AirTran Holdings (AAI)

III. REVENUE, INCOME AND TAX IMPACTS CREATED BY MKE AIRPORT ACTIVITY

The movement of passengers and cargo via MKE generates revenue for firms in each of the five categories of airport-related activity. For example, in the airline/airport service category, revenue is received by catering firms providing services to the airlines, and by airport tenants who sell retail merchandise to passengers in the airport. In the freight transportation category, airlines receive revenue from moving the air cargo to and from the airport and freight forwarders receive revenue from arranging air transportation for the cargo. Similarly, the rental car agencies and the firms providing ground transportation receive revenue from transporting passengers to and from the airport, while contract construction and consulting firms receive revenue from the airport and airlines that have contracted these services. In the hotel/restaurant/visitors service category, local service and retail firms receive revenue from passengers staying overnight in the Milwaukee metropolitan area.

Revenue generated by airport activity is dispersed throughout the economy in several ways. For example, gross revenue is used to pay employee salaries and the whole range of taxes, it is distributed to stockholders, and it is used for purchases of goods and services (as described in the discussion of indirect job impacts in the last chapter). Only part of this revenue can be traced geographically with any degree of accuracy, the portion of the revenue paid out in salaries and state and local taxes. These impacts are addressed in separate sections of this chapter.

It is useful to estimate the revenue received by each category of firms involved with airport activity because the distribution is quite different from that of employment. However, only a portion of the revenue can be definitely traced to uses within the Milwaukee metropolitan area economy. The portion of revenue paid in salaries and re-spent within the Milwaukee regional economy or paid in taxes by individuals, and state and local taxes paid by firms, represents an impact that can be traced as remaining in the regional economy.

In 2005, passenger, air cargo and airport construction activity generated $977.4 million of business revenue to firms providing services at the airport. Exhibit 4 indicates the distribution, by economic impact sector, of the $977.4 million of revenue generated by airport activity at MKE.

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Exhibit 4

Distribution of Revenue

By Sector

As with the employment impact, the majority of revenue generated by airport activity is concentrated in the airline/airport service category, followed by 18.9 percent with the freight transportation sector.

An estimated total of $262.7 million was paid in wages and salaries to the 6,341 direct employees. This income impact is estimated based on the average wages and salaries for each job category multiplied by the corresponding job impact in that category. The spending of this personal income within the Milwaukee metropolitan area creates the additional employment estimated as induced jobs in Chapter II, which results in an additional $318.2 million of personal income and consumption purchases.

Respending of income within a region is measured by a regional income multiplier. The size of the multiplier varies by region depending on the proportion of regional goods and services purchased by individuals. The higher this percentage, the lower the income leakage is out of the region. Based on data provided by the Bureau of Economic Analysis, for every one dollar earned by individuals in the Milwaukee metropolitan area, another $1.21 is spent in the region. Hence, the personal income multiplier for the Milwaukee metropolitan area economy is 2.21.

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It is to be emphasized that the re-spending effect measures the total respending impact in the Milwaukee metropolitan area. The induced jobs, which are generated by this respending of the direct income, only include jobs generated at the retail and wholesale level due to consumer purchases, since it is assumed that these jobs will most likely occur in the Milwaukee metropolitan area. In addition to these induced retail and wholesale jobs, there are also additional induced and indirect jobs created to support purchases by those induced jobs in the wholesale and retail sectors, i.e., a second round of induced and indirect jobs. These second level induced and indirect jobs are not estimated, since it is not possible to identify with any degree of defensibility the geographic location where these second round induced and indirect jobs are created. Because the total number of induced and indirect jobs (second, third and fourth levels, etc.) generated by airport activity is not estimated, it is not possible to divide the induced income ($318.2 million) by the estimated induced jobs (3,807) to estimate the salary and wage income associated with the estimated induced jobs. To do so would result in a gross overestimation of the personal income associated with the induced jobs.

In addition to the direct and induced income and consumption impacts, the 3,174 indirect job holders received $107.1 million in indirect personal wages and salaries.

The total direct, induced and indirect personal income and consumption impact is estimated at $688.0 million.

A total of $243.1 million of local purchases were made by airlines and tenants of the airport. These purchases supported the 3,174 indirect jobs created by airport activity.

Airport activity in 2005 generated government revenue through an assortment of tax payments by airport businesses and employees. The tax impacts are estimated at the state and local government levels. Federal aviation-specific taxes are estimated for domestic passengers boarding flights at MKE, for international passengers using the airport and for air cargo loaded on planes. The Federal aviation-specific taxes on cargo, departing international passengers and domestic passengers are paid to the Federal Aviation Trust Fund, which is in turn used to finance airport development throughout the United States. Also included in the Federal Aviation taxes are taxes and fees levied for security purposes.

To estimate the state and local tax impact, state and local individual tax indices were developed from data collected by Martin Associates from the Tax Foundation. This data provides the total state and local taxes paid as a percent of per capita income in the State of Wisconsin. The ratio of state and local taxes to total income in the state was multiplied by the total direct, induced and indirect income impact created on-site at MKE.

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Using these state and local tax to per capita income indices, it is estimated that activity at MKE generated $78.4 million of state and local tax revenues. Table 5 shows the breakdown of the state and local tax impacts.

Table 5

State and Local Tax Impacts

(Million $)

Federal aviation-specific taxes were estimated based on the appropriate tax formulas, including security fees on enplaning and deplaning passengers. The domestic passenger tax is based on an ad valorem tax levied on enplaned domestic passenger revenue. The international departure tax is based on a tax per enplaning international passenger, while the INS/Customs tax is based on a tax levied on deplaning international passengers. The federal air cargo tax is based on an ad valorem tax levy on the value of enplaned air cargo. The average freight value of air cargo was provided to Martin Associates by air cargo carriers. As a result of the airport activity, $69.9 million in tax revenues were paid to the Federal Government.

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