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MATHER AIRPORT ECONOMICS (updated 8/5/2006) by Glen Otey, Ph.D. - Copyright July 2006
Economically, cargo operations at Mather Airport do little for us now, and growing them into a major cargo hub, as Sacramento County officials plan to do, will cause far more harm than good for residents and local businesses.
The Airport staff claims that Mather helps us by producing $174 million in revenue annually. That’s from a report they paid a Pennsylvania firm $99,000 to produce. [1] Read that report carefully and you will learn that only a small part of the $174 million stays in our economy; most of it flies off to distant air carrier offices as fast as you can say UPS.
Buying air cargo service, while necessary, is like buying electricity from out of State. It removes money from our economy! That is just the opposite of the former Mather Air Force Base or a local firm like Intel where new money flows into, and is largely spent within, the Sacramento Area. Revenue, in this case, is grossly misleading. We do know that over the past two fiscal years the County has lost about $2 million operating Mather Airport. [2] And that doesn’t include tax dollars spent on improvements.
Today, Sacramento International handles over half of our cargo and could do it all. [3] Most airports are dual-purpose: major revenue comes from passengers; freight and mail, carried in the belly of passenger planes and in dedicated all-cargo aircraft, is a secondary filler business. If Mather air cargo moves back to International, some of the 400 Mather Airport jobs would move across town. Air cargo is a very competitive business, so Sacramento regional needs will be met, regardless of which airport is used. The planned hub is not for that purpose, but for transshipment of freight to distant cities.
Well, how about a future where the expansion, now moving toward final approval, defined in the Mather Airport Master Plan creates a major West Coast or Pacific Rim Air Cargo Hub exposing many more residents to more low-flying, loud aircraft? Queries to Director of Airports and the County Director of Economic Development asking for copies of their studies on the economic impact of a cargo hub on residents have, at last, been answered. [4] There are none!
The negative side of a cargo airport centers on three closely related factors – property devaluation, degradation in quality of life and loss of economic competiveness. The loss in real estate values has been studied extensively. Quoting from “The Impact of Airport Noise on Real Estate,” by Randell Bell, Appraisal Journal, July 2001:
The body of published literature consistently reflects a real and negative impact on property market values. Some have speculated that the convenience and economic revenues from an airport serve to offset any diminution in value; nothing in the body of published literature supports this notion.
One of the most important studies was conducted by FAA in 1994. The results indicated a consistent negative impact on residential property market values, showing losses to moderately priced homes as high as 19%. This study correlates fairly well with a variety of other published studies which also show that the higher the relative price of the property, the higher the diminution in value.
The Sacramento County Airport System (SCAS) has identified a roughly 200 square mile Mather Airport Planning Policy Area where large jet aircraft can be expected to operate below 3,000 feet. SCAS has proposed that buyers in this area be required to give up their legal rights to redress losses due to aircraft over-flights. That policy is now in effect in the unincorporated portion of Sacramento County. Assuming a chiefly residential build-out, diminution in property values could run in the billions.
Aircraft noise and pollution combine to degrade quality of life – a key factor in the successful development of western El Dorado and eastern Sacramento County. It is difficult to forecast a future where the ability to attract upscale homeowners and progressive businesses has been degraded, but we can draw on the experiences of others.
Cargo Hubs in Memphis and Louisville
Data from Memphis and Louisville –the two metropolitan areas similar in size to Sacramento and having cargo-dominated airports – show that local residents have not experienced prosperity. This shouldn’t come as a surprise. Planes landing, swapping cargo, and departing again are like 18-wheelers on I-5. It’s freight passing through, generating noise and pollution, but little local business.
FedEx went public in 1978. By 1997, they were employing 130,000 people worldwide - about 25,000 in the Memphis area, their corporate headquarters and main hub. In addition to the usual hub jobs – ramp workers, cargo handlers, etc. – FedEx Memphis has the top corporate officers, major maintenance and administrative functions and a deep commitment to the community. Over this 18 year period, inflation-adjusted, median household income decreased by 2.9 percent. The value of owner-occupied, single-family dwellings increased at a rate 30% less than the national average. [5] And, over $150 million was paid settling noise claims. [6]
The story in Louisville, the main UPS hub – where over $320 million has been spent on noise issues [7] – is similar. [8] Today, these hubs are at economic dead ends. They are saturated. While Sacramento County grew by 10.5% from April 2000 to July 2004, Shelby County (Memphis) and Jefferson County (Louisville) grew 1%. [9] Sacramento homes appreciated 127% over the past 5 years, those in Memphis and Louisville appreciated by 25% and 18% respectively. [10]
No Benefit for Sacramento County
The City of Ontario has California’s fourth largest cargo airport. The median year-around, full-time worker in Ontario earned $31,664 (in 2000), $7,905 less than in Sacramento County. [11] Yet County officials are working to move the UPS hub there to Mather. [12] Can residents expect to benefit from over 30 UPS planes arriving daily when it will damage the very climate needed to attract and retain businesses and commerce? Would progressive businesses choose to locate in a hive of air cargo noise and pollution when business-friendly cities like Roseville and Lincoln, stressing quality of life, are readily available?
FedEx continues to grow, and needs to hub more aircraft in the southeast. Since Memphis is saturated, they have chosen to create an additional hub at Piedmont Triad Airport in North Carolina. A parallel runway is being constructed, and the resulting configuration will handle sixty-three cargo aircraft daily. About 1,500 workers will be employed. Only one third will be full-time; the other 1,000 will be part-timers. [13]
A lesson to be drawn is that air cargo hubs have a finite capacity; that is, they hit an economic dead end; and at full capacity, a Mather hub would likely employee about the same number of people as FedEx at Triad. [14] Unlike most businesses in Rancho Cordova, where employment has now reached 65,000, the hub would be “maxed-out
Contrast a Mather Hub, having about 1,000 full-time equivalent employees, making $20-some thousand annually, with Rancho Cordova’s Franklin Templeton, employing 1,159 people in an award-winning environment, [15] or the 13,500 new jobs to be added to the professional and business service sectors of our region alone over the next few years. [16]
Some acknowledge that the cargo handler and ramp personal jobs at the planned Mather Pacific Rim Air Cargo Hub would matter little to our economy, but claim that manufacturing jobs would be drawn to our region in significant numbers. If this were true, why would Memphis, with 25 times as much air cargo, have fewer manufacturing jobs than Sacramento? [17] It’s also unlikely that a hub would produce many high-paying desk jobs since modern communications facilitate doing most related information tasks from remote (and lower paying) locations. [18]
It is quite possible that a cargo-dominated Mather Airport will continue to lose money. [19] Rising oil prices may result in a shift toward cheaper alternatives, such as trucks and passenger aircraft, and seriously curb projections for all-cargo operations. The lowest cost freighter cannot come close to matching the allocated cost of cargo carried in the belly of passenger planes. [20] In the bigger picture, the number of people employed in the air transportation sector nationwide decreased 17.5% from 2000 to 2004. [21]
Private enterprise rescued our economy from the setback of military base-closings. More than 200,000 jobs were created in the six county greater Sacramento area over the past decade. [22] The Mather hub wasn’t needed, couldn’t have generated an economic resurrection, and would have damaged the very features that have made Sacramento attractive to businesses and commerce-stimulating retirees. The service and retail sectors led Sacramento County's resurgence.
Table I compares economic growth indicators between Sacramento County (without a Mather hub) and two counties with metropolitan areas similar in size to Sacramento and having cargo-dominated airports.
Memphis and Louisville residents have not experienced prosperity despite the presence of cargo hubs in their areas. Employment in Sacramento County increased by 15.6% but jobs were eliminated in the areas surrounding the Memphis and Louisville cargo hubs. Similarly Sacramento experienced 29.5% sales growth, much higher than in Memphis and Louisville.
Table 1 - Growth in Retail Trade
Employees Sales (Billions of 1997 $’s)
1997 2002 1997 2002
Sacramento 51,962 60,085 9.50 12.30 County+15.6% +29.5%
Shelby Co. 56,612 50,482 8.96 9.09 (Memphis, TN) - 10.2% + 1.5%
Jefferson Co. 47,517 45,523 7.20 7.61 (Louisville, KY) - 4.2% + 5.7%
Source: U.S. Economic Census 1997 and 2002 – NAICS Basis
The meagerness of Mather cargo operations in our economy is clear and the danger of growing them into a major hub is apparent. There is no conceivable benefit from a Mather cargo hub that would offset the losses in property value, quality of life and economic competitiveness. All logic says that this ill-conceived air cargo hub plan should be buried once and for all.
Notes and Sources
[1] Mather Airport revenue: “The Local and Regional Economic Impact of Sacramento County Airport System,” Martin Associates, 10/1/03. Mather revenue and direct jobs: Exhibit VI, p 27. Revenue staying within the Sacramento regional economy: p 15.
2. [2] “The Mather losses, offset by revenues from other county airports, were $1.6 million in fiscal 2004 and nearly $500,000 through last June. But Mather, aided by new leases, is likely to break even in 2006, Leonard [Rob Leonard, SCAS COO] said.” SacBee, “Boost in Mather flights expected,” 1/29/06. What Leonard didn’t say is that some of the Mather Airport leasing deals are for non-aviation uses. In other words, the County government is competing with the private sector in the space leasing business
3. [3] In the 12 month period ending July 1, 2005, International handled 66,075 tons of air freight; Mather handled 62,587 tons. Sacairports.net.airmailarchive.
4. [4] “Though we have no economic impact studies related to the potential development at Mather as a regional cargo hub ..” 3/23/05 e-mail, entitled, “Mather Cargo Hub Economics,” M. Newhouse, Sacramento County Airport System.
5. [5] FedEx headquarters and main hub are located in Memphis, Shelby County, Tennessee. FedEx went public in 1978. By 1997, revenue was close to $12B and employment was 130,000 worldwide. (FedEx.com Archives: 1997 Press Release.) In the period from 1979 to 1997, inflation-adjusted median household income in Shelby County decreased by 2.9%. (“County and City Data Book,” U.S. Department of Commerce, 2000, adjusted for Bureau of Labor Statistics Consumer Price Index) The median value of an owner-occupied, single-family house increased at a rate less than two thirds the national average from 1980 to 2000. http://censtats.census.gov/data/CA/05006067.pdf.)
6. [6] “In 1989, residents of neighborhoods surrounding the airport filed a class-action suit...charging that noise from the airport was destroying their quality of life and property values.” The Memphis/Shelby County Airport Authority spent $120 million to buy and raze 1,400 houses. In July, 1998 U.S. District Court Judge Odel. Horton approved a $22 million settlement of the suit. “The Memphis Flyer,”12/10/98. Also see Memphis Commercial-Appeal editorial, 7/2/98.
7. [7] Over $320 million has been spent in Louisville on noise issues. www.louintlairport.com/raa/asp.
8. [8] A comparison of Memphis, Shelby County, Tennessee and Louisville, Jefferson County, Kentucky, the main eastern hub for UPS employing over 5,000 people, (“U.S. News and World Report, 1/26/04) shows them to be two peas in the same economic pod: 2002 population 1,160,000/1,039,000; 2003 average household income, $46,253/$46,230; 2003 median house price, $130,900/$119,800. (“Cities Ranked and Rated,” B. Sperling and P. Sanders. Wiley Publishing, 2004) Median household income is 10% less than Sacramento County. (www.uscensus.gov-2000, Table DP-3)
9. [9] Population growth: U.S. Census 2004 Quick Facts 4/2000 to 7/2003, Cities of: Memphis -0.6%, Louisville -2.4%. 4/2000 to 7/2004, Shelby County 1.2%, Jefferson County 0.9%, Sacramento County 10.5%.
10. [10] Home appreciation: “Smart Money,” December 2005, pages 88-89.
11. [11] The median year-around, full-time worker in Ontario, CA earns $31,664 vs. $39,569 for workers in Sacramento County. (www.uscensus.gov-2000, Table DP-3)
12. [12] “Right now, the UPS mini hub is in Ontario, down near Los Angeles. We’re basically talking to UPS about a better airport, with less congestion.” County Economic Development Director Paul Hahn, as quoted in “Fly the Prosperous Skies of Sacramento County,” Comstock’s Business, 4/04.
13. [13] The saga of the FedEx hub at Piedmont Triad Airport, NC is given at News- Record.com. It’s worth noting that opponents, through legal action, have delayed the hub opening from 2003 until 2009. For employment estimates, Google “FedEx Triad Airport” and click on “FedEx Fact Sheet.”
14. [14] A similar number is given in a 9/28/01 study for SCAS by Economic and Planning Systems entitled, “Mather Airport Economic Analyses” which projects 1,376 jobs for a “West Coast air cargo sort hub.” Or course, many of those jobs would be part-time.
15. [15] Franklin Templeton won the Sacramento Workplace Excellence Leader Award, sponsored by the Sacramento Area Human Resources Association, in the large, for-profit company category. “The Sacramento Bee,” 4/7/05.
16. [16] “Smith expects 13,500 new jobs to be added in the professional and business service sectors [of the four county Sacramento region] alone in the next 2 ½ years.” Sacramento Bee, 6/29/05, reporting an Eberhardt School of Business forecast.
17. [17] Manufacturing jobs: U.S. Economic Census 2002: Memphis Metro Area, 46,851; Sacramento Metro Area, 50,524. Comparing U.S. Economic Census data, from 1997 to 2002, Memphis lost over 11,000 manufacturing jobs. In Louisville, a traditional manufacturing center, manufacturing employment remained constant over the 5-year period, but manufacturing receipts decreased 26%.
18. [18] An example of modern communications allowing information jobs to be done from distant (and lower paying) locations is DHL’s main U.S. hub amid Ohio’s corn fields. Operations there are controlled from the DHL operations center in Prague. “Business Week,” December 12, 2005.
19. [19] “A Feasibility Study of Regional Air-Cargo Airports,” Federal Aviation Administration Report to Congress, August 1991. This surprisingly candid report comes from an agency created to foster aviation. It states, after citing several failures: “The question remains whether an air-cargo airport could succeed if it were developed for other reasons besides relieving congestion, such as to encourage land development or stimulate economic growth.” This raises the specter that even after spending over $100 million on airport expansion and inflicting damage to the economic well-being and quality of life of residents, the cargo hub could be a money-losing failure.
20. [20] “Air Cargo Market Study for Sacramento County Airports,” Sabre Airlines Solutions, January, 2005.
21. [21] U.S. Bureau of Economic Analysis (www.bea.gov) Table 6.5D, Air transport employment was 589,000 in 2000 and 486,000 in 2004.
22. [22] Employment in the six-county greater Sacramento region grew by 212,000 over the decade ending in 2005. www.sactoedc.org, Fig. 3.
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