We Buy, You Fly

When American Airlines pulled 200 daily flights out of St. Louis's Lambert Field airport in 2003, it wrecked the airport's finances. As you might have guessed, airports are weighted down with fixed costs-- things they must pay for regardless of how many people they serve, such as runways, terminals and baggage systems.
by | July 2005

When American Airlines pulled 200 daily flights out of St. Louis's Lambert Field airport in 2003, it wrecked the airport's finances. As you might have guessed, airports are weighted down with fixed costs-- things they must pay for regardless of how many people they serve, such as runways, terminals and baggage systems. These things are hugely expensive; Lambert was building a $1.1 billion runway when American announced its cutbacks. As long as the facilities are fully used, airport economics work well. But when carriers cut way back, airport balance sheets get dangerously unbalanced. With fewer passengers arriving in St. Louis each day and roughly the same operating costs as before, airport fees soared from $6.03 per passenger in 2003 to $9.79 this year. In response, Lambert has decided to hand out $40 million in subsidies to the airlines to keep them from flying away. In return, the airport wants carriers to sign new leases and boost the number of passengers they haul in and out, thus lowering average costs. Lambert is getting the $40 million from a fund normally used for capital expenses--a fund that "can be used for any lawful purposes," an airport consultant told the St. Louis Post-Dispatch.

THE RETIREE HEALTH CARE BOMB

Nearly all states and more than half of cities, counties and school systems offer health care benefits for retired workers. The problem is, governments aren't setting aside nearly enough money to pay for these benefits--Fortune called the situation a "time bomb quietly ticking away." San Diego's government is in crisis now because it willfully underfunded its pension and health care systems for years, leaving the city with a staggering $2 billion liability. Buffalo, New York, spends more on health care for retired workers than for active employees, an amount now equal to 20 percent of the city's property tax receipts. It's hard to see a happy ending to this story, but the scope of the problem should be revealed soon. The Governmental Accounting Standards Board, which dictates accounting practices for state and local governments, is preparing to require that governments disclose on their financial statements the total cost of retiree health care benefits and how they plan to pay for them. When similar rules were applied to corporations in 1990, investors punished companies that had big liabilities, and that was when most companies stopped offering medical benefits for retirees.

PROOF THAT CITY BRANDING WORKS

The Miami suburb of Hialeah has an image as a striving, working-class Hispanic community. It also has a large post office. The postal service pays attention to ZIP codes, not city names, so a lot of bulk mail gets delivered to neighboring areas with Hialeah as the city name. And that ticks off some residents who do not wish to be considered striving, working class or Hispanic. Take the folks who live in the Country Club of Miami, a wealthy unincorporated neighborhood of Miami-Dade County. "It bugs all of us out here," said one Country Club homeowner. In incorporated areas such as Miami Lakes, city officials have pleaded for years with the U.S. Postal Service for their own post office so the name Hialeah would not appear on their address. "We couldn't get Hialeah off our mail even enlisting the services of [U.S. Senator] Bob Graham," one city council member said. "It's an uphill battle." The reaction of Hialeah officials is anything but sympathetic. "We are hard-working and honest, with low property taxes and effective government," Mayor Raul Martinez told the Miami Herald. If others don't want to share Hialeah's name, he said, "tell the post office to change it. I don't care."

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