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"Commentary: Congress Should Embrace Airport Financing Reforms"

Tuesday, June 27, 2017

Congress Should Embrace Airport Financing Reforms
By Marc Scribner
The Competitive Enterprise Institute

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. 
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