Paper: Tax Changes Could Spur U.S. Airport Privatization

A recent paper released by the Brookings Institute calls for tax changes to encourage the increase of privatization of commercial airports in the U.S. Written by Robert Poole, an author at the Reason Foundation who also has long pushed for air traffic control privatization, the paper notes that the U.S. has long had public-private partnerships (P3s) in highways and transit, but all but one commercial airport is government-owned.

This isn’t the case globally, where airports have been privatized in Australia, Europe, Latin America, and parts of Asia either through sales or long-term P3 leases. In the U.S., Congress has written laws to pave the way for P3 leases, but only San Juan, Puerto Rico, has entered into such a lease, Poole wrote. He added that investors have expressed interest in Chicago Midway and St. Louis Lambert.

Airline opposition does not appear to be a significant barrier to such a transition, he maintained. But tax changes to airport financing may be necessary to incentivize privatization. Specifically, he suggested removing the requirement that tax-exempt airport bonds must be paid off before there is a change in control over the facility, such as entering a long-term P3 lease. The other involved expanding the scope of tax-exempt private activity bonds (PABs) available for surface transportation to include airports and other transportation infrastructure.

“These changes would enable airport owners to receive an amount closer to their airport’s gross value, rather than the net value after paying off the outstanding tax-exempt bonds,” Poole said, stating that data suggests P3 leases could yield “windfalls” to owners of large airports. Proceeds help pay for underfunded infrastructure projects or reduce other indebtedness, he said, noting that they could become large enough to cover unfunded public employee pension liability.