chicago's businesses and the public and other cities are looking to replicate that success.

I couldn't agree with Roper and Gannon more, and it's good to see them highlight the obvious benefits the city has received through Mayor Daley's previous partnerships.

In addition to the strong merits of airport privatization and the city's ability to benefit from the wealth of experience from numerous, similar transactions around the world, a Midway lease would (by law) use hundreds of millions from the proceeds to shore up underfunded public pensions to help address a major looming crisis. This alone would bring enormous long-term benefit to taxpayers and represents exactly the sort of initiative other state and local governments should consider replicating to help deal with their own pension crises.

Limping Along on Aviation Funding Authorization

Posted on December 10, 2009, 10:19am | Shirley Ybarra

Deferring action once again on aviation funding the US House of Representatives  on Tuesday passed a bill to extend aviation programs and excise taxes through the end of March 2010. The three-month extension will give lawmakers additional time to work on the long-delayed multi-year FAA reauthorization bill. The Senate is likely to agree. 

We have many big issues in aviation such as the outdated air traffic control system.  Everything from managment, funding, equipment etc.   Just start here as my colleague Bob Poole discusses them.

When will we get around to discussing the aviation issues in earnest? 

Five Keys Issues Facing Aviation and Transportation Secretary LaHood

Posted on December 2, 2009, 5:28pm | Robert Poole

National's Journal's Transportation Experts Blog asks, 'What should Secretary LaHood's new aviation advisory committee focus on?'

Let me suggest five guiding principles.

First, do no harm. By that I mean don't undercut or hobble the democratization of air travel ushered in by the Airline Deregulation Act of 1978. Even though adjusting to real competition has been difficult for most legacy carriers (and some new entrants), some airline business models are succeeding, even in today's recession. Passengers overwhelmingly prefer low fares to greater amenities, and we should respect their judgment.

Second, implement further reforms of the air traffic control system, as recommended by both the Baliles and Mineta Commissions. Implementing the much-needed NextGen paradigm shift will remain high-risk, if the Air Traffic Organization remains embedded in a traditional federal bureaucracy subject to continual micromanagement and unable to tap the capital markets for large-scale investments. The Nav Canada example of user-board governance and a bondable user-charge funding system is the best model for what the ATO should become.

Third, strengthen FAA safety regulation, in two ways. Get serious about applying a single safety standard to all scheduled air service. And put FAA safety regulation at arm's length from the provision of air traffic control services, by separating the ATO from the FAA. The latter is critically important to ensure public confidence in the major changes (e.g., automation, reduced separation standards) inherent in implementing NextGen.

Fourth, get serious about "over-scheduling" at major congested airports, by implementing runway congestion pricing at such airports. Yes, NextGen and more concrete have roles to play, but ultimately when peak-period demand still far exceeds capacity, that limited capacity must be allocated somehow. The fairest way to do that is via market pricing.

Fifth, let's implement truly open skies, by dropping the anachronistic protectionism that still treats airlines as different from other competitive industries. In other words, remove the restrictions on foreign ownership, so as to permit the emergence of truly global carriers with access to global capital markets. And yes, that will ultimately mean removing restrictions on cabotage.

Renewed Interest in Midway Airport Lease?

Posted on November 11, 2009, 3:17pm | Leonard Gilroy

As Crain's Chicago Business reports, Midway Airport's strong economic performance of late is rekindling interest in a long-term lease:

Midway Airport is pulling out of the recession faster than O'Hare International Airport, as shifts in the air travel market boost Midway's fortunes and breathe new life into Mayor Richard M. Daley's plan to privatize the city's No. 2 airport.

Passenger traffic at Midway climbed 9% in September on a year-on-year basis, following smaller gains in July and August. O'Hare, meanwhile, saw monthly declines of 7% to 8% during the same period. [...]

Midway remains about one-fourth the size of O'Hare, the nation's second-busiest airport and a hub for United and American. That's not going to change significantly, but Midway's quick recovery will make it more attractive to private investors. "There is an active discussion around trying to get ready to do it (again)," says John Schmidt, a partner at Chicago-based Mayer Brown LLP who is advising the city on privatizing Midway.

A $2.5-billion privatization led by New York-based Citigroup Inc. and Vancouver-based YVR Airport Services collapsed in April. But a new deal could happen next year. "A combination of things has to happen for privatization: The airport has to come back, and credit has to be available," Mr. Schmidt says. "To be able to say 'Here's an airport that's doing well,' it's a great strength."

In a sign the privatization market is reopening, New York-based Global Infrastructure Partners paid $2.5 billion last month for Gatwick Airport, London's secondary airport. And in September, the Federal Aviation Administration gave preliminary approval to New Orleans to privatize Louis Armstrong International Airport.

Meanwhile, increased traffic at Midway will boost passenger facility charges — the $4.50 fee the airport collects from travelers — which are used to pay off bonds that financed an expansion five years ago. More passengers also means more revenue from parking, food and other concessions, a key component of any privatization.

This, plus the recent Gatwick purchase and the approval to move forward with a lease of New Orleans' Louis Armstrong International Airport, offer some encouraging signs on the U.S. airport privatization front.

For the latest on international airport privatization, check out colleague Robert Poole's comprehensive review in Reason Foundation's Annual Privatization Report 2009, as well as Reason's airports research and commentary here.

Bob Poole (Quoted by Steve Forbes) Has It Right: Airline Deregulation is not to Blame

Posted on November 11, 2009, 11:00am | Shirley Ybarra

In a book by Steve Forbes and Elizabeth Ames, How Capitalism Will Save Us, Why Free Markets and Free People Are the Best Answer, the question was asked:  Didn’t deregulation wreck the airline industry?  The resounding answer is NO! It actually greatly benefitted consumers. As the a short version in an article concludes:  Airline deregulation actually has made service cheaper and more abundant. Adjusted for inflation, fares today are 25 percent to 44.9 percent lower than they were before deregulation three decades ago. Carriers offer far more service to more cities. And studies show travel is safer, too.

In the course of describing the situation (accurately) the authors use an article in 'Regulation Magazine" by (Reason’s own) Bob Poole, Jr. and Viggo Butler where they explain:

• … government management of our airports and air-traffic-control systems has produced an antiquated, inefficient infrastructure unequipped to handle the explosion of air travel resulting from deregulation.
  Government-run airports, for example, are unable to use market-based methods to reduce airport congestion--such as using peak pricing to direct some usage by carriers into off-hours. This would not only cut down on overcrowded terminals, it would generate much-needed fees to finance expansion and technological improvements both in air traffic control and in airport facilities
• …the misery of today's air travel is largely caused by an air-traffic-control system that relies on outdated 1950s technology. Only recently did the FAA announce that it would phase in more sophisticated NextGen air-traffic-control systems that use the kind of GPS satellite navigation technology consumers have had for years in passenger cars. The new systems would enable airports to handle at least twice as much traffic.
• NextGen technology has existed for years. But the system has been bogged down in political debate. Not having to account to consumers, bureaucrats, as always, take their time at taxpayer expense. NextGen isn't expected to be fully in use until about 2025, at a total cost of some $35 billion.
• Other countries already have more efficient, up-to-date air-traffic-control systems than the United States because they have given the management of airports and air-traffic-control systems to nonprofit corporations under industry control--and out of the hands of politically interested government bureaucrats.

Hence the accurate concluding comment which Bob Poole has written about many times over:  "The real problem in the United States isn't our airline traffic jam. It's the bureaucratic bottleneck in Washington."

See other articles by Bob Poole, Jr. at http://reason.org/areas/topic/air-traffic-control

Airport Security (Lack Thereof) or the Right Methods?

Posted on November 9, 2009, 10:46am | Shirley Ybarra

My colleague Bob Poole, in his most recent Airport Policy and Security Newsletter( # 51) highlighted the General Accounting Office report looking at airport security (or lack there of).

About the same day, the Washington Times also had a critical editorial citing many of the same problems.

As the Times pointed out “Despite this massive expenditure and the passage of seven years, the agency has not deployed the technology and isn't even sure any of the 10 new systems can address the greatest threats. According to a recent investigation by the Government Accountability Office (GAO), there may not be any benefit from any of this any time soon.”

Bob said:  "One key finding is that after years and years of rhetoric about risk-based policy from both TSA (Transportation Security Agency) and its parent agency, the Department of Homeland Security (DHS), "TSA's strategy does not incorporate some key risk management principles-a risk assessment, cost-benefit analysis, and performance measures." 

The Times echoed a similar thought with “GAO auditors found that TSA has not applied any risk analysis or cost-benefit analysis to ensure the effectiveness or need of the new technologies. GAO said that TSA doesn't even have "reasonable assurance that technologies will perform as intended."

One of Bob’s final comments “A section toward the end of the report also makes dismaying reading. It summarizes DHS's response to the report's eight recommendations, all of which the agency said it agrees with. In most cases, however, the GAO states its concerns that the agency either doesn't really mean it or that the actions it says it will take will not (or not fully) address the intent of the recommendation. In two cases, GAO cannot provide a detailed explanation of its concerns, because "TSA determined our evaluation to be sensitive security information."

Now comes an article today in the Washington Post entitled “TSA screening more than just carry-on bags” with subhead 'Behavior detection' officers covertly watch travelers' conduct”

The article tells us that the TSA has stationed specially trained behavior-detection officers at 161 U.S airports to identify potentially dangerous individuals.  The officers may be positioned anywhere, from the parking garage to the gate. 

• "We're not looking for a type of person, but at behaviors."  We are trying to spot passengers that show an unusual level of nervousness or stress.  It is not easy to identify these offices as they “blend in” with other TSA screeners.  The behavioral officer is specially selected for their intelligence, maturity and ability to work with people.  These jobs do not require a background in behavior analysis
• Koshetz said the TSA has established specific criteria for what is considered normal behavior "in an airport environment." She said officers react only if a passenger strays from those guidelines, which the TSA declines to reveal for security purposes.
• The observation of passengers does not end at the airport.
  On an undisclosed number of domestic and international flights, federal air marshals pick up where the behavior detection officers leave off. 
• The article cites many successes most of which are drug related however at least is one is threat of a bomb in the back pack.  The statistics for last year indicate that officers nationwide required 98,805 passengers to undergo additional screenings. Police questioned 9,854 of them and arrested 813.

It is not an easy job to ensure the public safety but is TSA using the right methods?

Surface and Aviation Funding on a Three Month Fix?

Posted on September 21, 2009, 12:49pm | Shirley Ybarra

It seems both surface transportation and aviation funding may be on the path for three month “fixes” if Chairman of the House Transportation and Infrastructure Committee, James Oberstar has his way.

SURFACE TRANSPORTATION FUNDING
With only two weeks left until the authority for federal surface transportation programs expires, Chairman James Oberstar is reported that he will move a three-month temporary extension of federal surface transportation programs this week.  The bill will extend the current programs and funding levels which are set to expire on September 30 until the end of the calendar year.
Until last week, Oberstar repeatedly said there would not be a temporary extension for any length of time, insisting Congress must move a six-year bill. The Obama administration has requested an 18-month extension, however, and key Senate committees have endorsed that idea.  We have written before supporting the 18-month extension. 

In the meantime, the Senate is expected to consider a bill that would extend federal surface transportation programs through March 2011 at current funding levels. The Senate bill would transfer $19.8 billion from the government's General Fund into the Highway Trust Fund to cover the short fall in the highway trust fund. The money represents reimbursements to the trust fund of $12.5 billion in interest payments not made since 1999 and $7.3 billion for emergency spending taken out of the trust fund in recent years and not replenished.  No specific timetable is available yet on the Senate bill.

At the same time rescissions of highway funds are looming on September 30 also and the Governors have asked for relief of the $8.7 billion.   I have written here about the rescissions before.

AVIATON FUNDING

Today, CQ Politics reports that Chairman Oberstar is also preparing a “clean” three-month extension of the Federal Aviation Administration programs.  The FAA has been operating on numerous short-term authorizations, the most recent of which will expire at the end of September.  The Senate Finance Committee is also working on a three-month extension, which would give the Senate until the end of the year to finish its full reauthorization bill.

The House passed Chairman Oberstar’s multi-year reauthorization measure May 21, 2009 and the Senate Commerce, Science and Transportation panel has approved its portion of the Senate bill.   However, the Finance panel has yet to report out the revenue titles.

It will be interesting to see if what the three month extension buys us.

FAA Gives New Orleans Go-Ahead on Airport Privatization

Posted on September 16, 2009, 9:45pm | Leonard Gilroy

I'm sure my colleagues Bob Poole and Shirley Ybarra will have more to say on this, but there's been a significant development on the airport privatization front in New Orleans. According to AviationNews.com:

FAA has accepted the New Orleans Aviation Board's (NOAB) preliminary application to privatize Louis Armstrong New Orleans International Airport, according to a statement issued Wednesday by the board.

As part of the privatization process, FAA completed its 30-day review of the preliminary application on Sept. 8 and accepted it, paving the way for the airport to begin the bidding process to select a private operator to manage the airport. After the private operator is selected, the airport will prepare a final privatization application for submittal to FAA.

The board now will issue a request for qualifications to determine a list of technically and financially qualified firms with the necessary and appropriate experience and resources to manage the airport. Once the qualified bidders are identified, the board will issue a request for bids. The bidder with the highest and best bid will be selected and included in the final application to FAA, NOAB said.

NOAB will continue discussions about privatization with the airlines, including the negotiation of a new airport-airline master lease agreement that establishes certain limits on air carrier rates and charges. It also will seek public input on privatization of the airport, as well as establish a data room for use by qualified bidders. Additionally, it will draft a private operator concession agreement/lease document.

The New Orleans Aviation Board, the City Council and the mayor must approve a concession agreement/lease with the winning bidder.

It is anticipated that the request for qualifications will be issued late in 2009 with a request for bids issued in the spring 2010. The final application should be presented to FAA in fall 2010.

For context, as Bob wrote in Reason Foundation's Annual Privatization Report 2009:

At least eight medium hub airports have been proposed by public officials as candidates for long-term leases under the [federal Airport Privatization] Pilot Program: Austin, Bradley (Hartford), Jacksonville (FL), Kansas City, Long Beach, Milwaukee, New Orleans and Ontario (California). Of these, New Orleans appears to have the strongest political support as of this writing. As part of a series of local and state reform efforts, a new Regional Airport Authority was created in 2008 to manage the Louis Armstrong International Airport (which is owned by the city of New Orleans but whose land includes portions of two other jurisdictions). That body is considering two options, either a takeover by the state government or privatization under the Pilot Program. Privatization appears to have the support of Mayor Ray Nagin, several council members and key business leaders.

More to come as this develops. As a former New Orleanian, I will say that it's very encouraging to see local leaders moving down this path. It offers yet another piece of supporting evidence for my strong conviction that Louisiana should be viewed as the epicenter of government reform right now, with Gov. Jindal's aggressive reform agenda, the current work of the Commission on Streamlining Government, the massive charter school revolution in New Orleans, the new privatized city of Central (Louisiana's  version of Sandy Springs), and much more. 

» Reason Foundation's Privatization Research and Commentary

Airport Projects Funded by Stimulus Package Questioned

Posted on August 12, 2009, 1:20pm | Shirley Ybarra

The Inspector General of US Department of Transportation (DOT) questioned some of the projects selected by FAA as part of the $1.1 billion of airport improvement grants in the American Recovery and Reinvestment Act (ARRA) signed into law in February.   In an ARRA Advisory, dated August 6, 2009,  the IG question the FAA’s decisions on funding certain projects as having lower scores that what would other wise qualify for funding.  (The FAA scored projects on a 100-point scale. A score of 62 qualified for money. The projects cited by the IG scored between 40 and 50 points.)

Two of the airport grants the inspector general cited were in Alaska.  The first being a $14.7 million grant to an airport in Ouzinkie, a village of about 170 people.  The second was for a grant of $13.9 million for an airport in Akiachak, a village of about 660 people.

The inspector general also questioned awards to four airports in Delaware, Missouri, Ohio and Washington that did not provide commercial passenger service and had limited flight operations.  Recommendations included that the aviation administration should either show that the projects had economic merit or consider withdrawing the grants. 

This is probably not the final word on these ARRA funding issues.

Reason on Airport Privatization, Post-Midway

Posted on August 3, 2009, 5:29pm | Leonard Gilroy

Reason Foundation colleague Robert Poole and I have a new column in Heartland Institute's Budget & Tax News on the prospects for airport privatization in the wake of the collapse of the $2.5 billion privatization of Chicago's Midway Airport. As we write, the deal's collapse was a speed bump, but doesn't represent a shift in the investor appetite for airport privatization projects:

Because the Midway deal was a high-profile transaction, its collapse received much attention, but it should not be misconstrued as a major setback for privatization. The underlying dynamics of infrastructure privatization haven't changed.

» Reason Foundation's Airports Research and Commentary

Good News for Taxpayers: Lower Than Expected Bids Continue for Stimulus Projects

Posted on July 22, 2009, 11:29am | Shirley Ybarra

According to an article in the Boston Business Journal the bidders for stimulus projects continue to bid 15 percent below expected costs for projects.  In the beginning of the stimulus activity, the bids were 20-40 percent lower than expected as companies simply wanted to get mobilized after a difficult time. 

At the Federal Aviation Administration the low bids meant 347 projects were funded instead of the expected 301 with $1.1 billion according to Joel Szabat, US Department of Transportation, deputy assistant secretary for transportation policy.

I have written before about the “good deals” and  I have also cautioned about change orders that can drive up costs of a project,  here and here respectively.

While some increase is to be expected thus far the tax payers are the winners. 

Airport Congestion Costs New York Billions

Posted on June 18, 2009, 2:01pm | Robert Poole

How bad is congestion at the major New York-area airports? That’s the question the Partnership for New York City set out to answer, in a follow-up to the 2006-07 debates over congestion, delays, runway pricing, and slot auctions. It commissioned HDR Decision Economics to research the question, and the result was released in February 2009 as “Grounded: The High Cost of Air Traffic Congestion.”

The report, which appears to be competently done, is something of an eye-opener. New York airport congestion has a number of costs, the principal ones of which are estimated as follows:

• Lost time to air travelers was $1.7 billion in 2008, and over the period 2008-2025 will likely total more than $50 billion.
• Airline costs (wasted fuel and excessive crew time) were $834 million in 2008 and will total $25 billion between now and 2025.
• Freight shippers lost $136 million in 2008, and will lose a total of $4 billion by 2025.
• Productivity losses to the regional economy were estimated at $21.5 billion over the 2008-2025 period.
• And additional emissions generated by planes in long lines waiting to take off are estimated to cause harm estimated at $1.7 billion of this time period.

That’s a huge price tag, in anybody’s book. So now that we know how bad the impact is, how should those affected deal with this costly congestion?

The introduction of the report created big expectations for me, saying the Partnership “wanted to determine whether investing in expansion of regional airport capacity and upgrading the air traffic control system to reduce flight delays would pay off for the region and the nation.” It follows this by saying that, “The findings of this study clearly show that such investment is more than justified by the cost burdens resulting from inefficient and unpredictable passenger and air freight service due to congestion.”

I read on eagerly, hoping to find conclusions and recommendations calling for bold expansion plans—perhaps terminal expansion at LaGuardia to permit larger passenger volumes that would be consistent with “up-gauging” the average passenger capacity of planes using that airport or possibly the 2008 Reason Foundation proposal for adding a closely spaced parallel runway at JFK.

Alas, what I got was a set of very modest incremental improvements: improve ground traffic management, speed up the use of RNAV (area navigation) departures, redesign the region’s airspace (already under way by the FAA), implement NextGen capabilities in the air traffic control system and on airliners, and (a direct result of the previous measure) reduce excess spacing between aircraft on approaches to the airports.

The report also includes a provocative statement: “All travelers, other things being equal, would prefer to arrive at their destinations more quickly, and almost all would be willing to pay something more to make that happen.” Indeed, the cost of passenger delays in the report was estimated using FAA air-traveler value of time figures. But instead of taking this point to its logical conclusion—runway congestion pricing—the report just drops it.

In fact, as George Donohue and Karla Hoffman found when they ran a strategic simulation game in cooperation with the FAA, airlines, and the Port Authority of New York and New Jersey, runway congestion pricing at LaGuardia would lead to significant up-gauging of aircraft there, making better use of its scarce and valuable runway capacity.

There is good reason to expect the same to be true of JFK and Newark. Runway pricing would not only reduce delays without reducing passenger throughput; it would also generate additional airport revenue that could help pay for terminal and runway expansions in the Port Authority’s airport system.

Looking Into Airport Parking Privatization in Pittsburgh

Posted on June 18, 2009, 1:50pm | Robert Poole

Pittsburgh International Airport (PIT) has a problem. It put close to $500 million into building a new midfield terminal in the 1990s, mostly to serve US Airways, which maintained a large hub there. But after the 9/11 attacks, the airline downsized that hub, and dropped it as a hub altogether by 2004. That has reduced PIT’s enplanements from a peak of 20.7 million in 1997 to just 8.7 million in 2008. But with most of the bonded indebtedness still to pay off, PIT’s airline cost per enplanement last year was $15.80 (compared with only $5.98 in 2000). That makes it one of the most expensive U.S. airports for airlines to serve.

To get PIT out of this trap, Allegheny County executive Dan Onorato is proposing a long-term lease of the airport’s parking facilities to a private operator—13,200 spaces between garages and lots. His aim is to raise $500 million or more, all of it up-front (as in the City of Chicago’s recent leases of parking garages and parking meters). That would enable the Airport Authority to retire its entire $499 million worth of bonds. Debt service on those bonds is running $62 million per year, compared with about $22 million in annual parking revenue. Thus, the Airport Authority would for many years be saving a lot more in debt service expense than it would be losing in parking revenue.

Whether this would be a genuinely good deal depends on several factors. First is how much the lease would actually generate. An article in the Pittsburgh Post-Gazette quotes Merrill Stabile, president of parking operator Grant Oliver Corp., as saying that investment groups have recently paid 15 to 20 times earnings for parking facilities; he estimated parking at PIT could be worth $440 million. Two factors that would influence that value are (1) the length of the lease, and (2) what controls on parking rate increases would be included in the deal. From the airport’s standpoint, a lease term significantly longer than the term of its existing bonds might not be such a good deal.

Globally, there are well-established procedures for assessing the value of long-term privatization deals. Australia, Britain, and Canada all use a process called the Public Sector Comparator (PSC) to compare, quantitatively, the best-case public-sector model with potential private-sector deals. Chicago’s recent 75-year lease of its parking meter system for $1.2 billion was criticized in a report released this month by the city’s Inspector General Office for not having been analyzed via such a procedure. But the IGO report’s alternative calculation (which suggested that the city could have done better) failed to take into account the value of risk transfer to the private operator. In the case of parking facilities, the longer the lease term the greater the risk assumed by the lessee (e.g. that people will still be using cars and needing to park them in 50 or 75 years). And in the case of PIT, there is an obvious trade-off to be made in terms of making th e airport more attractive to airlines by getting its cost per enplanement way down versus giving up parking revenue for N years.

It’s also interesting to note that at the same time that Allegheny County is trying to lease its airport parking, the City of Los Angeles’s airport department is seeking to buy a 21-acre private parking operation directly east of LAX’s Terminal 1. The Park One property is for sale by AMB Properties Corp., and a Los Angeles Times story quotes one realtor as estimating the price could be in excess of $100 million. The facility has 2,720 spaces and is reportedly highly profitable.

LaHood: Government Better at Managing Air Congestion?

Posted on May 16, 2009, 9:30am | Samuel Staley

By now, many aviation policy watchers have noted the decision by the Federal Aviation Administration (FAA) to scrap the proposed auction of landing slots at New York City area airports on May 13th. U.S. Department of Transportation Secretary Ray LaHood cited the controversial nature of the auctions as one of the reason's he reversed the FAA decision made under former U.S. DOT Secretary Mary Peters.

Secretary LaHood reviews his decision in an interview with the online news channel NY1.

What caught my eye (ear), however, were the following comments reported by NY1:

He [Secretary LaHood] said that the plan made by former President George Bush's administration plan to auction off takeoff and landing slots at John F. Kennedy, LaGuardia and Newark Airports did not make sense.

"I think it's a little contradictory to say on one hand we are going to limit the number of slots and actually take them back, and then say all of a sudden we are going to auction them off. I think it's a contradiction in the kind of activity people here are looking for," said LaHood.

The Bush administration created the plan to help alleviate air traffic congestion and create competition among the airlines.

LaHood said the best way to relieve flight congestion is through new technology, and said that New York is three to five years away from making the upgrades.

Hmmm. The point of the auction was to allow the marketplace to decide which airlines valued the New York slots the most, allowing market prices to sort out priorities. The current system allocates slots based on airline legacy at the airports, not the value added these slots provide to consumers. Indeed, many of the flights going into LaGuardia and JFK airports are transfers to other domestic flights, so they, in principle, could be moved to less expensive (and even nearby) airports.

Mr. LaHood's faith that these congestion problems can be handled through a technology fix, without involving consumers and suppliers in decisions to prioritize and determine the relative value of this scarce commodity, is another indication that U.S. transportation policy continues to be wedded to out-of-date thinking about reform.

Reason Foundation has published extensively on the benefits of auctioning landing slots in New York and elsewhere. A complete index of our most recent work can be found here. We also published a "Frequently Asked Questions" on airport pricing at New York airports.

Chicago Exploring Alternative Privatization Models for Midway Airport

Posted on May 8, 2009, 7:37pm | Leonard Gilroy

Per The Wall Street Journal, Chicago is exploring some alternative privatization approaches for Midway Airport, following the collapse of the city's $2.5 billion deal with a Citi-led consortium two weeks ago:

Chicago is considering a variety of strategies to revive its collapsed $2.52 billion Midway airport privatization, including the possibility of issuing tax-exempt debt to make the deal more tenable, according to a city adviser.

Under the tentative plan, Chicago would issue debt to fund part of the large upfront payment that it was to receive in the deal, which then would be paid back over time through lease fees from the airport's private operator.

John Schmidt, a partner at law firm Mayer, Brown LLP and the city of Chicago's lead counsel on the high-profile Midway deal, said such a move could be a way to substantially lower the amount of financing needed by private investors to make the deal go through. [...]

He said Chicago city officials are considering other potential mechanisms as well to revive the privatization. The city has had talks with a number of investors since the deal fell through two weeks ago, including with some of the unsuccessful bidders, although Schmidt said there haven't been any more "substantial discussions" with the investment group that won the project but ultimately couldn't pull it off.

For more, see Reason's recent blog posts on Midway privatization here, here, and here.

» Reason's Airports Research and Commentary

Chicago Keeps $126 Million from Canceled Midway Airport Privatization

Posted on April 22, 2009, 7:08am | Leonard Gilroy

Following up on my colleague Bob Poole's post yesterday on the cancellation of the Midway Airport privatization, I think it's worth highlighting one other notable aspect. As the Chicago Tribune notes, the city gets to keep the whopping $126 million earnest payment from the winning bidder:

Gene Saffold, [Mayor Daley's] chief financial officer, said the city will be able to keep $126 million in earnest money put down by the winning bidder to secure the transaction, so "it wasn't a total loss." [...]

Meanwhile, the city will set to work formulating a definitive plan to spend the $126 million down payment. Saffold said $40 million would go toward shoring up the budget this year and in 2010, and some will go to unspecified public works projects in the city's neighborhoods.

This is conceptually no different than the earnest money prospective homebuyers put in escrow to demonstrate to sellers their commitment to follow through with the financing of the deal. By demanding some upfront "skin in the game," sellers are simply adopting a risk mitigation strategy to incentivize the buyer to: (a) put in a serious, viable offer, and (b) follow through to the financial close. This way, the seller transfers an important risk to the buyer—if the buyer can't ultimately close the deal, the seller gets compensated for their time and resources expended along the way. Time is money, after all, and by choosing to go with Bidder A's offer, the seller has now foregone the opportunity to pursue other potentially viable bids.

So now Chicago gets $126 million, despite the deal not going through. And on top of that, it still has an airport that it can bid out when market conditions improve. This is yet another real strength of the public-private infrastructure partnership approach—even when a deal falls apart before closing, the public partner still gets to tap the benefits of risk transfer.

» Reason's Transportation Research and Commentary

Chicago's Midway Airport Privatization Deal Collapses

Posted on April 21, 2009, 11:20am | Robert Poole

The deal to privatize Chicago's Midway Airport has been canceled. Gene Saffold, Chicago's chief financial officer, told The Wall Street Journal, "We will consider competitively offering the transaction again when market conditions improve."

The failure of the Midway deal to get financed is a setback for U.S. airport privatization, but is hardly the end of the world.

A number of analysts were surprised at the size of the consortium’s $2.5 billion bid, considering it excessive given the airport’s limited growth prospects. That high price-tag made the deal harder to finance, at a time when debt markets are still very risk-averse. A deal that would have required, say, 30% equity and 70% debt 12 to 18 months ago may well have required 50 to 60% equity in today’s debt markets and that was very likely more equity than Citi Infrastructure Investors was willing to put into this one deal, especially when it’s considering a bid for the London Gatwick Airport, which has much better growth prospects than Midway.

In terms of the future of US airport privatization, there are positives and negatives from this event. On the negative side, the fact that Midway’s $2.5 billion valuation could not be sustained means other cities contemplating privatization may have to scale back their assessments of how much a lease of their airport could bring in—and that may dampen enthusiasm in some places.

On the other hand, under the federal Airport Privatization Pilot Program, there is only one slot for a “large hub” airport, and Midway had taken that position. Freeing that spot up means that other large cities may now have a shot at privatizing their airports.

For the other areas and airports that have privatization proponents—Austin, Hartford, Kansas City, Milwaukee, New Orleans, etc—there are still three slots in the Pilot Program for small and medium hub airports, so their prospects are unchanged.

The real importance of Midway was that the City of Chicago figured out deal terms that the airlines serving that airport were comfortable with. Hence, those terms remain as a template for others hoping to gain airline support for their own privatization plans.

Reason Foundation's Airport-Related Research

Government Intervention And The Archaic Rules Of Airline Ownership

Posted on April 15, 2009, 12:20am | Robert Poole

At National Journal's Transportation Experts blog, Lisa Caruso poses the question:

Given the recession and continuing economic woes of the airline industry, is House Transportation and Infrastructure Committee Chairman James Oberstar, D-Minn., going in the wrong direction as he seeks to tighten foreign ownership limits and increase antitrust scrutiny of global airline alliances? Or can the airline industry be profitable and serve the interests of the traveling public without greater government intervention?

Despite deregulation of domestic airline activity more than 30 years ago, the U.S. government still practices a “father knows best” approach to airlines where “foreigners” are concerned. Among the most egregious protectionist practice is the severe limit imposed on non-U.S. ownership of U.S.-incorporated airlines. At a time when U.S. airlines are struggling and might benefit from new infusions of capital, these archaic rules prevent what is increasingly a global industry from taking advantage of global capital.

While Rep. Oberstar proposes to reinforce those regulations, other countries are moving in the opposite direction. Both Australia and Canada are moving to increase their limits on foreign ownership from 25% to 49%. Compared with the United States, those two countries have far fewer airlines than we do, yet their policymakers appreciate the global nature of both aviation and capital markets. Even India, where a form of airline deregulation is under way, is discussing liberalization of what is now a complete ban on foreign investment in airlines.

Code-share and alliance deals are attempts to gain some of the advantages of airline globalization despite the government’s restrictions on ownership. If those restrictions were repealed (as opposed to being strengthened), we’d likely see cross-border mergers that would lead to better-capitalized airlines, something this industry sorely needs.

As for the potential of diminished competition, the ultimate taboo in aviation has always been “cabotage”—the ability of foreign carriers to provide domestic service (i.e., between two U.S. cities). Removing the cabotage restriction would be a welcome complement to repeal of the ownership restrictions. That would lead to a whole new level of competition for domestic air service, in addition to international service.

See other responses to the question here.