On September 28, twenty House members, led by Rep. Jason Lewis (R-MN), sent a letter to Senate Appropriations Committee Chairman Thad Cochran (R-MS) and Ranking Member Patrick Leahy (D-VT) urged them to reject a modest increase in the federal passenger facility charge (PFC) cap, which imposes a federal limit on local airport user fee collection. The Senate’s annual appropriations bill to fund the Departments of Transportation and Housing and Urban Development includes a provision that would increase the first-segment PFC cap from $4.50 to $8.50. The PFC can only be charged for only the first two segments of a trip and the second-segment PFC cap would remain at $4.50, meaning the maximum any passenger could pay per trip increases from $9 to 13 if they have at least one layover. Those with nonstop flights would pay at most $8.50 per trip.
CEI and other free market organizations have supported bipartisan legislation in the House, introduced by Reps. Peter DeFazio (D-OR) and Thomas Massie (R-KY), that would eliminate the PFC cap entirely and reduce federal micromanagement of airport funding and financing decisions. Unfortunately, led by strong airline opposition, some members of Congress and a few conservative organizations such as Americans for Tax Reform and National Taxpayers Union oppose uncapping or even modestly increasing the PFC cap, which was last raised in 2000 and has since seen approximately half of its buying power eroded by inflation.
The letter sent by House members to Senate Appropriations Committee leadership makes a number of factual errors and distortions.
First, it repeatedly and incorrectly calls raising the PFC cap “a tax increase.” The federal cap on the PFC is a price control imposed on airports. When a government price ceiling like the PFC is raised or eliminated, that is not a price increase. It simply increases pricing freedom. The PFC is also not a tax; rather, it is a classic example of a user fee. The revenue collected goes directly to the charging airports and is dedicated in law for narrow airport facility improvements. It does not go to the federal treasury to be appropriated by politicians in Washington to programs unrelated to airport infrastructure.
Second, in decrying the falsely alleged tax increase, the letter writers complain about potential reductions in actual tax revenues, primarily the commercial airfare excise tax and segment tax that fund the Airport and Airways Trust Fund, which in turn funds the federal Airport Improvement Program subsidies that small airports depend upon. The small potential reduction in airline passenger demand that could result from PFC increases, which remains subject to a great deal of uncertainty and controversy as the Government Accountability Office notes, is here being used to oppose reductions in federal tax revenue and spending. From a group of supposed fiscal conservatives, that’s a bizarre position to take.
Third, the article claims existing airport revenue streams are adequate, arguing that “airports are generating record revenues and enjoy investment-grade credit ratings.” Airport traffic continues to set records, meaning airports not only have the challenge of rehabilitating aging airfields and terminals, but expanding these facilities to handle future additional passenger and aircraft volumes to keep down congestion and delays. PFC collections can be used by airports to back revenue bonds, allowing for more rapid modernization than under traditional government funding. Unfortunately, with the PFC cap having languished since 2000, many airports are reaching their debt limits. Increasing or preferably uncapping the PFC would allow airports to finance additional infrastructure investments.
This Senate Appropriations proposal is welcome, but members of the House had their chance to support superior airport financing reform. The DeFazio-Massie legislation not only uncapped the PFC and required any airport charging more than $4.50 to forgo all Airport Improvement Program grants, it would have reduced Airport Improvement Program spending by $350 million annually. Libertarian and conservative groups such as CEI, Reason Foundation, Cato Institute, Heritage Foundation, Tax Foundation, FreedomWorks, Citizens Against Government Waste, and others all see the virtue of allowing airports to make their own investment decisions independent from Washington. Unfortunately, the House letter signatories oppose both a local self-help airport revenue mechanism and cuts to federal airport subsidies.
And this congressional meddling in airport self-help also likely raises airfares on consumers, denying consumers a key benefit of the PFC versus federal airport grants when the proposal was first developed during the Reagan administration. When airports are constrained in bankrolling their own improvements, they often must 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 have been estimated to raise U.S. airfares by more than $4.4 billion per year (in 2005 dollars), a significantly larger amount than that of the total annual revenue generated by PFCs across the country.
The current Senate Transportation and Housing and Urban Development appropriations bill is a step forward on modernizing airport financing and governance in the U.S., but there is much left to do, such as eliminating the Anti-Head Tax Act of 1973 and encouraging airport privatization like much of Europe and Asia have done in recent decades. But just as the PFC is a second-best solution to eliminating all federal restrictions on local airport user fees, so too is increasing the federal PFC cap when the other choice is leaving it unchanged.