Terrorism hurts the bottom line; as the cost of doing business in the wake of Sept. 11 keeps growing, some business and community leaders wonder what price America is willing to pay for security

Insight on the News, April 1, 2002 by Tom Ramstack

Power and chemical plants, telecommunications companies, airlines, railroads and others are, or will be, paying for increased security measures prompted by the Sept. 11 attacks. The higher costs for the regulated industries eventually will become the higher costs for their business partners, communities and customers.

"The magnitude of the total impact on regulated and unregulated industries is unclear because it's so new," says John Mayo, director of Georgetown University's Center for Business and Public Policy. "Security has never been a priority for federal agencies in the past."

Perhaps no industry felt the financial pinch of security as quickly and severely as the airlines. Within days of the attacks, the Federal Aviation Administration required carriers to spend more money on security even as their businesses teetered on the edge of bankruptcy. Recent additions to security requirements have included reinforced cockpit doors, cabin videos and transponders that allow air-traffic controllers to track airplanes with greater precision.

Congress has agreed to spend $100 million to help airlines pay the bill, but analysts warn that the aid won't cover the price tag. "There's no question that our immediate costs will easily surpass $100 million, probably several hundred million," says John Heimlich, research director for the Air Transport Association, which represents major airlines.

Other costs result from the $2.50 security tax on airplane tickets, free seats for federal sky marshals and slower flight schedules that allow time for delays caused by bag matching. New security procedures also add to what Heimlich calls "the hassle factor" for passengers. "From a demand point of view, we sell speed," he says. "That's why people fly, to get from A to B more quickly. Now it's more expensive and it's slower. That's the kind of thing that makes people think twice about their purchase."

Meanwhile, the Nuclear Regulatory Commission (NRC) is trying to respond to reported threats that terrorists might crash airplanes into nuclear power plants or blast them with car bombs. Since Sept. 11, "we have issued more than 20 advisories on extra security measures they should take, and we have been doing inspections to make sure they do that," says Sue Gagner, an NRC spokeswoman. "If we find violations of our regulations, we take enforcement actions." Such actions include a range of fines, revocation of licenses and even jail for willful violations.

Other industries only are beginning to feel the effects of higher security costs as government regulators assess which new regulations to impose. "Everyone anticipates that the additional security measures to make our facilities more secure are going to increase our costs," says Chris Vanden Heuvel, spokesman for the American Chemistry Council. "We're unclear what additional guidelines or regulations they might propose."

The railroad industry is asking the federal government for legislative assistance to drive down insurance costs. As common carriers, the Transportation Department requires them to carry insurance against terrorist acts. Since the attacks, antiterrorism insurance has become prohibitively expensive.

The Federal Transit Administration is sending teams to the nation's 41 largest transit agencies to assess their vulnerability to attack. Although new regulations have not been determined, they are expected soon. The new Transportation Security Administration is considering a requirement that transportation workers carry ID cards for access to secure areas, which railroads or their employees would be required to purchase.

A Federal Communications Commission (FCC) task force is assessing security risks to the nation's telecommunications network. One priority is securing wireless communications systems for emergency personnel. The FCC also is involved in Internet security, which has attracted the interest of Congress. At a hearing last month before the Senate Judiciary subcommittee on Administrative Oversight and the Courts, Richard Clarke, chief of the White House's Office of Cyberdefenses, warned that a terrorist attack over the Internet was likely. "Terrorists could gain access to the digital controls for the nation's utilities, power grids, air-traffic-control systems and nuclear power plants," said subcommittee Chairman Charles E. Schumer (D-N.Y.).

The source for the security policies and costs ultimately can be traced to the Bush administration. President George W. Bush's proposed fiscal 2003 budget allocates about $38 billion for new domestic-security expenses. The White House defends any doubts about security costs with references to airplanes slamming into the World Trade Center, postal workers dying from anthrax and continuing threats from the war on terrorism. "Sept. 11 dealt a very serious blow to the economy, demonstrating the cost of inaction," says White House spokeswoman Claire Buchan. New security measures are needed "for the sake of the economy and the safety of the American people."