Thursday, May 31, 2018

A Concorde for WyoFlot

KGAB reports that WyoFlot is flying again:
The Cheyenne City Council on Monday night approved spending up to $600,000 to support safe and reliable commercial passenger air service at the Cheyenne Regional Airport. Cheyenne has been without an air carrier since late March, when Great Lakes Airlines announced it was shutting down operations. 
Just a quick question before we continue: is it at all possible that Great Lakes Airlines considered the possibility of receiving more taxpayer money in their decision to close? There has been talks since early last fall about throwing tens of millions of dollars into a state-run airline project. With a big load of taxpayer money up for grabs, would not a rational business try to get their hands on as much of that free money as they can?

To be clear, I am not accusing Great Lakes Airlines of playing with the state of Wyoming to get taxpayer money. I am merely pointing out that once government officials start talking about giving away taxpayer money to businesses, it would be rational for those businesses to do what they think is necessary to get their hands on that cash. 

Back to the KGAB story, which now explains how this WyoFlot project is turning into a Concorde:
"The consequences of not doing something in partnership with all of the stakeholders that have something in the game are going to be a voter approved $18 million airport to nowhere or a warehouse," said Councilman Rocky Case. "I think we have an obligation to do our due diligence here to make certain the right thing is done," Case added. 
The $600,000 will be combined with county, state, federal and private money to form a "minimum revenue guarantee" to help an air carrier avoid losing too much money should it take a chance on Cheyenne.

The Concorde - the world's first supersonic passenger jet - was born out of a money-losing project. The British and French governments, who ran the project, came to a point where they decided that they had invested so much money in it that they just could not pull out, or it would all be wasted. 

There is another side to this problem. Councilman Case uses the $18 million investment as a reason to spend even more money. What he does not realize is that the money he now wants doled out is of a different quality, for a different purpose. Paying the airline to fly just because taxpayers have been forced to invest in the airport, is like paying a trucking company to haul goods in and out of Wyoming, just because we built the interstate highways.

For some reason, WyoFlot proponents have a hard time grasping the difference between a public good, namely the infrastructure capacity, and the private good, namely the passenger jets flying in and out of that airport. There is a case to be made, namely, that airports fall under the same infrastructure investment principle as highways do, whereupon it is perfectly legitimate to use taxpayer money for those facilities. The problem with WyoFlot is that it removes the boundary between the public good - the airport - and the private good, which is the commercial jet flying in and out of that airport.  

WyoFlot proponents have either ignored or not understood this difference. Councilman Case again:
"This is an opportunity for economic development for our community," said Case. "It's not about what are we spending here, it's about the long term gain of what we can get by doing this in partnership with all the stakeholders."
It would be interesting to see what estimates the councilman is relying on for his conclusion about the "long-term gain" from spending $600,000 of our money. Do keep in mind that this is an ongoing commitment to provide a "minimum revenue guarantee". Therefore, it is the good councilman's responsibility to give taxpayers a good idea of what kind of return they can expect on this investment. How much money in commercial activity will be brought into Cheyenne as a result of that continuous spending commitment? How much new tax revenue can we expect from this ongoing spending commitment?

I have heard politicians scoff at this type of questions, saying that there is no way of possibly knowing any of this. The problem with this argument is that it is defeated by the very fact that airlines do not provide the capacity that the politicians want; if, for example, Great Lakes Airlines were flying in and out of Cheyenne several times per day, there would be no need for the capacity purchase agreement now being proposed. 

In plain English, airlines have determined that there is no commercial viability in flying people in and out of Cheyenne. They have come to this conclusion based on experience and on careful calculations of the business case for air service. To reach this conclusion, therefore, they have not only had adequate information available, but also done their due diligence when it comes to the costs and possible ticket prices.

Even if we accept the premise that government might purchase commercial air service, that does not mean we can throw any amount of taxpayers' money after passenger jets. The proponents of WyoFlot should already have available calculations and forecasts on what economic activity would be generated in Cheyenne as a result of an ongoing taxpayer commitment to commercial air service. From that information, in turn, we could also estimate to what extent we the taxpayers will get our money's worth: will the $600,000 produce new economic activity that in turn will yield more than $600,000 in new annual tax revenue?

This last question becomes even more important given that there is more of taxpayers' money going into this project than just ours here in Cheyenne. Laramie County, the State of Wyoming and the federal government are supposedly all going to throw cash after this project. (Private funds apparently provide the residual.) This multitude of tax funding is a signal that this project cannot survive without hefty, and ongoing, support from taxpayers. There is no commercial viability in flying passenger jets in and out of Cheyenne, at least not on the terms that the city council of Cheyenne has set. As I have explained on numerous occasions, this means that taxpayers will be forced to make an open-ended, permanent commitment to subsidizing a private business.

And this is really the gist of the problem: when taxpayers enter into a capacity purchase agreement, they are on the hook for whatever that capacity will cost. We are not talking about subsidies per sold ticket - we are talking about paying for a certain plane size to fly regardless of how many passengers are onboard. This reinforces the questions about benefits to the community: will we, the taxpayers in Cheyenne, get our money back or can we expect a tax hike in the not-too-distant future?

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