Speaker Paul Ryan (R-WI) and House Minority Leader Nancy Pelosi (D-CA) last night announced the House Republican and Democratic lawmakers who will serve on the House-Senate conference committee for H.R. 1, the Tax Cuts and Jobs Act. The House passed its version of the bill in November and the Senate passed its version over the weekend.
As the trade association for commercial service airports in the United States and Canada, ACI-NA has followed the debate over tax reform very closely. There are several provisions in play that will significantly impact the financing of airport infrastructure, including Private Activity Bonds (PABs), advance refundings, and the Alternative Minimum Tax (AMT).
Airport Priorities for Final Tax Reform Package
Private Activity Bonds (PABs)
Airports support protecting in full the current federal income tax treatment of PABs as envisioned by the Senate bill. Any effort to restrict or reduce the current federal income tax treatment of PABs will directly affect the availability and affordability of vital airport projects. If these bonds were issued as taxable bonds, estimated debt service obligations would have to be increased by at least $890 million over the life of the bond.
Looking ahead to finance the $100 billion in anticipated renovation and modernization projects from 2017 to 2021, airports could face a vexing dilemma: either pay an estimated $3.2 billion over the life of the bond ($1.9 billion in present value) in additional debt service obligations if the bonds are subject to federal tax (and pass these increased financing costs on to airport users) or abandon or scale-back anticipated improvement projects. Neither option is acceptable to commercial airports or the passengers, airlines, vendors, and others that they serve.
Alternative Minimum Tax (AMT)
Airports support the position in House bill that eliminates the AMT for both corporations and individuals because it would enhance airports’ ability to finance infrastructure costs at a lower interest rate. Interest earned by investors on PABs is currently subject to AMT. Eliminating the AMT would lower the interest rates demanded by investors, thus reducing the financing costs of airport projects funded by PABs. Eliminating the AMT for both individuals and corporations is a pro-infrastructure policy.
Advance Refunding of Municipal Bonds
Under current law, airport governmental bonds are permitted a single advance refunding. This allows airports to take advantage of reductions in interest rates to realize significant savings, which ultimately benefits air travelers. Airports oppose provisions in both the House and Senate bills that would eliminate the ability to advance refund.
Fast Airport Industry Facts
Airport Economic Impact Facts
Airports contribute $1.1 trillion to U.S. GDP. That’s more than seven percent of GDP.
1.2 million people work at U.S. airports. U.S. airports support 10 million jobs.
Current State of Airport Infrastructure
- The average airport facility in the United States is 40 years old.
- The youngest large hub U.S. airport is more than 20 years old.
- No large hub airport has been built after 9/11.
- 825 million people travelled through a U.S. airport terminal last year.
- We expect to hit 1 billion passengers in the next decade, probably sooner.
- More than 2 million passengers travel through a U.S. airport every day.
ACI-NA Infrastructure Study
- Airports have nearly $100 billion in much-needed infrastructure projects over next five years.
- Airport infrastructure needs have increased 32% in 2 years – up from $75 billion in 2015.
- Meeting airport infrastructure needs could create 2.1 million jobs.
Airport Financing Policy Solutions
Airports have $20 billion a year in infrastructure needs. To meet that goal, we need to:
- Preserve the tax benefit of Private Activity Bonds.
- Modernize the locally set Passenger Facility Charge user fee as recommended in the Senate Appropriations Committee-approved federal transportation and infrastructure appropriations bill.
- Fully fund the Airport Improvement Program.
- Under the current model, there is a $10 billion funding shortfall in meeting airport infrastructure needs.
Now is not the time to be making it harder or more expensive to invest in airport infrastructure.
