According to The Kansas City Star, part of the deal the city struck with Edgemoor, the winning bidder for construction of the new terminal, included diverting airport revenue to workforce training, gap-financing for developers, and support for a program to help the elderly with home renovation. The FAA rejected these expenditures. According to the Star:

The FAA also rejected the use of airport revenues for $1.5 million in assistance to the Northland, including housing, economic development and mental health needs.

Why is this a surprise? Even if city hall doesn’t have a command of the specifics about how airports operate, shouldn’t it be aware of these prohibitions? Shouldn’t Council members—especially the members who served on the Council’s short-lived airport committee—have known this?

This is the second in a recent set of embarrassing revelations about the airport project. Recall that a few weeks ago we learned that the Aviation Department director didn’t know enough about FAA regulations regarding environmental assessments. And before that there was the years’ long parade of advisory groups and consultants.

Building a new airport terminal is a big project, and unforeseen challenges and setbacks are no surprise. But what we’ve seen so far indicates a serious lack of competent leadership.

The post More of the Same for the New KCI Project appeared first on Show-Me Institute.

receive bona fide proposals from firms, partnerships, consortiums, etc., with the technical expertise and financial resources to enter into a public–private partnership for the long-term lease, management, operation, and development of the Airport. The Airport Lease RFP shall be in a format acceptable to the FAA and shall be appropriate for submission as part of the City’s final application document.

The Show-Me Institute filed an open records request for the request-for-proposal document (available here), the proposals the city received, and the resulting contract with the winning bid. Those 11 bids are listed below, with links to the full text of each. Note that in two cases the document we received was divided into two parts, perhaps to make electronic transmission easier. Note also that some bids contain redactions, perhaps to protect sensitive information.

• Credit Suisse proposal
• Ernst and Young proposal
• Faegre Baker Daniels proposal
• Moelis & Grow Missouri proposal (part 1 and part 2)
• Hardwick proposal
• Katten proposal
• Lazard proposal
• P3Point proposal (part 1 and part 2)
• RBC Capital Markets proposal
• Stifel proposal
• UBS proposal

The selection committee for the city chose the Moelis & Grow Missouri proposal. The resulting contract with the city is here. We note that Rex Sinquefield, the president of the Show-Me Institute, is associated with Grow Missouri.

Show-Me Institute researchers have not had the opportunity to go through the proposals, but the information is presented above for public review.

The post St. Louis Airport Privatization Documents appeared first on Show-Me Institute.

First, on June 14, The Kansas City Star reported that the opening would be delayed six to twelve months. A week later, the delay was confirmed to be eleven months. Among the reasons for the delay: The contractor, Edgemoor, hasn’t finalized labor union contracts, the FAA had yet to approve environmental analyses, and the previous cost estimates relied on dated information and were for fewer gates than the current plan envisions.

In a November 8, 2017 press conference recorded by the Star, City Manager Troy Schulte said, “our goal is to deliver a new terminal to this city by the end of 2021.” But on June 27, 2018, Schulte tweeted, “November of 2021 was never a realistic date.”

The problem—as I have argued repeatedly, and as the video above documents—was that the ballot measure voters approved was so bereft of details that it amounted to a blank check. Before the election, it was disheartening to see that the Star editorial board was so eager to endorse a new airport that it misrepresented the facts, possibly because it was relying too heavily on pro-terminal talking points. Now, of course, the same editorial board is dismayed city leaders aren’t delivering what was promised.

What I wrote in September 2017 remains true today,

Process is important in public policy, and while the Star editorial board and others may be relieved that Kansas City finally has a vendor and we’re cleared for a November vote… to advocate for this plan simply because the process is over amounts to letting policymakers off the hook for years of bad behavior. Kansas City deserves much, much better.

No one should be shocked that the voters of Kansas City are not being given what they were sold. Those we expect to represent the public interest—civic leaders, pundits, and the Star’s editorial board—lose their credibility in calling balls and strikes if they root too eagerly for one side. This was an unforced error.

The post Gratuitous “We Told You So” on KCI Airport Vote appeared first on Show-Me Institute.

Fast forward a year and Vockrodt writes that the new Aviation Department director, Pat Klein, was unaware of Federal Aviation Administration (FAA) guidelines on conducting an environmental assessment. He writes,

Klein said there had been an assumption that the city could put out solicitations for certain construction work before the FAA approved an environmental assessment in October, and then signing those contracts shortly afterward.

“What we’ve been told initially by the FAA is they don’t think that’s a smart idea,” Klein said. “They think we should hold, so we’re in discussions with them to do that. That’s a three-, four-, five-month lag on our schedule, which could be the difference between summer or winter of 2022.”

Now we learn that even before construction has begun, the project’s opening is being delayed 11 months to October 2022 and will cost much more than originally planned. Delays and increased costs such as these are not surprising for such large projects. After all, the Aviation Department itself has been all over the map on costs for years. Changes in costs and timelines can be forgiven. Not knowing FAA rules on construction suggest a deeper problem of management.

The Kansas City Star editorial board rightly called for more transparency in the construction of the new airport terminal. The Show-Me Institute has also called repeatedly for more transparency in the airport process since 2013, when the Council first took up the matter.

It’s difficult to be confident that the City will suddenly adopt a position in favor of transparency after years during which the process was opaque. We remain confident, however, given the Aviation Director’s unfamiliarity with FAA guidelines, that transparency remains the highest need.

The post Kansas City Airport Stumbles Along appeared first on Show-Me Institute.

Privatizing Lambert could be a win–win–win proposition for St. Louis. The city could get an infusion of cash; private firms could get the opportunity to pursue profits; and the traveling public could get an improved and more efficient airport. But skeptics point out that a limited number of airports have gone through the APPP, implying that privatization is rarely successful, if not unrealistic.

So, is privatization realistic? Why hasn’t it taken off in the US?

The answers: “Absolutely” and “It’s complicated,” respectively.

Privatization is becoming more common abroad. As of 2016, 41% of European airports were partially or fully privatized, and the Canadian National Airport System (comprising Canada’s 26 largest airports) has been successfully operated by the private sector for decades. According to Airports Council International, the private, market-based approach in Europe has led to “significant volumes of investment in necessary infrastructure, higher service quality levels, and a commercial acumen which allows airport operators to diversify revenue streams and minimize the costs that users have to pay” (p. 1). Privatization has also led to greater competition, which has “pushed airports of all sizes to fight for route development and traffic growth, to become leaner and more efficient… and to find the optimal means of financing investments “(ibid). In short, privatization works; in fact, it works really well.

But European and Canadian airports weren’t privatized through the APPP, which might be why privatization has been faster and smoother abroad. While the APPP is promising, it can take years to finish the application process, and time is money. For perspective, Henry County Airglades Airport had its preliminary application approved in 2010 and has yet to receive final approval from the Federal Aviation Administration (FAA).

The APPP also imposes restrictions that can make crafting a privatization deal challenging. For instance, a 65% majority of airlines need to approve a lease agreement for privatization to go forward. And if the city wants to use proceeds from the agreement on projects outside the airport, it’ll require that same 65% approval. Moreover, private operators must assume any public debt held for the airport unless the FAA waives the responsibility. On top of all this, the passenger facility charge (PFC) airports levy on travelers is capped at $4.50 by Congress, which limits revenue for private operators. (Read this recent Congressional report on the APPP for a more detailed account of the program and its challenges.)

The question isn’t “Should we privatize?” but “How should we privatize?” The FAA has discussed the benefits of privatization and increased competition for decades, and the APPP gives St. Louis a chance to capitalize on those benefits. And while few airports have been privatized through the APPP (note that most simply withdrew their applications), policymakers can work to craft a deal that works for all involved: the city, the airport, airlines, and the traveling public. Look for more soon on what a privatization deal could include to offer the best outcomes for all parties.

The post Putting the APPP in Perspective appeared first on Show-Me Institute.

On Thursday the President more or less confirmed this, albeit unintentionally. Many of our readers are aware that tech giant Samsung has recalled its Galaxy Note 7 cellular phone because it's, well, exploding. In response, the company has told Note 7 owners to stop using the device immediately. Even the FAA has banned taking such phones aboard airplanes because of the risk associated with the phone catching fire. Rather than try to upgrade the product to avert their catastrophic failures, Samsung is now… replacing all of the devices.

I had not previously thought to compare Obamacare to a device with an unadvertised tendency to explode, but luckily President Obama just painted that picture for us.

Obama compared problems in the law to a bug in new technology. He said, for example, that a company will fix a problem with a smartphone.

"They upgrade it, unless it catches fire and then they just pull it off the market," Obama joked, in a reference to the recalled Samsung Galaxy Note 7 smartphone. "But you don't go back to using a rotary phone. You don't say, we're repealing smartphones."

Along with the joke being a tad tone deaf given the pain the law has put families through, President Obama's analogy is imperfect because by repealing the PPACA we wouldn't be repealing "health care"—just an indisputably broken part of it. As Samsung is swapping one failed product for another that won't set your hair on fire, so should policymakers fundamentally reassess and replace what was and is an ill-conceived health care law that doubled-down on the status quo rather than reforming it.

As the President suggests, sometimes trying to "upgrade" an inferior product can be downright dangerous. After 6 years of poor Obamacare results, it's time for policymakers to move on to something better.

The post Like an Exploding Cell Phone, Obamacare Should Be Replaced appeared first on Show-Me Institute.

While there is some local support for keeping the airport open among politicians and a particularly vocal tenant, the principal protector of St. Clair Regional Airport is the Federal Aviation Administration (FAA). Because the airport has received federal grants to improve the airport in the past, the ability of the local government to operate (or close) its airport is tightly constrained by FAA grant assurances. As we wrote before:

Two of the more cumbersome assurances for a city like Saint Clair are Nos. 5 and 25. Assurance No. 5 obligates Saint Clair to maintain it as a public airport and not dispose or sell any part of the airport without FAA approval. The FAA will only give approval if Saint Clair can show that closing the airport improves aviation in the area. In addition, the dispensation to sell the airport does not free Saint Clair from reimbursing the federal government all recent federal grants. This will cost the city more than $750,000.

The city’s back-and-forth negotiations with the FAA have failed to produce results.

In an attempt to accelerate the process, Senator Claire McCaskill introduced a bill (S.2759) that would specifically close St. Clair Regional Airport. That bill passed the Senate on December 3, and if it passes the House and receives the president’s signature, the FAA would have to allow the airport’s closure.

You read that last paragraph right. Getting a bill through the U.S. Congress is considered a shortcut to closing a general aviation airport owned by a Missouri city with less than 5,000 residents. That is the kind of intransigence and red trap cities encounter when they, by taking what looks like free money, accept the oversight of federal bureaucracies over local infrastructure. If other local governments want to avoid Saint Clair’s headaches, they should support the development of private airports and local user-funding sources whenever possible.

The post Why Saint Clair Wants Congress to Close Its Airport appeared first on Show-Me Institute.

I was able to attend the Advisory Group presentation before the Hispanic Chamber of Commerce last week, and the slideshow contained four statements that are either incorrect of very misleading. These include (1) the ‘firewall’ between airport funds and the city, (2) whether city funds can be used by an airport, (3) that all city bonds require a public vote and (4) that no airport has ever defaulted and that the city is not a guarantor.

The Show-Me Institute has conducted a great deal of independent research into the Aviation Department’s claims and the wisdom of large airport projects in general. We would welcome the opportunity to present our findings to the Advisory Group, so that they need not lean so heavily on presentations from the department whose claims they are investigating.

That same day, Fowler forwarded the message to a city staffer with this addition:

Can you have your folks at the city look into these matters, please ?

I am sure this group is looking for exceptions to the general rule and will try to discredit what we have heard in testimony from the Aviation Department and the City finance group.

These are certainly policies and broad statements about the legal ramifications of the airport revenue bonds. Whether there are exceptions, loopholes, etc may be called into question.

Maybe have [the City Attorney] look into potential exceptions, etc.

A few days later, on Feb. 2, Fowler forwarded my note to one of the consultants at Frasca and Associates, who is working with the advisory group, with this addition:

Please see the email we received from a special interest group contesting certain facts we have heard from either the Aviation Department and/or representatives of Kansas City.

Which one of these points would you be credentialed to respond to or could research without much additional time (so we don’t blow our Frasca budget) and which ones would you suggest are more legal issues best handled by independent attorneys ? In other words, are some of these questions Kansas City airport-specific, Missouri law-specific or are they all generic facts around most public airports ?

I would like to discuss this during our planned call on Feb. 4, but wanted to give you advance notice that we need answers on these asap either from you or someone else who is independent. We may be able to get our FAA representative to clarify as well and we intend to pose to him too.

Two weeks after that, on Feb. 17, Fowler sent this note to the same city staffer to whom he initially forwarded my email:

Can you please confirm back to me that someone from the City has followed up with Patrick Tuohey on his email below so he feels like we are paying attention to his messages.  I don’t want him ever saying he reached out to us and nobody ever responded.

Let me say loudly that we reached out to them and nobody ever responded. On March 24, I again sent to advisory group leaders Berkebile and Fowler the following note:

On January 30, I sent the note below indicating that the Show-Me Institute has compiled a good deal of independent research on the proposed new terminal. This research includes matters that ATAG has never covered, including financing and the impact of debt servicing.

My note received no response. Therefore, I am asking that the original January 30 email be considered testimony and be distributed to all members of the Advisory Group and included in whatever testimony is made public.

As of this writing, we have heard nothing. They received our note but apparently were more interested in circling the wagons — and seemingly protecting the Aviation Department from being contradicted — than actually collecting information on the new terminal proposal. Perhaps as a result of failing to accept pertinent testimony, Kansas City Mayor Sly James stated falsely in his State of the City address that funds raised at the airport must remain at the airport.

We cannot know what other groups have asked to present information to the Advisory Group and been rebuffed or ignored. We do know that some groups, such as airport concession operators, have not been heard from and we know that the consultants downplayed important testimony from Southwest Airlines. Observers of the advisory group have complained that it gives the appearance of being one-sided and uninterested in legitimate public dialogue. These internal communications only confirm those fears.

The post Airport Advisory Group Not Really Interested In Input appeared first on Show-Me Institute.

Any airport revenue that’s earned by the airport must stay on the airport to run, operate, maintain that airport…. What they can’t do is take airport revenue and, say, send it down and help operate the city water department. That would be revenue diversion. The money has got to stay there at the airport.

Two days later, Kansas City Mayor Sly James took to the radio to say the same thing.

[Fees] that are generated at the airport stay in the airport, to take care of the needs of the airport… The money from the airport can’t be used for streets and sewers and none of that… Airport money stays with the airport. If you don’t spend it on the airport, it doesn’t get spent.

This is demonstrably untrue; Kansas City does spend airport money on non-airport items. On July 1, 2010, the Kansas City City Council passed Ordinance 100525, which permitted the transfer of $10.2 million from the Kansas City Aviation Department to the Finance Department. This was originally set to be paid back, with interest, by July 1, 2013.

This is legal, we don’t suggest otherwise. But it makes hollow the claim that there is some sort of “firewall” between airport funds and city funds. According to the original Memorandum of Understanding between the aviation and finance departments, the funds were to cover “historical liabilities associated with various TIF projects.” The city was borrowing from the airport to cover tax-funded investments that failed to pan out.

Even worse, the memorandum was changed on April 4, 2013, to give the city more time to repay the loan and therefore incur greater repayment costs. The deadline moved from 2013 to 2016.

New terminal supporters will respond that they mean that the $1.2 billion raised through bonds cannot be used for city projects. This is meaningless. If the Aviation Department goes ahead with its proposal, there’s no barrier from the city taking a future diversion loan. However, the odds are that the airport will be so burdened with debt that not only will it not be able to divert loan money to the city, it may not even be able to cover its own obligations. And that is when the new terminal will look like so many other Kansas City financial misadventures, such as Power & Light and the Citadel, siphoning off the general fund.

Whether the airport diverts money to the city or loans the city funds is largely academic. The point is that Kansas City benefits most from an efficiently run, debt-free airport. That is pretty much what we have now, that is what we ought to keep.

The post Yes, Kansas City Government Uses Airport Funds appeared first on Show-Me Institute.

In the United States, due to significant financing advantages given to publicly owned airports and onerous federal regulations, all but one of the 502 commercial service airports in the United States are publicly owned, most by local municipalities. That one private airport is Branson Airport in southern Missouri. As the case study points out:

The success of Branson Airport may be uncertain, but one of the features of private enterprise is that individuals and companies risk their own capital, not of that of their fellow citizens, in hopes of a larger return.

The other six commercial service airports in Missouri are all publicly owned, the largest of which are Lambert-St. Louis International Airport (STL) and Kansas City International Airport (MCI). However, they also can benefit from partial or full privatization. The most basic level of privatization, contracting airport services, already is in place at both Lambert and Kansas City. These contracts allow the airports to attain services through competitive bidding from the private sector. MCI is one of the few airports to privatize its security screening through TSA’s Screening Partnership Program (SPP).

However, airports in Missouri can go much further in privatizing operations. This includes privatizing the management of airports or even leasing the airports to private entities through the Airport Privatization Pilot Program (APPP). Kansas City considered this option for MCI once before. This program is actually the only way a municipality can use proceeds from its airports on other public goods. However, the program requires a complex negotiation between the local municipality, the FAA, airport workers, and the airlines. As the case study states:

Should Kansas City pursue the APPP route of privatization, the city could expect significant proceeds from the sale. However, it would require complex and lengthy negotiations with the potential buyers, airlines, and the FAA in order to participate in a program with no record of long-term success.

The full or partial privatization of airports can have many benefits for air service in the state, whether it is simply reduced costs or financial gain from an airport sale. The case study “Government Privatization in Missouri: Successes, Risks, and Opportunities” outlines some of the possibilities that might allow Missouri to create an example of airport privatization for the rest of the nation.

The post Privatization: Airport Possibilities appeared first on Show-Me Institute.

The City of St. Clair, located in Franklin County, has an airport problem. Namely, the city is losing money on its small, general aviation airport. As the St. Clair Missourian reported last week, the airport has only four remaining tenants and use of the airport is at an all-time low.

So why not simply put up the “for sale” sign? For the last five years, the city government has been trying to do just that. But due to stringent federal regulations, the sale of even a miniscule airport can be an odyssey for local governments.

In theory, when a municipality builds and maintains an airport, whether that be Lambert-St. Louis International Airport or St. Clair Regional Airport, that government is free to do what it pleases with its property, including selling it. However, if a city has accepted federal money to upgrade its airport, as St. Clair has many times, federal regulations, known as the FAA’s grant assurances, tightly restrict that freedom.

Two of the more cumbersome assurances for a city like St. Clair are Nos. 5 and 25. Assurance No. 5 obligates St. Clair to maintain it as a public airport and not dispose or sell any part of the airport without FAA approval. The FAA will only give approval if St. Clair can show that closing the airport improves aviation in the area. In addition, the dispensation to sell the airport does not free St. Clair from reimbursing the federal government all recent federal grants. This will cost the city more than $750,000.

Assurance No. 25 prevents any revenue from the airport from being used for non-aviation purposes. According to the assurance, money from the sale of an airport is airport revenue. So to sell, St. Clair will have to submit a report on fair market value of its airport to the FAA, and put all sale proceeds from the sale into an escrow account for other regional airports to use on aviation-related purposes. The FAA has already rejected a number of St. Clair’s valuations as too low, further delaying any possible sale.

St. Clair’s experience trying to sell its own money-losing airport should act as a reminder to Missouri municipalities on the complications of having a public airport and accepting federal dollars. It is better to support the development of private airports or lease existing airports to private owners than to spend money and time begging the federal government to let them get rid of a bad investment.

The post What It Takes To Get Rid Of An Airport appeared first on Show-Me Institute.

Most federal funds for airports come from two sources:  PFCs and the Airport Improvement Program (AIP). The AIP funds are distributed to airports on a needs basis. PFCs are collected per ticket and then given to airports based on each facility’s total passengers. This means that busy airports, such as MCI, stand to gain substantially if the PFC rate is increased. Van Loh wants the federal government to increase the rate on PFCs in return for large airports (like Kansas City’s) receiving fewer or no AIP grants. This means less federal funds based on need in exchange for more funds based on passenger level.

However, it is an unfounded assertion that if the PFC rate increases from $4.50 to $8, as Van Loh proposed, MCI would no longer need the federal government. First, the PFC is a federal tax, and as such, receiving PFCs is receiving federal aid, just in a different form. Second, assuming higher-priced tickets do not impact demand, Kansas City International Airport would have only received an extra $20 million in 2012 if the PFC rate was raised to $8 per ticket. From 2010 to 2012, Kansas City International Airport received an average of $20 million in AIP grants per year. A chart of AIP grants and PFCs for the last seven years shows this:

Therefore, exchanging more PFCs for lower AIP grants will not increase the airport’s income on average. It would, however, increase the stream of income immediately, helping to finance a new terminal in the short term.

Either way, the Kansas City Aviation Department is not getting the government out of its business.

The post Federal Funding By Any Other Name appeared first on Show-Me Institute.

KCAD is taking a risk by relying on the AIP to cover additional airport expenses. The Airport and Airway Trust Fund (AATF) funds both the AIP and 75 percent of the FAA’s operating budget. Sequestration has frozen growth in the FAA’s federal funding, requiring it to reach further into the AATF. More for the FAA means less for the AIP, which the FAA proposed to cut by 38 percent in 2013. To make matters worse, the FAA plans to cut grants to most large airports, such as Kansas City International Airport (MCI). The FAA has proposed an increase in the other federal programs to cover the gap, but this requires congressional action.

Should there be a reduction in the AIP without commensurate increases in other funds, it might require the Aviation Department to seek alternative funding sources for its proposed $1.2 billion terminal. This would likely mean greatly increasing landing fees. While the airlines pay these costs, they will respond by either raising ticket prices and/or reducing service. Should this not cover the increased debt, the KCAD will be hard-pressed to maintain the airport without local subsidies.

While federal law disallows the use of airport funds to support a city’s other expenses, there is no barrier to a city funding an airport. With the future of federal funds uncertain, airport planners should fully consider the effects of potential higher landing fees or taxpayer subsidies.

The post Uncertainty In Airport Funding appeared first on Show-Me Institute.