San Jose International Airport (SJIA) provides convenient and increasingly affordable air service for Santa Clara and San Benito counties. The San Jose City Council will consider investing in the airport to substantially grow its passenger and cargo handling capacity. Arguments in favor of airport expansion are increased convenience for business and convention travelers and increased employment and the increased economic activity which will result. Arguments against expansion come from residents under the flight path and neighborhoods near the airport who are worried about a resulting decline in their quality of life and neighborhood property values.

After reviewing the past ten years of airport activity and correlating it to San Jose metro area employment and retail sales data, it can be determined that San Jose International Airport has had little or no direct beneficial impact on the economy of San Jose. Any economic benefits of the airport has been diverted to San Benito County and to a lesser degree south Santa Clara County. There is no data to show that increased growth and activity at SJIA will result in economic and employment benefits for the residents of San Jose. In fact a case could be made that increased air traffic, especially night time cargo activity could slow or reverse the revitalization of San Jose's downtown which lies directly under the airport flight path.

Substantial Airport Growth 1985-95

Over the past ten years San Jose International Airport has grown substantially. From 1985 to 1995 air passenger traffic grew 90% to nearly 9 million annually. Air cargo grew from 1,000 gross tons in 1985 to over 7720 tons in 1995 a 665% increase.

At the same time employment in the San Jose metro area has remained static. From 1985 to 1995 employment grew only 3.9% while the population grew 26.4% in the same time period. If the airport is an engine of job creation and economic growth, it is not benefiting the greater San Jose area.

How can this be the case when the City of San Jose's aviation department has sponsored research which claims that the airport is the third or fourth largest economic engine in the area? Two things must be understood about the economic benefit studies used to date.

Multiplier Assumptions

The first is that they heavily rely on economic multipliers. Multipliers are based on an economic model that presumes that a large portion of salary generated in a local area will remain in the area and flow back into the economy generating more profits and wages which then are re-spent creating more jobs and so on. This model works well in isolated communities without easy access to alternative economic outlets. Their underlying assumptions fall short in a complex multi-metro area like the Bay Area.

Transportation and Cargo Alternatives

Second, the economic studies have not included the transportation alternatives of San Francisco and Oakland Airport in their assumptions. San Jose's high tech economy was largely built up before the recent expansion and traffic growth at SJIA began in 1985. It is very possible that SFO and OAK cargo facilities generate more jobs in San Jose than the cargo facilities at SJIA. When you map low cost and convenient manufacturing facilities by distance to Oakland or SFO then San Jose has a distinct advantage as a plant location. It is close enough to those airports for convenient cargo management yet still affordable for a manufacturing or assembly site. If San Jose International becomes a major cargo hub then areas far to the south of San Jose become comparatively more attractive than San Jose. Morgan Hill and Gilroy offer lower cost land and a higher quality of life. Their attractiveness is currently limited by their distance from the two major cargo centers at SFO and OAK. Cargo facilities at SJIA would ease that situation and improve San Benito County's ability to compete for San Jose jobs.

Negative Impacts

Third the economic studies have not taken into consideration any negative economic impacts caused by increased operations at SJIA. The economic models used work well for a remote single airport location such as Nashville. There the airport is the only link for that community with the national economic infrastructure. Its location outside of town also mitigates negative impact and in fact sparks development of airport support business and nearby office parks. In a town like Nashville the airport is a major infrastructure element that can drive the local economy forward or hold it back. SJIA central location and the positioning of the jet flight path over several of San Jose's residential districts create a very different economic mix. Airport facilities may indeed attract businesses to the general area but a falling quality of life may keep them out of San Jose and drive out affluent residents as well.

Correct Methodology Used?

There are several methods for assessing the economic impact of any governmental infrastructure investment. Many methods rely on an assumed relationship between activity, spending, and corresponding job creation. The methods currently used to forecast the economic contribution of San Jose International Airport have predicted a high correlation between airport traffic, retail spending and job creation. Actual measurements by the San Jose Chamber of Commerce and San Jose International Airport of these factors over the past ten years do not show a statistically valid correlation between airport activity and economic growth in the metro San Jose or greater Santa Clara County regions.

This raises serious concerns regarding the use of standard airport economic modeling for the metro San Jose area. The faults in these models may be caused by one or more of several factors. First, the models' fundamental logic may be sound but the assumed contribution and multiplying factors may not be accurate for the San Jose area. Second, the models used were designed for single airport regions (such as Nashville, TN) and may not be effective in a region with multiple major airports such as the San Francisco's Bay Area where alternative air transport choices are readily available. Finally, the models may in fact be accurate in aspect except that regions outside of Santa Clara County may be the primary beneficiaries of airport driven economic activity.

Will Economic Benefits to San Jose Outweigh Costs?

This brings into question the key justification for additional capital investment in SJIA.

Without more accurate economic modeling should the City of San Jose assume the additional debt risk associated with expansion at SJIA? Perhaps the City Council should look at ways of improving the quality of life in the area so that San Jose will remain attractive to the highly trained professionals that are the lifeblood of Silicon Valley. Better schools or quiet and safe neighborhoods are more important in attracting top talent to the area than a few more direct flights. Surely Silicon Valley industry is the engine that drives the local economy. In the first quarter of 1996 $464 million in venture capital funds flowed into our area. (source: Ernst & Young) A bigger airport has not brought investment capital into Oakland. Quality of life has brought it to San Jose.

Business planners like myself look at new locations we look for low taxes, affordable housing, quality of schools, and an affordable talent pool. The difference between a five minute or a 40 minute drive to an airport is not a deciding factor in location. For example we continue to grow our Sacramento sites. The 90+ minute drive to SFO is considered quite acceptable for international travel. However if a community spoils its nest by accepting noisy or polluting facilities, I will typically look elsewhere. Just as we do not locate facilities in New Jersey near the refineries, I will not expand in a community that lies near or under a flight path. If San Jose chooses to expand SJIA at the expense of it's neighborhoods, I expect that Morgan Hill is going to look like a very good site for future high-tech growth.

Updated August, 12, 1996