Policy Study

How to Privatize Orange County’s Airports

Executive Summary

The sale of assets, including John Wayne Airport, has been discussed as part of the solution to Orange County’s fiscal woes. But the County faces a dilemma with regard to the potential sale of John Wayne, for two reasons. First is the potential of serious competition from a future airport at El Toro, which might drain business prematurely from John Wayne, threatening its financial viability. Second is the likelihood of litigation by the airlines, who contend that a municipality may not legally make use of the proceeds from the sale of an existing federally aided airport.

This study identifies several different types of airport privatization (contract management, lease, and sale) and outlines the legal status of each, with respect to federal grants and constraints. The nexus of federal control is the grant agreement between an airport receiving federal grants and the grant-making agency, the Federal Aviation Administration. In the absence of such an agreement, there is no restriction on the use of airport revenues or privatization proceeds. Moreover, a privately owned airport is eligible to receive the principal type of federal grant used in airport development (discretionary grants). Airports privatized via lease and contract management are eligible for all types of federal grants.

The solution to Orange County’s apparent dilemma is therefore to use two different types of privatization, in a coordinated fashion. The County should seek a single firm that will enter into two separate agreements: 1) a long-term contract to manage John Wayne Airport; and 2) a purchase or lease agreement under which the firm will develop a commercial airport at El Toro. Development of the latter will be closely coordinated with future activities at the former, to ensure the continued financial viability of John Wayne Airport through the years needed to retire its outstanding bonds.

This approach will permit Orange County to receive sales proceeds or lease payments from the private developer of the El Toro airport. It will also permit such an airport to be financed and developed, independent of the County’s impaired fiscal condition in the wake of its bankruptcy. It avoids all gray areas in federal aviation law, thereby minimizing the risk of litigation. Ideally, it should also win the support of the airlines, as offering a lower-risk way of bringing about the timely development of the El Toro airport.

Attachments

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation. Poole, an MIT-trained engineer, has advised the Ronald Reagan, the George H.W. Bush, the Clinton, and the George W. Bush administrations.

Surface Transportation

In the field of surface transportation, Poole has advised the Federal Highway Administration, the Federal Transit Administration, the White House Office of Policy Development, National Economic Council, Government Accountability Office, and state DOTs in numerous states.

Poole's 1988 policy paper proposing privately financed toll lanes to relieve congestion directly inspired California's landmark private tollway law (AB 680), which authorized four pilot toll projects including the successful 91 Express Lanes in Orange County. More than 20 other states and the federal government have since enacted similar public-private partnership legislation. In 1993, Poole oversaw a study that coined the term HOT (high-occupancy toll) Lanes, a term which has become widely accepted since.

California Gov. Pete Wilson appointed Poole to the California's Commission on Transportation Investment and he also served on the Caltrans Privatization Advisory Steering Committee, where he helped oversee the implementation of AB 680.

From 2003 to 2005, he was a member of the Transportation Research Board's special committee on the long-term viability of the fuel tax for highway finance. In 2008 he served as a member of the Texas Study Committee on Private Participation in Toll Roads, appointed by Gov. Rick Perry. In 2009, he was a member of an Expert Review Panel for Washington State DOT, advising on a $1.5 billion toll mega-project. In 2010, he was a member of the transportation transition team for Florida's Governor-elect Rick Scott. He is a member of two TRB standing committees: Congestion Pricing and Managed Lanes.

Aviation

Poole is a member of the Government Accountability Office's National Aviation Studies Advisory Panel and he has testified before the House and Senate's aviation subcommittees on numerous occasions. Following the terrorist attacks of Sept. 11, 2001, Poole consulted the White House Domestic Policy Council and the leadership of the House Transportation & Infrastructure Committee.

He has also advised the Federal Aviation Administration, Office of the Secretary of Transportation, White House Office of Policy Development, National Performance Review, National Economic Council, and the National Civil Aviation Review Commission on aviation issues. Poole is a member of the Critical Infrastructure Council of the Los Angeles Economic Development Corporation and of the Air Traffic Control Association.

Poole was among the first to propose the commercialization of the U.S. air traffic control system, and his work in this field has helped shape proposals for a U.S. air traffic control corporation. A version of his corporation concept was implemented in Canada in 1996 and was more recently endorsed by several former top FAA administrators.

Poole's studies also launched a national debate on airport privatization in the United States. He advised both the FAA and local officials during the 1989-90 controversy over the proposed privatization of Albany (NY) Airport. His policy research on this issue helped inspire Congress' 1996 enactment of the Airport Privatization Pilot Program and the privatization of Indianapolis' airport management under Mayor Steve Goldsmith.

General Background

Robert Poole co-founded the Reason Foundation with Manny Klausner and Tibor Machan in 1978, and served as its president and CEO from then until the end of 2000. He was a member of the Bush-Cheney transition team in 2000. Over the years, he has advised the Reagan, George H.W. Bush, Clinton, and George W. Bush administrations on privatization and transportation policy.

Poole is credited as the first person to use the term "privatization" to refer to the contracting-out of public services and is the author of the first-ever book on privatization, Cutting Back City Hall, published by Universe Books in 1980. He is also editor of the books Instead of Regulation: Alternatives to Federal Regulatory Agencies (Lexington Books, 1981), Defending a Free Society (Lexington Books, 1984), and Unnatural Monopolies (Lexington Books, 1985). He also co-edited the book Free Minds & Free Markets: 25 Years of Reason (Pacific Research Institute, 1993).

Poole has written hundreds of articles, papers, and policy studies on privatization and transportation issues. His popular writings have appeared in national newspapers, including The New York Times, The Wall Street Journal, USA Today, Forbes, and numerous other publications. He has also been a guest on network television programs such as Good Morning America, NBC's Nightly News, ABC's World News Tonight, and the CBS Evening News. Poole writes a monthly column on transportation issues for Public Works Financing.

Poole earned his B.S. and M.S. in mechanical engineering at Massachusetts Institute of Technology (MIT) and did graduate work in operations research at New York University.