Yesterday I published a report on the way airports are funded. I believe the Passenger Facility Charge (PFC) – a fee passengers pay to help build airport improvements – is the best means of funding, and I chose to weigh in because there has been a lot of debate over it recently.
In any fiscal policy debate that includes both taxes and spending, there are really two debates going on. The first is how much to spend, and the second is how the spending should be funded. This makes the debates hard to follow because of their multifaceted nature.
The first question about airports, then, is whether we are spending enough on them. I’m agnostic on this issue. On one hand, I have no doubt that some airport expenditures – just like marginal expenditures in any venture – are unnecessary and wasteful overinvestments. That essentially should go without saying.
But there’s also some reason to believe we underinvest in airports. Sometimes I see heavily-used terminals at major airports that could definitely use an upgrade. If 5 million people go through a terminal every year, it is efficient and pleasant for that terminal to be well built. Similarly, I sometimes experience delays due to congestion at major hub airports. It is probably worthwhile for those airports to make capital expenditures to raise their throughput, which would ultimately save me time.
I am not attempting to make a strong normative statement about the spending side. At TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation – as our name implies – we study the revenue side. So naturally, I have much stronger beliefs about the second question: how should airport improvements be funded?
Some of our airport funding comes from ticket taxes; the main ones are typically $4 per flight segment, plus 7% of the value of a ticket. (So in total, that would be $25 on a $300 one-way ticket.) I don’t think these are particularly good, because they’re remitted to the federal government. The airport you use actually has to ask for the money back, through the Federal Aviation Administration, in order to finance improvements that help you.
In contrast, a different fee – called the Passenger Facility Charge – is simply paid directly to the airport that you actually use. That’s a better system; you know the money you’re charged actually goes to support the services you’re using. I would prefer that airports raise their money this way, rather than through federal taxes.
For more on this subject, take a look at the full report.
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