Rand report supports hiking passenger facility charge to $7.50

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A new independent report mandated by Congress says raising the cap on Airport Passenger Facility Charges to $7.50 from its current $4.50 limit would allow airport improvement projects to be built sooner at lower borrowing costs.

The report could add impetus to including a PFC increase as part of any infrastructure legislation that’s considered by Congress later this year in conjunction with a reauthorization of the Highway Trust Fund.

Airports Council International – North America estimates airports need $100 billion in infrastructure through 2023.

“We believe it’s a substantial step forward to have a congressionally-mandated independent research study reaffirm what airports have been saying for years, that airport infrastructure has been woefully underfunded,” said Annie Russo, ACI’s senior vice president of government and political affairs. “This study supplements the case individual airports have made to their congressional delegations about the long overdue financing needed to get infrastructure projects done. An independent analysis like this provides lawmakers with concrete evidence that action is required.”

Although the outlook for passage of infrastructure legislation is dim in the near term, House Transportation and Infrastructure Committee Chairman Peter DeFazio, D-Ore., has promised to release proposed legislation during the first six months of the year.

DeFazio is among the lawmakers who have expressed support for increasing the PFC, as does the budget watchdog group Citizens Against Government Waste, the conservative 60 Plus Association, the free market Competitive Enterprise Institute, the Reason Foundation, FreedomWorks and the Center for Freedom and Prosperity.

However, the airline industry strongly opposes any change in the PFC.

The new report issued by Rand Corporation was mandated under the 2018 Federal Aviation Administration reauthorization.

“We strongly encourage indexing the cap to inflation,” said Benjamin Miller, an economist at Rand who co-authored the new report. “We think that’s important to having a long term solution so it will be stable relative to costs going forward.”

About 31% of the revenue raised from PFCs is used for debt service on bonds that have been issued for capital improvements, according to the nonpartisan Congressional Research Service.

PFC revenues are heavily used for landside projects, such as terminals and transit systems on airport property, and for interest payments.

Annual system-wide PFC collections grew from $85.4 million in 1992 to over $3.4 billion in 2018.

Airports raised approximately $17.4 billion in 84 bond issues in 2018, a substantial increase over the $14.7 billion raised in 116 issues in 2017, according to annual data collected by The Bond Buyer.

PFCs are one of five major sources of airport capital development funding, according CRS: The other four are the federal Airport Improvement Program (AIP); tax-exempt bonds; state and local grants; and airport operating revenue from tenant lease and other revenue-generating activities such as landing fees.

The new Rand report recommends that any large or medium-sized hub airport that raises its PFC above $4.50 should forgo 100% of its federal grants under the Airport Improvement Program.

That money would be redirected to smaller airports.

“We are not aware of compelling evidence or data justifying a particular level for a new cap,” said the report. “Any number could be chosen, but we note that if the $4.50 cap had been indexed to inflation in 2000 using the Producer Price Index for construction materials, it would now be set at $7.44.”

The PFC limit was last raised to $4.50 in 2000 from $3 with a stipulation that airports that were approved for a higher PFC would forgo 75% of their AIP funding.

Miller said the tradeoff of losing AIP funding is an easy decision for operators of large and medium sized airports to make because the higher PFCs bring in much more money.

“Our understanding is that different airports need to do different things assuming they apply for the higher PFC and they are approved,” Miller said in an interview. “I suspect a number of them have expressed interest in using it to invest at lower cost. They have a shorter tenure on the bond and they can pay it off interest more quickly and essentially build their infrastructure at lower cost. We are going to need to build this infrastructure eventually.”

There are 133 large, medium and small commercial hub airports in the United States that handle 96.17% of the nation’s enplanements, the Rand report said. Another 247 non-hub commercial airports each handle more than 10,000 enplanements annually totaling 3.67% of the remaining passengers.

The report said airport runways are generally in good repair, but passenger terminals and control towers are widely viewed as being in need of modernization, repair, or replacement.

“Twenty airports (19 large hubs and one reliever) accounted for 96% of delays measured by the FAA’s Operations Network in 2018,” the report said. “The top five airports alone, three of which are operated by the Port Authority of New York and New Jersey (LaGuardia Airport, John F. Kennedy International Airport, and Newark Liberty International Airport), accounted for 61% of delays.”

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Airport revenue bonds Infrastructure RAND Corporation ACI Washington DC