Up in the AIRR, Part 1: Passenger Facility Charge Modernization

To date, CEI’s analysis of the Aviation Innovation, Reform, and Reauthorization (AIRR) Act (H.R. 4441) has focused on proposed air traffic control reforms, which CEI strongly supports. But the House’s reauthorization plan covers much more than air traffic control corporatization. This series will highlight non-ATC elements of the bill that should either be supported, improved upon, or discarded from a free market, limited-government perspective. The first entry covers the local airport user fee called the passenger facility charge (PFC).

The AIRR Act shows little love for PFC modernization. This is not surprising, given that House leadership has largely focused on air traffic control corporatization, which is an incredibly complex undertaking. Yet, as Congress debates the merits of adopting a Canadian-style air navigation service provider, it should also look to Canada for airport reforms.

To be sure, the AIRR Act’s expanded PFC eligibility at Section 111 and approval streamlining at Section 112 are positive reforms. However, Congress could do much more. Unfortunately, many are unaware of exactly what the PFC is and why it is preferable to taxpayer funding. This post seeks to answer three common questions regarding PFC modernization.

First, what is the PFC? The PFC is a local airport user charge authorized by Congress. It is currently capped at $4.50 per passenger enplanement, for a maximum of two enplanements per trip, where it has been since 2000. Since then, inflation has eroded its buying power by approximately 50 percent.

The PFC serves as the primary alternative to the Airport Improvement Program (AIP), which is a federal grants program funded by aviation taxes and subject to congressional appropriations. Unlike AIP and the federal excise taxes that support it, PFCs are locally collected user fees and the revenue does not pass through the general treasury. Also unlike AIP funds, PFC revenue can be used to back airport bonds. This distinction between financing and funding is incredibly important for understanding the virtues of the PFC.

Second, as Congress considers reforming air traffic control along the lines of the successful Nav Canada reforms of the 1990s, it should examine the airport reforms the Canadians undertook simultaneously. Leading up to the conversion of air traffic control in Canada to a self-financing non-profit entity, Canadian airports were already moving in this direction.

The airport reforms undertaken in Canada two decades ago are far more ambitious than what proponents of PFC modernization are seeking. To shift the burden off federal taxpayers and set the stage for future airport governance reforms, Congress should uncap the PFC and allow airports to set their own charges. In the past, large hub airports have volunteered to reject all taxpayer AIP funding in exchange for a right to impose local user charges free from arbitrary federal caps.

Finally, opponents of the PFC often wrap themselves in consumer protection and anti-tax rhetoric, but this is a red herring. In reality, airline opposition to the PFC has much more to do with economic protectionism.

As I’ve noted before, under the current system that greatly restricts market-based user charges, airports often must either beg from the federal government for more AIP funding or seeking private funding from the airlines to undertake necessary construction projects. In exchange for funding airport improvements, major airlines often demand long-term exclusive-use gate leases in return. These airlines are then able to keep out low-cost competitors by denying them gate access, which reduces competition and ultimately results in fare increases. One study estimated that consumers pay $4.4 billion (2005 dollars) more per year because of limited gate availability at large and mid-sized airports. Sensible people would agree that Congress should not be playing anticompetitive games on behalf of the legacy carriers.

As Congress considers the AIRR Act and the Canadian model of air traffic control commercialization implemented two decades ago, it should not forget about Canada’s concurrent progress in commercializing airports. The PFC can help move the U.S. in that direction and should be uncapped by Congress.