Opposed to an El Toro Airport as a Public Expense? But It Isn’t

The Orange County Taxpayers Assn. (OCTax) recognizes that a concern about the proposed El Toro airport is that “taxpayers can’t afford it.” In reality, an El Toro airport will cost taxpayers little or nothing.

Taxpayers don’t pay for airports. For proof, look at your tax bill. There is no entry for John Wayne Airport. John Wayne is self-funding, creating no cost or risk to Orange County taxpayers. Even infrastructure improvements nearby (such as improvements to MacArthur Boulevard) are made at no additional cost to taxpayers. They are funded by bonds secured by the tax increment generated by the Santa Ana Heights Redevelopment Agency, which includes the airport and many airport-related properties.

If taxpayers don’t pay for airports, who does? Passengers do. Your ticket price includes a 10% user fee, of which 8% goes to the FAA’s Aviation Trust Fund. Grants from the FAA will pay for the planning and construction of the El Toro airport. Projects that are ineligible for grants will be funded through tax-exempt revenue bonds, which will be secured by money from airport operations (including landing fees, possessory interest taxes on airport lanes, terminal rentals, ramp fees, airplane overnight fees, commissions on parking, and airport vendor sales). Investors, not taxpayers, buy revenue bonds and assume all risk. Opponents of El Toro probably assume it would be financed by general obligation bonds (such as school bonds), which would be secured by taxpayers. You pay for schools whether you have kids or not. If you don’t use the airport, you don’t pay for it.

Taxpayers are even immune from current airport planning costs. John Wayne and the FAA aviation account, not taxpayers, are paying for the planning of the two-airport system. Costs will be capitalized into the El Toro financing structure. There is no cost to taxpayers; in fact, John Wayne contributes to local government by spending $11 million per year on police, fire and other services.

OCTax investigated the risk to investors and taxpayers if El Toro should happen to be less successful than projected. Because the city of Denver has the nation’s newest major airport, we spoke at length with Denver’s director of finance, and we carefully reviewed Denver’s revenue-bond financing documents. We found that taxpayers pay nothing and are not at risk. Denver’s bond prospectus states that “ . . . the bonds are secured by the net revenues of the airport. Neither the credit nor the taxing power of the city is pledged to the payment of the bonds.” OCTax would insist that similar language be incorporated into the financing of El Toro. Every issue of Denver’s revenue bonds (even those made necessary by baggage handling cost overruns) sold out in an hour. Denver International Airport earns 150% of what is needed to pay annual interest on its debt, and it nets $33 million per year.

OCTax looked into the effect of airports on property values. According to a survey of various cities by Lou Masotti of UC Irvine, “Evidence shows that residences beyond 2.3 miles from the end of the takeoff runway should experience no negative effects on property value. . . . Such homes could appreciate faster than residences farther away, because some people like the convenience of living near an airport.” OCTax estimates that there would be no homes under the planned flight path for takeoff within 14 miles of the northbound runway at El Toro, and seven miles to the east.) In Dallas, OCTax discovered that some of the most expensive homes are those closest to Dallas-Fort Worth Airport. We visited North Carolina’s booming Research Triangle Park and found that the highest rents are commanded by properties nearest Raleigh-Durham International Airport. Locally, some of Orange County’s highest property values are near John Wayne--for example, the median home price in Newport Beach was $470,000 last year. According to a study by Experian RES, in the last six months of 1997 property values within seven miles of El Toro rose 4.1%, compared with 2.4% elsewhere in the county, despite the advent of the El Toro airport.

Economic activity generates taxes that enable a community to pay its bills. For example, Louisville recently enlarged its airport. According to the Louisville Courier-Journal (June 22, 1997), “the most dramatic economic success story in our community’s 209-year history is the Louisville International Airport. No public facility has contributed more to the economic growth of our community by creating and securing jobs for thousands of our citizens.”

In summary, taxpayers don’t pay for airports; passengers do (and airports provide economic benefits to their communities). OCTax can find no other proposed reuse of El Toro, including the competing Millennium Plan, which will not require huge subsidies of taxpayers’ dollars.