Propelling North Carolina’s Economy through Aviation

Findings and Recommendations from the North Carolina Aviation Development Task Force

April 2016

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 1

Table of Contents

Acknowledgments 2

Letter from the Chair 3

Executive Summary 5

Task Force Background 9

• Members 9 • Methodology 11

Aviation in North Carolina 13

• North Carolina System Airports 13 • Division of Aviation 15 • North Carolina Airports System Plan 15 • Aviation Industry 16 • Aviation’s Economic Impact 17

Task Force Findings 19

• Aviation Funding 19 • Economic Development 26 • Military Personnel Retention 31 • System Processes 33

Task Force Recommendations 37

• Strategic Investment 37 • Targeted Economic Development 37 • Training and Technical Assistance 38

APPENDICES

Appendix A: Executive Order 54 39 Appendix B: Executive Order 63 41 Appendix C: N.C. System Airports 42 Appendix D: N.C. Airports Working Group 44

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 1 Acknowledgments

The North Carolina Aviation Development Task Force would like to thank Governor Pat McCrory for his timely vision in the creation of this Task Force. It is Governor McCrory’s acknowledgement of the value of airports and aviation to both NC Aviation the state economy and the state transportation system that Development influenced the creation of this diverse group of aviation industry Task Force Members experts. Through his leadership, the Task Force met its goal to create recommendations for state aviation that will assist • Jim Bailey in moving the state forward through efficient and effective • Kevin Baker movement of people, goods and information. • Russell Barringer Jr. • Steve Bright • Dan Danieley The Task Force would also like to thank former N.C. Department • Larry Ford of Transportation (NCDOT) Secretary Tony Tata and current • Robin Hayes Secretary Nick Tennyson as well as the NCDOT and its Division • James Kalbach of Aviation for their assistance coordinating and facilitating • Michael Landguth the operations of the Task Force during its existence. The • John Lennon, Chair Task Force would like to especially thank the following NCDOT • Gary Lowder staff members and contractors for their assistance during this • Leonard Martin process: Julie Hunkins, Bobby Walston, Cyndy Falgout and Chris • Louis Ridley Jr. Gibson. • W. Ashley Smith Jr. • John Taws, Vice Chair • Kenneth Walker Also, the Task Force would like to thank all of the persons and • Bobby Walston groups who have taken the time to present to the group, both • Bill Whiteheart during its regional outreach sessions, as well as during its • Julie Wilsey working sessions, including Johnny Dwiggins, Daniel Findley, Susan Fleetwood, Rudy Lupton and retired Gen. Cornell Wilson, now secretary of the N.C. Department of Military and Veterans Affairs. Without their input, the Task Force’s final work product would not be what it is. In addition, the Task Force would like to thank all of the locations that hosted meetings during the group’s regional outreach efforts.

Finally, the Task Force would like to thank all of its members for generously giving of their time and energy to this effort. Each member is appreciated for their willingness and enthusiasm to participate in this effort, even with the significant travel required to attend meetings. This report is a product of your passion for aviation and your dedication to North Carolina.

2 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Letter from the Chair

Airports first came on my radar in 2005, when I was appointed to the New Hanover County Airport Authority, which owns and operates Wilmington International Airport. I had traveled by air for business and pleasure, but never given airports much thought beyond that.

My view changed quickly once I began delving into the business of airports and aviation, both at New Hanover and, more recently, serving on the N.C. Board of Transportation and as chair of this task force.

First, I learned that airports touch everyone in the state, regardless of whether they fly. North Carolina’s network of 72 commercial service and general aviation airports, of course, connect people and businesses with markets around the world. But they do so much more.

Our airports move time-sensitive cargo, from iPhones to manufacturing parts, quickly and effectively. Blood samples drawn at hospitals around the country are flown to LabCorp’s medical testing facility in Burlington for rapid testing. General aviation airports house and refuel crop dusting planes, offer flying lessons and host military aircraft for take-off and landing practice. Our airports make up both Our airports make up both a highly a highly visible and invisible backbone for our visible and invisible backbone state’s transportation infrastructure. for our state’s transportation infrastructure. Second, I learned that airports are huge economic drivers, not only in their respective communities but for the state as a whole. Recent, conservative estimates put the economic impact of our state’s airport system at more than $31 billion a year. Airports support more than 123,000 jobs across the state, with an annual payroll exceeding $4 billion, and return more than $910 million annually to state and local governments in the form of sales, property, corporate and personal income taxes.

Importantly, our aviation system creates economic benefit in both rural and urban areas. The owner of a $1.5 million twin-turboprop aircraft at Asheboro Regional Airport, for instance, pays local property taxes equivalent to those paid by owners of ten $150,000 homes, and doesn’t require significant public services in return.

The N.C. airport system generates these economic benefits from a relatively modest state investment, currently less than $45 million a year. In other words, our airport system returns more than $20 in state and local tax revenues for every $1 the state invests.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 3 Letter from the Chair

Our airport system today stands at a crossroads. It faces rising demands for services and vital upgrades to infrastructure and technology to meet the needs of the traveling public, businesses and our military bases while funding for required infrastructure maintenance and improvements, long provided by the federal government, declines.

While our intention is not that any action be taken during the short session of the General Assembly this year, our Task Force challenges the state to step up at this critical time and reinvest in the airport system a portion of the tax revenues our airports generate. By increasing vital funding for maintenance and enhancements, our airports can continue serving a key role as economic drivers and assets for North Carolina.

John Lennon Chair, North Carolina Aviation Development Task Force

4 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Executive Summary

North Carolina’s airports and aviation industry are significant producers of jobs, economic growth and tax revenues statewide, in both urban and rural communities.

Airports and the aviation industry contribute more than $40 billion to the economy each year, 8.5 percent of the state’s total Gross Domestic Product, and support more than 164,000 jobs with an annual payroll of $7 billion. The state’s airport system of 72 publicly owned commercial service and general aviation airports alone contribute more than $910 million annually in tax revenues to local and state governments.

Given the significant role airports and aviation play in North Carolina’s economy and in local Airports and aviation contribute more communities across the state, N.C. Gov. than $40 billion to the economy each Pat McCrory in May 2014 created the North year, 8.5 percent of the state’s total Carolina Aviation Development Task Force to Gross Domestic Product, and support recommend how the state can better leverage its airports and aviation industry. more than 164,000 jobs with an annual payroll of $7 billion. The state’s airport The Task Force, at the governor’s direction, system of 72 publicly owned commercial examined opportunities in four key areas: service and general aviation airports • Securing reliable and sustainable alone contribute more than $910 million funding for airport continuity and growth. annually in tax revenues to local and • Enhancing economic activity within the state governments. state. • Improving the retention of retiring and discharged military personnel trained in the aviation/aerospace field. • Creating more effective and efficient process and policy implementation for aviation grant administration.

Task Force members, working over 18 months, found that significant opportunity exists for expanding aviation’s impact in North Carolina by:

• Leveraging airport infrastructure to expand the state’s aviation and aerospace industry cluster. • Attracting more aviation-related businesses on or near airport properties. • Supporting the needs of companies using airports to rapidly transport goods and people. • Providing local businesses with access to regional, national and international markets. • Expanding revenue-generating airport enterprises. • Helping the state’s airports and airport system operate sustainably. • Leveraging synergies with the state’s technology, defense and aviation sectors to develop a commercial drone industry.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 5 Executive Summary

The Task Force also identified key barriers that threaten the ability of N.C. airports to expand their economic impact and continue providing high-quality services for their customers and communities.

Among them:

• Increased demands for maintaining and improving infrastructure, safety and regulatory compliance to meet the needs of commercial, general aviation and military customers. • Shrinking federal funding for infrastructure maintenance and improvements, from runways and taxiways to lighting and facilities. • A significant funding shortfall – approximately $82 million a year – for operations and maintenance projects required to meet safety and infrastructure requirements, the “system objectives” called for by the North Carolina Airports System Plan. • Limited and capped state funding for airport capital improvement projects, safety and regulatory projects. • Limited training and technical assistance available to support airport owners and managers with business development, operational improvements and sustainability. • Limited state support for aviation industry recruitment and retention. • Recent changes to state sales and use tax law adding labor to applicable sales tax calculations, which threaten the competitiveness of the state’s $400 million maintenance, repair and overhaul industry.

The Task Force concluded that strategic action and investment now can significantly expand airport and aviation industry impact and ensure N.C.’s airports remain vital economic assets for their communities.

Task Force members recommend that the state and airport system take strategic action in these three areas to expand economic impact and support sustainability across the state’s airport system:

Strategic Investment

• Reinvest in the N.C. Department of Transportation’s Division of Aviation the state tax revenues (non-payroll) generated on-site Task Force concluded that at airports, (approximately $44 million in FY strategic action and investment 2015), which includes existing taxes on rental now can significantly expand cars originating at system airports, sales airport and aviation industry taxes collected from airport enterprises and aviation fuel taxes paid by non-commercial impact and ensure N.C.’s airports carriers, to supplement current state funding remain vital economic assets for for the airport system. their communities.

6 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Executive Summary

Use those additional revenues to:

○ Offset the estimated $82 million annual shortfall for critical infrastructure maintenance, safety and regulatory compliance improvements needed to meet system objectives and local priorities at the state’s 72 airports.

○ Provide greater financial support for airports in the state’s most economically distressed (Tier 1 and Tier 2) counties: • Assist with the required local match of federally funded capital improvement projects. • Reduce the portion of local match required for state funded projects.

○ Expand Division of Aviation training, technical assistance, business development and operational support for the state’s 72 system airports.

• Expand funding for infrastructure improvements on airport property required to attract a high- value business relocation or expansion beyond that provided by the new sales tax on aviation fuel.

• Consider the competitive and economic impact of the recent sales and use tax added for labor on aircraft maintenance, repair and overhaul on the state’s ability to retain existing aircraft maintenance operations and attract new ones.

Targeted Economic Development

• Designate the state’s airports and aviation industry as an economic development recruitment and retention priority with appropriate strategic and tactical supports.

• Dedicate and embed within the Division of Aviation an experienced aviation industry recruitment specialist, identified and supported by the Economic Development Partnership of North Carolina, who will work full time to expand airport and aviation industry businesses through marketing, business recruitment, retention initiatives and collaboration with Division of Aviation and airport leadership across the state.

• Develop a strategic plan for leveraging the state’s airports and aviation assets to expand the aerospace industry, exploring opportunities for recruiting and retaining more aerospace investment, expanding the aviation supply chain, creating a market-leading commercial drone cluster and maximizing the airport system to preserve and grow the state’s defense industry.

• Leverage major, national and global air shows (Paris, London, etc.) for recruitment as part of the new aviation strategic plan, ensuring uniformity and consistency of marketing efforts and facilitating the “North Carolina First” initiative.

• Leverage the state’s military retiree talent retention initiatives to support aviation industry recruitment.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 7 Executive Summary

• Strengthen the state’s university and community college programs specializing in aviation, aeronautics and avionics to prepare the aviation and aerospace workforce and provide a comprehensive, cohesive training platform for potential employers.

• Improve efforts to educate state and federal legislators on the economic impact of both general aviation and commercial air service to the state.

Training and Technical Assistance

• Align, streamline and focus Division of Aviation resources and processes to help airports meet the demands of 21st century aviation and support economic development objectives:

○ Create an Aviation Commission that advocates for the state’s airports and aviation industry, provides strategic direction and connects the sector to opportunity and influencers who can support it.

○ Expand Division of Aviation training services that help airport operators manage more effectively and generate greater economic impact.

○ Continue the N.C. Airports Working Group, which identifies needs, opportunities and strategies for improving the state’s airports and strengthening Division of Aviation services.

8 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Task Force Background

N.C. Governor Pat McCrory established an Aviation Development Task Force by executive order on May 19, 2014 (See Appendix A), amending the order on Aug. 18, 2014, to expand the Task Force membership and extend the study period (See Appendix B).

The governor directed the Task Force to submit a comprehensive report and recommendations to the secretary of transportation “for the enhancement of the state’s aviation programs,” including:

• Review and study of the current programs, published policies and standard operating procedures within the North Carolina Department of Transportation’s Division of Aviation, which oversees state and federal grant funding and development of the state’s 72 publicly owned airports that are eligible for funding, maintains the state’s fleet of aircraft and manages the state’s Unmanned Aircraft System Program. • Review and study of how revisions to the Division of Aviation’s existing programs and policies can enhance its role as an advocate for aviation and publicly owned airports throughout the state. • Review of new or alternative funding sources for the Division of Aviation. • Recommendations for improving efficiencies within the division to ensure the highest level of customer service. • Recommendations on how the Division of Aviation can provide additional assistance to cities, towns, counties and other governmental subdivisions for the enhancement and operation of airports, landing fields and other aviation facilities. • Strategies for maximizing the economic impact of publicly owned airports in their respective communities and across the state. • Strategies to recruit more aerospace manufacturing in North Carolina. • Strategies for the promotion of military aviation and collaboration with existing military in North Carolina. • Recommendations on how to recruit retired military personnel to remain in North Carolina to become a part of the aerospace manufacturing industry. • Any other duties as assigned by the governor or the secretary of transportation.

Members

The 19-member Aviation Development Task Force comprises individuals who are experienced in the aviation industry or reliant upon aviation and represent geographically diverse areas of the state.

Task Force members are:

• Jim Bailey (Carteret County), real estate developer and principal of Cape Lookout Marine, Inc. and Rembert Investments, LLC and a licensed, instrument-rated pilot with more than 8000 hours in general aviation aircraft. • Kevin Baker (Guilford County), executive director of Piedmont Triad International Airport. • Russell Barringer Jr. (Durham County), chairman and CEO of Dealers Supply Co., a private instrument-rated pilot and aircraft owner, served on the North Carolina Aeronautics Council by appointment of former N.C. Gov. James Martin.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 9 Task Force Background

• Steve Bright (New Hanover County), co-owner and co-founder of Talbert & Bright Engineering Planning Consultants. • Dan Danieley (Alamance County), executive director of the Burlington-Alamance Regional Airport and president of N.C. Airports Association board of directors. • Larry Ford (Clay County), attorney, who currently serves as chairman of the Clay County Travel & Tourism Authority board of directors. • Robin Hayes (Cabarrus County), businessman and former U.S representative for N.C.’s 8th congressional district, owner of Mt. Pleasant Hosiery Mill. • James Kalbach (Chowan County), chairman of the Northeastern Regional Airport Commission, previously worked for Whitener Capital Management and several peanut production companies throughout the Southeast. • Michael Landguth, A.A.E. (Wake County), president and CEO of Raleigh-Durham International Airport, former president and CEO of Chattanooga Metropolitan Airport Authority. • John Lennon, Chair (New Hanover County), managing partner for Oceancrest Advisory Services and member of the North Carolina Board of Transportation. • Gary Lowder (Stanly County), chairman of Stanly County Airport Authority, who has served on the authority board for more than 15 years. • Leonard Martin (Forsyth County), aviation industry consultant, who previously worked more than 30 years with Piedmont Airlines. • Louis Ridley Jr. (Mecklenburg County), former air traffic control specialist for the Federal Aviation Administration, now with FAA Headquarters’ performance-based navigation office. • W. Ashley Smith Jr. (Lenoir County), president and CEO of Jet Logistics Inc., incoming chairman of the National Business Aviation Association’s domestic operations committee. • John Taws, Vice Chair (Moore County), president of Fletcher Industries Inc. and member of the Moore County Partners in Progress board of directors. • Kenneth Walker (Mecklenburg County), retired from Driven Brands Inc. and served on the Charlotte Douglas International Airport Oversight Committee. • Bobby Walston (Wake County), director of the North Carolina Department of Transportation’s Division of Aviation, responsible for oversight of the state and federal grant administration process for the state’s 72 publicly owned airports, fleet operations for the state’s aircraft and oversight of the expanding UAS program. He fills the seat previously held by Rudy Lupton, former director of logistics for the Department of Transportation and retired naval aviator, who provided significant guidance in the Task Force’s review of military-related aviation issues. • Bill Whiteheart (Forsyth County), business owner/operator of Whiteheart Outdoor Advertising Company Inc. and Forsyth County Commissioner, he serves as National Association of Counties’ vice chairman of the airport subcommittee, Airport Commission of Forsyth County chairman and Piedmont Authority for Regional Transportation board of directors member. • Julie Wilsey (Brunswick County), airport director of Wilmington International Airport, who has coordinated more than $72 million in airport infrastructure upgrades and $70 million in state and federal grant projects.

The DoA provides administrative and staff support services for the Task Force.

10 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Task Force Background

Task Force Methodology

The Task Force met eight times between May 19, 2014 and September 11, 2015. Public notice was provided for the meetings, which took place as follows:

• October 7, 2014 – Raleigh • November 14, 2014 - Raleigh • December 19, 2014 - Burlington • January 30, 2015 - Wilmington • March 5, 2015 – Scheduled for Charlotte, held with teleconference option due to inclement weather • July 1, 2015 – Greensboro • July 31, 2015 – Greensboro • September 11, 2015 - Greensboro

The Task Force established four “areas of focus” groups that examined and developed recommendations for each.

The four groups were asked to examine and make recommendations on how the following items might best be accomplished:

• Aviation Funding:

○ Secure funding for capital and maintenance projects that is both sufficient to address long-range needs and reliable. ○ Enhance funding sources and tie appropriations for aviation spending to the total systems tax revenue output.

• Economic Development:

○ Attract companies to the state and respond competitively when opportunities arise in the aviation and aerospace industries. ○ Integrate the mission of the North Carolina Department of Commerce, North Carolina Community College System and local and state economic development boards within the aviation sphere. ○ Leverage existing infrastructure at airports when attracting industry and maximize the state’s return on investment.

• Military Personnel Retention:

○ Retain retiring and discharged military personnel in North Carolina after their departure from the military. ○ Increase collaborative efforts with the military throughout the state, both at military installations and airports utilized for training.

• System Processes:

○ Streamline the grant process and execution of grant-eligible projects. ○ Raise awareness of aviation projects as they compete with other transportation modes. ○ Enhance the DoA’s role to increase its value as a resource for airports.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 11 Task Force Background

Task Force members conducted a comprehensive review of reports and documents that describe and examine N.C.’s airport system, operations and impact, including:

• North Carolina Airports System Plan 2015, N.C. Department of Transportation Division of Aviation • 2012 Economic Contribution of Airports in North Carolina, Institute for Transportation Research and Education • 2015 Economic Impact of the Military on North Carolina, N.C. Department of Commerce • The Economic Impact of the Military on North Carolina, N.C. Department of Commerce and N.C. Military Affairs Commission • N.C. Airports Working Group Charter • N.C. Airports Working Group Summary of Accomplishments • Summary of North Carolina Aviation Taxes-September, 2015, Institute for Transportation Research and Education • Fiscal Impact of Strategic Investments at Burlington-Alamance Regional Airport, Institute for Transportation Research and Education • State Report Card for Military Families, Veterans, and Retirees, MOAA

The Task Force also met with key experts in N.C. aviation and related sectors to inform their work, including:

• Johnny Dwiggins, National Guard Bureau Employer Support, Military Personnel Services Corp. • Daniel Findley, senior research associate, Highway Systems Group, Institute for Transportation Research and Education, N.C. State University • Susan Fleetwood, director of business development, Economic Development Partnership of North Carolina • Chris Gibson, UAS program manager, NCDOT Division of Aviation • Rudy Lupton, former Global Transpark executive director • Tony Tata, former N.C. secretary of transportation • Bobby Walston, NCDOT Division of Aviation director • Retired Gen. Cornell Wilson, secretary of the N.C. Department of Military and Veterans Affairs.

Some focus area groups met before Task Force meetings and reported back to the Task Force. Others met between Task Force meetings, in person or via teleconference, to discuss and develop recommendations.

This report highlights the key findings and recommendations that resulted from their work.

12 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Aviation in North Carolina

North Carolina’s aviation sector was born over 100 years ago, when the Wright Brothers chose the sandy dunes of Kitty Hawk to launch their first flight. NC System Airports at a Glance

Today, North Carolina’s airport system includes 72 publicly owned • 72 airports – 10 commercial service and general aviation airports that are supported commercial service, 62 by the N.C. Department of Transportation’s (DOT) Division of Aviation general aviation (DoA). • 28 million annual passenger enplanements North Carolina also boasts a vibrant aerospace industry cluster • 4 million annual aircraft that includes more than 180 companies working in aviation-related operations manufacturing as well as a broad range of businesses that service and • 1.3 billion pounds of air supply the sector. cargo • 18,000 licensed pilots Here are highlights of the state’s airport and aviation industry assets • 8,000 based aircraft and their economic impact. (personal and business) • 15,000 mechanics • 71 airports with terminal North Carolina System Airports buildings • 68 airports with hangars; North Carolina’s airports have long played an essential role in the 34 with a waiting list state’s intermodal transportation system. • 63 with on-site automated weather A total of 338 airports – 111 public and 227 private – operate in the reporting state. Of the 111 public airports, 72 are considered part of North • 13 with air traffic control Carolina’s “airport system” because they are publicly owned, open towers to the public and eligible for federal funding as part of the Federal • 68 provide aviation fuel Aviation Administration’s national network of airports considered • 94% of N.C.’s population significant to national air transportation, civil aeronautics, national live within a 30-minute defense and postal service. drive of an airport

N.C. airports support more than 28 million enplanements, 4 million aircraft operations and 1.3 billion pounds of cargo each year. The state counts nearly 18,000 licensed pilots, 8,000 based personal and business aircraft and more than 15,000 mechanics.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 13 Aviation in North Carolina

Ninety-four percent of North Carolina’s population live within a 30-minute drive of a system airport or a nearby out-of-state airport.

Commercial Service Airports

Ten of the state’s 72 system airports are commercial service airports, which enplane more than 28 million passengers annually and receive scheduled passenger service. They are:

• Albert J Ellis Airport (Jacksonville) • Asheville Regional Airport • Charlotte-Douglas International Airport • Coastal Carolina Regional Airport (New Bern) • Concord Regional Airport • Fayetteville Regional Airport • Piedmont Triad International Airport • Pitt-Greenville Airport • Raleigh-Durham International Airport • Wilmington International Airport

General Aviation Airports

The remaining 62 system airports are general aviation airports. They serve as key cogs in the state’s airport system, supporting emergency preparedness and response, providing critical community access for remote areas, providing commercial, industrial and economic functions, offering access for tourism and special events, supporting military aviation training and serving specific uses, such as corporate flights and flight instruction.

14 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Aviation in North Carolina

While North Carolina’s commercial service and general aviation airports have different missions in some respects, their common goal is to serve as the center of economic growth and vitality for their respective communities and the state as a whole.

Division of Aviation

The North Carolina Department of Transportation (NCDOT) Division of Aviation (DoA) ensures effective stewardship of the state’s airport system to enable a fully integrated, safe, efficient and seamless transportation link between the people and products of North Carolina and national and international destinations.

DoA manages all aviation functions for the state, including system planning and airport system development.

DoA’s four core functions are:

• Aviation safety and education – keeping North Carolina “First in Safety” through pilot education events, Aircraft Maintenance Technician (AMT) and Inspection Authorization (IA) education and license renewal programs, and general public and youth aviation education. • State and federal airport project grant administration – managing and disbursing funding for airport safety, development and capital projects. • State air transportation – managing NCDOT’s four aircraft, which provide aerial photography and passenger service for state agencies, as well as aviation safety services and statewide emergency response. • Unmanned Aircraft Systems (UAS) management – serving as the lead state agency overseeing the state’s emerging commercial and public drone industry, providing knowledge testing, permitting and education on state regulations.

North Carolina Airports System Plan

The North Carolina Airports System Plan, completed in December 2015, provides a comprehensive analysis of the state’s airport The N.C. Airports System Plan system. It identifies opportunities, funding needs identified more than $1.1 billion and strategies for creating an efficient statewide in projects required by general airport system that builds upon its economic aviation airports alone over the development successes and improves the quality of life for state residents. next 20 years to meet their system objectives for safety, security and DoA followed a strategic approach to develop regulatory compliance. the system plan as a blueprint that ensures North Carolina’s system of airports meets the state’s existing and future air transportation and economic needs in a sustainable manner.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 15 Aviation in North Carolina

The first step was the development of vision, goals and performance measures. That set the stage for the remaining elements, which include an asset inventory for A Sampling of N.C. each of the state’s system airports, a 20-year forecast Aerospace Companies of traffic and aviation needs for the general aviation and smaller commercial service airports, and identification of performance measures and system objectives. • AAR, Goldsboro • ATI Allvac, Monroe Important for the Task Force’s work, the plan identified • B/E Aerospace, Inc., Winston-Salem where each airport stands on meeting both North Carolina • Boeing, New Bern and FAA strategic goals for safety, system efficiency and • Cessna, Greensboro regulatory compliance. It also outlined the estimated costs • Commerce Overseas Corporation, and timing of proposed airport development to meet those Kinston “system objectives.” • CTS, Rocky Point • Curtiss-Wright Controls, Shelby The N.C. Airports System Plan identified more than $1.1 • DRS Technologies, Elizabeth City billion in projects required by general aviation airports • FedEx, Greensboro alone over the next 20 years to meet their system • General Dynamics, Charlotte objectives for safety, security and regulatory compliance. • General Electric, Durham, Wilmington That includes maintenance and improvements to and West Jefferson runways, taxiways and aprons, lighting, signage, perimeter • HAECO Aviation Services, Inc., fencing, communications, weather reporting, navigation Greensboro technologies, hangars and maintenance buildings and • Honda Aero, Inc., Burlington-Alamance airport layout plans. Region • Honda Aircraft Company, Greensboro • Honeywell, Rocky Mount Aviation Industry • Kidde Aerospace and Defense, Wilson • L-3 Communications, Fort Bragg • Leistritz Advanced Turbine More than 180 aerospace companies engage in manufacturing in North Carolina, particularly in Components, Inc., Rural Hall aircraft manufacturing; aircraft engine and engine part • Liquip International, Reidsville manufacturing; and search, detection and navigation • Lockheed Martin, Raleigh instrument manufacturing, and they employ more than • Moog Components Group, Murphy • Northrop Grumman Synoptics, 9,500 people, according to the Economic Development Partnership of North Carolina. Charlotte • Purolator Advanced Filtration, North Carolina’s aviation cluster also includes companies Greensboro that supply the industry with products and services, • Raytheon, Raleigh from tires to tray tables, carbon and graphite products to • Spirit AeroSystems Inc., Kinston • TCOM, Elizabeth City financing for airplane leases. • Triumph Actuation Systems, Clemmons Honda Aircraft Co. manufactures its HondaJet, the • Turbomeca, Monroe • Unison Engine Components, Asheville world’s most advanced light jet, at the company’s world • UTC Aerospace Systems, Charlotte and headquarters in Greensboro. Monroe

Source: Economic Development Partnership of North Carolina

16 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Aviation in North Carolina

GE Aviation, a global leader in jet engine and aircraft system production, assembles commercial jet engines in Durham, manufactures rotating engine parts in West Jefferson and Wilmington, and operates a machining facility in Asheville, where it is also building an advanced composites plant.

Spirit AeroSystems produces the Airbus A350 XWB composite center fuselage section and leading edge wing spars at the North Carolina Global Transpark (GTP) in Kinston. The company supports the GTP’s Composite Center of Excellence, which offers education and training for eastern N.C. aerospace companies and houses a composites training lab that supports pathways for careers in aerospace and related industries.

N.C. State and N.C. A&T State universities jointly operate a National Science Foundation- funded Center for Advanced Materials and North Carolina’s 72 commercial Smart Structures that also focuses on advanced service and general aviation composites research. airports contribute more than $31 billion in economic impact The GTP itself supports aviation and aerospace as a multi-modal transportation hub and park each year. They support more than offering environmentally permitted prime 123,000 jobs across the state commercial real estate along with excellent with an annual payroll exceeding shipping capabilities via air, truck, rail or sea. $4 billion. North Carolina Aerospace Supplier and Advanced Manufacturing Summit, a statewide business development and teaming event, showcases N.C. companies engaged in advanced manufacturing and aerospace-related activities and connects N.C. suppliers and service providers with military and civilian aerospace customers.

Eight N.C. universities and numerous community colleges offer programs and centers that train talent and help the industry innovate and grow.

Aviation’s Economic Impact

North Carolina’s 72 commercial service and general aviation airports contribute more than $31 billion in economic impact each year. They support more than 123,000 jobs across the state with an annual payroll exceeding $4 billion.

State and local governments receive more than $910 million in sales, property, corporate and personal income taxes annually due to airport activity.

One of the most direct ways airports affect local tax collections is through property taxes paid by owners of aircraft based at the airport. Aircraft vary in value from thousands of dollars to tens of millions of dollars. The tax contributions of the more valuable aircraft can surpass entire residential subdivisions.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 17 Aviation in North Carolina

For instance, the owner of a $1.5 million twin- turboprop aircraft at Asheboro Regional Airport The 50 highest-assessed aircraft (HBI) pays local property taxes equivalent to the based at Charlotte Douglas taxes paid on 10 $150,000 homes. A jet based at International Airport (CLT) Davidson County Airport (EXX) pays the equivalent contribute local taxes equivalent local property tax of 50 homes. The 50 highest- assessed aircraft based at Charlotte Douglas to that of approximately 3,000 International Airport (CLT) contribute local taxes homes. equivalent to that of approximately 3,000 homes.

Further, aircraft do not require the high level of public services provided to families and homeowners, which increases the return on based aircraft to communities that house them. Building and maintaining airport facilities capable of housing greater numbers of based aircraft is a sound economic strategy for airport communities.

North Carolina’s aviation and aerospace industry provides an additional $10.5 billion in economic impact for the state each year. The industry supports more than 42,600 jobs with a payroll of more than $3 billion.

Combined, N.C.’s airport system and aviation industry contribute $40 billion in economic impact each year and support more than 164,000 jobs with an annual payroll of $7 billion.

18 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Task Force Findings

The Task Force established four groups that met separately to examine needs, opportunities and barriers inhibiting impact in four key focus areas: Aviation Funding, Economic Development, Military Personnel Retention and System Processes.

Here are highlights of the Task Force’s findings in those four areas.

Aviation Funding

Most N.C. system airports are locally owned and governed. They receive funding for operations and maintenance (O&M) and capital improvements North Carolina’s airport system from a mix of federal, state and local sources, is a net “producer” for North as well as revenues the airports generate Carolina – a producer of jobs, themselves from on-site enterprises and services. commerce, transportation and State and local governments, in turn, receive tax revenue. sales, property, corporate and personal taxes from airport operations, services and personnel – approximately $910 million in 2015, according to the N.C. State University Institute for Transportation Research and Education (ITRE).

Airport-generated Tax Revenues

North Carolina’s airport system is a net “producer” for North Carolina – a producer of jobs, commerce, transportation and tax revenue. The 72 system airports in 2015 generated more than $44 million in non-payroll taxes from on-site operations: rental car operations ($26.6 million), food and beverage concessions ($8.1 million), retail and services ($6.3 million) and fuel sales ($3.2 million).

2015 State Tax Revenues (Non-payroll) Generated On-Site at N.C. System Airports

Commercial Service General Aviation Source of Tax Total Airports Airports

Rental Car Operations $26,450,200 $134,600 $26,584,800 Food and Beverage Concessions $8,125,900 $6,600 $8,132,500 Retail (gifts, news, merchandise, etc.) and $4,297,600 $1,980,000 $6,277,600 Services Fuel (AvGas & JetA)* $2,000,000 $1,222,700 $3,222,700 Total $40,873,700 $3,343,900 $44,217,600

Source: Summary of North Carolina Aviation Taxes-September, 2015, Institute for Transportation Research and Education

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The airports also contribute to the local counties in which they operate. That includes nearly $10.8 million in property taxes paid by owners of aircraft based at system airports in 2015.

Airport-generated tax revenues flow to the local governments of counties in which they are located and to the state’s General Fund.

In addition to airport-related taxes, the state’s 42,600 aviation and aerospace industry job holders contribute personal payroll taxes on their $3 billion earnings, which flow to the state’s General Fund while their earnings turn over in the economy.

To put that impact in perspective, Piedmont Triad International Airport has 5,000 people working on-site who earn an average annual salary of $60,000, for an annual payroll of $300 million. North Carolina collects approximately $20 million in payroll taxes from those employees – a scenario re- peated at many airports across the state. The $20 million in payroll taxes generated by this one air- port is almost as much as the entire average annual appropriation ($21.4 million) the state invested in its airports each year of the past 10 until FY 2016 and almost half the state’s total appropriation for airports ($44.7 million) in FY 2016.

Public Funding for Airports

North Carolina’s system airports receive funding from federal, state and local sources, as well as generating their own revenues to support operations, maintenance and capital improvements. Both DoA and the Federal Aviation Administration encourage airports to be as financially self-sufficient as possible.

Local Funding

Local communities and counties play a significant role in the funding of many of the state’s airports in North Carolina.

The typical local match for state and federally funded projects is 10 percent of the total project cost. While some airports, particularly the larger commercial service airports, use self-generated reve- nues from airport operations and leases to fulfill their match, other airports must rely on additional public funds, especially when funding large projects.

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State Funding

DoA receives funding for airport support and improvement projects from two state sources: the Highway Fund and Highway Trust Fund.

Highway Fund. DoA receives an annual appropriation from the state Highway Fund, which totaled $38.3 million for fiscal year 2016.

Nearly 90 percent of DoA’s $38.3 million FY 2016 budget allocation goes for direct airport support. That includes grants for airport operations and maintenance (O&M) projects ($28.5 million), technical assistance ($1.6 million) and statewide airport programs ($3.1 million) that help system airports meet local and system objectives and improve their infrastructure.

The $28.5 million in O&M grant projects was split, with $18 million for projects at the 62 general aviation airports and $10.5 million for the 10 commercial service airports. DoA manages the disbursement of those limited grant funds to the 72 airports seeking assistance with their projects, which cost on average $1.2 million for general aviation airport projects and $4.3 million for commercial service airport projects.

The balance of the FY 2016 budget supports management of the state’s Unmanned Aircraft Systems (drones) and safety education programs ($2.7 million) and system administration ($2.3 million).

Aviation System State Fiscal Year 2016 Funding Allocation

Source: N.C. Division of Aviation

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Highway Trust Fund. With the passage in 2013 of N.C.’s Strategic Transportation Investments (STI) bill (HB817, STI), DoA now receives funding N.C. airports compete for Highway from the Highway Trust Fund, as well, for capital Trust Fund grant funding with improvement projects at system airports. The all other modes of state-funded landmark legislation was passed to enable transportation: highways, NCDOT to use its funds more efficiently and effectively to enhance the state’s infrastructure, which receive a minimum of 90 based on state, regional and divisional needs, percent of all Highway Trust Fund and support economic growth, job creation and a monies, and rail, ferries, public higher quality of life. transportation and bicycle/ STI established the Strategic Mobility Formula, a pedestrian projects, which share new way of allocating available revenues based with aviation the remainder, a on data-driven scoring and local input through minimum of 4 percent. Metropolitan Planning Organizations (MPO) and Rural Planning Organizations (RPO) on project prioritization.

The State Transportation Improvement Program uses the Strategic Mobility Formula and process to identify transportation projects that will receive funding during a 10-year period – a state and federal requirement. Federal law requires the plan be updated every four years; NCDOT updates it every two years.

N.C. airports compete for grant funding from the Highway Trust Fund with all other modes of state- funded transportation – highways, which receive a minimum of 90 percent of all Highway Trust Fund monies, and rail, ferries, public transportation and bicycle/pedestrian projects, which share with aviation the remainder, a minimum of 4 percent.

DoA manages the process of disbursing Highway Trust Fund grants to airports, providing 90 percent state funding with a 10 percent local match.

STI caps Highway Trust Fund grants to commercial service airports at $500,000 a year for the four largest commercial service airports and $300,000 for the six smaller ones. Projects for the 62 general aviation airports cannot exceed $18.5 million in any given year.

In FY 2016, STI provided $6.4 million for the system airports: $1 million for two commercial service airport projects and $5.4 million for five general aviation airport projects.

Jet Fuel Tax Revenues. The N.C. General Assembly in 2015 passed legislation exempting commercial jet fuel from sales taxes beginning Jan. 1, 2016, through Jan. 2020. Passage of that law exempted significant tax revenues (estimated at $20 million to $25 million a year by the Institute for Transportation Research and Education at N.C. State University).

The same law directed that taxes collected on other aviation gasoline and jet fuel sales be transferred annually to the Highway Fund and then to the DoA to support prioritized capital improvements to system airports and time-sensitive aviation capital improvement projects for economic development purposes.

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Federal Funding

North Carolina is one of 10 states that participate in the FAA’s Block Grant program, which delivers grant funding annually to DoA to support the state’s publicly owned general aviation airports with the assurance that DoA will administer the funds, prioritize the projects and close out their grants on behalf of the FAA, consistent with their requirements.

In 2015, DoA received $18.3 million in FAA Block Grant funds. From that, most general aviation airports were eligible to receive $150,000 grants, known as Non Primary Entitlement Funds (NPE). DoA currently awards $9 million of its $18.3 million Block Grant funds via NPE funds. FAA provided approximately $3.4 million of its 2015 grants as discretionary funding – that is, funding FAA directs towards projects they deem a priority. The remaining $5.7 million is dedicated to general aviation airport projects that DoA deems a priority. FAA has begun cutting some general aviation airports out of the NPE program as it revises program requirements.

North Carolina’s commercial service airports also receive some federal funding directly through FAA’s Airport Improvement Program (AIP). Charlotte-Douglas International Airport, for example, will deal directly with the FAA on a large capital project, such as a runway extension or terminal modification. AIP funding for North Carolina’s commercial service airports totaled $83.8 million in 2015.

AIP provides funding for airport projects that improve infrastructure, including runways, taxiways, aprons, noise control, land purchases, navigational aids, safety and security. The AIP is funded entirely by aviation-related fees and taxes, such as airline ticket taxes, segment and international travel fees, cargo fees and aircraft fuel taxes that are deposited into the Airport and Airway Trust Fund. AIP money is distributed by the FAA through formulas set by law.

Funding Challenges

North Carolina’s airports, as their counterparts across the country and around the world, face increasing demands on airport infrastructure to meet safety, security and regulatory compliance as well as keep pace with a rapidly changing technology environment.

Meanwhile, declining federal dollars for airport improvements means that North Carolina’s airports and all of their affected stakeholders must come up with ways to make the state’s airport system self-sufficient and able to respond to the need for both continued maintenance and new economic development opportunities.

Here are the major funding challenges identified by the Task Force.

• Declining federal funding. The future of federal funding for commercial and general aviation airports is uncertain at best. Congress, for instance, currently debating the reauthorization of the Federal Aviation Administration, has already extended the reauthorization deadline twice. Congress required 23 extensions over a five-year period, from 2007-2012, the last time it reauthorized FAA operations and funding. Such uncertainty makes long-term project planning difficult.

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Additionally, recent discussions with Sen. Richard Burr (R-NC) and other federal legislators indicate that the future of FAA Airport Improvement Program (AIP) funding is in jeopardy given the national focus on the Next Generation Air Transportation System (NextGen) project, which will transform the nation’s air traffic control system from a radar-based system to a satellite- based one. Sen. Burr and other members of the North Carolina congressional delegation suggested that there should be greater investment in airport infrastructure by the State of North Carolina.

A cut in AIP funding would mean that critical, large-scale infrastructure projects, such as runway rehabs, runway extensions, parallel taxiways and new terminals, are in jeopardy. DoA has also seen a decline in discretionary and NPE funding for general aviation airports.

• Annual funding shortfall. N.C. airports now face an $82 million funding shortfall for current airport maintenance and improvement projects.

The North Carolina Airports System Plan identifies $1.1 billion in airport funding needed over the next 20 years to maintain the state’s airport system, conform to federal and state regula- tions and achieve the system objectives identified in the report for general aviation airports. That figure does not include funding needs to help the state’s 10 commercial service airports remain viable and competitive.

Cost by Airport Development Plan Category for GA Airports

Pavement Conditions Runway Length/Width Runway Protection Zones Runway Safety Zones Taxiway/Apron Lighting Parallel Taxiway Pavement Strength Runway Lighting GA Terminal Approach Lighting Hangars Taxiway Separation Total estimated Cost: Airport Layout Plans $1.07 billion over 20 Years RW Approach Instrument Approaches Perimeter Fence Airfield Signage Weather Reporting Aircraft Aprons Visual NAVAIDS Maintenance Building Ground Communications $0 $100 $200 Millions Source: North Carolina Airports System Plan 2015

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The DoA estimates that general aviation airports will require $51 million a year and commercial service airports $133 million a year to meet those system objectives. At current state funding levels from Highway Fund, FAA Block and AIP grants ($36 million and $66 million, respectively, for general aviation and commercial service airports), airports face an annual shortfall of $15 million for general aviation and $67 million a year for commercial service airport grant funding.

Current O&M Shortfall for N.C. System Airports

General Aviation Airports Commercial Service Airports

Current O&M Projects $51 million $133 million

Current Funding $36 million $66 million (State & FAA)

Totals -$15 million -$67 million

Source: N.C. Division of Aviation

• Grant Match Requirements. An important consideration for general aviation airports is the amount of funding they must provide to match state and federal grants. The theory behind the match is that the airport (or its local government sponsor) should be invested in the airport and have a financial stake in its success. Requiring such participation also helps state and federal agencies ensure that funded projects are necessary, needed and represent the best use of public dollars.

However, the matching fund requirement provides significant challenges for Tier 1 counties, the state’s most economically distressed, and some Tier 2 counties that struggle with financial limitations and often cannot provide matching dollars to procure state or federal grants. Addressing the needs of these challenged counties will be a necessary part of addressing the outstanding projects at their respective airports.

For some federally funded projects, it may prove beneficial for DoA to cover the local match and manage those construction projects for the airport in order for critical improvements to be made.

• New Sales and Use Tax on Aircraft Maintenance, Repair and Installation Services. N.C. Gen. Stat. § 105-164.4(a)(16), which took effect March 1, 2016, imposes the state’s general 4.75 percent sales and use tax on “the sales price of or the gross receipts derived from repair, maintenance, and installation services” sold at retail and sourced to the state. Aircraft maintenance, repair and overhaul companies now must charge this tax on their labor. They risk losing business to neighboring states that do not impose such a tax. This threatens the competiveness of a $400 million industry that includes 64 FAA-certified repair stations, more than 15,000 aircraft mechanics and 8,000 active aircraft currently based in North Carolina.

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Conclusion

The Task Force spent many months researching the current funding methodology, funding programs in other states and the various tax revenues associated with aviation and aerospace in North Carolina.

Members concluded that the state must increase its funding for the airport system and that the most prudent way to fund the system going forward is to reinvest aviation-related tax revenues that currently flow to the state’s General Fund.

Economic Development

North Carolina’s system of airports, large and small, significantly impact the economies of the counties and region in which they are located. …new manufacturing facilities As a sector, aviation and aerospace industries often require substantial capital compare favorably to other sectors targeted by investment for the provision of economic developers, including manufacturing. utilities, access and infrastructure, Average salaries in the aviation and aerospace whereas many airports in the state industries, $59,061 and $70,422, respectively, already have land on which to far exceed the $54,380 average salaries paid by expand and critical infrastructure most areas of manufacturing in the state. in place. Additionally, new manufacturing facilities often require substantial capital investment for the provision of utilities, access and infrastructure, compared to many airports in the state that already have land on which to expand and critical infrastructure in place.

North Carolina could benefit significantly by leveraging these existing assets to create greater economic growth.

The Task Force identified a variety of opportunities for expanding the economic impact of N.C. airports and aviation industry and leveraging the state’s aviation assets to expand the economy.

Here are key findings.

Aviation Industry Recruitment, Retention and Expansion

The Task Force’s review of current efforts around recruitment, retention and expansion of aviation- related businesses in the state revealed many areas in which to suggest alternative approaches.

First and foremost, the Task Force embraces the concept of “North Carolina First” for the various state agencies charged with recruitment. This concept simply means that when an aviation-related business is considering locating its operation, state resources should be focused first on ensuring that the business comes to North Carolina, then to a specific community.

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Salaries commanded by aviation and aeronautics fields, across all levels, are a significant tax generator for the state. N.C. aviation workers generate $242 million in personal state income taxes. Additionally, because most of the infrastructure needed for such operations is already in place (in the form of an airport), the investment required is typically less than that required by other types of new facilities and, thus, yields a greater return on investment.

North State Aviation at Smith Reynolds Airport in Forsyth County offers an excellent example. North State took over vacant space at the airport, starting operations with 28 employees employed in aircraft maintenance and repair. Within five years, North State has grown to be a top-50 employer in the county, with 350 full-time employees and nearly quadrupling its space.

Despite aviation’s tremendous economic potential, state efforts to grow this industry appear disjointed, with multiple agencies, municipalities and individual airports often chasing the same business without any structure or single point of contact.

An example of this can be found at global air shows. Currently, five to seven agencies from state and local government send representatives to air shows without any coordination, consistency of message or alignment of objectives. This dilutes the message that North Carolina, as a state, wants new business at its airports and more aviation investment, in general.

The governor’s bold restructuring of the N.C. Department of Commerce and creation of the Economic Development Partnership of North Carolina as a nonprofit corporation to oversee statewide economic development creates an excellent opportunity to identify N.C. airports and aviation as a priority target for state economic development efforts.

Targeted Investment Funding

Airports and aviation generate significant returns for the state in both economic impact and in tax revenues. Two case studies illustrate why targeted state investment in aviation makes sense.

Honda at Piedmont Triad International Airport

Honda Aircraft Company Inc. has operated in North Carolina since 1999, when Atlantic Aero, a fixed- base operator located at Piedmont Triad International Airport (PTI) in Greensboro, constructed a hangar specifically for Honda. Honda developed the Honda Jet prototype in the hangar and debuted it in 2003. The company employed approximately 50 people in North Carolina in 2002. Today, it employs more than 1,700.

A detailed economic impact analysis of the Honda project by ITRE in 2014, which conservatively predicted 2016 employment numbers of approximately 750, pointed to an overwhelmingly positive cost-benefit ratio, as shown in the diagram below. With the exception of the first year, the state received more in tax revenues – from $1.6 million to $2.8 million a year -- than state and local governments invested to attract the plant.

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Cash Flow of Incentives/Investments and Tax Revenues at Piedmont Triad International Airport: Honda Aircraft Company Inc.

C p ul Cumulative Net Between Difference Incentives/ rte v N e D

v eInvestments and Revenues s (- c B nd w i n mat I ed nt x e v nv enu tm nt ) a R

Reported Incentives (-) and Estimated Tax Revenues Revenues Tax (-) and Estimated Incentives Reported enu e

(+

Source: Institute for Transportation Research and Education

The Honda case study underscores the importance of our state being ready and able to say, “Yes,” when companies express interest in locating in North Carolina.

New International Flight at Raleigh-Durham International Airport

A public-private partnership of business, government and community partners helped the Raleigh- Durham Airport Authority provide a $2.2 million, start-up risk mitigation package, as well as marketing support, to entice Delta Air Lines to launch new nonstop service between RDU and Paris beginning in May 2016.

N.C. State University economist Mike Walden estimates the new international flight will generate at least $25 million in regional economic impact and 100 new jobs in the first year. Previous analyses have shown that regions with greater air flight linkages between regions have tighter economic ties and enhanced long-run economic growth. Walden projected that the Research Triangle Region’s Gross Domestic Product (GDP) will be $1.4 billion higher, in 2014 dollars, with 14,000 more jobs and $272 million in additional present value public revenue after 25 years due to the new nonstop international flight.

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These are just two examples that demonstrate the return of strategic investment from both a monetary standpoint, in the form of tax revenues, [N.C. State economist Mike] and the creation of jobs that exceed the average Walden projected that the salary level for North Carolina residents. Research Triangle Region’s Gross Domestic Product (GDP) will By contrast, the recent pursuit of the Boeing 777x manufacturing facility included three sites in North be $1.4 billion higher, in 2014 Carolina. The infrastructure investment in any of dollars, with 14,000 more jobs the three was expected to be on the order of $50 and $272 million in additional million to meet the company’s needs. Boeing chose present value public revenue after Charleston, S.C., to construct facilities for assembly 25 years due to the new nonstop of its 787 Dreamliner. A Feb. 19, 2015, article in the Charleston Post and Courier reports that the international flight. local economic benefit from Boeing’s presence at the Charleston International Airport is expected to exceed $11 billion, with 8,200 direct employees and sustaining another 20,000 related jobs from its operation.

Opportunities like these can be replicated in North Carolina with the right focus, commitment and investment to attract them.

General Aviation Airport Impacts

The state’s 62 general aviation airports offer significant potential for generating greater economic impact for their communities and our state. Burlington-Alamance Regional Airport in rural Alamance County offers a case in point.

Honda Aero in 2007 selected the airport as its headquarters and primary production facility of the engines developed by GE Honda Aero Engines LLC. Honda Aero invested $42 million in the Burlington facility between 2007 and 2015, including constructing a 36,000-square-foot office building, a 58,400-square-foot manufacturing plant and an 8,000-square-foot hangar for its engine test cell. In March 2015, the company received its FAA production certificate for the HF120 engine and transitioned full production of the engines to Burlington from a GE facility in Massachusetts, according to an ITRE report, Fiscal Impact of Strategic Investments at Burlington-Alamance Regional Airport. Honda Aero now employs 85 people at average salaries of $62,000.

Public agencies in North Carolina collectively committed approximately $8.2 million in direct and indirect incentives to attract Honda Aero to Burlington-Alamance Regional Airport. The following cash flow diagram represents the return on investment for those public dollars and indicates that the break-even year for the investment was 2014, year seven. Now, the financial benefits are in the hundreds of thousands of dollars each year.

This is another example of taking existing, publicly owned infrastructure and making strategic investments that result in job growth, additional tax revenue for local and state government and the attraction of related businesses.

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Cash Flow of Incentives/Investments and Tax Revenues at Burlington-Alamance Regional Airport Cumulative Net Between Difference Incentives/ Investments and Revenues Reported Incentives (-) and Estimated Tax Revenues Tax (-) and Estimated Incentives Reported

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Source: Institute for Transportation Research and Education

Airport-based Aircraft

N.C. airports host nearly 8,000 aircraft. Owners of those aircraft pay property taxes that exceed the value of whole neighborhoods, without requiring extensive public services to support them.

The $10.8 million in taxes paid by owners of aircraft based at system airports represent substantial revenue generators for their local governments. With property tax rates across the state ranging from .279 percent (Macon County) to 1.030 percent (Scotland County), and assuming an average property tax rate of .60 percent, the value of the state’s based aircraft exceeds $1.4 billion.

Investing in an economic development strategy that attracts more based aircraft to the state’s existing airports could generate returns far more quickly and inexpensively than attempting to replicate that tax base elsewhere by recruiting other types of industries to undeveloped land.

Building and maintaining airport facilities capable of housing greater numbers of based aircraft is a sound economic strategy for airport communities.

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Conclusion

N.C. airports offer a wide range of opportunities for expanding business investment and economic growth in every community in the state. Among N.C. airports host nearly 8,000 them: aircraft. Owners of those aircraft pay property taxes that exceed • Expanding revenue-generating enterprises and the value of whole neighborhoods, services at the state’s 72 airports. • Attracting more aviation-related businesses to without requiring extensive public locate on or near airport properties. services to support them. • Expanding military business and services offered by airports (See the next section, Military Personnel Retention, for more information on this topic). • Expanding the state’s aviation and aerospace industry cluster. • Leveraging synergies with the state’s technology, defense and aviation sectors to develop a commercial drone industry (global commercial drone market expected to grow 19% by 2020).

Airports and aviation offer existing infrastructure, a high rate of return on investment and significant potential for economic impact and job creation. North Carolina would be well-served by focusing strategic economic development efforts and resources to expanding the sector in these ways.

Military Personnel Retention

North Carolina currently boasts the fourth-largest military population in the United States. The military community plays a significant role in keeping the state economically robust. Military personnel and veterans play a key role in the state’s economy, generating economic impact through their spending and providing a talented pool of workers trained in critical aviation-related skills that serve the state’s aviation industry.

Here are the Task Force’s findings on the key opportunities offered by our military installations and personnel.

Aviation-related Facilities

North Carolina is home to eight federal military installations: Fort Bragg, Camp Lejeune Marine Corps Base, Cherry Point Marine Corps Air Station and Naval Air Depot, New River Marine Corps Air Station, Seymour Johnson Air Force Base, Sunny Point Military Ocean Terminal and the U.S. Coast Guard Base in Elizabeth City. Additionally, the N.C. National Guard has three aviation facilities with based aircraft: Army Flight Facilities at RDU International and Rowan County Airport and the Air National Guard base located at Charlotte-Douglas International Airport. Each contributes significantly to the state’s aviation sector and economic impact through its aircraft maintenance operations, pilots, fuel and expertise.

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Military spending in the state accounts for approximately 13 percent of North Carolina’s Gross State Product ($66 billion), according to the North All 72 system airports support Carolina Military Affairs Commission 2015 report, military aviation in some way. The Economic Impact of the Military on North Carolina.

This economic contribution comes from many sources directly supported by the military in North Carolina, including:

• $34 million in personal military income. • $2.5 billion in U.S. Department of Defense (DOD) prime contracting in 2014. • $204 million in DOD subcontracting in 2014. • More than $8 billion in retiree pensions, medical care and other DOD support.

Joint use facilities, such as the U.S. Coast Guard Base, support both military and public aeronautical operations. Public airports, such as Rowan County Airport, Charlotte-Douglas International, Stanly County Airport and Raleigh-Durham International Airport, offer joint-use facilities.

Non-joint-use facilities also support military flight operations on a daily basis, year-round. For example commercial service airport, Albert J. Ellis, in Onslow County has 25-30 military operations daily. Duplin County Airport, a general aviation facility, frequently sees daily operations by the U.S. Marine Corps.

All 72 system airports support military aviation in some way. The majority of North Carolina’s public airports support seasonal, occasional, weekly or daily military aviation operations, including passenger pick up and drop offs, refueling, search and rescue, customs and transit, touch and go, special training operations (i.e. parachute training, Civil Affairs role-playing, Helicopter Aquatic Rescue Training, etc.), instrument approach training and general pilot training operations for approach and departure.

Keeping our public airports in prime operating conditions will continue to support military aviation needs, thereby supporting the military in general and the substantial role it plays in North Carolina’s economic well-being.

Military Personnel

North Carolina is home to more than 100,000 active duty military personnel. Their presence represents a significant employment driver for their respective communities, and they also impact civilian facilities around the state.

Military personnel represent 10 percent of the state’s total employment (578,000). Approximately 775,000 veterans currently call North Carolina home, with 244,000 of them considered to be of prime working age, according the report. More than 78,000 are projected to leave the military during the next four years, with 96 percent of them under 40 years of age.

These personnel possess a valuable and diverse skill set and offer a significant potential labor market for North Carolina businesses. Many leave the military trained in fields relevant to aviation, from avionics, communications, electronics and engineering to heavy and specialized equipment operation, information technology, and transportation and logistics.

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North Carolina benefits in many ways from incenting separating and retiring military personnel to remain in the state. North Carolina veterans received more than $ 8.2 billion in pay and benefits in fiscal year 2014, according to The Economic Impact of the Military on North Carolina, a publication of the N.C. Department of Commerce and N.C. Military Affairs Commission. Given the economic multiplier effect of those benefits turning over in the economy, the return to the state could be enormous if the state chose to further incent those veterans to remain.

Military retirees and veterans also represent a vast pool of experienced, skilled professionals whose continued residency in our state only increases the likelihood of attracting industries that need their experience.

Overall, North Carolina has done a very good job of retaining retiring and discharged military personnel involved in aviation, but the need exists to continue to ensure that these valuable assets remain in the state, contributing their valuable skill set to the economy, after they leave the military.

Numerous avenues exist by which veterans may maximize their value in the civilian economy. These include programs that document military training and experience to facilitate job certification, training and education benefits of the GI Bill, and tax breaks on retiree pay. These benefits are universal, however, and do not distinguish North Carolina from competing states.

North Carolina ranks 34 out of 51 (including Washington D.C.) for military benefits for families, veterans, and retirees, according to the State Report Card for Military Families, Veterans, and Retirees. The report notes that North Carolina does offer some tax breaks that exceed other state’s policies. However, North Carolina and most states fall short of what Missouri offers veterans, for example, exempting 90 percent of military retirement pay in 2015, rising to 100 percent in 2016.

Four major factors enhance or detract from North Carolina’s attractiveness for retiring military:

• Tax rates on retirement pay. • Ease of transferring military training to recognized civilian certifications. • Hiring networks. • Employer incentives to seek out veterans to fill job opportunities.

Conclusion

North Carolina pursues a range of initiatives that encourage skilled military retirees and veterans to remain in the state.

While the state can and should explore ways to improve its ability to retain them, the key opportunity for expanding aviation’s economic impact in North Carolina is to leverage the sizeable and skilled military-trained workforce to support the state’s aviation sector.

System Processes

The “process” focus area refers primarily to the functions of the DoA, a division within the NCDOT, with the DoA director reporting to the deputy secretary for transit.

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The DoA is charged with promoting aviation throughout the state and facilitating the award of both state and federal funding for aviation and airport-related projects. Additionally, the DoA is responsible for maintaining and operating the state-owned fleet of passenger aircraft. Most recently, DoA has been directed to be the state agency responsible for the oversight of the rapidly growing Unmanned Aircraft Systems (UAS) industry.

Several months prior to the creation of this Task Force, the DoA established and facilitated an Airports Working Group to determine ways to improve efficiency, timing and customer service. The Working Group consists of airport directors and managers, members of the N.C. aviation consulting community, DOT personnel and other state government personnel.

The Working Group spent many months reviewing the grant application, review, award and management process (See Appendix D). The Task Force believes the continued effort of the Working Group, in conjunction with the recommendations below, is critical to achieving the governor’s goal of improved customer service throughout state government.

Here are the Task Force’s key findings.

Airport Grants

The Department of Transportation is required to adhere to a number of state and federal laws when administering grants. These laws are designed to ensure the best use of public funds and the safety and soundness of all aviation improvements. However, there is an opportunity to ensure that their application is contextually appropriate for the aviation industry.

The well-established policies of NCDOT are primarily designed for highway projects, highway engineers and outside consultants who provide highway-related guidance. Utilizing the processes, policies and the oversight criteria of aviation-related agencies, such as the FAA, could benefit NCDOT DoA as well as North Carolina’s airports by providing a consistent regulatory guideline for the administration of grants and aviation projects.

While the existing guidelines of the state and the FAA have the same oversight goals, each agency has its own process for implementation, and this creates additional burdens on both the DoA and sponsor airports, such as the perception of one agency requiring more than the other in the grant administration process.

Airports (as grant recipients) are different than the typical highways stakeholders, given their specific, and already highly regulated, mission. As such, the simplification of grant review, management and oversight should be customized to aviation while still adhering to the overall objectives of NCDOT.

As of this report writing, DoA has launched comprehensive resources to address this issue, including an online site that walks airport grantees and airport consultants through the process of implementing grant award projects.

Overall, we find that funding for DoA, which is now reliant upon Highway Fund and Highway Trust Fund dollars, is insufficient to meet system objectives at the state’s airports or enable rapid response to economic development opportunities.

Implementing the recommendations found in the funding section of this report will enable NCDOT and the DoA to better support the needs of system airports.

34 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Task Force Findings

Highway Trust Fund Challenges

While the state’s recent STI legislation has had a very positive impact on programming and funding of statewide transportation projects, opportunities exist to improve upon the effectiveness for solid airport capital projects.

Funding caps for statewide and regional airports should be increased to be more reflective of normal project costs. The existing caps, established more than 25 years, were arbitrary. Further refinement is needed around the current cost/benefit criteria for airport projects. Airports often are limited on supporting data on the benefits of a project, unlike highways, for example, which have more data and research models to quantify project benefits.

Training and Technical Assistance

DoA in 2015 announced the establishment of the North Carolina Airport Technical Assistance Program (AirTAP) to support the state’s public and private sector airport professionals. The program is designed to help N.C. airports improve the safety, quality and efficiency of their operations and increase the use of new aviation materials, practices and technology. NC AirTAP will also help airport staff build a community network for exchanging best practices.

NC AirTAP is a joint effort of ITRE, DoA and the N.C. Airports Association. Through educational offerings, information outreach and technical assistance, NC AirTAP will continuously assess the professional development needs of the state’s system airports and adapt to best meet those needs.

The Task Force supports the develop and expansion of this training and technical assistance and believes the initiative could benefit from a training program for local airport directors that is similar to the Director’s College program offered to financial institutions by the North Carolina Banking Commission each year.

Economic Development Opportunity Funding

Because of legislatively mandated reductions in economic development programs and incentives, DoA has not had the ability to react to economic development opportunities related to aviation without special appropriation or the use of economic development funds identified for highway projects.

New legislation passed in 2015 exempted commercial carriers from paying sales taxes on aviation fuel while directing that sales taxes derived from the sale of fuel to other customers be directed annually to the DoA through the Highway Fund for prioritized capital improvements to public airports as well as time-sensitive aviation capital improvement projects for economic development purposes.

The revenues will provide some flexible funding for the airport system to respond to economic development opportunities. The state should examine additional sources of funds for such purposes.

DoA Within NCDOT

The vast support network provided by NCDOT in the areas of human resources, accounting, information technology, legal services and other resources are consistently relied upon by DoA and should continue.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 35 Task Force Findings

NCDOT’s position of prominence among state government agencies and the focus on transportation issues by both the legislative and executive branches helps ensure attention is given to aviation issues.

Still, the Task Force believes that an Aviation Commission is needed to support the state’s airport system. Such a commission could work with the secretary of transportation, governor and DoA to advocate for the state’s airports and aviation industry, provide strategic direction and connect the sector to opportunity and influencers who can support it.

The commission should comprise members that reflect the geographic diversity of the state and of members familiar with the state’s aviation and airport system. The entity would report to and coordinate activities with the secretary of transportation.

Its duties and responsibilities could include the following:

• Consistently provide recommendations to the secretary of transportation regarding the operations of the DoA, including increasing efficiency in the grant process, evaluation of economic development opportunities, prioritization of projects and development of independent policies and procedures germane to aviation. • Serve as an advocate for aviation in the state by recommending program enhancements, alternative funding sources and public outreach resources to the secretary. • Support and advocate for Airports Working Group efforts to continue to streamline the grant process and increase efficiencies, soliciting input from airport sponsors, staff, consultants and industry professionals.

The Task Force spent a considerable amount of time discussing the benefits of the aforementioned entity, and there were diverse opinions on what the final recommendation should be. Additional ideas proposed by Task Force members included:

• Making the aforementioned entity a standing subcommittee of the Board of Transportation. • Having the DoA report directly to the secretary’s office as opposed to the current structure within the Transit Division under the deputy secretary for transit with other non-highway modes, including rail, bicycle and pedestrian transportation, and the ferry system. • Consider combining the DoA with the Ports Authority.

Overall, the Task Force believes that the Commission and DoA merit a higher position within the department and direct line of reporting to the chief deputy secretary due to DoA’s mission, the customers they serve and aviation’s importance and value to the state’s transportation infrastructure and statewide economic development.

Conclusion

Opportunities exist for further streamlining processes for funding, supporting and advocating for the state’s airport system. Continuation of the N.C. Airports Working Group and creation of an Aviation Commission would provide mechanisms for continuous assessment, improvement and advocacy for aviation in North Carolina.

36 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Task Force Recommendations

Task Force findings from each of the four focus groups lead us to recommend that the state and DoA take strategic action in these three areas to expand the economic impact and sustainability of N.C.’s airport and aviation industry.

Strategic Investment

• Reinvest in the N.C. Department of Transportation’s Division of Aviation the state tax revenues (non-payroll) generated on-site at airports, (approximately $44 million in FY 2015), which includes existing taxes on rental cars originating at system airports, sales taxes collected from airport enterprises and aviation fuel taxes, to supplement current state funding for the airport system.

Use those additional revenues to:

○ Offset the estimated $82 million annual shortfall for critical infrastructure maintenance, safety and regulatory compliance improvements needed to meet system objectives and local priorities at the state’s 72 airports.

○ Provide greater financial support for airports in the state’s most-distressed (Tier 1 and 2) counties: • Assist with the required local match of federally funded capital improvement projects. • Reduce the portion of local match required for state funded projects.

○ Expand Division of Aviation training, technical assistance, business development and operational support for the state’s 72 system airports.

• Expand funding for infrastructure improvements on airport property required to attract a high- value business relocation or expansion beyond that provided by the new sales tax on aviation fuel.

• Consider the competitive and economic impact of the recent sales and use tax added for labor on aircraft maintenance, repair and overhaul on the state’s ability to retain existing aircraft maintenance operations and attract new ones.

Targeted Economic Development

• Designate the state’s airports and aviation industry as an economic development recruitment and retention priority with appropriate strategic and tactical supports.

• Dedicate and embed within the Division of Aviation an experienced aviation industry recruitment specialist, identified and supported by the Economic Development Partnership of North Carolina, who will work full time to expand airport and aviation industry businesses through marketing, business recruitment, retention initiatives and collaboration with Division of Aviation and airport leadership across the state.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 37 Task Force Recommendations

• Develop a strategic plan for leveraging the state’s airports and aviation assets to expand the aerospace industry, exploring opportunities for recruiting and retaining more aerospace investment, expanding the aviation supply chain, creating a market-leading commercial drone cluster and maximizing the airport system to preserve and grow the state’s defense industry.

• Leverage major, national and global air shows (Paris, London, etc.) for recruitment as part of the new aviation strategic plan, ensuring uniformity and consistency of marketing efforts and facilitating the “North Carolina First” initiative.

• Leverage the state’s military retiree talent retention initiatives to support aviation industry recruitment.

• Strengthen the state’s university and community college programs specializing in aviation, aeronautics and avionics to prepare the aviation and aerospace workforce and provide a comprehensive, cohesive training platform for potential employers.

• Improve efforts to educate state and federal legislators on the economic impact of both general aviation and commercial air service to the state.

Training and Technical Assistance

• Align, streamline and focus Division of Aviation resources and processes to help airports meet the demands of 21st century aviation and support economic development objectives:

○ Create an Aviation Commission that advocates for the state’s airports and aviation industry, provides strategic direction and connects the sector to opportunity and influencers who can support it.

○ Expand Division of Aviation training services that help airport operators manage more effectively and generate greater economic impact.

○ Continue the N.C. Airports Working Group, which identifies needs, opportunities and strategies for improving the state’s airports and strengthening Division of Aviation services.

38 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Appendix A: Executive Order 54 – Aviation Development Task Force

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 39 Appendix A: Executive Order 54 – Aviation Development Task Force

40 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Appendix B: Executive Order 63 – Amending the Aviation Development Task Force

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 41 Appendix C: N.C. System Airports

42 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Appendix C: N.C. System Airports

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 43 Appendix D. N.C. Airports Working Group

NC Airports Working Group

Background and Purpose

The Working Group was established in April 2014 in support of improvements to the programs and services administered by the DoA. The role of the Working Group is to identify opportunities for improvement of existing programs and services, as well as developmental areas to better serve the needs and interests of the state, regions and localities. This includes, but is not limited to, strategies to enhance the State’s economy and well-being; fund aviation projects and programs; minimize environmental impacts; and streamline processes to increase responsiveness and reduce costs. The Division’s customers include airports across the state, local government and planning organizations, the military, other agencies, consultants, contractors and vendors. The objectives of the Working Group are to:

1. Identify opportunities for improvement to effectively support the aviation network across the state and the customers it serves; 2. Identify new or emerging issues and provide input and guidance on strategic topics on behalf of and as representatives of the aviation community; 3. Recommend implementation strategies; 4. Identify and leverage partnerships, as needed, to advance recommendations that require interagency cooperation and communication; and 5. Provide feedback on implementation activities.

Composition

The Working Group consists of: • Eight airport sponsors from airports from across the state; • A single representative from each of seven different airport consulting firms within the state; • A FAA representative from the Airport District Office in Memphis, TN; and, • NCDOT representatives (a NCDOT Board of Transportation Member, the Deputy Secretary for Transit, and the Director of the DoA).

The membership may be augmented, as needed, to ensure representation from key stakeholders.

NC Airports Working Group Accomplishments

Since April 2014, the Working Group has met seven times to further their objectives. At the onset of the Working Group, a survey was conducted to better understand customer needs and expectations to help inform possible areas of focus.

44 < PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION Appendix D. N.C. Airports Working Group

These included: • Funding/Strategic Transportation Investment/Local Funding • Efficiency/Process/Guidance • Decision-Making/Consistency • “Selling” Aviation • Communication • Customer Service/Timeliness • Innovation • Staffing and Staff Involvement

Many of the issues identified above have been addressed through two primary initial areas of focus. The DoA will continue to engage the Working Group as they continue to improve customer service, increase efficiency and enhance communication with stakeholders across the state.

• Developed a mutual understanding and documentation of the grant administration process (including project requests, funding and execution) and the associated requirements, roles/ responsibilities and expectations for associated timeframes. ○ Identification and understanding of the challenges that project sponsors, consultants and DoA have with the existing process, as well as exploring suggestions for improvement. ○ Inventoried, detailed and discussed the federal and state regulations and requirements associated with grants administration process. • Refined, developed and implemented tools in support of an improved Grants Administration Process. ○ Conducted survey on Scope of Work Template and Manhour/Fee Estimate Sheet and modified tools based on input. ○ Discussed and received input on the requirements to conduct Independent Fee Reviews. ○ Developed communication materials for the grants administration process so that airport sponsors, consultants, airport boards/authorities and other interested stakeholders can more easily understand the main steps, associated tasks, and key considerations for each step. • Learned about and offered suggestions about Partner Connect and the new on-line grants administration tool, that will increase efficiency (including instantaneous Notice to Proceed), accountability, and transparency that includes workflow tracking, approvals, repository for documentation, reimbursement, etc. ○ Provided input to shape the content and organization of the North Carolina Airport Programs and Policy Guide. ○ Developed a better understanding of the NC Airports Systems Plan and its relationship to project programming and prioritization. ○ Provided input for the scope of work for a research project to identify national best practices for prioritizing and programming aviation projects in Block Grant States to inform aviation project prioritization and programming in North Carolina. ○ Developed a better understanding about the aviation project prioritization process (P3.0) for Strategic Transportation Investments (STI) and provided input to reach consensus on quantitative project prioritization criteria for Capital Aviation Projects as a part of STI’s P4.0. Included vetting concepts and criteria on project prioritization related to economic impacts. ○ Discussed state and national requirements associated with airport land acquisition projects and leveraging NCDOT Right of Way experts. ○ Improved outreach and enhanced communication between DoA, airport sponsors and consultants on DoA’s programs, policies and services.

PROPELLING NORTH CAROLINA’S ECONOMY THROUGH AVIATION > 45 “By increasing vital funding for maintenance and enhancements, our airports can continue serving a key role as economic drivers and assets for North Carolina.”

John Lennon Chair, North Carolina Aviation Development Task Force

Division of Aviation N.C. Department of Transportation 1050 Meridian Drive, Morrisville, NC 27560 919.814.0550 ncdot.gov/aviation