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Congress Should Embrace Airport Financing Reforms

Today, the House Transportation and Infrastructure Committee held a markup on its Federal Aviation Administration (FAA) reauthorization bill. The Senate Commerce Committee is considering their dueling legislation on Thursday.

While much of the debate over FAA reauthorization has centered on the House’s 21st Century AIRR Act’s proposal to separate the FAA’s Air Traffic Organization into an independent, self-supporting, nonprofit co-op (which CEI strongly supports), lawmakers may be squandering an opportunity to greatly improve airport financing in a pro-investment, taxpayer-friendly direction.

Reps. Peter DeFazio (D-Ore.) and Thomas Massie (R-Ky.) recently introduced legislation to uncap the passenger facility charge (PFC). The PFC is a local airport user charge regulated by the FAA with a statutory cap currently set at $4.50 per passenger enplanement. That cap has been unchanged since 2000 and inflation has since eroded the PFC’s buying power by approximately half.

Free market transportation analysts have long supported the PFC over alternatives—namely federal grants to airports by way of the Airport Improvement Program (AIP). These include we at CEI, Reason Foundation, and Heritage Foundation. The Tax Foundation has reached similar conclusions on the PFC. The bipartisan legislation, introduced by Reps. DeFazio and Massie, would also require that the large hubs increasing their PFCs beyond $4.50 would be required to give up 100 percent of their AIP grants.

The PFC serves as a pro-competitive mechanism, which is also why the airline industry is united in opposition to easing federal restrictions on local airport user fees. The PFC only exists because the airline industry lobbied to outlaw local airport user fees in the 1970s. In the 1980s, the Reagan administration, concerned that airports were overly reliant on federal largesse, developed the PFC as both a revenue and pro-competitive mechanism, as a 1990 Cato Institute publication notes.

The reason is that airports are often constrained in bankrolling their own airport improvements. So, they then turn to large incumbent airlines. In exchange for financing these needed improvements, the airlines then demand long-term exclusive use gate leases, which they use to keep low-cost competitors from accessing the airport. Gate access limitations are estimated to raise U.S. airfares by more than $4.4 billion per year (2005 dollars), a significantly larger amount than that of the total annual revenue generated by PFCs across the country.

Unfortunately, some conservatives still oppose reducing the federal government’s stranglehold on airport financing. This opposition, led by Grover Norquist’s Americans for Tax Reform (ATR), frequently misstates basic facts on the PFC and airport financing generally. They were wrong in 2015, wrong in 2016, and remain in the wrong today. In ATR’s latest letter to the Senate Commerce Committee opposing any change to the PFC, they make a number of errors:

  • ATR equates a change in the cap to a change in the fee. This is incorrect. Airports would still need to apply to the FAA for whatever fee beyond $4.50 they wished to impose and would still be subject to project eligibility requirements. Uncapping or increasing the PFC cap would simply allow airports to make their case for a greater fee.
  • ATR falsely claims airports are flush with cash by arguing their reserve funds should be raided to fund normal, predictable business investments. These reserves are used by airports not only as rainy day funds in case of emergency, but are often required by bond rating agencies to maintain high credit ratings.
  • ATR also argues that the federal government should spend down the estimated $5.7 billion uncommitted balance of the Airport and Airway Trust Fund of Fiscal Year 2016. Ironically, ATR is in essence arguing for increasing AIP grant spending—federal welfare for airports—while putting the trust fund back into the same predicament it has been in recent years when Congress bailed it out with general revenue funds. So, while ATR is opposing a non-tax local airport user fee, it is pushing for increased federal spending and general revenue trust fund bailouts by taxpayers. This is a common misguided progressive political position, not a fiscally conservative one.

During the House FAA reauthorization markup today, no PFC reform amendment was introduced. Worse, an amendment from Rep. Lou Barletta (R-Pa.) that would raise AIP funding levels was accepted. This is exactly the opposite approach the House should be pursuing if it wishes to bring the nation’s aviation system into the 21st century.

Last week, CEI led a coalition of free market organizations urging the Senate Commerce Committee to amend its base bill and uncap the PFC. Our coalition letter is here. We hope the Senate is more concerned about the sorry state of airport financing than the House has shown itself to be.