Graduation Time for PFCs

By Steve Martin, ACI-NA Senior Vice President, Policy, and Chief Financial Officer

The over $50 billion of airport capital investments spawned by Passenger Facility Charges (PFCs) evidence a track record of overwhelming success. The industry share of U.S. airport capital investment attributable to PFCs is estimated at 30 percent, although varying considerably among airports based on a variety of factors. When considering the capital needs of airports a decade or more into the future, one wonders where we would be today if PFCs were not established 16 years ago.

PFCs were first authorized by Congress in November 1990 as part of The Omnibus Budget Reconciliation Act of 1990, which incorporated The Aviation Safety and Capacity Act of 1990. At that time, PFCs represented a new approach and could best be described as an experiment and nobody was certain how long PFCs would be around. The original legislation permitted airports to charge a PFC in $1.00 increments up to $3.00. At the time, the administrative infrastructure for collecting these funds, navigating project eligibility tests, and gaining required FAA approvals were all unknowns.

FAA-Airports leadership over the last 16 years has done an admirable job creating the PFC program workings, making the PFC program more effective, and recognizing that PFCs are now a backbone of airport capital development. Today, PFCs are a vital tool for ensuring airport infrastructure can accommodate industry growth. To administer the program a whole lexicon of terms was invented to guide the PFC program including: impose-and-use, impose-only, alternative use, termination protection, charge expiration date, covered airport, adequate justification test, significant contribution test, and premium project among others.

PFCs are viewed positively by the bond rating agencies and investor community. PFCs have become well-integrated into the bond financing infrastructure and strategies of most U.S. airports. While the airline industry continues to voice concerns about costs, there is ample in-the-field evidence that airlines generally recognize that PFCs are an essential part of distributing costs to all users, while reducing risk and payment obligations. Further, PFCs can be leveraged far more effectively for needed larger scale airport investments than other FAA-administered programs, such as the Airport Improvement Program (AIP).

Back to Top

Building on Success: The Need for Change

ACI-NA's reauthorization agenda seeks to make the PFC an even more effective tool of airport finance by (1) capitalizing on the lessons learned; (2) reducing program administration costs and increasing responsiveness; (3) permitting greater local decision-making in managing and financing airport capital programs; and (4) keeping pace with airports' capital needs, traffic growth and the unprecedented increase in construction cost inflation. However, the program restrictions originally put in place to implement PFCs now serve as a straitjacket preventing PFCs from achieving their potential to better address airports' needs.

Charting the Path: ACI-NA PFC Recommendations

1. Replace the burdensome application and approval process - airports should be allowed to move into an "Impose, Report and Review" program analogous to how FAA oversees its Revenue Use Policy.
2. Eliminate the eligibility distinctions between $3.00 and $4.50 - this distinction has proven itself unnecessary and a source of administrative confusion and delay for projects.
3. Expand PFC project eligibility to include all aspects of publicly used projects - PFCs are not a substitute for AIP, yet PFC project reviews track AIP eligibility more closely than they should.
4. Facilitate PFC leveraging - better leveraging allows projects to be built sooner and aligns user payments with useful life costs.
5. Recapture lost value from construction cost inflation and keep pace in the future - at a minimum, the current ceiling on the PFC rate needs to be reset and then adjusted annually for inflation going forward.
6. Move away from "one size fits all" thinking - airport needs vary significantly depending on airport size, location, capital program cycles, and the age and condition of existing facilities.
7. Streamline, focus, and reinvigorate the consultation process - with the vast majority of PFC projects receiving "concurrence designations" from most airlines; we need to make the process more meaningful for projects warranting additional stakeholder review and more efficient for well accepted business-as-usual projects.

As part of reauthorization, we need to reinvent and modernize the PFC. Let's allow the PFC program to graduate from the early 1990s FAA-managed experiment to a permanent, flexible, and efficient cornerstone of airports' capital development strategies. As we together work our way through the reauthorization debate, please share with ACI-NA your views about the PFC program and the other priorities of your airport, community and/or aviation business.