At the latest meeting, the Aviation Department told the Council that building a new terminal would cost less than refurbishing the existing terminals. The department claims that refurbishing the current configuration would cost more than $1.1 billion dollars, while a slate of new terminal plans would cost less than $1 billion.

Two things are interesting to note here. First, the Aviation Department’s cost of refurbishing the terminals has escalated dramatically from July 2013, when the initial new terminal plan was proposed. At that time, keeping the existing design was supposed to cost up to $785 million, not more than $1.1 billion. This is likely due to the scale of the refurbishment now proposed, which is more extensive than what the department had previously recommended. The cost escalation underscores the fact that the scale of the refurbishment is directly related to the cost. Certainly, fixing up the existing terminals could cost less than $1.1 billion, but that would mean a different and possibly less desirable end product.

The second interesting point is the cost of the new terminal plans, which range between $900 million and $1 billion. The Aviation Department claims that these are not “Taj Mahal” plans, that is to say they are cost effective. However, the department said the same thing for the plan that they proposed in 2013, which was $1.223 billion. The ability to find more than $200 million in savings indicates that either the “old” new terminal plan was in fact more expensive than was necessary, or that the “new” new terminal plans have lowballed cost estimates (or are insufficient).

We will continue to follow this story as the Aviation Department prepares a final recommendation. 

The post New Terminal Plans on the Table in Kansas City appeared first on Show-Me Institute.

Transit spending, and especially rail transit like MetroLink, skews toward capital-intensive projects that make agencies “house poor”—that is, even if an agency can get most of the start-up costs of a transit project paid out of federal funds, that agency still may not have much money to pay for a project’s predictable long-term costs. That’s relevant to Saint Louis, where about 30 percent of the region’s transit funding comes from federal grants that usually require the the expansion of transit service.

Local governments don’t usually take this longer view on transit proposals; instead, projects are sold to residents based on their immediate local cost, with little consideration to how the city or agency will pay for the system’s eventual maintenance and reconstruction. This gap in logic on the part of many planners is a very real concern for taxpayers and transit riders alike; Boston’s transit agency has essentially bankrupted itself through rail expansion, and Chicago will need $36 billion to repair its transit system in the next decade.

Saint Louis is hardly different. Its MetroLink rail system cost more than a billion dollars to build, but MetroLink costs more than $80 million to operate each year, just as it is. This revolving pricetag, paired with MetroLink’s paltry fare take of $20 million per year, helps to explain why Metro has never replaced a MetroLink car: the agency simply doesn’t have the money for it. Indeed, MetroLink’s 83 vehicles are now more than 15 years old, on average.  Even building a new station on the existing line had to be entirely funded by the federal government. Expanding the rail system—as Saint Louis planners want to do with the North-South MetroLink line—will only exacerbate the system’s substantial, and predictable, long-term liabilities without also solving the problem of reliably paying for either existing or proposed rail maintenance and improvement.

Saint Louis planners should take into account the full costs of the projects being proposed and look toward increasing efficiency. Yes, a new MetroLink line may be an exciting possibility for many Saint Louisans, but if the entire Metro system is to have solid financial footing in the future, superficially attractive prestige projects like the North-South MetroLink line may need to defer to practical, efficient, and effective improvements to the region’s bus system.

The post Make Metro Sustainable, not House Poor appeared first on Show-Me Institute.

The Charlotte Observer reports,

When Charlotte was planning to build its streetcar line last decade, one touted benefit was cost savings. The idea was that an electric-powered streetcar is cheaper than a diesel-powered bus and that a larger streetcar provides more economies of scale than a smaller bus.

But as the costs of a 4-mile streetcar line are coming into focus, an analysis shows that the streetcar will likely be more expensive to operate than city buses and the Lynx Blue Line.

The specific overruns in Charlotte are detailed in the article.

My colleague Joe Miller points out that some streetcar advocates claim streetcars have lower operating costs than buses because they compare the costs of operating a streetcar at full capacity to a bus at full capacity (120 passengers versus 60). However, in real life the transit systems don’t normally operate at anything close to full capacity, so their numbers are very inaccurate. Even then, this doesn’t include the enormous capital costs of rail.

Regular readers of this blog will not be surprised that streetcars are inefficient. We have been highlighting the poor economics of rail transit for some time. The same Charlotte Observer article also points out that the supposed economic development benefits of the rail line—those so dramatically emphasized in Kansas City—”are difficult to evaluate in a cost-benefit analysis of a transit project.”

The initial streetcar website in Kansas City relied heavily on data prepared by the Charlotte Area Transit System (CATS), so it is no surprise that the claims made were similar. As Charlotte deals with higher-than-expected construction and operational costs, Kansas City voters should be pleased that, at least in this instance, they made a wise choice by not going along with other streetcar cities.

The post Streetcar Costs Balloon in Charlotte appeared first on Show-Me Institute.

Read the full essay:

The post The Comparative Expense Of The Proposed New Terminal Plan For Kansas City International Airport appeared first on Show-Me Institute.

Even if Kansas City builds a new terminal and begins to perform as well as peer airports in raising retail revenues, conservative policy analyst Joseph Miller calculated the airport should only expect another $1 million or $1.5 million per year in extra funds.

Hardly much to offset the cost of building a new facility, he said.

“Remember that debt service for a $1.2 billion new terminal is likely to be close to $70 million a year,” said Miller of the Show-Me Institute, a free-market think tank based in St. Louis. “In terms of making a new airport affordable, retail sales are not a well-thought-out argument.”

It seems that the Kansas City Aviation Department and other supporters of the proposed $1.2 billion new terminal plan for Kansas City International Airport are still arguing that increased retail sales at the airport is a valid reason for opting for a new terminal. In reality, the amount of revenue that retail would bring to the airport is minimal and dwarfed by the cost of the new terminal plan.

First, let’s be clear about what retail we are discussing. Concessions at airports are usually defined as either food service or retail (e.g., Kansas City trinkets, Dan Brown’s latest mass-produced masterpiece, luggage for people who by definition already have luggage). The Star states that retailers at KCI drew $29 million in revenue last year, but only if we include food service. In fact, retail and duty-free shops usually generate less than $7 million a year in total revenue.

But KCI does not get to keep all the revenue from those shops, only a cut. From retail, KCI only received approximately $900,000 in 2013. Combine retail with food sales, and revenue to KCI from all concessions climbs to just less than $3 million per year. When we remember that KCI’s total operating revenue is $104 million in 2013, we see just how miniscule the retail source of revenue is.

If we assume that with a new terminal KCI will perform as well in sales/pass as other airports with new terminals, at best, KCI will increase retail sales by $1.5 million and food sales by $2.5 million. Certainly they must have a better argument to build a $1.2 billion terminal.

The post Terminals For T-Shirts appeared first on Show-Me Institute.

It turns out that Saint Louis residents do not, in fact, pay for new buses through local tax increases. When it comes to funding capital expenditures for transit, like new buses, the federal government provides most of the money. In a three-year period around the time of the most recent tax increase, the federal government paid approximately 77 percent of Metro’s capital expenditures, and even 10 percent of operating costs. After the last tax increase allowed Metro to continue service on some routes, Metro did buy 10 new buses. However, a federal grant paid for most of the buses.

If Metro wants new, larger buses for the 70-Grand route without making major changes to the system, the most obvious options are to receive a federal grant or raise taxes further.

This underlines the point that more than 90 percent of local taxes for Metro busses go to the operation of the system and not new vehicles. And unfortunately for Saint Louis area taxpayers, the cost of operating the Metro bus system continues to rise. Over the last 20 years, Metro’s bus fleet has been cut in half, ridership has fallen, and total passenger miles have decreased. However, the cost of operating the bus system has increased at an average of 4 percent per year. In fact, the annual operating cost per available Metro bus seat has risen from $2,869 per seat in 1991 to $9,360 per seat in 2012.  This represents a 6 percent increase per year, much higher than inflation and even increases in fuel prices.

In the last decade, Metro has failed to control costs, despite significant federal aid in capital expenditures. Metro therefore required tax increases to maintain the underutilized routes that go to low-population density areas. These factors mean Metro requires higher taxes and more federal dollars to buy larger buses to increase service on the city’s busiest routes.

What Metro needs most of all is greater flexibility to address cost issues and still provide a base level of service to outer areas.

The post Where Are The Metro Buses We Paid For? (Part 2) appeared first on Show-Me Institute.

These revelations pushed some of those who had supported the new terminal to call for a new plan. But in the past week, those who still support the new terminal plan started to push back. As the Kansas City Star reports, transportation consultants working for the terminal advisory group stated that upgrades might attract more flights. These consultants also stated that the new terminal plan has the increased amenities and power outlets the business community demands.

Adding to this, business leaders stated at the most recent meeting of the Airport Advisory Group that unnamed businesses chose not to invest in Kansas City because MCI is not a welcoming “front door.” Those business leaders went on to say, like the aforementioned transportation consultants, that major repairs are necessary to draw more business travelers and investment to Kansas City. In other words, business travelers choose travel destinations based upon which airports have Cinnabons and Sbarros.

However, these arguments are less compelling when one notes that, with 51 cities in reach by direct flights, MCI has relatively good service compared to airports in peer cities. This is largely due to MCI’s price competitiveness.

In addition, the evidence shows that a city’s economic climate, not the state of its airport terminals, is most important for determining travel demand. As to the need for more amenities like food options and electrical outlets, building a $1.2 billion new terminal to address these matters is like using a jackhammer to drive a nail.

To sum it up, the airlines (and common sense) say that building an expensive new terminal will not increase demand for air travel. Quite the contrary, the higher costs to airlines and passengers may mean fewer flights. Even if we agree with business leaders that MCI requires more amenities, certainly there is a cheaper way of providing these than a $1.2 billion new terminal plan. The cost is so much greater than the supposed benefits that the plan looks more like a vanity project than a sound investment.

The post MCI’s Competitiveness Harmed, Not Helped, With New Terminal Plan appeared first on Show-Me Institute.

Perhaps to make up for stealing the Kings, Sacramento has decided to show Kansas City the pitfalls of expensive airport terminals. Sacramento opened a new $1 billion terminal in 2011. Like Kansas City, Sacramento wanted to attract more airlines and passengers with a state-of-the-art facility. Like the Kansas City experience, the terminal:

…drew rave reviews from local business leaders and politicians…the project was criticized by airline executives, including those at Southwest, as too big and too expensive for their needs.

Despite the criticisms, the Sacramento County Airport System decided to build anyway. This gave the airport a high debt load and made it one of the most expensive medium-sized airports in the nation, a dubious honor that will belong to Kansas City if its new terminal plan takes flight.

The hopes that a state-of-the-art terminal would attract more passengers to Sacramento’s airport have not materialized. Passenger traffic fell from 2011 to 2012. But because of the increased debt, the airport had to increase landing fees. Airlines’ concerns, especially those of Southwest, over the increased expense of using the airport has led to an impasse over a new airline lease agreement.

The inability to increase airline service and need to make significant payments has put the airport into a financial bind. In April, Sacramento’s airport executive was replaced and his successor was given “marching orders to improve airport finances.” As the Sacramento Bee reported this week:

Faced with declining passenger levels and high debt, Sacramento International Airport officials say they plan to cut airport system costs by 15 percent over the next 18 months.

While that will save the airport about $14 million, the airport’s management claims that it must further increase parking fees and work with a developer to build a new airport hotel.

The managers of Sacramento International Airport made a $1 billion mistake. Their experience shows that, even with large airports, debt payments and competitiveness still matter. Just as in Kansas City, Sacramento officials downplayed critics like Southwest and took on significant debt to build a new terminal when cheaper options would have sufficed. Sacramento County Supervisor Jimmie Yee said of the airport’s new terminal, “What’s done is done…” But it is not done in Kansas City.

Not yet.

The post The Ghost Of Airport Terminals Yet To Come appeared first on Show-Me Institute.

But recent passenger numbers fly in the face of that. In 2012, total enplanements were down 4 percent from 2011. And 2013 numbers so far are down more than 3 percent from 2012. I recall Green saying to the advisory group that the Aviation Department predicts a growth in passenger traffic of 2.8 percent for 2013. So far, that appears to be wildly optimistic. Way back on July 11, the Show-Me Institute’s Joe Miller wrote:

The determination of some Kansas City officials to construct a new $1.2 billion terminal at Kansas City International Airport (MCI) is based on optimistic projections. Not only do their projections fly in the face of aviation industry trends in the last decade, they don’t even conform with the airport’s own 2012 financial report.

The Kansas City Aviation Department originally used 2006 baseline estimates to justify new terminal specifications. Back then, they predicted 2.8 percent growth in enplanements (the number of people boarding the airplane) from 2006 onward. But they were wrong, and eventually had to revise the projected growth down to 1.9 percent. The growth of passengers in the last decade has fallen even further, to 0.01 percent. This slide in growth started before the financial crisis. Even including the booming 1990s, total growth averaged a meager 1.9 percent from 1991 to 2012.

Those aren’t the only optimistic numbers among the key assumptions. The Aviation Department appears to have lowballed its 3 percent estimation of escalation, a euphemism for cost overruns. According to a February 2009 report from the Airports Council International – North America aimed specifically at  estimating airports’ capital development costs, escalation has averaged 7 percent and has been as high as 11 percent.

Recent construction cost escalation has clearly impacted airport development costs. ACI-NA surveyed respondents about their experiences with increasing construction costs. As shown in Table 2, nearly 60 percent of all respondents to this question reported an increase of greater than five percent for development projects recently bid or re-estimated, with an average of 7% increases for the 45 reporting airports; over one-fifth reported an above 10 percent increase. These increases are well above the general inflation rate of 2.8 per cent. FAA also reported in its latest NPIAS report that “construction costs have increased approximately 11 percent” for the past two years, “due in large part to increases in materials and labor.”

Green took pains to state that these assumptions, which amount to predicting the future, are difficult to make. No one doubts this. In some cases, the estimates are conservative, such as an assumption that the interest rate will be 6 percent. But on important matters such as passenger traffic and cost overruns, the people of Kansas City are likely skeptical, and right to be.

The post KCI’s Overly Optimistic Estimates – Part 2 appeared first on Show-Me Institute.

An optimistic projection of future income still shows that Kansas City International Airport (MCI) will lose tens of millions of dollars a year trying to pay down the debt for a proposed new $1.2 billion terminal. The Kansas City Aviation Department may believe that a billion dollar project will satisfy the pride of the city government, but it cannot expect that any potential increased income will match the investment costs.

The yearly debt service required to pay off the $1.5 billion in bonds requested for the new terminal is more than twice MCI’s current net income, which was $30 million from operations in 2012. In order to pay off $1.5 billion in new bonds, MCI would have to pay an additional $68 million per year in interest and amortization. To support their plan, officials with the Aviation Department claim that the project will increase concession revenue and decrease security and maintenance costs.

According to the Aviation Department’s plan, the new terminal will increase revenue with more space for restaurants and services. However, in 2012, MCI only made $14 million from rentals and concessions. Comparing MCI with peer airports (pages 73-75) it could, at best, double concessions and rental fees. That would generate an additional $14 million in revenue.

The current cost of law enforcement and terminal maintenance is about $14.5 million. Reducing security lines and using a new, centralized facility is projected to decrease costs, but there is a limit to efficiency savings. In addition, MCI receives sizable federal grants for security and maintenance, so the federal government will share any savings. So, as a best-case-scenario, let’s be generous and assume that the annual cost savings is $7 million.

The figures suggest that Kansas City will not recoup its new investment costs even in the best conditions. Even if MCI doubled its concession/rental income and slashed its security and maintenance by 50 percent, the airport could cover less than a third ($21 million) of the project’s $68 million yearly financing costs.

Ultimately, the airport will have to bridge that $47 million gap with higher landing fees, federal grants, Kansas City taxes, or an unappealing combination of the three.

The post MCI’s New Terminal Won’t Be A Money Maker (Terminal Financing – Part 1) appeared first on Show-Me Institute.

Here is a quick recap of recent events. This past year the airport enjoyed service from American Airlines, Delta, and Frontier Airlines. But American Airlines is now the only commercial airline staying in Columbia, as Delta already left the market, and Frontier exits in May.

Consulting firm Parsons Brinckerhoff will provide design services for the new terminal for $38,000. In a recent press release, Parsons Brinckerhoff hypes the new terminal and defends the need, stating that “Columbia Regional Airport has been experiencing growth and has seen an increase in the number of commercial airline service offerings.”

After reading that, I literally double-checked the date of the press release to confirm that it indeed said March, 28, 2013, and not 2012. While it is technically true that the airport has increased commercial airline service offerings, the statement leaves off the very important second half of that statement — the growth has stopped, and service offerings are much lower than they were a year ago.  It is like saying George Bush is president. It was true, at one point in time, but you are not going to find him at the White House today.

Still, city leaders seem confident with their multi-million dollar plan. The Columbia City Council decided on Monday to transfer $1.2 million away from other city projects to fund the terminal, and plan to allot another $18.7 million to the project in the 2014 Capital Improvement Plan, in hopes that the federal government will agree to contribute a large portion of the total cost.

The post Funny-But-Not-So-Funny Update On Columbia Airport appeared first on Show-Me Institute.