Corporate Jet Scandal

I have a couple of posts here regarding the scandalous abuses of corporate jets.

http://michaelperelman.wordpress.com/2007/03/25/trophy-houses-and-poor-corporate-performance/

http://michaelperelman.wordpress.com/2006/09/11/golf-and-corporate-malfeasance-flying-high-in-the-corporate-sky/

Here is another example of how corporate jets create undeserved subsidies. The article comes from David Cay Johnston, who has done marvelous work over the years on the tax beat for the New York Times.

Johnston, David Cay. 2007. “Assisting the Good Life.” New York Times (15 June).

“Mike Keiser, who made a fortune selling greeting cards on recycled paper, turned this remote spot on the southern Oregon coast into a golfing mecca that attracts wealthy people in private jets from around the world. To many in this hard-luck town of 3,000, Mr. Keiser is an economic hero. Work became scarce after the timber and fishing industries collapsed a quarter-century ago, and his Bandon Dunes Golf Resort, a few miles north of town, has created 325 full-time jobs, plus hundreds more part-time jobs. Mr. Keiser earns millions of dollars in profits each year. But beneath this model of enterprise, largely hidden subsidies from airline passengers, state-lottery players, taxpayers and company shareholders support the benefits that the owner, workers and visitors at Bandon Dunes enjoy. Airline passengers and lottery players are paying for a $31 million airport expansion to serve the 5,000 business jets that arrive each year, filled almost entirely with golfers. Many of them are executives of publicly traded companies flying at a small fraction of the real cost of their trips; taxpayers and shareholders bear nearly all of these costs.”

“This year about 120,000 rounds of golf will be played, at a typical cost in season of more than $200 a person. Lodging and meals add hundreds more to the expense. Among the visitors have been Bill Gates, Michael Jordan and Don Johnson.”

“After the resort was built without government aid, the first subsidy was put in place only after Mr. Keiser’s lawyers succeeded in eliminating for three years the larger property-tax bill that would normally accompany new construction — a tax break worth $99,000 this year.”

“The city of Bandon also allowed Mr. Keiser to buy into a proposed reservoir project, which would produce water for the town and for another golf course he may build south of here. The project requires condemnation of land, which can be done only by a government agency. But those two relatively modest government subsidies pale in comparison to the support for private jets that has made the resort far more accessible. About 20 miles north of Bandon Dunes lies an airport, which handles only three commercial flights a day. The airport was originally created to serve planes guarding the coast during World War II. Before the first golf course opened in 1999, perhaps three private jets a year landed here, said Gary W. LeTellier, the airport director. Last year 5,000 private jets came; the number should grow to as many as 7,500 once the expansion is completed, Mr. LeTellier said. The airport expansion is being financed by a tax paid on all commercial airline tickets and state bonds backed by revenue from the Oregon lottery, which is heavily used by the state’s poor.”

“Even if the planned growth of the resort leads to a doubling of the full-time payroll to 650, the airport expansion alone represents a one-time cost to taxpayers of almost $48,000 a job. The average pay for a full-time Bandon Dunes worker, including benefits and tips, is about $36,000.”

“Based on the number of corporate jets flying here, an average four-hour flight time and total costs of $4,000 per hour, the subsidy from taxpayers works out to about $12 million, with shareholders effectively paying about twice that. For the 325 existing jobs, that adds up to an annual total of $37,000 a job.”

“Moreover, under current government rules, the income attributed to personal use of such jets is only a fraction of the real cost. Take a trip that costs a company $100,000. Of that, $35,000 is borne by the federal government because such expenses are tax deductible.”

“No official tally of business subsidies exists, but in separate studies Peter S. Fisher of the University of Iowa and Kenneth F. Thomas of the University of Missouri estimated that state and local subsidies aimed at creating jobs total about $50 billion annually. More subtle subsidies like those that benefit Bandon Dunes are not counted in those figures and may be even larger.”

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2 comments so far

  1. Don Sandborne on

    Wow some interesting information there. Didn’t know that these jets were a big problem.

  2. mperelman on

    You might look at the earlier posts, which are even more telling.


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