Airport Alert: Congressionally Mandated Report Calls for PFC Increase
January 14, 2020
The Rand Corporation today released a congressionally mandated report that calls for raising the federal cap on Passenger Facility Charges to $7.50 for originating passengers and indexing it for inflation. The 215-page report on airport infrastructure funding and financing comes as AAAE and airports around the country continue to urge Congress to raise the PFC cap and take other steps to help airports build critical infrastructure projects.
The FAA reauthorization bill (H.R. 302), which Congress passed in late 2018, included a provision that required the Department of Transportation to enter into an agreement with an independent non-profit organization to conduct a "Future Aviation Infrastructure and Financing Study." The provision was aimed at having an independent third-party evaluate airport infrastructure needs and financial resources.
The FAA bill called on the organization to consult with representatives of all hub sizes and other aviation stakeholders to consider a long list of airport financing challenges such as the change in purchasing power of PFCs since 2000. It also required the organization to submit its findings and recommendations to DOT and key congressional committees. Some of the report's key recommendations are below.
Recommendations
PFC Cap: Authors of the report considered various PFC options including eliminating the cap. However, they settled on a proposal that calls for raising the cap to $7.50 for originating passengers only and indexing the cap for inflation. Th report suggests that $7.50 is approximately the same level the cap would be today if Congress had adjusted it for inflation since 2000 using the Producer Price Index for construction materials.
"Increasing the PFC cap above the current level of $4.50 would enable those airports that seek additional PFC revenue to initiate their approved projects sooner and pay them off more quickly, lowering costs," the report indicates. Larry Krauter, the CEO of Spokane International Airport; Joe Lopano the CEO of the Tampa Bay International Airport; Candace McGraw, the CEO of the Cincinnati/Northern Kentucky International Airport; and numerous other airport officials made a similar point last year as lawmakers began debating a possible infrastructure bill.
Large and Medium Hub Entitlements: In exchange for raising the PFC cap to $7.50 for originating passengers and indexing it for inflation, the Rand Corporation calls for eliminating the remaining entitlements for large and medium hub airports that choose to raise their PFC above $4.50.
Primary Entitlements: Under current law, the AIP entitlement for primary airports doubles when Congress appropriates at least $3.2 billion for AIP in a fiscal year. The report recommends doing away with that doubled entitlement for primary airports. The organization suggests that airports should compete for larger amounts of AIP funding through discretionary grants instead.
Non-Primary Entitlements: Under current law, AIP entitlement for nonprimary airports is $150,000 when Congress appropriates at least $3.2 billion for AIP in a fiscal year. The Rand Corporation recommends eliminating the non-primary entitlement. The organization points out that $150,000 is "insufficient for major construction projects" and suggests that those smaller airports should similarly compete for AIP funding through discretionary grants.
Airport and Airway Trust Fund: The report indicates that the Airport and Airway Trust Fund had an uncommitted balance of $6.1 billion at the end of FY18. It also recommends establishing a "rainy day" fund of between $4 billion and $6 billion to accommodate sudden drops in revenue. However, it urges Congress to appropriate additional funding for aviation purposes.
Revenue Diversion: The report takes a hard stance against airport revenue diversion. It recommends that Congress phase out waivers for approximately a dozen grandfathered airports that are permitted to lawfully divert a limited amount of revenue every year. The organization also recommends that DOT consider withholding all DOT grants to grandfathered airports that exceed their revenue diversion limits instead of reducing or withholding AIP grants, which the FAA can do today.
Airline Ancillary Fees: For the past several years, AAAE has been making the case that airlines fees for checked baggage and some other ancillary charges are not being taxed at the same 7.5 percent as base airline tickets - a move that allows the airlines to avoid paying their fair share into the Airport and Airway Trust Fund. By our calculations, the bag fee loophole alone has allowed airlines to avoid paying taxes on almost $43 billion in bag fees since 2008 and cost the Trust Fund more than $3.3 billion in forgone revenue.
We have been urging Congress and the administration to tax airline bag fees and other ancillary charges at 7.5 percent and use that revenue to fund airport infrastructure projects and other FAA needs. The Rand Corporation makes a somewhat similar - but not identical - recommendation. The organization suggests that bag fees and other ancillary charges should be included in the Domestic Passenger Ticket Tax, but in a revenue-neutral way.
"However, Congress should not be collecting additional AATF revenue without a commitment to spend it...," the report states. "For this reason, we recommend that Congress ask the FAA to help determine the level of reduction in the Domestic Passenger Ticket Tax that would make the taxation of ancillary fees revenue-neutral."
More Information
The Rand Corporation today released a congressionally mandated report that calls for raising the federal cap on Passenger Facility Charges to $7.50 for originating passengers and indexing it for inflation. The 215-page report on airport infrastructure funding and financing comes as AAAE and airports around the country continue to urge Congress to raise the PFC cap and take other steps to help airports build critical infrastructure projects.
The FAA reauthorization bill (H.R. 302), which Congress passed in late 2018, included a provision that required the Department of Transportation to enter into an agreement with an independent non-profit organization to conduct a "Future Aviation Infrastructure and Financing Study." The provision was aimed at having an independent third-party evaluate airport infrastructure needs and financial resources.
The FAA bill called on the organization to consult with representatives of all hub sizes and other aviation stakeholders to consider a long list of airport financing challenges such as the change in purchasing power of PFCs since 2000. It also required the organization to submit its findings and recommendations to DOT and key congressional committees. Some of the report's key recommendations are below.
Recommendations
PFC Cap: Authors of the report considered various PFC options including eliminating the cap. However, they settled on a proposal that calls for raising the cap to $7.50 for originating passengers only and indexing the cap for inflation. Th report suggests that $7.50 is approximately the same level the cap would be today if Congress had adjusted it for inflation since 2000 using the Producer Price Index for construction materials.
"Increasing the PFC cap above the current level of $4.50 would enable those airports that seek additional PFC revenue to initiate their approved projects sooner and pay them off more quickly, lowering costs," the report indicates. Larry Krauter, the CEO of Spokane International Airport; Joe Lopano the CEO of the Tampa Bay International Airport; Candace McGraw, the CEO of the Cincinnati/Northern Kentucky International Airport; and numerous other airport officials made a similar point last year as lawmakers began debating a possible infrastructure bill.
Large and Medium Hub Entitlements: In exchange for raising the PFC cap to $7.50 for originating passengers and indexing it for inflation, the Rand Corporation calls for eliminating the remaining entitlements for large and medium hub airports that choose to raise their PFC above $4.50.
Primary Entitlements: Under current law, the AIP entitlement for primary airports doubles when Congress appropriates at least $3.2 billion for AIP in a fiscal year. The report recommends doing away with that doubled entitlement for primary airports. The organization suggests that airports should compete for larger amounts of AIP funding through discretionary grants instead.
Non-Primary Entitlements: Under current law, AIP entitlement for nonprimary airports is $150,000 when Congress appropriates at least $3.2 billion for AIP in a fiscal year. The Rand Corporation recommends eliminating the non-primary entitlement. The organization points out that $150,000 is "insufficient for major construction projects" and suggests that those smaller airports should similarly compete for AIP funding through discretionary grants.
Airport and Airway Trust Fund: The report indicates that the Airport and Airway Trust Fund had an uncommitted balance of $6.1 billion at the end of FY18. It also recommends establishing a "rainy day" fund of between $4 billion and $6 billion to accommodate sudden drops in revenue. However, it urges Congress to appropriate additional funding for aviation purposes.
Revenue Diversion: The report takes a hard stance against airport revenue diversion. It recommends that Congress phase out waivers for approximately a dozen grandfathered airports that are permitted to lawfully divert a limited amount of revenue every year. The organization also recommends that DOT consider withholding all DOT grants to grandfathered airports that exceed their revenue diversion limits instead of reducing or withholding AIP grants, which the FAA can do today.
Airline Ancillary Fees: For the past several years, AAAE has been making the case that airlines fees for checked baggage and some other ancillary charges are not being taxed at the same 7.5 percent as base airline tickets - a move that allows the airlines to avoid paying their fair share into the Airport and Airway Trust Fund. By our calculations, the bag fee loophole alone has allowed airlines to avoid paying taxes on almost $43 billion in bag fees since 2008 and cost the Trust Fund more than $3.3 billion in forgone revenue.
We have been urging Congress and the administration to tax airline bag fees and other ancillary charges at 7.5 percent and use that revenue to fund airport infrastructure projects and other FAA needs. The Rand Corporation makes a somewhat similar - but not identical - recommendation. The organization suggests that bag fees and other ancillary charges should be included in the Domestic Passenger Ticket Tax, but in a revenue-neutral way.
"However, Congress should not be collecting additional AATF revenue without a commitment to spend it...," the report states. "For this reason, we recommend that Congress ask the FAA to help determine the level of reduction in the Domestic Passenger Ticket Tax that would make the taxation of ancillary fees revenue-neutral."
More Information
