March 12, 1998

Mr. Chairman and members of the subcommittee, I appreciate the opportunity to appear before you today to present the views of the Air Transport Association (ATA) concerning an increase in the Passenger Facility Charge.

Over the course of the past six years, since the institution of Passenger Facility Charges (PFC), the traveling public has been handed a bill for $18.5 billion. While it is not universally true, unfortunately, in far too many cases, these PFC supported projects have been tangential at best to the true safety and capacity improvements Congress had in mind when it permitted airports to begin imposing this tax.

What's gone wrong? Cutting to the heart of it, some airports learned very quickly how to game the system. Instead of funding high priority projects, that offer meaningful safety and capacity enhancements, the PFC project pile is full of too many marginal, debatable, and just plain wrong proposals. They could never have passed the type of thorough business-case analysis that scrubs good projects from bad and forces the setting of appropriate priorities. This has resulted in the funding of the truly tested and valuable projects to the traditional process of airport/airline negotiation where they have indeed moved forward. The bottom line, however, - the consumer gets hurt.

Now we are hearing from the airport community that this addiction to easy tax money is becoming more acute - they need to increase their dosage of PFCs. On behalf of the ATA members, and I dare say in this case, on behalf of our passengers, we think the answer from this committee must be a resounding "NO".

Let me give you just a brief bit of history on this matter.

HEAD TAX HISTORY

It is now more than 35 years since the first attempt at levying a Passenger Facility Charge was commenced. That effort, in 1962, had the Los Angeles City Council proposing a $1.00 tax for each arriving and departing passenger at LAX. The proposal was dropped after an adverse opinion from the city attorney, as well as objections and concerns raised by the airlines and airport management. Later in 1962, a similar proposal was investigated, although not implemented, in Spokane, Washington.

Subsequently, however, head taxes were levied in Evansville, Indiana in 1968, Lebanon, New Hampshire in 1969, and Philadelphia, Pennsylvania in 1972. By 1973, more than 50 airports had adopted head taxes, creating confusion as well as a lack of financial discipline as each airport in the national system sought to become the toll keeper for the right of entry. Responding to public pressure, in 1973 Congress finally imposed a flat prohibition on such taxes. And in spite of the insistence by some airports that the drying up of this revenue stream would lead to airport chaos and gridlock, nothing of the sort occurred. Congress and the industry found the correct way to finance with priorities in mind. Some might even say the nation's airports flourished.

In 1990 the Congress provided a limited exemption from the Anti-Head Tax Act to provide for the implementation of Passenger Facility Charges. Since the first PFC was collected in July 1992, FAA has approved collections in excess of $18.5 billion. Do not be swayed by the siren song of free money now being sung by the airports to bump up the PFC ceiling. How much would that cost? Attached to this statement is a chart depicting the five-year cost of a $2 PFC increase in each state. And, in actuality, since the average PFC is imposed for ten years, a $2 PFC increase in all likelihood means a tax increase in excess $8 billion.

The ATA-member carriers are steadfast in their opposition to any increase in this tax - and unified with you and the American people in opposing excessive taxation.

COST/BENEFIT ANALYSIS

Mr. Chairman, there is a fiscal responsibility void associated with the PFC program. Unnecessarily absent from the statute is a precise congressional direction that all PFC projects must have a clear, aviation-related need and cost-benefit justification in order to be approved. The airports that impose PFCs don't think it's appropriate. The FAA that authorizes their imposition doesn't believe it's appropriate. Their view apparently is - it's free money so there need not be any accountability.

We recently commented to the FAA on a specific project that there was no credible demonstration that it would produce benefits in excess of costs. The FAA's response was completely justifiable in the absence of an appropriate standard setting - which to date, no one in a position of authority has had the will to do.

"There is neither a statutory nor a regulatory requirement for the FAA to conduct cost/benefit analysis as part of its review process of PFC applications. Nor has the FAA yet issued a policy requiring cost/benefit analysis for PFC projects."

Mr. Chairman, we urge you to end this situation. With the FAA having already authorized the collection of $18.5 billion in taxes without any cost/benefit requirement, we respectfully request that the Congress refrain from increasing these taxes and instead instill a measure of accountability in the process.

We suggest, at a minimum, the subcommittee advance legislation requiring an enhanced regulatory definition of the criteria for justification and approval of PFC projects. There needs to be an increased burden, on both the proponents and the FAA, to evaluate proposals against objective standards. Approval should be forthcoming only after a finding that a project is not only eligible, but also is necessary to provide needed enhancements in safety, capacity, security, noise mitigation, or would promote competition between or among air carriers.

To measure against such a standard one must first identify current airport, airside, terminal and landside capacity, and identify, upon the basis of growth estimates, future needs. These growth estimates must be objective and developed jointly by the airport and carriers serving that facility. The PFC process needs a prudent, due diligence analysis. It is only under such circumstances that a plausible conclusion supporting the necessary funding can be reached.

Mr. Chairman, the airline industry is not advocating the elimination of the PFC program. We are simply asking that a basic and objective analysis be required to determine if a proposed PFC project is needed. Frankly, we believe that the opposition by some elements of the airport community to such a test is suspect. Projects worthy of funding should easily pass such a test. Again, we would be pleased to work with the Committee to develop legislative language that would accomplish this goal.

Excessive and unrealistic airport projects are being routinely submitted with virtually no concern for the interests of the fare-paying public. Let me provide you with just one example. Four years ago the FAA approved almost $200 million in PFCs to finance and build a new international terminal at one airport. The airport justified the need for the new terminal on an optimistic, and unsupported, passenger forecast. The airlines recognized that the airport's Federal Inspection Services and international facilities were inadequate, and proposed an alternative - a modest expansion of international facilities at about 5% of the cost of the grandiose new terminal.

The airlines provided the airport with an independent analysis of the airport's forecast that concluded that the forecast was, well, let's be frank, a pipe dream. The airport ignored that analysis, the FAA ignored that analysis, and now we have a $200 million, brand, spanking, new facility with 10% fewer international passengers than was the case when the project was proposed. At the rate international passengers are dropping off at this airport, the old facility the carrier's proposed $10 million expansion might have been profligate.

AIRPORT ACCESS PROJECTS

Lastly, Mr. Chairman, I would like to bring to your attention one additional matter that calls out for congressional attention. The Congress must put a stop to wasteful airport spending on off-airport projects that do nothing to enhance the safety, capacity, or security of the national system of airports. FAA's approval last month of approximately $1.5 billion in Passenger Facility Charges to build a train at New York's John F. Kennedy International Airport is a major setback for airport safety and capacity investment. The FAA's approval is all the more alarming in light of the priority given to this train over other Port Authority capital improvements awaiting funding - by the DOT Inspector General's own accounting some $2.4 billion, much of it involving safety, security and capacity.

Less than 10 days after the FAA approved this project, Denver approached the airlines once again to resurrect the use airport funds to acquire an off-airport rail right-of-way. The initial 17-mile stage of this project would connect the airport with downtown Denver. The long-term plan would connect the airport with ski resorts. Is that an appropriate use of airport funds?

INDUSTRY COST STRUCTURE

I think it is all the more important that you look at these taxes, for which no cost/benefit requirement exists, in the broader cost context in which the airline industry operates. We are currently in the last two years of a massive capital program to change the fleet from Stage II to Stage III. We are underwriting a wide array of security changes, including the introduction of new equipment, put forward by the White House Commission on Aviation Safety and Security. We have begun two major voluntary safety initiatives: installation of smoke detection and fire suppression equipment in cargo holds and installation of Enhanced Ground Proximity Warning Systems. We have agreed to underwrite major necessary expansions at a number of airports costing in the multiple billions of dollars. And lastly, the industry was the unfortunate recipient of a substantial tax increase, which will add at least $4 billion to our cost structure over the next five years.

In light of the foregoing, we very strongly oppose any increase in the PFC.

Mr. Chairman, we would like to thank you and the Members of the Committee for the opportunity to present the views of the nation's airlines on Passenger Facility Charges. As you move forward with legislation, we stand ready to work with you on an appropriate cost/benefit needs assessment program and on defining limits on the use of airport funds for off-airport access projects.