Changes in Funding, Finance Policies Could Help U.S. Airports Prepare for Future Demand
January 14, 2020
Changes in federal policies could help ensure U.S. commercial airports are able to draw on sufficient and stable sources of revenue to maintain existing capacity, accommodate growth and support a safe, sustainable national airspace system in the coming decades, according to a congressionally mandated study conducted by the RAND Corporation.
The report recommends complementary changes to the Passenger Facility Charge (PFC) program, the Airport Improvement Program (AIP), the Airport and Airway Trust Fund (AATF) and the policies and procedures that guard against diversion of airport revenue to non-airport uses.
One specific recommendation is to raise the PFC, capped at $4.50 per passenger since 2000, to $7.50 and index it to inflation moving forward. “Because of inflation, the per-passenger value of the PFC has declined relative to the costs of constructing airport facilities,” said Benjamin Miller, lead author of the report and an economist at nonprofit, nonpartisan RAND.
If all other business conditions remain the same, the immediate impact of higher PFCs would likely be slightly higher ticket prices for passengers, while the additional revenue would allow airports that seek higher PFC collections to initiate priority projects sooner and with lower overall borrowing costs, according to the report.
“The presumption on the part of airports is that these investments will improve the travel experience, although those improvements may look different across airports,” said Debra Knopman, co-author of the report and principal researcher at RAND. “In some places, the investments may result in less congestion and fewer delays in and around the terminal, but in other places, it may simply make the airport a nicer place to transit.”
Following current law and FAA rules, airports would still need to seek FAA approval to charge PFCs, such funds would still have to be spent on approved capital improvements, and airports would still need to respond to concerns from airlines and other stakeholders in requesting permission to collect PFCs. This continued oversight and coordination is important for ensuring that PFC revenues are tied to projects that will yield real benefits for passengers, researchers said.
The report also suggests rearranging the timing and magnitude of AIP grants to better align with smaller airports' needs, mitigating the accumulation of large uncommitted balances in the AATF, and ensuring that funds collected for airport-related purposes are promptly directed toward their intended uses. Overall, the portfolio of recommended policy changes is designed to ensure that airports can draw on sufficient sources of revenue to make improvements needed to meet future demand.
The report, “U.S. Airport Infrastructure Funding and Finance,” is available at www.rand.org. Other authors of the study are Liisa Ecola, Brian Phillips, Moon Kim, Nathaniel Edenfield, Daniel Schwam and Diogo Prosdocimi.
This study was authorized in Section 122 of the Federal Aviation Administration Reauthorization Act of 2018 and reflects the authors' findings and recommendations in response to the questions raised by Congress in that law. The report was published independently by RAND and did not require the consent or approval of the FAA, any other government agency or any other party. The research was conducted in the Community Health and Environmental Policy program, part of RAND Social and Economic Well-Being.
RAND Social and Economic Well-Being seeks to actively improve the health, social and economic well-being of populations and communities throughout the world.