Proposed fuel tax powers heated airport debate
T.F. Green Airport is experiencing some turbulence in the wake of its lobbying to get a 7 percent excise tax on jet fuel passed through the Rhode Island legislature in order to increase revenue and continue on a path of growth, which has resulted in outcry from some of the airport’s low-fare carriers who say the tax will do the exact opposite and harm Rhode Island travelers.
The legislation was entered into the Rhode Island Senate in February as S 2377 and was held for further study. House Leader K. Joseph Shekarchi introduced the House version, H 8065, in April. The issue was brought back into the public eye as the House Finance Committee held a hearing on the topic Tuesday, to which there was no final action or vote called.
If enacted, the measure would impose a 7 percent tax on jet fuel to airlines that fuel at T.F. Green, beginning in January of 2019. Only jet airlines, which utilize higher-grade jet fuel, would be impacted. Smaller engine planes, which utilize a different type of fuel, would not be taxed. The tax would also only affect Green Airport, not the smaller regional airports in Rhode Island.
“There’s a lot of passion with the issue and a lot of interest in the issue,” Shekarchi said on Wednesday. “No decisions have been made about the process yet.”
The argument from the Rhode Island Airport Corporation, which owns and operates T.F. Green, is that the airport needs to achieve more revenue to sustain the growth they have seen since President and CEO Iftikhar Ahmad assumed leadership of RIAC in 2016. Since then, the airport has expanded one of its runways to accommodate international flights and has welcomed in five new airlines.
In addition, according to RIAC spokesman Bill Fischer, T.F. Green is primed to be upgraded from a small-sized travel hub to a mid-sized hub, which has its own implications. On one hand, the airport is able to apply for larger federal grants. However, the amount the airport has to match to qualify for these grants also increases – from 10 percent to 25 percent, according to Fischer.
“There’s a cost to growth,” Fischer said.
Since airports are mandated to be financially self-sustaining by the FAA, the only significant way they can earn money to operate is through fees on its services and the purchase of items within the airport. Fischer argued that a fuel tax is not uncommon, in fact it is far more uncommon for states to not have them. In total, 43 other states, including all other New England states, have some degree of fuel tax in place.
In additional, Fischer said that airlines that fly in and out of Green already enjoy significant savings through other lower-than-average fees that encompass what is called the “cost per enplanement” (CPE), which is the formula for how airline executives evaluate the cost/benefit analysis of bringing their planes to any airport.
Fischer argues that, even with a 7 percent fuel tax increase projected to raise about $3.2 million for the airport, airlines will still be saving a net of about $9 million annually comparative to other airports in the region through lower CPE fees, such as landing fees and fees for acquiring space needed for in-terminal ticket counters.
“Some of the airlines are being a bit disingenuous not recognizing the costs that have been lowered across the board,” he said. “You can't myopically look at one fee and say ‘This is going to hurt us,’ when we're lowering fees across the board and have pledged to continue lowering fees across the board.”
Airlines say tax will be passed on to travelers
Should the tax be enacted, airlines are warning the legislature that the low-fares carriers that have been flocking to Green would be in jeopardy of hiking fares to compensate, harming passengers and cargo shippers – since the tax would affect cargo shipping planes as well as passenger airlines.
“Under the proposed fuel tax increase, Rhode Islanders will pay in the form of higher airfares and higher shipping costs and/or lost air service as airlines elect to operate and grow their air service elsewhere,” said Airlines for America Vice President Sean Williams through a statement.
They also argue that there is no guarantee that other fees will continue to decrease, as Fischer stated, while a new tax will unquestionably add to their expenses.
“Though PVD officials have suggested some possible areas where savings might be achieved, we have yet to receive the analysis and remain skeptical it could support such a conclusion,” Williams continued in his statement. “Regardless, charging the airlines one operating expense [a fuel tax] to offset another expense they pay [the airport's operating budget] is not a sound financial practice or policy.”
Low-fare airlines, including Allegiant, Frontier and Spirit – which currently does not operate out of Green – have also combined their efforts to denounce the proposed tax.
“Unfortunately, if enacted, this proposed 7 percent fuel tax will immediately make Rhode Island one of the most unfriendly aviation fuel-tax environments in the country,” reads a statement signed by the presidents and CEOs of Allegiant, Frontier and Spirit Airlines sent to William Conley Jr., chairman of the Senate Finance Committee. “Moreover, this tax will serve as a substantial impediment to gaining new service from [ultra-low-cost-carriers] carriers not yet serving PVD, namely Spirit. We strongly encourage the legislature to explore alternative methods of funding airport projects – methods that will not jeopardize current and future air service.”
Allegiant took this a step further, sending their own individual letter to the legislature, including a not-so-thinly-veiled threat about future deals with the airport being affected by the proposed tax
“Allegiant flies larger aircraft on some of the longest routes to PVD,” reads a statement sent by Allegiant Director of Government Affairs Eric Fletcher. “This requires us to purchase more fuel per flight than other airlines; thus, we would be disproportionately impacted by this fuel tax increase. Our network planning team and PVD officials have already discussed adding new cross-country routes, but a fuel tax as proposed would dramatically decrease the likelihood of this expansion.”
Williams expressed in a different statement that, while fuel taxes are indeed common, the “trend” in the country has been to reduce or eliminate them. He stated that Florida began phasing down its tax in 2016, that Arizona began doing so in 2017 and that North Carolina eliminated jet fuel taxes in 2015.
In response to Fischer’s statement that T.F. Green lost 40 percent of its business between 2005 and 2015, despite not having jet fuel taxes during that span, meaning that good or bad business is not directly correlated with the existence or lack of jet fuel taxes, Williams decried the stance as “myopic.”
“There are a number of factors that lead to airline network planning decisions, but the imposition of high new taxes – particularly those that are not necessary – can have a devastating effect on your constituents and the local travel and tourism economy,” he said through a statement. “We strongly urge you [the legislature] to reject this proposal.”
The assertion that T.F. Green does not need to impose the fees to achieve the kind of revenue they claim to need is expanded upon in another point by Williams.
“According to their own 2017 financial report filed with FAA, the airport’s total operating revenues increased and passenger airline cost per enplaned (CPE) passenger decreased. Additionally, the airport has an investment grade bond rating and over $51 million in restricted reserves (for debt service on bonds, renewal and replacement and other reserves) and another $36.0 million in unrestricted reserves – or the equivalent of 418 days of cash on hand. New taxes are not necessary to accomplish what needs to be accomplished.”
Senate Majority Leader Michael McCaffrey said on Wednesday that all sides of the argument need to be heard out, and that the legislature would make the best decision based on the facts at hand.
"Those are the things we have to look at," he said. "When the airport corporation gave us legislation to put in, we weren't aware of the major concerns about it. Now we're trying to address those concerns as best we can."
Shekarchi said that he was hopeful a vote could happen by the end of the month, and that he trust's Ahmad's judgment on what is best for the airport.
"If he thinks it's a good thing, unless someone can convince me otherwise, I believe it's a good thing. But we have to always keep in mind all the other stakeholders...The airport has been an unqualified success the last three years, and we need to continue that."