Development $$$

Aug. 8, 1999

Development $$$$

A few of the creative ways airports are attracting funding

BY John Boyce, Contributing Editor

August 1999

Financial mechanisms to help develop an airport and its attendant businesses don't exactly grow on trees, but they're abundant enough that if you have a little imagination and are willing to do the research, you might find a financial mechanism to grow the trees.

"There's a lot of stuff out there," says Paul Meyers, CEO of Aviation Management Consulting Group in Englewood, CO. "You have to kind of dig for it... For instance, you plant some trees to reduce the ozone depletion and you're eligible for funds from an environmental protection agency. There are some stretches and you have to be creative, but they're out there.... As airports get more competitive, they need to get more creative in these areas."

Many funding mechanisms take the form of tax abatements or other financial incentives in exchange for job creation. But there is money available from many sources in exchange for improvements or enhancement to whatever the sources are interested in. Every department of government and many non-governmental entities are potential economic boosts for airport development. Many programs are for general community and economic development, but airports and airport businesses can and do qualify.

Jerry Olson, airport manager at Cheyenne (WY) Airport, has been creative in attracting funds and businesses to his airport. Among many programs he has exploited is a local soil conservation program under which he received funds for planting trees that helped with noise buffers around the airport.

"If you want to be effective and get things done and you don't have a lot of money," Olson says, "it's imperative that you understand the funding programs at the federal, state, and local levels.

"We've used ... a couple of primary federal programs to develop infrastructure. These are economic development-related projects, so what you generally have to do is have a bird in the hand — a company that says, ’We're going to relocate to the community or expand in that community and create jobs.' Once you've identified the bird in the hand, there are funding vehicles out there that will fund for infrastructure. You're not going to get many federal or state or local funding programs that will actually go to subsidize businesses, but you can build or improve facilities with public dollars. That sells pretty well.... That's the type of thing we've tried to do."

Eleven years ago when Olson arrived in Cheyenne he had a vision for the airport that included attracting a regional airline. Many bumps and hurdles had to be surmounted along the road before Great Lakes Airlines's recent service to Cheyenne. But the beginning was the building of a road to open up a 68-acre tract for a business park he had in mind. It was the road and subsequent further infrastructure development that was necessary to attract the airline.

Olson convinced the Economic Development Administration of the U.S. Department of Commerce that the road he needed to open up the area would lead to job creation. The EDA has a 50-50 matching grant program for just such infrastructure development and it gave Olson $900,000 for that purpose.

"That was one of the first projects I did," Olson says. "At the time, we planned the creation of 90 jobs, or $10,000 for each person employed. I just landed Great Lakes Aviation because I had the infrastructure out there. We should have about 400 people in the business park, which far exceeds the 90 that was required."

Since that first project, Olson has used that EDA program and other state and federal grant programs to gain dollars for hangar construction to attract other aviation-related businesses. Besides job creation, the funding and subsequent developments have had an astonishing impact on the Cheyenne economy.

"In 1989," Olson says, "we had a $68 million economic impact on the community. Now we have over $101 million impact."

The most direct way to gain development dollars is, as Olson indicated, jobs for tax breaks and other incentives. Michael Hodges of Airport Business Solutions in Atlanta says, "It's more of a political issue as opposed to a financial issue, if you will. Those type of things are generally solely based on what the individual tenant is able to negotiate. The more economic benefit you're providing to the community, the more you're able to negotiate regarding tax breaks."

Not untypical is the arrangement recently worked out between maintenance concern Dee Howard and the taxing agencies in and around San Antonio, TX. In exchange for creating 500 jobs in a business expansion program, Dee Howard will get a 10-year, 100 percent property tax abatement. The company will get a $3.4 million incentive package in capital improvements and other infrastructure work by the City of San Antonio near a company hangar.

"You don't automatically get 100 percent for ten years," explained Linda Dicks, aviation marketing specialist for the City of San Antonio and its aviation department. "Sometimes you'll get maybe 50 percent for eight years. It's all negotiable. Aviation is a targeted industry, so you can get up to ten years abatement and you can get up to 100 percent phase-in. It's based on what you're eligible for, depending on your investment and the number of jobs.

"Let's say you're eligible for 35 percent abatement and 25 percent of the work force you hire is economically disadvantaged; in other words, they have been out of work but actively seeking work for more than six months and they live in a certain part of the city. You can get 25 percent more abatement because of that."

Meyers at Aviation Management cites another example in which a corporate flight department was given a tax break based on what property it planned to add to the tax rolls. "In that case," he explains, "the city says to the corporate flight department, ’Okay, what is the term of the lease, what kind of improvements are you going to make, and what type of aircraft are you going to bring in here?' Based on that, you set up a scale. If the flight department builds a $4 million facility and brings in two Gulfstreams at $70 million, the city says, ’We'll give you an abatement of ’X' and if you bring in another airplane we'll give you an abatement of ’X.1' Typically, it's a graduated scale — like the first year an abatement of 35 percent, the second 30, the third 25; things like that."

The Klamath Falls Example
In Klamath Falls, OR, airport director Hal Wight is taking a windfall from the state's lottery system to induce new business to the airport. "In Oregon," Wight says, "a large chunk of the (state) lottery money comes back to municipalities for the purpose of economic development. Our airport got $2 million for this. We have decided to use that money as incentives for anybody that wants to start a new business (but) it could also mean somebody that is already here. Depending on the size of the business — we're thinking of the smallest — if some guy wants to start a flight school or a mechanic's shop with two or three employees, we're thinking of $100,000 for capital improvements for that project.... If you come to me with a half million dollar project, we would give $100,000. You will be facing a $400,000 hit instead of $500,000."

Wight will consider a bigger grant, depending on the number jobs projected. In addition, he says, the City has the ability to do municipal financing to further encourage investment.

"Say somebody comes in and they do a million dollar project or the net result is a million dollar project," Wight explains. "We build that for them at five or six percent interest rate. The debt service will be based as if they own the property even though they won't.

"They will be getting a brand new building that they're getting it at a much better commercial rate, which is probably around 10 percent. We will own the building so that if somebody bails we've just got another place to rent."