Tuesday, August 29, 2006

Smokestack Airline Chasing

Saw this article today in the Post-Gazette regarding an "exciting opportunity" for the Pittsburgh Region:

US Airways wants Pittsburgh, Charlotte and Phoenix to compete for a new $25 million flight operations center employing 400 to 600 people -- a project that would supplant operations currently spread between Pittsburgh and Phoenix...

US Airways, the product of a merger last year between the old US Airways and America West Airlines, wants a new, single-story building of 60,000-75,00 square feet, with 6 acres of land and room to expand, if needed. The building should be low profile and high security -- befitting its status as the nerve center of the airline, controlling all flights for US Airways aircraft worldwide. The airline also wants to know if "there are tax abatements or other incentives that would make one location preferable to another," including "reduced building and equipment costs" and "operating expenses."

Last fall, a union official briefed by the airline said there was a "90 percent" chance the center would end up in Phoenix, resulting in the closure of the Pittsburgh center, located at RIDC Park West near the airport, and hundreds of local job losses. US Airways already has eliminated more than 9,000 local jobs while struggling through two recent bankruptcies and a severe industry slump since 2001.
The only way I could be less optimistic about this "offer" is if it was sent to me in an email by a dethroned Nigerian prince.

It immediately smacked me of pre-1982 economic development policies which rewarded expansion and attraction with land, capital, cheap labor, and low taxes. Of course, this type of policy does nothing to tap into the intrinsic value of a region's quality or productivity, and basically bribes companies to stay.

So, the $64,000,000 question: should the Pittsburgh Region even bother and, if so, how much should it care? Answer: less than $64,000,000.

OK, seriously, how much do we really think it's worth trying to lure a company that (1) already screwed us royally by wiping out a couple thousand jobs and (2) may be bankrupt at any moment anyway?

Assuming that the office is fully staffed at 600 people, and they're all making around $45,000 a year (a good median number), the tax revenues to the State and the Municipality should yield a net present value tax revenue of around $1.2 Million over 10 years... if I remember my math right. That, of course doesn't take into consideration the multiplier benefits of any new construction labor or the increase of property tax revenue. UPDATE: The ADB's ability to do simple math gets pwn'd by some guy at UCSUR; see comments for details.

But even with all the nebulous multiplier effects and unknown projected benefits that may accrue, here's my policy recommendation: 3 consultants, 2 days, and one nifty Power Point presentation. Total cost: $3,000.

...$3,040 if they agree to my demands for a bottle of bourbon.

No comments: