Congress Should Ground New Burdens on Air Travelers

In an article late last year, “Taxpayers, travelers win with a modernized airport facility charge,” Marc Scribner of the Competitive Enterprise Institute (CEI), argues that Washington should raise the cap on the passenger facility charge (PFC) -- and singles out NTU for opposing this heavier burden on travelers in an op-ed written by NTU President Pete Sepp. Now that 2018 is here, and with it the prospect of major federal legislation addressing infrastructure, it is more important now than ever to clear the air about our stance on PFCs and the aviation system.

NTU agrees with Scribner’s comment that “The Reagan administration correctly recognized the harms caused by federal micromanagement of local infrastructure investment and proposed the PFC to reduce federal power over airports” (the fee was not enacted into law until 1990). Yet, the history of the PFC has hardly been pristine, and “federal power over airports” remains overbearing.

In its early years questions were raised regarding whether the projects funded by these charges really helped to improve the safety and capacity of airports. And in the end, even though the PFC is spent locally, it is overseen federally, with the airlines rather than the airports themselves collecting the fee.

The most transparent user fees, e.g., national parks admissions, are collected at the point where the service is provided. We’re all for the ability of airports to charge passengers what they wish for the use of their facilities -- provided airports are responsible for collecting them, through kiosks or other means such as smartphones.

Sound impractical? The Government Accountability Office has studied whether the PFC could be administered through a means other than airline tickets, and concluded in a 2015 report that according to stakeholders, “the current PFC collection method generally works well.” GAO also referred back to its earlier work in this area, which determined that any alternative “faces considerable challenges to implement.” The earlier analysis, however, also mentioned that “in the future … it is possible that some of these challenges will be reduced as technology advances or that airports might be willing to accept the additional costs and impose additional passenger burdens in return for an increase in their capital funding.” These challenges are becoming easier to surmount: Las Vegas International Airport allows customers to use common kiosks where they can check in and purchase services from any airline operating there. It would not be terribly difficult to allow PFCs to be charged the same way.

Nor would the current PFC collection system, levied through airline tickets, necessarily be immune from problems if the fee were hiked. When the Transportation Security Administration’s passenger fee (which uses the same assessment method as PFCs) was raised in 2014, the system experienced considerable inaccuracies while code was updated. Furthermore, GAO reported concerns over the lack of transparency with PFCs, both from airports themselves (concerned about whether airlines were accurately remitting collections) and customers (who don’t know where the funds are being spent).

All of this leaves supporters of a higher PFC in a bit of a conundrum. If they think a different collection method won’t work, and the current way of shifting the burden -- and blame -- of collection away from airports is best, then inevitably federal oversight of the system will continue. That clashes with the notion of PFCs enhancing “local control” of airport financing. That also means Congress will have a special responsibility to protect travelers from excessive government burdens on airline tickets -- a task it is not fulfilling well, given that that the tax and fee load on such tickets now averages more than 20 percent.

Scribner notes that “under the current PFC cap last raised in 2000, many airports are now reaching their debt limits,” essentially implying that airports are suffering from inadequate capital or cash-flow levels. If so, it’s hard to blame low PFCs for that problem. As we noted in a post from 2017:

It may be true that economic factors have eroded the buying power of a PFC since its last increase to $4.50 in the year 2000. Yet, FAA data shows that overall PFC collections have still managed to climb 94.9 percent between 2000 and 2015. This trend is almost twice as fast as the increase in the Consumer Price Index for All Urban Consumers, plus the rise in passenger enplanements at primary U.S. airports, over the same period (2015 was the most recent year for consistent data on all three factors when NTU last conducted this analysis).

There are other ways to measure this trend, such as comparing the PFC’s value to a construction cost index. The problem with doing so is that flawed government policies, such as project-labor rules and antiquated building regulations, can help to drive up those indices even as materials get more expensive.

In reality, airline travelers have paid a record $14 billion in taxes and fees In fiscal year 2017, including $3.6 billion in PFCs (also a record).

Scribner then suggests, quite uncharitably, that NTU has been the victim of a “bait and switch” by the airlines. Actually the “bait and switch” is all too often peddled by proponents of PFC increase schemes. Since its creation, the PFC has been linked to Airport Improvement Program (AIP) grants, which funnel federal money into airports directly from the U.S. Treasury. Currently, large and medium sized airports lose part of their AIP funding if they are recipients of a PFC above a certain level. Unfortunately, taxpayers don’t benefit -- the “lost” AIP grants for these hubs are simply reprogrammed to the “Small Airport Fund” and to a discretionary fund the FAA can use to hand out grants for other types of airport projects. Until this changes, and federal airport funds (along with associated taxes) are reduced dollar for dollar by PFC collections and the flying public is left no better off.

Perhaps avoiding this question is part of the reason why current appropriations legislation before the Senate seeks to hike the PFC and do little more to address that total burden on the flying public. According to the Congressional Research Service, “Because of the complementary relationship between AIP and PFCs, PFC legislation is generally folded into the AIP provisions of FAA reauthorization legislation.” That’s not the case with the Senate’s spending bill.

If restoring more local control to airports -- and increasing their accountability to traveling taxpayers -- are important goals, then airport and aviation financing ought to be considered more holistically. Increases in PFCs should mean decreases in AIP budgets and their taxes, not just shell games. Fees used locally can, with new technologies, be collected locally. Meanwhile, private airports’ bonds should be given the same kind of tax treatment as publicly-owned ones, while the moribund Airport Privatization Pilot Program should be expanded and streamlined to encourage a level playing field for future development. Air Traffic Control should be provided by a user-funded. non-governmental entity, allowing Washington to concentrate on safety regulation. Excessive regulations, such as project-labor agreements, should be revised to ease construction costs. Our friend Michael Sargent at the Heritage Foundation has even suggested an alternative to the PFC: repeal the federal “Anti-Head Tax Act”, and in so doing “would enable airports to levy fees on their customers for the services they provide, replacing the PFC program and the need for federal grants.”

Infrastructure is moving up the legislative agenda in Congress, and with it opportunities as well as pitfalls for travelers. The steps above, and more, can be the basis for the pro-taxpayer, pro-consumer aviation system which both NTU and CEI seek.