- September 27, 2021
This article originally appeared in Governing Magazine.
Transportation expert Bob Poole recently released a report showing major cities how they could unlock billions of dollars in capital spending. Poole, who has long proposed innovative approaches to highways and airports, evaluated 31 major U.S. airports. His findings revealed that those 31 alone could generate $131 billion that could be redeployed to fund other infrastructure and address other critical urban needs.
The study brings attention to the opportunity for “asset recycling” — the process whereby local officials generate or harvest substantial infrastructure dollars from one set of assets by selling or leasing them and recycling the proceeds into another necessary area. Yet responsible elected officials harbor reasonable concerns about losing control or the optics of contracting away management of “the family jewels.”
Let's examine some of the assumptions in terms of value and some of the issues in terms of control to see if a community could release the value and protect the public at the same time. Two issues are intertwined: whether capital can be redeployed from the airport to other community infrastructure needs and whether it can be done in a way that concurrently improves the operation of the airport.
Years ago, when I was elected mayor of Indianapolis, I inherited an incredibly well-run airport — professional managers, a very good board, great customer experiences, a well-crafted vision for the future. Yet our local experts managed only one major airport, ours. Around the world, then and now, the leading airports — Paris, Madrid, London, Milan, Sydney, Rome and more — have long been operated by private companies under agreements with public entities.
Experts who exclusively do only one thing and lots of it have advantages in terms of training, resources, technology, management scale and more. Public-private partnerships with world-class operators can improve results even in already high-performing airports. Poole, as a volunteer, advised us when Indianapolis undertook a public-private partnership for the management of its airport. That partnership, with BAA, which also managed London’s Heathrow, produced additional hiring, more revenues from improved concessions, and better passenger experience.
Even better outcomes occurred in another remarkable public-private partnership, a 40-year, $1.2 billion lease deal that transformed San Juan, Puerto Rico’s Luis Muñoz Marín International Airport in a model that produced the right blend of public and private value. The Puerto Rico deal was authorized under then-current federal policy that placed severe limitations on the sale or lease of commercial airports. But in 2018, Congress changed the law: The Federal Aviation Administration’s new Airport Investment Partnership Program removed limitations on the number of governmental airport owners allowed to enter into long-term leases. The law also advances the rights of the public entity in these relationships, allowing it to retain an equity ownership stake, participate in governance, and share in any distributions of revenues with the private partner.
Beyond the questions surrounding the dollar terms of leasing deals, any long-term concession requires attention to who controls what. Public airport owners need to be well-advised and have in the forefront the issues they will continue to control — for example, critical policy decisions that ensure economic development, equity in hiring and sourcing, and fair labor policy. The good news about a well-structured relationship that produces operational excellence is that it will create better customer experience, more (union) jobs and more economic activity. City officials have important interests in making sure that the front door to their cities sets the right tone and that the air service fits their needs. The challenge with asset recycling is to ensure that these objectives are met while liberating the funds.
The partnerships can provide value both for already modernized airports and those in need of a major capital infusion. Yet, these are difficult decisions, and the right path is often unclear. For example, the $2 billion plan to rebuild Cleveland Hopkins International Airport could incorporate private operating partners that could consider the intersection of operational excellence and infrastructure investments. Before canceling its effort, St. Louis considered doing both — remodeling the airport while unlocking close to a billion dollars for investment in urban communities.
The lessons from the Poole research, the Indy concession, the San Juan success and the St. Louis initiative might be summarized as follows:
The public body needs to retain a role to protect important public values. The public needs to have a role in advancing a city’s tourism and economic development. Clarity regarding job protection needs to be addressed. And a compelling use of the proceeds — for example, one that compensates for historical inequitable infrastructure investment in urban neighborhoods — needs to be clear. If a city could put a billion dollars into its neglected neighborhoods and infrastructure without any drag on taxes or debt, then the effort of working through the complexities of unlocking the value of an asset like an airport would seem to be well worth it.