Legislative Program Review and Investigations Committee

Chapter I

Background

Economic Development and Airports

Prior to airline deregulation, the federal government controlled the routes airlines would fly; thus, the growth of airports was largely dependent on where the federal government had assigned airline operations. After deregulation of the airline industry in 1978, the growth of airlines and airports became market-driven and was accelerated with the development of the global economy. The economic development benefits of airports are clear.

The extent of economic development created by airports is assessed not only in terms of passengers and freight but also the stimulation of economic growth an airport can spur locally and regionally. Studies have defined these impacts as direct, indirect, and induced. These are categorized below:

• Direct benefits accrue from activities and businesses located at the airport from the airlines to concessions and fueling of aircraft;
• Indirect benefits are realized by off-airport transactions of passengers and shippers at locations like hotels and restaurants, travel agencies, and tourist attractions; and
• Induced benefits are calculated using a multiplier to estimate the successive rounds of spending generated by the direct and indirect spending. For example, employees of both on-airport and off-airport businesses spend money on cars, pay taxes, and go to movies. While those benefits are difficult to calculate, studies have pegged the multiplier effect between 0.4 and 2.4 of the direct and indirect monetary benefits.

Airports act as an economic catalyst for two reasons. First, airports bring the traveling public into and through a region. Those travelers spend money at the airport on parking, food, and retail items. If the travelers stay in a region, they purchase lodging, transportation, food, and entertainment.

Second, businesses wish to locate close to a growing airport because of its benefits: a faster mechanism for distributing goods and services; help to grow existing industries; and increasing economic efficiency. Air transport reduces the cost of trade and opens new market opportunities.

According to information issued by the Air Transport Action Group (ATAG), an independent coalition of organizations representing the air travel and transport industry, in the mid-1990s more than 1.25 billion passengers traveled worldwide by air each year and well over one-third of the world's manufactured exports (by value) were transported by air.

Air travel and transport is a growth industry. Worldwide passenger and freight traffic are expected to increase at an average annual rate of about 5 to 6 percent per year, outpacing the global gross domestic product. By the year 2005, the ATAG predicts the number of air travelers could exceed 2.5 billion a year.

Nationally, in 1997 there were 630 million enplaned passengers. By 2009, the ATAG estimates that this number will grow to just under one billion, an increase of almost 60 percent. The annual growth rate is anticipated to be about 3.6 percent from 1997-2009, while the U.S. GDP is expected to increase 2.3 percent annually. Thus, air travel is predicted to outpace growth in the economy by more than 1 percent per year. The factors spurring the growth are numerous and include:

• increase in U.S. wealth as measured by GDP;
• ability of air carriers to adjust supply with demand to maximize revenues;
• introduction of low-fare carriers, forcing higher-cost air carriers to reduce their unit costs;
• increasing industry realization that business travelers consider costs of air trips;
• increased efficiency and productivity; and
• declining real fares.

Airports are no longer viewed as just transportation facilities. They have become "big business", and growth of an airport is viewed as an engine for driving the economy of a region

Why the Focus on Bradley Now?

Bradley International Airport has been under a strong spotlight for a number of years by a variety of groups. This section summarizes why the focus is on Bradley and what groups are concentrating on at the airport. In a later section, a summary of the resulting findings and proposals is discussed.

In 1991, while Connecticut was in the middle of a deep recession, the legislature created the Connecticut Economic Conference Board (CECB) to provide economic advice to the Governor and General Assembly. The board began looking for ways to revitalize Connecticut's economy; the idea for industry clusters was first explored. The concept was looked upon skeptically at first, but by 1995 a newly organized Department of Economic and Community Development (DECD) created six industry clusters under the auspices of DECD's industry cluster division.

These efforts were reinforced by legislative action in 1996, when P.A. 96-252 was passed calling on DECD to move forward with industry cluster economic development. In 1997 Governor Rowland recruited senior executives of Connecticut companies to serve on industry cluster advisory boards. In February 1998 the industry cluster advisory groups issued a report, Partnership for Growth: Connecticut's Economic Competitiveness Strategy, which the governor and others hailed as the most important economic plan for the state in 50 years.

As an outgrowth of the study, the Governor, via executive order, appointed the Governor's Council on Economic Competitiveness and Technology (known as the Governor's Council) in December 1998 to coordinate the efforts of the industry advisory clusters. Using the findings of the "Partnership for Growth" report, the council identified enhancement of Bradley International Airport as a primary project necessary for Connecticut's economic growth. Business leaders on the council and industry cluster groups recognized Bradley had made progress, particularly in introducing low-fare airlines. But, based on experience and travels, these corporate leaders believed a new vision and possibly a new governance structure should be explored.

A Transportation Infrastructure Advisory Team was established to explore Bradley's strategic significance. It first commissioned a study by Frasca and Associates, a New York-based management consulting firm, on how airports are managed in the United States and globally. The report, issued in December 1998, indicated many airports are undergoing dramatic change in a global economy where rapid transportation is crucial.

After issuance of the Frasca report, the Leadership Committee of the Governor's Council retained Schiphol Project Consult B.V., an airport management firm headquartered in Amsterdam, to evaluate Bradley, make findings on its strengths and weaknesses, and issue recommendations to enhance its effectiveness.

Concurrently, another group of public and private leaders was formed in 1998, known as the Connecticut Regional Institute for the 21^st Century. The group wished to better understand and develop the role of regions in stimulating Connecticut's competitive position in the new global economy. The institute believed the foundation for a growth strategy for Connecticut should be developed based on local, regional, national, and global networks. In early 1999, the institute hired Michael Gallis, a transportation planning and design expert, to conduct such a study, and the report was issued in December 1999. The author states "Bradley potentially is the most significant facility influencing Connecticut's development within the `New Atlantic Triangle'¹ and how the state and the Hartford/Springfield metropolitan region connect to the North American continent and the world."

The Schiphol Report was also released in December 1999, and in some areas, was highly critical of Bradley's management and operations under the Connecticut Department of Transportation (DOT). The department disagreed with many of the report's findings and with its major recommendation on restructuring the governance of the airport. With no consensus on how to proceed, the Governor's Council unanimously passed a resolution establishing a Bradley Advisory Group (BAG) to:

• help reshape Bradley's mission to reflect the airport's role as an economic engine for the region;
• recognize the strategic need for Bradley to foster a more entrepreneurial culture to respond to the rapidly evolving competitive business environment and its transportation needs; and
• develop recommendations on the best governance and management structure to achieve this mission.

The Bradley Advisory Group, consisted of five business leaders, and top DOT, DECD and OPM staff. Members of the General Assembly's Transportation Committee also attended meetings. An associated work team, with similar representation, was also established to assist the BAG and to determine areas of agreement as well as disagreement concerning Bradley's mission and structure. When the Bradley Advisory Group was created it was intended to have recommendations ready for the legislative session. There was no clear consensus of what those proposals should be, so no legislative action was pursued regarding Bradley during the 2000 session. Instead, BAG issued a summary report in April 2000 containing governance and management options for Bradley.

The options proposed were communicated in writing from the Leadership Committee of the Governor's Council to the governor and legislative leaders in early May, but after the legislative session ended.

Soon after that, the governor issued an executive order (Executive Order No. 18) on May 16, 2000, creating a Bradley International Airport Executive Council to advise the Governor on issues relating to the future of Bradley International Airport. The Executive Council consists of seven members -- six public members, and the DOT commissioner as chairman.

The Bradley Airport Commission (BAC) in July 2000 sent a resolution to the governor calling for a strong Bradley Board of Directors, comprised of business leaders, and the commissioners of transportation and economic development. The commission was created in 1982 to: oversee the development of Bradley according to the master plan; develop policies with the DOT to ensure airport development meets the social, economic, and environmental needs of the region and the state; and provide a forum for addressing concerns about the airport. The commission had become frustrated with DOT's perceived failure to consult the group on important matters affecting the airport, submit quarterly reports to the BAC on master plan development as statutorily required, and its resistance to BAC advice when given.

In transmitting the resolution to the governor, the BAC recognized that if a strong board of directors was developed for Bradley it would likely mean the demise of the BAC, but felt the BAC, as it is currently structured and functioning, is ineffective, and that significant change is needed.

Legislative Background

During the 1970s, Connecticut experienced difficult financial years. Little was spent on capital improvements to public facilities, including the state-owned Bradley airport. By 1980, top legislative leaders recognized that a way had to be found to infuse new capital into the state's major airport, and in 1981 the legislature approved a $100 million development program. As part of that program, there were discussions about creating a quasi-public authority to oversee the operations at the airport. Instead, P.A. 81-406 established Bradley as a separate enterprise fund, which removed Bradley from the regular state budget process, and authorized the issuance of bonds for capital development that would be paid off with revenues form the airport.

As part of the 1981 legislation, the General Assembly made key findings and determinations that are incorporated in Bradley's enabling legislation. The General Assembly found that the growth of Bradley is an important inducement for:

• industrial and commercial enterprises to remain or locate in this state;
• an increase in commerce, welfare, and prosperity for the state and its residents.

The legislature determined that in order for this to occur, several steps in the acquisition and construction of a modern and improved Bradley International Airport were necessary. The legislature listed them in statute; they include but are not limited to:

• renovation and expansion of passenger terminal facilities;
• improvements to sewer and water delivery systems;
• installation of enplaning and deplaning devices;
• construction of new auto structures;
• improvements to the runway and taxiway system;
• expansion of the apron area adjacent to passenger terminal; and
• construction, renovation, and expansion of any self-sustaining special facilities, including a hotel, as well as those for cargo, aircraft maintenance, and other aviation related functions.

The statutory findings also declared as a matter of legislative determination that the necessity of providing such improved facilities at Bradley is in the public interest. In other words, the legislature determined almost 20 years ago the conditions and operations at Bradley are closely tied to the economic development and public interest of the state.

Financial management. To finance the improvements at Bradley, the legislature established Bradley as a separate entity for budgeting purposes and authorized the Bond Commission to issue bonds (up to a legislatively authorized limit) that Bradley would pay back with airport-generated revenue. For a more detailed discussion of bonding authorizations for Bradley, see Chapter III.

The legislature also statutorily authorized the commissioner of the Department of Transportation to fix, revise, charge, and collect rates at Bradley and to contract with any person, partnership, or corporation². The charges and fees collected along with other revenues are to: 1) pay the cost of maintaining, repairing, and operating Bradley; 2) pay principal and interest on any outstanding revenue obligations of the state; and 3) maintain reserves as required for securing the bonds.

While the Bradley budget is exempt from the regular budget-setting process, the original 1981 statute required the DOT to prepare and submit the airport budget for review and approval by the Secretary of the Office of Policy and Management. Statutorily, the airport's budget must include the estimates of revenue from all sources and how those will meet estimated expenditures. While not required by statute, contracts with airlines require that Bradley's budget also be approved by a majority of the airlines that originally signed the bond obligations in 1982.

Further the statute is clear that Bradley operations must comply with all provisions of the general statutes governing state employees and state property, and that all pension and retirement benefits continue even after Bradley's 1981 designation as a special enterprise fund. Thus, all personnel and payroll, contracting, and purchasing must follow state procedures.

Bradley Airport Commission. Thus, while the 1981 legislation places the DOT commissioner clearly in charge of Bradley, it does so with limitations as discussed above - legislative bonding authorization; Bond Commission approval for financing capital projects; approval of budget by OPM; and adherence to state procedures related to personnel and property.

A year later, however, the General Assembly created (P.A. 82-316) the Bradley Airport Commission within the Department of Transportation for administrative purposes only. It directed the commission to:

• oversee the development of Bradley International Airport in an expeditious and efficient manner according to the airport master plan;
• develop policies in coordination with the Department of Transportation to ensure airport development meets the social, economic, and environmental needs and concerns of the surrounding communities and region as a whole along with the economic needs of the state; and
• provide a forum for addressing the issues, needs, and concerns of the users of the airport and the general public.

The commission initially consisted of 15 members, but was increased to 17 members in 1991. The Governor appoints five members; two members are appointed by the president pro tempore of the Senate; one by the Senate majority leader; one by the Senate minority leader; two members by the speaker of the House; another by the House majority leader; one by the House minority leader; and one member from each of the four towns surrounding Bradley - East Granby, Windsor, Windsor Locks, and Suffield. No member may be a state employee in a policy making position, and no member may have a financial interest in the airport or any of its concessions. The commissioners of transportation, economic development, and environmental protection all serve as ex officio nonvoting members of the commission.

Bradley Airport Profile

Bradley International Airport is situated on 2,358 acres located mainly in the town of Windsor Locks, but the airport also occupies parts of Suffield, East Granby, and Windsor. Although its primary service area coincides with the I-84 and I-91 transportation corridor, the airport draws passengers from all of Connecticut, western Massachusetts, and southern Vermont.

Bradley operates two passenger terminals, three concourses, and 28 gates. It has three runways and is capable of handling any type of commercial aircraft currently flying, including Boeing 747s. Through several lease and build agreements with private operators the airport offers facilities for corporate and private aircraft and over 400,000 square feet of warehouse space for cargo processing.

Bradley International Airport is by FAA classification standards a medium-sized airport, the second largest in New England behind Boston's Logan International. In 1999, it ranked as the 52^nd busiest U.S. airport in terms of passengers, 34^th in air-cargo tonnage handled, and 69^th in flight operations.

While Bradley is operated by the state Department of Transportation, the task of performing airport services falls mostly on private businesses. In addition to the air carriers present at the airport, several industry related companies provide such services as aircraft maintenance, food preparation, baggage handling, car rentals, lodging, and ground transportation. There are several private sector firms under contract to DOT to operate parking facilities, terminal concessions, and provide janitorial and related maintenance services.

One measure of the degree of private sector involvement at Bradley is the ratio of state employees to the total workforce. Excluding the state troopers providing police services under a contractual arrangement with the airport, only 122 of the approximately 4,500 individuals working at Bradley are state employees. All of these 122 workers are DOT employees, most engaged in maintenance (44) and crash, fire, and rescue service (35) functions.

Currently, nine major, five low-fare, and six regional carriers provide passenger service at Bradley. Combined, the 20 carriers account for 315 arrivals and departures on a typical day. The airport offers nonstop connections to 41 cities and one-stop, single-plane service to 35 others. In addition, charter airlines provide seasonal flights to the Bahamas, Caribbean, Mexico, and other destinations.

Table I-1, shows the airlines providing scheduled service at Bradley, the number of flights offered, and selected destinations with direct flights.

A key measure of an airport's growth is enplaned passengers, which is the number of passengers boarding an airplane and departing from the airport. Figure I-1 shows the number of enplaned passengers annually from 1993 through 2000. As demonstrated by the trend line, Bradley experienced steady growth throughout the period. Bradley's average annual growth rate over the past eight years was approximately 6 percent, which compares favorably with the national rate of roughly 4.5 percent.

Another measure of airports in terms of their size and economic importance to a region is the amount of cargo processed. As noted above Bradley ranked 34^th nationally in cargo processed in 1999. Currently, 10 carriers including Airborne Express, Arrow Air, BAX, DHL, Emery Worldwide, Express One, Federal Express, Kitty Hawk Tradewinds, and UPS provide air-cargo services at Bradley.

Below, Figure I-2 illustrates the amount of cargo processed annually at Bradley. As the figure shows, the quantity of cargo handled increased in six of the last eight years. Over the entire period growth averaged a modest 3.4 percent annually.

The number of air operations is a third measure used from time to time to describe airports. These data are not referenced as frequently as data on enplaned passengers and cargo, and as a result are not easily available. Also, sometimes air operations refer to total landings and take-offs at an airport, other times the data exclude general aviation and military aircraft operations.

Operations data from 1996 through 2000 were available for Bradley and are graphed in Figure I-3. They include data on all commercial, private, and military arrivals and departures. Similar to the cargo data, the operations statistics show Bradley experienced a steady increase in aircraft activity over the period before dropping in 2000.

¹ The New Atlantic region is the area within New York, Boston, and Albany, N.Y., taken form the Gallis report, issued in December 1999.

² Effective July 1, 1997, the legislature statutorily exempted off-airport parking operators from paying more than 5 percent fees on gross revenues until July 1, 1998, and 4 percent after July 1, 1998.

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