[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
THE COST OF DOING NOTHING: WHY INVESTING IN OUR NATION'S AIRPORTS
MATTERS
=======================================================================
(116-8)
HEARING
BEFORE THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
MARCH 26, 2019
__________
Printed for the use of the
Committee on Transportation and Infrastructure
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available online at: https://www.govinfo.gov/committee/house-
transportation?path=/browsecommittee/chamber/house/committee/
transportation
___________
U.S. GOVERNMENT PUBLISHING OFFICE
36-484 PDF WASHINGTON : 2019
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
PETER A. DeFAZIO, Oregon, Chair
ELEANOR HOLMES NORTON, SAM GRAVES, Missouri
District of Columbia DON YOUNG, Alaska
EDDIE BERNICE JOHNSON, Texas ERIC A. ``RICK'' CRAWFORD,
ELIJAH E. CUMMINGS, Maryland Arkansas
RICK LARSEN, Washington BOB GIBBS, Ohio
GRACE F. NAPOLITANO, California DANIEL WEBSTER, Florida
DANIEL LIPINSKI, Illinois THOMAS MASSIE, Kentucky
STEVE COHEN, Tennessee MARK MEADOWS, North Carolina
ALBIO SIRES, New Jersey SCOTT PERRY, Pennsylvania
JOHN GARAMENDI, California RODNEY DAVIS, Illinois
HENRY C. ``HANK'' JOHNSON, Jr., ROB WOODALL, Georgia
Georgia JOHN KATKO, New York
ANDRE CARSON, Indiana BRIAN BABIN, Texas
DINA TITUS, Nevada GARRET GRAVES, Louisiana
SEAN PATRICK MALONEY, New York DAVID ROUZER, North Carolina
JARED HUFFMAN, California MIKE BOST, Illinois
JULIA BROWNLEY, California RANDY K. WEBER, Sr., Texas
FREDERICA S. WILSON, Florida DOUG LaMALFA, California
DONALD M. PAYNE, Jr., New Jersey BRUCE WESTERMAN, Arkansas
ALAN S. LOWENTHAL, California LLOYD SMUCKER, Pennsylvania
MARK DeSAULNIER, California PAUL MITCHELL, Michigan
STACEY E. PLASKETT, Virgin Islands BRIAN J. MAST, Florida
STEPHEN F. LYNCH, Massachusetts MIKE GALLAGHER, Wisconsin
SALUD O. CARBAJAL, California, Vice GARY J. PALMER, Alabama
Chair BRIAN K. FITZPATRICK, Pennsylvania
ANTHONY G. BROWN, Maryland JENNIFFER GONZALEZ-COLON,
ADRIANO ESPAILLAT, New York Puerto Rico
TOM MALINOWSKI, New Jersey TROY BALDERSON, Ohio
GREG STANTON, Arizona ROSS SPANO, Florida
DEBBIE MUCARSEL-POWELL, Florida PETE STAUBER, Minnesota
LIZZIE FLETCHER, Texas CAROL D. MILLER, West Virginia
COLIN Z. ALLRED, Texas GREG PENCE, Indiana
SHARICE DAVIDS, Kansas
ABBY FINKENAUER, Iowa
JESUS G. ``CHUY'' GARCIA, Illinois
ANTONIO DELGADO, New York
CHRIS PAPPAS, New Hampshire
ANGIE CRAIG, Minnesota
HARLEY ROUDA, California
CONTENTS
Page
Summary of Subject Matter........................................ v
STATEMENTS OF MEMBERS OF CONGRESS
Hon. Peter A. DeFazio, a Representative in Congress from the
State of Oregon, and Chair, Committee on Transportation and
Infrastructure:
Opening statement............................................ 1
Prepared statement........................................... 4
Hon. Sam Graves, a Representative in Congress from the State of
Missouri, and Ranking Member, Committee on Transportation and
Infrastructure:
Opening statement............................................ 6
Prepared statement........................................... 7
Hon. Rick Larsen, a Representative in Congress from the State of
Washington, and Chair, Subcommittee on Aviation, prepared
statement...................................................... 85
WITNESSES
Lawrence J. Krauter, A.A.E., AICP, Chief Executive Officer,
Spokane International Airport:
Oral statement............................................... 9
Prepared statement........................................... 11
Tori Emerson Barnes, Executive Vice President, Public Affairs and
Policy, U.S. Travel Association:
Oral statement............................................... 20
Prepared statement........................................... 22
Candace S. McGraw, Chief Executive Officer, Cincinnati/Northern
Kentucky International Airport:
Oral statement............................................... 24
Prepared statement........................................... 26
Joseph W. Lopano, Chief Executive Officer, Tampa International
Airport:
Oral statement............................................... 32
Prepared statement........................................... 34
Ted Christie, President and Chief Executive Officer, Spirit
Airlines, Inc.:
Oral statement............................................... 36
Prepared statement........................................... 37
Marc Scribner, Senior Fellow, Competitive Enterprise Institute:
Oral statement............................................... 39
Prepared statement........................................... 41
SUBMISSIONS FOR THE RECORD
Fifty-seven Airport Passenger Facility Charge Projects, Submitted
for the Record by Hon. DeFazio................................. 87
Statement of the American Council of Engineering Companies,
Submitted for the Record by Hon. DeFazio....................... 88
Statement of Airports Council International-North America,
Submitted for the Record by Hon. DeFazio....................... 89
Letter of March 25, 2019, from Sean O'Neill, Vice President,
Congressional Relations and Infrastructure Advancement,
Associated General Contractors of America, Submitted for the
Record by Hon. DeFazio......................................... 92
Statement of the American Society of Civil Engineers, Submitted
for the Record by Hon. DeFazio................................. 93
Statement of the Beyond the Runway Coalition, Submitted for the
Record by Hon. DeFazio......................................... 95
Chicago Midway International Airport and Chicago O'Hare
International Airport: Positive Impacts of a Passenger Facility
Charge Increase, Submitted for the Record by Hon. DeFazio...... 97
Statement of the National Asphalt Pavement Association, Submitted
for the Record by Hon. DeFazio................................. 98
Statement of Ed Bolen, President and CEO, National Business
Aviation Association, Submitted for the Record by Hon. DeFazio. 99
Statement of the National Precast Concrete Association, Submitted
for the Record by Hon. DeFazio................................. 100
Statement of the National Stone, Sand and Gravel Association,
Submitted for the Record by Hon. DeFazio....................... 101
Norman Y. Mineta San Jose International Airport: Impacts of an
Increase of the PFC, Submitted for the Record by Hon. DeFazio.. 101
Statement of Airlines for America (A4A), Submitted for the Record
by Hon. Graves of Missouri..................................... 103
Letter of March 26, 2019, from Steven D. Hill, CEO and President,
Las Vegas Convention and Visitors Authority, Submitted for the
Record by Hon. Titus........................................... 105
Letter of April 12, 2019, from Maurice J. Gallagher, Chairman and
CEO, Allegiant Travel Company.................................. 106
APPENDIX
Questions from Hon. Eddie Bernice Johnson for Lawrence J.
Krauter, A.A.E., AICP.......................................... 109
Questions from Hon. Garret Graves for Tori Emerson Barnes........ 109
Questions from Hon. Eddie Bernice Johnson for Candace S. McGraw.. 110
Questions from Hon. Eddie Bernice Johnson for Joseph W. Lopano... 111
Questions from Hon. Garret Graves for Marc Scribner.............. 111
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
March 22, 2019
SUMMARY OF SUBJECT MATTER
TO: Members, Committee on Transportation and
Infrastructure
FROM: Staff, Committee on Transportation and
Infrastructure
RE: Full Committee Hearing on ``The Cost of Doing
Nothing: Why Investing in Our Nation's Airports Matter''
PURPOSE
The Committee on Transportation and Infrastructure will
meet on Tuesday, March 26, 2019, at 10 o'clock in HVC 210,
Capitol Visitor Center, to hold a hearing titled, ``The Cost of
Doing Nothing: Why Investing in Our Nation's Airports
Matters.'' The hearing will explore the state of U.S. airport
infrastructure and opportunities for Congress to increase
funding for projects that will rehabilitate aging
infrastructure and prepare for anticipated passenger demand in
the coming years. The committee will hear testimony from
Cincinnati/Northern Kentucky Airport, Spokane International
Airport, Tampa International Airport, the Competitive
Enterprise Institute, the U.S. Travel Association, and Spirit
Airlines.
I. BACKGROUND
More than 1 billion passengers enplaned at U.S. airports on
domestic and foreign carriers in 2018, according to federally
reported data. The Federal Aviation Administration (FAA)
anticipates this number will increase. Passenger enplanements
on U.S. carriers alone are expected to rise to 1 billion
annually by 2028 and nearly 1.3 billion by 2038.\1\ While the
FAA notes that the majority of U.S. airports now have
sufficient airfield capacity for current traffic levels, the
agency also notes there are a small number of the largest
airports that are already consistently capacity-constrained.
Such delays regularly occur with cascading effects on the
entire air transportation system.\2\ The FAA has continued
efforts to enhance airport capacity and reduce delays through
infrastructure development and technological advancements.
Nevertheless, these efforts may be insufficient to meet the
unprecedented passenger growth and demands forecasted in the
near and long terms.
---------------------------------------------------------------------------
\1\ FAA, FAA Aerospace Forecast: Fiscal Years 2018-2038, https://
www.faa.gov/data_research/aviation/aerospace_forecasts/media/FY2018-
38_FAA_Aerospace_Forecast.pdf.
\2\ FAA, Report to Congress: National Plan of Integrated Airport
Systems, 2019-2023 (2018), at 16, available at https://www.faa.gov/
airports/planning_capacity/npias/reports/media/NPIAS-Report-2019-2023-
Narrative.pdf.
---------------------------------------------------------------------------
U.S. airports have an estimated total of $128 billion in
infrastructure needs to keep up with current demand and plan
for expected passenger growth between 2019 and 2023 (or $26
billion per year), based on the Airports Council International-
North America's (ACI-NA) infrastructure needs survey.\3\ As
detailed below, this total amount far exceeds current Federal
funding for airport improvement projects. Planning, designing,
and building terminals and other capacity-enhancing projects
can take an enormous amount of time. Airports need to start
work on infrastructure projects years in advance in order to
increase capacity and accommodate rising demand. Failing to
plan for and accommodate future passenger projections may have
impacts on the aviation industry, which supports more than $1.6
trillion in economic activity.
---------------------------------------------------------------------------
\3\ ACI-NA, Terminally Challenged: Addressing the Infrastructure
Funding Shortfall of America's Airports (2019-2023) (Mar. 2019).
---------------------------------------------------------------------------
II. FUNDING OVERVIEW
The United States is home to three of the world's 10
busiest airports by passenger traffic (including the busiest,
Hartsfield-Jackson Atlanta International Airport),\4\ as well
as 19,620 others ranging in size from some of the world's
busiest to small general aviation airfields. The FAA has
identified 3,321 airports as public-use facilities that are
important to national air transportation and consequently
qualify for Federal assistance through the FAA's airport grant
program, the Airport Improvement Program (AIP). Unless
otherwise indicated, this summary will refer to funding and
capacity issues among the 3,321 federally assisted airports
that are identified in the FAA's most recent National Plan of
Integrated Airport Systems (NPIAS) Report for Fiscal Years
2019-2023.\5\
---------------------------------------------------------------------------
\4\ ACI-NA, World's 20 Busiest Airports, http://image.exct.net/lib/
fe5e15707260027c731c/m/2/e986d03a-1848-4b5b-8fe5-8322b5188ada.pdf.
\5\ See NPIAS, supra note 2. The most recent NPIAS ``identifies the
airports included in the national airport system, the roles they
currently serve, and the amounts and types of airport development
eligible for Federal funding under the Airport Improvement Program
(AIP) over the next 5 years.'' Id. at iii. The FAA submits an updated
NPIAS report to Congress every 2 years. 49 U.S.C. 47103.
---------------------------------------------------------------------------
Airports primarily pay for capital improvement projects
from five funding sources: (1) Federal AIP grants disbursed by
the FAA; (2) revenue from passenger facility charges (PFCs);
(3) State grants; (4) capital contributions for infrastructure
projects, such as funds from airlines and other tenants; and
(5) airport-generated revenue, such as revenue generated by
airline leases, landing fees, concessions, and parking.\6\
Airports have several options for trying to align available
capital funding and the costs of planned development, including
prioritizing projects, increasing airport-generated net income,
and borrowing money to fund capital projects.\7\ U.S. airports
typically leverage primary funding sources by issuing bonds to
finance infrastructure projects, which allows them to fund
projects up front and pay for their costs over a longer
timeframe (i.e., after the project is constructed).\8\ However,
this funding approach also requires airports to pay financing
costs (i.e., interest) on their infrastructure projects,
although airports can issue tax-exempt bonds at lower interest
rates.\9\
---------------------------------------------------------------------------
\6\ See GAO, Airport Funding: FAA's and Industry's Cost Estimates
for Airport Development, GAO-17-504T (Mar. 23, 2017).
\7\ See GAO, Airport Finance: Information on Funding Sources and
Planned Capital Development, GAO-15-306 (Apr. 28, 2015).
\8\ GAO, supra note 6, at 10.
\9\ Id. at 10-11.
---------------------------------------------------------------------------
A. AIRPORT IMPROVEMENT PROGRAM
The Airport and Airway Improvement Act of 1982 (P.L. 97-
248) created the AIP. Funds obligated for the AIP are drawn
from the Airport and Airway Trust Fund, which is primarily
funded from excise taxes imposed on domestic airline tickets,
cargo waybills, and aviation fuel sales. The AIP generally
funds projects that are needed to enhance airport safety,
capacity, security, and noise mitigation. Congress has
maintained level AIP funding of $3.35 billion annually for the
past 7 years, and the FAA Reauthorization Act of 2018 (P.L.
115-254) continues the same funding level through fiscal year
2023. By the conclusion of the current reauthorization, the
Federal Government will have maintained, with few exceptions,
level Federal airport funding for 12 fiscal years.
Congress created the AIP for the purpose of issuing grants
to airport sponsors--mostly cities, counties, and other local
government authorities--for safety, capacity, and security
improvements and for mitigating airports' environmental
footprint.\10\ As a condition of accepting an AIP grant, an
airport sponsor must commit to certain assurances that the
sponsor will not encumber airport land in a manner that
constrains development, will not permit discriminatory
practices with respect to users of the airport, and will
maintain the airport for the public benefit, among other
things.\11\ Projects funded by the AIP must also meet Federal
environmental and procurement requirements.
---------------------------------------------------------------------------
\10\ Airport and Airway Improvement Act of 1982, P.L. 97-248
(1982).
\11\ 49 U.S.C. 47107.
---------------------------------------------------------------------------
B. PASSENGER FACILITY CHARGE
To provide additional resources for airport improvements,
the Aviation Safety and Capacity Expansion Act of 1990 (P.L.
101-508) permitted airports to assess a charge on enplaning
passengers called the PFC. The PFC is a federally authorized
user fee that an airport sponsor, subject to FAA-approval, may
choose to levy on most enplaned passengers by way of the
airline ticket. In turn, PFC revenue must be used for airport
projects on airport property and consistent with other
statutory criteria. Most commercial airports rely on PFC
revenue to some extent; 363 airports collect PFCs as of
February 2019, including 98 of the busiest 100 U.S.
airports.\12\
---------------------------------------------------------------------------
\12\ FAA, Key Passenger Facility Charge Statistics (Feb. 28, 2019),
https://www.faa.gov/airports/pfc/monthly_reports/media/stats.pdf.
---------------------------------------------------------------------------
PFC revenues can be used for a wider variety of purposes
than AIP grants; in addition to funding AIP-eligible terminal
development projects with PFC revenues, airports can apply PFC
revenues toward airport noise compatibility planning,
constructing gates and jetbridges, and converting airport
vehicles and ground support equipment to low-emissions
technology.\13\ PFC revenue can also be used to secure
municipal bonds for airport projects and may be used to make
principal and interest payments on the debt.
---------------------------------------------------------------------------
\13\ 49 U.S.C. 40117(a)(3).
---------------------------------------------------------------------------
Airports may impose a maximum $4.50 PFC on enplaning
passengers--up to a maximum of $18 on a roundtrip ticket. The
PFC is not indexed to the cost of inflation, and Congress has
not increased the cap on the PFC since 2000, when the Wendell
H. Ford Aviation Investment and Reform Act for the 21st Century
(P.L. 106-181) increased the original PFC cap from $3 to $4.50.
According to federally reported data, airports collected
approximately $3.3 billion in PFC revenue in 2017 on the basis
of a $4.50 PFC cap.\14\
---------------------------------------------------------------------------
\14\ See Key Passenger Facility Charge Statistics, supra note 10.
---------------------------------------------------------------------------
C. PRIVATE CAPITAL
According to the FAA, airports carried almost $92 billion
in debt at the end of 2017. Despite this, airports generated
$28.8 billion in total revenue, and after paying operating and
financing expenses, they collect $4.3 billion in net income in
2017. The net income is reinvested back into the airport. This
can make some, though not all, airports attractive vehicles for
private investment. According to Airports Council International
World, ``it is an inescapable fact that private investment has
been used successfully around the world to finance crucial new
infrastructure to meet future demands.''\15\ For example, John
F. Kennedy International and LaGuardia in New York, Los Angeles
International, Denver International, and Paine Field in
Washington, are using public-private partnerships to fund and
finance terminal and other projects. Some of these airports
also rely on significant local revenue to help secure private
investment.
---------------------------------------------------------------------------
\15\ ``Don't inhibit private investment in airports, ACI World
warns'', International Airport Review, June 4, 2018, https://
www.internationalairportreview.com/news/70059/dont-inhibit-private-
investment.
---------------------------------------------------------------------------
Federal law generally prohibits using airport revenue for
non-airport purposes. However, the FAA's Airport Investment
Partnership Program (formerly called the ``Airport
Privatization Pilot Program'') provides a process for public
airport sponsors to use airport sale or lease proceeds for non-
airport purposes and for private investors to earn a return
from the airport. According to the GAO, however the
``privatization of an entire airport has seldom been used in
the United States.''\16\ In fact, since the program's inception
in 1997, only one U.S. airport successfully remained in the
program, San Juan Luis Munoz Marin International Airport.\17\
The FAA Reauthorization Act of 2018 made several changes to the
program to increase its utilization and attractiveness,
including eliminating the participation cap and expanding AIP
eligibility to include predevelopment costs.
---------------------------------------------------------------------------
\16\ GAO, supra note 6, at 7 n.14.
\17\ FAA, Airport Privatization Pilot Program, https://www.faa.gov/
airports/airport_compliance/privatization/.
---------------------------------------------------------------------------
III. ESTIMATED CAPITAL NEEDS
Airport capital needs are growing and significantly exceed
available Federal funding. The FAA estimates that between 2019
and 2023, AIP-eligible projects will total $35.1 billion, or $7
billion per year, an increase of $2.6 billion over the FAA's
last estimate for fiscal years 2017-2021. This annual figure is
more than double the $3.35 billion per year in AIP funding that
Congress will provide over that same period (2019-2023),
despite a one-time increase in AIP funding of $1 billion for
certain small airport projects enacted last year and a $500
million supplemental for FY 2019. When combining both AIP-
eligible and non-AIP-eligible projects, the total
infrastructure need for U.S. airports increases to more than
$128 billion between 2019 and 2023, or approximately $26
billion annually, according to an industry survey by ACI-
NA.\18\ When combining all sources of airport revenue,
including AIP grants and PFC revenue, U.S. airports still face
a funding gap of $15.6 billion each year, which would
necessitate project revision, financing, or deferral.\19\
---------------------------------------------------------------------------
\18\ See GAO, supra note 5, at 7.
\19\ See GAO, supra note 6, at 7 n.14. See also ACI-NA, Terminally
Challenged, supra note 3.
---------------------------------------------------------------------------
WITNESSES
Ms. Tori Barnes, Executive Vice President of
Public Affairs, U.S. Travel Association
Mr. Ted Christie, Chief Executive Officer and
President, Spirit Airlines
Mr. Lawrence J. Krauter, Chief Executive Officer,
Spokane International Airport
Mr. Joe Lopano, Chief Executive Officer, Tampa
International Airport
Ms. Candace S. McGraw, Chief Executive Officer,
Cincinnati/Northern Kentucky International Airport
Mr. Marc Scribner, Senior Fellow, Competitive
Enterprise Institute
THE COST OF DOING NOTHING: WHY INVESTING IN OUR NATION'S AIRPORTS
MATTERS
----------
TUESDAY, MARCH 26, 2019
House of Representatives,
Committee on Transportation and Infrastructure,
Washington, DC.
The committee met, pursuant to notice, at 10:04 a.m. in
room HVC-210, Capitol Visitor Center, Hon. Peter A. DeFazio
(Chairman of the committee) presiding.
Mr. DeFazio. The committee will come to order. I ask
unanimous consent the chair be authorized to declare recesses
during today's hearing.
Without objection, so ordered.
Before we begin today I do want to take a few moments to
update the audience and anyone listening to the important work
this committee is undertaking in response to the devastating
Lion Air flight 610 and Ethiopian Airlines flight 302
accidents, and subsequent international grounding of the Boeing
737 MAX.
Following the Federal Aviation Administration's grounding,
subcommittee chairman Rick Larsen and I launched an
investigation into the FAA's certification of the MAX, which
will include a rigorous evaluation of the roles and
responsibilities of both FAA and Boeing during the MAX
certification; how safety-critical systems that did not exist
on prior 737 models were tested, evaluated, and assumed to be
safe; and why the MAX was certified without requiring
additional pilot training, among other things.
In addition to starting our initial investigatory work,
last week we also requested the Department of Transportation
inspector general perform its own investigation into the MAX's
certification, which we have asked to include a comprehensive
look at the FAA's evaluation of new features, including sensors
and software; pilot training and manuals; and how new features
were communicated to airlines, pilots, and foreign authorities.
We have also requested the inspector general provide us
with a status report on any corrective actions undertaken by
the FAA since the first accident, and whether pilot training is
adequate before the MAX returns to revenue service.
Further, the committee now has a whistleblower webpage to
serve as a resource for anyone who has information to share, so
they can do so anonymously as we continue our investigation,
and we are eager to hear from anyone who can help. I extend an
invitation to any current or former FAA or Boeing employees who
have concerns. Please feel safe and come forward.
And today we are sending a bipartisan letter to the FAA
urging the agency to engage an independent, third-party review
of Boeing's proposed changes to the 737 MAX and to evaluate
that the manufacturer's fix is comprehensive, and that pilots
have the information and training they need to fly the aircraft
safely.
This must all be done before the 737 MAX is certified to
return to service. The traveling public needs assurances that
the FAA will only recertify the aircraft for flight if and when
the FAA, outside safety and technical experts, and pilots agree
the aircraft is safe to fly.
Later this week, I will submit document requests to the FAA
and Boeing to drill down into key certification decisions
regarding the MAX. We plan to dig deep into the issues
surrounding the recent accidents over the coming weeks and
months.
Tragedies like these should not happen. The Transportation
and Infrastructure Committee is committed to ensuring the
safety of our transportation system, and under my chairmanship
we will take all steps necessary to do so. I expect that our
work will shed light on any deficiencies in the certification
of aircraft in the United States, and we will ensure all
lessons are applied and effect changes to improve the safety of
our air transportation system, and hopefully, other nations' as
well. And in the not-too-distant future, once we have documents
and information we need, we will be holding a hearing on these
issues.
But today it is a different topic, and it is an important
topic, as well. Not as life-and-death as the first, but
incredibly important to the future of aviation, commercial
aviation, in this country.
Back in February we held the first hearing on why our
infrastructure investments can't wait. And today we will drill
down more into the ever-growing capital needs of airports, and
potential solutions to bridge the funding gap that exists
between what airports can pay for and what they cannot.
Congestion has become the norm in our country, and it is
not only on our highways. It is affecting air travel, as well:
terminals clogged with passengers; runways and taxiways needing
additions and rehabilitation; airplanes sitting on tarmacs
across the country waiting for gates. There is no question that
members of this committee and millions of other Americans who
fly every week experience these issues.
Passenger terminals across the United States, many of which
were constructed in the 1960s or 1970s and even 1980s, are
outdated, cannot accommodate current or projected passenger
growth, security needs, as they were built pre-9/11. They do
not have the space or gates needed to accommodate current
airline departures and arrivals, let alone welcoming new
service for communities. This, in turn, affects the price that
all Americans pay for airline tickets, as well as local
businesses and regional economies from coast to coast.
According to the ACI, when combining all funding sources
available to U.S. airports, they still face more than $15
billion--B, billion dollars--each year in unmet infrastructure
needs. U.S. airports are doing the best they can to find ways
to meet these ballooning needs, but this often leads to local
communities paying twice as much and waiting twice as long for
upgrades.
Last year this committee hammered out a long-term FAA
reauthorization bill. It provides robust funding for the FAA to
carry out its mission, contains numerous provisions needed to
advance the industry at-large, but it failed to address the
growing infrastructure needs of airports. In fact, by the time
this authorization expires in 2023, funding levels for the FAA
program for all the airports, the AIP, will have been flat for
a total of 12 years, despite infrastructure needs growing and
the cost of construction rising over the same period.
The FAA forecasts that, over the next 5 years, U.S.
airports will register a need for $35.1 billion in AIP-eligible
infrastructure projects alone. That amounts to more than $7
billion a year, more than double the $3.2 billion in AIP grants
that are awarded each year.
So it is clear that AIP barely makes a dent in the AIP
investment needs. Even when you take into account the other
sources of revenue available to airports, such as State grants,
airport concessions, they are still billions short. The picture
is even bleaker when you factor in airports' non-AIP-eligible
needs. ACI estimates over the next 5 years U.S. airports will
require total investment of $128 billion, or $26 billion a
year.
So what is the solution? What can Congress do? I am surely
not opposed to increasing the FAA's Federal AIP grant levels.
But we also need to look on the other side of the airport, and
we need to increase the cap on the PFC, a locally imposed,
federally authorized user fee that airports may collect or not,
from the passengers to finance airport-related projects. Simply
put, the PFC supports local decisions about what is best for
airports and surrounding communities.
The cap has not been raised in almost 20 years. If we look
back to the original authorization in 1990, the current PFC
would be about $8.50 if it had been adjusted for inflation, but
it has not. So it is worth about two bucks, compared to the
$4.50 that Congress authorized a number of years ago.
So, you would think that the airlines would be willing to
work with the airports on this. However, they are not. And they
say that the airports have adequate resources and/or they can
work with their incumbent airlines to fund their passenger
needs. But this ultimately can be much more expensive for the
passengers and, ultimately, someone has got to pay the cost. So
it is going to come back on the airline leases and gates, in my
opinion.
You know, when we were negotiating--we are told that they
have an economist who says that two bucks on the PFC will cause
millions of people to not fly again. I question the validity of
that assertion. And in fact, while we were doing the FAA bill
last fall, American Airlines, Delta Air Lines, JetBlue, and
United Airlines all increased their bag fees by $5. But I
didn't see that their passenger boardings fell off
phenomenally. So, you know, I question the inelasticity of
demand for tickets having to do with improving the passenger
experience with a PFC, improving security throughput, having
more gates, potentially having more competition at airports.
And maybe that's the real issue, is, you know, if an
airport is leased out, then to build more gates--if they have
to deal with the airlines, that wouldn't include a non-
incumbent airline in those negotiations, would it? So I have
really got to question what really is going on here.
And last year I introduced a bill with Representative
Massie on this, and we had a bipartisan bill. It was not
considered during the FAA authorization. The Senate previously
passed an increase on this issue.
And, you know, today airports collect $3.3 billion each
year in PFC on the basis of $4.50. If they doubled, they could
collect nearly $7 billion annually. But a more modest increase,
when combined with AIP funding, would bring them a step closer
to fulfilling their capital needs, but it would not fully fund
them.
[Mr. DeFazio's prepared statement follows:]
Prepared Statement of Hon. Peter A. DeFazio, a Representative in
Congress from the State of Oregon, and Chair, Committee on
Transportation and Infrastructure
Before we begin this hearing, I would like to take a moment to
provide an update on the important work this committee is undertaking
in response to the devastating Lion Air flight 610 and Ethiopian
Airlines flight 302 accidents, and subsequent international grounding
of the Boeing 737 MAX aircraft.
Following the Federal Aviation Administration's (FAA) grounding of
the 737 MAX in U.S. airspace on March 13, subcommittee chairman Rick
Larsen and I launched an investigation into the FAA's certification of
the MAX, which will include a rigorous evaluation of:
the roles and responsibilities of both the FAA and Boeing
during the MAX-certification;
how the safety critical systems that did not exist on
prior 737 models were tested, evaluated, and assumed to be safe; and
why the MAX was certified without requiring additional
pilot training, among other things.
In addition to starting our initial investigatory work, last week,
Chairman Larsen and I also requested that the Department of
Transportation inspector general perform its own investigation into the
MAX's certification, which we have asked to include a comprehensive
look at the FAA's evaluation of new features on the aircraft,
including:
sensors and software;
pilot training programs and manuals; and
how new features were communicated to airlines, pilots,
and foreign authorities.
We have also requested that the inspector general provide us with
status reports on any corrective actions undertaken by the FAA since
the first accident and whether pilot training is adequate before the
MAX returns to revenue service.
Further, we created a whistleblower webpage to serve as a resource
for anyone who has information to share so they can do so anonymously.
As we continue our investigation, we are eager to hear from anyone who
can help. I extend an invitation to any current or former FAA or Boeing
employees who have concerns to please feel safe coming forward.
Today, we are sending a bipartisan letter to the FAA urging the
agency to engage an independent, third-party review of Boeing's
proposed changes to the 737 MAX and to evaluate that the manufacturer's
``fix'' is comprehensive and that pilots have the information and
training they need to fly the aircraft safely.
This all must be done before the 737 MAX is certified to return to
service. The traveling public needs assurances that the FAA will only
recertify the aircraft for flight if and when the FAA, outside safety
and technical experts, and pilots agree the aircraft is safe to fly.
Later this week, I will submit document requests to the FAA and
Boeing to drill down into key certification decisions regarding the
MAX. We plan to dig deep into the issues surrounding the recent
accidents over the coming weeks and months.
Tragedies like these should not happen. The Transportation and
Infrastructure Committee is committed to ensuring the safety of our
transportation system, and under my chairmanship, we will take all
steps that are necessary to do so. I expect that our work will shed
light on any deficiencies in the certification of aircraft in the
United States, and we will ensure all lessons are applied and effect
changes to improve the safety of our Nation's air transportation
system, and hopefully, other nations' as well.
Today, we hold the Transportation and Infrastructure Committee's
second hearing of the 116th Congress on the importance of investing in
our Nation's infrastructure.
In February, we kicked off this Congress by sounding the alarm
bells that investing in America's infrastructure cannot wait. Today, we
will drill down into the ever-growing capital needs of our airports and
the potential solutions to bridge the funding gap that exists between
what airports can pay for and what they cannot.
Crippling congestion has become the norm in our country. And it is
not just on roads. This congestion is affecting air travel in the
United States as well, with terminals clogged with passengers; runways
and taxiways needing additions and rehabilitation; and airplanes
sitting on tarmacs across the country waiting for gates. There is no
question that members of this committee who fly each week to Washington
experience these issues.
Passenger terminals across the United States, many of which were
constructed in the 1960s or 1970s, are outdated and cannot accommodate
current or projected passenger growth. In addition, airports do not
have the space or gates needed to accommodate current airline
departures and arrivals, let alone for welcoming new service for
communities. This, in turn, affects the price you pay for an airline
ticket, as well as local businesses and regional economies from coast
to coast.
According to the Airports Council International (ACI), when
combining all funding sources available to U.S. airports, they still
face more than $15 billion each year in unmet infrastructure needs.
U.S. airports are doing the best they can to find ways to meet
their ballooning needs, but this often leads to local communities
paying twice as much and waiting twice as long for upgrades.
Last year, this committee hammered out a long-term Federal Aviation
Administration (FAA) reauthorization bill that became the longest FAA
reauthorization enacted in decades. While the 5-year law provides
robust funding for the FAA to carry out its mission and contains
numerous provisions needed to advance the U.S. aviation industry at-
large, it failed to address the growing infrastructure needs of U.S.
airports, despite a national consensus that airports are chronically
underfunded.
In fact, by the time this authorization expires in 2023, funding
levels for the FAA grant program for airports--the Airport Improvement
Program (AIP)--will have been flat for a total of 12 years, despite
infrastructure needs growing and the cost of construction rising over
this same period.
The FAA forecasts that, over the next 5 years, U.S. airports will
register a need for $35.1 billion in AIP-eligible infrastructure
projects alone. That amounts to more than $7 billion a year--more than
double the $3.2 billion in AIP grants awarded every year.
It is clear that AIP barely makes a dent in the total AIP-eligible
investment needs each year. And even when you take into account the
other sources of revenue available to airports, such as State grants
and airport concessions, they are still billions of dollars short of
what they need each year.
The picture is even bleaker when you factor in airports' non-AIP-
eligible needs. ACI estimates that, over the next 5 years, U.S.
airports will require total investment of $128 billion, or $26 billion
a year.
So what is the solution? What can Congress do to solve these rising
capital needs? I am surely not opposed to increasing the FAA's Federal
AIP grant levels. But for starters, we can increase the cap on the
passenger facility charge (PFC).
The PFC is a locally imposed, Federally authorized user fee that
airports may collect from their passengers to finance airport-related
projects. Simply put, the PFC supports local decisions about what is
best for airports and their surrounding communities.
Unfortunately, the PFC cap has not been raised in almost 20 years.
The PFC had been capped at $3 per enplaned passenger since Congress
created the PFC in 1990; in the 2000 FAA reauthorization, we increased
it by merely $1.50 to $4.50.
And there it has remained, capped at $4.50, not indexed to
inflation, totally stagnant. Had the $4.50 PFC been indexed to
inflation in 2000--the last time Congress raised the cap--the PFC would
be worth about $8.50 today, if not more. In fact, over the years,
construction cost inflation has severely eroded the purchasing power of
PFCs. Today, the PFC is only worth just over $2.
Yet the demands on airports have grown by the year. You might think
that the airlines, which want to make their customers' travel
experience as pleasant as possible, would agree to the need for more
investment in airport infrastructure through PFCs. But no--they have
historically unleashed all their political capital to defeat any PFC
increase, relying on the implausible argument that even a dollar
increase in the cost of air travel will cause demand to plummet.
Somehow, though, the airlines are willing to disregard that view of
the law of supply and demand when they charge bag fees. Federal data
shows U.S. airlines unilaterally increased the cost of air travel for
Americans by about $4.6 billion in bag fees in 2017.
Then, while Congress was negotiating the FAA reauthorization last
year, several carriers (American Airlines, Delta Air Lines, JetBlue
Airways, and United Airlines) had the audacity, in a matter of days, to
increase their bag fees by $5. And guess what? People still flew.
Therefore, I fail to see how a modest PFC increase would so
dramatically affect demand for air travel.
In fact, we just need to look to the north for evidence that a
higher airport fee will not dissuade travelers. Every day, U.S.
Airlines fly into Canadian airports, which charge anywhere between $4
to $40 for their PFC equivalent, the ``Airport Improvement Fee.'' For
example, a flight from DCA to Toronto on one U.S. airline would include
a $4.50 PFC in the United States as well as a nearly $19.00 AIF
(Canadian airport fee). And I've never heard a single complaint from
the airlines about those fees.
A priority for me as chairman this year will be to increase the cap
on the PFC so that U.S. airports can keep pace with current demands as
well as plan for expected commercial service growth in the years ahead.
We need more terminals, more runways and taxiways. And without an
increase in the PFC, who bears the brunt? Passengers. They end up
paying basically double for a project and wait years longer than
necessary for project completion.
Last Congress, along with Republican Congressman Thomas Massie, I
introduced H.R. 1265, the Investing in America: Rebuilding America's
Airport Infrastructure Act, which would have removed the PFC cap,
generating billions of dollars in additional investments to rebuild our
airports and ensure we are prepared for the demands of the next decade,
as our competitors around the world are doing.
There was bipartisan support for a PFC increase in the Senate as
well. The Senate Appropriations Committee, in 2017, approved a
bipartisan proposal to raise the PFC cap from $4.50 to $8.50 for
originating passengers and increase AIP funding from $3.35 billion to
$3.6 billion--a $250 million increase. The full committee approved the
measure by unanimous consent, but the Senate failed to act.
Airports collect approximately $3.3 billion each year in PFC
revenue, on the basis of a $4.50 cap. If airports doubled their current
PFC levels, they could collect nearly $7 billion annually. But even a
more modest increase, when combined with AIP funding, would bring them
a step closer to fulfilling their capital needs. And, of course,
investment in airport infrastructure, from terminals to runways and
taxiways, will create jobs. Lots of jobs.
I look forward to hearing from our witnesses this morning regarding
their current and growing infrastructure needs and why robust
investment matters. While we missed an opportunity to truly address
your predicament in last year's reauthorization, I hope we can work in
a bipartisan manner this Congress to find a path forward on airport
infrastructure investment, which includes raising the PFC cap. I will
continue to push this as a key component in any infrastructure bill
that Congress considers.
Thank you.
Mr. DeFazio. So, with that, I will yield time to the
ranking member, Representative Graves.
Mr. Graves of Missouri. Thank you, Mr. Chairman. I
appreciate the hearing today. And no one denies that much of
our Nation's infrastructure is crumbling, but I do think
aviation is a little bit different.
Tens of billions of dollars over the past few years have
been poured into our airports. Last year Congress authorized
nearly $4\1/2\ billion annually in airport grants, and made it
easier for airports to use PFC revenues.
However, as you pointed out, more passengers than ever are
going to travel through our airports this year, and demand is
only expected to grow. Therefore, reviewing our airport
infrastructure investments, I think, makes a whole lot of
sense.
While I am grateful to today's witnesses, I am disappointed
that we are not going to hear from a greater diversity of
perspectives. No one at today's hearing can share the
perspective of mainline, regional, or cargo airlines.
Additionally, there is no one today from the finance community
to discuss financing airport projects, including private
capital. And finally, there is no one here who can speak to the
experiences of general aviation airports. As you may know, GA
airports are economic engines, and they are often the entry
point into aviation for aerospace professionals. Not having
these unique perspectives, I think, is a missed opportunity.
Regardless, it is important to keep in mind three key
points on airport investment.
First, we have to understand what the actual infrastructure
needs of airports are. A recently released survey states that
airports have $128 billion in infrastructure needs over the
next 5 years. The number is 70 percent higher than the same
report, the very same report, 4 years ago, even though
passenger traffic has increased 13 percent. We have to make
sure that we are talking about infrastructure needs and not
infrastructure wants.
Second, we have to make sure that private capital is a part
of the solution. All commercial service airports generate
revenue, and therefore have the ability to attract that private
capital. Let's make sure that airports can take advantage of
private investment opportunities.
And lastly, it is clear that airports and airlines continue
to accuse each other of wanting more control. Lost in this arm-
wrestling is accountability, accountability to the passenger,
who already pays more than 20 percent in taxes and fees on
every ticket, and accountability to the taxpayer, who has
little say on how their airport is going to serve their
community.
In my district alone, voters have been sold enough versions
of a new terminal for Kansas City International Airport to make
their heads spin.
In terms of infrastructure, of an infrastructure package
that hopefully we are going to be discussing sooner, rather
than later, all funding options are on the table. I am also
skeptical, though, of any proposal that adds to the traveling
public's burden, fails to fully consider the views of local
communities and passengers, and lacks a full range of financing
options, including private capital.
[Mr. Graves's prepared statement follows:]
Prepared Statement of Hon. Sam Graves, a Representative in Congress
from the State of Missouri, and Ranking Member, Committee on
Transportation and Infrastructure
No one denies that much of our Nation's infrastructure is
crumbling, but aviation is different. Tens of billions of dollars over
the past few years have been poured into our airports. Last year,
Congress authorized nearly $4.5 billion annually in airport grants
while making it easier for airports to use PFC revenues.
Those investments have paid off. Ninety-eight percent of runways at
commercial service airports are in excellent, good, or fair condition
and new terminals open every year. However, more passengers than ever
will travel through our airports this year, and demand is expected to
grow. Therefore, reviewing airport infrastructure investment makes
sense.
While I am grateful to today's witnesses, I am disappointed we will
not hear a greater diversity of perspectives. No one at today's hearing
can share the perspective of mainline, regional, or cargo airlines.
Additionally, there is no one today from the finance community to
discuss financing airport projects, including with private capital. And
finally, there is no one here who can speak to the experiences of
general aviation airports. As you may know, GA airports are economic
engines, and are often the entry point into aviation for aerospace
professionals. Not having these unique perspectives is a missed
opportunity.
Regardless, it is important to keep in mind three key points on
airport investment.
First, we have to understand what the actual infrastructure needs
of airports are. A recently released survey states that airports have
$128 billion in infrastructure needs over the next 5 years. This number
is 80 percent higher than the same report 4 years ago--even though
passenger traffic increased only 13 percent. We have to make sure that
we're talking about infrastructure needs, not infrastructure wants.
Second, we must make sure that private capital is part of any
solution. All commercial service airports generate revenue, and
therefore have the ability to attract private capital. Let's make sure
that airports can take advantage of private investment opportunities.
Lastly, it is clear that airports and airlines continue to accuse
each other of wanting more control. Lost in this ``arm-wrestling'' is
accountability--accountability to the passenger, who already pays more
than 20 percent in taxes and fees on a ticket, and accountability to
the taxpayer, who has little say on how their airport will serve their
community.
In my district, voters have been sold enough versions of a new
terminal at Kansas City International to make their heads spin. An
unlimited PFC would have allowed the city and airport to circumvent the
voters and spend without regard to impacts on taxpayers or passengers.
In terms of an infrastructure package, all funding options are on
the table. But I am skeptical of any proposal that adds to the
traveling public's burden, fails to fully consider the views of local
communities and passengers, and lacks a full range of financing
options, including private capital.
Mr. Graves of Missouri. And with that, I look forward to
the hearing today. I want to thank all of our witnesses for
being here, and I look forward to hearing each and every one of
your testimonies.
And, with that, I would yield back the balance of my time.
Mr. DeFazio. I thank the gentleman for his brevity.
I ask UC, unanimous consent, that the following items be
entered into the record of today's hearing: submissions by 57
U.S. airports detailing their planned infrastructure projects
and their current funding needs; and written testimony prepared
by seven different groups.
Without objection, so ordered.
[The information submitted by Mr. DeFazio for the record is
on pages 87-102.]
Mr. DeFazio. And now I would move on to our witnesses. I
would like to welcome our panel: Lawrence J. Krauter, CEO,
Spokane International Airport; Ms. Tori Barnes, executive vice
president of public affairs, U.S. Travel Association; Ms.
Candace S. McGraw, CEO, Cincinnati/Northern Kentucky
International; Mr. Joe Lopano, CEO, Tampa International
Airport.
We are--oh, here we go, page 2.
Mr. Ted Christie, CEO and president, Spirit Airlines; Mr.
Marc Scribner, senior fellow, Competitive Enterprise Institute.
I thank you all for being here today, and I look forward to
your testimony.
Without objection, full statements will be included in the
record. Your written testimony has been made part of the
record.
And you know, I would encourage members of the panel to, as
much as possible, interact with one another, statements made by
others that they may disagree with or agree with. That would be
useful. I have read the testimony, as I assume have other
members of the panel. So please be interesting in your 5-minute
summaries.
And with that, I would like to recognize Representative
Massie to introduce Ms. Candace McGraw.
Mr. Massie. Thank you, Mr. Chairman, for allowing me to
introduce my constituent.
Ms. McGraw has been the CEO of our airport--that is the
Cincinnati/Northern Kentucky Airport, and, yes, the Cincinnati
airport is in Kentucky--since 2011. She has overseen in the
last 5 years a doubling of our passenger originations, and a
doubling of our cargo freight there at the airport. The airport
is home to DHL's North American hub, and the Amazon hub, their
cargo hub there.
Ms. McGraw serves as the Airports Council International
chairperson, and her airport has been recognized as the best
regional airport in North America for 7 of the last 8
consecutive years.
Thanks for coming, Ms. McGraw.
Ms. McGraw. Good morning, Chairman DeFazio----
Mr. DeFazio. I think----
Ms. McGraw. Oops, I am sorry.
Mr. DeFazio. Whoa, whoa----
[Laughter.]
Mr. DeFazio. We are going to start left to right, or as----
Ms. McGraw. Oh, I am sorry.
Mr. DeFazio [continuing]. You sit there, right to left.
But you are introduced graciously by your Member of
Congress. And, with the--with that, we would turn to Mr.
Krauter for his testimony.
Mr. Krauter. CVG comes before GEG, so they--we got you that
way, Candace.
TESTIMONY OF LAWRENCE J. KRAUTER, A.A.E., AICP, CHIEF EXECUTIVE
OFFICER, SPOKANE INTERNATIONAL AIRPORT; TORI EMERSON BARNES,
EXECUTIVE VICE PRESIDENT, PUBLIC AFFAIRS AND POLICY, U.S.
TRAVEL ASSOCIATION; CANDACE S. MCGRAW, CHIEF EXECUTIVE OFFICER,
CINCINNATI/NORTHERN KENTUCKY INTERNATIONAL AIRPORT; JOSEPH W.
LOPANO, CHIEF EXECUTIVE OFFICER, TAMPA INTERNATIONAL AIRPORT;
TED CHRISTIE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SPIRIT
AIRLINES, INC.; AND MARC SCRIBNER, SENIOR FELLOW, COMPETITIVE
ENTERPRISE INSTITUTE
Mr. Krauter. Good morning, Chairman DeFazio and Ranking
Member Graves and members of the committee. Thank you for the
invitation to appear again before this committee to discuss the
infrastructure funding challenges facing our Nation's airports,
particularly from my perspective, small-hub airports like
Spokane.
We are the primary commercial service airport for the
intermountain Northwest, serving approximately 4 million
passengers a year across Washington, Oregon, Idaho, Montana,
and the Canadian provinces of Alberta and British Columbia.
Small-hub airports like Spokane play a very large role in the
economic vitality of our surrounding regions. That is why it is
so important to invest in airports to maintain these engines of
economic growth.
We also operate Felts Field, a top-quality, general
aviation airport with its own contract tower.
Unfortunately, Mr. Chairman, the status quo is not working
when it comes to funding the infrastructure investments that
our airports desperately need. The terminal renovation and
expansion, or TREX, project that we are currently undertaking
in Spokane, is a case in point, and brings the cost of doing
nothing to life.
Doing nothing is simply not an option for Spokane, where
our main terminal building dates back to the 1960s, and our
facilities are operating beyond capacity in light of recent
double-digit passenger traffic growth. We launched the TREX
project to address these challenges by adding gate capacity to
meet rising demand, and expanding our passenger screening and
baggage claim facilities. The full scope of TREX is described
in my written statement, and summarized in the graphic that you
all have in front of you this morning.
The total cost of TREX is estimated at $190 million, but
significant constraints on the three main sources of airport
funding mean that we have limited options to fund this project
in a fiscally prudent way.
Let me start with the passenger facility charge, a fee on
each enplaning passenger that was conceived by this committee
as a way to fund terminal buildings and other airport projects.
The $4.50 cap on PFCs has not been adjusted in nearly 20 years,
meaning that its purchasing power in today's dollars is about
half of what it once was.
[Slide]
Mr. Krauter. The graphic that I have included in front of
you shows what this means for airports like Spokane that are
trying to fund significant capital improvements like the TREX
project within the constraints of a $4.50 PFC: more debt and no
way to fund any new improvements beyond this immediate project
with PFCs, because the PFC would be extended out so far--in our
case, well beyond 30 years.
As you can see across the top row of the table on the
graphic that I have included, the PFC cap forces us to finance
investments over a longer period of time, meaning that we
ultimately pay almost as much in interest as we do for the
project itself: more than $151 million in interest for a $190
million project under the scenario depicted in my graphic.
Moving down the graphic, however, you can see how modest
increases in the PFC cap would substantially shorten our
financing period and bring down our interest costs
significantly, meaning that the PFC could be used to fund other
projects that will be needed in the intermediate and longer
terms to further improve safety, capacity, and efficiency on
the behalf of airport users.
The bottom right-hand corner of the table shows that, with
an $8.50 PFC cap and a combination of pay-go and bond
financing, our interest costs would only amount to about $18.7
million over the term of the financing, or roughly one-quarter
of what they would equal with the current PFC cap, as you can
see in the top right-hand corner.
As airport operators, we have to ask ourselves why should
we be forced to take on crushing levels of debt that also tie
up and close off this locally directed user fee for the future
benefit of those that pay to use the airport, when a more
fiscally prudent option of adjusting the PFC cap upward is so
obvious?
I focused, Mr. Chairman, on PFCs because the other two
potential funding solutions commonly mentioned are even more
constrained. The FAA's airport improvement program is largely
focused on airside, runways and taxiways, not terminal and
other improvements that are more urgently needed. In fact, in
reviewing the $186 million in AIP grants Spokane has received
since 1982, I could only find one grant remotely related to
terminal improvements, and that was only for about $2 million,
and it was out of a set-aside fund for preconditioned air units
on jet bridges to reduce aircraft emissions.
In addition, capping AIP entitlement funds for terminal
improvement projects that the FAA considers as relatively low-
priority jeopardizes discretionary AIP funding for other
projects, effectively closing off this resource.
Finally, our net operating revenues are dedicated to paying
for items that do not qualify for either PFC or AIP support,
things like paying to construct parking lots and aircraft
hangars, buying police vehicles and shuttle buses, and building
administrative space: a crushing debt load requiring the
ability of the airport to generate sufficient operating
revenues net of debt service to fund these important projects
that are not eligible for PFC or AIP participation.
The bottom line, Mr. Chairman, is that increasing the PFC
is the most viable way to increase funding for improvements to
our Nation's airport infrastructure. The cost of doing nothing
is simply too high, and represented by the unreasonable
concessions and contortions that we must make to fit our
capital improvement projects into the confines of our current
funding system, as well as the many projects that never
actually get off the ground.
This is not the way that a nation committed to building
world-class infrastructure should fund its airports. I strongly
urge this committee to come together on a bipartisan basis to
properly and equitably fund our Nation's airports'
infrastructure by increasing the PFC.
Mr. Chairman, I appreciate the opportunity to appear before
you today, and look forward to answering questions.
[Mr. Krauter's prepared statement follows:]
Prepared Statement of Lawrence J. Krauter, A.A.E., AICP, Chief
Executive Officer, Spokane International Airport
introduction
Good morning Chairman DeFazio, Ranking Member Graves, and members
of the Committee. My name is Larry Krauter and I am the CEO of Spokane
International Airport. It is my privilege to appear before you a second
time in this series of hearings to explain what the ``cost of doing
nothing'' looks like for my airport and others like it across the
country. Like many small airports, Spokane faces an overwhelming need
for investment to maintain and improve our service to the public.
Current funding availability is simply not sufficient to meet this
need.
Before proceeding further with my testimony, I want to acknowledge
and thank Chairman DeFazio, Ranking Member Graves and all members of
the Committee for avoiding detrimental changes in private activity bond
(``PAB'') tax rules that could have harmed airports while also
repealing the corporate Alternative Minimum Tax that had a negative
impact on airports by reducing demand for and increasing the cost of
General Airport Revenue Bonds as part of the Tax Cuts and Jobs Act.
As members of this Committee begin considering proposals to enhance
our Nation's infrastructure, I urge you to adopt provisions that would
help airports repair aging facilities and build critical infrastructure
projects. Toward that goal, I respectfully urge you to:
1. Adjust the outdated federal cap on local Passenger Facility
Charges (``PFCs'')--a move that would allow airports to finance a
greater share of their projects with local user fee-generated revenue
and without having to plea for approval from airlines that may be
reluctant to approve facilities that allow for increased competition;
2. Increase funding for the Airport Improvement Program (``AIP'')
account to enable smaller airports afford necessary upgrades; and
3. Make important policy changes within the FAA National Priority
Ranking system to give higher priority to terminal renovation and
expansion projects in recognition of the shift in airport
infrastructure deficiencies from airside to landside facilities.
Without this refinement in prioritization, an increase in AIP funding
would not be effective to help airports struggling with growth-related
challenges and outdated terminal buildings.
Adjusting the PFC cap and increasing AIP funding would help Spokane
International Airport and other small airports around the country
renovate or replace aging terminal facilities and keep up with rising
passenger growth, increasing construction needs, and construction cost
inflation. Moreover, increases in commodity costs (such as steel) and
shortages of construction labor are driving up the cost of capital
projects for airports throughout the country. These factors are outside
our control as they are driven by national policy actions.
about spokane international airport
Spokane is the largest city between Seattle and Minneapolis as well
as between Calgary and Salt Lake City. Accordingly, we are a regional
center for education, food and entertainment, finance, retail,
medicine, manufacturing, transportation, and logistics for a vast area
of small and rural communities. In addition, we are a popular year-
round leisure destination.
Spokane International Airport is the primary commercial service
airport for this region. Our market area includes Eastern Washington
State, Northeast Oregon, North Idaho, Western Montana, and the southern
parts of the Canadian provinces of Alberta and British Columbia. In
2018, we handled just under four million total passengers, which beat
our all-time high record set in 2017 and represents an increase of
approximately 37 percent since 2013. In the past two years, our
passenger activity has increased nearly 23 percent. Freight activity
has increased a little over 10 percent since 2013.
Our airport is served by Alaska Airlines, American Airlines, Delta
Air Lines, Frontier Airlines, Southwest Airlines, and United Airlines,
which together operate approximately 60 flights per day to 16 nonstop
destinations. Scheduled cargo service is provided by FedEx and UPS.
Empire Airlines provides cargo service to smaller communities in the
region and feeds into FedEx at Spokane International Airport.
On the passenger side, our physical infrastructure consists of two
terminal buildings: the original terminal building constructed in 1965,
which has 11 loading bridge gates, and a second terminal constructed in
1999, which has three loading bridge gates and four ground-loading
positions. Together, the terminals offer a total of 14 gates and four
ground-loading positions.
The airport is owned jointly by the City of Spokane and Spokane
County and operated by the Spokane Airport Board. In 2019, our
operating budget is approximately $43 million and our capital budget is
approximately $51 million. We have approximately 100 full-time
employees and 50 part-time employees. We do not receive general fund
support from City or County taxpayers and therefore rely on revenues
generated by parking, ground leases, permit fees and concession
agreements to fund our operations. Capital expenditures are primarily
funded through AIP grants; Customer Facility Charges to rental car
companies, the Passenger Facility Charge, and debt. A modest non-grant
funded capital program is supported by available cash outside of
reserves. Consequently, PFCs are crucial element of our fiscal self-
sufficiency.
our airport's capital improvement needs
After 20 years without any capacity expansion, Spokane
International Airport has reached a point of full saturation on both
the landside and airside of the terminal facilities. On the airside, we
have no additional gates to offer existing airline partners for new
service or for new entrants, particularly if they want to fly at peak
times. For example, one of our airlines recently added new nonstop
service that filled a much needed demand. Due to lack of gates, the new
route has to use one of the ground-loading positions, which forces
customers to go outside in all weather conditions to board the
aircraft.
Our landside facilities are equally saturated. We have a passenger-
screening checkpoint in each of the terminal buildings. Both
checkpoints are severely constrained as they were jammed into existing
space in the terminal buildings that were not designed for the
extensive physical space needed to carry out passenger screening in the
post 9/11 era. Some of our baggage-claim devices are original
equipment, and our maintenance staff is required to machine replacement
parts from scratch in order to keep them operational. The baggage
carousel that serves United Airlines dates back to the 1970s. Our
legacy HVAC system is just as aged, and we have trouble keeping our
passengers and workers comfortable, as our system struggles to keep up
with the heating or cooling loads during peak hours of activity.
We have done an amazing job to extend the life of the terminal
buildings and to make them work as best as they can; however, we now
find ourselves up against both the age and capacity limits of the
facility. If we do not invest now, the ability of the airport to
facilitate continued economic growth of our region and to support
growth of airline business will be harmed.
Spokane is not alone. Airport terminal buildings around the country
are reaching the end of their useful lives and their capacity limits.
Many of these airports like Spokane deferred projects after the
extensive consolidation in the airline industry last decade that
resulted in significant reductions in seat capacity. However, airlines
eventually brought back this service to finally address the pent up
demand and more recently expanded service to keep up with the growth in
our economy after the Recession. As a result, we are now being
challenged by the growth in demand for air travel. This circumstance is
being faced across the country at airports of all sizes, but
particularly challenges smaller airports that need substantial
investment for which the PFC was intended but cannot afford to go into
substantial debt.
It is important to note that the genesis of the PFC program goes
back to the late 1980s to address the need for airports to build
facilities to increase competition. The PFC is a pro-competition
mechanism. With the consolidation in the airline industry, it is more
important now than ever for airports to have the funding tools to
provide for competition. In part I believe this is why the airline
industry does not support an increase in the PFC level. In exchange for
backing airport projects, airlines often demand long-term leases with
preferential or exclusive rights to facilities which can have an impact
of limiting access of competitors. The PFC is the best self-help
mechanism for public airports to implement projects for the good of the
whole and not to the just benefit the few.
That is why it is so critical that Congress raise the federal cap
on local PFCs and provide airports with more federal AIP funding
directed at addressing terminal renovation and expansion projects.
spokane's terminal renovation and expansion project (``trex'') plan
In my testimony from the first hearing on February 7th I described
the planning process undertaken in Spokane to address the capacity and
infrastructure issues that have reached the critical point. Our $190
million TREX capital improvement project focuses on our most urgent
needs, including security screening checkpoint capacity and
configuration, baggage claim, gate capacity, legacy HVAC, IT and
security systems, as well as adequate public circulation space and
areas for proper configuration of law enforcement, dispatch,
operations, and administrative functions. The core components of the
TREX project are outlined in Exhibit A.
The best solution as identified in the Master Plan would be better
to abandon the existing terminals and build unified terminal building
on a new greenfield site that offered substantial flexibility. The
problem with that solution is would cost $400 million-$500 million,
which an airport of our size cannot afford.
As a result, we decided to take a more conservative approach and
make ``lemonade'' out of the existing terminal complex and figure out a
way to renovate and expand the buildings to accommodate projected
growth--the solution reflected in the TREX project. This conservative
approach required us to think about ways to make the terminal buildings
work better together through a series of projects that would have
independent utility but would be functionally related to the whole
program. Our concern was that our air service environment had been
volatile and as a result we did not want to overextend our building
program and end up highly leveraged in the event that we continued to
experience a slow economic recovery or that the airlines did not
respond to the demand in our market with sufficient seat capacity and
destinations.
There are many airports across the country that are pursuing TREX-
like projects that can run anywhere between $50 million or greater
depending on the scope of the needed improvements. A nearby example of
that is in Missoula, Montana, which is pursuing a terminal renovation
and expansion project that is estimated to cost in the $100 million
range. To provide a comparison, Missoula handled over 848,000
passengers in 2018, where Spokane handled nearly four million total
passengers. I use this to illustrate that there is a common need for
airports to renovate and expand terminal facilities in response to
growth and the costs of these projects for smaller airports are in a
consistent range.
funding for trex: the cost of doing nothing
TREX is crucial to the future of our airport and our region.
However, current federal policy with respect to AIP and PFCs creates an
extremely challenging funding environment for airport development
projects like this, one that unduly constrains our fiscally prudent
financing options for the following reasons:
(1.) The Airport Improvement Program provides grant funding for
mainly airfield-related improvements (e.g., runways, taxiways, aprons,
and land acquisition). What most airports need now is expanded
terminals, and most AIP grants cannot be used for that purpose. In
addition, although the FAA reauthorization bill signed into law last
year was helpful in restoring stability and predictability to aviation
policy, the law fell short in maintaining level funding for AIP at
$3.35 billion annually. Of that amount, airports will receive
approximately $3.2 billion each year after appropriations are taken to
fund FAA administration, research and development, and small community
programs. This amounts to less than half of the $7 billion each year
through 2023 that the FAA's own 2019 National Plan of Integrated
Airport Systems (``NPIAS'') says is needed for AIP-eligible projects.
Even then, the NPIAS estimate does not reflect the complete capital
needs of airports, which also include projects that do not qualify for
AIP funding.
As AIP funding has remained flat over the past 12 years, its
effective buying power in current dollars has declined to approximately
$1.8 billion. In turn, the $5 million Spokane receives annually in AIP
formula funds based on passenger and cargo activity for use on eligible
projects has effectively declined in value to $2.25 million. The amount
of this formula funding is often insufficient to address the total cost
of an eligible project, so we must compete with other airports for
discretionary funding from the FAA or divide a project into multiple
phases, which is inefficient and costs more. We also find ourselves
having to bid projects in multiple schedules to match funding
constraints and ask the contractors to hold their prices from one year
to the next, which is risky for them.
An example of our situation is a current grant request that we have
submitted to the FAA for reconstruction work on our runway intersection
related to pavement rehabilitation, paved shoulders, drainage, and
signage. Our total project request for the Runway 8-26 Improvements
Project is $21 million, with $18.6 million from the FAA and $2 million
from the airport in matching funds (which is, in itself, considerable).
If this project were funded entirely through entitlement formula, we
would be looking at obligating approximately four years of funding to
pay for the project. As a result, we have requested discretionary
funding from the FAA. At the same time, we have a need to realign our
terminal building access road and prefer to use our entitlement funding
for that project. If the FAA cannot come through with discretionary
funding, we will have to substantially modify the runway project and/or
jump over it and prioritize the roadway realignment project. This could
create a considerable disruption to our Airport Capital Improvement
Program that we have worked out with the FAA. Had our AIP funding been
able to keep up with need, we would be able to pursue both projects
without tying up our funding for several years or introducing a
disruption into our capital program.
Because AIP cannot meet our funding needs for eligible projects, it
causes a cascading impact of phasing or deferral of airfield projects
that ultimately results in greater cost and complexity. Another example
is our project to relocate a road around the end of our primary runway
that is currently within the Runway Protection Zone--one of the most
critical safety areas that we are charged with protecting. This project
is estimated to cost upwards of $20 million and we have been seeking
funding partners at the state, metropolitan planning organization, and
local level to help us leverage the relatively small amount of FAA
funding that we can bring to the project. We prepared an application
for a BUILD grant from the U.S. Department of Transportation for this
project; however, off-airport needs in our region caused us to withdraw
our application in favor of another project that was critically
important to the community. This is an illustration of the way in which
the diminished purchasing power of AIP funding causes airports to go in
search of other sources and increases pressure on overall
transportation funding sources, which are struggling to keep up with
demand in their own right.
To be certain that there is no misconception about how AIP funds
are directed or any inference that a plus-up to AIP without substantial
policy changes on terminal building eligibility will offset the need
for a PFC increase, I reviewed the AIP grant history for Spokane
International Airport from 1982 to 2018. In the grant descriptions
provided, I could not identify a single terminal building-related
project being funded out of AIP. That means that out of roughly $186M
of AIP grants made over a 36-year period, there were no terminal
building projects funded. The only grant remotely linked to terminal
building needs was a Voluntary Low Emissions (``VALE'') program grant
to install pre-conditioned air units on some of our passenger loading
bridges. Since 2009, I could identify only one AIP grant involving a
project not involving airfield pavement, signage, or lighting, for
construction of a replacement Aircraft Rescue and Firefighting building
($7.1M).
This analysis indicates that the vast majority of AIP grants at
Spokane have been directed to airfield projects at a rate that well-
exceeds the 71 percent proportion for AIP grants in general. My
impression is that this percentage is routinely higher for smaller
airports which points out that there is current need for an increase to
AIP funds for both airfield and terminal building projects at small
airports. Both AAAE and ACI-NA have well-documented that condition as
part of the total underfunded need at airports of all sizes throughout
the country.
Another misconception about AIP relates to the current balance of
the Airport and Airway Trust Fund and the idea that there is plenty of
money that could be made available for airports if Congress
appropriated more out of the Trust Fund. In my opinion that is a false
narrative, as the Trust Fund balance represents about 5 months of the
FAA's operating budget and the Trust Fund is used for many other FAA
operating and capital programs other than AIP.
(2.) Passenger Facility Charges. In contrast to airside project
focus of AIP grants, PFCs are generally used to finance landside
improvements such as passenger terminals that usually aren't eligible
for AIP funding. PFCs are a crucial source of support for these
projects, because their proceeds may be used for a broader range of
airport development projects than AIP grants and unlike AIP grants can
be bonded to finance large, multiyear projects.
As with AIP grants, because the PFC cap has not been adjusted since
2000, the purchasing power in today's dollars is about half of what it
was. Most airports today collect the maximum PFC amount because of the
need to fund terminal infrastructure projects as well as the impact of
construction inflation on project costs. While this effect varies by
region, it is safe to say that average construction costs have
increased considerably since 2000 when Congress last adjusted the PFC
cap.
In many circumstances, including Spokane's, the PFC is serving as
an offset to the stagnation of AIP funding and the erosion of its
purchasing power. In fact, a quick look at our PFC programs since 1993
show approximately 11 airfield-related projects totaling a little over
$37 million that would have been AIP eligible had AIP been able to keep
up with need. We can throw in another $54.8 million in snow removal
equipment and a snow removal equipment storage building. Over 26 years,
this locally directed user fee has effectively acted as supplement to
stagnated AIP funding in the amount of nearly $92 million or roughly
$3.54 million on average each year. Overall, the PFC has funded nearly
$150 million of projects in Spokane that would otherwise have had to
compete, wait, or be cancelled due to a lack of AIP funding or would
have had to have been debt financed or paid directly by the airlines.
the bottom line
The airport industry trade associations, the American Association
of Airport Executives and Airports Council International North America
(``ACI-NA''), routinely survey airports to assess their total capital
needs. ACI-NA's most recent survey data indicates that annualized
capital needs between 2017 and 2021 are approximately $20 billion. It
is my understanding that this number will increase when the survey is
next updated.
Airports collect about $3.3 billion annually in PFC revenue. Add to
that the AIP funding level of $3.35 billion and we are only generating
about one-third of the annual funding needed to maintain and expand our
airport system. This gap acts as a significant constraint on the
funding and financing options available to airports like Spokane. Could
you imagine what we could do if our AIP entitlement funding was nearly
doubled annually and the amount of PFC capacity that could be freed up
as a result?
funding for trex: the urgent need for a pfc increase
Spokane needs additional PFC funding capacity now more than ever as
we head into the construction of the TREX project. This would help
narrow the funding gap described above, and it would ultimately save
money for the traveling public. Let me explain using the graphic in
Exhibit A, which outlines our current and potential financing options
for TREX.
Here's how a higher PFC cap would help us reduce time and costs in
Spokane: The lower right quadrant of Exhibit A illustrates concepts of
how the airport can fund the TREX project through the traditional
``bond it all and build it'' method and another method that we call
``pay-go/borrow/bond and build.'' We have simplified the math to show
the broad concept of the costs of doing nothing with the PFC cap and
the benefits of increasing the PFC and using methods to reduce our
interest costs.
If we take the current estimated cost of the TREX project at nearly
$191 million and go the traditional route of bonding the full amount,
the airport and its local users effectively end up paying twice for the
same thing as the total project cost becomes nearly $342 million. Just
for purposes of illustration, at the current PFC level of $4.50 and not
counting for inflation, that would straight line to 38 years of PFC
obligation if we stayed at two million enplaned passengers a year. And
this is a current problem today for many airports that are extended
decades out on their PFC obligation, paying off projects that they have
already built so there is no capacity to fund new projects.
Moving down the table, we show the simplified effect of an increase
of the PFC from $4.50 to $6.50, which reduces interest and brings down
the PFC collection period from 30-plus years to 22 years. Then, on the
bottom table, we show the impact of an $8.50 PFC level, which brings
down the PFC collection period to 14 years. The reduced time that a
higher PFC would create is relevant since the TREX improvements will
likely have 15-20 years of life cycle before reinvestment. A higher PFC
would also allow us to reduce our interest costs. Under this model, an
$8.50 PFC would also allow us to reduce our interest costs from $151.2
million to $66.3 million. In other words, an $8.50 PFC would allow us
to save approximately $85 million in interest costs.
The tables on the lower right of the quadrant on Exhibit A show an
even better outcome if we collect an increased PFC for a short period
of time and then use a combination of pay-go and debt financing (maybe
even other than Airport Revenue Bonds if alternatives are attractive),
and again we show these scenarios in increments of the current rate of
$4.50 and a conceptual increase of the PFC to $6.50 or $8.50 per
enplaned passenger. In that scenario, an $8.50 PFC would allow us to
reduce our interest costs from $73.4 million to $18.7 million--a $54.7
million savings. An $8.50 PFC would also allow us to reduce the payoff
for the debt financing from 20 years to just seven years.
These tables are a simplified way to express the practical impact
of a PFC increase as related to reduction in total project cost. Our
example includes a small escalation factor in the 2018 costs. By far,
the largest impact on the project cost will be the bidding environment
that exists at the time. We also used a bond amortization rate of 4.25
percent. With regard to present value impact, we assume that annual
bond payments are fixed at debt issuance, discounted through interest
rates at the time, and paid back with funds accumulated in future years
at the fixed amount regardless of diminution due to inflation of the
value of a dollar in a future year.
As airport operators, we have to ask ourselves why should our
passengers pay twice for a project like TREX when a modest increase in
the PFC can substantially reduce that liability? Why should the PFC
continue to make up for a stagnated AIP funding level that has not kept
pace with demonstrated need? Why should a PFC that has not been
adjusted for nearly two decades force us into an unnecessary level of
debt that we would otherwise prefer not to take on? What are the
impacts of losing all of our PFC capacity for decades in terms of
deferred and cancelled projects? What are the impacts to our non-grant
or PFC-funded capital program that is already underfunded by about $5
million a year?
Spokane's overall financial situation provides additional context
for the discussion above. Spokane International Airport is currently
mostly debt free with the exception of some modest very low-interest
loans that we accepted from the state to construct hangars. While this
is an enviable position, we were able to get there by changing our
financial models to be more business-like and entrepreneurial, but we
also deferred non-grant funded capital investment. Our goal was to
build up our capacity in the worst-case scenario of having to go the
traditional route of bonding all of the TREX project costs and paying
them off over 25-30 years, as well as be able to fund other projects
that are approaching that will not be PFC- or AIP-eligible, such as
expanding our parking garage.
We believe that it is in the best interest of the airport to avoid
debt to the greatest possible extent, and when we need to use it, to
limit it. I think we can all agree that this is a good way to operate
just about any organization.
Because we have a fully residual rates and charges agreement with
the airlines, they also benefit by not having to support substantial
levels of debt service as part of their costs. As a result of a
combination of factors, our cost-per-enplanement (``CPE'') ratio in
Spokane is low and fluctuates between $5.00-$6.00 per passenger. This
places us in the lowest quartile of airports based on CPE. Much of our
financial planning in terms of the impact of decisions on our operating
and capital budgets is based on the impact to our CPE and our desire to
remain within a reasonable CPE range.
Given our financial discipline and policy choice to avoid debt, the
airport uses its unrestricted cash to pay for capital improvement
projects that are not eligible for grant or PFC funds and, in some
circumstances, to advance fund planning, environmental, or design
efforts needed to keep AIP or future PFC projects on schedule. It is
important to point out, however, that ``unrestricted'' does not mean
``available.'' Reserves are not included in the restricted definition.
We look to maintain an Operations and Maintenance Reserve and Self-
Insurance Reserve (Other Post-Employment Benefits, Environmental
Liability, etc.) in addition to funding the aforementioned capital
projects. For accounting purposes, we define available cash as that
which is on hand after reserves. At this point, I must address a
popular misconception. Many groups rely on FAA Form 127 to assess
airport cash balances. We believe this is an error because unrestricted
cash is defined as ``not restricted.'' This can provide an inaccurate
picture of cash available for use. In reality, much smaller amounts of
cash are available and in the control of management. For example, in
Spokane, the FAA Form 127 indicates that the 2018 forecast amount of
Days Cash On Hand (``DCOH'') is approximately 385 days. In reality, the
number of DCOH is 198 when reserves are applied. The reality is that
the revenue we raise goes to fund our operating expenses and about $6
million-$10 million to invest in non-grant funded projects and to match
AIP projects (recall the $2 million match I referred to for the Runway
8-26 Improvements earlier in my testimony).
We are not sitting on piles of cash in Spokane with six to eight
months of available cash, but the good news is that we are not sitting
on piles of debt, either. We have managed to this objective by limiting
our non-grant and PFC-funded capital program, which is not in the long-
term best interest of the facility. Airports across the country
reported almost $92 billion in debt in 2017, which is more than six
times the amount of unrestricted cash that they reported that year.
In our community, we would much prefer using a locally directed
user fee to pay for projects than to incur debt that has the potential
to stop us from being able to move forward on other important
infrastructure projects that are not grant or PFC eligible or just
saddles us with costs that drive up our CPE to unacceptably high
levels.
Finally, I would point out that as a practical matter, our airline
partners do not want to tie up their capital investment dollars in a
place like Spokane and in the vast majority of smaller communities. We
do not see that as a negative. I think that the airlines are pleased
that we have kept our PFC capacity available to take on the cost of the
TREX project. We are good partners and understand their corporate
objectives and how their investments in other types of infrastructure
benefits our community. We are realists, and we embrace the
responsibility to develop our airport terminal facilities by using the
best self-help mechanism available: the PFC. I ask this Committee to
provide communities with the best possible means by which to fund
airport infrastructure by supporting an increase to the PFC as part of
an infrastructure bill or other legislation.
avoiding traps and adverse consequences
Throughout my testimony I have attempted to demonstrate how
insufficient financial resources diminish the ability of Spokane, and
most other airports, to properly invest in needed infrastructure. I
want to close by highlighting the way in which complex, interrelated
airport funding issues can create a number of potential ``traps'' for
airports seeking to fund infrastructure improvements. I will
operationalize these traps for you using our TREX project and point out
why an increase in the PFC is the best way to avoid them.
As I mentioned earlier in my testimony, the TREX project is
currently estimated to cost $191M. That is on top of what we need for
other AIP-eligible projects and non-grant eligible projects that are
funded from net operating revenue.
When the financial implication of TREX is modeled to derive an
estimated CPE, it nearly doubles the cost per enplaned passenger from
our current level and extends the PFC obligation out to the late 2030s,
effectively committing that revenue stream for the foreseeable future
to a single project. That means any future improvements will need to be
funded from other sources. As I mentioned previously, our CPE is in the
lowest quartile and as a result, we and our airline partners understand
there is headroom to increase the CPE to fund TREX, however, not to the
extent that it doubles and places us in a potential competitively
compromised position that could discourage competition and keep
airfares reasonable for my community. As a result, we are forced to
examine scope reductions and negotiate against ourselves to a certain
extent. This is primarily due to the additional cost of debt to finance
the project which means higher rates and charges for the airlines. Not
only is there a scope reduction in TREX, but we must also look at
redirecting as much AIP funding to the project as possible, which sets
us up in a second trap with the FAA as they assign low priority to
terminal buildings and when an airport directs its entitlement funds to
lower priority projects, the FAA withholds discretionary funding for
other projects as they prefer to see an airport use entitlement funds
for their priority projects (think airfield-related projects based on
the grant history I reviewed earlier). Accordingly, the AIP revenue
stream, which is already inadequate is effectively shut off.
Finally, there is the third trap which is the negative impact on
non-grant funded projects. These are projects that are not eligible for
PFC or AIP funds that typically come from net operating revenues.
Examples include building parking lots and aircraft storage hangars and
acquiring equipment like police vehicles and streetsweepers and
building administrative space for airport management functions. As this
category of funds has to be dedicated to debt service or paying for
other elements of TREX, the airport has completely run out of options
to invest in capital facilities and equipment.
Each year we establish a non-grant funded capital budget and pare
it down to fit into a rates and charges level that we believe will work
for our airline partners. However, as a result of not having a
modernized PFC collection rate, it imposes an artificial cap on this
program that has resulted in an average of $6M per year of projects
that we defer which means that we have an effective backlog of at least
$24M of non-grant funded capital projects and are adding approximately
$6M a year to that liability. This alone would equate to an approximate
$3 increase to the PFC just to catch up to where we need to be.
So there are 3 traps created by an insufficient PFC. The first trap
being scope reductions on projects to limit impact to CPE due to debt
financing as well as effectively shutting off the PFC revenue stream
for decades. The second trap is to effectively reduce AIP funds by
prioritizing them for terminal building projects against the heavy
emphasis by FAA for their use on airfield projects. The third trap is
to constrain the non-grant funded capital investment so as to require
significant deferral or abandonment of projects that are not eligible
for PFC or AIP funds.
All these traps work to effectively give more control of airport
capital programs to the airline partners whether it is intentional or
not. A healthy balance should be maintained in order to avoid these
traps of diminishing returns. Modernizing the PFC, a locally-directed
user fee, is the best balancing mechanism to avoid these traps and I
think we have demonstrated from our own behavior that it works in a
market setting.
conclusion
I am very encouraged that Chairman DeFazio and Ranking Member
Graves are holding this hearing today to lead our country forward on
addressing airport infrastructure needs. Clearly, the cost of doing
nothing is high, and we are already paying for it at the risk of
harming the economic well-being of our community airports by
underfunding AIP and artificially limiting their ability to deliver
modern and efficient facilities as a result of an outdated cap on a
locally directed user fee that has proven to enhance safety,
efficiency, capacity, competition, and the customer experience. I
strongly encourage you to consider raising this cap to provide airports
like Spokane with the broadest range of funding and financing support
as we work to deliver air transportation infrastructure that the
American people deserve. Providing airports the ability to flexibly and
responsibly utilize a modernized locally-directed user fee is the right
balancing mechanism for this time when need is so great and resources
have stagnated. The PFC has proven itself as the right airport
infrastructure investment policy for nearly 30 years. It is time to
act. Please provide us with the necessary tools to properly invest in
our airports for the benefit of our communities and business partners.
The cost of doing nothing is too high to ignore. I renew my commitment
to help members of this Committee as you develop an infrastructure
package and future infrastructure legislation.
exhibit a: terminal renovation and expansion (``trex'') with
consolidated checkpoint project
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
------------------------------------------------------------------------
Approximate Construction
Description Area (sf) Costs (2018 $)
------------------------------------------------------------------------
Central Bag Claim (Ground Level-Five 70,000 $33,950,000
Devices)...............................
Consolidated Checkpoint (Upper Level)... 55,000 $26,675,000
Basement Under Bag Claim (Half of Ground 35,000 $3,500,000
Level Area)............................
Terminal A/B Remodel (Old Bag Claim and 17,500 $3,062,500
SSCP)..................................
Terminal C Ticketing remodel (Old SSCP). 4,000 $700,000
Concourse C West Extension (Three Gates 50,000 $26,250,000
at End of Concourse)...................
Concourse C West Extension (Ramp Level). 50,000 $6,250,000
Concourse C Central (East) Expansion 12,500 $7,500,000
(Three Gates Above Ground Boarding)....
Concourse C Central (East) Expansion 12,500 $1,562,500
(Ramp Level)...........................
Concourse Connectors.................... 17,000 $10,200,000
Curbside Canopies....................... ........... $7,647,000
Apron For Concourse C Extension......... 174,700 $12,229,000
Dual Taxiline........................... 148,500 $10,395,000
Passenger Boarding Bridges.............. 6 $4,500,000
Skybridge from Terminal to Parking...... 9,750 $5,850,000
Landside Curbside Improvements.......... ........... $3,500,000
Mechanical and Electrical Upgrades...... ........... $15,000,000
Airport Operations Center............... 38,000 $12,160,000
------------------
Total.............................................. $190,931,000
------------------------------------------------------------------------
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. DeFazio. We would move on to the next witness, which
would be Ms. McGraw.
What? Barnes? Oh, sorry. Ms. Barnes, sorry. She is so
anxious to go.
[Laughter.]
Ms. Barnes. Chairman DeFazio, Ranking Member Graves,
members of the committee, good morning. I'm Tori Barnes,
executive vice president of public affairs and policy for the
U.S. Travel Association. Thank you for inviting the broader
travel industry to participate in this important hearing.
U.S. Travel is the only association that represents the
interests of travelers in all sectors of the travel industry:
lodging companies, amusement parks, restaurants, convention
managers, car rental companies, State travel leaders, and many
others.
With such a broad membership, our association has a focused
mission: to increase travel to and within the United States.
And that is the lens through which we evaluate public policies.
Simply put, will they grow travel or not? This is our approach
to aviation policy, because when air travel grows the benefits
exceed far beyond just airports and airlines.
In 2018 domestic air travelers spent $289 billion and
directly supported 2.4 million jobs in America's travel
industry. International travel to the U.S. is our Nation's
second largest service export, and more than 85 percent of the
spending is powered by the 51 million international visitors
arriving at our airports.
Clearly, when air travel grows, our economy prospers. That
means it is essential for America's infrastructure to keep pace
with growing demand. As our members look at the passenger
facility charge, they raised three questions.
First, are airports able to handle current demand?
Travelers already face routine challenges, from delays and a
frustrating passenger experience, often stuck in crowded
terminals or on congested taxiways. In 2018, one in five
flights was delayed or canceled. A recent U.S. Travel survey
found that airport hassles caused Americans to avoid 32 million
trips, which cost travel businesses $24 billion in spending,
enough to support 200,000 jobs.
Second, will airports be able to handle future demand? Here
there are real concerns. The FAA predicts that nine large-hub
airports will not have enough airside capacity to meet demand
by 2030. According to a study by Cambridge Systematics, by 2021
the top 30 U.S. airports will experience Thanksgiving-like
congestion levels at least 1 day per week. So if you happen to
fly on the Wednesday before Thanksgiving, just look around. It
is a preview of what the average day of air travel will look
like in just a few short years, if we continue down this
current path.
Third, our members asked how would flyers react if Congress
raises the PFC. We surveyed air travelers around the country
and learned that their top three frustrations are airline fees,
the overall cost of flying, and airport hassles, such as
crowded terminals. Airport fees were second to last, as factors
determining whether travelers actually take trips. Travelers
also support projects that improve travel, and they know that
these projects must be paid for. Fifty-eight percent said that
they would be willing to pay up to $4 more per ticket for
airport improvement projects of the kind that the PFCs fund.
That leads me to why U.S. Travel supports giving airports
the choice to raise the PFC: because, one, it is optional; two,
it funds projects that benefit travelers and the air travel
system; and it works. As I stated, the PFC is an optional tool
that airports may choose. And I emphasize ``choose'' to address
projects of immediate need that also receive the FAA's
approval.
PFCs only fund projects that benefit the entire air travel
system, projects that strengthen safety and security, reduce
congestion, and enhance airline competition. Travelers support
such investments, and they know that they will grow travel.
Finally, the PFC works. Consider O'Hare Airport. O'Hare
used PFC funds to buy out and renovate vacant gates held by a
major incumbent carrier. This action helped several low-cost
carriers, including Spirit, start new service. And their
flights to new cities led to 2 million additional visitors and
over $2 billion in increased business activity over a 7-year
period.
For airports that choose it, PFCs work, and they grow
travel. Giving airports the option to increase the PFC has the
backing of the broad span of the travel industry, including 147
organizations that announced their support last year. These
travel leaders are convinced that adjusting the PFC cap will
boost, not hurt, travel.
Thank you for your leadership and ensuring a better air
travel system for passengers. We look forward to working with
you on this and other important issues, and I look forward to
your questions.
[Ms. Barnes's prepared statement follows:]
Prepared Statement of Tori Emerson Barnes, Executive Vice President,
Public Affairs and Policy, U.S. Travel Association
Chairman DeFazio, Ranking Member Graves, Members, good morning. I'm
Tori Barnes, Executive Vice President of Public Affairs and Policy for
the U.S. Travel Association. Thank you for inviting the broader travel
industry to participate in this important hearing.
U.S. Travel is the only association that represents the interests
of travelers and all sectors of the travel industry--lodging companies,
amusement parks, restaurants, convention managers, car rental
companies, state travel leaders, and many others. With such a broad
membership, our association has a focused mission: To increase travel
to and within the United States--and that's the lens through which we
evaluate public policies. Simply put: will they grow travel or not?
This is our approach to aviation policy, because when air travel
grows, the benefits extend far beyond just airports and airlines.
According to U.S. Travel research, in 2018, domestic air travelers
spent $289 billion--and directly supported 2.4 million jobs in
America's travel industry. While these passengers account for only 12
percent of domestic trips, they generate 31 percent of total domestic
travel spending. Add international visitors, and the effects are even
greater. International travel to the U.S. is our nation's second
largest service export and more than 85 percent of this spending is
powered by the 51 million international visitors arriving at airports,
who spent $144 billion here.\1\
---------------------------------------------------------------------------
\1\ https://www.ustravel.org/system/files/media_root/document/
Research_Fact-Sheet_US-Travel-Answer-Sheet.pdf
---------------------------------------------------------------------------
Modern, efficient airports ensure we keep pace with growing travel
demand, while inefficient, outdated or capacity-constrained airports
limit jobs and economic growth, discourage domestic and international
travel and undermine America's global competitiveness.
Clearly, when air travel grows, our economy prospers. That means it
is essential for America's infrastructure to keep pace with growing
travel demand.
As U.S. Travel's members look at the Passenger Facility Charge,
then, they raise three questions:
First, are airports able to handle current demand?
Travelers already face routine challenges from delays and a
frustrating passenger experience, often stuck in crowded terminals or
on congested taxiways. In 2018, one in five flights was delayed or
canceled.\2\
---------------------------------------------------------------------------
\2\ https://www.transtats.bts.gov/OT_Delay/OT_DelayCause1.asp
---------------------------------------------------------------------------
A recent U.S. Travel survey found airport hassles caused Americans
to avoid 32 million trips, which cost travel businesses $24 billion in
spending--enough to support 200,000 jobs.\3\
---------------------------------------------------------------------------
\3\ ``Flying Worse than Five Years Ago, with Christmas the Most
Frustrating Travel Season, Most Americans Say,'' U.S. Travel
Association, December 20, 2017.
---------------------------------------------------------------------------
Second, will airports be able to handle future demand?
Here, there are worrying signs. The FAA predicts that 9 large hub
airports will not have enough air side capacity to meet travel demand
by 2030.\4\
---------------------------------------------------------------------------
\4\ https://www.faa.gov/airports/planning_capacity/media/FACT3-
Airport-Capacity-Needs-in-the-NAS.pdf
---------------------------------------------------------------------------
According to a study by Cambridge Systematics, by 2021, the top 30
U.S. airports will experience Thanksgiving-like congestion levels at
least one day per week.\5\
---------------------------------------------------------------------------
\5\ ``Thanksgiving in the Skies: A Look at the Future of Air Travel
in America,'' analysis conducted by CambridgeSystematics on behalf of
the U.S. Travel Association, November 4, 2014. https://
www.ustravel.org/sites/default/files/media_root/document/
THX%202014_Executive%20Summary%20_Final%20%281%29%5B1%5D.pdf
---------------------------------------------------------------------------
Because airports cannot fund improvements as fast--or as cost
effectively--as they otherwise could with a higher PFC, in just two
short years, our airports will look largely the same as they do today.
So if you've ever flown on the Wednesday before Thanksgiving, you
weren't just experiencing one of the busiest travel days of the year--
you were getting a preview of what the average day of air travel will
look like in just a few short years if we continue down our current
path.
With these levels of passenger volumes on the horizon, the question
posed to airports shouldn't be: ``Show us a project that can't
eventually be funded and built.'' The question should be: ``Show us an
airport project that shouldn't be completed faster and at a lower
cost.''
Third, our members ask, how would flyers react if Congress raises
the PFC?
We surveyed air travelers around the country and learned that their
top three frustrations are airline fees, the overall cost of flying,
and airport hassles such as crowded terminals. Airport fees were
second-to-last as factors determining whether travelers actually take
trips.\6\
---------------------------------------------------------------------------
\6\ https://www.ustravel.org/sites/default/files/media_root/
document/MC-Poll-Slides-V3.pdf
---------------------------------------------------------------------------
Travelers also support projects that improve travel--and travelers
know these projects must be paid for: 58 percent said they would be
willing to pay up to $4 more per ticket for airport improvement
projects of the kind that PFCs fund.\7\
---------------------------------------------------------------------------
\7\ ``Travelers willing to pay more to improve flying experience,''
U.S. Travel Association, March 25, 2015.https://www.ustravel.org/press/
survey-travelers-willing-pay-more-improve-flying-experience
---------------------------------------------------------------------------
This leads me to why U.S. Travel supports giving airports the
choice to raise the PFC, because:
It's optional;
It funds projects that benefit travelers and the air
travel system;
And it works.
As I stated, the PFC is an optional tool that airports may choose--
and I emphasize choose--to address projects of immediate need.
Improvement to terminals, runways, and taxiways are among the projects
that could benefit from an infusion of PFC funds. By definition, if an
airport does not need additional PFC financing it will not need to
increase its PFC--and those that do, could only do so if they have a
project that receives FAA's approval.
PFCs only fund projects that benefit travelers and the entire air
travel system. Congress established the PFC to provide financing for
projects that enhance safety and security, reduce congestion or
increase capacity, enhance airline competition, or reduce airport
noise. Travelers support such investments and they will grow travel.
But the statutory cap on the PFC has not been lifted in 19 years.
Inflation since 2000 has eaten away at its value. It is time for a
change.
Finally, the PFC works. Consider, O'Hare Airport. O'Hare used PFC
funds to buy out and renovate vacant gates held by a major incumbent
carrier. This action helped several low-cost carriers, including
Spirit, start new service--and their flights to new cities led to two
million additional visitors and over $2 billion in increased business
activity over a seven-year period.\8\ For airports that choose it, PFCs
work--and they grow travel.
---------------------------------------------------------------------------
\8\ https://www.ustravel.org/issues/infrastructure
---------------------------------------------------------------------------
Giving airports the option to increase the PFC enjoys the backing
of the broad span of the travel industry, including 120 organizations
that announced their support last year.\9\ These travel leaders are
convinced that removing the PFC cap will boost--not hurt--travel. Our
members believe this financing method promises quicker results and
greater flexibility.
---------------------------------------------------------------------------
\9\ https://www.ustravel.org/sites/default/files/media_root/
document/House%20FY18%20
Appropriations%20Letter_1.pdf
---------------------------------------------------------------------------
Thank you for your leadership in ensuring a better air travel
system for passengers. We look forward to working with you on this and
other important issues.
Mr. DeFazio. Thank you. And thanks for your brevity. Now we
will move on to Ms. McGraw.
Ms. McGraw. Now? Thank you.
[Laughter.]
Ms. McGraw. Good morning, Chairman DeFazio, Ranking Member
Graves. And thank you to Mr. Massie for the kind introduction.
It is an honor to appear before you today. And before I begin I
want to take a moment to thank each of you for your public
service. I am here to share the story of CVG, and offer you the
perspective of a medium-hub airport.
One of the most important things I hope you take away from
today is that airports are running out of time for Congress to
remove the outdated cap on the PFC. Our airports are aging, our
terminals are woefully inadequate, relative to keeping pace
with the growth in passenger demand and processing. Airports
have investments to make now. We have jobs to support and
create today.
The ongoing, long-suffering arm-wrestling between airports
and airlines that you hear about is about one issue, alone, and
that is control. Airports want to work with, not for, airlines
to the benefit of our communities. Let me share with you the
example of CVG, which today operates very differently than it
once did.
Like my colleagues in Pittsburgh and St. Louis, CVG was
historically dominated by a single carrier who operated a major
connecting hub. The airport's long-term, 40-year use agreement
imposed significant restrictions on what the airport could do,
how decisions were made, and what funds could be spent on
capital projects. Average air fares from CVG were among the
highest in the country. We had little funding in reserve for
operating or capital costs.
When the dominant airline reorganized under bankruptcy and
merged with another in the late 2000s, CVG experienced what
many of my new medium-hub colleagues have faced: a dehubbing
and downsizing of operations that required us to reinvent the
essence of the airport.
In the time since we have right-sized the facilities,
consolidating three terminals and three concourses into a
single main terminal with two concourses. We demolished our
oldest facilities to free up valuable space to lower operating
costs. We started developing airport property that would never
be used for aviation purposes for non-aeronautical projects to
diversify our revenue streams and create more jobs for our
region. My team and I doubled-down on operating the airport as
the business it is. We focused on diversifying our business,
keeping costs low for all of our tenants and airline partners,
while maintaining prudent reserves.
It is said that airports do not need increased local
revenues, and should simply work collaboratively with airlines
to accomplish major capital projects. CVG is one of the best
examples of what can happen when an airport or any business is
overly reliant on one or a handful of business partners to
achieve success. For as much success as we have had with our
hub carrier, artificial limitations were placed on us for
spending money or in creating competition on routes. Our
success today is reflective of what happens when you empower
good business management, operate more effectively at a local
level, and create a level playing field for all business
partners to flourish.
Later this year, we will submit to the FAA our 2050 master
plan, a 30-year outlook on the airport's infrastructure plan
for growing and meeting capacity forecasts. The first order of
items to support the master plan will be to maximize the use of
the existing passenger facilities. We plan to repair, replace,
and upgrade basic mechanical systems, jet loading bridges,
conveyances, and baggage systems.
In addition to required airfield projects such as taxiway
and runway rehabilitations, these passenger facility
improvements are in urgent need of attention, not from a
cosmetic standpoint, but rather to meet operational readiness
and reliability objectives.
Our former hub carrier is responsible for ongoing
maintenance of certain assets at the airport until the end of
2020. As of January 2021, CVG will have to assume the operating
costs and responsibility for our outdated 25-year-old baggage
facilities and passenger train, which were designed for
connecting travelers. While 90 percent of our passengers were
connecting during our hub days, local passengers now account
for over 90 percent of our activity, a record level and a 97-
percent increase since 2012.
CVG's current 5-year capital program shows a need for $468
million in projects by 2024, nearly 30 percent of which is PFC-
eligible, about $137 million. The initial phase of our master
plan is calling for approximately $500 million in additional
terminal renovation and expansion costs between 2025 and 2030.
Currently, CVG has imposed a $4.50 PFC, which is the
maximum level allowed. For my airport, the PFC revenues we
currently and will continue to collect are almost entirely
allocated to, one, reimbursing capital projects such as a
runway that was constructed in the early 2000s at the request
of our dominant carrier; and, two, paying down a PFC-backed
bond that financed a new entrance road to accommodate increased
local passenger volume.
Should the PFC cap be lifted to $8.50 and be indexed to
inflation going forward, our ability to fund capital projects
on a pay-go basis changes significantly. We estimate the
ability to fund an additional $340 million in new PFC project
costs, while still meeting debt service coverage requirements.
The next phase of our terminal improvement may be needed as
early as 2027. With an increased PFC, we will be able to save
about 2\1/2\ years in completing such projects. We estimate
saving $83 million in interest costs alone if additional PFC
revenue is available, and would thereby avoid having to pass
costs onto our airline partners in their operating rate base.
Mr. DeFazio. If you could, quickly summarize.
Ms. McGraw. I will be done in one moment.
Airports are drivers of economic development for our
regions, not just in direct jobs, but for the way we manage our
assets to benefit communities. Unlike our airline partners,
airport assets are not mobile. We are the only constants for
our communities. As time has demonstrated, carriers will come
and go, decide to merge, or have to dissolve.
As cited in the CVG examples, it takes years of focused
strategy to rebuild if a single carrier----
Mr. DeFazio. OK----
Ms. McGraw [continuing]. Picks up and moves their
operations.
Mr. DeFazio. I--as I----
Ms. McGraw. I want to thank you. I am closing now.
Mr. DeFazio. Yes.
Ms. McGraw. Thank you, sir.
[Ms. McGraw's prepared statement follows:]
Prepared Statement of Candace S. McGraw, Chief Executive Officer,
Cincinnati/Northern Kentucky International Airport
introduction
Good morning, Chairman DeFazio, Ranking Member Graves, and Members
of the Committee. My name is Candace McGraw, and I am privileged to
serve as CEO of the Cincinnati/Northern Kentucky International Airport
(CVG). I am also in the middle of my term as chair of ACI-NA, Airports
Council International-North America, which is one of our two primary
industry trade groups in the United States. It is an honor to appear
before you today, alongside this distinguished panel of aviation
industry leaders. Before I begin, I want to take a moment to thank each
of you for your public service.
Like several of my colleagues, I am here to share the story of CVG
and offer you the perspective of a medium hub airport in the context of
what infrastructure policy issues I would hope this Congress
prioritizes. As of a recent study by ACI-NA, U.S. airports in the next
five years alone have an estimated capital investment need that nears
$130 billion. There are 31 medium hub airports, which account for 16
percent of all enplanements. As the ACI study illustrates, medium hub
airports, like CVG, Raleigh-Durham, NC, Austin, TX, and Indianapolis,
IN, have $18 billion in capital need right now. The ACI report further
shows that this need for medium hubs has increased by 50 percent in the
last two years alone.
This Committee is well aware of the fundamental tools airports have
at our disposal to address these needs--the AIP or Airport Improvement
Program, PFCs or Passenger Facility Charges, and incurring airport debt
through the issuance of bonds. I would like to make the case to you for
your urgent attention in unfettering the federal chains that prevent
airports from making full use of these tools that, ultimately and most
importantly, benefit the economies of the local regions we all serve.
That's why airport issues are bipartisan issues--what is good for
airports is good for all of our communities.
One of the most important things I hope you take away from today is
that airports are running out of time for Congress to remove the
outdated cap on the PFC and increase AIP funding. Our airports are
aging; our terminals are woefully inadequate relative to keeping pace
with the growth in passenger demand and processing. Airports have
investments to make now; we have jobs to support and create today.
Throughout my testimony, I will address several misstatements you may
hear relative to these facts, for instance that airports are (1) unable
to name specific projects that cannot be funded or that (2) the
Aviation Trust Fund is flush with billions that can be used for airport
infrastructure needs. Despite what you may hear to the contrary,
modernization of the PFC and increased funding for AIP are policy
actions we need your leadership on right now. The ongoing, long-
suffering arm wrestling between airports and airlines is about one
issue alone: control. Airports want to work with, not for airlines, to
benefit our communities.
the tale of two airports: cvg then and now
The CVG of today operates very differently than it once did. This
is true for many airports of our size, such as Pittsburgh and St.
Louis. Like my colleagues in Pittsburgh and St. Louis, CVG was
historically dominated by a single carrier who operated a major
connecting hub at our airport. The airport's long-term Use Agreement
imposed significant restrictions on what the airport could do, how
decisions were made, and what funds could be spent on capital projects.
Average airfares from CVG were among the highest in the country. Our
hometown travelers were leaking out to travel through competitor
airports in our region. We had little funding in reserve for operating
or capital costs.
When the dominant airline reorganized under bankruptcy and merged
with another in the late 2000s, CVG experienced what many of my medium
hub colleagues have faced--a de-hubbing and downsizing of operations
that required us to reinvent the essence of the airport. The airline
made the right business decision for them, so I do not begrudge them or
second guess this decision. Rather, I want to note that the decision
made in furtherance of their business objectives had a profound impact
on my business. The airport had to react, with few tools at our
disposal to do so.
In response to this airline decision, our reinvention began in
earnest. We right-sized the facilities, consolidating three terminals
and three concourses into a single main terminal and two concourses. We
demolished our oldest facilities to free up valuable space to lower our
operating costs. Demolition alone cost $27 million. We started
developing airport property that would never be used for aviation
purposes for non-aeronautical projects to diversify our revenue streams
and create more jobs for our region.
My team and I doubled-down on operating the airport as the business
it is. In 2015, a new strategic plan was rolled out. In 2016, the
airport was able to implement a new Use Agreement, providing us a bit
more flexibility. We worked hard to attract low-cost air carriers. We
wanted to stimulate carrier competition to re-build our air service
offerings while driving down airfares for the traveling public. We
focused on diversifying our business--keeping costs low for all of our
tenants and airline partners while maintaining prudent reserves.
The focused business practices we have implemented have produced
results for our community. In 2018, CVG served nearly nine million
passengers--a 55 percent increase since 2013. For the last few years,
we have been one of--if not the number one--fastest-growing passenger
and cargo airport in the country. We are one of three global super hubs
for DHL Express, and Amazon is building its primary air cargo hub on
our campus. We are North America's eighth-largest cargo airport. In
fact, about 60 percent of our landing fees come from our cargo
carriers. As of 2016 estimates, CVG makes a $4.4 billion economic
impact to our region, as well as the State of Ohio and Commonwealth of
Kentucky, each year.
So, with this said, allow me to address a myth for you about
airport needs. It is said that airports do not need increased local
revenues and should simply work collaboratively with airlines to
accomplish major capital projects. CVG is one of the best examples of
what can happen when an airport--or any business--is overly-reliant on
one or a handful of business partners to achieve success. In our hub
days, we could not make our own decisions--what we felt was best for
our airport and community. For as much success as we had with our hub
carrier, artificial limitations were placed on us for spending money or
in creating competition on routes. Our success today is reflective of
what happens when you empower good business management, operate more
effectively at a local level, and create a level playing field for all
business partners to flourish.
cvg of tomorrow: financing the airport's 2050 master plan
The successes I've described to you are really just a beginning.
Later this year, we will submit to the FAA our 2050 Master Plan
Update--a 30-year outlook on the airport's infrastructure plan for
growing and meeting capacity forecasts. The newest passenger facility
at CVG is now 20 years old, with portions of our existing terminal
building dating back to the 1970s. The first order of items to support
the Master Plan will be to maximize the use of the existing passenger
facilities. We plan to repair, replace, and upgrade basic mechanical
systems, jet loading bridges, conveyances, and baggage systems. In
addition to required airfield improvements, such as taxiway and runway
rehabilitations, these passenger facility improvements are in urgent
need of attention--not from a cosmetic standpoint but rather to meet
operational readiness and reliability objectives.
Our former hub carrier is responsible for ongoing maintenance costs
of certain assets at the airport until the end of 2020. As of January
2021, CVG will have to assume the operating costs of and responsibility
for our existing, 25-year-old baggage facilities and passenger train,
which were designed for connecting traveler traffic. While 90 percent
of our passengers were connecting during our hub days, local passengers
now account for over 90 percent of our activity, a record level and a
97 percent increase since 2012. In addition to managing new cost
centers to the airport and handling basic maintenance on critical
infrastructure, like baggage systems, the airport must also prepare for
capital projects that accommodate for future growth (such as adding
ticket counters and gates) for a transformed, multi-carrier airport
environment.
CVG's current five-year capital improvement program shows a need
for $468 million in projects by 2024, nearly 30 percent of which is
PFC-eligible (about $137 million). The initial phase of our Master Plan
is calling for an approximately $500 million in additional terminal
renovation and expansion costs between 2025 and 2030.
So let me debunk another myth: to those who claim there is not a
single project that airports can identify that we cannot complete and
thus no urgent need for Congress to address the PFC cap: there is an
estimated $1 billion in capital need at my medium hub, fiscally prudent
airport alone, all of which we need to start planning, designing, and
constructing as soon as possible. It takes years to design, fund, and
build any capital project. We fund our projects across a variety of
financial sources, with AIP funding being predominantly directed to
airfield needs and PFCs primarily focused on terminal and landside
projects. For the latter, increasing the total available PFCs,
streamlining the process to be able to access PFCs, and expanding the
types of projects eligible for PFCs enhances our ability to provide for
the most efficient use of our own local revenue and minimizes overall
borrowing costs.
why the pfc is critical to the financing strategy of cvg and other
medium hub airports
Currently, CVG has imposed a $4.50 PFC, which is the maximum level
allowed. For my airport, the revenues we currently and will continue to
collect are almost entirely allocated to (1) reimbursing completed
projects, such as a runway that was constructed in the early 2000s at
the request of our dominant carrier, and (2) paying down a PFC-backed
debt service that financed a new entrance road for increased local
passenger volumes. These existing obligations greatly limit how much
PFC revenue is available for new projects.
However, should the PFC cap be lifted to $8.50 and be indexed to
inflation going forward, our ability to fund capital projects on a pay-
go basis changes significantly. We estimate the ability to fund an
additional $340 million in new PFC project costs while still meeting
debt service coverage requirements. The next phase of terminal
improvements, called for by our Master Plan, may be needed as early as
2027. With an increased PFC, we will be able to save two and a half
years in completing such projects. We estimate saving $83 million in
interest costs alone if additional PFC revenue is available and would
thereby avoid having to pass costs onto our airline partners in their
airport operating rate base. Exhibit A shows more detail on this
scenario. Imagine the collective interest savings on all airport
projects and how much more quickly we could complete projects if
airports are authorized to have more local control over our revenue
sources.
With that, I will address another common misstatement about the
PFC: if the airport is building up reserves and the Aviation Trust Fund
has billions and growing, airports have plenty of funds available to
them for these projects. To this, I urge you to look carefully at these
financial statements. CVG now has an excess of 360 days cash on hand of
true reserves in operating expenses, a metric supported by the rating
agencies, to address uncertainties that may occur. Just a few years
ago, our cash flow to unrestricted reserves was $0. It's just bad
business to carry nothing for a rainy day. Most airport balances
aggregated on FAA Form 127 as unrestricted cash are funds already
designated for specific uses. The reporting mechanism does not allow
for showing funds that have already been restricted. In addition, the
FAA Trust Fund funds many things beyond solely airport capital projects
through AIP grants. The funds are held in trust to support
technological upgrades to air traffic control and to conduct safety
inspections, for instance. So, to simply state there is a reserve of
funds we could use for airport capital projects--but aren't--is
misleading. Existing funds are designated for specific and necessary
purposes. We simply need more funds into the system, and the PFC user
fee is one way to accomplish that objective quickly.
the fierce urgency of now
We understand that airports are only one mode of American
infrastructure this Committee is examining today, but airports provide
an outsized economic impact to our communities. As noted by the
statement by the Beyond the Runway coalition (a coalition that
represents many trade groups and organizations that have a stake in
airports' success) that I have included as Exhibit B, airports support
over 11.5 million jobs around the U.S. At CVG alone, we have more than
14,000 badged employees on campus, support more than 31,000 direct and
induced jobs, and are the Cincinnati region's second-largest employer.
I often tell my team that we are working in an environment where
the fierce urgency of now is felt every day. And for every day, month,
and year that goes by without Congress enabling meaningful reform to
airport financing, our community loses out on potential economic
impact. CVG collects about $16 to $17 million per year with the $4.50
PFC, but local economists project an increase to $8.50 could produce a
$66 million economic impact simply in the buildout of these capital
developments. An additional 237 jobs could be created on top of the
existing hundreds our construction activity alone supports, and nearly
$2 million in state and local revenues would be generated. See Exhibit
C for additional detail.
Allow me to bust yet another myth for you. It is often said that a
higher PFC user fee will negatively impact travel demand, causing
airlines, and thus airports, to take a hit financially. Since 2004,
airline ancillary profits, bag fees and the like, have grown 531
percent, and airlines are now in a time of record profitability. For
the price of one additional cup of coffee, I am not convinced that
traveler behavior would change or they would choose not to fly.
However, make no mistake: no one wants the airlines to be successful
more than airports; our successes are interdependent. We should be
partners in our business relationship rather than subservient to
airline decisions.
conclusion
The last few years have been banner years for us at CVG. Our
airfares are $255 less expensive than five years ago. Our operating
rates and fees for airlines remain as low as we can make them. Our
business strategies around land development have helped create more
than 1,700 new jobs and greater tax revenues for our community in the
last four years. So I remain committed to ensuring we continue this
success, but I am worried about how quickly we can execute key projects
to keep pace with growing demand if we are not able to use and maximize
every tool at our disposal. This sentiment is shared by other airports
and is reflected in the statement of ACI-NA, which you will find as
Exhibit D.
Airports are drivers of economic development for regions, not just
in the direct jobs we provide to people on and around our campuses, but
in the way we manage these assets to benefit our communities. We are
often called the front doors of our cities, states, and country--
providing the first welcome to a visitor or ensuring the traveling
public is connected to wherever they want to go in the world. Unlike
our airline partners, our assets are not mobile. Airport assets are the
only constants for our communities. As time has demonstrated, carriers
will come and go, decide to merge, or have to dissolve. As cited in the
CVG example, it takes years of focused strategy to rebuild if a single
carrier picks up and moves much of their operation. Airports must be
able to fully leverage tools, like the PFC, to allow for reacting
quickly to a changing, innovating business world.
The well-being of each of our communities is tied to effective
airport management, not air service alone. Both must work hand in glove
as partners. My preference is not to run to Washington, D.C., every
time something is needed; airports must be empowered to make our own
decisions. So these decisions we make today matter; they reverberate
well into the future and will influence the direction of regional
business climates and quality of life of your constituents for decades
to come.
To close, I again want to thank Chairman DeFazio and Ranking Member
Graves for the Committee's time and attention to this issue today. My
industry appreciates your leadership on this issue and will look
forward to a continued collaboration for the benefit of all our
country's airports and communities.
Exhibit A: CVG Capital Needs and Project Scenario
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Exhibit B: Statement of the Beyond the Runway Coalition for March 26,
2019, Hearing
[This statement was submitted for the record by Hon.
DeFazio and is on page 95.]
Exhibit C: Projected Annual Economic Impact of Accelerated Capital
Investment at CVG (Analysis prepared March 2019)
Currently CVG is eligible to collect between $16 and $17
million per year in Passenger Facility Charge (PFC) funds. If
Congress raises the cap, CVG could at least double annual
collections, raising PFC annual funds from a range of $16 to
$17 million to a range of $32 to $34 million per year.
Using economic impact analysis, we are able to estimate the
current and potential economic impacts to the Cincinnati MSA
economy at various levels of PFC supported capital construction
projects. Table 1 starts at the current level of $16 million
and shows potential total annual economic impacts in $1 million
increments up through $35 million.
Table 1: Total Potential Annual Economic Impacts of Capital Construction Projects
----------------------------------------------------------------------------------------------------------------
Capital Investment Output Annual Earnings Jobs Value-Added
----------------------------------------------------------------------------------------------------------------
$16,000,000 $33,278,400 $10,587,200 237 $18,020,800
$17,000,000 $35,358,300 $11,248,900 252 $19,147,100
$18,000,000 $37,438,200 $11,910,600 266 $20,273,400
$19,000,000 $39,518,100 $12,572,300 281 $21,399,700
$20,000,000 $41,598,000 $13,234,000 296 $22,526,000
$21,000,000 $43,677,900 $13,895,700 311 $23,652,300
$22,000,000 $45,757,800 $14,557,400 326 $24,778,600
$23,000,000 $47,837,700 $15,219,100 340 $25,904,900
$24,000,000 $49,917,600 $15,880,800 355 $27,031,200
$25,000,000 $51,997,500 $16,542,500 370 $28,157,500
$26,000,000 $54,077,400 $17,204,200 385 $29,283,800
$27,000,000 $56,157,300 $17,865,900 400 $30,410,100
$28,000,000 $58,237,200 $18,527,600 414 $31,536,400
$29,000,000 $60,317,100 $19,189,300 429 $32,662,700
$30,000,000 $62,397,000 $19,851,000 444 $33,789,000
$31,000,000 $64,476,900 $20,512,700 459 $34,915,300
$32,000,000 $66,556,800 $21,174,400 474 $36,041,600
$33,000,000 $68,636,700 $21,836,100 488 $37,167,900
$34,000,000 $70,716,600 $22,497,800 503 $38,294,200
$35,000,000 $72,796,500 $23,159,500 518 $39,420,500
----------------------------------------------------------------------------------------------------------------
NKU Center for Economic Analysis & Development, Janet Harrah, senior director, Center for Economic Analysis and
Development, Haile US Bank College of Business, Nunn Drive//BC 396, Highland Heights, KY 41099
What are the potential impacts on state and local revenues?
In the absence of current data, CEAD extrapolated from a study
conducted for CVG several years ago. In that study, the average
Kentucky resident working at CVG paid, on average, a total of
$4,025 in state, county and city taxes. These estimates may be
higher or lower depending on the number of workers residing in
Kentucky versus Ohio. Table 2 assumes all workers reside in
Kentucky. Using these averages, Table 2 shows estimated fiscal
impacts arising from the increases in jobs calculated in Table
1.
Table 2: Potential Annual Fiscal Impacts of Capital Construction
Projects
------------------------------------------------------------------------
Fiscal Impacts
Capital Total Jobs -----------------------------------------------
Investment State County City Total
------------------------------------------------------------------------
$16,000,000 237 $753,523 $113,751 $86,667 $953,942
$17,000,000 252 $801,214 $120,951 $92,153 $1,014,318
$18,000,000 266 $845,726 $127,670 $97,272 $1,070,669
$19,000,000 281 $893,418 $134,870 $102,758 $1,131,045
$20,000,000 296 $941,109 $142,069 $108,243 $1,191,421
$21,000,000 311 $988,800 $149,268 $113,728 $1,251,797
$22,000,000 326 $1,036,492 $156,468 $119,214 $1,312,173
$23,000,000 340 $1,081,004 $163,187 $124,333 $1,368,524
$24,000,000 355 $1,128,695 $170,387 $129,818 $1,428,900
$25,000,000 370 $1,176,386 $177,586 $135,304 $1,489,276
$26,000,000 385 $1,224,078 $184,786 $140,789 $1,549,652
$27,000,000 400 $1,271,769 $191,985 $146,274 $1,610,028
$28,000,000 414 $1,316,281 $198,705 $151,394 $1,666,379
$29,000,000 429 $1,363,972 $205,904 $156,879 $1,726,755
$30,000,000 444 $1,411,663 $213,104 $162,364 $1,787,131
$31,000,000 459 $1,459,355 $220,303 $167,850 $1,847,507
$32,000,000 474 $1,507,046 $227,502 $173,335 $1,907,883
$33,000,000 488 $1,551,558 $234,222 $178,455 $1,964,234
$34,000,000 503 $1,599,249 $241,421 $183,940 $2,024,611
$35,000,000 518 $1,646,941 $248,621 $189,425 $2,084,987
------------------------------------------------------------------------
NKU Center for Economic Analysis & Development, Janet Harrah, senior
director, Center for Economic Analysis and Development, Haile US Bank
College of Business, Nunn Drive//BC 396, Highland Heights, KY 41099
DEFINITIONS
Output: Output represents the value of industry production.
For manufacturers this would be sales plus/minus change in
inventory. For service sectors production = sales. For retail
and wholesale trade, output = gross margin and not gross sales.
Labor Income: All forms of employment income, including
employee compensation (wages and benefits) and proprietor
income.
Total Impacts: Multipliers break the effects of a change
(or stimuli) on economic activity down into three components.
1. Direct effects are the changes in the industries to
which a final demand change was made.For example a firm hires
100 new employees.
2. Indirect effects are the changes in inter-industry
purchases as they respond to the new demands of the directly
affected industries. For example, an auto firm expands
productionand hires 100 new workers. This change in production
will likely lead to additional impactson the firm's supply
chain.
3. Induced effects typically reflect changes in spending
from households as income increases or decreases due to the
changes in production.
4. Total impacts are the sum of direct expenditures (in
the case of CVG the expenditure of PFCdollars on capital
construction projects) plus the indirect and induced effects.
Value Added: Total value of income generated from
production. This income consists of payments to labor
(compensation of employees), payments to government (taxes on
production and imports), and returns on investment (gross
operating surplus). It is equivalent to gross domestic product.
Data and software sources: CEAD used economic impact
assessment methodology to estimate the potential economic
impacts arising from increased capital investment construction.
Note this analysis is limited to the impact of the construction
phase. It does not reflect any increases in economic activity
that may result as a result of the construction project once it
is completed.
Exhibit D: Statement of Airports Council International-North America
for March 26, 2019, Hearing
[This statement was submitted for the record by Hon.
DeFazio and is on page 89.]
Mr. DeFazio. Yes, thank you. OK. You know, I would
suggest--and at the future I am going to probably not allow
people to read testimony--would be to summarize your best
points and, if possible, respond to points that others have
made or are going to make.
Anyway, we would move on now to Mr. Lopano with Tampa.
Mr. Lopano. Good morning, Chairman DeFazio, Ranking Member
Graves, and all members of the Transportation and
Infrastructure Committee. Thank you for inviting me to
participate today. I am Joe Lopano, I am CEO of Tampa
International Airport.
We are the 29th largest airport in the country, and 1 of 4
large-hub airports in Florida. This past year we broke our
previous passenger number record with a record 21 million
travelers, and we are expected to grow to 22 million this year.
This is up from 16 million in 2011, when I became CEO.
This growth would not have been possible without the
passenger facility charge that has allowed us to expand the
airport, while keeping our costs low and enhancing airline
competition to benefit consumers.
When I was hired my board directed me to increase
international service to Tampa Bay. New airlines expressed
interest, but we needed to expand our international facility to
accommodate them. The project cost was $25.8 million.
Our airline agreement requires any project with an
investment of more than $10 million to have approval from our
signatory airlines. Our incumbent carriers made it explicitly
clear they had no intention of supporting a project that would
bring in competitors.
Fortunately, we had access to PFC funds and a grant from
the Florida Department of Transportation, bringing the airport
revenue portion down to $2 million, and allowing us to proceed
without airline approval. Once the project was done, we brought
in new flights, increasing our international traffic by 150
percent, even before Delta starts flying nonstop service to
Amsterdam. This has resulted in a $1.6 billion economic impact
to our region, and nearly 18,000 jobs.
So, Mr. Chairman, to your point about summarizing, I can't
give you a better example than that of a project when the
airlines say--name a project that is not going to get built? I
just gave you one. And it turned into 150 percent in
international traffic to Tampa.
So I will yield my time, Mr. Chairman.
Mr. DeFazio. Didn't it also lower--bring in other domestic
competition? You might summarize that----
Mr. Lopano. OK.
Mr. DeFazio [continuing]. For your testimony, too.
Mr. Lopano. Very good. Let me see if I can find it here.
Mr. DeFazio. Don't be traumatized by the fact that I----
[Laughter.]
Mr. Lopano. I am trying to follow the rules. I don't come
up here every----
Mr. DeFazio. No, no, I know. You have got a lot of time
left, so----
Mr. Lopano. OK, OK.
Mr. DeFazio. But that was another factor. I saw a
significant decrease, as I recall, in reading your testimony,
in--you had new entrants----
Mr. Lopano. Yes.
Mr. DeFazio [continuing]. And domestic fees on at least one
nonstop route change.
Mr. Lopano. Yes. We have also seen growth on the domestic
side, adding competition in more than half of our domestic
markets, driving down fares.
We have added service to small and medium-hub airports,
including Greensboro and Asheville in North Carolina; Syracuse,
New York; Latrobe, Pennsylvania; and Madison, Wisconsin, to
name a few. Many of these flights are on ultra-low-cost
carriers who are attracted to our airport because our cost per
enplanement is low, thanks to our responsible financial
management and the PFC.
The PFC, as currently conceived, has reached its limit. The
fee has not been modernized since 2001, and inflation has
whittled away its spending power. Stuck at $4.50, it is not
adequate to responsibly address the $81 billion in capital
needs at the 30 large-hub airports, nationwide.
Tampa alone needs $2.2 billion in capital investment over
the next 15 years. About half of that could be paid for using
the PFC, but our PFC capacity is only $300 million. This has
major implications for the future of the airport and our new
international terminal.
I do have some information on what you are talking about.
What happened was JetBlue was flying to Boston, and we brought
in low-cost carriers, ultra-low-cost carriers like Spirit, and
we had reduced the fare by $30 in that market. That is only one
example. It happens all the time when you bring in competition.
You lower the fares, you stimulate the market.
I think that the issue here is control and competition. And
you said earlier it is about letting the local people make
their decisions on what they need to build and how they should
build it. That is what we are after with this PFC increase.
We don't come up here just because we think it is fun. We
do actually need the money.
[Mr. Lopano's prepared statement follows:]
Prepared Statement of Joseph W. Lopano, Chief Executive Officer, Tampa
International Airport
Chairman DeFazio, Ranking Member Graves and distinguished members
of the Transportation and Infrastructure Committee:
Thank you for the opportunity to address you on the important role
the Passenger Facility Charge plays in making affordable investments in
airports to spur the economic vitality of our communities and provide
choices to the flying public.
Tampa International Airport is a prime example of how this valuable
funding tool, a user fee that can only be spent on Federally-approved
capital projects in the airport where it is collected, offers airports
the flexibility to increase capacity, promote competition and ensure a
safe flying experience for our passengers. It is thanks to expansion
using the PFC that our airport was able to attract new airlines and
routes to the Tampa Bay region, resulting in a significant economic
impact for our community.
When I became Chief Executive Officer of Tampa's airport in 2011,
the directive from my board was to recruit international flights to our
market. New carriers were expressing interest in our woefully
underserved region. However, our existing international facilities had
reached capacity. It was time to expand. The project cost came in at
$25.8 million. Our airline agreement, similar to many other agreements
in the country, requires our signatory airlines to approve any capital
project funded with more than $10 million in airport revenues. Our
incumbent airlines made it explicitly clear that they did not intend to
support our expansion to bring in competing carriers. Fortunately, we
had access to $8.6 million in PFC funds, an additional $3.4 million in
PFC-backed bonds, and a generous contribution of $10.2 million from the
Florida Department of Transportation to reduce the airport revenue
portion of the project to $2 million and eliminate the need for airline
approval.
Soon after we completed construction, international service started
growing. Since 2012, we have added new flights to Switzerland, Panama,
Germany and Iceland. British Airways expanded its service to London and
Norwegian launched flights to London, providing new competition in the
market that is benefitting passengers with lower airfares. In May,
Delta will begin daily service to Amsterdam. Our international traffic
has increased more than 150 percent.
These flights have delivered $1.6 billion in economic impact for
our region and supported 17,800 jobs. This would not have happened
without the PFC.
One daily non-stop flight to a European market creates a $154
million economic impact for our region and creates 1,200 jobs in our
region. This is the equivalent of the Super Bowl every two years, over-
and-over again.
Growth is not only on the international side. Overall, including
international and domestic passengers, we served a record 21 million
travelers in fiscal year 2018.
We have added competition in existing markets by 52 percent since
2015, lowering fares for travelers. For example, in 2016 the average
fare to Boston from Tampa was $164, with JetBlue the only airline
offering nonstop service there. Since then Delta and Spirit have
entered the market bringing the average fare down to $133. We have also
established or re-established service to 14 new markets since 2010,
including service to small and medium-hub airports, including
Greensboro and Asheville, North Carolina; Syracuse, New York; Latrobe,
Pennsylvania; and Madison, Wisconsin.
Many of these flights are on ultra-low-cost carriers, such as
Spirit Airlines, which is one of the fastest growing airlines in Tampa.
Our airport is attractive to Spirit and other low cost carriers because
our cost per enplanement is low, thanks to our responsible financial
management and, again, the PFC. Even while completing a recent $1
billion expansion, we were able to use PFCs to lower our overall debt
by $76.4 million including $5.2 million in PFC backed bonds.
We currently carry four AA ratings by the bond agencies allowing us
to finance our projects at favorable interest rates--partly due to our
ability to use the PFC's.
The PFC as currently conceived, however, has reached its limits.
The fee has not been modernized since 2001, and inflation has whittled
away its spending power. Stuck at $4.50, it is not adequate to
responsibly address the $81.8 billion in capital needs at the 30 large
hub airports nationwide. At Tampa International Airport alone, we have
$2.2 billion in capital projects necessary over the next 15 years,
including airfield maintenance and other safety-related projects.
Slightly over $1.1 billion of these projects could be paid for using
the PFC while PFC capacity is only $315 million, a threshold the
airport meets in 2022.
One of the most important projects is a new 16-gate airside. With
our community continuing to grow at a rapid pace, our FAA-approved
passenger forecast shows we need to open this facility in 2024 to
accommodate increased demand. Available federal Airport Improvement
Program (AIP) grants amount to a tiny fraction of total costs, and
availability of PFCs is limited. That means we will have to rely on
bonds backed by airport revenues, assuming we can come to an agreement
with our airlines on how to move forward with the project. An increase
in the PFC cap--from $4.50 to $8.50--would lessen our dependence on a
bond issue backed by airport revenues, and save us $250 million in
interest payments by reducing our need to issue bonds and allowing us
to pay back debt faster. This would keep our costs to airlines low and
enable more airline competition in the market to keep airfares low.
An increase in the PFC cap does not mean the cost of every airline
ticket would automatically increase. It would simply allow local
airport governing boards to determine their community's fate and set
the fee at a rate necessary to fund investments that, as dictated by
federal law, will increase capacity, keep airports secure and increase
competition. With four airlines carrying 80 percent of the nation's
passengers, it is vital that we have a flexible source of funding for
building gates affordably and bringing healthy competition to the
aviation marketplace. Airport reserves cannot be tapped because they
need to remain at certain levels to comply with bond requirements. In
Tampa, we keep two months of operating funds in reserves to maintain
our debt service coverage. Federal funding for capital projects has
declined significantly, especially for large-hub airports. Airport
revenues are too often subject to approval from airlines, who have a
vested interest in limiting facilities that enable competition. We work
closely with our airline partners to develop our facility plans and our
annual budgets. We agree with them on many issues, ranging from the
need for efficient and effective security screening to the importance
of travel and tourism in our national economy. However, we disagree on
who should ultimately control the destiny of our community's
infrastructure. This belongs squarely in the realm of local airport
governing bodies, underscoring the PFC as the most flexible, cost-
effective option for airport capital investment.
There is a crying need for all types of infrastructure investment
in this country--roads, bridges, trains, ports, sewage systems, power
plants, communications systems. Modernizing the PFC is an effective and
smart way to start making billions of dollars of investment without
having any impact whatsoever on the federal budget.
The PFC was a good idea when it was created in 1990. It is a good
idea now, but the existing structure limits its usefulness and the
ability of airports to affordably expand and best serve consumers.
Mr. DeFazio. OK, thank you. I know it is not fun. And thank
you all for being here and traveling here and doing your
testimony.
With that, we would move on to Ted Christie, president and
CEO, Spirit Airlines.
Mr. Christie. Good morning, Mr. Chairman, Ranking Member
Graves, members of the committee. Thank you for the opportunity
to testify today. My name is Ted Christie. I am president and
CEO of Spirit Airlines.
For those of you who may not know Spirit, we are the
largest so-called ultra-low-cost carrier in the U.S. We serve
about 50 U.S. domestic airports and over 20 international
destinations. Our total prices, including all ancillary
products and services are, on average, about 30 percent less
than those of other airlines in the U.S.
Corporate travelers and affluent customers have many
choices in today's market. Spirit's product is designed for
highly price-sensitive consumers, mainly middle-class Americans
who pay for their own tickets.
Spirit strongly supports the objective of improving airport
infrastructure in the U.S.
We have seen a boom in airport projects, with nearly $165
billion in projects since 2008 at the Nation's large airports.
Smaller airports are also making investments. Strong passenger
demand has driven airport revenues way up, and most U.S.
airports are in excellent financial health.
Today airports enjoy investment-grade bond ratings in an
era of historically low interest rates. Capital is cheap and
looking for well-designed projects in airports. Airlines
themselves have invested billions in airport projects, and that
is despite the fact that most of us do not have investment-
grade bond ratings, or as easy access to capital markets as
most airports.
In this historically favorable environment, we don't think
an increase in the PFC maximum is the best tool for funding
airport infrastructure projects. Most airports, including those
appearing before the committee today, may like to see an
increase in PFCs. We shouldn't be surprised. But increasing
PFCs by any amount, let alone doubling the current cap to $8 or
more, is not the right answer to the problem we are all trying
to solve.
PFCs are a consumer tax, and the traveling consumers are
already punishingly taxed. Over $60 of the average round-trip
fare of about $300 is the Government's taxes and fees. That is
too much. Take a family of four going for a vacation. If the
PFC cap is raised to $8 per segment, that increase puts the
total round-trip PFC bite at $64, a real number to consider for
many middle-class families. Families who must connect through
big cities would see double that amount, or $128.
PFCs are a flat assessment, like most Government fees
affecting travelers, based on a single leg or itinerary. They
are, therefore, regressive and hit ordinary consumers the
hardest, those who travel at the lower price point.
I will concede that many business travelers may not notice
an increase in PFCs. They tend to travel at short notice and
pay higher walkup fares. Usually, their employer is paying,
anyway. But Spirit customers pays an average of about $110 each
way, including all ancillary charges. So, for them, the
proposed increase is material.
Our discretionary travelers have high-demand elasticity in
reaction to even modest price changes. If travel prices rise,
they will travel less. We believe we should be seeking ways to
hold the line, or even lower the tax burden for ordinary
consumers, not increase it.
A related point: Value airlines like Spirit typically use
limited airport facilities more efficiently than other
airlines. We run more passengers per day through each airport
gate, and we occupy less terminal space for a given volume of
passengers. By the way, airports and local communities
appreciate that we can deliver more passengers through limited
facilities. Yet each of our customers subsidizes the airport
facility at the same per-person PFC rate.
PFCs' one-size-fits-all nature ignores the differentiation
among our Nation's airports and their individual needs.
Airports vary by size, by function in the national network, by
which airlines serve them, and by the status of their
improvement programs.
I want to underline that, despite some differences on the
PFC issue, airlines and airports have a constructive
relationship across the country. We work together to serve our
communities, to improve facilities, and to invest in the
consumer experience. Our challenges and priorities are shared,
not separate. I would say Spirit enjoys an excellent
relationship with all our host airports.
Going back to the beginning of these comments, I, like
other airlines--Spirit wants to improve airport infrastructure.
We stand ready to meet and work with you, Mr. Chairman and
members of the committee, in finding a constructive and
creative solution to this problem.
Thank you again.
[Mr. Christie's prepared statement follows:]
Prepared Statement of Ted Christie, President and Chief Executive
Officer, Spirit Airlines, Inc.
Good morning Chairman DeFazio, Ranking Member Graves, and members
of the Committee. Thank you for the opportunity to testify today at
this important hearing about airport infrastructure needs and
financing. My name is Ted Christie. I am President and CEO of Spirit
Airlines.
For those of you who may not be familiar with Spirit, we are the
largest so-called ``Ultra Low-Cost Carrier,'' or ULCC, in the US.
Today, we serve about 50 US domestic airports--large and small--as well
as more than 20 international destinations. We fly 135 mainline
aircraft and have one of the youngest fleets in the Americas.
Our total prices including all ancillary products and services are,
on average, about 30 percent less than those of other airlines in the
US, based on DOT data. While corporate travelers and more affluent
consumers have many good choices among carriers in today's market, we
have designed our product to serve highly price-sensitive consumers,
mainly middle-class Americans who pay for their own tickets, and who
travel for leisure or to visit friends and relatives, as well as people
who work for small and medium-sized businesses.
I'm very proud that, in 2018, Spirit ranked as one of the most on-
time airlines in the US, as measured by the DOT, and we now rank high
in several other reliability metrics. We're looking even better this
year. We think our low prices and our operational reliability add up to
a very strong value proposition for consumers on a budget.
Turning to the broader topic of this hearing, Spirit strongly
supports the objective of improving airport infrastructure in the US.
All airlines do. Airport investment is critical for improving outdated
or inadequate facilities, for adding capacity to accommodate the
secular growth in aviation traffic (particularly passenger traffic),
and for supporting the powerful catalytic effect that airports and the
aviation industry provide to the general economy and the communities we
serve.
We all know about the dire situation of underinvestment in much of
our Nation's traditional infrastructure. Yet that general shortfall
masks the very vigorous activity in the airport infrastructure sector
in recent years. Airport investment and development have been booming,
with nearly $165 Billion in capital investment projects completed,
underway or planned since 2008 at the nation's 30 largest airports.
Numerous smaller airports are also making significant investments.
These investments, taken together, include airfield projects, terminal
projects, cargo facilities and general aviation facilities. It's really
across the board--in fact, it's hard to find an American airport today
that has not either recently finished with, or is in process of
managing and planning, a major improvement project.
The boom in airport projects is supported by strong demand--by
passengers, cargo carriers and general aviation. Airport revenues are
way up, and that growth in user demand has also driven record receipts
into the Airport and Airway Trust Fund, which is expected to reach an
all-time high balance of $7.7 Billion by the end of this year. Most
U.S. airports are in excellent financial health, holding record cash
reserves.
Today, airports and airport authorities enjoy investment-grade bond
ratings in an era of historically-low interest rates. Investment
capital is cheap, plentiful and looking for well-designed projects in
airports. And that's not only about the bond markets. Public-private
partnerships and other innovative structures are also successfully
developing even some very large airport projects around the country.
Finally, the airlines themselves have invested billions in airport
improvement projects in recent years. And that's despite the fact that
most of us do not have investment-grade bond ratings or as easy access
to capital markets as most airports.
Financing large infrastructure investments is always a challenge.
Across the country, airlines and their airport partners work
collaboratively to solve it every day. Yet in this historically
favorable environment, in which airports are increasing revenues and
are in a strong position to access capital, an increase in the PFC
maximum seems an inefficient tool to deliver enhanced funding to
airport infrastructure projects. In fact, increasing PFCs could well be
counterproductive.
I'm sure that most airports, including those appearing before the
Committee today, may like to see an increase in PFCs. We shouldn't be
surprised, as any increasing revenue source for most organizations
would be considered desirable. Asking an airport if it would like more
money, especially with few strings attached, puts everyone, including
airport management, in a difficult spot. In some ways, it is akin to
asking a barber if you need a haircut--the answer is predictable.
But increasing PFCs by any amount, let alone doubling the current
cap to $8 or more, is not the right answer to the problem we are all
trying to solve. Here are some reasons why:
PFCs are a consumer tax, and the traveling consumer is
already punishingly taxed. Over $60 of the average round-trip fare of
about $350 is government taxes and fees. That's too much. Take a family
of 4 going for a vacation: If the PFC cap is raised to $8 per segment,
that increase puts the total round-trip PFC bite at $64--a real number
toconsider for many middle-class families. Moreover, travelers from
smaller communities usually must connect through big cities on their
trips--so that would double the PFC amount, to $128. And, remember, on
top of that there's all the other taxes and fees included in the cost
of a ticket.
PFCs are a flat assessment, like many government fees
affecting travelers, based on a single leg or itinerary. They are
therefore regressive and hit ordinary consumers hardest, particularly
those who can only afford to travel at a lower price point. I will
concede that many business travelers may not change their plans because
of an increase in PFCs. They often travel at short notice and pay
higher ``walk-up'' fares, on top of which a $8 round-trip PFC increase
may not seem so noticeable. And, usually their employer is paying
anyway. But a customer on Spirit pays only about $110 each way, on
average, including all ancillary charges, so the proposed increase will
represent a material increase in the price she pays.
Our mostly discretionary travelers have a very high
demand elasticity in reaction to even modest changes in price. In other
words, if travel prices rise, they will travel less, and all those new
airport facilities won't be quite so full anymore. If we want to
encourage travel, and the economic benefits it brings to communities,
we should be seeking ways to hold the line or even lower the tax burden
for ordinary consumers, not increase it.
A related point that is specific to low-fare airlines
like Spirit: Value airlines like us typically use limited airport
facilities more intensively and efficiently than larger legacy
airlines. We have to, in order to keep prices low, because we focus on
the most price-conscious consumers. We run more passengers per day
through each airport gate, and we occupy less terminal square footage
for a given volume of passengers. (By the way, airports and local
communities appreciate that we can deliver more passengers through
limited facilities.) Yet each of our customers subsidizes the entire
airport facility at the same per-person PFC rate. By comparison, the
airport rates and charges that airlines pay directly--for landings,
gates and terminal space--do vary according to an airline's efficiency
of use, which in our case are passed on to our customers through lower
prices.
PFCs are a ``one size fits all'' approach to supporting
airport funding that ignores the great differentiation among our
nation's airports and their individual needs. Airports vary widely by
size, by their function in the national network, by which kinds of
airlines serve them, and by the current status of their improvement
programs--whether already completed, in-progress, or on the drawing
board. Yet an indiscriminate wave of new funds from a general PFC
increase--which, if approved, will certainly be implemented by every
airport--will reduce valuable discipline in the financing and planning
for improvement projects, based on each airport's unique circumstances.
PFCs are used to fund airside improvements and physical
facilities, among other permitted purposes. Yet the runways and other
physical infrastructure at the airport are used by cargo carriers and
general aviation as well. It is not fair for airline passengers to be
footing bills for airport assets that are shared with non-passenger
operations that do not generate PFCs.
Finally, airports' expenditures of PFCs are subject to
looser controls than most external airport financing that airlines
(and, by extension, their customers) agree to cover. Eligible PFC
projects include a broad set of construction, security, noise-reduction
and other purposes that can escape the rigor of a cost-benefit test
that other airport funds and projects must pass.
I'll pause for a second to underline that, despite our differences
on the PFC issue, airlines and airports have a constructive and
positive relationship with one another across the country. We work
together every day to serve our communities, to improve facilities and
to invest in the customer experience. Our challenges and priorities are
shared, not separate. Today, Spirit serves one of the three airports
appearing here today--maybe Cincinnati and Spokane someday soon--and
I'd say we enjoy an excellent relationship with all our host airports.
Going back to the beginning of these comments, like other airlines
Spirit wants to help improve airport infrastructure.
We stand ready to meet and work with you, Mr. Chairman, and Members
of the Committee, in finding constructive and creative solutions to
this problem.
Thank you again for the opportunity to speak today.
Mr. DeFazio. Thank you. I am told the timer isn't working
down there, but you did very well. You had 44 seconds left.
[Laughter.]
Mr. DeFazio. And I apologize, this isn't our real hearing
room. We will hopefully have one starting in May. And then also
we will be able to do roundtables, and other, more flexible,
things.
And with that, I would turn to Mr. Scribner.
Mr. Scribner. Chairman DeFazio, Ranking Member Graves, and
members of the committee, thank you for giving me the
opportunity to testify before you on the importance of airport
development.
Like other witnesses, I will focus on the passenger
facility charge, and why it should be modernized to encourage
more and smarter airport investment.
As you said, Mr. Chairman, the PFC is a congressionally
authorized, federally regulated local airport user fee. It
exists as an exception to the general Federal prohibition on
State and local taxes and fees on air travelers, which was
enacted in 1973, 1 year after airlines lost a major
constitutional case on local user fees at the U.S. Supreme
Court.
By the 1980s, this had led to growing concerns over
excessive airport reliance on Federal aid and reduced airline
competition, leading the Reagan administration to begin
developing the concept of what ultimately became the PFC in
1990.
Under current law public airports in the U.S. can charge a
maximum PFC of $4.50 per passenger enplanement for the first
two enplanements of a one-way itinerary. The PFC exists
alongside the airport improvement program, or AIP, a Federal
grant program funded through aviation taxes. Together, the PFC
and AIP account for approximately half of total airport funding
available for capital projects.
AIP funds can generally be used for airside projects such
as runways, taxiways, aprons, noise abatement, and land
acquisitions. In contrast, the PFC funds can be used for AIP-
eligible projects plus numerous landside projects at passenger
terminals. And importantly, the PFC can be used to service
debt.
For commercial airports with sizable passenger volumes,
these differences in flexibility have led to a strong
preference for the PFC over AIP funding. Unfortunately,
Congress has left the PFC cap unchanged since 2000, eroding the
purchasing power of the PFC, and limiting airport investment
options.
Two recent research findings support the case for PFC
modernization. First, evidence suggests that PFC use has a
positive effect on airport productive efficiency, while AIP use
has a negative effect.
Legislation introduced in the previous Congress would have
uncapped the PFC, while proportionately reducing AIP authorized
spending. This change in the PFC-AIP mix was expected to result
in greater airport productive efficiency. The bill, introduced
by Chairman DeFazio and Representative Massie, would have
allowed for increased total airport investment, while
simultaneously reducing Federal spending. That is a win-win, in
my book, and why most leading free-market libertarian and
conservative organizations have supported this approach.
In addition to CEI joining Democratic and Republican
Members of Congress, scholars and advocates from the Reason
Foundation, CATO Institute, Heritage Foundation, Tax
Foundation, FreedomWorks, and Citizens Against Government Waste
have endorsed modernizing the PFC along the lines of the
Investing in America: Rebuilding America's Airport
Infrastructure Act. Support for the PFC transcends party or
ideology. It is just good policy.
Second, major non-aeronautical revenue sources--namely,
revenue from parking and rental car fees--are facing heightened
risks and declining prospects, as travelers opt for new ride-
hailing ground transportation services to and from airports.
Since the PFC is collected from airport users, regardless of
their use of airport concessions, it represents low risk,
predictable and sustainable user-based revenue.
Besides providing airports with predictable and sustainable
revenue, the PFC was also designed to promote airline
competition. Beginning in the 1950s, airports often turned to
their airline customers to retire debt and finance airport
improvements. In exchange for this financial support, incumbent
airlines received long-term, exclusive-use gate leases, which
were then used to restrict access to new and often lower cost
carrier entrants.
In more recent times, airports entering into long-term,
exclusive-use gate leases has become less common than in the
past, but limited gate availability at large- and medium-hub
airports has still been estimated to raise consumer airfares by
billions of dollars every year, dwarfing total annual
nationwide PFC collections. In this way, the PFC serves as an
important airport self-help tool that can dilute price-setting
power by dominant, incumbent airlines, thereby benefitting air
travelers in the form of lower air fares, as well as improved
airport facilities.
Further expanding the purchasing power of the PFC by
eliminating the statutory cap, and with a focus on improving
airline competition, especially through the expansion of
common-use gates available to new carrier entrants, could
result in substantial air fare savings for consumers.
Thank you again, Mr. Chairman, for this opportunity to
testify before the committee, and I welcome your questions.
[Mr. Scribner's prepared testimony follows:]
Prepared Statement of Marc Scribner, Senior Fellow, Competitive
Enterprise Institute
Chairman DeFazio, Ranking Member Graves, and Members of the
Committee, thank you for giving me the opportunity to testify before
you today. My name is Marc Scribner. I am a senior fellow at the
Competitive Enterprise Institute (CEI), where I focus on
transportation, land use, and urban growth policy issues.\1\ CEI is a
nonprofit, nonpartisan public interest organization dedicated to the
principles of free enterprise and limited, constitutional government.
CEI has supported pro-market approaches to infrastructure investment
and management through analysis and advocacy during its 35-year
history.
---------------------------------------------------------------------------
\1\ My biography and writings are available at https://cei.org/
expert/marc-scribner.
---------------------------------------------------------------------------
The passenger facility charge (PFC) is a congressionally
authorized, federally regulated local airport user fee. Under current
law, public airports in the U.S. can charge a maximum PFC of $4.50 per
passenger enplanement for the first two enplanements of a one-way
itinerary. The PFC exists alongside the Airport Improvement Program
(AIP), a federal grant program funded through aviation taxes. Together,
the PFC and AIP account for approximately half of total airport funding
available for capital projects.
AIP funds generally can only be used for airside projects, such as
runways, taxiways, aprons, noise abatement, and land acquisitions. In
contrast, the PFC funds can be used for AIP-eligible projects plus
numerous landside projects, such as passenger terminal and ground
transportation improvements, and can be used to service debt. For
commercial airports with sizeable passenger volumes, these differences
in flexibility have led to a strong preference for the PFC over AIP
funding.
Two recent research findings support the expansion of the PFC.
First, evidence suggests that PFC use has a positive effect on airport
productive efficiency while AIP use has a negative effect. Legislation
introduced in the previous Congress would have uncapped the PFC while
proportionately reducing AIP authorized spending, with this change in
the PFC/AIP mix expected to result in greater airport productive
efficiency. Second, major non-aeronautical revenue sources--namely
revenue from parking and rental car fees--are facing heightened risks
and declining prospects as travelers opt for new ride-hailing ground
transportation services to and from airports.
Since the PFC charges airport users regardless of their use of
airport concessions, it represents a low-risk, predictable, and
sustainable revenue source.
In addition to providing airports with predictable and sustainable
revenue, the PFC was also designed to promote airline competition.
Beginning in the 1950s, airports turned to their airline customers to
retire debt and finance airport improvements. In exchange for this
financial support, incumbent airlines received long-term exclusive-use
gate leases, which were then used to restrict access to new and often
lower-cost entrants.
In more recent years, the trend has shifted. The granting of long-
term exclusive-use gate leases has become less common, but limited gate
availability at large and medium hub airports has still been estimated
to raise consumer airfares by billions of dollars every year. In this
way, the PFC serves as an important airport self-help tool that can
dilute price-setting power by dominant incumbent airlines, thereby
benefiting air travelers in the form of improved airport facilities and
lower airfares.
a brief history of u.s. airport passenger user fees
The debate over passenger user fees like the PFC began more than
two decades before the PFC was even authorized by Congress. In the late
1960s and early 1970s, some public airports began charging passenger
enplanement fees of 50 cents to $1 per passenger in an effort to recoup
capital, operations, and maintenance costs from their users. Airlines
filed suit against an airport authority in Indiana and the state of New
Hampshire over these fees. State courts in Indiana in 1970 and New
Hampshire in 1971 arrived at different conclusions on the question of
whether or not these fees constituted unreasonable burdens on
interstate commerce in violation of Art. I, 8 of the U.S.
Constitution. The U.S. Supreme Court granted certiorari in 1971.
In Evansville Airport v. Delta Airlines, Inc., 405 U.S. 707 (1972),
the Supreme Court ruled in favor of the airports. It held user fees for
state-provided facilities were constitutional in that they were
reasonably related to the costs of those facilities and did not
discriminate between intrastate and interstate commerce. In response,
Congress enacted the Anti-Head Tax Act as part of the Airport
Development Acceleration Act of 1973 and made clear this law was in
direct response to the Court's ruling a year earlier.\2\ This law
remains on the books today and generally prohibits airports from
imposing taxes or fees on air travelers.\3\
---------------------------------------------------------------------------
\2\ See S. Rep. No. 12, 93d Cong., 1st Sess. 12 (1973), reading in
part: ``The provision is in response to a situation which has been
brought about by [Evansville Airport v. Delta Airlines, Inc.],
upholding passenger head taxes enacted by New Hampshire and by
Evansville, Indiana, for `aviation-related purposes.' While this
decision has invited state and local governments to enact head taxes or
fees on air travelers, the Court decision does not provide adequate
safeguards to prevent undue or discriminatory taxation.''
\3\ 49 U.S.C. 40116.
---------------------------------------------------------------------------
By the mid-1980s, the Reagan administration and members of Congress
were concerned that federal aviation policy was having adverse impacts
on airports. Airports had become heavily reliant on federal grant
funding, and this funding relationship led to reduced airline
competition at large airports to the detriment of the traveling public.
Rather than eliminating the Anti-Head Tax Act, supporters of increased
airport self-help and airline competition sought to create a narrow
exemption to the general prohibition for a federally authorized local
passenger enplanement fee.
In its 1990 National Transportation Policy, known as Moving
America, the Bush administration formally proposed the PFC.\4\ This
proposal called for ``[r]elax[ing] restrictions on the ability of State
and local governments to raise revenues and use them for transportation
facilities and services,'' but ignored the competition benefits of this
policy.\5\ This omission was noted by Thomas Gale Moore, an economist
who served as a member of the Council of Economic Advisors during 1985-
1989, who wrote in 1990 that ``[PFC] revenue would also make airports
less financially dependent on their tenant carriers and would encourage
them to provide more facilities for new carriers. . . . Competition at
airports that are dominated by one or two carriers could thus be
enhanced.''\6\
---------------------------------------------------------------------------
\4\ U.S. Department of Transportation, Moving America: New
Directions, New Opportunities--A Statement of National Transportation
Policy Strategies for Action at 57 (Feb. 1990), available at https://
rosap.ntl.bts.gov/view/dot/531.
\5\ Id.
\6\ Thomas Gale Moore, Good Enough for Government Work: Why Moving
America Is Unsatisfactory, 13 REGULATION 2, 15 (Summer 1990), available
at https://object.cato.org/sites/cato.org/files/serials/files/
regulation/1990/7/v13n2-2.pdf.
---------------------------------------------------------------------------
In 1990, Congress passed the Aviation Safety and Capacity Expansion
Act, which established the PFC.\7\ Airports began collecting PFCs in
1992. Initially, the maximum PFC was set at $3 and airports charging
the $3 PFC were required to return 50 percent of their AIP
apportionments. In 2000, Congress passed the Wendell H. Ford Aviation
Investment and Reform Act for the 21st Century, which increased the
maximum PFC to $4.50 with an increased AIP apportionment turn-back of
75 percent for imposing PFCs greater than $3.\8\ This was the last time
the PFC cap was raised. Efforts to increase the cap or eliminate it
entirely have been unsuccessful.
---------------------------------------------------------------------------
\7\ Presently codified as amended at 49 U.S.C. 40117.
\8\ 49 U.S.C. 40117(b)(4) & 47114(f)(1)(B).
---------------------------------------------------------------------------
the pfc is superior to alternative revenue sources
Airports in the U.S. have a variety of aeronautical and non-
aeronautical revenue sources, but the largest sources are the PFC and
AIP. According to a Government Accountability Office (GAO) review of
FAA data and interviews with airport officials, these two sources
combined account for half of total airport funding available for
capital projects.\9\ The PFC is a local user fee collected by airlines
and remitted directly to airports, with those funds never touching the
federal treasury. In contrast, AIP is a federal grant program under the
Airport and Airway Trust Fund that is funded by aviation taxes on
tickets, flight segments, cargo waybills, fuel, international arrivals
and departures, and frequent flyer awards.\10\
---------------------------------------------------------------------------
\9\ Statement for the Record to the Subcommittee on Aviation
Operations, Safety, and Security, Committee on Commerce, Science, and
Transportation, U.S. Senate of Gerald L. Dillingham, Ph.D., Director,
Physical Infrastructure Issues, Government Accountability Office at 7
(Mar. 23, 2017), available at https://www.gao.gov/assets/690/
683640.pdf.
\10\ See Federal Aviation Administration, Current Aviation Excise
Tax Structure, available at https://www.faa.gov/about/budget/aatf/
media/Excise_Tax_Rate_Structure_2018.pdf (last accessed Mar. 19, 2019).
---------------------------------------------------------------------------
PFCs and AIP funds complement one another by supporting different
classes of airport projects, which is largely a function of differences
in project eligibility.\11\ AIP is generally used to fund airside
construction projects (e.g., runways, taxiways, aprons, noise
abatement, and land acquisition). In contrast, PFCs are generally used
to finance landside improvements such as passenger terminals that often
are not eligible for AIP funding. This is because AIP-eligible projects
are PFC-eligible projects, but not vice versa. Importantly, the PFC can
be used to service debt, unlike AIP funds.\12\ And because the PFC is a
local user fee, federal statutory and regulatory requirements on labor
and procurement that impact AIP funding do not apply to projects solely
funded or financed by PFC revenue.\13\ The table below provides a
comparative breakdown of the use of these complementary programs:
---------------------------------------------------------------------------
\11\ See Federal Aviation Administration Order 5500.1, Passenger
Facility Charge at 12-13 (Aug. 9, 2001), available at https://
www.faa.gov/documentLibrary/media/Order/PFC_55001.pdf.
\12\ Rachel Y. Tang, Financing Airport Improvements, Congressional
Research Service at 14 (May 10, 2017), available at https://
crsreports.congress.gov/product/pdf/R/R43327.
\13\ Federal Aviation Administration, PFC and the AIP, available at
https://www.faa.gov/airports/central/pfc/pfc_aip/ (last accessed Mar.
19, 2019).
Distribution of PFC Approvals and AIP Grants, FY2016
------------------------------------------------------------------------
Type of Project Percentage of PFC Percentage of AIP
------------------------------------------------------------------------
Airside 15.7% 71.1%
Landside 60.2% 12.3%
Noise 0.0% 4.4%
Roads/Access 2.6% 0.6%
Interest on bonds 21.4% --
Unclassified, state block grants, -- 11.7%
misc.
-------------------------------------
Total 100.0% 100.0%
------------------------------------------------------------------------
Source: FAA, Airports Branch.
The flexibility of the PFC vis-a-vis AIP also has consequences for
airport productivity. Recent research has found that increasing airport
reliance on PFC revenue while simultaneously decreasing airport
reliance on AIP revenue increases airport productive efficiency.\14\
The implication is that leaving the PFC cap at the current $4.50 while
increasing AIP funding by spending down the unobligated funds in the
Airport and Airway Trust Fund would have a negative efficiency impact.
---------------------------------------------------------------------------
\14\ Bo Zou et al., US airport financial reform and its
implications for airport efficiency: An exploratory investigation, 47
JOURNAL OF AIR TRANSPORT MANAGEMENT 66 (2015).
---------------------------------------------------------------------------
This also suggests that a bipartisan legislative proposal from the
115th Congress to eliminate the PFC cap, require 100-percent AIP
funding turn-back for charges over $4.50, and proportionately reduce
the total annual AIP authorization by $400 million would not only
reduce federal spending and promote local self-help, it would raise
airport productivity.\15\
---------------------------------------------------------------------------
\15\ Investing in America: Rebuilding America's Airport
Infrastructure Act, H.R.1265, 115th Cong., 1st Sess. (2017).
---------------------------------------------------------------------------
It has been claimed that airports should rely more on non-
aeronautical revenue as a substitute for raising or eliminating the PFC
cap.\16\ Certainly, airports should examine opportunities to generate
non-aeronautical revenue, as the collection of revenue from these
sources generally does not impact airfares and air travel demand. In
2017, nationwide PFC collections totaled $3.29 billion.\17\ In the same
year U.S. commercial service airports generated $21.94 billion in total
operating revenue.\18\ Of that total, 46 percent came from non-
aeronautical revenue sources.\19\ The table below breaks down non-
aeronautical revenue of the 500 reporting commercial airports:
---------------------------------------------------------------------------
\16\ See, e.g., Letter from Pete Sepp, President, National
Taxpayers Union to Reps. Peter DeFazio and Sam Graves (Feb. 7, 2019),
available at https://www.ntu.org/publications/detail/ntu-pens-letter-
to-transportation-committee-regarding-the-passenger-facility-charge.
\17\ Federal Aviation Administration, Key Passenger Facility Charge
Statistics as of February 28, 2019, available at https://www.faa.gov/
airports/pfc/monthly_reports/media/stats.pdf.
\18\ Federal Aviation Administration, CATS, Form FAA-5100-127
Report data, available at https://cats.airports.faa.gov/Reports/
reports.cfm.
\19\ Id.
Land and non-terminal facility leases/revenues $760,852,386 (07.5%) ..............
Terminal-food and beverage $805,431,354 (07.9%) ..............
Terminal-retail stores and duty free $779,640,479 (07.7%) ..............
Terminal-services and other $483,976,328 (04.8%) ..............
Rental cars-excludes customer facility charges $1,855,840,802 (18.3%) ..............
Parking and ground transportation $4,249,127,555 (41.9%) ..............
Hotel $226,723,723 (02.2%) ..............
Other $979,542,945 (09.7%) ..............
Total Non-Aeronautical Revenue $10,141,135,572 (100%) ..............
Source: Form FAA-5100-127 Report data (2017)
As the data show, 60.2 percent of non-aeronautical airport revenue
came from rental cars, parking, and ground transportation. Yet this
dominant portion of non-aeronautical revenue also carries the greatest
revenue risk. In recent years, Americans have been increasingly using
ride-hailing services such as Uber and Lyft to and from airports. A
recent study from the Airport Cooperative Research Program found that
the introduction of ride-hailing has led to an 18 to 30 percent decline
in the use of shared-ride vans, a 4 to 13 percent decline in rental car
transactions, and a 5 to 10 percent decline in parking
transactions.\20\
---------------------------------------------------------------------------
\20\ Peter Mandle and Stephanie Box, Transportation Network
Companies: Challenges and Opportunities for Airport Operators, AIRPORT
COOPERATIVE RESEARCH PROGRAM SYNTHESIS 84 at 5, National Academies of
Sciences, Engineering, and Medicine (2017), available at https://
www.nap.edu/catalog/24867/transportation-network-companies-challenges-
and-
opportunities-for-airport-operators.
---------------------------------------------------------------------------
While these estimates are based on a limited sample and research is
ongoing, preliminary data suggest these declines in revenue are likely
to exceed any new airport fee revenue generated from ride-hailing.\21\
This means that as ride-hailing services continue to grow in
popularity, this ground transportation net revenue decline may
accelerate. Increasingly risky non-aeronautical airport revenue is not
a viable substitute for proportional and predictable passenger user fee
revenue.
---------------------------------------------------------------------------
\21\ Id. at 28, 33.
---------------------------------------------------------------------------
competition benefits of the pfc
As was noted above in the discussion of the history of the PFC, a
second non-fiscal aim of the PFC was to enhance airline competition and
promote lower consumer airfares. In the 1950s and 1960s, in exchange
for airlines assuming existing airport debt and other financing
arrangements, many airports granted incumbent airlines long-term
exclusive-use gate leases. This led to a minority of gates being
available for new carrier entrants.\22\
---------------------------------------------------------------------------
\22\ Steven A. Morrison and Clifford Winston, Delayed! U.S.
Aviation Infrastructure Policy at a Crossroads, in AVIATION
INFRASTRUCTURE PERFORMANCE: A STUDY IN COMPARATIVE POLITICAL ECONOMY at
20-22, eds. Clifford Winston and Gines de Rus (2008), available at
https://www.brookings.edu/wp-content/uploads/2016/06/
Winston_aviation_chpt2.pdf.
---------------------------------------------------------------------------
These gate access limitations harm consumers. Economists have
estimated that airfares are $5.6 billion higher in 2017 dollars than
they would be with adequate gate access to support new carrier entrants
at large and mid-sized airports.\23\ This figure dwarfs the $3.29
billion in nationwide PFC collections in 2017.\24\
---------------------------------------------------------------------------
\23\ Id. at 22. $4.4 billion in 2005 dollars adjusted by Consumer
Price Index to 2017 dollars via Bureau of Labor Statistics' CPI
Inflation Calculator, https://data.bls.gov/cgi-bin/cpicalc.pl.
\24\ Federal Aviation Administration, supra note 17.
---------------------------------------------------------------------------
That the PFC serves as a sustainable revenue source insulated from
airline control is uncontroversial. Further expanding the purchasing
power of the PFC by eliminating the statutory cap and with a focus on
improving airline competition--especially through the expansion of
common use gates available to new carrier entrants--could result in
substantial airfare savings for consumers. These savings could more
than counteract the modest negative marginal impact on travel demand of
increased PFCs, as estimated by the Government Accountability Office,
especially if airline ancillary fees were to be included in the full
price unit of analysis.\25\
---------------------------------------------------------------------------
\25\ Government Accountability Office, Raising Passenger Facility
Charges Would Increase Airport Funding, but Other Effects Less Certain,
GAO-15-107 (Dec. 2014), available at https://www.gao.gov/assets/670/
667444.pdf.
---------------------------------------------------------------------------
Thank you for the opportunity to testify before the Committee, and
I welcome your questions.
Mr. DeFazio. Excellent, thank you. I appreciate your
brevity. Let's move on now to questions.
First, to Mr. Krauter, because you have made the case about
dramatic savings if you do a preemptive PFC, or if you do a PFC
in conjunction with bonding. If you went the route of full
bonding with the very high interest costs, how would you
recapture that money? Would that have anything to do with your
cost per enplanement?
Mr. Krauter. Thank you, Mr. Chairman. Right now the cost of
fully bonding out the TREX project is a little over $342
million.
Mr. DeFazio. Right.
Mr. Krauter. We would anticipate funding that entirely with
our PFC obligation authority, which right now means that that
charge would go out 38 years.
Mr. DeFazio. OK. But what I am getting at is someone has to
pay. OK? Now, if you don't do it with a PFC on the passengers,
then you have got to recoup the money in some other way. And
don't--you have relatively low CPEs, correct?
Mr. Krauter. Yes, sir, that is correct.
Mr. DeFazio. And that would mean--in the future, perhaps--
if you expanded capacity, and a new airline like Spirit wanted
to come in, would your CPEs have to go up for the new entrants?
Mr. Krauter. They would. And in my written testimony I talk
about the fact that that serves as a trap in this conversation,
because airports have limits in how high that CPE can be
driven.
And, as a practical matter, if we had to finance TREX just
through the airline rate base, it would drive our CPE
incredibly high, well above our peer airports. Even though we
are in the lowest quartile today, that would probably place us
among the most expensive small-hub airports in the country.
Mr. DeFazio. OK, thank you.
For the three airports who are here, back in August, just
before we passed the FAA bill, American, Delta, JetBlue, and
United Airlines all raised bag fees by $5. Did any of those
three airports see a dramatic dropoff in passengers on those
airlines during that time period? Yes?
Mr. Lopano. We are seeing our highest growth rate since I
got there 8 years ago. In fact----
Mr. DeFazio. You don't think a $5 increase in the bag fee
drove down boardings?
Mr. Lopano. I am only going by the numbers.
Mr. DeFazio. OK.
Mr. Lopano. We are up 10 percent.
Mr. DeFazio. All right. Anybody else see a decrease? I am
just trying to get at this price elasticity argument.
I did study economics in undergraduate and graduate school.
I am just confused about the differences, the variables in
price elasticity. If it is a bag fee, you thank them. But if it
is a PFC so you can get through security faster, you might have
a lower price ticket, you might have more competition, you will
have a better airport experience, you will never fly again.
Ms. McGraw. Mr. Chairman?
Mr. DeFazio. Yes?
Ms. McGraw. We are experiencing record growth at CVG, as
well. There has been no decrease in passengers.
Mr. DeFazio. OK, interesting. So to Spokane again, Alaska
says that a $4.50 increase will discourage air travel. Are they
one of your incumbent airlines?
Mr. Krauter. Yes, sir, they are. They are the busiest
incumbent airline in our market.
Mr. DeFazio. And they said that they--if they--if your fee
went up by $4.50, that they would have no choice except to
raise air fares or reduce service. Do you buy that argument?
Mr. Krauter. I don't. And for the same reasons that you
have stated, is that we have seen ancillary fees continue to
increase considerably, year after year, with no negative impact
on travel in Spokane. In fact, we are setting new records for
travel every year.
Mr. DeFazio. OK. And then, to Mr. Scribner, you had a
pretty extraordinary number here. Economists have estimated
that air fares are $5.6 billion higher in 2017 than they would
be with adequate gate access to support new carrier entrants at
large and mid-size airports. Could you just expand on that a
little bit?
I mean you really think that bringing in more airlines or
different airlines would lower ticket prices for people?
Mr. Scribner. Thank you for that question, Mr. Chairman.
Absolutely. And we have seen it play out at airports across the
country.
This has long been an issue, this--and this issue, in fact,
predates the PFC, in part because the way we set up funding in
the 1970s. And by outlawing more independent airport revenue
sources, we saw them drive into the hands of the airlines and
become more beholden to Federal funding and those strings
attached, rather than focusing on these competitive pressures.
So I think, absolutely, if we had more freedom at the
airports to make these decisions, to bring in new low-cost
carriers, I think we would see lower air fares.
Mr. DeFazio. OK, thank you.
With that, my time has expired. I turn to--oh, you want
me--OK. I will first turn to Representative Webster.
Mr. Webster. Thank you, Mr. Chairman. I--let's see.
Ms. Barnes, you have--wouldn't you say your organization,
the members of that, would have the--I mean you would have
your--the closest ear to the ground on what is going on in
traffic and travel and cost and so forth?
Ms. Barnes. Well, to answer the previous question, in a
recent survey that we conducted of travelers we found the
Government-issued fees such as the PFC was the second lowest of
deterrence to travel. So, based on the data that we have seen,
we don't see that travel would be negatively impacted.
In fact, 10 percent of travelers avoid trips as a result of
hassles with airports, delays, and cancellations. So we believe
that improvements to the airport and increasing the PFC to be
indexed with inflation would be helpful for all of our
industry. We represent almost 1,300 members, and our industry
is fully supportive of increasing the PFC to help with these
infrastructure needs.
Mr. Webster. Would you say that--in that polling did you
check the awareness of even--the awareness of the PFC?
Ms. Barnes. I don't know that we spoke exactly to the
awareness, but we do have data that demonstrates when travelers
understand that an increased PFC goes to help infrastructure at
their airport they are even more inclined to support a PFC than
just on the general question of ``Do you support a PFC?'' So
the more they know about it, the more likely they are to
support it.
Mr. Webster. So if they know that this is only going to be
used at that particular airport, then there is a higher desire
to have maybe an increase?
Ms. Barnes. I can get back to you to know about that
nuance. But that would be where the data suggests, yes.
Mr. Webster. Mr. Lopano, you are in Florida, my State. You
got a lot of traffic, and we depend on tourism as one of our
largest revenue-producers.
Would you say that most of your flights are not pass-
through flights, they are final destinations?
Mr. Lopano. I am sorry, would you repeat the question, sir?
Mr. Webster. Would you say that most of the incoming
flights that you have are--they are--Tampa is their final
destination?
Mr. Lopano. Yes, we are well above 90 percent just origin,
destination. We have very few connecting passengers.
Mr. Webster. So for you, you are dealing in a lot of ways
with people who are coming there, which would--seems like they
would be maybe a little more reactionary to any kind of
increase in cost. Have you done polling like the U.S. Travel,
or----
Mr. Lopano. We have not on our own, but we rely on U.S.
Travel to conduct that on our behalf.
Mr. Webster. So--but from the--just the results of travel
itself, there has been a large increase, and that is --you feel
like there would--that would continue, no matter what that cost
would be?
Mr. Lopano. Absolutely. I think that--I mean, let's put it
this way. As the chairman said, someone has got to pay the
bill. So you can either raise the PFC by $4 or $4.50, or we
will just load the airport up with debt and increase the cost
to the airlines.
And so I find it curious that the airlines want us to load
up with debt, not use the PFC. The PFC would not affect their
O&M cost. PFC bonds are on the side. You can either increase
the PFC and not increase cost to the airlines, or you can
increase cost to the airlines and make your CPE go up, which I
think would be an anticompetitive result.
Mr. Webster. Anyone else have an opinion on that?
Mr. Christie. Mr. Chairman?
Mr. Webster. Yes.
Mr. Christie. If I may?
Mr. Webster. Go ahead.
Mr. Christie. I do have a comment on that. As I mentioned
in my prepared remarks, the PFC is an amount that is borne
eventually by the consumer. So, while it may not be included in
the cost per enplaned passenger that was referenced by the
airports here, it is included in the total price paid. And so,
if the cost per enplaned passenger is $5 and the CPE is $4.50,
it is $9.50.
And so, as I mentioned before, we are very much in favor of
airport improvement projects, but our view is that this
particular fee is regressive for low-fare carriers. As I
mentioned earlier, our total cost of travel is $110, one way.
And the reason we are able to offer such low fares to our
consumers is asset efficiency. We are more efficient with our
airplanes, we are more efficient with our own headquarters,
with our hangar facility, and we are more efficient with the
assets that we lease at airports. And in doing so, we actually
can defray the expense in rents and charges with more volume.
And that is why it is important for us that--the best way, we
think the most efficient way, for financing airports
improvement projects is by raising very efficient capital
markets debt and passing it through to the airlines in rents
and charges, which we can be more efficient with.
Mr. Webster. Thank you so much.
Thank you, Mr. Chairman, and I yield back--for--and for
holding this meeting. It is very, very important.
Mr. DeFazio. Thank you. With that it would be--oh, sorry,
you would have been next, but she just came back. Are you
prepared right now, Eleanor, to ask your questions?
Ms. Norton. Not this second.
Mr. DeFazio. OK, then let's move on to Andre.
Mr. Carson. Thank you, Chairman. I am very glad we are
holding this hearing on this very important issue.
Some of my friends who oppose updating and even increasing
the PFC have claimed that airports can always raise money or
access money through municipal bonds. As a former member of the
Indianapolis City-County Council, I am guessing these folks
have never sat through a council meeting.
So to today's witnesses, how would you recommend responding
to this assertion?
Mr. Christie. If I may, Mr. Chairman?
Mr. Carson. Let's go.
Mr. Christie. Mr. Carson?
Mr. Carson. Let's go.
Mr. Christie. While I have not sat through a council
meeting, so I cannot opine, in my experience in dealing with
the various investment banks that offer the assistance to the
airport authorities for raising money, it has been described of
late as a very liquid, a very robust, and a very inexpensive
market.
And as a participant, by the way--and it was referenced
earlier that Spirit may have been a beneficiary in the O'Hare
Airport project that led to additional gate capacity--while we
did add gate capacity at O'Hare, it is difficult to determine
exactly the source of funding that produced that gate capacity,
because there is a lot of money going back and forth. And
there--we were actually a participant in the overall new
aircraft or airline use agreement at the airport that allowed
the airport to construct a completely renovated terminal, add
gate capacity, but raise public funding to do so.
So, at least in that particular example, we felt like that
was the right answer.
Mr. Carson. Yes, sir.
Mr. Lopano. Can I? May I----
Mr. Carson. Sure.
Mr. Lopano [continuing]. Sir? OK. So just because we have
really good credit ratings and the market is liquid, that
doesn't mean we don't need an increase in the PFC. The PFC is
one piece of the pie. It is one tool that we use. It has been a
good tool since it was introduced, and it is part of what we
need to fund the future.
We like having very good credit ratings, as airports. We
get good interest rates. But we get them because we have had
access to the PFC. So they are interdependent.
Ms. McGraw. If I may, in looking at our own capital plan at
CVG, if we funded it going forward with just a $4.50 PFC we
would have to raise our CPE by almost 50 percent, on average,
between now and 2030. And we have an extraordinarily low CPE.
But nonetheless, going up 50 percent is a huge increase for the
airlines.
To the point that Mr. Lopano made earlier, if it was raised
to $8.50--and again, that is optional; we would look at our
overall financing plan and decide if that was the right dollar
amount. But say we are $8.50 under the current financing plan.
The airline CPE would only increase 15 percent.
So again, it is yet another tool to balance out an
airport's overall financing structure.
Mr. Carson. Thank you.
Mr. Krauter. Representative Carson?
Mr. Carson. Yes, sir.
Mr. Krauter. Just quickly, I have sat through a lot of city
council meetings in my career. And the question that we talk
about is how are you going to pay for this, because the airport
is financially self-sufficient. The taxpayers do not support
the airport, the users support the airport. ``And so, Airport
Administrator, how are you going to provide the revenue for
sale of bonds to support the debt service on those bonds?''
And I think my colleagues have answered that well, but that
is really what it comes down to, is that being financially
self-sufficient, taxpayers do not support--generally support
the airport. We have to have the user fees in order to support
debt service.
Ms. McGraw. And one final point.
Mr. Carson. Yes.
Ms. McGraw. Airlines no longer sign on to 30-year use
agreements the way they did previously. So an airport incurring
debt for 30 years to build a runway, terminal improvements,
whatever, that carrier may not be there after 5 years or so.
You know, they have mobile assets. They will decide to go
elsewhere. Meanwhile, that debt is still carried on the
airport's balance sheet.
Mr. Carson. Thank you, very helpful.
Chairman, I yield back.
Mr. DeFazio. OK. With that, Mr. Massie.
Mr. Massie. Thank you, Mr. Chairman.
Ms. McGraw, would you say that competition has driven down
prices at the CVG airport?
Ms. McGraw. Yes, Mr. Massie. So in the last 4 years,
because we have been able to grow the number of carriers at
CVG, our average air fare is down now $255 on one ticket than
it was 4 years ago.
Traditionally, using DOT rankings, we were traditionally
the highest air fare airport, and now we rank about number 83
in the list of the top 100 airports, simply for the fact of
competition.
Mr. Massie. And so, would the PFC, the fact that your
airport could raise its own revenues through a PFC, would that
mean more competition among the airlines, or less competition?
Ms. McGraw. I would conjecture, sir, it would mean more
competition. We would be able to fund certain projects within
the terminal that would enhance competition, that would level
the playing field amongst various carriers.
You know, I referenced earlier when we took over facilities
that our hub carrier had been maintaining under a contractual
basis, that will raise overall CPE for all carriers about
$1.20. If we were able to use the PFC to improve and enhance
the efficiencies, that would lower the cost overall for the
carriers, and therefore, increase competition.
Mr. Massie. Mr. Christie, what does Spirit charge to check
a bag on your airline?
Mr. Christie. Thank you, Mr. Massie. Spirit has a variety
of ancillary products available, including a checked bag, a
carry-on bag, and a seat assignment. And those prices vary,
depending on which bag it is.
But what is more important to our consumer is the total
cost of the travel. And the total cost of travel on Spirit is,
on average, about 30 percent less than other airlines, and
$110.
Mr. Massie. So could you answer my question?
Mr. Christie. It varies. It could be anywhere from $25 to
$50.
Mr. Massie. OK. So here on the internet it says $55 for
carry-on, $52 for first checked bag.
Mr. Christie. Again, if you--it depends on the time of day
and when you have actually purchased the ticket at the airport,
or----
Mr. Massie. So----
Mr. Christie. Yes.
Mr. Massie. OK, $50. And there is no--is there any Federal
cap on what you could charge for a checked bag?
Mr. Christie. No, there is none.
Mr. Massie. Ms. McGraw, what are you allowed to charge to
use the entire airport for a person that buys a plane ticket?
Ms. McGraw. Currently, relative to PFC, we charge----
Mr. Massie. Yes.
Ms. McGraw [continuing]. The maximum of $4.50 for those
projects that have been clearly identified and approved.
And I must note that we had only gone up to $4.50 within
the last several years because of the type of projects that
were funded. We had traditionally been at $3.
Mr. Massie. So the airlines can charge $50 for a bag, and
you can't charge $5 to use the whole airport.
Ms. McGraw. No, sir. And those are the same bags that--they
are going through an outdated bag system that needs to be
updated.
Mr. Massie. That you have to start maintaining in 2020?
Ms. McGraw. Yes, sir.
Mr. Massie. Wow. So one of the oppositions that I hear to
allowing airports to charge a higher PFC is that you will build
amusement parks or something, or things that you don't need, or
that you don't have a list of things that you would actually
do.
What are a couple of things that you would spend the money
on?
Ms. McGraw. Well, first order of business, we would update
the baggage system. We would overhaul our mechanical systems.
Our HVAC system, things like that, are well over 25 years old
in the newest part of the terminal. We have portions of our
terminals that date back to the 1970s. So some of those basic,
behind-the-wall things need to be taken care of, first order of
business. Then we would look to other things, additional ticket
counters, et cetera.
As to building Taj Mahals, I would say if a PFC were to be
increased to--say the maximum cap would be $8.50. It would be
incumbent upon good airport management, with their airport
boards, to look at what the appropriate projects were. That
does not mean that all airports would go to $8.50. It is
optional, as Ms. Barnes had said.
Mr. Massie. Right. Ms. Barnes, I want to ask you a
question. I have been at city council meetings, and I have had
to sit through that. In fact, I was a county executive. And
once I heard a story from a constituent. It was very
compelling, of why I should intervene against his neighbor. And
the county attorney came to me, who was also a family court
lawyer, and said, ``Remember, there are three sides to every
story. There is his side, her side, and the truth in a family
court hearing.''
So, Ms. Barnes, I think you are here to represent the
truth, because I trust the airports are going to represent
their side, and the airlines will represent their side. I trust
them to act in their own best interest. But you are acting in
the interest of people who make money from the travel, and of
the travelers. So can you comment on your opinion on PFCs?
Ms. Barnes. Sure. So we find that there are 32 million
trips that are being avoided due to airport hassles right now--
long lines, flight delays, cancellations--that is, you know, on
average, 2 to 3 trips per year, $24 billion in lost spending,
and a 10-percent reduction in demand.
So we feel that, you know, an increase of the PFC to the,
you know, $8.50 would significantly help the traveler want to
get on that plane, want to go to that airport. And we think
that that is, obviously, best for the 1,300 organizations that
we represent. But most importantly, improving the traveler
experience is critical.
Mr. Massie. My time has expired. I don't want to get you in
trouble, so I will yield back.
[Laughter.]
Mr. DeFazio. I thank the gentleman. Next on our side would
be Representative Norton.
Ms. Norton. Thank you, Mr. Chairman, and I appreciate this
hearing. But I am curious. And actually, this is a question for
the three State airports that are here. The Congress just
passed--just last year--a 5-year FAA reauthorization bill. So I
am curious, 1 year later, why are the airports back asking for
an infrastructure package?
Mr. Krauter. I can start the response.
Ms. Norton. Yes, please.
Mr. Krauter. Congresswoman Norton, AIP has been flat for
about 12 years, in terms of appropriations from Congress. At
$3.35 billion annually, the airports are receiving $3.2 billion
after expenses are removed off the top of the program to
actually run the AIP program at FAA, and a few other items. The
effective buying power of AIP because of that is only about
$1.8 billion. So, in Spokane, we receive approximately $5
million of AIP entitlement funding a year. Those entitlement
funds are really only worth about $2.25 million.
So for us to make up the ground that we would need to make
up from AIP, I just estimated, based on what I use in PFC money
to supplement for a lack of AIP, I could support another $1.77
in PFC charge alone, just to try to make up for what I am
forced to try to subsidize now because of the lack of AIP
funding.
Ms. Norton. Yes. It sounds like you say you need annual
funding.
Mr. Krauter. Well, we certainly do. And we believe that the
most efficient way to do that is actually through an increase
in the passenger facility charge.
Ms. Norton. OK. Yes?
Ms. McGraw. Well, thank you. There is definitely the need
to infuse additional money into the aviation system. We are
appreciative of the AIP funding. As Mr. Krauter said, though,
that has been level for a number of years. This is one tool,
the PFC, that would allow more funding into and making airport
improvements.
So I think, while we are appreciative of AIP, it doesn't go
far enough, and the infrastructure needs are great. So this is
one tool with the PFC that we are seeking assistance with.
Ms. Norton. Wasn't there another State airport that----
Mr. Lopano. Yes, Congresswoman. The--I will give you an
example. We just completed a $1 billion phase 1 master plan
project, which included an automated people-mover and
improvements to the terminal, and so on. And, of the $1
billion, only $3 million was from AIP.
Ms. Norton. Yes.
Mr. Lopano. It is just de minimis.
Ms. Norton. Yes. Well, it sounds to me what you are saying
is you need another source of funding.
Mr. Lopano. Exactly. And that source--the most effective
source would be an increase in the PFC.
Ms. Norton. Thank you, Mr. Chairman. I yield back.
Mr. DeFazio. OK, I thank the gentlelady. Oh, OK, we are
changing the order.
OK, Mr. Perry?
Mr. Perry. Thank you, Mr. Chairman.
Folks, I appreciate your time coming to Washington, DC, and
testifying, answering questions. I think we can all agree that
investment in our airports is critical to safe and secure
operations.
And along that line I would like to ask about another
critical issue with potential impact to normal airport
operations, and that is about drones. They seem like they could
be an important tool for security, for monitoring FOD on the
runway, what have you.
But there has been reports about alleged drone sightings
that have prompted what is characterized in my question here as
brief runway closures, although I imagine, if you are running
the airport, or if you are sitting on the taxiway waiting to
take off, there is nothing brief about it, even if it is for a
minute--and it hasn't been brief in that regard.
But would remote identification requirements solve a lot of
these problems, in your opinion? And would it allow law
enforcement to quickly identify and address any drone that is
in the area, but also determine whether or not a drone is even
present?
And I will just say, from my point, standpoint, I was
disappointed to see this week that the FAA pushed back the date
it plans to publish a remote identification proposal, and
especially for the airport executives. Can you explain the
importance, if you think there is one, to this policy? And
regarding the FAA's actions on the delay, and how that might
impact your operations?
And I would appeal to the first three or four witnesses,
but certainly----
Mr. Lopano. Congressman, let me----
Mr. Perry [continuing]. Anybody can answer----
Mr. Lopano [continuing]. Try to answer that one for you.
Mr. Perry. Sure.
Mr. Lopano. At Tampa we have just installed antennas that
can detect Chinese-manufactured drones, which is about--a
certain Chinese manufacturer--about 80 percent of the drones.
And it can tell us exactly where it is, where the operator is,
and we can have law enforcement respond to exactly the
location.
But I think the broader point that you are making is that,
since the--this PFC has been adjusted in 2000, a lot of things
have happened, like 9/11. The security environment is
completely different. We now have cybersecurity issues that
could be funded by PFCs. We now have active shooter issues,
where we have to constantly train for active shooters. The
world is completely different. Biometric exit and entry. All
these technologies didn't exist when the PFC was envisioned, so
that is even more reason for modernizing it and changing it and
moving it up.
Mr. Perry. Can I ask where you--you know, how much does
something like that cost? Where did you get the technology? And
is that proprietary?
I mean, you know, we are looking for the FAA's rule on this
thing. And while we are waiting on that, you know, as you said,
the world keeps moving forward.
But just to inform members of the committee, you know, you
still--you have still got to run your airport, so how did you
go about that?
Mr. Lopano. There is a lot of technical issues in that
answer, and I am not ready to answer it here, but I would be
happy to send you all the information.
Just suffice it to say that it is an entirely different
world now, and there are things that we never envisioned. And
we definitely need funding for safety. And the PFC was intended
to fund safety projects.
Mr. Perry. OK. Anybody else?
Mr. Krauter. Thank you, Representative Perry. I would just
echo Mr. Lopano's comments, in the sense that I believe that
airports have not been given a significant-enough role in
crafting and participating into the regulatory process, because
a lot of this is, obviously, local-driven.
And I think, as Mr. Lopano points out, if we could have
more local tools to help us in dealing with this potential
threat of how drones could be used against airports, I think
that would be very helpful.
I think that there are many communities around the
country--mine, included--that are looking for strong signals
from the Federal Government on how they should go about
enforcing, adopting. And they are looking to the airports as
subject matter experts to help them figure out that policy. So
I am awaiting that action just as eagerly as you are, sir.
Mr. Perry. OK. Anybody else?
Yes, ma'am?
Ms. Barnes. I would just add that we believe strongly that
you cannot have travel without strong security. So I echo the
comments of my colleagues up here.
One of the positive impacts of the increase in the PFC are
just the benefits that the security systems can--the strength
of the security systems, and how those improvements are so
critical to the traveler. Thank you.
Mr. Perry. Thank you, Mr. Chairman. I yield back the
balance.
Mr. DeFazio. I thank the gentleman.
Ms. Titus?
Ms. Titus. Thank you, Mr. Chairman. And I apologize for
being somewhat redundant, but when we just have one question
before us, these things tend to repeat themselves.
I represent Las Vegas, so you can imagine how important
travel and tourism are to us. We have in my district, also,
McCarran Airport. And although it is not the hub of any
airline, it is the seventh-busiest airport in the country. I
see a lot of Spirit Airlines there, as a matter of fact, in any
weekend when I am home.
We had almost 50 million visitors through McCarran last
year, so we are experiencing a lot of growth. We are at 85 to
90 percent capacity. We have got new resorts coming online. We
have got new direct flights internationally. And, God forbid,
we got the Raiders coming. So it is going to be a lot going on
in my district.
PFCs have really been critical to the expansion of
McCarran. They helped build the new terminal, they built the
airport connector tunnel. We really depend on them. And--
because now we are using them to pay off the bonds.
I would just--I cochair the Travel and Tourism Caucus, and
I would say that I am--don't want to do anything that is going
to hurt tourism, because it is such a key to our economy.
So I wanted to ask you, Ms. Barnes. We know what people
don't like in an airport. Often they have these lists of
airports around the world. Seldom do U.S. airports make the
list of good-experience airports. In some of your polling or
some of your research, do you know what people do like about
airports that can be funded with PFCs to make that travel
experience better?
Ms. Barnes. Well, we know, especially to the international
traveler, how critical what their experience is when they land
in the United States. And we know that when international
travelers come to the U.S. they shop in our stores, they visit
an attraction, they stay at a hotel. But that is actually an
export. International travelers spend, on average, $4,000 per
visit; $7,000 is what Chinese travelers spend, on average. So,
encouraging those folks to come and to continue to come to our
airports is critical.
To your point, not 1 of the U.S. airports is in the top 25
airports in the world, and we have got the needs of--I think 65
percent of infrastructure needs are actually needed within the
30 hubs where the international travelers arrive.
So it is really critical, because when international
travelers come here, they go home, they talk to their family
about their experience. And if they have an unwelcome
experience that is, you know, crowded lines and delays and
issues with infrastructure, then that is going to discourage
them from continuing to come back and spend that money here in
the U.S.
So we know that they like upgrades, we know that they don't
want to wait in lines, and that they want to have a welcome
experience.
Ms. Titus. Anybody else want to comment?
Yes, sir?
Mr. Lopano. Thank you, Congresswoman. Yes, the project that
I referenced earlier, which was the project for international
airside F, which allowed us to bring in competitors and was
rejected by the airlines, we were able to fund it with PFCs.
And we have a brandnew, international arrivals area that is
spectacular. People can move through it very, very easily, and
the passengers really, really appreciate it. And we are seeing
record load factors on our carriers, because the PFC allowed us
to create a customs area that is actually proper, that you can
be proud of, as an American.
Ms. Titus. You know, we have seen--I think it is American
Society of Civil Engineers who rates our infrastructure. We
always get a bad grade on that. But they say we are missing $45
billion, in terms of just catchup in our airports around the
country.
The airlines say that they have spent $115 billion since
2010. I have seen some of that going into the cabin of the
aircraft and to mobile technology. Those of you who represent
airports, how much do the airlines really spend on the
airports?
Mr. Krauter. Thank you, Representative Titus. I am not
aware, as a smaller airport, small-hub airport, of any joint
ventures or proposals from airlines to share significant
expenses of capital projects with the airport operators.
Ms. McGraw. Ma'am, in the last almost 10 years that I have
been at CVG, the airlines have invested almost zero dollars in
capital improvements at my airport. As a matter of fact, it has
sort of been a disinvestment. They have moved assets elsewhere.
Ms. Titus. How about Tampa?
Mr. Lopano. Yes. We have--over the last 5 years we have had
airlines invest in our main terminal expansion program. So, of
the $1 billion project, about $100 million was the main
terminal expansion, and that was funded by the airlines.
Ms. Titus. OK. So either very little or nothing. Is that
right? Is that the----
Mr. Lopano. Pretty much.
Ms. Titus. All right. Thank you, Mr. Chairman, I yield
back.
Mr. DeFazio. Now we turn to Mr. Davis.
Mr. Davis. Thank you, Mr. Chairman. I appreciate the
witnesses. And, you know, I am glad a few of our colleagues
ago, Mr. Massie, mentioned that there is usually three sides to
every story. And it is pretty clear that the airports and the
representatives here today favor an increase in the PFCs. It is
pretty clear that the airlines don't.
My question is, you know, how do we come up with a
principal compromise? I am afraid both sides are going to get
dug in, that we are not going to be able to move this issue
forward at all.
We all want airport improvements. Frankly, as Mr. Massie
said, some delays I have had, I would like an amusement park at
one of our local regional airports.
[Laughter.]
Mr. Davis. I don't think that is going to happen, but it
might pass the time well.
But as we look ahead, we want to improve airports, we want
to have more airlines serving our regional airports. We want to
have more competition within the airline industry. We all have
the same goals. How do we get there?
So, Ms. Barnes, since you were kind of separated out by my
colleague, Mr. Massie, earlier to answer a question, since you
represent many of our fellow air travelers, what would you say
would be the best compromise in this situation?
Ms. Barnes. We think that, you know, it is really important
to increase the PFC and index it to inflation. I know that that
doesn't sound like a compromise, but the fact is that the PFC
hasn't been raised in over 19 years, and that is just not
enough. I think that the chairman mentioned that that would be
about $2 today.
And, quite frankly, in a lot of the survey results that
we--in all the survey results that we have seen, the increase
in the PFC really isn't a negative impact to the view of
travelers. What travelers want is to have a better travel
experience. They want less delays, they want less
cancellations, and they just want a better overall environment.
So we think that the--you know, anyone who has flown in,
for example, to 35X at DCA knows that that is a terrible
flight--a terrible gate to fly----
Mr. Davis. As one who flew into it yesterday, I am well
aware.
Ms. Barnes. But increasing the PFC, for example, at $4.50
would take 30 years to repay the work that needs to happen at
that gate. Financing would be a total cost of about 50 percent.
Increasing the PFC to $8.50 would only take 11 years to repay,
the financing would be 26 percent, and that saves $132 million.
And that is $132 million that can be used for further
investment.
So we really think that that is a benefit to the traveler.
So I would--I am all for compromise, but I think in this
particular instance, because we haven't seen an increase in the
PFC in 19 years--and to the point on security and all of the
things that our country is seeing now--the PFC increase is
critical.
Mr. Davis. Well, I appreciate your viewpoint. I was hoping
for something a little more than just one side, with the
compromise.
Ma'am, go ahead.
Ms. McGraw. Well, if I may, sir, we are not asking to
increase the PFC to $8.50. What we are saying is giving the
airports the ability to do that if there are projects that
merit an increase. And when you identify those projects, there
is a consultation process by which you have to sit down with
the carriers and go through those projects. They currently even
have the ability to object to the FAA if they object to any of
those particular projects.
So we are not saying to increase the cap to $8.50, we are
saying give the airports the ability to do that. And there is a
dialogue that does occur with the carriers over that process.
Mr. Davis. Well, thank you. And, you know, I agree with
both sides on this issue, which is why it is frustrating to me,
as a policymaker, that we can't find that sweet spot. And I
think we missed a golden opportunity with last year's FAA
reauthorization to do so. There were some other major proposals
in that bill that I think could have been utilized to come up
and find that sweet spot.
I got a few seconds left. Anybody else have any comments?
Yes, sir?
Mr. Scribner. Thank you. I think the compromise actually
starts with the bill that Chairman DeFazio and Representative
Massie introduced last year. What that would have done, it
would have eliminated that cap. But it also would have required
airports going over $4.50 in a PFC to return 100 percent of
their AIP funding. And then it would have proportionately
reduced AIP spending authorization by $400 million a year. I
think that is a compromise, and that is why you had a lot of
fiscally conservative organizations supporting that, along with
airports and those who wish to see a PFC increase.
Mr. Davis. Well, thank you. I am out of time. I yield
nothing back.
[Laughter.]
Mr. DeFazio. No, Rodney, you had 2 seconds.
Mr. Payne?
Mr. Payne. Thank you, Mr. Chairman. And you know, I am glad
to follow my colleague. I think he stated it best, and I agree
with both sides. It is a bit of a dilemma to be in this
position.
But you know, as the committee has noted, more than, you
know, 1 billion passengers enplaned at U.S. airports on
domestic and foreign carriers in 2018. The Federal Aviation
Administration anticipates this number will increase. Passenger
enplanements on U.S. carriers alone are expected to rise 1
billion annually by 2028, and to 1.3 billion by 2038.
U.S. airports have estimated a total of $128 billion in
infrastructure needs to keep up with the current demand and
plan for expected passenger growth between 2019 and 2023. This
need outweighs the current projected Federal spending for
airport improvement projects.
Passenger facility charges, or PFCs, are not the only
source of airport infrastructure funding, nor were they created
for that purpose. Airports' largest source of revenue comes
from fees that they control: landing fees, airline changes, and
revenue from concessions, parking rental, car rentals, and
other services. And raising these fees could be done easily
without an act of Congress.
So finally, here is my question. Why is there such a focus
on increasing PFCs? Can airports find other ways to raise
revenue that will limit the financial impact on the most
important participant in this whole system--and that is the
passenger?
Yes, sir?
Mr. Lopano. Thank you, Congressman. We do have the
ability--I mean the airports are basically run by user fees.
Landing fee is a user fee. So when you land on a runway we
charge you a certain amount. A parking fee is a user fee,
because you used concrete overnight, and you stored your car.
So we set those fees. The passenger facility charge is a fee on
passengers who use our facilities, and it is paid by all
passengers.
We want the people who fly in from Cleveland and the people
from Chicago and the people from New York who fly into Tampa to
pay their fair share. If I raise the parking rate, then only
the people in Tampa are paying for that. I think it is
incumbent on the passengers who use the facility to pay their
fair share. And that is why I think the increase in the PFC is
right.
Mr. Payne. Anyone else?
Mr. Krauter. Representative Payne, I would just echo what
Mr. Lopano said.
It surprises people sometimes when we talk about how our
airports earned revenue. And in Spokane, which I think is
representative of many small airports, airline fees only amount
to about 30 percent. So we are already out there, maximizing
all of the non-airline, or non-aeronautical revenues that we
possibly can. And the reason for that is to keep costs lower to
the airline partners. So we really work hard to maximize those
non-airline revenues.
And I would also say, as Mr. Lopano pointed out, is that
the PFC is a very elegant fiscal sustainability mechanism,
because it divides the cost of running the facility across
those who use it, and not just limits it to, for instance, the
taxpayers of a certain municipality that may be the sponsor of
the airport.
So in Spokane, our market area is very large, as I
mentioned in my opening remarks: two provinces of Canada,
several States, probably over 1.3 million people. So it would
be disproportional for the taxpayers of Spokane County, or the
city of Spokane, to pay the entire cost associated with capital
programs at Spokane International Airport, when it serves a
large area like that, and that many people.
Mr. Payne. OK. Thank you, and I will yield back, Mr.
Chairman.
Mr. DeFazio. I thank the gentleman.
Mr. Katko?
Mr. Katko. Thank you, Mr. Chairman, and thank you, Ranking
Member, for this hearing today. I think it is very important.
Air travel is going to be increasing 30 to 40 percent in the
not-too-distant future. On top of the current infrastructure
needs we have, there is a conversation that we must have.
Mr. Lopano, you said something that we really haven't
talked much about today, and I am going to concentrate on that
a little bit, because it is an important component of the
airports' futures, and that is security and antiterrorism
measures.
I led a congressional delegation to Europe and we stood in
the very spot in the Brussels airport where a terrorist brought
in bags and detonated them and killed all those people. And the
non-secure area of airports is a huge vulnerability for all
airports. And that is an infrastructure concern, as well as an
antiterrorism measure. And getting the throughput from the non-
secure side to the secure side is critically important.
And that is why any time I see long lines at TSA--and I was
a TSA subcommittee chair for 4 years, so I saw it, all the
problems in Chicago a few years ago, for example. So getting
that throughput is very important.
And also, considering the fact that, in the terrorism
realm, the technological advances by the bad guys are
frightening. When you have a bomb the size of this cell phone
that can take down an airplane, you need to have the technology
at the airports and the wherewithal to find that needle in the
haystack. And, quite frankly, we are way behind.
And one of the things we did was--we are going to--TSA is
going to the next generation of scanners, which are 3D
scanners. We need them now. We needed them last year. And right
now those machines are about $300,000 a machine. We need 2,500
machines at the tune of about $750 million for the machine
itself, not to mention all the infrastructure improvements that
need to go along with these new machines.
And also, you know, the bin returns that speed up the
process, as well, is important. These machines would allow the
screener to only look at the bag when the machine alerts to the
bag. So, in other words, it is a lot quicker throughput with
bags, which is a very good thing.
So that is an area that we are not talking about, but I
know that Mr. Lopano, I think, said that the PFCs are or were
intended to fund security-side measures. So I just want to hear
from you folks as to what other attendant costs are there, not
just with upgrading to the 3D scanners, which we have to have
now--and we got to figure a way to fund them now--but also
everything else that goes along with it?
Mr. Lopano. Yes, Congressman. When the law was introduced,
one of the main tenets of the law was to improve security. It
was also about environmental and competition, but security was
part of it. And that was long before 9/11. It was adjusted in
the year before 9/11 up to $4.50, and it hasn't been touched
since.
And I think your point is perfect: We are far behind, far
behind others around the world in the ways that they use
security and the ways that they use their bin devices. And now
you can get through security so much easier; it is almost an
embarrassment, when you think about it.
Mr. Katko. I just want to interrupt you quickly, 1 second,
because when we were in Brussels--and this is where the whole
thing started with me, this is when I really got on it--there
was 3D scanners there--this was several years ago now--and
automatic bin returns, and everything. They are American-made.
We are so far behind with that, so you are absolutely right.
So please, go ahead.
Mr. Lopano. That is what happens when you don't touch a fee
for 20 years. You end up with not having the money to do the
things that you really know are right. A lot of people really
know what to do, we just don't have the money. That is why we
come here and testify before you.
That doesn't even mention the cybersecurity. We get hit
every day with thousands of tries to penetrate our system. And
if you take down an airport system, one or two airport systems,
you have taken down the whole aviation in the country. And so
these are things that we have to really focus on, they are
things that we didn't envision. But we now know they are true,
so let's raise the PFC to help us become more secure.
Mr. Katko. So if I hear it correctly, you are saying it is
not just the bricks and mortars we are talking about here, we
are talking about the security component. And I am the ranking
member on the Committee on Homeland Security Subcommittee on
Cybersecurity, Infrastructure Protection and Innovation. And it
is frightening, the attacks that are happening every day, and
the attempted attacks, and the vulnerabilities that we have.
And cyber hygiene is of critical importance. That is not cheap,
but it has to be done at the airports, and it has to be done
now.
So anybody else want to add to that?
Ms. McGraw. Well, if I may, the newest portion of our
airport is our security screening building. It was built in
2000. It was built at a time when we had 90 percent connecting
traffic. So, as you can imagine, since our local passengers are
now about 90 percent of our mix, it is woefully undersized.
There are very long lines. That is one of our projects that we
would like to do, and move it up more quickly in the queue, is
to increase the--just the size of the brick and mortar.
And to your point, our bag system, again, I referenced was
outdated. It does not accommodate the new screening mechanisms
that, even if they were provided to us, even if we could secure
them, they do not fit with our existing infrastructure. We have
to be able to fund those in some way, and the PFC increase
would allow us to do that more quickly.
Mr. Katko. I believe I am out of time, Mr. Chairman, thank
you very much.
If anybody else has any input on this, I would appreciate
you just providing it in writing to us, because it is important
that I hear about this. Thank you.
Mr. DeFazio. Well, I just want to say that was an
excellent--and you made an excellent point, which is there is
two sides. The Feds should be paying for the machines; the
airports have to pay to accommodate the machines. And Congress,
in its wisdom, is diverting, as you know, we are charging
passengers money for security that is being diverted who knows
where outside.
And I believe you are a cosponsor on the FASTER Act to
spend that money on security.
Mr. Katko. You are exactly right, sir. Thank you.
Mr. DeFazio. Thank you. With that we would move to
Representative Stanton.
Mr. Stanton. Thank you very much, Mr. Chair. This is a very
important hearing. I appreciate the testimony of all the
witnesses here today.
I, before joining this committee, before joining Congress,
I was mayor of Phoenix, Arizona. So we had to run Phoenix Sky
Harbor Airport, one of the largest airports in America, almost
45 million passengers each year, and growing. I represent one
of the fastest growing communities in the United States of
America.
We did utilize the passenger facility charge in very
responsible ways, including adding 15 new gates to terminal 3
at Phoenix Sky Harbor Airport, which we recently named after
Senator John McCain, and honored him and his service to
country.
We did fund a people-mover system that will take thousands
and thousands of cars away from the airport and make it, the
passenger experience, so much more efficient and pleasant to be
able to come to and from the airport, by getting those buses
and cars off the road, and allow the people-mover system to
deliver thousands of people each day to our car rental
facility.
In the past we have used the PFC for runway, security
improvements, community noise reduction program. And yet,
despite the proper use of that, we are not keeping up with
demand. We are not even keeping up close to demand. We have got
$1.75 billion in infrastructure needs, just at that airport.
I also represent portions of the city of Mesa now, and
Phoenix-Mesa Gateway Airport also saw a record year for
passengers, as well. And they are just growing leaps and
bounds, and they need the support.
I can also tell you that ideas that we would use general
obligation bonds of a city at the airport is not realistic. We
are a very efficiently run city, just like the cities that are
represented here at the table. And those airports--we use those
resources for police and fire, and parks, and libraries, and
other needs of the community. And they are bursting at the
seams, as well.
So, realistically, the citizens of my community expect that
aviation projects and infrastructure projects at airports are
going to be funded at the airport, and through fees at the
airport.
And I was struck during the initial testimony about the
seeming difference between Ms. Barnes, the representative of
the U.S. Travel Association, and Mr. Christie, the CEO of
Spirit Airlines, about whether or not looking at this PFC and
increasing the cap, giving the opportunity for local airports
or local governments to make their own decision about whether
to raise them or not, whether that would result in an increase
in air travel or a decrease in air travel. It seemed like there
was a polite disagreement. And I want to understand the
difference.
And Mr. Christie, in particular, I don't know if that was
just under the unique model of Spirit Airlines, or are you
disagreeing with Ms. Barnes that this would result in an
overall decrease in travel in domestic airlines?
Mr. Christie. Thank you, Congressman. I would say,
specifically as it relates to the Spirit model, our customers
are very price-sensitive. We are the lowest fare in the
marketplace. And so a fixed fee increase on a per-passenger
basis is, in a lot of ways, quite regressive on those types of
customers. And so we can say that they would be regressive and
probably destimulative to the model for Spirit.
Mr. Stanton. So therefore you are not disagreeing, I guess,
with Ms. Barnes, who is making the case that, given this option
to cities and airports around the country to utilize this money
for infrastructure spending, important infrastructure spending
across the country, would result in an overall increase in air
travel in America.
Mr. Christie. Well, I don't have any data, one way or the
other. All I can tell you is that the current financing
structure to use either public debt, taxable or non-taxable,
and finance that debt with rates and charges on the airlines
tends to favor efficiency. And in our case, because we are a
more efficient carrier, we can defray that expense better.
Mr. Stanton. Thank you.
Please, Ms. Barnes.
Ms. Barnes. Congressman, we know that airline fees are the
top travel frustration, based on survey results that we have
done, and the Government fees range second to last. And only 2
percent of travelers say that a $17 PFC would be a top
frustration.
To do the math on the bag fee, for example, from Spirit
Airlines, the gentleman noted that it would be $64 round trip
for a family of four for a PFC. But, quite frankly, an even $26
checked-bag fee for a family of four, that is $104. Using the
numbers that Mr. Massie used it would be over $200 in checked
bag fees and/or carry-on bag fees.
So, you know, based on the research and the data that we
have from travelers, we don't believe that a $4 increase per
passenger will negatively impact the travel experience. And,
quite frankly, we are seeing that 10 percent of folks don't
travel as a result of cancellations, delays, and frustrations,
and we think that is another $24 billion of spend that could go
back into the economy if those folks decided to take their
trips.
Mr. Stanton. I think the larger question is what is the
reasonable alternative. I can only tell you an airport like Sky
Harbor in a fast-growing city like Phoenix in the Phoenix
metropolitan region, it is the number-one economic engine for
the entire region. The more we can use that PFC to increase
gates, that is great for the local and national economy.
Thank you, Mr. Chairman.
Mr. DeFazio. OK. With that, Representative Babin?
Dr. Babin. Yes, sir. Thank you, Mr. Chairman and Ranking
Member.
Mr. Christie, I have a little different perspective on the
PFC. I want to thank you all and all of your fellow folks
sitting down there as witnesses. I appreciate you being here. I
want to ask you about the passenger facility charge.
In my district, which is Texas 36, almost everyone in my 9-
county district uses either Houston Bush, or Houston Hobby
Airport as their primary airport. But the governing board for
those airports is mostly controlled by the elected--and
accountable only to Harris County and Houston voters. And while
those and our other eight counties are not technically
Houstonians, they and others from the surrounding counties make
up a huge share of the passenger volume and revenue, as well,
at these airports every day. And I am one of them, because I
don't live in Harris County in my district.
This is about protecting the hard-working taxpayer. And so
how is that not taxation without representation, for a local
government to have complete authority over the collection and
use of the PFC fee revenue when their actions affect the
pocketbooks of the entire region that relies on these airports?
I understand it has been in effect for years, but here we
are essentially thinking about doubling this tax. So what can
be done to ensure that these decisions are made with the input
and consent of all of the folks in that region, not just one
county or city where that airport happens to be located? Can
you give me your perspective on that?
Mr. Christie. Thank you, Mr. Congressman. Yes, you know,
the PFCs, while there are positive uses for the PFCs--and
again, as I stated earlier on, airport infrastructure is
important, and the construction around that is an important
issue that we all solve for.
But what needs to be done is to make sure that the burden
borne by that--that airport infrastructure work is done fairly
and in accordance with what you would expect for the people who
are traveling through that airport. And we think that rates and
charges do that more efficiently, and actually do it in a way
that probably is more akin to what you are alluding to, which
is use, those people using the facilities, as the ones who
actually pay for it.
Dr. Babin. Yes, OK. And if anyone else out there on the
panel would like to chime in, I would sure appreciate it.
Yes, sir?
Mr. Scribner. Yes, thank you. First, I would say the PFC
isn't a tax, and it meets all the criteria that establish it as
a user fee. The fact that the only people who are paying it are
those using those airport facilities, and then those dollars
raised from them are going back to benefit those facilities,
that is a classic example of a user fee. So I don't like
calling it a tax.
But I think, really, what we should be getting at is what
the PFC cap is. And I think it is an arbitrary Government price
control. Here we have Congress, since 2000, has left it in
place, not allowing local communities--and specifically local
airports--to make their own investment decisions. And that has
driven--academic research has found that this is a problem, and
this is driving airport inefficiencies across the country.
So if we want to see our airports be more efficient like
they are in other countries, we have got to get these arbitrary
Federal restrictions out of the way.
Dr. Babin. Thank you. It is Mr. Scribner, right?
Mr. Scribner. Correct.
Dr. Babin. Yes, sir. Thank you for that slant that you have
on that, your idea.
Does anybody else want to----
Ms. McGraw. Well, sir, if I may?
Dr. Babin. Yes, ma'am.
Ms. McGraw. Also relative to having input in PFC projects,
once an airport develops its list of PFC projects, it takes it
to its local board. Those are open, public meetings. Anybody
can attend. It is submitted to the FAA, has to meet its list of
published criteria. The FAA reviews that, and there is a local
consultation process with carriers. So it is a wide range of
consultations with respect to the imposition of that user fee.
Dr. Babin. OK, thank you very much. I guess I will yield
back, unless somebody else has some perspective on that.
I will yield back, Mr. Chairman. Thank you.
Mr. DeFazio. Thank you. With that, Mr. Allred.
Mr. Allred. Well, thank you, Mr. Chairman, and thank you
all for coming up to DC and taking the time out. I read your
written testimonies and really appreciate it.
You know, there is a tension here between increasing the
cap for PFCs and our needed investments in our airports, which
those of us who are on this committee see in every area of
infrastructure now. You know, it is--we need to combat
congestion, we need to invest in the future. Someone is going
to have to pay for it. How are we going to do that? You know,
that is the kind of tension that we are facing here.
And, you know, we have a couple of great airports that
service my district in Dallas, in North Dallas, in north Texas.
DFW and Love Field, great airports. Great, also, airlines at
those airports, American and Love, that have done incredible
things for our community. So, like a lot of my colleagues here,
you know, we are having a hard time, I think, trying to figure
out what is the right balance.
But Dallas has also become a tourist attraction. And I am
really proud of that. And I want us to continue to be an
attraction, Ms. Barnes. And I know I have met with some of your
folks, and I think we are doing well there. In 2017, 27 million
people visited Dallas, spending $4.7 billion, and generating a
total economic impact of $8 billion for us. And it also
supports tourism, supports 61,000 jobs, and brings millions of
dollars to our local revenue.
And so I want to talk about future demands, because I am
hoping that our travelers increase to Dallas, we get more. And
in your testimony, your written testimony, you talk about what
might happen if we don't keep up with the demands, and how that
might impact our travel. And I was wondering if you could talk
about that a little bit more, and what you see, from your
industry side, the impact of us not investing and being ready
for this increase in travel.
Ms. Barnes. Sure, thank you. And our folks really enjoyed
spending time with you down in your district recently.
You know, we are seeing that there are 32 million trips
that are avoided due to airport hassles each year. And what we
think that will look like is that, you know, by 2021, the top
30 airports will experience Thanksgiving-like congestion 1 day
per week. And by 2030 there will be at least nine airports that
will not have enough airside capacity to meet demand.
And so, you know, that is the reason that we support an
increase in the PFC--again, an optional increase for airports
to use at their discretion, and with FAA approval. Because, as
I noted when Congresswoman Titus mentioned the importance of
international travelers coming to the U.S., we want to
encourage more international travelers to come here, to spend
their money here at places, at restaurants, and attractions,
and hotels, and that is an export, and that is a benefit to the
economy.
So we think that increases at infrastructure--we know that
there is about 32 million, as I said, folks not taking trips.
That is $24 billion, so--that is not happening in the economy.
And we think that those folks will go ahead and take a trip if
we see these improvements, if we see shorter wait times and
better security and other strengthened opportunities.
So thank you for your question.
Mr. Allred. Yeah, and we talk about the top, you know, 30
hubs. I mean, DFW is the fourth largest. So we would be one of
those. And I am a big believer in competition, and I want to
find the right ways to increase competition.
Mr. Krauter, though, you mentioned in your written
testimony there has been a shift in airport infrastructure that
we need to be looking at, from airside to landside facilities.
Dallas Love serves my district, as I said. There is only
one entry from a heavily used city street. The intersection at
the airport entrance is consistently congested. And Dallas Love
is closest to where I live, so I take it a lot. Due to the high
volume of traffic--and that is magnifying the need for an
alternate entry. And I am--would love to talk to you about how
the PFC is more flexible for those kinds of investments.
Mr. Krauter. I am going through that right now, Congressman
Allred, in Spokane. Same issue, where we have congested access
road, and we are trying to use AIP money to try to fund that.
But we have run into so much redtape, and so many road blocks
in that process. And we need to move more quickly. We need to
build that road this year.
And so--and then it is also a game of diminishing returns
with how you want to use that AIP money, because we are putting
it on a lower priority. It is not an airfield priority, so that
means we cut ourselves off from discretionary funding with the
FAA.
So we really have to look at the PFC as being that flexible
funding source that could help us move at the speed at which we
need to move in order to service this demand.
And the other thing I would say, just going back to your
comment about tourism, really for just a second, is that we all
want to see increased tourism in our communities. My community
wants to go to Dallas. And the issue becomes can we get a gate
there.
Mr. Allred. Right.
Mr. Krauter. And I think, for all intents and purposes,
what we are hearing more and more often from larger metro areas
is--and from airlines--is that, well, we know that there is
demand, but we don't have enough gates. And I think that is a
big issue, in terms of your district. And I think that is,
again, where the PFC comes in to allow airports the ability to
build those gates to allow additional access for smaller
communities.
Mr. Allred. Thank you.
Mr. Krauter. Thank you.
Mr. Allred. I have heard that.
Thank you, Mr. Chairman. I yield back.
Mr. DeFazio. Thank you.
Garret Graves?
Mr. Graves of Louisiana. Thank you, Mr. Chairman, and thank
you for holding this hearing. This has been very informative,
and I appreciate all of you being here.
You know, this issue is somewhat complex, and there are
good arguments on both sides. On the one hand, I am not a big
fan of taxes and fees, and so I struggle a little bit with
increasing it. But at the same time, as the chairman has been
very vocal about, watching some of the fees being raised by
airlines on seats and baggage and other things, and the PFC not
keeping pace, there is an argument to be made there.
On the other side, watching the airlines make their own
investments--and I think, in the last 10 years, the airlines
have made about $120 billion in investments out of their own
pockets to help improvement aviation infrastructure. And so
that is something important to keep in mind. They are making
investments where there is a return on investment. We are sure
that these investments are going to provide payoffs, and these
are not being funded by taxpayers.
Another interesting point here is that you have in this
case the Federal Government telling our local governments what
they can do, and I have concerns about that, and about not
giving more local government control. And having worked in
State government for an infrastructure agency, I have seen in
the past where government agencies have made bad investments.
They have invested dollars, I think, poorly, in some cases.
We haven't talked much about some of the largest revenue
streams, like landing fees, like concessions, car rentals. I
know I have paid $4 for a bottle of water more than once, and
certainly there is money to be made there, parking, airline
charges, and other revenue streams there.
And I also know that we invested $1 billion in AIP
supplemental funds. Mr. Krauter, I believe you just talked
about the--perhaps the inefficiency or dysfunction with the AIP
program. That is something that we need to work on. I would
love to hear your thoughts on that.
Mr. Christie, a number of airports have talked about how
the cost per enplanement is something that, by making PFC
investments, they can help to bring that down. For Spirit,
where does that metric fall for you? Does that determine where
you have flights? Or where does that fall in your overall
calculation?
Mr. Christie. Thank you, Congressman. Yes, the cost per
enplaned passenger is a very important component of our cost
structure. As I said, it is the lowest fare entry point in the
marketplace. Those dollars can add up quickly for our consumer.
And they are a very elastic consumer.
So cost per enplanement is a very important metric, and the
passenger facility charge, as I said earlier, is just an added
amount on top of that cost per enplaned passenger.
Mr. Graves of Louisiana. Yes, but is that your primary
motivation, of where you can get the lowest cost per
enplanement?
Mr. Christie. No, there are a number of reasons we look to
get into an airport. We are looking at prevailing demand, we
are looking at opportunity, we are looking at available gate
facilities. All of those are important. But the cost of
operating the airport is key, as well.
Mr. Graves of Louisiana. Thank you.
Mr. Lopano, Mr. Scribner talked about how the TNCs, the
transportation network companies--Uber, Lyfts, and others--are
affecting revenue for airports. One credit rating agency
actually found that airports have been able to stabilize their
income, as a result of some of the changes that TNCs' entries
into the market--and the change that they have caused.
What are you seeing at your airport? Are you seeing
revenues go down? Have you been able to stabilize? What have
you all done at Tampa?
Mr. Lopano. Yes, it has affected our parking revenues. And
we were able to enact a fee to use the roadways to pick up
passengers. And that fee has generated some money back to the
airport, but not enough to offset the loss in parking.
But I think your point is a really good one, is that our
revenue streams are changing. Our revenue streams are being
challenged. And the PFC has always been a reliable source of
revenue for us. And this is not one that we can afford to let
become weakened by inflation. It is one that we should try to
strengthen.
Mr. Graves of Louisiana. Thank you.
Last question, Mr. Christie. I recently met with one of the
other airlines who indicated they had recently invested $3
billion of their own money in a terminal at one of the
airports. How do you decide, as an airline, how do you decide
where to make those investments? What motivates your strategy?
Mr. Christie. Well, there is going to be a number of
inputs, obviously. We are a smaller airline, compared to the
other airlines you may be referring to. So access to capital
for us is not as routine and easy as it may be for a larger
airline. But we would look to speed for those airports that are
looking to add capacity, where we can partner with them, and
increase the speed that capacity comes online. That is
definitely going to be a consideration, as well.
Mr. Graves of Louisiana. Great, thank you. I yield back all
3 seconds.
Mr. Larsen [presiding]. Representative Garcia is recognized
for 5 minutes.
Mr. Garcia. Thank you, Mr. Chairman, and to all the members
of the panel who have shared their experience and wisdom.
I hail from Chicago, the home of O'Hare International
Airport and Midway Airport, which is near my home. Together,
O'Hare, being the busiest airport in the country, and--together
they host over 105 million passengers every year.
This past week, while back in town I convened several
meetings on infrastructure to hear what people in my district
are thinking, and what they are hoping for, in terms of
infrastructure investment. One story that I heard was from a
member of a trade union, the building trades, in Chicago, who
said he recently visited China and was quite struck by their
investment in their airports system. And he was pretty
disheartened by the stark contrast here, at airport facilities
at home.
So I think that is a real shame, and more reason why we
need to consider investing in airport infrastructure to address
the issue of increased capacity, reduced congestion, implement
technologies, and keep us safe and our systems efficient and
accessible.
Having said that, a couple of questions. Back to Mr.
Scribner.
In your testimony you go into significant detail about the
historical application of AIP and PFC funding. At O'Hare, like
other airports presently, including Memphis, LAX in L.A., there
are multimillion-dollar projects underway. Chicago is about to
kick off an $8.5 billion modernization program.
First, can you describe to me the different types of
projects that are eligible for AIP and PFC funds, and where
those eligibilities diverge in practice?
Mr. Scribner. Right. So, under the law, AIP is generally
eligible for the airside projects, the taxiways, runways,
aprons, land acquisition, and so forth. PFC projects are--those
are the--AIP, all of those, are PFC-eligible, but PFC has the
added bonus of allowing for more terminal projects. And that is
where we see the advances.
But even if we don't--you know, say we had a question about
a ground approach, ground access, a new road on airport
property to the terminal. That is eligible under AIP and under
PFC. But the PFC, importantly, unlike AIP, can be used in
financing, can be used to service debt. That is something AIP
can't do.
So this flexibility--and this gets down to the fundamental
benefit of the PFC over AIP--it is more flexible, it allows for
different types of funding and financing options that AIP just
can't have, and that means that you are going to see more
efficient airport investment and resulting operations.
Mr. Garcia. So in cases like O'Hare, where carriers argue
that airports' capital needs can be met largely by private
investment, are there types of projects that only AIP or PFCs
address that airline carriers may inadvertently neglect, or
lack the incentives to robustly fund?
Mr. Scribner. So I think this gets at the very--a long-term
debate between airports and airlines. From either perspective,
the airlines are going to want to maximize their control over
airport decisions, and airports are going to want to minimize
any airline involvement in those decisionmaking--and then you
have all these types of practices in between.
But as we have seen with--beginning in the 1950s and in
more recent history, when the airlines say ``We are going to
finance something for you,'' they are not doing that out of the
goodness of their heart. They are going to want something in
return. And often what that has meant is they are going to get
long-term, exclusive-use gate leases, or preferential gate
leases, and they use those to keep out lower cost competitors,
such as Spirit. And that is a problem. That raises air fares
for consumers. So that is another benefit of the PFC over
turning to airline customers.
Mr. Garcia. OK. Thank you. As I only have about 20 seconds,
I yield back, Mr. Chairman.
Mr. Larsen. Thank you, Representative Garcia.
Representative LaMalfa, 5 minutes.
Mr. LaMalfa. Thank you. So what we have seen is that--when
we talk about the gas tax around here, we see that,
effectively, it is staying par, going down. And so what we see
differently with the PFC, its all-time high of $3.3 billion of
revenue brought in. Airports have raised $30 billion. And you
would see that--on a basis of per-passenger, that has outpaced
inflation at a rate of 47 percent.
So bottom line, that means approximately 20, 21 percent of
a ticket cost per passenger is already just taxes and fees,
which is basically reaching sin tax level, and that kind of, to
me, connotes bringing the Green New Deal into it, since that is
treating airline travel as a sin, with what its goals are in
the new deal. So why is it that it seems justifiable to have so
much be built into fees, when passengers, again, they are
having such a big burden of their ticket in these fees?
And I want to bring it back home to, with all the available
opportunities there is for airports, airlines to raise
revenue--and it has been talked about a couple times here, but
why is it we want to use congressional action to cause PFC
increases instead of the available tools that they have?
When Congress does it, it becomes pretty--it is a higher
burden to put it in place, and then a change, once it has
passed, when there is other, more local options with more local
input. They have that authority locally to raise--via those
other sources. Why does it have to be a congressional action?
That is right to the panel.
Mr. Lopano. If I may, Congressman, I think it shouldn't be
in the hands of Congress. I think it should be locally
controlled. We make more money in parking than we make from
PFCs. But we don't have to come to Congress when we raise our
parking rates.
So we are pretty responsible. We know how to run these
businesses. And we have been coming up here for 19 years
fighting this fight. And I would love to get local control of
it, because we have a board of directors that controls us. It
is not like the airport director is just running around, doing
what he wants to do. We have a board that is appointed by our
Governor. So we have oversight and we have accountability.
Ms. McGraw. I wanted to address the topic of other sources,
of the ability to raise revenue. You talk about landing fees.
At most airports the airfields are done in a residual cost
basis. So whatever it takes to operate that airfield is how you
set your landing fees. If airports collect an excess at the end
of the year, that money is rebated to the carriers on a
prorated basis on how they use that airfield.
So there aren't any additional fees, there aren't any
additional costs that are built in, other than what is captured
truly.
In terms of the concession revenues you had discussed, most
airports now have--similar to Cincinnati--something where we
work out an agreement with the carriers that if we exceed a
certain revenue threshold within the terminal, that certain
monies are rebated back to the carriers.
So----
Mr. LaMalfa. I am talking concessions, food, and things
that are----
Ms. McGraw. Exactly.
Mr. LaMalfa. Yes.
Ms. McGraw. Exactly, right? So after, you know, all of our
expenses, et cetera--if we have an excess of revenue, as we
have agreed with the carriers, that money is rebated to the
carriers.
There are limitations that are already in existence on what
fees, what user fees we can impose upon our passengers. The TNC
fees are set locally. It is driven by market condition. The
parking revenues are set locally, based on market condition.
PFCs should be similarly set, based on local market condition.
We know what our markets will bear, it is economics 101, it has
worked for Adam Smith, you know, throughout the centuries.
Local control would be better served--airports would be better
served by local control, with governing boards, airport
directors, and local officials weighing in on it.
Mr. LaMalfa. Go ahead, sir.
Mr. Scribner. Thank you, Congressman. Just real quick, I
would say eliminating the cap or increasing the cap on the PFC
wouldn't be--this wouldn't be the Federal Government stepping
in. This would be the Federal Government backing out.
You recall, as I said in my testimony, that the only reason
the PFC exists is because it is a narrow exception to the
general Federal prohibition enacted in 1973 on local user fees
for air travelers. So that was a decision Congress made in the
1970s. The PFC is an exemption. I would like to see that
exemption expanded. But it would not be Congress stepping in if
it were to increase that cap, or eliminate it.
Mr. LaMalfa. Thank you.
Mr. Krauter. Congressman, just one last quick word. When we
are talking about increases, I just think it is important to
note that the RSMeans Construction Cost Index increased 84
percent from 2000 to 2018, as well, for context.
Mr. LaMalfa. Eighty-four percent.
Mr. Krauter. Yes.
Mr. LaMalfa. All right, thank you.
Mr. Larsen. Larry, just because you are from Washington
State, doesn't mean you get to talk over my gavel.
[Laughter.]
Mr. Krauter. Yes, sir, Mr. Larsen.
Mr. Larsen. Representative Craig from Minnesota for 5
minutes.
Mrs. Craig. Thank you so much, Mr. Chairman. I want to
address my question to Mr. Krauter here this morning--or, I
guess it is already afternoon. Thank you for bearing with us,
it has been a long, long morning.
Mr. Krauter, I come from a district in Minnesota that has
access to a large metropolitan airport that flies to many
regional hubs around the country. There is a misconception that
the PFC is only helpful for large-hub airports. Would an
increase still help smaller-hub airports that don't have the
high traffic volumes that large hubs have?
And can you discuss how the current hub-and-spoke system
constrains regional air travel, and how more gates in major
hubs could help smaller communities?
Mr. Krauter. Thank you, Congresswoman. The issue is how
much smaller airports right now depend on the PFC, and for a
number of different reasons. One is that net operating
revenues, cash flows, are usually fairly low at smaller
airports. It doesn't really support that much in what we call
non-grant-funded capital programs.
As a result, smaller airports tend to have a significant
reliance on airport improvement program funding, and--which we
have talked about, that--is that because it has been flat, and
because of inflation, it doesn't buy as much.
And the other issue is that most airports our size are at
the $4.50 PFC for a reason. It is not--it is because they need
that capacity.
So, going back to the reliance on that is that in order for
them to provide that infrastructure for their community, on the
reverse side there has got to be PFC capacity for those larger
airports, as I talked with Mr. Allred about, in terms of your
access into the national air transportation system.
And as we talk about, it is economic development for your
community, as well, because what people don't focus on enough
is how important it is to be able to get people from out in the
world to your community, ideally with one stop. Because if you
can do that, you can unlock the economic development, you know,
potential of your community so much more, especially in this
global economy.
So I think that access is critical, and it is just not
access at the small airports, it is access for smaller
communities at the larger connecting airports.
Mrs. Craig. Thank you very much.
Ms. McGraw, I wanted to just direct the next one to you.
One of the statutory uses for PFCs is the--for capacity
projects to increase competition, unlike the AIP program. Can
you tell us a little bit how the PFC has enabled airports to
attract more service, and provide customers more options, lower
fares, et cetera?
Ms. McGraw. As I mentioned, we have been able to grow our
passenger base, our local passenger base, 97 percent, and
increase competition. We were able to do that because we used
PFCs to renovate certain gates that had been sitting dormant.
When we were able to do that, our other carriers other than our
dominant carrier at the time were able to expand and increase.
Therefore, greater competition, lowering airfares $255 per
ticket.
Mrs. Craig. Thank you so much. And then I will finish out
with Mr. Christie.
Spirit Airlines is increasing competition in regions around
the country. That is great. As Spirit seeks to continue
expanding and creating new hub-and-spoke pathways, would the
PFC be helpful in your company's effort to serve more small
communities?
Mr. Christie. Thank you, Congresswoman. No. Our view is
that the PFC is actually, as I mentioned earlier, a bit
regressive in our model. Our fares are at the absolute lowest
in the industry, and so the PFC, in some ways, artificially
shifts the burden to low-fare-paying customers.
What probably is more efficient is a broader discussion
around competition at broader airports, and what has happened
with consolidation and the use of the facilities at that--
airports, which is something that is much, much deeper than
just a discussion around a PFC.
Mrs. Craig. Thank you very much.
Mr. Chairman, I yield the remainder of my time.
Mr. Larsen. Thank you. I now call on Mr. Mitchell of
Michigan.
Mr. Mitchell. Thank you, Mr. Chairman.
A quick question for anybody that could answer for the
airports: What was the interest rate on the last tranche
municipal bonds you issued for development? Anybody have an
answer to that?
Mr. Lopano. It was about 3 to 5\1/2\ percent.
Mr. Mitchell. Well, it can't be 3 to 5\1/2\. What was it,
sir?
Mr. Lopano. Different maturities have different rates.
Mr. Mitchell. Most recent issuance is, what, 3 percent?
Mr. Lopano. It went from 3 to 5\1/2\ percent, depending on
maturities.
Mr. Mitchell. I just--OK. I don't think I got the detail I
would like. I would like all of you to provide, for the record,
the maturities--the interest rates of various maturities of
bonds you have, please. I would like to see it, if we could.
I want to go back to the $128 billion in airport capital
figures--the needs have been detailed--and unpack that math for
a bit, because I think it is important.
Let me start by saying the Airports Council International
indicates that 10 percent of that need is at one airport, LAX.
More than one-third of that need is at only 10 airports. Yet we
want to uncap the PFC, or increase it substantially, depending
on your perspective, across the country.
My concern is--we are also talking about--is $128 billion
in a 5-year period. Now, frankly, I don't think you can build
$128 billion in 5 years, but we are also talking about
financing it in 5 years. Now, do any of you have your homes
financed in 5 years? Are any of your maturities in 5 years? The
answer to both of those, we know, is not. But it does create
the gap you are seeking to demonstrate that you need more in
the PFC.
Airports have talked about lowering interest payments by
increasing the PFC, but clearly there is not unmet need. I have
asked multiple airports, including mine, Detroit Metro, to tell
me one thing they can't do because they can't access private
capital, and they did not have a response for the question.
If we want to uncap this--it is a hidden tax. You can call
it a user fee. We can call it a tax. I am an economist, we can
debate it as long as you want, sir. My question is what metric
should Congress use to determine whether airport funding is
insufficient, besides simply saying we need more?
Because I just left the House Armed Services Committee, and
that is the discussion over there, too. Pretty predominant
around here. Anybody have any good answer for that, other than
saying it hasn't increased?
Mr. Lopano. Congressman, I had--I gave an example earlier,
where we had a number of international airlines who wanted to
fly to Tampa, and we wanted to accommodate them, and it would
have been a north of $25 million project.
So, according to our airline agreement, we have to ask the
airlines if they are willing to pay for that, or if they are
willing to approve that, and they said, ``No, we don't want
that competition.'' And so that is a project that wouldn't have
gotten done, had we not accessed the PFCs to use to lower that
amount, so that the airlines would not have to approve it.
Mr. Mitchell. Exactly my point, though. You did access the
PFC, you were able to build it, you were able to finance it.
You weren't limited by lack of PFCs. In fact, there is $7
billion in the airline trust fund, right, the airport trust
fund now.
So you have indicated my exact point, which is--you made a
point, Mr. Lopano, you made a good--you made an excellent point
earlier, and I agree with you. You make more money--you get
more revenue, let me put it that way--from your parking fees
than you do from the PFC. I agree wholeheartedly local control.
So what do you say we eliminate the PFC, and airports raise the
funds they need to raise through whatever mechanisms they have:
parking fees, some people have fees on access in the airport,
concession fees. If you want local control, why don't we do
that?
Mr. Lopano. Those are options. What I am advocating for
here today is increasing the PFC because it is one of the tools
that we have had for 20 years, and it has allowed us to grow
the airports that we have, and grown to the levels that we see
today.
Mr. Mitchell. Well, just because we----
Mr. Lopano. And we----
Mr. Mitchell. Just because we have done something for 20
years doesn't mean it is the right thing to do, we should
continue it or expand it.
Mr. Lopano. Well, it has been eaten up by inflation, and it
hasn't been adjusted. So it has less power, less ability for us
to build.
Mr. Mitchell. Well, there is $7 billion sitting in the
trust fund. I am not sure there was a right number to begin
with, sir, to say it was based on the original-based number,
and that was the number, I mean, and therefore we should get
more, which is the argument, sir.
So help me understand. There is $7 billion in the airport
trust fund. You indicated you built out, for international,
additional gates at $25 million, and were able to do that. Were
you delayed in doing it? Were you unable to accomplish that?
[Pause.]
Mr. Mitchell. I guess the answer is no. My point is that I
support airport development. I think you should pay for it by
telling people, when they come in the door, what it is going to
cost them, rather than hiding it in airline fees. And that is
hidden. If we went in an airport and asked anybody what their
PFC was, if they knew what it was, they would look at you like
you had lost your mind. Let's be transparent with folks.
And I exceeded my time, and I apologize, Mr. Chair. But
thank you very much.
Mr. Larsen. You actually had 3 seconds left, Mr. Mitchell.
You can't have it back.
Representative Malinowski from New Jersey.
Mr. Malinowski. Thank you. Just to follow on on that,
parking fees have gone up in the last 20 years, correct? I seem
to have noticed that in my travel, right? So there are other
options, but they have actually been employed, whereas the PFC
has been capped all this time. So I think that is an important
difference.
Mr. Christie, let me ask you a few questions. You said in
your testimony that you are concerned that increasing the PFC
by $4 could lead to a decrease in travel because demand is
elastic. Well, I went online last night to see if I could book
a ticket on Spirit from Newark to Orlando because, you know, I
have heard the weather is pretty good down there.
Mr. Christie. You should head down.
Mr. Malinowski. And the price of the ticket was--it was
around $170, which is pretty good for the day before travel.
But then there were the add-ons, and we have talked a little
bit about this already: 30 bucks for the first checked bag; $35
to bring a carry-on on the flight--and I have never flown in my
entire life for business, pleasure, family, without bringing a
carry-on.
And so let me just ask you this directly. Do you think that
a $35 carry-on fee decreases flight use more or less than an
extra $4 would? I mean address the price elasticity point with
respect to all of these fees.
Mr. Christie. Thank you, Congressman. I think it is a great
point. The point is that our model is designed in an unbundled
manner, which is different than what other airlines may use.
But the total cost of that travel is still considerably less
than what you would pay on other airlines.
So, even with a very low fare and a bag and a seat, you are
still going to pay 30 percent less than you will pay on other
airlines. That is the stimulative effect of our model. And each
additional amount that is not related to the model itself is
going to destimulate that model over time. Each additional
dollar of taxes or fees would naturally have the impact on
destimulation.
Mr. Malinowski. Well, it is not just low-cost airlines
these days. I think you may be driving this trend. You know,
United is charging now to use the overhead bin if you are in
so-called basic economy.
And I got to say I speak to folks who I represent, and have
some sense of what they are angry and frustrated about in life,
and I have heard quite a bit about not just the added cost, in
their minds, of these fees, but something that is maybe less
tangible, but even more powerful: the indignity of a world in
which we are constantly dividing and subdividing our fellow
Americans into different classes, better or worse; the idea
that we have to pay extra for even the most basic things, not
just in airline travel.
But certainly in the case of airline travel, when--another
member mentioned--if you are a family of four, these things
adding up the cost, the indignity, that is a complaint I have
heard again and again and again. I think it does depress
airline travel.
I have never once heard anybody complain about a small user
fee at an airport--and yes, people do know, I know, I look at
my ticket, and I know that they are adding these things, and I
ask--if we know that it is dedicated to improving airport
facilities and security.
So I just--my experience in life, I have to disagree with
your assessment.
Mr. Christie. Well, as I said earlier, we treat every
customer the same. There are no--every customer has the option
to buy the services that we offer. In fact, it may not be
clear, but we do offer a bundled service, as well, for those
people who want to make sure that everything is included,
upfront.
But we think that is a very democratic approach to travel,
is people pick and choose what is important to them. That is
what drives low prices and stimulation. And we think that is an
important part of the model, actually. And our entry into new
markets does stimulate more and more travel.
Mr. Malinowski. Well, I--that said, I don't believe that
most Americans feel like we are all being treated the same by
our airlines.
Thank you, I yield back.
Mr. Christie. You are welcome.
Mr. Larsen. Thank you. I will turn now to Representative
Balderson for 5 minutes.
Mr. Balderson. Thank you, Mr. Chairman. Thank you all for
being here today.
My first question is directed to Ms. Barnes. Thank you for
being here and, you know, for this important testimony. You
mentioned that the airport hassle has caused Americans to avoid
32 million trips in 2017, costing the U.S. economy more than
$24 billion. I think I can say with confidence that my friends
on this committee and I fully understand and appreciate many of
those frustrations.
Aside from issues that are beyond the control of airports
and airlines, such as weather delays, what do you believe are
the most inconvenient hassles and problems Americans experience
when flying?
Ms. Barnes. Thank you, Congressman. Based on surveys of
travelers that we recently conducted, we found that the top
three frustrations of travelers are, number one, airline fees;
number two, the overall cost of traveling; and, number three,
airport hassles. And flight delays are also at the top. Those
are the top three reasons that folks are frustrated.
Mr. Balderson. A followup to that--thank you for your
answer--have you seen any specific examples in recent years of
airlines or airports changing policies to promote more
customer-friendly approaches to flying?
And, Mr. Christie, you may feel free to also answer.
Ms. Barnes. We do see that when folks are less frustrated,
that they do increase travel. I think I noted in my testimony
that the 32 million trips that are avoided due to airport
hassles, that is travelers avoiding 2 to 3 trips per year. But
when they do feel a welcome environment, when there are less--
there are shorter lines, when there is a better travel
experience, when there is a better facilitation, that folks do
travel more, and they travel more frequently.
I think that it is--you know, 9 airports won't have enough
airside capacity to meet demand by 2030, and the top 30
airports will experience Thanksgiving-like congestion 1 day per
week. Those are just not sustainable, and those don't make
folks want to fly. So that is, you know, one of the reasons
that our members support an increase in the PFC, to help better
the environment and ensure that travelers have the experience
that they need.
Mr. Christie. Thank you, Congressman. I think, as Ms.
Barnes mentioned, one of the things that frustrates travelers
the most is the cost of travel. And in that respect, Spirit and
its model is designed to address that very concern. And while
it is easy to make generalizations about people who travel on
airplanes, the truth of the matter is the vast majority of
people on Spirit are low- or middle-income individuals who have
not had the opportunity to travel before. And our low fares and
the ability for them to customize their travel stimulates that
activity.
And so, in that respect, I think we have been directly
addressing the issues that consumers are complaining about.
Mr. Balderson. Thank you for your answers. My last question
is for Ms. McGraw and Mr. Krauter.
Good to see you again, sir. I appreciate the need for the
committee to discuss the PFC and the AIP. However, while we
have you, I also want to touch on the status of the development
and implementation of safety and technology updates for our
runways and taxiways. I have heard concerns from air traffic
controllers at the John Glenn Columbus International Airport,
that they still do not have access to ASDE-X technology, posing
potential safety risk on the runways.
As we discussed why investment in our airports and aviation
is so urgent, can you discuss the needs of your respective
airports as it relates to safety and emergency equipment?
Mr. Krauter. Thank you, Representative Balderson. Good to
see you again, too, sir. We share the same concerns with those
controllers, particularly in a small airport environment, where
the cost of an ASDE system is estimated at something like $40
million.
And if you look at some of the statements that were made
earlier--I think by Mr. Mitchell--that there is a surplus in
the aviation trust fund, I think what is instructive is that
the aviation trust fund is used to fund a number of different
accounts, not just the airport improvement program, but also
facilities and equipment, a very, very important part of the
FAA budget, and that even at $7 billion a year, that is only
about 5 months of FAA operating authority, based on their most
recently approved fiscal year budget.
And so it is really not a lot of financial resources, and I
think that is what the controllers are basically signaling to
you.
In airports our size, we have looked at a number of
potentially low-cost surveillance systems, but that program was
actually discontinued by the FAA, and we were very disappointed
not to see another generation of that coming up through the
FAA. So we share that concern with those controllers.
Mr. Balderson. Ms. McGraw, I will put you on hold, because
the chairman has someone from Washington that left Ohio to go
to Washington. So I yield back, Mr. Chairman.
[Laughter.]
Mr. Larsen. Thank you for your indulgence, Representative
Balderson, I appreciate that.
Representative Carbajal from California, 5 minutes.
Mr. Carbajal. Thank you, Mr. Chair. And thank you to all of
you for being here today.
Ms. Barnes, in your testimony you mentioned a recent U.S.
Travel survey which found that airport hassles caused Americans
to avoid 32 million trips and cost travel businesses $24
billion in spending, enough to support 200,000 jobs.
My district includes three community airports, and relies
heavily on tourism. A recent visitor profile survey found that
tourism injects $1.9 billion into Santa Barbara's economy, and
$1.7 billion into San Luis Obispo's economy.
Two questions: one, how would increasing the passenger
facilities charge, PFC cap, benefit communities that rely
heavily on tourism; and two, will increasing the PFC cap
increase travel? And I apologize for a little bit of the
redundancy here, but I always like to hear it twice.
Ms. Barnes. Thank you, Congressman. And we do feel that
increasing the travel experience will help encourage folks to
fly. We know that, based on the data that you just presented,
that that is a--that the hindrance of 32 million--the 32
million trips avoided is a 10-percent reduction in demand. So,
based on economics, a 10-percent increase would be what we
would see, at a minimum, if we know that our infrastructure
upgrades are intact.
Quite frankly, for the travel and tourism industry, we know
that the welcome matters. Welcoming international visitors, for
example, is critical when folks come from an international
space to California--in particular, from Asia. International
travelers such as the Chinese spend, on average, $7,000 more
than the domestic traveler. We want them to keep coming back.
And the better their experience is when they arrive at the
airport and the less delays they have when they go home will
help ensure that they come back.
So I think I answered both of your questions in there, but
we think the travel experience is very important, and it
absolutely will help increase demand to increase the PFC and
ensure the infrastructure needs are intact to continue to
improve the experience.
Mr. Carbajal. Thank you very much.
Mr. Krauter, in your testimony you mentioned the airport
improvement program, AIP. You recommended that Congress
increase the funding for this program to allow smaller airports
to pay for necessary upgrades.
Why is there still a need, then, to increase the passenger
facility charge, PFC? And two, what are some of the airport
needs that are not being met by the AIP grant program?
Mr. Krauter. Let me talk about that in reverse,
Congressman, if I can, first talk about the needs that aren't
being met, because that is a significant impediment for the use
of AIP versus PFC funds.
AIP funds, as we have talked about, tend to be prioritized
by the FAA towards airfield projects. So those are the runways
and taxiway projects, apron projects. They have a much lower
priority ranking for terminal buildings. And right now in our
history, based on all the things we have talked about today and
our tremendous growth, we have a very significant need across
the country in airports of all sizes for terminal building
projects.
So it is counterproductive to want to move your AIP into
terminal projects, because the FAA doesn't reward that with
additional discretionary money. They reward that when you move
those AIP dollars into airfield projects. So that would be one
answer.
The other answer is that when you look at the stagnation of
AIP, the amount of money that would have to be increased to
actually make up for two things--one is inflation, and then the
other is the fact that the program elements themselves--again,
on eligibility--are such that airports end up using PFCs to
actually supplement AIP projects. And we have done that in
Spokane, and--as a result of either having to move more quickly
or having to have more flexibility.
So I hope I have answered your questions, at least in two
parts there.
And so the last part of your question was why do we need an
increase in the PFC. And really, the reality is that those
needs are so extensive at airports our size, we really depend
on that PFC program, again, to supplement the lack of AIP, plus
to try to fund the projects that we need. And in the case of
our project, a $191 million terminal project, AIP is not going
to come anywhere close to being able to fund that.
Mr. Carbajal. Thank you very much.
Mr. Chair, I yield back my time.
Mr. Larsen. Thank you, Representative Carbajal.
Representative Palmer for 5 minutes.
Mr. Palmer. Thank you, Mr. Chairman.
Ms. Barnes, I had to step out, so some of this may have
already been covered. But like my friend from California,
redundancy is not a bad thing.
Raising the PFC will increase competition, that has been
said many times in the hearing. Other than adding more gates,
are there other PFC-funded improvements that you think would
increase competition?
Ms. Barnes. To increase competition? I mean we think that
improving the overall experience is critical. You know, we do
think competition is important. But we leave that to the
airlines and the airports. We are in the mindset of the
traveler, and feel that the experience is important.
I would note one of the issues that has come up across the
board here is the security element. Without security, you
cannot have travel. And having a strong security at all of our
airports is really important. And Mr. Lopano noted that, and we
had a robust conversation earlier. So PFCs could go to increase
security upgrades at airports, and that is something outside
of, you know, just the building itself that would be----
Mr. Palmer. Well, that is one of the things I want to talk
to--and this is for Mr. Krauter and Ms. McGraw and Mr. Lopano--
is that most people don't realize that TSA's responsibility for
security at the airport begins at the point you go through
security. Everything outside of that is local: ticketing area,
baggage claim, dropoff, pickup, all of that.
And Mr. Katko and I have had this discussion, it has been
going on for about 3 years now, that we have been talking about
the need for local authorities to do more to provide security,
whether it is--I am--technology is great, but I am a proponent
of canine units, which--just the visible presence of a canine
unit is a deterrent. Is that one of the things that you foresee
being done, if you get the increase in the PFC?
Mr. Krauter. I'll take that first, Representative Palmer,
thank you. It is a great question. And the terminal renovation
and expansion project that we have planned for Spokane
International Airport is all about that. The primary element of
the project is a consolidated security screening checkpoint
that, in part, when that is done, will make us eligible for
canine teams.
So I think that--going back to what you have talked about
with Representative Katko, we are very interested in being able
to have an increase in the PFC, and increased flexibility to
make sure that we can fully equip these checkpoints to have the
maximum capability that they need, both in processing, also in
deterrence, as you point out.
So the increase in the PFC is very, very important to the
proper deployment of technology and other resources for that
layered approach to aviation security.
Mr. Palmer. I think that should be one of your main points
in arguing for an increase in the passenger facility charge,
because, as Ms. Barnes points out, people want to feel secure
when they go there.
And the instance that Mr. Katko mentioned in Belgium, I
think, could have been avoided if they had had that perimeter
security. You can't guarantee that. And I don't think
technology is--technology is great for detecting explosives,
and things like that, but it won't tell you where it went,
where a dog will. And I have talked with other colleagues about
the potential of using retired military dogs, and you have got
retired military personnel that could be deployed, but we need
to figure out a way to expand our security perimeter outside of
where TSA begins.
Ms. McGraw, Mr. Lopano, if you all want to add anything to
that----
Ms. McGraw. Yes, thank you, Mr. Chairman. Our----
Mr. Palmer. I am not the chairman, but thank you.
Ms. McGraw. Oh, I am sorry, Mr. Palmer.
Mr. Palmer. Well, I am the chairman of a Republican
committee, but not here. But thank you for the promotion.
[Laughter.]
Ms. McGraw. Well, thank you, Mr. Palmer. Our security
checkpoint was built in 2000, pre-9/11. It is undersized, it is
woefully inadequate to address our local passenger needs now.
So one of the things we would like to do with our PFC is to
increase the footprint.
I agree wholeheartedly with you. As my policy chief
constantly reminds me, you have to have a multilayered approach
to security, be it the right-sized facility, be it the right
equipment in place, and certainly, I think, the canine units.
We are blessed to have three canine units. We would love to
have more. They do a lot for us, relative to security. So I
agree with you. And PFCs would help go for that purpose.
Mr. Palmer. I think they need to be outside the building,
as well as inside the building. Because just having them
outside the building is a visible deterrent.
Mr. Lopano?
Mr. Lopano. Yes, Congressman. We do have--we have just
acquired a specially trained dog that can smell the
detectives--I mean smell bombs from a long distance. And we
deploy them outside, on the curbsides. The cost of doing that,
though, eats into our ability to fund capital projects. So an
increase in the PFC would help ease that.
Mr. Palmer. My time has expired. I yield back.
Mr. Larsen. Thank you, Representative Palmer.
Representative Johnson of Georgia.
Mr. Johnson of Georgia. Thank you, Mr. Chairman. And I want
to thank the witnesses for being here. I know you were hoping
that no other Representative walked in. It has been a long
morning for you. But bam, here I am. It is such an important
topic that I knew I needed to be here.
Airports are essential to our national infrastructure. They
boast a national economic impact of $1.4 trillion, and
contribute roughly 7 percent of the U.S. GDP. They are the
incubators of travel, whether domestic or abroad, business or
pleasure. Passenger and cargo traffic through airport
facilities continues to grow rapidly, and it is imperative that
airports be outfitted to meet the needs of customers and local
businesses.
My home State of Georgia houses the world's busiest
airport, Hartsfield-Jackson International Airport. And I want
to ensure that it remains a globally competitive facility that
manages high volumes of traffic with efficiency.
The only way we can continue to be a worldwide leader on
aviation is by seriously addressing airport infrastructure
needs. I am hopeful that this hearing has shed some light in
our plan of action, moving forward.
If I ask any questions that have already been asked, I am
sorry. If you could please answer--and this one is for Mr.
Krauter, Mr. Lopano, and Ms. McGraw.
For the last 7 years Congress has maintained level funding,
$3.35 billion, for the FAA's airport improvement program. The
FAA Reauthorization Act of 2018 keeps it at that same level for
another 5 years. How do you anticipate that this maintenance of
level funding, as it had been for, I think, 12 years prior, how
will that maintenance of this level funding affect ongoing
airport infrastructure projects?
Mr. Krauter. Representative Johnson, Larry Krauter from
Spokane. Thank you for that question.
We have talked about that in the context of a couple of
things. One is that the flat funding really doesn't stay flat,
it gets eaten up by inflation. So that $3.35 billion annual
flat funding is really worth about $1.8 billion. So the $5
million that Spokane gets in airport entitlement funds through
the AIP every year is really worth about $2.25 million now. And
that is just, obviously, going to decline.
As a result of that, we only have two other choices to try
to backfill that liability. One is to use PFC funds for
projects that would otherwise be funded by AIP. And in my
testimony in February I went into great detail about how about
$92 million of the $153 million that we have collected in PFCs
in Spokane has actually been used for AIP-eligible projects.
And so I think it points out that there is a significant
deficit, in terms of how--that is created by flat AIP. That is
also exacerbated by a flat PFC rate. And so one of the things
that we think is really important is to talk about how an
increase in PFC is really important to funding the projects,
because we don't see the ability for Congress to significantly
increase AIP.
Mr. Johnson of Georgia. All right, thank you. That is a
good segue to Mr. Christie.
Mr. Christie, in your opening remarks you speak to the
potential danger in raising the PFC cap, citing that consumers
are already ``punishingly taxed.'' Consumers most certainly are
subject to exorbitant fees on their airline tickets, but how do
you balance the burden of lifting the PFC cap for consumers
against the weight of the fees that airlines charge consumers
such as the bag and cancellation fees that Spirit and other
airlines charge?
Mr. Christie. Thank you, Congressman. What is most
important to the traveling public is the total cost of travel.
And on Spirit that is considerably less than you would find on
other airlines, even when you include ancillary items like bags
and seat assignment. So we have driven a model around asset
efficiency that drives lower fares, which stimulates more
activity. And the fear is that, by increasing a fixed fee
amount--in this case, the PFC--you will, in effect, destimulate
and artificially burden lower-fare-paying customers.
Mr. Johnson of Georgia. Do you think there will be
passenger pushback if the PFC cap is lifted?
Mr. Christie. Well, in effect, it is an increase in the
cost of travel. And we manage our supply and demand mix every
day, and you can see what happens when the cost of travel goes
up, less people travel.
Mr. Johnson of Georgia. Thank you. I yield back.
Mr. Larsen. Thank you, Mr. Johnson.
So I am not trying to drag this out, but I know some--there
is maybe some other Members coming, but I have a few questions.
But I do note Mr. Christie does have a 1 o'clock hard stop, no
matter how long this goes.
You are free to leave at 1 o'clock. I want to be sure----
Mr. Christie. Thank you.
Mr. Larsen. Yes, absolutely, only because you asked
earlier. If anyone didn't ask earlier, I can't be responsible
for that.
[Laughter.]
Mr. Larsen. So I will ask a question for--of Mr. Christie.
So you noted your support, generally, for airport
investment. Cincinnati has testified that if they don't get a
PFC increase, they could end up raising the cost per
enplanement 50 percent. But if a PFC was increased, it would be
only 15 percent for the CPE. So, as an airline, how do you all
make a choice between the cost of enplanement cost versus a
PFC, if you are choosing between a 50-percent increase for a
CPE compared to a 15-percent increase to CPE?
Mr. Christie. Thank you. Thank you, Mr. Chairman. I think
what is missing in that math is the actual PFC itself. So
while--I am not sure how the math works out----
Mr. Larsen. Sure.
Mr. Christie [continuing]. But an increase in 50 percent in
CPE excludes the existing PFC. And if you instead increase the
PFC, you would have to only increase CPE by the amount to
finance that PFC-related debt.
So I think the funds are fungible. And so what we are
talking about is an increase in fees and taxes on the traveling
public to finance infrastructure. What my testimony was earlier
is that it is our belief that we can more efficiently deliver
low fares with more efficient use of assets. And so when the
cost of the infrastructure is delivered in the form of rents
and landing fees, our model in and of itself makes that more
efficient to the customers on Spirit Airlines. And that is what
is most important to us.
Mr. Larsen. Trying to be clear. Did you call it the CPE?
Did you allude--did you say that was a tax on the traveling
public? Is that what you meant to say?
Mr. Christie. No, I am saying that that is a cost to the
traveling public, because it is a part of our core cost
structure. That is correct.
Mr. Larsen. Ms. McGraw, do you have a--something to say
about--on that? OK, great.
So, Mr. Krauter, there was a discussion earlier about bonds
and whether or not you should have more bonds, or they have a
5-year timeframe, or some other timeframe. Can you just remind
us how you all repay any bonding?
Mr. Krauter. Right now that is through the PFC. And that is
the way that we have put together our chart that was submitted
to the committee to illustrate that the PFC would be committed
at the current $4.50 to a total project cost of $342 million,
which effectively would take that PFC out almost 38 years. So
if you are 18 years old, going through my terminal building,
you will be paying that until you are about 56 years old.
Mr. Larsen. All right. Back to Mr. Christie.
I just want to use you while you are here. So a few weeks
ago I visited BWI. And several years ago BWI used PFC funds to
invest in a high-capacity baggage screening system that was
created specifically to help Spirit expand. It seems like they
are a great example of lower cost airlines directly benefitting
from PFCs to expand capacity.
Is that--so is there an inconsistency with your--with
generally the airlines not supporting PFC increases, when you
directly benefit from those--from the uses of those projects?
Or how would you help me understand that?
Mr. Christie. Sure. Thank you for the question. While there
are instances, no doubt, where PFC funding did create
additional facility space for carriers like ourselves to
expand, the PFC, in and of itself, because it is a fixed amount
and charged on every passenger, is a one-size-fits-all
approach. And we think that there can be more dynamic looks at
how you create more capacity at airports. And as I alluded to
in an answer earlier, I think that introduces a much broader
conversation around competition at airports.
With the mergers, over the last decade, we now have four
airlines that control 80 percent of the capacity in the United
States. And I think that is a much more complex issue that a
PFC, in and of itself, does not address.
Mr. Larsen. Maybe worth exploring in the future, as well.
So I want to thank the witnesses for their testimony. Your
comments have been very helpful. Thank you for sharing your
comments, thank you for being patient with the Members coming
and going, as well. We are all very busy and trying to get as
much information on this particular issue as possible.
I don't see any further questions, but I am not going to
look up to look.
[Laughter.]
Mr. Larsen. In closing, I would ask unanimous consent the
record of today's hearing remain open until such time as our
witnesses have provided answers to any questions that may be
submitted to them in writing, and unanimous consent that the
record remain open for 15 days for any additional comments and
information submitted by Members or witnesses to be included in
the record of today's hearing.
Without objection, so ordered.
I would like to thank our witnesses again for your
testimony today. And if no other Members have anything to add,
which they do not, the committee stands adjourned.
[Whereupon, at 12:52 p.m., the committee was adjourned.]
Submissions for the Record
----------
Prepared Statement of Hon. Rick Larsen, a Representative in Congress
from the State of Washington, and Chair, Subcommittee on Aviation
introduction
Thank you, Chairman DeFazio for calling today's hearing on ``The
Cost of Doing Nothing: Why Investing in our Nation's Airports
Matters.''
Each of the Nation's airports plays a different, yet vital, role in
serving local communities and the global aviation network.
Small, medium and large airports across the country serve as
epicenters of commerce, travel and job creation.
As chair of the Aviation Subcommittee, I recognize the importance
of robust investment in airport infrastructure to ensure safety, foster
innovation, improve U.S. competitiveness and enhance the air travel
experience for passengers.
While the Federal Aviation Administration (FAA) Reauthorization Act
of 2018 positively impacts aviation and aerospace, the bill fell short
in addressing the growing capital needs of U.S. airports.
Despite many efforts, the bill holds flat federal infrastructure
investment in airports over the next 5 years.
Congress must act to address these growing infrastructure needs.
airport infrastructure needs
Airport infrastructure investment is especially important for
Washington State, where transportation means jobs.
In northwest Washington, my constituents rely on Arlington
Municipal Airport in my hometown and Paine Field in Everett, which
recently began commercial service.
Sea-Tac in Seattle serves as a major hub in the country's aviation
network, and Bellingham International Airport, a developing commercial
airport, has seen double-digit growth in recent years, requiring
further investments in terminal and operations infrastructure.
Forecasts show the Puget Sound region will grow by an estimated 1
million people by 2035, increasing demand at local airports.
Like many airports nationwide, Washington State airports face
significant infrastructure challenges which can jeopardize their
ability to meet passenger growth and remain globally connected.
According to the Association of Washington Business, Washington
State alone needs an estimated $12.6 billion in aviation infrastructure
investment.
For instance, Sea-Tac needs to expand and modernize the North
Satellite terminal to update the 45-year-old facility and add eight new
gates.
In addition, a new 450,000-square-foot international arrivals
facility would improve the airport's baggage claim system, customs
processing and passenger connections between terminals.
Here in the other Washington, I recently visited Baltimore-
Washington International (BWI) Thurgood Marshall Airport with my
colleague, Rep. Sarbanes, to learn about its capital investment needs.
During my visit, I learned BWI has a number of critical
infrastructure projects in need of funding, including the C-D
Connector, which will provide a link to all of its terminal concourses
and address multiple customer service, capacity and security elements
that will help it accommodate growing passenger traffic in the next
several years.
BWI is also planning a five-gate extension project, which will
accommodate larger aircraft, provide additional and public operational
space, improve loading bridges and ensure a safer and more efficient
circulation of people and goods.
Further, the airport plans to install a new inbound and outbound
baggage handling system with a capacity of over 3,500 bags per hour,
which will help improve efficiency and reduce operational cost.
The United States has one of the most robust commercial passenger
air service markets in the world. Airports need an influx of new
capital to keep up with current capacity constraints and to plan for
and build to accommodate future passenger growth.
support passenger facility charge (pfc) increase
You do not need to be an economist to see federal infrastructure
investment in airports falls far short of meeting growing needs.
However, there is an easy solution to closing this gap.
The passenger facility charge (PFC) is a federally authorized local
fee that airports can collect on most passengers that travel to and
from their airports. The current cap on the PFC is $4.50.
The value of the PFC is outdated and has not kept up with
inflation, which has resulted in airports committing their PFC for
anywhere from 5 to 30 years, halting progress on much needed capital
projects.
Congress needs to update or lift the cap of what airports can
charge.
This change does not even require federal investment.
In today's dollars, the PFC adjusted to inflation would be $10.
This would double the amount of revenue airports could use to invest in
critical infrastructure projects.
Adjusting the federal cap on PFCs would allow airports to take
control of their own investment decisions and become more financially
self-sufficient.
For instance, at Sea-Tac, increasing the PFC cap to $8.50 would
allow the airport to access an additional $2.5 billion in
infrastructure financing capacity.
To that end, I am pleased that we have witnesses today to highlight
the impact of infrastructure investment, on airports, passengers and
the overall aviation system.
I would like to personally introduce Larry Krauter, the CEO of
Spokane International Airport, from my home State of Washington.
Mr. Krauter will testify today from the perspective of a small hub
airport in the Pacific Northwest about his airport's capital needs, and
how a simple change to the PFC could significantly improve the
airport's ability to maintain and modernize safe infrastructure and
plan for the future.
airport improvement program (aip)
Another key infrastructure investment source for airports across
the country is the FAA's Airport Improvement Program. AIP funding can
be used to enhance airport safety and security, improve capacity,
strengthen environmental protection efforts.
Last year, Washington State airports received $98.7 million in AIP
funding, which has supported runway rehabilitation at Arlington
Municipal Airport, noise mitigation efforts at Seattle-Tacoma
International, and taxiway improvements at Spokane International--among
other essential development projects.
The FAA estimates a total need of $35.1 billion in federal AIP
grants alone over the next 5 years. However, according to a leading
industry airport association, AIP grants are not generally used for
terminal projects, which account for 60 percent of total airport
infrastructure needs.
Although the FAA Reauthorization Act of 2018 funds the AIP at $3.35
billion annually through FY2023, this is the same level of federal
airport funding for the last 12 fiscal years.
AIP grants are an important tool, but do not come close to
significant funding shortfall to help airports meet growing capacity
and passenger.
bonds
With AIP grants covering a fraction of total infrastructure costs
and limited PFC availability, most airports rely on bonds backed by
airport revenues to finance capital needs projects.
According to an industry trade group, airports raised an estimated
$17.4 billion in 84 bond issues last year, an increase over the $14.7
billion raised in 116 bond issues in 2017.
Bonds allow airports to fund projects upfront and pay for costs
over a longer period of time. However, this approach also requires
airports to pay financing costs, such as interest on their
infrastructure projects.
Which is why a PFC increase is so important. An increase in the PFC
cap would reduce airports' dependence on bonds and allow them to pay
back debt in a shorter timeframe.
conclusion
Thank you again to Chairman DeFazio and today's witnesses.
As this committee considers airport funding, we need to encourage
investment at airports of all sizes.
I look forward to hearing about the status of the nation's airport
infrastructure and how Congress can help to ensure robust investment
now and into the future.
Fifty-seven Airport Passenger Facility Charge Projects, Submitted for
the Record by Hon. DeFazio
The following items are retained in the committee files:
Airport Passenger Facility Charge Projects--Table of Contents
1. Albany International Airport (ALB)
2. Asheville Regional Airport (AVL)
3. Austin-Bergstrom International Airport (AUS)
4. Baltimore-Washington International Thurgood Marshall Airport
(BWI)
5. Boise International Airport (BOI)
6. Boston Logan International Airport (BOS)
7. Bradley International Airport (BDL)
8. Charles M. Schulz-Sonoma County Airport (STS)
9. Chicago O'Hare International Airport (ORD)
10. Cincinnati/Northern Kentucky International Airport (CVG)
11. Denver International Airport (DEN)
12. Des Moines International Airport (DSM)
13. Detroit Metropolitan Wayne County Airport (DTW)
14. Fort Wayne International Airport (FWA)
15. Fresno Yosemite International (FAT)
16. Gerald R. Ford International Airport (GRR)
17. Hector International Airport (FAR)
18. Hollywood Burbank Airport (BUR)
19. Huntsville International Airport (HSV)
20. Indianapolis International Airport (IND)
21. Jackson-Medgar Wiley Evers International Airport (JAN);
Hawkins Field Airport (HKS)
22. John Glenn Columbus International Airport (CMH)
23. John Wayne Airport, Orange County (SNA)
24. Juneau International Airport (JNU)
25. Lansing Capital Region International Airport (LAN)
26. Los Angeles International Airport (LAX)
27. Louisville Muhammad Ali International Airport (SDF); Bowman
Field (LOU)
28. Minneapolis-St. Paul International Airport (MSP)
29. Monterey Regional Airport (MRY)
30. Norfolk International Airport (ORF)
31. Oakland International Airport (OAK)
32. Orlando International Airport (MCO)
33. Pittsburgh International Airport (PIT); Allegheny County
Airport (AGC)
34. Portland International Airport (PDX)
35. Portland International Jetport (PWM)
36. Raleigh-Durham International Airport (RDU)
37. Redding Municipal Airport (RDD)
38. Reno-Tahoe International Airport (RNO)
39. Ronald Reagan International Airport (DCA)
40. Sacramento International Airport (SMF); Long Beach Airport
(LGB)
41. Salt Lake City International Airport (SLC)
42. San Antonio International Airport (SAT)
43. San Diego International Airport (SAN)
44. San Francisco International Airport (SFO)
45. San Jose International Airport (SJC)
46. San Luis Obispo Regional County Airport (SBP)
47. Santa Barbara Municipal Airport (SBA)
48. Savannah/Hilton Head International Airport (SAV)
49. Seattle/Tacoma International Airport (SEA)
50. Southwest Florida International Airport (RSW)
51. Spokane International Airport (GEG)
52. St. Louis Lambert International Airport (STL)
53. St. Pete-Clearwater International Airport (PIE)
54. Tampa International Airport (TPA)
55. Tucson International Airport (TUS)
56. Waterloo Regional Airport (ALO)
57. Wilmington International Airport (ILM)
Statement of the American Council of Engineering Companies, Submitted
for the Record by Hon. DeFazio
Thank you for holding this important hearing on airport
infrastructure as you develop and advance what we hope will be a
comprehensive infrastructure package that includes new investments in
the nation's airports. This is a particularly vital component of the
infrastructure agenda because the movement of people and goods through
the aviation network and the related commercial activity at airports is
a key driver of local economic prosperity and job creation. Additional
federal support is needed to provide airports the resources they need
to meet growing demand and continue to invest, grow, and create good
jobs in local communities.
America's airports are a fundamental component of our nation's
transportation infrastructure. According to our partners in the Beyond
the Runway Coalition, in 2017, 1.8 billion passengers and 31.7 million
metric tons of cargo traveled through U.S. airports. With a national
economic impact of $1.4 trillion, airports contribute more than seven
percent to the U.S. gross domestic product and support over 11.5
million jobs around the country. ACEC member firms are involved in
nearly every component of airport planning, design, and construction of
airside projects such as runways, taxiways, and aprons, as well as
terminal projects and other facilities.
Airports need to make substantial new investments to meet the
capacity demands of the future with safe, efficient, and modern
facilities that passengers and businesses expect. Unfortunately,
existing federal law underfunds key programs and inhibits the ability
of airports to self-fund these important terminal, runway, and ground-
access projects. ACEC was pleased to support the five-year FAA
Reauthorization Act enacted into law last year, because it provided
stability to federal aviation programs, advanced commercial utilization
of unmanned aircraft by engineering firms and other users, and enhanced
procurement rules for architectural and engineering services. However,
the bill was a missed opportunity in terms of airport infrastructure
investment, withflat funding for the Airport Improvement Program (AIP)
and the failure to increase the cap on Passenger Facility Charges
(PFCs) collected by airports.
Congress must address this unfinished business and provide the
necessary investments and financing tools to update aging facilities,
relieve congestion, and enhance safety. In addition to annual AIP
funding, which has not been increased in more than a decade, we urge
you to give airport authorities the option to adjust the cap on PFCs in
order to finance needed improvement projects. The PFC is an essential
tool for funding and financing these projects--a user fee collected and
reinvested to serve travelers and local businesses that rely on
airports for their livelihood. Lifting the cap on PFCs would equip
airports to finance projects without raising taxes and without spending
additional federal funds. It would put our members to work designing
terminal expansions and other eligible projects that enhance
competition and improve the customer experience.
While passenger and cargo traffic through airport facilities
continues to grow at a record pace, our outdated aviation
infrastructure is not keeping up with demand. As a result, far too many
airports around the country are overcrowded and cramped, which hinders
commerce and business opportunities for thousands of companies. In
fact, according to a recently updated report from Airports Council
International-North America, our nation's airports require well over
$128 billion in infrastructure upgrades over the next five years.
Outdated airport infrastructure that fails to meet the growing needs of
local businesses and tourists puts in jeopardy the continued economic
growth of American cities, states, and regions.
We urge this committee to take a leadership role in addressing the
needs of U.S. airports by increasing AIP funding and lifting the cap on
PFCs to address the backlog in critical infrastructure and security
projects at America's airports.
Statement of Airports Council International-North America, Submitted
for the Record by Hon. DeFazio
Chairman DeFazio and Ranking Member Graves, Airports Council
International-North America (ACI-NA)--the trade association
representing local, regional, and state governing bodies that own and
operate commercial airports throughout the United States--thanks you
for holding this important hearing today to examine the infrastructure
needs at America's airports.
Last month ACI-NA released a new report detailing the significant
infrastructure needs of America's airports. With America's airports
facing more than $128 billion in new infrastructure needs across the
system and a debt burden of $91.6 billion from past projects, the sad
reality is that our airports are falling further behind in their effort
to upgrade their facilities and improve the overall experience of their
customers.
It is time to find the means to rebuild our nation's aviation
infrastructure and improve the passenger experience for millions of
travelers, as the current airport-infrastructure investment system is
failing to keep pace with a growing economy. The cost of doing nothing
is further paralysis of the aviation system. We are eager to work with
you and this committee to advance a meaningful funding plan that will
finally address the growing infrastructure needs our country's
airports.
airports are terminally challenged
America's airports are a fundamental component of our nation's
transportation infrastructure. In 2017, 1.8 billion passengers and 31.7
million metric tons of cargo traveled through U.S. airports. With a
national economic impact of $1.4 trillion, airports contribute more
than seven percent to the U.S. gross domestic product and support over
11.5 million jobs around the country. To meet the capacity demands of
the future with safe, efficient, and modern facilities that passengers
and cargo shippers expect, airports need to make new investments to
maintain and modernize our nation's airport infrastructure.
While passenger and cargo traffic through airport facilities
continues to grow at a record pace, our outdated aviation
infrastructure is not keeping up with demand. As a result, far too many
airports around the country are overcrowded and cramped. ACI-NA's most
recent infrastructure-needs survey shows that America's airports
require more than $128 billion in infrastructure upgrades over a five-
year period, with over 50 percent of those needs coming within airport
terminals.
Inadequate airport infrastructure that fails to meet the growing
needs of local businesses and tourists puts in jeopardy the continued
economic growth of American cities, states, and regions. From
established metropolitan areas to burgeoning growth regions to small
communities, sustained economic growth depends on the expansion of, and
investment in, local airports. As the U.S. economy has recovered from
the significant economic downturn experienced during the Great
Recession, the national unemployment rate has decreased and personal
discretionary spending has increased. As such, enplanements nationwide
have dramatically improved, growing at a compound annual growth rate of
3.8 percent between 2013 and 2017, putting further pressure on our
already overloaded airport facilities.
Airport investment also promotes much-needed competition in the
airline industry. New investments in airports can be valuable tools in
helping local communities attract new air carriers, which increases
competition and leads to lower airfares for passengers. Airports need
additional resources to build the terminals, gates, and ramps necessary
to attract new air carriers and entice existing ones to expand service.
The traveling public gets more choices and lower airfares when airports
can build the facilities that provide more airline options and more
service alternatives.
In addition to the impact on local economies, deferred airport
investment over the past two decades has challenged the ability of
airports to deal with the evolving threats posed to aviation security.
We live in vastly different times than when most U.S. airports were
built, and the airports we have today simply were not designed and
outfitted for a post-9/11 world that requires us to maximize both
efficiency and security.
the best way to address airports' infrastructure-funding shortfall
With America's airports facing over $128 billion in infrastructure
needs across the system, it is time to find the means to rebuild our
nation's aviation infrastructure and improve the passenger experience
for millions of air travelers.
It is a common misconception that airports are funded with taxpayer
dollars or a general tax on all citizens. In reality, though,
infrastructure projects at U.S. airports are funded primarily with
federal grants through the FAA's Airport Improvement Program (AIP), a
local user-fee called the Passenger Facility Charge (PFC), and airport-
generated revenue from tenant rents and fees. Airports often turn to
private-capital markets to debt-finance projects, using both PFC-
revenue and airport-generated revenue to repay the bonds.
Traditionally AIP grants--which prioritize safety improvements--
have been used on airfield projects, while PFC user fees--with greater
funding flexibility--have gone towards terminal, ground-access, and
major-runway projects. Both are essentially reimbursement programs used
to pay for past or existing projects. In the case of PFCs, airports
often have committed this revenue-stream for years or decades into the
future to repay past projects, meaning they have no new money coming
into the system to fund future projects. Federal law requires airports
to be self-sustaining, yet it also artificially distorts and constrains
the very funding mechanisms designed to ensure market competition and
airport-infrastructure growth, as the federal cap on the PFC has been
in place since 2000, and federal grants through the AIP have remained
stagnant for over a decade.
Thus, under the industry's current financing-funding model airports
lack stable, predictable funding sources that keep pace with travel
growth, rising construction costs, and inflation for these intensive
capital projects. The PFC cap--last adjusted twenty years ago--has seen
its purchasing power eroded by 50 percent in the past two decades. And
federal airport grants through the AIP have been stagnant for a decade,
and will remain so for another five years under the recently enacted
FAA reauthorization legislation. Moreover, many airports--even those
with sterling credit ratings--have reached 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.
Fortunately, we can rebuild America's airports without raising
taxes or adding to deficit spending by modernizing the federal cap on
the PFC. Modestly adjusting the anti-competitive federal cap on local
PFCs would allow airports to take control of their own investment
decisions and become more financially self-sufficient. Airports could
build the appropriate facilities--terminals, gates, baggage systems,
security checkpoints, roadways, and runways--to meet the travel demands
and customer expectations of their community.
It is important to note that PFCs are not taxes--they are local
user fees determined locally and used locally to help defray the costs
of building airport infrastructure that benefits customers by improving
the passenger experience and spurring airline competition. PFCs are
imposed by states or units of local government; so they are not
collected by the federal government, not spent by the federal
government, and not deposited into the U.S. Treasury. Instead, PFCs go
directly to fund local airport projects approved by the FAA, with input
from airlines and local communities.
At a time of mounting pressure on our federal budget, modernizing
the federal government's cap on the PFC is the simplest and most free-
market option for providing airports with the locally controlled self-
help they need to fund vital infrastructure projects. It would give
airports more flexibility to self-finance and leverage private
investment without the need for additional taxpayer dollars, thereby
allowing airports of all sizes to generate more local revenue for
terminals, gates, runways, and taxiways that would increase capacity,
stimulate competition, enhance safety and security, and improve the
overall passenger experience. Ultimately, modernizing the PFC is the
best way to meet the travel demands of today and challenges of
tomorrow.
due to funding shortfalls airports finance critical infrastructure
projects with bonds
With limited federal funds available and an outdated federal cap on
local user fees, airports often turn to the bond market to help finance
their projects to construct and renovate terminals, maintenance
facilities, parking garages, and other facilities. These bonds must be
repaid with a reliable revenue stream, which is why PFC collections are
so important to airports.
Over the past decade, about 60 percent of bonds issued to finance
airport capital projects were issued as Private Activity Bonds, a
special type of municipal bond that is issued to finance a facility
that serves a public purpose for the benefit of a private user like an
airline. Without access to cost-efficient financing many airports will
be unable to undertake many needed infrastructure-improvement
projects--and as a result, the anticipated job creation and economic
activity from these activities will not be realized.
To help lower airport borrowing costs, Congress must ensure that
airports can continue to finance critical infrastructure projects with
tax-exempt municipal bonds and private activity bonds and eliminate the
alternative minimum tax penalty on airport private activity bonds.
Therefore, the airport industry asks Congress to maintain the tax-
exempt status of municipal bonds and private activity bonds; exclude
airport private activity bonds completely from the alternative minimum
tax; and allow advance refundings on all municipal bonds, including
private activity bonds.
close the airline bag fee loophole that shortchanges the airport and
airway trust fund
Air carriers are increasingly relying on revenue generated from
checked baggage fees and other ancillary charges and less on base
airline ticket fares. Unlike airline tickets, baggage fees and some
other ancillary charges are not subject to a 7.5-percent excise tax to
support the Airport and Airway Trust Fund (AATF), which helps fund FAA
investments in the AIP and the air traffic control system. In other
words, the airlines' a la carte pricing model allows carriers to avoid
paying aviation excise taxes for services that were once included in
the price of traditional airline tickets.
According to the Bureau of Transportation Statistics, the airlines
collected more than $37 billion in bag fees and nearly $28 billion in
reservation-change fees between 2008 and the third-quarter of 2018. The
airline bag fee loophole alone has cost the AATF approximately $3
billion in foregone revenue during that period, and the annual loss is
now about $350 million.
It is time to close the airline bag fee loophole by subjecting bag
fees charged by the carriers to the same aviation excise taxes as base
airfares. Doing so would ensure that the airlines properly deposit
their fair share into the AATF in support of airport-infrastructure
projects, air traffic control modernization, and other FAA functions,
not the airlines' bottom line.
separating fact from fiction on the pfc
Finally, below we seek to correct the record on numerous
misstatements being made about the current state of U.S. airports.
While the airlines continue to charge whatever they want for every
little thing, airports merely seek a modest adjustment to the outdated
federal cap on their local user fee because they now face $128 billion
in backlogged infrastructure needs thanks in large part to airline
opposition to the PFC. The bottom line is that modernizing airport
facilities, growing air service options, cultivating new economic
prospects, and improving the passenger experience is the best interest
of each and every local community.
------------------------------------------------------------------------
Allegation Fact
------------------------------------------------------------------------
Airports are not able to justify the ACI-NA's latest Infrastructure
need to increase taxes on Needs Report [https://
travelers: Airports can't identify airportscouncil.org/intelligence/
a single project nationwide that is airport-
not getting done due to a lack of infrastructure-needs-study/] shows
resources. Not one! that America's airports require
more than $128 billion in
infrastructure upgrades by 2023,
with more than 56 percent of the
needs inside our aging terminals.
------------------------------------------------------------------------
The Aviation Trust Fund is at record The big airlines fall short of
levels and growing: While other actually saying the unobligated
modes of transportation face balance in the Airport and Airway
funding shortfalls, the aviation Trust Fund should go to airports.
trust fund has a more than $6 The trust fund--which is used to
billion surplus. That is money fund AIP grants, FAA facilities
sitting unused, just waiting to be and equipment, and the air
spent. In fact, CBO projects the traffic control system--may enjoy
trust fund to reach an all-time a healthy balance today, but that
high of $7.7 billion this year, and has not always been the case. It
soar to $47.7 billion by 2029. would be irresponsible to
bankrupt a trust fund that is so
important to all of FAA's
activities.
------------------------------------------------------------------------
Travelers and airlines are already The cost of operating an airport
providing billions for airport is high. After airports cover
infrastructure: Customers already their daily operating expenses
pay $6.7 billion per year in there is little left for capital
airport taxes, helping airport intensive infrastructure
revenues to soar to a record of projects. In addition, airports
nearly $30 billion. PFC revenues are required to hold large cash
have doubled to $3.3 billion since reserves because they must over
2000 and are growing at twice the utilize the bond market to fund
rate of inflation. With $165 projects. Airports face almost
billion already invested and $14.5 $92 billion in debt right now to
billion cash on hand, airports pay off past projects, and the
can't spend their considerable borrowing costs are excessive
resources fast enough. thanks to a restricted PFC.
------------------------------------------------------------------------
Airports are diverting billions of This is missing a lot of context.
dollars: Airports are so flush with Congress has exempted 12 ``port
cash, they diverted $5.4 billion authorities'' from the FAA's
over the last 10 years. That's revenue diversion rule because of
money already collected from the complexity of bond issuances
travelers--the same ones on whom for the 15 affected airports. In
they now want to hike taxes-- the case of these airports, it is
siphoned away from airports to pet the authority, state, or city
projects off-airport instead of that actually issues the bond,
putting toward infrastructure rather than the airport itself.
needs. Changing this standard--even for
this small group of impacted
airports--would have significant
negative implications on the
authorities as bond holders and
could jeopardize billions of
dollars of construction projects
and thousands of jobs.
------------------------------------------------------------------------
Higher taxes won't fly with No matter how many times the
consumers: All-in airfares adjusted airlines say it, PFCs are not
for inflation are at historic lows; taxes. They are local user fees
investment in our airports is at an paid by airport users that go
all-time high; and the pot of money directly to local projects to
airports have to fund projects repair aging facilities, improve
continues to grow. Consumers should aviation safety, accommodate
not be left holding the bag for a rising demand, and improve the
tax hike airports do not need. passenger experience. The money
never comes to Washington.
Meanwhile, between 2008 and the
third quarter of 2018, the big
airlines collected more than $37
billion in bag fees and almost
$28 billion from reservation
change fees for a total of more
than $65 billion. And while
airports can account for the
direct passenger benefit for
every PFC dollar, can the same be
said for airline bag fees?
------------------------------------------------------------------------
Letter of March 25, 2019, from Sean O'Neill, Vice President,
Congressional Relations and Infrastructure Advancement, Associated
General Contractors of America, Submitted for the Record by Hon.
DeFazio
March 25, 2019.
Hon. Peter DeFazio
Chairman
Hon. Sam Graves
Ranking Member
Committee on Transportation and Infrastructure, U.S. House of
Representatives, Washington, DC 20515
RE: Hearing on ``The Cost of Doing Nothing: Why Investment in Our
Nation's Airports Matter''
Chairman DeFazio and Ranking Member Graves,
On behalf of the Associated General Contractors of America (AGC), I
thank you for holding this very important hearing looking at our
nation's airport infrastructure needs. AGC members are commercial
contractors who, among other things, build and renovate America's
airports.
These airport projects represent a significant market segment for
our industry. In 2018 alone, local, state and federal governments
invested over $21 billion in renovating and improving America's
airports. These infrastructure investments support more than 250,000
construction jobs. Airport improvement projects also support another
250,000 jobs in the broader economy. Even with these current
investments, the needs of our airports continue to grow due to
increases in both passenger and cargo traffic.
Because of such growth, far too many airports around the country
are overcrowded, outdated and cramped. Over the next five years,
America's airports will require over $128 billion in infrastructure
upgrades. With needs so great, we urge Congress to explore all funding
options for airport infrastructure, including adjusting the Passenger
Facility Charge and providing additional funding for the Airport
Improvement Program.
AGC stands ready to work with members of this committee to ensure
that the infrastructure needs of America's airports are met.
Sincerely,
Sean O'Neill
Vice President, Congressional Relations and Infrastructure
Advancement, Associated General Contractors of America
Statement of the American Society of Civil Engineers, Submitted for the
Record by Hon. DeFazio
introduction
The American Society of Civil Engineers (ASCE) \1\ appreciates the
opportunity to submit our position on the importance of long-term,
strategic investment in our nation's aviation infrastructure systems.
ASCE also wants to thank the U.S. House of Representatives Committee on
Transportation and Infrastructure for holding a hearing on this
critical issue. ASCE is eager to work with the Committee in the 116th
Congress to find ways to further improve our airport infrastructure.
---------------------------------------------------------------------------
\1\ ASCE was founded in 1852 and is the country's oldest national
civil engineering organization. It represents more than 150,000 civil
engineers individually in private practice, government, industry, and
academia who are dedicated to the advancement of the science and
profession of civil engineering. ASCE is a non-profit educational and
professional society organized under Part 1.501(c) (3) of the Internal
Revenue Code. www.asce.org,
---------------------------------------------------------------------------
ASCE has long been an advocate for maintaining and modernizing the
nation's infrastructure. ASCE's 2017 Infrastructure Report Card \2\
rated the overall condition of the nation's infrastructure with a
``D+'', and a $2 trillion 10-year investment gap. Additionally, our
aviation infrastructure received the grade of ``D,'' with an investment
gap of $42 billion.
---------------------------------------------------------------------------
\2\ https://www.infrastructurereportcard.org/
---------------------------------------------------------------------------
Historically, our nation invested in infrastructure projects with
long-term benefits, such as our nation's airports, that strengthened
the economy while the project was being designed and built, and for
generations to come. ASCE has sought to raise awareness of the nation's
pressing infrastructure challenges, and some incremental progress has
been made since ASCE released its first Infrastructure Report Card in
1998.
These past successes inform us that the next major investment in
American infrastructure will require bold vision coupled with
thoughtful planning. If we are to achieve lasting progress for our
airports and infrastructure system, the federal government must commit
to not only financing infrastructure programs but to funding them. This
funding must supplement--rather than replace--long-term solutions,
regular appropriations, and scheduled reauthorizations. Further, all
levels of government and the private sector must do their part to
increase this investment in order to restore America's world-class
infrastructure.
failure to act: closing the infrastructure investment gap for america's
economic future
Infrastructure is the foundation that connects the nation's
businesses, communities, and people, serves as the backbone to the U.S.
economy, and is vital to the nation's public health and welfare.
In 2016, ASCE released Failure to Act: Closing the Infrastructure
Investment Gap for America's Economic Future \3\. In this report, it
was found that the average annual investment gap for airports through
2025 is expected to decrease from $4.6 billion to $4.2 billion.
However, by 2040, the cumulative gap is expected to slightly increase
from a per year average of $3.3 billion to $3.5 billion in 2015
dollars--leaving a total investment gap of $88 billion. By 2025 these
projected infrastructure investment short falls may cause the loss of
nearly 257,000 jobs and $337 billion in lost GDP.
---------------------------------------------------------------------------
\3\ Failure to Act: Closing the Infrastructure Investment Gap for
America's Economic Future. (2016) www.asce.org/failuretoact
---------------------------------------------------------------------------
Fundamental Criteria for Future Infrastructure Investment
ASCE believes that aviation assets, and all infrastructure programs
and projects, supported by infrastructure investment legislation must
meet the following fundamental criteria:
Investments must provide substantial, long-term benefits
to the public and the economy;
The cost of a project over its entire life span--
including designing, building, operating, and maintaining the
infrastructure--must be taken into account;
Projects should be built sustainably and resiliently; and
Federal investment should leverage state, local, and
private investment, not replace these other critical sources of
infrastructure funding.
As the nation looks to rebuild our airports and aviation systems,
ASCE urges the House Committee on Transportation and Infrastructure to
focus first on prioritizing key programs that can make our aviation
system fit for the 21st century.
passenger facility charge
U.S. airports serve more than two million passengers every day. The
aviation industry is marked by technologically advanced and
economically efficient aircraft; however, the associated infrastructure
of airports and air traffic control systems is not keeping up.
Congestion at airports is growing; it is expected that 24 of the top 30
major airports may soon experience ``Thanksgiving-peak traffic volume''
at least one day every week.
Because of an outdated, federally mandated cap on how much airports
can charge passengers for facility expansion and renovation, airports
struggle to keep up with investment needs, creating a $42 billion 10-
year funding gap. Raising or eliminating the cap on the Passenger
Facility Charge (PFC) will allow airports a much-needed revenue boost
and the ability for long-term planning and modernizing of our aviation
system for the 21st century.
public private partnerships
Revenue to fix our aviation infrastructure needs to come from all
levels of government, which includes strong federal leadership as well
as state and local grants. In ASCE's 2017 Infrastructure Report Card, a
key recommendation to raise our aviation infrastructure grade is to
explore innovative third-party funding such as privatization, public-
private partnerships (P3s) and others. As public budgets continue to be
squeezed; P3s allow planners and policymakers more breathing room to
invest. P3s can be an effective financing mechanism through tools such
as municipal and private activity bonds, private tolls, or asset
recycling. These partnerships can then take many forms including
Operation and Maintenance P3s, Design-Build P3s, Design-Build-Operate
P3s, and Design-Build-Operate-Transfer P3s.
Although there are positive financing opportunities provided by
P3s, they do not replace the need for public funding of infrastructure
projects and are not a one-size-fits-all model. There are no standard
criteria for awarding and implementing P3s and many financiers are
unattracted by the return on investment, which can lead to investment
not based on need but on financial return. Simply put, P3s are a tool
in the toolbox that doesn't replace direct funding but is part of a
multi-investment approach. As our nation's airports continue to look
for innovative revenue options to meet growing needs, we must ensure
that financing does not replace funding.
next generation air traffic control system
The promise of the Next Generation Air Traffic Control System
(NextGen) has been a long time coming, designed to increase efficiency
and flexibility, while offering environmental benefits by using better
technology to plot and guide flight paths. NextGen is currently due for
implementation across the United States in stages to be completed by
2025. NextGen improvements, including a reliance on the Global
Positioning System (GPS), enhanced collaboration in the air traffic
environment, use of digital visual and voice communication with
aircraft operators, delivery of tailored weather information, and
improvements to air traffic control equipment and processes, are
expected to improve the use of available airspace and make better,
faster dissemination of critical information.
Essentially, NextGen transforms air traffic control from a radar-
based system to a satellite-based one. Radio communications will be
increasingly replaced by data exchange and automation will reduce the
amount of information the air crew must process at one time. Enhanced
technology will be used to increase routing efficiency, which will
shorten routes, save time and fuel, reduce traffic delays, increase
capacity, and permit controllers to monitor and manage aircraft with
greater safety margins. Implementation is costly, and will require
airlines to make expensive investments, but will increase flight
efficiency and safety in the process.
resilience
Resilience is critically important to the overall health of our
nation's infrastructure network. Resilience is also one of the eight
key criteria used for assessment in our Infrastructure Report Card.
ASCE's 2017 Infrastructure Report Card emphasizes the importance of
preparing for the future by utilizing new approaches, materials, and
technologies to ensure our infrastructure is more resilient and
sustainable. This goal can be achieved by:
Developing active community resilience programs for
severe weather and seismic events to establish communications systems
and recovery plans to reduce impacts on the local economy, quality of
life, and environment;
Considering emerging technologies and shifting social and
economic trends when building new infrastructure, to assure long term
utility;
Improving land use planning at the local level to
consider the function of existing and new infrastructure, the balance
between the built and natural environments, and population trends in
communities of all sizes, now and into the future; and
Supporting research and development into innovative new
materials, technologies, and processes to modernize and extend the life
of infrastructure, expedite repairs or replacement, and promote cost
savings.
Building infrastructure that is designed to meet future needs and
withstand future hazards often comes with a higher initial price.
However, it is a worthwhile investment that pays for itself down the
road. In January 2019, the National Institutes for Building Science
(NIBS) issued the Natural Hazard Mitigation Saves: 2017 Interim Report.
The Institute's project team looked at the results of 23 years of
federally funded mitigation grants provided by the Federal Emergency
Management Agency (FEMA), U.S. Economic Development Administration
(EDA) and U.S. Department of Housing and Urban Development (HUD) and
found mitigation funding can save the nation $6 in future disaster
costs, for every $1 spent on hazard mitigation.
By becoming a more resilient nation, we can ensure our
infrastructure is built for the future and our nation's limited federal
resources are spent wisely, with mitigation and preparedness in mind.
Therefore, we urge Congress to support and include resiliency goals in
all infrastructure related legislation to ensure we are preparing for
the future and limiting our long-term costs.
conclusion: a 21st century vision for america's infrastructure
ASCE thanks the Committee for holding this hearing on a topic that
affects the quality of life and livelihood of every American.
In the 21st century, we see an America that thrives because of high
quality infrastructure. Infrastructure is the foundation that connects
the nation's businesses, communities, and people--driving our economy
and improving our quality of life. For the U.S. economy to be the most
competitive country in the world, we must have a first-class
infrastructure system: transport systems that move people and goods
efficiently, at reasonable cost by land, water, and air; transmission
systems that deliver reliable, low-cost power from a wide range of
energy sources; and water systems that drive industrial processes as
well as the daily functions in our homes.
We must commit today to make our vision of the future a reality--an
American infrastructure system that is the source of our prosperity.
ASCE and its 150,000 members look forward to working with the House
Committee on Transportation and Infrastructure to improve America's
infrastructure so that every family, community, and business can
thrive.
Statement of the Beyond the Runway Coalition, Submitted for the Record
by Hon. DeFazio
Chairman DeFazio and Ranking Member Graves, the 93 members of the
Beyond the Runway Coalition would like to thank you for holding this
important hearing on airport infrastructure. We wholeheartedly agree
that investing in our nation's airports matters, as the poor condition
of America's infrastructure is having a negative effect on economic
prosperity and job creation. It is time to move forward with a robust
investment plan to address our country's growing infrastructure needs.
Our coalition has come together specifically to urge Congress to
make a true commitment to America's infrastructure improvement by
investing in our nation's airports. The industries, businesses, and
infrastructure groups represented in our coalition rely heavily on
aviation infrastructure to support economic growth. Providing airports
the opportunity to make new investments in their facilities in order to
meet growing demand would help our industries continue to invest, grow,
and create good jobs in our local communities.
America's airports are a fundamental component of our nation's
transportation infrastructure. In 2017, 1.8 billion passengers and 31.7
million metric tons of cargo traveled through U.S. airports. With a
national economic impact of $1.4 trillion, airports contribute more
than seven percent to the U.S. gross domestic product and support over
11.5 million jobs around the country. To meet the capacity demands of
the future with safe, efficient, and modern facilities that passengers,
businesses, and cargo shippers expect, airports need to make new
investments to maintain and modernize our nation's airport
infrastructure. Unfortunately, existing federal law inhibits the
ability of airports to self-fund these important terminal, runway, and
ground-access projects.
While passenger and cargo traffic through airport facilities
continues to grow at a record pace, our outdated aviation
infrastructure is not keeping up with demand. As a result, far too many
airports around the country are overcrowded and cramped, which hinders
commerce and business opportunities for thousands of companies. In
fact, America's airports require well over $128 billion in
infrastructure upgrades over the next five years. Outdated airport
infrastructure that fails to meet the growing needs of local businesses
and tourists puts in jeopardy the continued economic growth of American
cities, states, and regions. From established metropolitan areas to new
growth centers to traditionally rural areas, sustained economic growth
depends on the expansion of, and investment in, local airports.
As you move forward with infrastructure legislation this year, we
ask that you take into account the urgent needs of U.S. airports, and
explore meaningful funding options to address the over $128 billion
backlog in critical infrastructure and security projects at America's
airports.
Chicago Midway International Airport and Chicago O'Hare International
Airport: Positive Impacts of a Passenger Facility Charge Increase,
Submitted for the Record by Hon. DeFazio
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement of the National Asphalt Pavement Association, Submitted for
the Record by Hon. DeFazio
Dear Chairman DeFazio, Ranking Member Graves, and esteemed members
of the Transportation andInfrastructure Committee:
On behalf of the National Asphalt Pavement Association, we submit
the following statement for the record.
The National Asphalt Pavement Association (NAPA) representing
asphalt pavement material producers and paving contractors recognizes
the need for increased investment in airport infrastructure that
promotes safety, greater mobility, and productivity.
While NAPA applauds Congress for passing a five-year
Reauthorization of the Federal Aviation Administration (FAA)
representing the longest funding period for FAA programs since 1982,
H.R. 302 does not lift the $4.50 federal cap on the Passenger Facility
Charge (PFC), which would have generated more revenue for critical
airfield construction.
Over the next five years, airports will require more than $128
billion to improve infrastructure to prevent passenger delays and
congestion. Direct federal funding through the Airport Improvement
Program (AIP) covers only a fraction of the total infrastructure
projects required to upgrade and maintain our aviation system.
Increasing the PFC would provide airports the locally controlled self-
help they need to finance critical infrastructure projects without
relying on federal funds.
The current PFC cap of $4.50 has not been adjusted since 2000,
however rising construction costs have eroded the purchasing power of
the PFCs by about 50 percent. NAPA supports modernizing the federal cap
on the locally set PFC and indexing it for inflation to allow airports
to raise the funds necessary to address airport infrastructure needs,
ensure passenger safety, prevent delays and congestion without raising
taxes or increasing federal spending.
We urge the committee to consider legislation that modernizes
airport infrastructure investment by lifting the outdated cap on the
PFC to strengthen economic output while supporting jobs through
protecting existing funding mechanisms, such as the Airport Improvement
Program.
NAPA looks forward to working with the committee on legislation
that addresses airport infrastructure investments gaps, in addition to
the long-term solvency of the Highway Trust Fund.
Statement of Ed Bolen, President and CEO, National Business Aviation
Association, Submitted for the Record by Hon. DeFazio
Chairman DeFazio, Ranking Member Graves and members of the
Committee on Transportation and Infrastructure, thank you for holding
this hearing to address the importance of investment in our Nation's
Airports. On behalf of the National Business Aviation Association's
(NBAA's) 11,000 members, we are pleased to provide this testimony.
NBAA's members rely on business aircraft to meet some portion of
their transportation needs. The majority of business aircraft are
operated by small businesses and in large part provide access to
airports supporting communities that aren't served by the commercial
airlines. While the airlines serve only around 500 airports, business
aviation can reach 5,000 public use airports across the United States.
These airports are also economic engines for the cities and towns they
serve and our members and the general aviation community have great
stake in their viability and accessibility.
The United States leads the world in having the most robust and
diverse airport infrastructure capabilities, providing a critical
foundation for general aviation to thrive. Transporting people and
equipment, supporting natural disasters, providing air medical flights
for organs and patients, offering a place for flight training and a
base for inspiration and inception of career paths essential for all
sectors of aviation--general aviation relies on the network of
airports. The cost of doing nothing is too great and without continued
investment in airport infrastructure the future of our country is grim.
Demands for investment in airport infrastructure are great. It is
estimated that annual airport capital project needs are at
approximately $7 billion, with Airport Improvement Funding (AIP) only
fulfilling half of that need at slightly over $3 billion annually.
State grants and access to the capital market can fill a small portion
of the gap, however continued federal investment in airports is
critical so that they can not only fulfill today's demands, but also
handle tomorrow's requirements as well.
General aviation relies on facilities of all sizes. Federal
investment in airports ensures their viability in multiple ways.
Federal dollars allow for airports, especially smaller facilities, to
remain affordable to general aviation use. Without this vital
investment many local municipalities would not be able to maintain the
infrastructure that links their community to the rest of the country
and to the world. Aviation users would not be able to fund the costs to
sustain these facilities through rents and fees alone.
Additionally, federal investment in airports protects our national
aviation infrastructure from being shuttered. Unfortunately, there have
been a number of communities that have made attempts to impose
restrictions limiting access, such as curfews, weight and noise limits,
on their airports attempting to gain local control of what is part of a
national aviation-transportation system. Federal grant obligations play
an important role in preventing these local patch-quilt operational
restrictions and even complete closures.
Coleman A. Young Municipal Airport in Detroit, Michigan is one of
examples of airports falling victim to disrepair without federal
funding, struggling to maintain its runways and taxiways on its own.
The East Hampton Airport at the eastern end of Long Island has made a
conscious effort to forego federal funds and is threatening closure
when its grant assurances expire in 2021. In the meantime, the Town of
East Hampton, despite charging high landing fees, has not invested in
maintaining the airport, jeopardizing safety. Despite the need for
investment in maintenance, Santa Clara County, has chosen the same fate
for the Reid-Hillview Airport, choosing to no longer accept federal
grants for a facility that is a reliever in the San Jose, California
area and plays an important role in flight training and aviation
education as part of the program administered by San Jose State
University, starting the clock to run-out grant obligations by 2031.
On the other hand, airports that have made commitment to federal
grants are benefiting greatly. Not only are these airports able to
maintain their facilities to meet FAA's standards, many are expanding
their runways and are acquiring land for development to meet growing
demand and to maintain efficiency, procure latest equipment and
technology and are complying with federal regulations, providing
unrestricted access to all users.
In 2018 alone, over 40 airports have extended their runways using
AIP funding. Ormond Beach Municipal Airport, a general aviation
reliever, in Ormond Beach, Florida has received a grant to rehabilitate
and extended its runway by 1,000 feet and to renew the runway lighting.
City of Gooding, Idaho and Jeffersonville, Indiana have benefited from
a $1 million in AIP funding to extend their runways. Turners Falls
Airport, Montague, Massachusetts acquired snow equipment with the help
of AIP funding, while Black Hills Airport--Clyde Ice Field in
Spearfish, South Dakota used the money to conduct wildlife hazard
assessments. These are just five of thousands of examples of airports
across the country benefiting from federal investment in their
infrastructure.
NBAA strongly supports continuing the commitment to investing in a
strong national system of airports to meet the current needs and
projected growth. We must maintain a healthy funding mechanism for
airports of all sizes to meet changing demand and important safety and
efficiency improvements.
We commend the Committee for recognizing the importance of our
Nation's airports and look forward to collaboratively working to
address the funding challenges of our Nation's greatest assets--its
airports. The investment in general aviation airports, the backbone of
our air transportation system, is critical in ensuring success of
general aviation in the near term and for future generations. Thank you
again for holding this important hearing.
Statement of the National Precast Concrete Association, Submitted for
the Record by Hon. DeFazio
On behalf of more than 900 member companies in all 50 states that
contribute to the building of our nation's infrastructure, the National
Precast Concrete Association would like to thank Chairman DeFazio,
Ranking Member Graves and the members of the Transportation and
Infrastructure Committee for holding today's hearing on the critical
topic of infrastructure rebuilding.
Air travel is by every measure the safest form of travel, but the
aging of our nation's airports continues to put more strain on the
system. It is estimated that America's airports require well over $128
billion in infrastructure upgrades over the next five years to meet
growing demand, maintain their stellar safety record and continue to
meet the needs of the traveling public. With 1.8 billion passengers and
more than 31 million metric tons of cargo traveling through our
airports every year, airports obviously play a central role in our
nation's infrastructure.
While many airport officials recognize the need to upgrade their
overcrowded, rundown facilities, unfortunately, these officials are
hamstrung by federal law that inhibits the ability of airports to self-
fund needed terminal and runway repairs and upgrades.
The National Precast Concrete Association has worked closely with
the FAA over the past several years, providing technical assistance in
updating the FAA Advisory Circular specifications that cover more than
19,000 airport authorities. The newly approved circular lays the
foundation for rebuilding airport infrastructure with modern building
materials and the latest construction techniques. What's needed next is
the funding to meet the extensive backlog of work to repair and upgrade
the aviation system.
The reauthorization of the Federal Aviation Act last fall sent a
strong message of the importance Congress places on the health of our
aviation system. We hope that was just the beginning. As you address
the pressing needs of crafting infrastructure legislation this year,
please consider additional methods of funding the $128 billion backlog
in infrastructure and security projects at our nation's airports.
Statement of the National Stone, Sand and Gravel Association, Submitted
for the Record by Hon. DeFazio
Dear Chairman DeFazio, Ranking Member Graves, and esteemed members
of the Transportation and Infrastructure Committee:
On behalf of the National Stone, Sand and Gravel Association
(NSSGA), we submit the following statement for the record. NSSGA is the
leading voice and advocate for the aggregates industry. Its members--
stone, sand and gravel producers and the equipment manufacturers and
service providers who support them--produce the essential raw materials
found in homes, buildings, roads, bridges, public works projects and
airport infrastructure. During 2017, NSSGA member companies represented
more than 90 percent of the crushed stone and 70 percent of the sand
and gravel consumed annually in the U.S., and there are more than
10,000 aggregates operations across the United States. Nearly every
congressional district is home to an aggregate facility. Production of
aggregates in the U.S. in 2017 totaled 2.2 billion metric tons at a
value of $22.7 billion.
Our members recognize there is a need for increased investment in
airport infrastructure because they employ tens of thousands of workers
in good-paying jobs that are directly and indirectly connected to
terminal, parking, ramp, apron, runway, and taxiway construction.
Providing airports the opportunity to make new investments in their
facilities in order to meet growing demand would help our industry
continue to invest, grow, and create good jobs in our local
communities. In fact, the ``D'' grade given by the American Society of
Civil Engineers to our nation's Aviation system, actually ranks
slightly lower than the ``D+'' grade for American infrastructure
overall.
A study recently released by Airports Council International-North
America suggests that airports infrastructure upgrades will require
$128 billion over the next four years. Failure to meet this investment
need threatens our nation's economic growth and puts jobs at risk.
Investment in airport infrastructure strengthens the economy by
supporting existing jobs and the creation of new ones.
Airports are struggling to keep up with necessary maintenance
projects with current revenue mechanisms that leave scarce resources
for expansion and maintenance efforts. This comes at a time when
airports are experiencing record levels of traffic and aviation safety
both in the air and on the ground remains the central priority of the
overall passenger experience. Unfortunately, existing federal law
inhibits the ability of airports to self-fund these important terminal,
runway, and ground-access projects.
In closing, in order to ensure that U.S. airports have the
resources they need to modernize their infrastructure, improve the
passenger experience, and continue to put passenger safety first, the
NSSGA supports committee efforts to update the funding options
available to airports. Specifically, NSSGA urges the committee to
consider legislation that eliminates the cap on the Passenger Facility
Charge (PFC) and protect and increase other funding mechanisms like the
FAA's Airport Improvement Program (AIP).
NSSGA thanks the Committee for holding a hearing on this critical
topic and are proud to be part of building and maintaining America's
airports. Failing to invest in airport infrastructure will have a
detrimental impact on the economy, jobs, and airport congestion and
safety. NSSGA looks forward to working with the Committee in the coming
months to improve and modernize U.S. infrastructure overall, including
our nation's airports.
Norman Y. Mineta San Jose International Airport: Impacts of an Increase
of the PFC, Submitted for the Record by Hon. DeFazio
impact of an increase of the pfc at san jose airport
New Terminal to Bring Airport up to 40 gates
When the Norman Y. Mineta San Jose International Airport
(SJC) built its current Terminal B in 2010, the long-term plan included
a Terminal C extension to increase the Airport to a total of 40 gates
and the accompanying support infrastructure (i.e. baggage screening
system, baggage claim, passenger screening, etc.).
Current airline activity now warrants the planning and
construction of this next phase of terminal construction.
While the construction of the new project will take years
of planning and construction, the financing of the project is the
largest obstacle.
Current financial commitments by the Airport include:
$1.3 billion in bond debt
$94 million per year in annual debt service payments
PFC revenue is dedicated to debt service payments
until 2047
Direct Benefits of a Potential PFC Increase to SJC--A New Terminal
Increasing the PFC would dramatically ease the ability of
the Airport to advance the construction of a new Terminal C, bringing
the Airport up to a potential total of 40 gates
The new Terminal C is needed to alleviate gate shortages
and to support the massive growth of passengers at SJC.
Passengers at San Jose Airport grew from 9.8 million
passengers in 2015 to 14.3 million in 2018
Even at modest growth rates of 2-3 percent, SJC would
need to continue to add 1 gate every other year to accommodate
this increased traffic.
The current Terminals are already exceeding design
capacity
The current support infrastructure, which includes
passenger screening, baggage screening, and baggage claim, is
exceeding design capacity
SJC starts most days with over 40 aircraft parked
overnight but with only 30 gates to service these planes. Airline and
airport staff are constantly towing and reconfiguring aircraft
locations to accommodate the current operations.
impact of a $4 pfc increase vs status quo
Cost of a New Terminal--The cost of a new Terminal is
estimated to be $1 billion.
If the Airport has to completely debt finance the
Terminal, this will:
Add $97 million in an annual debt service expense
to the Airport
Interest payments alone would add an $1.3 billion
to the cost of the debt.
Decreases the value of the PFC to only 16 percent
of the debt services payment
Increases the Cost Per Enplanement (CPE) by 73
percent or by $8
If the Airport used debt financing, combined with a
$4 increase in the PFCs, this could:
The Airport could raise an extra $36 million/year
to put towards financing the expansion
Cut the annual debt service by a third
Maintains the PFC source of funding for the debt
services at slightly more than one-third of the annual debt
services payment
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement of Airlines for America (A4A), Submitted for the Record by
Hon. Graves of Missouri
On behalf of Airlines for America (A4A) and the passengers and
customers we serve, thank you for the opportunity to submit written
testimony to a hearing that is specifically designed to drive an agenda
favorable to raising taxes unnecessarily on American families and the
traveling public. The witness panel--which overwhelmingly consists of
well-funded airports and their advocates--will attempt to make the case
for a tax increase in the Passenger Facility Charge (also called the
Airport Tax); it is important for the actual facts surrounding airport
investment to be part of the record.
If you take one thing away from this testimony, it's that airlines
strongly support necessary investments in airports across the country.
Airline collaboration has paved the way for widespread airport
investment without unnecessarily increasing taxes on passengers.
Airlines believe airport investments are critical in ensuring that
our aviation system is developed in a way that supports the incredible
economic benefits the aviation industry delivers. The facts clearly
show airport development is blossoming--and it is doing so within a
multi-tool financing system that easily allows for investment without
taxing passengers. If you strip away the airport rhetoric, you will
find that there is an overwhelming abundance of available capital at
U.S. airports. In reality, airports are collecting record levels of
revenue and are well positioned to fund necessary projects. For
example:
Airport revenues are soaring. U.S. airports collected
nearly $30 billion in 2017 including:
Record high $11.8 billion in airline rents and fees.
Record high $10.1 billion in non-airline revenues
(e.g., terminal food and beverage, retail and duty free; rental
cars; parking and ground transportation; and hotels).
Nearly $3.4 billion from the Federal Aviation
Administration's (FAA) Airport Improvement Program (AIP).
Interest/other income of $1.4 billion.
These numbers should be staggering to the Committee, and
they do not even take into account that PFC collections also set a new
record in 2017 at $3.3 billion, the highest level in the history of the
program. As travel grows, PFC revenue continues to expand and reach new
levels. The FAA estimates that PFC collections in 2018 will set a new
record of $3.427 billion and another record high in 2019 of $3.6
billion.
The Airport and Airway Trust Fund (AATF) has an
uncommitted balance over $6 billion which is expected to grow year-
over-year reaching $9.9 billion in FY2020 alone. It is important to
note, and the point can be lost when discussing budget nuances, that
the uncommitted balance refers to the balance of funds in excess of
what has been appropriated by Congress in a given year. Airlines
support spending those excess funds in lieu of increasing taxes.
The AIP program was given an additional $1 billion from
the General Fund as part of the FY2018 Omnibus and another $500 million
in the most recent THUD bill. The FAA is swimming in federal cash for
airport investment, yet we are discussing increasing taxes on the
traveling public.
The story does not end there. U.S. airports are
flourishing; airport revenues far outpace inflation. From 2000 to 2017,
U.S. airport revenues per passenger grew 47 percent, exceeding
inflation. (The U.S. Consumer Price Index rose 42 percent.)
Airports are also in strong financial positions,
according to their own financial reports filed with the FAA, U.S.
airports ended 2017 with a record $14.5 billion of unrestricted cash
and investments on hand or 381 days of liquidity.
Airports have asserted that they want a PFC increase to
secure long-term funding. PFCs are not, and were never intended to be,
the primary funding source for airport projects versus bonds and, to
our knowledge, no U.S. airport has been unable to secure bond financing
for necessary projects. In fact, the private sector capital markets are
quite viable, and all U.S. airports rated by Standard & Poor's and
Moody's enjoy investment-grade credit ratings, which ensure ample
access to the bond market at preferred rates.
U.S. airport development is astounding with nearly $165
billion of capital investment at the nation's thirty largest airports,
the majority currently underway or yet to begin. These include, for
example: new, expanded or modernized terminal facilities at Atlanta,
Boston, Chicago (ORD), Dallas (DFW), Denver, Las Vegas, Miami,
Honolulu, Houston (IAH), Los Angeles, Newark, New York (JFK and LGA),
Orlando, Phoenix, Portland, Salt Lake City, San Diego, San Francisco,
Seattle and Washington (DCA). Along with 27 airfield capacity projects
at 23 major airports including new runways at Fort Lauderdale, Chicago
(ORD), Charlotte, Seattle and Washington (IAD).
The rate of development is also robust at smaller
airports, including, for example, airfield projects at Anchorage,
Columbus, Des Moines, El Paso, Manchester, Providence and Sioux Falls
and terminal projects at Bangor, Dallas (DAL), Eugene, Grand Rapids,
Greenville-Spartanburg, Kansas City, Nashville, New Orleans, Oakland,
Pasco, Reno-Tahoe, San Antonio, San Luis Obispo and Wichita.
Airport investment is similarly strong at cargo
facilities including projects in Louisville, Lafayette (Louisiana),
Indianapolis, Miami, Newark, Ontario, Rockford and Memphis.
The truth of the matter is that aviation is already overburdened
with 17 unique taxes and fees imposed by the federal government. In
FY2018 alone, U.S. commercial aviation taxes and fees exceeded $25
billion. Federal taxes and fees account for approximately 21 percent
($64) of the total cost of a $300 domestic one-stop round-trip ticket,
putting air travel in the same tax bracket as so-called ``sin
products'' which are taxed to discourage use.
The inconvenient truth for the airport community is that aviation
infrastructure funding is solvent, and aviation infrastructure funding
is burgeoning. There is absolutely no need to raise passenger taxes by
any amount. With record-high revenues, unfettered access to bond
markets, a robust AATF and plenty of cash, airports have more than
ample funding to address capital needs without an increase in the PFC
or any other tax for that matter.
Further to this point, the practice of revenue diversion should be
abolished. The fact that over $5 billion has been diverted from
airports in the past decade is an indication that localities have other
priorities. Before increasing passenger taxes, Congress should spend
down the trust fund and put an end to revenue diversion.
Make no mistake; a PFC increase would be a system-wide and
permanent tax increase with real repercussions:
The Government Accountability Office (GAO) has previously
pointed to the fact that ``Economic principles and past experience
dictate that any increase in the price of a ticket--even if very
small--will have an effect on some consumers' decisions on whether to
take a trip or not. For example, an increase in the price by a few
dollars may not affect the decision of a business flyer going for an
important business meeting but could affect the decision of a family of
four going on vacation.''
Not to be outdone, the Congressional Budget Office (CBO)
and the Joint Committee on Taxation (JCT) determined that an increase
in the PFC will, if enacted, reduce federal tax receipts, putting such
a proposal in violation of budget rules, both internal to Congress and
external via the statutory ``PAYGO'' process.
Finally, the proverbial ink is barely dry on what was a historic
five-year FAA reauthorization bill that provided significant,
consistent and stable funding for airports. Just months into that five-
year FAA bill, airports are demanding more money under that auspices of
``infrastructure reform''--hinged on the concept that they share the
same infrastructure challenges as surface transportation on other
modes.
Nothing could be further from the truth, per the Congressional
Research Service (CRS). Based on current law, a future five-year
highway bill would need to cover a projected $68 billion shortfall, and
a six-year bill would need to cover and $89 billion shortfall. In an
era of multibillion-dollar highway shortfalls, the stark contrast
between yearly highway deficits versus robust and annual multibillion-
dollar unobligated AATF balances should be eye-opening to the member of
this Committee and Congress as a whole.
We will conclude like we began, airlines strongly support necessary
investments in airports across the country. We are committed to airport
infrastructure projects and believe they can easily be done without
increasing taxes. Despite the hyperbole, the facts clearly show there
is not a funding crisis at our nation's airports, and the ``Cost of
Doing Nothing'' will be stable and robust airport investment without
increasing taxes on the traveling public.
Letter of March 26, 2019, from Steven D. Hill, CEO and President, Las
Vegas Convention and Visitors Authority, Submitted for the Record by
Hon. Titus
March 26, 2019.
Congresswoman Dina Titus
2464 Rayburn House Office Building, Washington, DC 20515
Dear Congresswoman Titus:
As CEO and President of the Las Vegas Convention and Visitors
Authority, it is my priority to protect our top industry--travel and
tourism. It is critical to ensure Southern Nevada remains an easily
accessible destination for our airline partners and the millions of
business and leisure travelers who visit our community each year.
Las Vegas welcomed 42 million visitors in 2018, generating
approximately $60 billion for our local economy and supporting 41
percent of Southern Nevada's workforce. For the past 25 consecutive
years, Las Vegas has had the distinct honor of being named the No. 1
trade show destination in North America, according to Trade Show News
Network.
Our unique partnership with McCarran International Airport to
proactively approach carriers for non-stop and easy one-stop service
both domestically and internationally is a key factor to Southern
Nevada's travel and tourism success. In 2018, during its 10th year of
operation, McCarran celebrated its busiest year in the airport's
history welcoming 49.7 million arriving and departing passengers. In
addition to the new annual record, McCarran posted multiple all-time-
high months throughout the course of the year. McCarran was also ranked
No. 1, along with Orlando, in passenger satisfaction among Mega
Airports in the J.D. Power 2018 North America Airport Satisfaction
Study.
On behalf of the travel and tourism industry, I urge you to support
a Passenger Facility Charge (PFC) cap increase inclusive of a caveat
allowing the individual airports flexibility to, at their discretion,
increase the fee within the range of the cap. Currently, the PFC
Program allows the collection of PFC fees up to $4.50 for every
enplaned passenger at commercial airports controlled by public
agencies. Increasing the PFC cap would accelerate investments in
airport infrastructure that improve the passenger experience,
facilitate growth in air travel, and make America's economy more
globally competitive. Meanwhile, giving the individual airports the
discretion at which to increase the fee within the range of the cap
protects their individual business models.
Air traveler spending in the United States generates significant
economic activity, supports millions of American jobs, and improves our
nation's quality of life. Over the next decade, air travel is forecast
to grow from 776 million to 926 million enplanements per year, which
could add an additional $224 billion in annual travel spending and
support 750,000 new American jobs. Unfortunately, this growth can only
be realized if our airports have the financial resources to modernize
and promote competition.
Too many of our nation's airports are outdated, congested and
unable to handle passenger demand. The FAA predicts that travel demand
will exceed capacity at many of the nation's largest airports within
the next 15 years, unless airports achieve sustainable levels of
capital investment.
Again, I encourage you to support a Passenger Facility Charge (PFC)
cap increase inclusive of a caveat allowing the individual airports
flexibility to, at their discretion, increase the fee within the range
of the cap. Thank you for your continued leadership to revitalize
America's airports and improve the travel experience. We look forward
to working with you on this and other important travel-related
policies.
Sincerely,
Steven D. Hill
CEO and President, Las Vegas Convention and Visitors Authority
Letter of April 12, 2019, from Maurice J. Gallagher, Chairman and CEO,
Allegiant Travel Company
April 12, 2019.
Congressman Peter DeFazio (OR-4th)
Chair
Committee on Transportation and Infrastructure, U.S. House of
Representatives, 2134 Rayburn Office Building, Washington, DC
20515
Congressman Sam Graves (MO-6th)
Ranking Member
Committee on Transportation and Infrastructure, U.S. House of
Representatives, 1135 Longworth HOB, Washington, DC 20515
Re: Hearing: ``The Cost of Doing Nothing: Why Investment in our
Nation's Airports Matters''
Dear Chairman DeFazio and Ranking Member Graves,
The purpose of this correspondence is to, once again, register
Allegiant's opposition to any change in law that would allow airports
to increase to the Passenger Facility Charge (PFC). While we certainly
understand your position on this issue, we feel it appropriate to
explain the rationale behind our strong opposition, and also address
specific concerns that were raised in the March 26th hearing, ``The
Cost of Doing Nothing: Why Investment in our Nation's Airports
Matters.''
At the outset, it is important to note that a PFC increase is, at
its core, the most regressive type of tax, as it disproportionately
impacts lower and middle-income families. The wealthy, the 1%ers, and
those traveling on expense accounts will likely not notice an $8.50 PFC
($17 roundtrip) on their airfare. However, to lower and middle-income
families, for whom a weekend vacation is a luxury, this represents a
substantial increase and a significant impediment to travel. These
travelers are our customers. Make no mistake--they fly because of
affordable fares. This is why we fight so hard to keep fares low. In
fact, the average one-way domestic gross fare on Allegiant is a mere
$83, compared to $212 on larger carriers.\1\
---------------------------------------------------------------------------
\1\ Based on publicly-available DOT data, courtesy of DIIO, YE Q3-
2018; excludes other ULCCs & LCCs such as Frontier, jetBlue, Spirit, &
Sun Country. Gross fare includes government taxes and fees.
---------------------------------------------------------------------------
As far as the hearing is concerned, we would like to correct some
of the misrepresentations and misconceptions.
First--there were several attempts by members of the Committee to
equate baggage fee increases with an increase to the PFC. Members may
have concluded if airlines can raise baggage fees by $5 and not see a
decrease in traffic, then increasing the PFC by $4 also will not have
an impact on consumer demand. This analogy mistakenly conflates an
optional fee subject entirely to consumer discretion, with a tax the
consumer is compelled to pay. In the case of a baggage fee, the
consumer always has the option to either purchase or not purchase a
bag. Once a PFC is implemented, however, the consumer no longer has any
choice in the matter. If airports were willing to make PFCs optional
for every consumer, none of the airlines would object to eliminating
the PFC cap. Let the consumer decide whether or not to pay the
airport's PFC, just as the consumer decides whether or not to purchase
a bag.
Demand for air travel and ancillary items associated with air
travel is absolutely elastic. DOT studies going back to the early days
of Southwest Airlines conclude that as the price of air travel
decreases, demand increases. Years ago, DOT dubbed this phenomenon the
``Southwest Effect.'' Today, as we have seen at numerous airports
across the country, this would more appropriately be called the ``ULCC
Effect.'' Ultra-low-cost-carriers are lowering airfares across the
nation--and more people are flying because of it.
Second--Ms. Barnes from the US Travel Association noted in her
remarks that the second highest source of frustration among air
travelers (according to their survey) is the overall cost of travel.
Increasing the PFC directly results in higher fares and higher costs--
exactly what consumers do not want. Unfortunately, this point was
buried in other rhetoric designed to make it look as though the PFC has
universal support among travel and consumer associations. It most
certainly does not.\2\
---------------------------------------------------------------------------
\2\ See Travelers United: ``No Reason to Slam Passengers with more
Airport Taxes'' https://www.travelersunited.org/no-more-airport-taxes/.
See also: Liam Siguad--``An Unnecessary Increase in Airport Passenger
Fees would Hurt Consumers'' https://thehill.com/opinion/finance/437290-
an-unnecessary-increase-in-airport-passenger-fees-would-hurt-consumers.
---------------------------------------------------------------------------
Ms. Barnes also noted airline fees came in as the highest source of
frustration among air travelers. However, while consumers may have
reported airline fees as their highest source of frustration, consumers
have voted with their wallets. ULCC carriers are the fastest growing
airlines in the country--growing at 18 percent per year since 2007,
compared to just 0.3 percent per year for legacy airlines. Travelers
love our low fares and appreciate the opportunity to pay only for the
items they want. More than 30 percent of our customers purchase airfare
only--they choose not to buy any ancillary items, including baggage or
priority seating. Just 4 percent of our customers purchase an ``all-
in'' ticket.
Lastly--the panelists and members spent a significant amount of
time arguing a PFC increase will allow airports to build more gates,
which will in turn, provide more opportunities for ULCC competition. We
categorically reject this argument. First, there is absolutely no
guarantee increased PFC funds will result in any new gates--and even if
new gates are built with such funds, there is no guarantee those gates
will be assigned to ULCC carriers. Second, ULCCs currently serve more
than 170 unique airports in the United States. Many of those airports
have two and some even three ULCC carriers. The notion that a lack of
adequate gate/holdroom space is preventing ULCCs from serving the
traveling public is simply not true. In fact, there are fewer
departures in the United States today than there were in 1985.
Increasing the PFC will not enable more airline competition. To the
contrary, it will erode the competitive cost advantage ULCCs currently
have over larger carriers, as a $4 increase to the PFC is much more
easily absorbed by the business traveler traveling on an expense
account than a family of four paying with their own hard-earned
dollars. Assuming a PFC cap at $8.50, that family of four could pay
$136 just in PFCs. With ULCC airfares at roughly $83 per one-way
ticket, that's $136 on $664 of airfare, or 20.5 percent of the total
cost. This would be in addition to the excessive fees and taxes already
levied on airfare. For lower and middle-income families, this
represents a substantial tax burden.
Rest assured--airlines support prudent airport investments in
infrastructure and modernization and we work with our airport partners
all over the country every single day to achieve that end. That said,
we strongly believe we should not place a greater tax burden on the
backs of the traveling public, particularly when airports are flush
with cash, enjoying record revenues and investment grade bond ratings,
and sitting on more than $7B in unencumbered funds in the Airport and
Airway Trust Fund.
There are more efficient ways and means available to support
airport infrastructure than simply raising taxes--particularly when
that increased tax burden disproportionally impacts middle class
families and budget-conscious travelers. We look forward to discussing
this matter further with you and your staff.
Respectfully,
Maurice J. Gallagher,
Chairman and CEO, Allegiant Travel Company
Appendix
----------
Questions from Hon. Eddie Bernice Johnson for Lawrence J. Krauter,
A.A.E., AICP
Question 1. One of my airports in Dallas has their PFCs constrained
until 2025 and the other airport has their PFCs constrained until 2038.
This means those airports can't leverage new PFC dollars for new
projects until that time. Can you explain what it means to have your
PFCs constrained, and what it means to my airports in Dallas?
Answer. In my written testimony, I discuss the implications created
by the need for extended time commitments of PFC collection as a
financial trap for airports. This trap is created by two primary
elements. The first element is that the current PFC collection rate is
capped at $4.50 and has not been adjusted for construction inflation
for nearly 20 years, therefore the effective purchasing power of the
PFC is approximately half of what it was when last adjusted by
Congress. The second element is that airports such as those in Dallas,
have substantial unmet capital improvement needs, the cost of which has
risen dramatically due to inflation. The increased cost of capital
improvements projects and a stagnated user fee combine to create very
long term commitments of the PFC in order to pay for these projects and
in many cases forces airports into long-term debt that further
constrains the ability to fund other projects as financial resources
are directed to interest payments instead of to building projects. What
it ultimately means is that the PFC, due to the current cap, is
effectively eliminated as a funding source for ongoing capital
improvement projects and therefore, airports are forced to cancel,
modify or defer critical infrastructure projects.
Question 2. The airports in Dallas are connecting hubs for major
airlines, what do their terminal conditions/gate availabilities mean
for small airports like Spokane in providing service to small
communities?
Answer. Gate availability at hub airports is among the greatest
challenges and limitations that small communities face in connecting
their economies to the global marketplace. One of the foundational
aspects of the Passenger Facility Charge is its ability to allow
airports to construct gates to foster competition and to provide new
capacity for community access. Spokane, among many smaller communities,
has heard numerous times from airlines that they recognize that in many
situations the community can justify more air service to a hub airport,
however they do not have the gate space to accommodate additional
flights. That is why it is critical for airports of all sizes to have
additional PFC resources to construct gates that will increase access
for small communities across the country. We cannot maximize the
benefits of air service to regional economies without adequate gate
capacity at hub airports. Modernizing the PFC to at least $8.50 and
indexing it to construction inflation is the best possible policy
solution to this challenge.
Questions from Hon. Garret Graves for Tori Emerson Barnes
Question 1. Even though a PFC isn't an airline fee or a tax, it
still adds to the overall cost of flying. From the passenger's
perspective, how do increases in the overall cost of flying affect
their willingness to travel?
Answer. Thank you for the question, Congressman Graves. U.S.
Travel's surveys and research have consistently found that most
passengers would be willing to pay more to fund airport improvements
and that a PFC increase would boost air travel demand. In a 2015 survey
conducted by ResearchNow, nearly six in ten Americans (58 percent) said
they would be willing to pay to at least $4.00 more per flight for
airport improvements. Similarly, a 2014 survey conducted by ResearchNow
asked respondents how a $4.00 PFC increase would impact their
willingness to fly. While 7 percent of passengers said they would fly
less, 4 percent said they would fly more and 83 percent said it would
have absolutely no impact at all.
If the PFC cap were increased, any potential decrease in demand due
would be overwhelmingly offset by the substantial increase in demand
spurred by airport improvements. As I referenced in my testimony,
airport hassles caused Americans to avoid 32 million trips in 2016,
which cost travel businesses $24 billion in spending and reduced air
travel demand by more than 8 percent. Moreover, a 2017 survey of U.S.
adults conducted by Morning Consult found that 44 percent of Americans
said they would take more leisure trips by air if airport hassles could
be reduced.
The U.S. Travel Association's mission is to increase travel to and
within the United States. Adjusting the PFC cap will ensure that
airports can quickly and cost-effectively fund improvements that
enhance the passenger experience and accommodate growing demand for
travel. We look forward to working with you towards our shared goals of
ensuring that the overall cost of flying remains market-based and that
airport user fees are adequate to keep America's airport and the
broader travel industry globally competitive.
Question 2. In your testimony you note that ``the PFC is an
optional tool that airports may choose'' to apply. If 98 of the top 100
airports currently collect a PFC, will all those airports likely raise
their PFCs if the cap is lifted?
Answer. Thank you for the question, Congressman Graves. While the
PFC is an essential financing tool that nearly every airport uses, PFC
rates are set on an airport-by-airport basis and each airport has the
option to set its rate at or below the statutory cap. Given the varied
investment and financial needs of each airport, the time it takes to
complete and approve a PFC application, and the flexibility that each
airport has to set its PFC rate, it is extremely unlikely that all
major airports would increase their PFC if the cap were raised. History
has shown as much. After Congress enacted the last PFC cap increase in
2000, it took almost a decade until the vast majority of major airports
were collecting the maximum $4.50 PFC. And even today, nearly 20 years
after Congress increased the PFC cap, there are still several airports
that are collecting a PFC below the $4.50 maximum.
The U.S. Travel Association and its membership look forward to
working with you to ensure that PFC rates are based on financial need
and adjusted on an airport-by-airport basis.
Question 3. Would your non-airport members would be supportive of a
PFC-like tax on their products and services since they receive benefits
from the airport? The consumer advocacy group Travelers United has
suggested that airline passengers are already overburdened with taxes--
therefore other entities that benefit from travelers should be taxed to
pay for airport infrastructure. Given your broad membership--would U.S.
Travel support a tax or fee, specific for airport infrastructure, on
industries that benefit from airport business, such as retailers,
hotels and businesses surrounding airports?
Answer. In limited instances, the U.S. Travel Association and its
membership have supported increased user fees, but only in cases where:
The increase is paid only by those travelers who directly
use a particular government service;
The revenue is reinvested back into the costs of
providing or improving that service; and
The increase is justified and necessary to accommodate or
spur growing travel demand.
A PFC cap increase meets each of these criteria. However, levying a
tax or fee for airport infrastructure on businesses that do not
directly use airport services, even if those businesses receive
indirect benefits from those services, would not meet these criteria.
Therefore, the U.S. Travel Association and its membership would oppose
such taxes or fees.
The U.S. Travel Association and its membership look forward to
working with to prevent unreasonable taxes and fees on travelers and
travel businesses.
Questions from Hon. Eddie Bernice Johnson for Candace S. McGraw
Question 1. One of my airports in Dallas has their PFCs constrained
until 2025 and the other airport has their PFCs constrained until 2038.
This means those airports can't leverage new PFC dollars for new
projects until that time. Can you explain what it means to have your
PFCs constrained, and what it means to my airports in Dallas?
Answer. Passenger facility charges (PFCs) are a funding source that
airport sponsors may use as pledged revenues to back borrowings for
PFC-approved projects. For instance, at CVG, certain Terminal and
airport improvements were capital projects that were originally paid
for with PFCs, and thus our current PFCs are pledged as committed or
constrained to paying down the borrowing on those projects until 2023.
For U.S. airports, like those in Dallas, if the airport charges a
PFC up to the current cap of $4.50, given the decreasing value of money
over time and the number of outstanding projects that have already been
financed using PFCs, this means that an airport can count on fewer and
fewer dollars being available for additional projects. If the PFC cap
is not increased and is not indexed to inflation going forward,
airports could see scenarios where nearly all of their PFC collections,
for many years, are already committed to existing projects--forcing
airports to needlessly issue debt for projects that could be financed
on a pay-go basis or simply delaying projects until PFC collections can
be committed to new projects.
Questions from Hon. Eddie Bernice Johnson for Joseph W. Lopano
Question 1. One of my airports in Dallas has their PFCs constrained
until 2025 and the other airport has their PFCs constrained until 2038.
This means those airports can't leverage new PFC dollars for new
projects until that time. Can you explain what it means to have your
PFCs constrained, and what it means to my airports in Dallas?
Answer. Constrained PFCs mean collections are not keeping up with
the need for new infrastructure to meet passenger demand. That's
because the airport PFC revenue stream is already committed to existing
projects or paying debt service on PFC-backed bonds. This is caused by
the lost value of the PFC due to inflation, increased construction
costs and needs driven by aging infrastructure and a growing number of
passengers. If the PFC is not modernized to address those issues,
airports will forego some projects and issue more debt on others,
spending more on interest instead of reinvesting that money into our
airports. The PFC has been at the same level since 2000 and has not
kept up with inflation. We are being asked to do more with half of the
funding. For your airports and mine, a PFC increase gives us the
ability to make investments at the spending level intended in 2000 to
improve safety, increase capacity, decrease congestion and promote
competition among airlines.
Questions from Hon. Garret Graves for Marc Scribner
Question 1. You testify that an increased PFC will lower airfares
by increasing competition through expanded capacity. How can you be
sure that airports will actually increase capacity when so many
projects are only designed to maintain or in some cases reduce
capacity?
Answer. With respect to competition, my testimony highlighted two
points. First, according to the article from Thomas Gale Moore, a
transportation economist and former member of President Reagan's
Council of Economic Advisors, the PFC was designed specifically for the
dual purposes of reducing airline reliance on federal grants and
increasing competition by reducing airline reliance on tenant air
carriers for capacity improvements.
Second, the empirical findings of Zou et al. (2015) that found PFC
use positively correlates with airport productive efficiency while AIP
use correlates negatives suggest a mechanism: PFC authorizations do not
require airline approval. Given that airlines generally drive AIP use
to airside projects, the PFC--which mostly funds landside improvements
such as gates--increases the likelihood that efficiency-enhancing
passenger terminal projects will take place.
Federal law does not require that any of the PFC program goals
established by Congress, including improved carrier competition, are
assessed by the FAA after initial authorization. On this issue, there
could be future improvement by Congress. However, the fact that PFC
funds continue to be disproportionately spent on passenger terminals--
facilities from which most potential competition benefits to consumers
would be derived--suggests the PFC is broadly working as envisioned by
Congress.
Question 2. In your testimony you note that by eliminating the
statutory cap on PFCs, there would be an improvement in airline
competition. What correlation does an increase in a user fee have to
improving airline competition? Do the revenues from the user fee have
to be spent on certain kinds of projects? What are other barriers to
new entrants at airports?
Answer. It is not the user fee itself that drives competition among
air carriers; rather, it is the revenue from the user fee serving as a
substitute for financial support with tenant air carriers. Under
federal law, airports are greatly constrained in the types of revenue
they are able to collect and what that revenue may fund or finance. In
this setting, airports would often turn to their airline customers for
financial support. In exchange for the carrier funding a needed airport
improvements, the carrier would often demand a long-term exclusive use
gate lease. These exclusive-use or preferential-use gate leases, as
opposed to common use gates, were then used to deny competitors access
to the airport. As I noted in my testimony, Morrison and Winston (2008)
found that limited gate availability at large and medium hub airports
resulted in reduced carrier competition that led to increased airfares
of billions of dollars per year.
As I explained in my testimony, the PFC largely shares eligibility
requirements with AIP. Unlike AIP, the PFC can be used in debt service
and issuance and are free from airline manipulation. Due to this added
flexibility, PFC funds are more likely to be spent on landside
projects--from which most potential competition benefits to consumers
would be derived--than airside projects. The main benefit of the PFC
with respect to competition is its substitutability with incumbent
carrier financial support.
With respect to other barriers to new carrier entrants at airports,
the general federal aviation framework is anti-competitive. The strict
and narrow requirements on possible airport revenue and project
eligibility impose a straightjacket on major passenger airports that
prohibits them from behaving more as the businesses they are. Quality
of service predictably suffers. Outright repeal of the Anti-Head Tax
Act of 1973, from which the PFC provides a narrow exemption, would free
these airports to behave more as businesses. In addition, the existing
supermajority carrier approval requirement under the Airport Investment
Partnership Program could be reduced to a simple majority to increase
the likelihood of airport public-private partnerships. These public-
private partnerships could reorient airports to be customer-focused
businesses, with a main focus being adequate carrier competition and
choice for passengers.
[all]