4. Municipal Bonding

As described earlier, one of the historical reasons municipalities became airport owners was their ability to sell tax-exempt bonds to raise capital for major construction projects. Tax-exempt bonds carry lower interest rates, lowering total cost for construction projects. At Metro, the capital and financing costs are all paid from the activity fees previously described. In effect, the limitation of these benefits to public entities has contributed to the inability of private enterprise to develop airports.

Because private airports would have to compete with publicly-owned airports, it can be argued that a privatized airport should continue to be able to take advantage of these favorable bond provisions. However, since the lower interest costs are subsidizing a private activity (air travel), we would argue that municipal bonds for airport should be eliminated altogether.

In the interim, the inability of privately-owned airports to take advantage of these tax benefits can be resolved through the sale of bonds under provisions of Michigan law. Once the airport sale is complete, the city of Romulus (in which Metro airport is located) could create an Economic Development Corporation (EDC). Under state law, EDCs are allowed to sell tax-exempt bonds for public purposes defined in the act, even if the ultimate beneficiary of the proceeds from those bonds is a privately owned enterprise. [41] The EDC is tax-exempt and would essentially serve as a unit of city government providing capital for the stated public purpose of airport development.

While the federal Tax Reform Act of 1986 limited the amount of such bonds a state could sell in any given year, a privately-owned airport might sell serial bonds for major construction projects. Rather than bonding all construction at one time in the first year of the project, bonds might be sold in phases throughout the construction process so that no single year's allocation of bonds are totally absorbed by a large airport project,