New Tax Foundation Report Endorses PFC Modernization

The Tax Foundation today released a new report, “Improving Airport Funding to Meet the Needs of Passengers.” Authored by Tax Foundation economist Alan Cole, the report notes that airport funding and financing in the U.S. is skewed against the users-pay principle and that the passenger facility charge (PFC) represents a welcome alternative to federal airport cross-subsidization schemes.

The PFC is a local user charge that airports can use to fund or finance a narrow class of improvements, as permitted by the Federal Aviation Administration. The PFC has been capped at a maximum of $4.50 per enplanement since 2000. Inflation has eroded that buying power by about half. CEI, along with airports and other aviation industry stakeholders, supports increasing the cap to $8.50 and then indexing it to inflation. In the report, Cole endorses this position, writing, “The current $4.50 cap should be modernized and indexed to meet the needs of today and future growth.”

Some have incorrectly labeled the PFC a tax. As I explain in detail here, it is not a tax and raising the federal cap on PFCs certainly cannot constitute a tax increase.

The report goes on to say that harnessing local user fees such as PFCs can allow airports to eventually wean themselves off federal funding. The major reason CEI supports PFCs, and all transportation system user charges, over taxes is that, as Cole notes in his report, they resemble charges you would see if these were private, market institutions.

In order to get closer to privatizing airports, we must first demonstrate that private-sector-esque practices can adequately support infrastructure that at present is largely controlled by government monopolies. As a recent study from the Transportation Research Board’s Airport Cooperative Research Program notes,

PFCs are a source of local capital independent of use and lease agreements and a key instrument to promote competition and capacity. PFCs are an important source of funding for airport infrastructure and a frequent vehicle used to leverage capital. Privatization under the [Airport Privatization Pilot Program] permits the imposition of PFCs.

The Airport Privatization Pilot Program (codified at 49 U.S.C. § 47134) allows for these types of privatization demonstrations. Those who claim to be in favor of free markets should be aware that opposing PFC modernization is basically a vote for continued airport socialism. But even if you’re not a free market libertarian, there is still reason to support modernizing the PFC, as the breadth of the coalition in favor of raising the PFC cap suggests (you can also include The New York Times Editorial Board).

A summary of the Tax Foundation report is here, with the full report here.

For more on FAA reauthorization, see CEI’s agenda for Congress, Free to Prosper.