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Airport privatization works for Toronto.

U.S. public officials always are on the lookout for innovative to create new revenue sources, boost local economic development, create jobs, and provide efficient services to the public. Canadian elected officials are no different.

For many years, officials in Toronto, Canada, faced a dilemma: how to build a new third terminal at the Lester B. Pearson International Airport without creating the huge fiscal stresses that often accompany large, publicly funded projects. The solution: an innovative and cost-effective public-private airport partnership that resulted in one of the largest privately funded and developed airport terminals in the world.

The Toronto Story

Five years ago, the city of Toronto and the Canadian government turned to a private sector consortium to independently finance, design, construct and operate a third airport terminal complex, now know as Trillium. In setting policy priorities for the new terminal, Canadian public officials wanted four things: reduced governmental exposure to fiscal risk; a fast-track construction schedule; creation of a new revenue source; and enhanced efficiency, safety, and security for Canadian air travellers and airline users.

Today, Toronto's Trillium terminal is a good example of what a public-private airport partnership can accomplish. Financed entirely with private capital, terminal design, planning and construction were accomplished in three and a half years, half the time estimated for a comparable publicly-managed effort, at a cost of approximately $500 million. The Trillium terminal building, opened last year, has 24 arrival/departure gates along two piers, with an additional five gates located at a satellite facility.

The terminal contains 100,000 square feet of retail and food service space, where two dozen different businesses offer products at more than eighty locations throughout the building. By 1994, Trillim terminal will host 14.5 million passengers and other visitors annually. Trillium is a tax paying business venture that leases its land from the Canadian government.

The private operator and equity partner, Lockheed Air Terminal, Inc. of Burbank, California, has a 40 year agreement and 20 year follow-on option with the Canadian Aviation Bureau to operate the facility. By soliciting private enterprise to finance, build and operate Trillium, the Canadian government received a new terminal at no cost and reduced risk to the taxpayer. In addition, the private partners provided a $2 million dollar payment to the government on contract award and an additional $28 million once the terminal opened in 1991.

Partnership Benefits

Airports are a significant city asset, worth hundreds of millions of dollars. At present, however, the value of these assets is largely locked up--cities cannot remove revenues from an airport and care unable to tax many airport business activities. The public-private airport partnership concept works on the premise that city treasuries can and should receive some direct financial benefit from their investment in an airport.

The greatest benefit to local leaders associated with creating a private-public partnership involving the sale or lease of an airport to a private company is the direct, financial return to the community. Such transactions can provide a municipality with immediate and direct funds through an up-front lump sum payment, an annuity for an specified period of time, or combination of the two methods.

Private leases or ownership arrangements also can create jobs and new and recurring sources of income by returning the airport to the local property tax rolls, creating new businesses and concessions, and boosting local sales taxes revenues. The construction of Trillium, for example, created a new and expanded airport workforce to staff aviation services, concessions stands, and retail outlets. Privately-operated airports also can move quickly to respond to changing conditions.

In Toronto, the Gulf war and global recession hit international air travel hard just as the Trillium facility was due to open. Airport operators were able to make the necessaary operational adjustments, rapidly, without impacting or harming the airline tenants or the travelling public. Finally, having the private sector lease or purchase an airport in no way impinges on government's authority to manage the airway traffic system or to oversee airport safety and security standards.

Airport Privatization Growing

Many countries around the world, and a growing number of U.S. communities, are taking a closer look at airport privatization and various forms of public-private airport partnerships. Trillium in Canada was one of the first such ventures. BAA also has acquired airports in the United Kingdom, and there are plans that call for the private development of new international airports in Greece, Hong Kong and Japan.

Private sector involvement in airport ownership and operations is taking hold in the U.S. as well. Airports in Teterboro, Morristown, and Atlantic City, New Jersey, are privately operated. Los Angeles, Philadelphia, and New York City are some of the cities that have begun to look at airport privatization options recently. In the U.S., the 1990 National Transportation Policy marked a turning point for private sector involvement in public-use transporation infrastructure projects.

The policy endorses the removal of federal "barriers to private participation in the ownership, planning, financing, construction, maintenance, and management of transportation facilities and services, while encouraging state and local governments to do the same." Similarly, the International Surface Transportation Efficiency Act of 1991 contained landmark privatization provisions that provided local governments with greater authority to contract with private companies to finance and operate transportation facilities.

Airport privatization projects to date in the U.S. have been approved on a case-by-base basis by the U.S. Department of Transportation and the Federal Aviation Administration. Federal guidelines that produce a uniform, national policy on airport sales and leases between public and private sector entities are expected sometime this year.

Conclusion

Airport public-private partnerships like Toronto's have some attractive features for local governments, especially in today's tight economy. As with any public-private venture, local officials considering airport privatization must carefully analyze the bottom line, taking a hard look at both the short-range and long-term financial implications of the dear to the community and to the public at large.

Contract agreements also must protect public safety, set standards for service qualtiy and management and operations efficiency, and contain appropriate monitoring and oversight provisions. But the benefits of public-private airport partnerships--the creation of new revenue sources,the expansion of the local tax base and local jobs, and the ability to provide flexible and efficient transportation services--may make this an "idea whose time has come."
COPYRIGHT 1992 National League of Cities
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Fletcher, Jeff
Publication:Nation's Cities Weekly
Date:Apr 20, 1992
Words:1052
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