Airport Improvement Fees, Benefit Spillovers, and Land Value Capture Mechanisms

Airports may use land value capture as a funding source for infrastructure improvements. Anming Zhang explores the questions of how positive externalities generated by airports should be internalized and what value capture mechanisms could be applied to this specific context. One source of revenue to cover infrastructure-related costs is taxes on airfare. In 2004 the total effective tax rate of the four types of taxes imposed on airline tickets was approximately 16 percent. Another source of revenue is airport improvement fees, called passenger facility charges (PFCs) in the United States. Since 1992 U.S. airports have collected PFCs of up to $4.50 for each departing passenger. These charges fund FAA-approved projects that enhance airport infrastructure and repay debt related to infrastructure development.

Aside from these direct charges, Zhang asserts that it is difficult for airports to recoup other benefits enjoyed by the region. Unlike the expansion of subway or light-rail lines, which produce benefits just for adjacent landowners, an airport can create positive spillovers that extend to a large hinterland. Hence, it is difficult to identify which relevant parties should pay for the positive externalities. According to Zhang, the only value capture mechanism that airports can use is concession fees for a wide variety of nonaeronautical services. Available land that is not essential for airport operations may be rented at full commercial rates for shopping centers in order to generate revenue to support airport infrastructure investment.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2011 and is Chapter 13 of the book Value Capture and Land Policies.