Denver Girds for Battle to Keep Frontier Airlines
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Posted
by Benet Wilson at
9/18/2009 1:56 PM CDT
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 A Frontier Airlines and Republic Airways logo jet at Denver International Airport Photo by Benet Wilson At the beginning of my journalist career, I wrote for a weekly newsletter that covered employment and training for displaced and economically disadvantaged people. A big part of finding jobs for these people were efforts by states, counties, cities and regions under the umbrella of economic development. The thought was that governments could bring in jobs and boost tax revenues by throwing financial and non-financial incentives at companies and organizations looking to bring operations to a specific area.
I had a front-row seat for the battle that ensued to get United Airlines to build two maintenance bases that eventually ended up in Oakland, Calif., and Indianapolis, Ind. We all know what happened to those bases, but the battle to get them back then was epic.
There were also epic battles when companies threatened to move their operations from their current headquarters to a new location. I lived in Atlanta in 2005 when Chiquita Banana announced that it was looking to move from Cincinnati south to my fair city. At the end of the year, the company decided to stay, no doubt enticed by incentives put up by the city and state of Ohio to keep them there.
And now the ink was barely dry on the paperwork that brought Frontier Airlines out of Chapter 11 bankruptcy protection when Bryan Bedford, CEO of the carrier's new parent Republic Holdings, said he was considering moving up to 400 jobs to Milwaukee, reported the Milwaukee Journal-Sentinel. He was quoted as saying that those Denver jobs that are in play could stay in that city, or could be moved to Milwaukee or Republic's Indianapolis headquarters.I am not criticizing Bedford's move. Republic has a strong reputation as a well-run company that's fiscally sound. He wouldn't be doing his job if he wasn't trying to find ways to keep costs under control as his company absorbs both Midwest Airlines and Frontier. And as a former boss told me: "If governments want to give you free money to help you run your business, you'd be a fool and financially irresponsible not to take it."But Bedford's announcement obviously did not sit well in Denver. Denver Post reporter Ann Schrader wrote a column on why Coloradans love Frontier Airlines, including: the critters on the aircraft tails; the fact that it's home grown; and its great customer service. In the SaveFrontier.org blog, writer Mark Cunningham wrote: "I love the money they put into the economy, love the paint scheme, love the history...love it all."So the city and state are scrambling to come up with an incentive package to keep the airline in Denver, reports the city's Business Journal. Officials are not spilling details of their package so competitors Milwaukee and Indianapolis are not tipped off, but the newspaper said the city and state are preparing a $1 million package.
What's usually offered are a mix of tax credits, exemptions, abatements, or deferrals, job training funds, building/headquarters funds and infrastructure investments, along with loans, grants and guarantees. And this is when state and local governments start "spending money like drunken sailors on shore leave," my old editor used to say.
But political writer David Sirota used his platform on Huffington Post to question whether local politicians should even be trying to keep Frontier in Denver even as the city and state face budget shortfalls and potential layoffs and furloughs.
"Though we don't yet know the details of that package, we do know it is being constructed very quickly, and with few questions of due diligence," Sirota wrote. "Despite Frontier reporting nine straight months of profit and despite the aforementioned budget crisis, city officials seem to be responding to Republic's demands of `jump' by only asking `how high?'"
In an October 2008 paper, the Government Finance Officers Association (GFOA) offered policy recommendations for jurisdictions mulling the use of economic development incentives. At a minimum, GFOA said an economic development policy should contain the following:
- Goals and Objectives
- Financial Incentive Tools and Limitations
- Evaluation Process
- Performance Standards
- Monitoring and Compliance
It might behoove the state of Colorado and the city of Denver to consider these steps as it rushes to meet a Sept. 30 deadline on incentive packages.
The experience could turn out to be worthwhile, like the economic boom created when BMW built, then expanded its first plant out side Germany, near Spartanburg, S.C. A 2008 report by the University of South Carolina found BMW generated $1.2 billion in wages and salaries annually and $1.9 billion in net contribution to the state’s economy. It also found that from 2007‐2010, BMW will spend $750 million on construction to upgrade the
factory; in 2008 alone, when the overall construction
sector was sluggish across the United States, BMW spent $298 million.
Or it could turn out badly, like what happened in Oakland and Indianapolis when a then-bankrupt United Airlines closed those maintenance bases back in 2003.
The state of Indiana and Indianapolis ponied up $295 million in tax breaks and incentives to help pay for the then state-of-the-art facility in the early 1990s. The city was also stuck with yearly interest payments of $14 million on bonds it issues to help pay for the maintenance base. AAR Corp. currently leases space in the facility, but it's a far cry from the 7,500 jobs United promised to create at the base.
Oakland International Airport was left with a 300,000-square-foot building on 40 acres that still stands empty six years later and the city loses $3.4 million a year in rent.
"Certainly, there's a good argument to be made that if the city and state's political leadership does not work to retain or create new jobs with tax incentives, the tax base will ultimately suffer, thereby exacerbating an already intense budget crisis," wrote Sirota in his blog post. "And perhaps that argument is the most valid. The problem is the glaring lack of any debate or discussion whatsoever."
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