Myth vs Fact

Myth

The Passenger Facility Charge (PFC) is a tax levied on passengers.

Fact

PFCs are locally-set user fees paid by passengers when they use airport facilities to help defray the costs of building airport infrastructure. Thus, PFCs are a classic user fee – paid only by those who use the airport and spent only on projects at that airport. While Congress has set a PFC cap, the federal government does not collect PFCs, nor does the federal government spend PFC dollars. As such, PFCs represent the passenger’s direct investment in airport infrastructure.

The highly-respected and non-partisan Congressional Research Service agrees. In a January 2015 report, CRS accurately describes the PFC as “a state, local, or port authority fee, not a federally imposed tax deposited into the Treasury.”

Myth

If Congress updates the PFC cap, demand for travel will go down.

Fact

Modernizing the PFC to restore its purchasing power would not have a significant impact on demand as the airlines claim. At a time when the airlines are charging passengers $25 to check a bag and $200 to change their tickets, the argument that a modest $4 adjustment in the PFC cap would somehow dramatically impact demand doesn’t hold up. In fact, since 2009, airfares have increased more than 23 percent. Revenue from bag fees and other ancillary fees has also increased dramatically in recent years. But rather than going down, enplanements have actually increased.

Myth

Because of their sterling credit ratings, airports can simply fund all necessary projects through bond financing.

Fact

Airports are incredibly proud of their financial prudence and strong credit ratings. However, many airports are unable to go to the bond market or issue new bonds to finance their capital projects. Many airports have reached the limits of their debt capacity and either cannot finance new projects or have had to phase-in their projects over a longer timeframe, increasing the costs and delaying the benefits for passengers. Bonds are not a revenue source, but simply a financing mechanism that must be repaid. Airports must have a source of revenues to pay back bonds, and PFCs are a very important source of revenues for airports to do so.

Myth

Airports have “ample resources” such as unrestricted cash reserves to fund needed improvement projects.

Fact

Like many Americans and businesses around the country, airports wisely put aside cash reserves in a contingency fund in case of an emergency. Such reserve funds help airports be prepared to cover loss of revenue when a carrier terminates service or declares bankruptcy. And cash reserves are often required or encouraged by bond rating agencies. Complying with the rating agencies’ guidance on reserves helps airports maintain their strong credit ratings and preserve access to lower interest rates, which benefit airlines and travelers.

Reserves that are required by financing agreements cannot simply be spent or the airport loses the financing benefits of having the reserves. These reserves have helped keep financing costs down on the almost $84 billion in airport debt that FAA reported for 2012.

Myth

Airlines have invested and will invest in all necessary airport infrastructure improvements.

Fact

In some instances, airlines do directly invest in infrastructure, but incumbent carriers tend to support those infrastructure projects that they believe will advance their own interests, such as expansion of facilities to facilitate their own operations. Often times they are not as eager to support projects that benefit their competitors or bring in new competition. Yet from the airport, community, and air passenger perspectives, such investments are important because they help reduce or hold down airfares and provide more alternatives for air travelers.

Myth

The current Passenger Facility Charge (PFC) provides airports with all the resources they need to make infrastructure upgrades.

Fact

In 2013, airports collected $2.8 billion in PFC revenue. According to ACI-NA’s latest Capital Needs Survey, airports of all sizes need more than $15.1 billion annually in infrastructure improvements to fix aging runways and terminals, relieve congestion and delays, and spur new airline competition. That’s up from ACI-NA’s previous estimate, and it’s far more than the $6.2 billion that airports received from both PFCs and AIP last year.

What’s more, the purchasing power of the PFC has declined over the years due to inflation in construction costs. In order simply to restore the PFC to the same purchasing power of a $4.50 PFC in 2000, it is necessary to modernize the PFC cap to $8.50 today.

Of course, this would only allow PFCs to catch up with construction cost inflation that has already occurred. Going forward, the cap needs to be automatically adjusted periodically to prevent further erosion of PFCs. Modernizing the PFC cap is a good, fiscally-responsible way to ensure that airports have the resources they need to increase capacity, promote competition, and enhance safety without burdening the federal budget.

Myth

The Airport and Airway Trust Fund (AATF) has $4.7 billion in uncommitted funds to pay for airport improvement projects.

Fact

The uncommitted balance helps maintain the liquidity of the trust fund. If the government were to spend the uncommitted balance, it would bankrupt the AATF, essentially turning it into another highway trust fund. Moreover, the AATF is used for much more than just airport infrastructure projects. The AATF funds a host of other modernization initiatives like NextGen, as well a majority of FAA operational costs.

Unfortunately, a healthy uncommitted balance in the AATF doesn’t mean that AIP funding is automatically secure or that federal grants and revenue from an outdated PFC cap are enough to cover airport capital needs.

Despite an increasing Trust Fund balance, AIP funding has been reduced from $3.515 billion in FY11 to $3.35 billion in FY15 – about a 5 percent cut. Moreover, rising construction costs have chipped away at the purchasing power of both AIP funding and the $4.50 PFC. To make matters worse, Congress diverted $253 million in AIP funds to pay for FAA operations during the first round of sequestration in 2013. With sequestration slated to last through 2021, airports may very well experience additional and potentially deeper AIP cuts in the years ahead.

AIP is an important source of funding for airport infrastructure projects. It’s unlikely that Congress will increase AIP federal funding for airports even if there happens to be a high uncommitted balance in the Trust Fund. Considering the downward pressure on federal funding and rising airport capital needs, it is now more important than ever that Congress modernize the PFC cap to $8.50 and provide airports with the self-help they need to finance a greater share of infrastructure projects with local revenues.

Myth

U.S. airlines are still carrying fewer passengers or operating fewer flights than they did in 2007.

Fact

We expect 2014 enplanements to meet or exceed pre-recession traffic levels. Air carriers may be operating fewer aircraft through intense capacity discipline. However, the fact that airlines are often using larger aircraft and are achieving higher load factors than in previous years means that airport facilities are being stressed by concentrated numbers of passengers. Therefore, terminals often need to be expanded or rehabilitated, and airfield facilities need to be updated and reconstructed to maintain safety. Modernizing the PFC cap will provide airports with the resources they need to finance increasing capital needs.