Laffer: Airport Authority shafts private enterprise

Laffer: Airport Authority shafts private enterprise

June 12th, 2013 by Arthur B. Laffer in Opinion Free Press

Former New York Times columnist Bill Safire coined the phrase "MEGO numbers" when discussing government budgets. "MEGO" was his acronym for "my eyes glaze over."

True to his memory, I too need concrete examples to see when public spending does a better job than the private sector or when the private sector does a better job than government. So here goes one specific example right here in Tennessee.

Imagine a government agency called the Chattanooga Metropolitan Airport Authority that regulates the privately owned fixed base operator, TAC Air, at Chattanooga's Lovell Field airport. Also, assume that the traffic volume at Chattanooga's airport has been declining over the years and after a formal request for proposals process in 2006 no other private firm could be induced to open up shop to compete with TAC Air. Also consider that TAC Air's prices are documented to be very competitive and lower than comparable airports in neighboring cities. You'd think the CMAA and Chattanooga would be delighted to have TAC Air.

Well, while those imagined facts are all true, CMAA is not only not delighted to have TAC Air but is doing all it can to run TAC Air off the field.

The Tennessee Transportation Equity Fund collects a tax of 4.5 percent on aviation fuel, which fund grants to provide improvements to airports. Normally these funds are used to improve aviation safety, and upgrade lighting and security.

Chattanooga is the only case in which the Tennessee Department of Transportation has paid out Transportation Equity Funds to an airport authority to provide a taxpayer subsidy for the sole purpose of allowing the government to undercut a privately owned fixed base operator already selling hangar services and fuel on the field.

CMAA requested, and eventually received, $7.2 million in taxpayer-funded grants from the Tennessee Transportation Equity Fund and federal government to construct a government-owned fixed base operator and two additional hangars to compete with TAC Air's private facilities.

In addition, as airport sponsor at CHA, CMAA has regulatory authority over TAC Air. In this capacity, CMAA denied TAC Air's request to install and operate a self-service Avgas fuel tank, while allowing its own government-owned FBO to install one on their premises at taxpayer expense.

Because CMAA receives government grants and taxpayer money from the Tennessee Transportation Equity Fund and the FAA, it enjoys "free" capital. CMAA's fixed base operator does not have to pay interest on the taxpayer-provided capital, nor does it have to pay the capital back.

Yet even with all these advantages compared to TAC Air, CMAA's FBO was still losing more than $60,000 of taxpayer money per month as of December 2012 and is not expected to generate positive cash flow in the future. Failure to attract bidders via CMAA's 2006 request for proposals for a second privately owned fixed base operator should have been CMAA's first clue, and a 2011 study by highly regarded real estate consulting firm Marquette Advisors that predicted negative results for a second fixed base operator at CHA should have been their second clue.

CMAA is thus simultaneously regulating TAC Air, standing in judgment on TAC Air's actions, subsidizing their wholly owned competitor to TAC Air, and is losing buckets of taxpayer money to boot. In other words, TAC Air's customers are paying for CMAA to overregulate, unfairly compete, lose money in spite of government subsidies, and in addition to all that paying for CMAA to dispute that their actions are inimical to the public interest. It's like paying for your spouse's divorce lawyer.

You've heard of win/win situations where both producers and consumers come out ahead. And then, of course, you've heard of win/lose situations where one party comes out ahead and the other behind. Well, here we have a lose/lose situation -- both TAC Air and taxpayers come out way behind because of CMAA's poor decisions. You wonder how those bureaucrats would behave if they were losing their own money instead of our money.

That CMAA also is TAC Air's lessor and local regulator makes its taxpayer subsidized competition with TAC Air all the more troubling. You'd think these people would have something better to do with the taxpayers' money.

Arthur B. Laffer is known as "the father of supply-side economics" for developing the Laffer Curve tax revenue model, and for his work with President Ronald Reagan and Prime Minister Margaret Thatcher. Dr. Laffer lives in Nashville where he is the founder and chairman of Laffer Associates.