Introduction

The existence and operation of Newark, JFK, and LaGuardia Airports are overwhelmingly important to the New York/New Jersey metropolitan region’s economic prosperity. Directly and indirectly, the aircraft industry provides jobs, wages, airport-related and regional sales. In addition, the personal income and sales taxes resulting from employees of the aircraft industry enhance local, county, and state revenue.

In addition to the economic benefits, there are economic costs which arise from the location and operation of the airports. These include direct and indirect subsidies to the airline industry in terms of tax-free bonds and assistance from economic development authorities, ratable loss not balanced by in-lieu-of rent and tax payments, and partial support of the FAA budget. Lastly, there is the potential positive and negative impact of aircraft noise on property values.

The New York-New Jersey metropolitan region’s major commercial airport system, consisting of JFK International, Newark International, and LaGuardia airports, constitute one of the world’s premier air transportation centers. The airports promote regional, national, and global growth in travel and trade and are a significant driver of the region’s economic vitality.

A recent study and related document conducted and prepared for the PANYNJ Aviation Department by the Economic Impacts Division, Office of Economic & Policy Analysis is entitled "The Economic Impact of the Aviation Industry on the New York-New Jersey Metropolitan Region." That study provides the following statistics.

In 1994, almost 77.6 million air passengers used the services provided by the region’s airport system. In addition, the air cargo facilities handled about 2.4 million short tons of freight. The impact of these activities accounted for:

• 232,630 total jobs
• $8.1 billion in wages
• $25.1 billion in sales or economic activity
• $510 million in regional sales and personal income taxes
• 2.8 percent of Gross Regional Product

Over the 1990-94 period, the Port Authority, along with businesses located at the airports, invested over $2.6 billion, or an annual average of $527 million, on airport infrastructure.

Major projects undertaken at the airports included a new International Arrivals Facility, a Monorail, roadway improvements, and terminal rehabilitation. The annual construction activity over the period gave rise to:

• 6,570 total jobs
• $251 million in wages
• $699 million in sales or economic activity
• $20 million in regional sales and personal income taxes.

One of the secondary benefits of the airport system is the spending generated by visitors who arrive in the region by air. Of the 77.6 million passengers handled at our airports in 1994, approximately 15.8 million were domestic and international visitors who came to the region for business and/or other purposes.

Spending by visitors on shopping, lodging, meals, entertainment, and local transportation supported:

• 141,070 jobs
• $3.4 billion in wages
• $10.6 billion in sales or economic activity
• $600 million in regional sales and personal income taxes.

Overall, in 1994 the combined impact of aviation operations, airport construction and tourism resulted in:

• 380,270 jobs
• $11.8 billion wages
• $36.4 billion in sales
• $1.1 billion in taxes
• 4.2 percent of Gross Regional Product

The following table presents these 1994 estimates of economic impact in 1997 dollars.

*The Air Cargo Industry Impact is included in the "Aviation Industry Impact".

NOTE: The Economic Impact is based on 1994 levels of operation.

All dollar amounts are in $Millions of 1997 dollars.

NOTE 2: The Economic Impact of P.A. Airports now includes "Airport Construction" and "Visitors To The Region".

Previous Economic Impacts were only developed for the "Aviation Industry".

• Employment of over 18,000 people
• Generation of $10.3 billion in economic activity
• $3.3 billion in wages for some 110,000 jobs derived from airport activity

In summary, the economic benefits of the three airports to the region are most significant and must be considered when evaluating routing scenarios or policy changes at these facilities.

The assessment of costs associated with aircraft operations includes dollar expenditures, unrealized income and losses related to quality-of-life degradation. The following are examples of actual and virtual costs that may be examined in an aircraft routing study:

• Cost of aircraft
• Cost of ground facilities
• Hushkits
• Re-engining
• Landing fees
• Actual construction expenditures to limit intrusive aircraft noise in homes and other buildings
• Delay costs
• Estimated effect on property values in noise-impacted areas
• Direct subsidies to aviation
• Indirect subsidies to aviation

New York-New Jersey airspace is one of the most congested in the world. Newark International Airport has been ranked as number one in the nation for flight delays. If airspace was infinite, and if there were no restrictions on flightpaths due to noise considerations and other air traffic, then costs could presumably be minimized. If minimum cost cannot be realized, the carrier incurs a virtual cost, the difference between the income under ideal conditions and the income under actual conditions. These virtual costs to carriers resulting from delays are currently figured at approximately $36/minute at Newark International Airport and JFK for domestic flights, and $58/minute at JFK for international flights.

Delays also affect the traveling public. According to FAA Air Traffic System Management - Air Traffic Activity And Delay Reports (1998), aircraft taxi-out delays at Newark International Airport averaged about 58 per thousand operations in 1997. Delays per thousand operations were about 65 in 1996, 34 in 1995, and 74 in 1994. The 1994 delays were influenced by severe weather in the winter of 1993/94.

Travel time is a major factor in selection of a mode of travel. PANYNJ reports that Newark International Airport has been rated nationally as number one, "worst in the nation," for flight delays for six of the last seven years. Newark had the greatest percentage of flight delays of the three major PANYNJ airports for the last seven years.

A report issued on July 29, 1998 by USA TODAY complements PANYNJ findings on delays. The report analyzed computer records on 5.41 million flights in 1997 at 200 airports to determine how long planes wait to take off after passengers have boarded. USA TODAY utilized records collected by the US Department of Transportation from the 10 largest airlines. The records included scheduled and actual times that each flight backed away from a gate, took off, landed and arrived at its gate.

The report focused on the time that a plane spends between leaving its gate and taking off. Airlines call this taxi-out time, and the time between landing and gate arrival, taxi-in time. For each airport, the authors calculated average taxi-out and taxi-in times for 1997.

The report ranked Newark International as the worst airport in the nation for delays with an average time of 25.3 minutes from gate to takeoff. The best hour at Newark was from 5:00 a.m. to 6:00 a.m. when there was an average delay of only 13 minutes. The USA TODAY findings are consistent with a continuing seven year trend in which Newark has registered the highest percentage of delays of the three major PANYNJ airports and one of the highest in the nation.

Despite the delays, about 30.8 million people flew in or out of Newark International Airport in 1997. The number of flights at Newark International Airport grew by about 26% between 1987 and 1997. The number of passengers at Newark International Airport grew by about 5.8% between 1996 and 1997. Growth at LaGuardia was about 4.3% for the year, and at Kennedy, about 0.6%. Most destinations available from Newark are also available from one or both of the New York airports.

We assume in this study that passengers consider overall travel time in selecting their airport. Newark International Airport has easy access by auto, bus, and soon will have a direct rail connection. This surface-transportation advantage appears to more than compensate for the higher rate of flight delays.

The amount and source of subsidies should be considered in an aircraft noise study. Subsidies may be used to ensure safe and efficient air travel. Certainly, safety and efficiency of air travel are in the national interest.

The present study takes no stand on:

• The advisability of direct subsidies to air travel
• Whether travel in general should be subsidized
• Or whether one form of transportation should be encouraged over another

However, information on subsidies puts other costs in perspective. And, the effect of subsidies in increasing operations at PANYNJ airports is of consequence to delays and to noise impact, and should be considered in future studies.

Some routes are directly subsidized to ensure service to less used airports. These

routes include only a small percentage of Newark departures and arrivals. The dollar impact of minor-route subsidies may be a "wash" for carriers; they would probably find these routes unprofitable without subsidy. If minor route subsidies provide otherwise unavailable service, then there is an incremental effect on noise impact and delays at major airports.

PANYNJ has about $8B in bonds outstanding. These are free of federal, state and local taxes. Thus, they have a favorable interest rate differential. The differential is about 1.43% for bonds due in the year 2017, about 1.55% for bonds due in 2007, and about 1.9% for bonds due in 2003. This is equivalent to a virtual cost of about $130 M/yr. in unrealized taxes. Thus, the federal, state and local governments are providing an indirect subsidy to the PANYNJ. A rough estimate is that about

$91 M/yr. of this indirect subsidy may be attributed to airport capital improvements at PANYNJ airports and that about $41 M/yr. may be attributed to capital improvements at Newark International Airport.

Continental Airlines has preliminary approval for New Jersey Economic Development Authority (NJEDA) bonds of $825M. AIRIS Newark has a similar bond arrangement to finance a new cargo facility. NJEDA has guaranteed a portion of a financing arrangement for KIWI airlines. These and other NJEDA funding represent an indirect subsidy (based on tax loss and value of EDA guarantee vs. Free-market rates) of about $16 M/yr.

Tax-free bonds are commonly used by states and communities to fund school and infrastructure construction, and for other public purposes. The tax-free status is justified in terms of division of powers by law and custom. It is assumed that tax-free status for bonds of the bi-state agency and the airline industry is justified by the need for economic development and job creation.

Note that the above calculations are approximate. The figures provided are an order-of-magnitude estimate of indirect subsidies in an attempt to put other costs in perspective. This study has not attempted a precise attribution of bonding to specific PANYNJ components. It is expected that further airport development will increase bonding. It is recommended that future studies examine this issue to determine the ratio of costs and benefits, using more accurate assessment tools. The present study takes no stand for or against issuance of tax-free bonds by PANYNJ or by agencies on behalf of airline related industry.

Newark International Airport covers about 2027 acres (1996 revised estimate). This estimate includes the airport footprint and vacant land attributed to the airport. The 1995 estimate was 2300 acres. No accurate surveys are available to give the exact acreage of airport land. The Airport property includes many restaurants, shops, and other businesses. It is expected that acreage will be increased with additional land condemnation for airport-related uses. The Newark portion of the property is carried on the tax rolls as 1260 acres, and assessed at $224.5 million. Using the current assessment factor, the true value of the Newark portion of the airport is over $1.3 billion. PANYNJ carries the entire airport on their books at a depreciated value of just under $1 billion. The actual value is much higher.

Based on the current tax rate, the potential Newark tax would be over $53.3 million/yr. Newark owns the land portion. A rough estimate of fair rent for the land portion of the airport owned by Newark is $45.5 million/yr. PANYNJ makes payments to Newark based on profit, with a minimum payment of $18 million/yr. These payments were about $18 million in 1996, $28 million in 1997, and $35.9 million in 1998.

The difference between unrealized (potential) tax and rent payments and PANYNJ payments is an indirect subsidy. A rough estimate of the indirect subsidy to Newark International Airport by the City of Newark is:

• $81 million for 1996
• $71 million for 1997
• $63 million for 1998

PANYNJ owns the Elizabeth portion of the airport fee-simple. The Authority makes a small annual in-lieu-of-tax payment. Based on acreage, the difference between unrealized tax payments and the PANYNJ payment to Elizabeth is an estimated $14 million per year subsidy by the City of Elizabeth to the Airport.

Adding the two, we get a total annual estimated Newark and Elizabeth indirect subsidy to Newark International Airport of:

• $95 million for 1996
• $85 million for 1997
• $77 million for 1998

The above figures are approximate; they are presented to give the order-of-magnitude of the contribution that Newark and Elizabeth make to Newark International Airport. This study makes no attempt to determine if the return to the two cities is fair in terms of employment and other economic benefits. Tax rates and assessment-to-true-value ratios change. Newark’s latest revaluation was 37 years ago. There is a 1974 court order directing the City to revalue real estate, and there is current pressure for revaluation from the State. It is recommended that unrealized tax and rent payments be examined in future studies (using accurate up-to-date data). This information can be used to put other costs in perspective.

Much of the following data and information is taken from Congressional Research Service (CRS) Reports to Congress (See Kirk 1998(a) and (b)).

Airports are typically public sector enterprises. They are managed as businesses, but enjoy substantial direct and indirect financial support from federal, state, and local governments. Most airport operating revenues come from landing fees, parking fees, concession arrangements, and rent from leased areas. Tax-exempt bonds, federal Airport Improvement Program (AIP) grants, passenger facility charges (PFC’s), and state and local grants are used for capital development. Federal funding for airports includes support of capital improvements intended to support policies concerning:

• capacity (construction of runways, taxiways and aprons)
• competition
• noise (noise abatement land purchases)
• safety (purchase of safety and emergency equipment)
• availability of nationwide service.

Based on data from the US General Accounting Office, the funding sources for $7.028 billion in airport capital spending in 1996 were distributed as follows:

• 58% tax exempt bonds
• 20% Airport Improvement Program (AIP) funds appropriated by Congress from the Airport and Airway Trust Fund, aka Aviation Trust Fund (ATF)
• 16% passenger facility charges (PFC)
• 4% state and local grants
• 2% airport revenue (from operations, concessions and leases)

The 71 large and medium airports in the national system relied on bonds for 62.1% of capital funding and on the SIP for 10.6%. All other national system airports used bonds for 14.2% of capital funding and AIP for 50.5%. The typical small-hub, non-hub, and commercial service airport ran a deficit in 1996.

At least 31% of AIP discretionary grants are set aside for noise compatibility planning and noise abatement and compatibility programs. The noise set-aside is $200 million for FY98.

Most FAA activities will be funded with direct appropriations. For FY99, the recommended program level for FAA is $9.478 billion, or $9.525 billion including user fees. User fees account for $47 million, about one-half percent of the total. Out of the direct appropriation, New Jersey residents contribute about $220 million to the FAA through federal taxation.

Capital and operating costs for ground facilities are paid partly by carriers and air travelers, passenger facility charges (PFCs), and partly by funds from other sources. Currently, there is a federal tax of 9% on travel between major airports and 7.5% on travel between major and rural airports. In addition, there are facility charges at some airports. For example, a round-trip flight from Newark to Washington National Airport incurs charges of $3 at each airport and $1 for each segment, for a total round-trip charge of $8. Facility charges are commonly dedicated to specific airport improvements and/or airport access improvements.

Propeller aircraft are slower than jet aircraft; as a result, propeller aircraft utilize substantial airspace and airfield space. This factor is not currently reflected in landing costs. The feasibility of a revised formula for assessing landing fees should be examined as part of a routing study. One possibility is a formula that includes substantially higher minimum landing fees for small aircraft along with some increase in landing fees for large aircraft. An increase in fees for all users could lead some carriers to reexamine marginal and overlapping service with a high percentage of empty seats. The study might predict a minimal net impact on service, travel cost, and profits. Overall airspace and airfield limitations should be considered, as well as environmental impact (including noise).

The Federal Aviation Administration has instituted airspace user fees. This user charge was successfully challenged, and the funds were replaced by a supplemental budget appropriation to the Federal Aviation Administration. A fair allocation of the costs of controlling airspace should be studied. The study should explore a challenge-proof means to recover that cost from airspace users.

There is no New Jersey sales tax on airline tickets. Airline tickets are free of state tax in other states as well. Long-distance telephone calls (an alternative to business travel in some cases) are currently subject to New Jersey tax. However, road transportation is heavily subsidized by funds other than user taxes. A 1994 Congressional study showed that road users pay only about two-thirds the cost of building and maintaining the nation’s roads. Surface transportation also imposes hidden impact costs, including air and noise pollution. Passenger rail service is also heavily subsidized. The New York to Washington Metroliner route is an exception; it shows a profit rather than a loss.

A valid aircraft routing study should examine the following topics:

• Cost of ground facilities including capital costs and operating costs
• Sources of funding
• Contributions (Subsidies) from general revenue at date of study and for future years based on projected data. (Calculations should include a dollar total for the airports in question and a dollar value per-ticket)
• The effect of subsidies on aircraft operations
• Revising the basis for charging landing fees for propeller and jet operations
• How Federal and State tax policies treat air transportation versus other forms of transportation and communications

The present study makes no specific recommendations for changing state and federal tax and subsidy policy. However, these policies may have a significant effect on air traffic. A clear picture of taxes and subsidies could help evaluate the equity of each stakeholder (airlines, air travelers, PANYNJ, the general public).

Modeling The Effect Of Aircraft Noise On Property Values

A valid aircraft noise study must include the effect of aircraft noise on property values. This determination may be based on meta-analysis of previous studies, or a new study of market data (actual sales data). Value changes should be corrected for general value changes that are independent of noise exposure. In a new study, the regression analysis should be based on dramatic rather than subtle impact differences. This recommendation refers only to the design of a study; it does not imply that small noise level changes have no significance. A linear relationship (constant loss rate) may be assumed unless the data indicate a more complicated relationship. The following steps are recommended:

• Collect data on the effect of aircraft noise on property values
• Calculate noise impact as a potential increase in value per decibel of quiet or loss in value per decibel of noise impact. Ignore levels below DNL45
• Model typical aircraft operations at the time of the study
• Plot day-night noise level contours, beginning with the DNL45 contour
• Determine the population in each DNL contour band
• Estimate property values on a per capita basis
• Estimate the total aircraft noise impact on property values for each DNL contour band. Base this impact on the average DNL in the contour band minus 45
• Add these values to obtain the total aircraft noise impact in dollars
• Express the aircraft noise impact on an annual basis by amortizing the total impact, using reasonable interest rates and a selected recovery period
• Repeat for aircraft operations with proposed route changes
• Where applicable, adjust data for predicted changes in air traffic and aircraft type

According to an FAA commissioned study: Booz-Allen & Hamilton, The Effect Of Airport Noise On Housing Values: A Summary Report, 1994, the effect of aircraft noise on housing values was 1.33% per dB of quiet. This factor is based on a study of two moderately priced, paired neighborhoods north of Los Angeles International Airport (LAX). The study found the price/noise relationship greatest in moderately priced and expensive neighborhoods. It appears that aircraft noise differed by about 14 dB in the two neighborhoods in the study. Most New Jersey and New York communities will experience smaller noise exposure changes due to routing changes. This methodology is employed in the order-of-magnitude estimate in the following section.

Sea-Tac Airport (1997) found an assessed value depression of 10.1% near the Seattle-Tacoma Airport and a value increase of 3.4% per quarter mile from the approach or departure flight track. The Sea-Tac linear regression model is:

The parameters were estimated from assessor’s data on 10 census tracts in the immediate vicinity of the airport. Distance R from the airport center was not found to have a significant effect (within study area). Significant B5 and insignificant R coefficient seems to isolate noise as important variable.

Bell (1997) gives 10 standard classifications of detrimental conditions (DC’s). Airport proximity is a ClassV DC - an imposed condition, an act or forced event that affects value, usually long-term or permanent. Bell reports 15.1% to 42.6% (27.4% avg) diminution of value due to airport proximity. Bell also studied the rental rates per square foot of office buildings. He found the LAX office market rates 19.1 to 43.3% lower than surrounding markets (and vacancy rates higher).

In summation, the FAA, through its previously noted commissioned study, as well as other investigations noted above, demonstrated that the issue of the effect of aircraft noise on housing values is real and can be quantified in dollar terms.

A preliminary analysis was performed to estimate the effect of aircraft noise on property values in the New Jersey study area.

The analysis makes use of the most current information available. The noise levels are based on the "existing procedures" measurements reported in the May 1994 Leigh Fisher Associates report. The populations are taken from the New Jersey Public Information Network 1996 estimates of resident population by municipality. The Geographic Information System (GIS) is used to determine municipality inclusion and, therefore, population inclusion within a noise contour. GIS Resource Data is from the New Jersey Department of Environmental Protection, Office of Information Resources Management. The real estate (property) values are 1997 true values provided by the New Jersey Division of Taxation.

New Jersey’s real property tax is a tax according to value. All real property is assessed according to the same standard except for qualified agricultural or horticultural land. True value is defined as what a willing, knowledgeable buyer would pay a willing, knowledgeable seller on the open market at a bona fide sale as of the statutory October 1 pretax year assessment date.

For the purposes of calculations, it is assumed that the reported populations are uniformly distributed throughout the municipalities and counties. Additionally, it is assumed that property values are proportional throughout a municipality. While this is not wholly accurate, it provides sufficient information in obtaining an "order-of-magnitude" estimate. The analysis starts with communities within the DNL45 and subsequently makes estimates at the DNL55 and DNL65 values. The bottom line dollar loss is calculated by multiplying the following factors:

• Approximate average noise level within successive contours less 45 dB (initial noise contour)
• Aggregate Real Estate True Value per Capita for the particular noise contour
• 1.33% per dB loss in real estate value based on the Booz-Allen & Hamilton, The Effect of Airport Noise on Housing Values: A Summary Report, 1994
• Approximate population within successive noise contours

The dollar loss for the noise contours considered are totaled for final loss. This value is the one used in amortization based on a given interest rate and period of recovery. The following table provides the results of this preliminary analysis.

The total dollar loss $24.8 billion amortized at 7% over 30 years is $2.0 billion per year. This is the order-of-magnitude aircraft noise impact for New Jersey residents based on the 1994 noise contours depicted in the Leigh Fisher Associates Study.

The calculated impact does not apply to current (1998) or future noise levels. Air traffic has changed in the intervening years. Also, the percentage of stage 3 aircraft is greater than that used in the 1994 study. However, we are led to the following observations:

• New Jersey residents are major stakeholders in any plan to reconfigure airspace (or decision not to reconfigure airspace).
• Subsequent studies should evaluate total aircraft noise impact, as well as changes in impact due to changes in traffic, routing, and aircraft type.
• Aircraft noise impact should be evaluated on a dollar basis, using best available modeling techniques.
• Aircraft noise impact should be compared with other costs and benefits, both on a total basis and on a per-ticket basis.

There are economic benefits and costs associated with the siting of airports and related aircraft operations. The purpose of this chapter was to indicate some of the factors that contribute to the benefits and costs related to air traffic, and to provide quantitative estimates of these items. A few of the preliminary findings noted in this chapter are listed below:

• PANYNJ airports have a significant positive impact on employment and economic activity in the New Jersey - New York region. This past year, Newark had more than 462,000 flights and 32 million passengers.
• Runway space, ground facility limitations, and regional airspace congestion limit potential growth at Newark. In 1997, aircraft taxi-out delays at Newark averaged almost 6% of operations. The cost to carriers is figured at $36 per minute of delay at Newark. Increases in departures and landings could result in a sharp increase in delay times. However, administrative controls and utilization of new technology could somewhat mitigate the delay problem.
• Aircraft noise that results in a day-night level (DNL) of 45 or higher has an affect on the quality of life. Such effects include speech interference and sleep interference. The region impacted by a DNL45 or higher includes all or part of ten New Jersey counties. Newark International Airport operations also affect residents in New York, particularly Staten Island. The selection of DNL45 as a starting point for noise analysis does not imply a recommendation for funding sound insulation of public and private buildings at that impact level.
• Between three and four million New Jersey residents live in the study area. That is, they are impacted by aircraft noise at DNL45 or higher.
• Aircraft noise can have a negative impact on residential property values. Conversely, a reduction in aircraft noise could have a positive impact on residential property values. An order-of-magnitude estimate of the impact of aircraft noise on residential property values in the study area is two billion dollars per year.
• Proximity to transportation facilities is an important consideration when selecting a home or business site. Those near flightpaths may be severely impacted by aircraft noise. The presence of an airport is one of the most important positive factors in maintaining and growing the regions economy and recruiting business, industry and jobs to New Jersey. Consequently, the presence of Newark International Airport significantly increases the value of industrial commercial and public property in the region.
• Recent payments by PANYNJ to the city of Newark in lieu of taxes and rent ranged from 18 to 35.9 million dollars per year, a small fraction of that realized on property of equal value. Payments to the city of Elizabeth in lieu of taxes are also a small fraction of the tax realized on equivalent property.
• Considering only Newark International Airport, the indirect subsidy to air travel ranges from about $134 million per year to $152 million per year. These estimates include only subsidies due to bond interest differential, tax loss to the City of Elizabeth, and rent and tax loss to the City of Newark. There are also direct minor-route subsidies to air travel, freedom from sales tax, and general tax revenue contributions to facilities.
• The general public subsidizes aviation directly and indirectly. The general public, along with air carriers, airport operators, and regulatory agencies, has a major stake in aircraft routing decisions.