Monday, February 11, 2013

Fitz-Fracking the Aerotropolis

B-list post by Vannevar Bush while Bram is on special assignment.

In this Age of Google sometimes new stories boil down to keywords, and this week brought a story with keywords eerily reminiscent of headlines from back in the day: "Allegheny County", "Airport", "500 million", "20 years".

Twenty years ago, Allegheny County spent 500 million on the Midfield Terminal, which was an "investment in the future". As another blogger has recently pointed out, not everybody liked it at first but the Commisioners worked it until they got the politics and the numbers aligned and the County went ahead and built it.

At the time it was considered brilliant, a down payment on a future so bright you'd have to wear shades. How did that Midfield investment work out, and - with the benefit of hindsight - was it an investment or a gamble? If we knew then what we know now, if we knew of the risk of the County's Authority being saddled with hundreds of millions in debt, if we knew that a corporation could fill out some forms and walk away from an obligation, would we still gamble that half-billion dollars of the public treasury?

That's a key distinction: are our elected officials investing or gambling with the public treasury?

Turning from that somber bit of reflection, let's consider this week's bold pronouncements. The Allegheny County Executive (ACE) announces a 500-million deal for fracking at the PIT airport. Wow, this is great, let's go!

He has certainly opened the discussion by reframing it. But let's look at the details. What is really assured is $50M up front, and possibly up to $22.5M per year for twenty years - if everything works as advertised, best-case scenario.

Let's set the Fitz-Frack issue aside, for just a moment, and talk about the Airport and what it means. Right now it's a white elephant, a dead horse that we're still paying for, and yet it's also in spite of all that a key economic asset for the region. (key word: region).

The economic model for future development of "the region" is Allegheny County developing along the Aerotropolis model. (See the CMU report, story about the Robt. Morris Conference, official County 2011 ACED report.)

To do the Aerotropolis thing, you've got to have: (1) an Airport, (2) a City, (3)a Corridor with highway and transit connections between them. The government entity that contains all of those components is Allegheny County, and the person nominally in charge/responsible for that is the ACE. Wow.

The City is an essential node, it has functions it must perform that the suburbs and the Corridor cannot, but the city is an essential and insufficient player; the City cannot drive the Aerotropolis, only the County can. That recognition makes the recent moves in the transit and airport authorities more significant, and the Fitz-Frack announcement much more compelling.

Half-Billion Bets on the 20-Year Come: Gambling vs Investments with the Public's Fortune

In framing the Fitz-Frack decision (now a foregone conclusion, if the citizenry sticks to the ACE's script) as a financial no-brainer rather than a risky option that puts the airport (the key to the Aerotropolis and regional economic development) at risk, the ACE is betting on the come.

Just as we've seen (now) with the Midfield Terminal, the win/lose on the Fitz-Frack bet won't be known for twenty years, long after these players have moved on to their ignominy. And as we learned with Midfield, giving a corporation what it wants now and taking a long-term payoff doesn't make sense in the context of bankruptcy law. (Remember USAir?)

Here's the two alpha-questions I'd like to ask, in response to the ACE's gotta-play-to-win big money no-brainer reframing job:

  • Has any aviation official (not a board member or political appointee) said that fracking at the airport is a good idea that won't put the airport operation at risk?
  • The County can't touch the airport frack money; federal law requires that any airport frack money be used for airport improvements. Has any federal budget official concurred with the Fitz-Frack plan to divert Frack-Funds into airport real estate development, as the ACE suggests?

If we had political discourse, or public discussion about public decisions rather than half-billion announcements from the ACE, it would be interesting to see these questions addressed:

  • Is it worth risking the crown-jewel airport, which cost $500M in 1992, for $50M upfront and the promise of up to $22.5M a year, varying with market activity?
  • Was it necessary to remove the Airport CEO, who had a distinct focus on the whole airplane and runway thing, before announcing the Fitz-Frack plan? Why?
  • Given the County's experience with USAir, bankruptcy, and long-term finance, isn't the Fitz-Frack plan essentially "trusting an oil company"?

A photo of a recent fracking event in WV:

Let me re-present the Fitz-Frack plan from a less sanguine perspective.

  • Let's go out to the airport, which is a key economic driver which we can't afford to damage or lose, and drill for flammable and explosive materials.
  • Even though the airport's main asset is long pieces of straight, level, smooth concrete, let's pulverize the earth underneath the runways.
  • Even though there's an active underground mine fire in the south-western portion of the airport property, let's punch a lot of holes through the rocks and move flammable gas through them, cause they're at different depths and that can't possibly go wrong because they line the holes with concrete, just like in the Gulf of Mexico. (See BC Times, story, link )
  • Let's do a lot of industrial activity at the airport where there won't be any NIMBY neighbors, even though the prevailing wind puts most of Allegheny County's population downstream.
  • Let's give the ACE a future-money stream that he can monetize now, so he can pursue his agenda and let others pay the bills in twenty years.
  • Let the politicians and not the aviation-operational types make the decision about what to do at the airport.
  • Nothing can go wrong. (See Centralia, PA)

Personally, I liked it most when gambling was illegal.
I liked it less when gambling was restricted to casinos.
I don't like at all when gambling is used as public policy.


  1. A couple comments:

    (1) As I noted before, the "Aerotropolis" notion is basically a con job, a Simpsons' Monorail sort of approach to economic development. The airport is indeed an important asset, and a neutral evaluation of what (if any) risk to airport operations the deal would represent is worth undertaking, but structuring the entire regional economic development plan around the airport, lease or no lease, would be extremely foolish;

    (2) The USAir bankruptcy parallel doesn't work.

    What the USAir bankruptcy shows is that companies that go bankrupt can cancel leases. However, they can't cancel leases and then still use the property in question afterward.

    In the case of the USAir bankruptcy, that sucked because the County was still on the hook for the airport debt, and no one wanted to step into USAir's shoes and make use of the same property.

    But there is no such parallel debt payment here here. So if Consol went bankrupt and cancelled the lease, all that would happen is that Consol would have to stop extracting gas from this land. And even if no one else wanted to take their place, the County would get to keep the upfront payment and whatever royalties it had collected to that point.

  2. Dear BrianTH, you're probably quite right. But if I may ask a question about each of your points.

    It may be that structuring economic development around the airport is unwise, but the three linked documents (just added, may not have been there when you read it) suggest it is, in fact, the strategy. Saying that it's dumb, doesn't mean the politicians aren't doing it.

    Yes, there is no long-term debt liability. However, there is the long-term cost of any damage done and risk assumed. The concern is:

    If they damage a major portion of the crown jewel and then go bankrupt (not an unlikely scenario), will this seem like a smart move?

    If we turn the airport into a manifold of gas pipelines between the runways and the gas market collapses, or the company folds, have we been prudent? - because we will certainly be left holding the long-term effects of the Fitz-Frack decision.

    Just my .02 Cheers, V.

  3. Your photo of a supposed fracking incident is blatantly WRONG. The fire had nothing to do with fracking. The article from the HuffingtonPuffington Post (real news??) mentions NOTHING about fracking. The explosion was a gas line, something that happen anywhere.

    But, that wouldn't fit your meme.

    Typical liberal approach.

  4. On the documents:

    If you read closely, that stuff that happened in 2011 was, from the point of view of the Aerotropolis consulting industry, just supposed to be the first step ("Phase I") in a long series of ever more lucrative contracts. But everything you linked was from that same Phase I "visioning" process.

    The bottomline with this Aerotropolis nonsense is that of course it makes sense to develop the land immediately around your airport with airport-focused businesses in mind, to incorporate your airport into your regional transportation planning, and so on. But people have been doing all that for a long time. The idea that there is some new and special version of this that requires paying specialized consultants a bunch of money is really just a con.

    (2) You admit there is no financial equivalent to the debt obligations, but try to swap in "the long-term cost of any damage done," and then you that assert it is "not unlikely" that extraction of natural gas pursuant to this lease will "damage a major portion" of the airport.

    But what exactly is your basis for that assertion? I mean it is conceivable, but exactly how likely that might be is not something you can just consult your imagination for.

    That is why I fully support a neutral party doing a risk assessment. But it could well be that such a party would conclude that the risk you are imagining is really very, very small.

    In short, before you can really swap in the risk of damage for the certainty of debt obligations in your bankruptcy scenario, you have to establish that risk is in fact similar in magnitude.

    Again, though, I fully support asking a neutral party with the requisite expertise to make that evaluation.

  5. Dear Conser'eer, The pipeline that exploded was carrying natural gas from the fracking fields.

    Without being too circular, I'd like to make a small point: gas pipeline explosions can't happen anywhere, they can only happen where we decide to build gas pipelines.

    Hey, here's an airport with planes landing and taking off. Let's fill up the land between the runways and taxiways with gas pipelines and drilling platforms. Then, if there's a disaster, we can say: gosh it's something that can happen anywhere.

    And besides, I think I am a conservative. I have a distrust of government activity and planning, I think the likelihood of unintended consequences exceeds the chance of intended goals, and prefer govt not disturb the marketplace by mixing commercial extraction speculation with public lands.

    Cheers, V.

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  7. By the way, if the magnitude of the risk of airport damage or other interruptions of airport operations was high enough, you may not even need to raise the possibility of bankruptcy to make the deal a bad idea. In other words, it is possible to imagine scenarios in which bankruptcy tips the balance from it being a good idea to a bad idea, but I think bankruptcy is mostly a side issue, with the real issue being exactly what (if any) risk of damage/interruption we are really looking at.

  8. Dear BrianTH,
    I was unclear and wrote poorly. I meant to say, IF an event happens and damages the airport and then the company goes bankrupt (such a bankruptcy is not unlikely)...

    I wanted to suggest that bankruptcy is likely if there's an event, not that the event is likely. Truly my bad.

    And when you say:
    I fully support asking a neutral party with the requisite expertise to make that evaluation.
    I completely agree. I wish that would happen, and I would honor the outcome of it.

    Respectfully, V.

  9. Also incidentally, the airport owns a lot of land that is outside the runways, and with horizontal drilling it seems at least possible to me that no surface installations would have to be between or otherwise close to the runways. Again, this is the sort of thing you would want a neutral party to evaluate (where does the lease allow what kinds of installations) as part of the risk evaluation process.

  10. This is getting very far afield, but you can also hire neutral experts to evaluate the risk of bankruptcy in different disaster/accident scenarios. I might note a lot of that can depend on what entity is actually obligated to you.

    That's one way of thinking of what went wrong with the USAir deal--of course people knew about the theoretical possibility of bankruptcy, but the risk of major airline bankruptcies in particular dramatically increased in the relevant time period thanks to the ongoing restructuring of the air system.

  11. Agreed it should be looked at by neutral experts. The problem is, when a government hires consultants, sometimes those consultants come back with answers the government wants to hear -- or sometimes those consultants would like to continue to work amongst big shots in PA, WV and OH, where standing in the way of fracking is no way to be popular.

    I still want to see this happen as a learning exercise. *Some* reporter has got to make Fitz field the question, "So who has signed off that this is a safe idea for the airport?", and see if he has an answer better than "the gas company."

  12. BrianTH - I agree completely.

    (Although I admit to finding the underground mine fire to be an interesting factor in the horizontal drilling analysis, it really does require a neutral expert analysis)

    Respectfully, V.

  13. What this has come down to, as it often does, is that if you can't trust your elected officials to go through a proper process to determine what is truly in the public interest before making policy/decisions, then you are basically screwed. I definitely support putting public pressure on them to do so whenever they stray, but I also think for that to work well, they have to start out with at least some natural inclination to approach the responsibilities of their office in that way.

    Unfortunately, I am getting a strong feeling the Fitzgerald Era is going to be a constant source of frustration and even despair for any local "good governance" types.

  14. Fitz and Bill. Fitz and Bill. Fitz and Bill. Just wait for Bill to be just like Fitz.

  15. @ 845 bill,will never be Fitz...more likely he' ll be Doug shields or a bartender at the mardi gras

  16. It's safe, proven, and beneficial to all parties. Fear mongering can't move the regions economy forward.