A reader called attention to another under-the-radar bill that carves out a very sweet deal for entrenched interests.
SB 2337 circumvents the requirement that the Department of Transportation’s Airports Division conduct public bids for the award of hundreds of million of dollars worth of concession contracts. SB2337 will allow the DOT to “negotiate” with incumbent concessionaires and exchange new contracts in return for some undefined investment – probably investment in the concessions own infrastructure.
Note that the last duty free contract never went to bid. In fact, in 50 years the same company has been the exclusive operator. Same, same for the food and beverage operators – preserved in their monopoly by the DOT using RFPs that eliminate the possibility of participation by other firms – and there are many other billion-dollar players that want to be here. Federal contracts require participation by so-called “Disadvantaged Business Enterprises” – DBEs and once again the same crop of companies are the DBEs with never an outreach to local companies to participate.
The upshot is we have poor airport facilities and services that are below par for world airports and the same politically connected firms get a monopoly. Interestingly, the incumbent company for the retail concessions has outsourced hundreds of good jobs to its Hong Kong headquarters while the State enables it to avoid fair competition for a public asset. Now, with SB2337, even the sham of a bid competition is eliminated.
You can’t help but notice that testimony before the Senate Transportation and International Affairs Committee came from Peter Fithian on behalf of the Airports Concessionaires Committee, Peter Futhian as president of Greeters of Hawaii, and Roberta Fithian as president of Tiare Enterprises, as well as other current concessionaires.
I’m puzzled by several things. Here’s one. The committee report from the House Committee on Transportation, included this observation.
Your Committee also finds that improvements at Hawaii’s airports concessions have not kept pace with passenger needs and demands. A recent study by the State indicates that various areas at our public airports are lacking in concession space by as much as 40 percent. In addition, the study indicates that Hawaii’s public airports are not maximizing the revenues they could be receiving from airport concession operations if additional concession spaces were provided and concession locations were also improved. These improvements reportedly would not only pay for themselves but would also generate additional revenues for Hawaii’s public airports.
So let’s see. The concessionaires who have locked up their long term contracts haven’t kept pace, with the result that the airport has failed to maximize revenues.
So what do they propose? Allow no-bid extensions of deals with the same concessions, and eliminate the very competition for new concessions that could drive airport revenues.
Go figure.
The Office of Hawaiian Affair tried to make the case for the public interest.
…the state, as trustee, including the DOT, must uphold its fiduciary responsibilities when leasing our public trust lands. These duties include, among other things, acting in the best interest of the beneficiaries, taking reasonable care, acting as a prudent person would in similar circumstances, and performing due diligence prior to taking action. Laws regulating the leasing of land for concessions provide a framework to ensure that the state carries out its duties while allowing for thoughtful use of public lands. While circumventing these laws may be the quickest means to lease land, it is not the prudent inquiry demanded by the state’ s fiduciary position.
Makes sense. But apparently no one was listening.
On the other hand, our airports have produced some great contracting scandals in the past, so giving airport bureaucrats exclusive authority to dole out concessions without competitive bidding or oversight is sure to provide fun and games for future generations of reporters, if any are left.
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Sad to say our “error” ports have a long history rife with corruption.
In general it’s not a good practice but in these errorports, it’d probably be better to presume them guilty, and demand them to prove otherwise.
Always. Until they clean up their act; what they’ve too often done in the past just doesn’t “fly.”
Not a problem for local folks since normally we know better than to buy anything at the airport.
I haven’t looked too closely at these bills or the testimony but I know that, in the past, various attempts have been made to help concessionaires who have fixed lease contracts negotiated in better times. When the passenger counts/revenues drop they still had to pay the same and they made up the difference by cutting jobs, upgrades, and maintenance. This may be a ham-handed way to try and help. Lazy, inept perhaps. Not necessarily corrupt. Still probably not a good thing, in any event.
Is the rent at the airport a fixed fee, a portion of sales or a combo of the two? There have long been complaints about “corruption” at the airport. I am trying to wrap my brain around what system of incentives might be operating there and what opportunities might exist for alleged corruption.
The “corruption” that’s fresh in my mind involved contracting fraud where Airports Division personnel was parcelling contracts for various work to circumvent public procurement and taking kickbacks form the contractors. Bunch of those guys were convicted in, I think, federal court.
As for the lease rent, many concessions were/are I think on a fixed amount, with a percentage of the gross above that (if a straight percentage of the gross would exceed the minimum). Trouble was/is, many were not making enough even to pay the minimum. Whether that was an effect of the economy or their own business failings, I do not know.
Thanks, Ohia!
Ian, you have a special pool of regulars on your blog. Present company excluded.
If the privatization issue ever comes up in your discussion of airports, here’s a crucial paper, at least among the sources I found on the web:
http://ardent.mit.edu/airports/ASP_papers/airport%20privatization%20issues%20for%20US.PDF
Basically, airports in the US are already highly privatized. In other countries, airports are run by the national government; in the US, airports are local or regional and are run with tremendous input by airlines and other customers.
Here’s something worth thinking about from another website that I found (and cannot find again):
Local governments under financial pressure in the US might be tempted to sell their airports to relieve themselves from an administrative financial burden and to make a bundle on a sale. But although the private interests who buy airports do invest in airports they purchase, they do not have the mission that governments do to make using an airport cost effective for the public. So a privatized airport might have all kinds of fancy bells and whistles, but those amenities might tend to exist for the rich. That is reminiscent of health care and higher education in a capitalist society like the US, where the quality is superb in comparison to other countries, but there is a problem of access (even for the upper-middle class, it increasingly seems).
One question that haunts me is that of corporate welfare. Of the three forms of airport ownership — that by a national government (as in Europe), that by private entities, and that by local governments with private interests given a prominent role (as in the US) — which is most a form of corporate welfare? I cannot begin to answer that. These could all be construed as forms of transferring public funds to the private sector, and assuming (hoping?) that society will benefit.
From a practical point of view, it takes a long time to privatize and airport in the US, it is a highly regulated process, and all angles are looked at by the Feds. In other countries today, with a slow economy countries like Brazil are unwilling to sell their airports right now because it would be at fire-sale prices and they would lose their prior investment (although in Brazil it seems that they have to do this in order to spur the building of more airports because they are hosting the World Cup and the Olympics).
It seems to me that there are all these charges of corruption and unprofessionalism at HNL airport, and this would be a motivator by some to sell the airport. But it seems to me that political insiders would be less inclined to sell just for that reason. But there is the worst-case scenario where the State will just not have money in the future.
In sum, this seems like a gray area to me, a glass half-empty and half-full.
More obviously valuable would be the privatization of public parking downtown. Publicly-owned parking structures make no sense in the face of the City’s pro-mass transit rhetoric. City workers in particular — especially those in the Transportation Dept — should not have their own dedicated public parking spaces, they should be like the rest of us.