De-Bunking the TPA: Economic Impact A Third of What's Claimed

Economist Erin Weir Debunks $1.9 Billion Economic Impact Claim for Island Airport October 14, 2013 TORONTO - As part of its push to expand to accommodate jet flights, the Billy Bishop Toronto City Airport has been advertising that it contributes $1.9 billion to Toronto’s economy. This claim is based on a study that the airport commissioned from InterVISTAS, an airline industry consultancy. The study estimates the airport’s economic impact as of March 2012, not the proposed expansion to jets. But the implication is that expanding airport operations would expand its economic contribution. The study’s executive summary states, “The airport generates total economic impacts of $640 million in total annual GDP, and supports nearly $1.9 billion in total annual economic output economy-wide in the Toronto and surrounding area.” This statement is a bit strange because GDP is a measure of economic output. InterVISTAS surveyed businesses at the airport to determine direct employment. It used Statistics Canada’s economic multipliers for Ontario to estimate indirect and induced employment. It then used these multipliers to infer output from employment. The first measure of output, $1.9 billion, is gross revenues from goods and services, which double counts intermediate products sold and re-sold between firms throughout the supply chain. The second measure, $640 million, is value added net of intermediate products (section 4.1). Imagine that Porter Airlines buys a dollar’s worth of packaged airplane nuts from a supplier that imported the nuts for 66 cents. That transaction adds a dollar to gross revenues, but only 34 cents to Ontario GDP. This example is trivial, but InterVISTAS estimates that only 34% of the $1.9 billion in revenues represent actual additions to GDP. CommunityAIR, a group opposed to Billy Bishop, notes that $1.9 billion works out to $1,000 per passenger, which seems out of whack with the estimated economic impacts of other city-centre airports, such as $266 per passenger for the London City Airport. The biggest difference is that London’s figure is GDP. On that basis, Billy Bishop’s economic impact is more like $340 per passenger. Of the two measures, $640 million is clearly the more meaningful estimate of Billy Bishop’s contribution to the provincial economy (i.e. 0.1% of Ontario’s GDP). But it does not imply that the provincial economy would lose $640 million without the airport. The great majority of people who currently fly through Billy Bishop would presumably still travel to or from Toronto. If Billy Bishop disappeared, most of the economic activity currently associated with it would be displaced to Pearson Airport, VIA Rail, and other modes of transport. Pearson is congested and does not have unlimited capacity to expand, but its capacity is huge compared to Billy Bishop. Pearson expanded its operations by 2.6 million passengers (enplaned plus deplaned) between 2011 and 2012 (slide 12). By comparison, Billy Bishop served a total of 1.9 million passengers in 2012. Even the extreme scenario of rerouting all Billy Bishop passengers through Pearson would add only 5% to its total passenger load (34.9 million in 2012). Similarly, one might ask to what extent jet flights through Billy Bishop would constitute additional economic activity in Toronto versus displacing economic activity from Pearson. Of course, the main arguments for jets at Billy Bishop are convenience, connectivity and competitiveness for Toronto’s downtown. The main arguments against jets are safety, environmental protection and quality of life on Toronto’s waterfront. Such factors could influence business location decisions and long-term development far beyond the airport’s current output. This debate should not come down to crude estimates of economic output. However, Billy Bishop is throwing around a figure of $1.9 billion for Toronto’s economy. Based on the same study, a more relevant figure is $640 million for Ontario’s economy, most of which would otherwise be generated through other transport facilities in Toronto. Source: Progressive Economics blog post by Erin Weir, 2013-10-14

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