PFC cap increase meets opposition from airlines, lawmakers
WASHINGTON — Airport officials on Tuesday defended an increased passenger facility charge to back bonds for upgrades, arguing that federal funding isn’t enough.
Airlines and lawmakers, who were considering ways to finance airports at a House Transportation and Infrastructure Committee hearing on the nation's infrastructure needs, pushed back, saying PFCs are counterproductive and raise costs for passengers.
The federal Airport Improvement Program, used for airfield projects, together with PFC, pay for half of capital projects, wrote Marc Scribner, a senior fellow at Competitive Enterprise Institute, in his testimony. Terminal expansion is funded through PFCs, which raise money to finance projects and pay back bonds.
“We use bonding extensively with PFC revenue flows that are pretty reliable, pretty dependable,” Joe Lopano, CEO of Tampa International Airport, told The Bond Buyer. “We’re able to bond out for a 30-year period and finance some of these very, very large projects.”
Airports need more than $128 billion in new infrastructure and are carrying $91.6 billion of debt from past projects, according to an Airports Council International-North America report released last month.
The PFC has a set cap at $4.50 that hasn’t been raised in decades. However, some lawmakers said raising the cap isn't the best way to boost revenue.
“You get more revenue from parking rate fees than you do from your PFC,” said Rep. Paul Mitchell (R-Mich.). “So what do you say we eliminate the PFC and airports raise the funds they need to raise to whatever mechanisms they have, parking fees, concession fees. If you want local control, why don’t we do that?”
While he acknowledged here are other potential sources of revenue, Lopano said he was advocating for the increase in the facility charge because it has been a tool for the past 20 years and hasn’t been adjusted to inflation.
“Fees should be set locally and let the market conditions bear out on what those conditions could be,” said Candace McGraw, CEO of Cincinnati/Northern Kentucky International Airport. “The PFC could be done based on what your local need is of your community for that particular airport,” McGraw told The Bond Buyer.
Ted Christie, CEO of Spirit Airlines, advocated against raising the PFC, saying the higher costs could reduce travel.
“PFCs are a consumer tax, and the traveling consumer is already punishingly taxed,” Christie wrote in his testimony. “Over $60 of the average round-trip fare of about $350 is government taxes and fees.”
For some of his customers, who can only afford to travel at a lower price point, the increase in PFC would be noticeable.
“A customer on Spirit pays only about $110 each way, on average, including all ancillary charges, so the proposed increase will represent a material increase in the price she pays,” Christie wrote in his testimony.
Spokane International Airport needs funding for its $190 million Terminal Renovation and Expansion Project to update baggage claims and gate capacity and PFCs are a crucial funding mechanism, said Lawrence Krauter, CEO of Spokane International Airport.
Rep. Peter DeFazio (D-Ore.) asked Krauter how much the TREX project would be affected if the airport decided to go the full bonding amount with high interest costs and if it would affect its cost per enplanement.
If the Spokane airport were to rely just on bonds to pay back, Krauter said, the airport and its local users would end up paying twice as much, or almost $342 million. It would mean 38 years of PFC obligation if the airport stayed at two million enplaned passengers a year, increasing its cost per enplanement.
“This is a current problem today for many airports that are extended decades out on their PFC obligation, paying off projects that they have already built so there is no capacity to fund new projects,” Krauter wrote in his testimony.