Monday Insight – December 9, 2019

The Passenger Facility Charge Controversy:
This Emperor Needs A Haberdasher, Fast

To mix metaphors, this week, we’re going to grab a third rail.

(Folks who are not familiar with the NYC subway system may want to Google it. Simply put, it’s a subject matter that’s politically dangerous to get near, so nobody wants to mess with it.)

We’re talking about the issue of raising the cap on passenger facility charges above the current $4.50. It seems that it’s all one side or the other… you’re pro-PFC or anti-PFC. Those seem  to be the only options.

The battle lines are firmly drawn… the airport industry v the airline industry. But they’re fighting the wrong enemy.

In the airport industry, there is complete agreement that America’s commercial airports desperately need additional funding to meet future needs. That is entirely accurate.

Almost all commercially-served airports (not all, but almost all) are adamant that an increase in the current PFC is essential if the U.S. is to have the air transportation system needed to compete in the global economy.

The airline industry, spearheaded by Airlines For America (A4A), agrees that funding airports is critical, but they also maintain that the consumer already pays enough taxes and fees on air travel, and that there is plenty of money available for airport infrastructure.

Okay, here’s the tug on that third rail nobody else seems to want to touch:

They are both absolutely correct.

The issue isn’t whether the funds are there – but in the case of the money collected via the aviation excise tax, it’s not easily available via mechanisms that accommodate the financial systems of airport investment.

Episodic Grants, Yes. Long Term Consistent Funding, Not So Much. The situation today is, at its base, politically artificial – the product of questionable federal policy, questionable politics, plus a lot of convoluted thinking trying to not address some hard realities. It is like the emperor with not a stitch: a lot of folks seem convinced that what they’re seeing isn’t really what it is.

We need to tumble to the fact that the aviation excise taxes are being misused – or at the least, mis-administered within a dysfunctional system.

We Have The #1 Airport System In The World… But A Clumsy Funding System. First, the U.S. airport system is facing a future where existing infrastructure needs to be rebuilt, replaced and expanded. Whole new support systems need to be developed for future technologies, and there is uncertainty regarding some current operational revenue streams.

Access to effective funding sources is imperative, and the PFC program has been shown to be one that can deliver it. It circumvented the lack of financing access to the excise tax funds.

But the airline industry is also entirely correct: there is plenty of money already being collected in ticket excise taxes and other sources to fund the nation’s airport needs. The problem is that it’s not in a system that is structured for the 21st century, and it’s been allowed to become a cookie jar for the feds.

And that’s naked emperor which it seems everybody is reluctant to recognize and verbalize. The resolution is in addressing the political theft and outdated structuring of the aviation excise tax. Seems that’s not front-and-center.

This comment may not go well in certain sectors, regardless of the fact that it’s accurate – there isn’t a funding problem… it’s a political one.

Congress and its irresponsible use of aviation excise tax revenues are the issues. It’s just been band-aided over the years. It is time to call it like it is.

If the emperor in this case has no clothes, the PFC issue is an entire nudist colony.

PFCs: Going Around – But Not Solving – The Problem. Maybe it’s time to mention one hard fact:

The passenger facility charge was conceived as a mechanism to provide airports with funding in lieu of the excise taxes already collected from consumers for exactly the purpose of assuring airport and airway infrastructure.

See, those excise taxes gouged today out of the hides of passengers aren’t really fully available for the purpose intended. Congress uses these dollars for whatever, not necessarily aviation. That was hard political reality. And still is. So, the PFC was conceived as a replacement.

The Band-Aid Works… But At A Consumer Cost. Functionally, it’s worked well… applications of PFC funds are very strictly monitored… they can only be used for projects that really do enhance airport efficiency. It’s been seen across the nation, and without a PFC system, there are a lot of projects that could not have been financed via the way aviation excise taxes are disbursed.

As one example, Boyd Group International worked a number of years ago with Bloomington/Normal, Illinois in that airport’s successful project to use PFCs for a much-needed new terminal. It was the first “small hub” airport to use PFC revenues for bonding. At the time, there simply weren’t other viable avenues of financing support. The structure of the air ticket excise tax could not easily be used to support bond financing. That’s still the case.

Actually, it would be hard for anybody to point to where PFC funding has been used for other than its intended purpose. It may be the only government funding channel in the history of mankind that can’t be squandered or diverted into political nonsense.

The PFC system has worked… but the consumer is getting zapped at the altar of political correctness and expediency because it’s there to replace tax money that’s being diverted or otherwise unavailable to support aviation infrastructure.

But that doesn’t change the fact that the entire PFC program was designed to sidestep the misuse (yes, misuse) of aviation ticket excise taxes, not to mention a disbursement system that is near-useless in the modern world of financing projects.

One Team, Not Adversaries. It’s time that the airport and airline industries joined together to address this. They both have the same goals. And the same adversary – government irresponsibility.

The federal aviation excise tax needs to be restructured to allow airports to use it just as is being done with PFCs, with similar restrictions and controls on how and on what the dollars are spent.

Yes, that would likely take enormous amounts of work to accomplish, but the first step is to recognize the real issue: the consumer is getting gouged by an excise tax funding system that is thirty years out of date.

Today’s controversy is aimed in the wrong direction. It’s congress that’s the problem, not airports or airlines.

But as long as that remains something that folks see, but are reticent to acknowledge, the situation won’t change.