The conservative case for a modernized Passenger Facility Charge

Recently in these pages, Grover Norquist, president of the venerable Americans for Tax Reform (ATR), argued that modernizing the airport Passenger Facility Charge (PFC) “is bad for consumers and the economy.” While I have a great deal of respect for Norquist’s work, on this issue he is dead wrong. Worse, Norquist, an anti-tax crusader, is unwittingly putting pressure on Congress to increase aviation taxes.

To understand why Americans for Tax Reform is taking what amounts to an anti-conservative position on the PFC, let’s be clear about what a PFC is, why it exists as it does, and what Congress may or may not do with the federal PFC cap.

First, the PFC is a local user charge. Authorized by Congress in 1990, it allows airports to charge per-passenger enplanement fees. The revenue raised can only be used for a very narrow class of airport improvement projects. These funds are collected locally and never touch the federal Treasury.

Second, the PFC exists because Congress outlawed user-based airport charges in the Airport Development Acceleration Act of 1973 (widely known as the “Anti-Head Tax Act”). Why, you might ask, would Congress intervene? As one might expect, this was a case of pure corporate cronyism.

In 1970, the Evansville-Vanderburgh Airport Authority in Indiana enacted an ordinance requiring airlines using Evansville Regional Airport to collect and remit a $1 per passenger fee, minus any administrative costs incurred by the airlines. Delta sued, challenging the charge on constitutional Commerce Clause grounds. Ultimately, the U.S. Supreme Court accepted the case and rejected Delta’s weak arguments in 1972. Delta and other carriers then lobbied Congress to outlaw airport user fees, only taking one year to get the law enacted.

Third, the PFC cap currently stands at $4.50. It was last raised in 2000 and inflation has eroded its buying power by approximately half since then. It’s not just airport administrators who favor raising the PFC cap. There is a broad consensus among free market transportation scholars in favor of raising the PFC cap to $8.50 and then indexing it to inflation. Note that the PFC cap is not a charge itself, only the limit at what airports can locally decide to charge per passenger. This distinction is important in understanding why ATR’s opposition to the PFC makes no sense.

Norquist repeatedly describes the PFC as an “airport tax,” yet the PFC isn’t a tax at all, but a user fee.

Unlike taxes—such as those that support the PFC’s primary alternative, the federal Airport Improvement Program—user fees can only be imposed on the service beneficiaries. Taxes, in contrast, do not target the provision of specific services. The primary beneficiaries of airports are the passengers who use them. The PFC funds collected by airports may only be used for a very narrow set of airport improvement projects. Charging passengers a facility user fee that will be used solely for specific, statutorily-defined airport improvements cannot constitute anyone’s definition of a tax. Now, if the PFC revenues pooled by individual airports were suddenly diverted to things that don’t benefit the users who paid them—e.g., paying for food stamps—ATR would have a case.

But the biggest problem with Norquist’s opposition is his attempt to turn this into a cut-and-dry fiscal issue. It is not. Free market transportation scholars are near-unanimous in their support for PFCs over general aviation taxes, and the reason for their support can be summed up in one word: privatization.

To make any progress toward privatizing airports, we must first demonstrate that market-driven practices can adequately support infrastructure that at present is largely controlled by government monopolies.

The Airport Privatization Pilot Program allows for these types of privatization demonstrations, and airports would rely heavily on PFC revenues under these arrangements. Unfortunately, airport administrators’ interest in privatization experiments has waned in recent years as the PFC’s buying power has stagnated. In fact, Chicago Midway airport recently withdrew from the privatization pilot program partly because investors feared Congress’s cap on user fees would prevent them from generating adequate revenue to fund their planned improvements.

The battle for free market airport reforms has just begun. Policymakers would be wise to heed the advice of free market transportation experts who have studied the issue for years. Congress should do the right thing and raise the cap on the PFC.