When Investing in Infrastructure, We Can't Neglect Airports

Expand the scale and scope of these considerations exponentially and you have a typical company in today's global market. To meet the ‘in time' and ‘on budget' demands of customers and business partners across the globe, firms have to move freight via the fastest and most cost-effective mode of transportation for each leg of its journey.

To meet their needs and grow our logistics economy, Indiana must focus simultaneously on every facet of our transportation infrastructure – moving freight over land, by water and through the air.

In nearly every category, Indiana sees significant competitive advantages along with long-term challenges: We enjoy unparalleled interstate highway access, but must be diligent in fighting for our share of future federal highway funding. We rank among the top ten in rail miles, though additional intermodal capacity remains a strategic need. Indiana is served by three major maritime ports on the Ohio River and Lake Michigan, but waterborne freight through the Midwest is threatened by the deteriorating condition of several critical locks and dams.

In aviation, Indiana is a global hub for airborne freight through the Indianapolis International Airport (the nation's 8th largest air cargo facility, anchored by the world's second-largest FedEx distribution center) and a strong statewide network of regional airports. The southern part of the state is also served by a major UPS hub just across the river in Louisville.

This infrastructure will be tasked with handling brisk growth in air freight – projected at 5 percent a year through 2030 (as measured by Registered Ton Miles). But like the rest of our transportation system, our airports face significant shortfalls in funding to make needed improvements and expansions – $52-80 billion in critical projects the next five years alone according to varying estimates by the Federal Aviation Administration and the Airports Council International.

With U.S. aviation infrastructure already ranked a dismal 32nd worldwide by the World Economic Forum, this gap threatens to make us even less competitive in the global supply chain.

The deficit must be filled by airport-generated revenues, state funds and federal grants (primarily through the Airport Improvement Program, or AIP). Unfortunately, these sources have been depressed by the economy and subjected to political maneuvering and budget cuts. The Conexus Indiana Logistics Council recommends a few common-sense steps towards addressing our aviation investment gap:

1. Diversions – We should end diversions from the current state sales tax on aviation related activities. These funds should be dedicated for airports only, just as gasoline taxes should be solely committed to road construction.

2. Expanding Federal Revenues - Federal aviation fuel taxes should be indexed to inflation so they can grow as aviation-related expenses grow. Remove the Passenger Facility Charge (PFC) cap on airports to allow facilities more flexibility to raise their own operating and capital funds. The airports would continue to justify projects that would be funded from PFC proceeds, preventing them from raising fees with impunity. As a further safeguard against unnecessary increases, prevent large and medium hub airports from receiving AIP passenger entitlement funds if they raise charges above the existing cap. (These airports would still be able to compete for discretionary federal funding.)

The federal ticket tax should also be extended to airline charges for baggage and other airline ancillary fees. The airlines have artificially lowered the airline ticket price by creating separate fees rather than simply increasing the cost of tickets, creating a loophole that deprives the federal aviation trust fund of needed revenues.

3. Federal/State Lockbox –Just as we should end diversions at the state level, federal funding should be protected from political maneuvering and chiseling. Any federal funds generated from the domestic passenger ticket tax, the domestic passenger flight segment tax, tax on flights between the Continental U.S. and Alaska and Hawaii, frequent flyer tax, domestic cargo/mail tax, general aviation fuel tax, commercial fuel tax, and other aviation fund user fees should flow directly to the Airport and Airways Trust Fund (AATF) and not into the General Revenue Fund. This would work similar to the Social Security Administration and funds would be specifically restricted to aviation use only.

In short, by safeguarding aviation funding, making sure revenues grow along with the cost of living, and ending the airline's practice of spinning off new fees to avoid paying their rightful share, Indiana and the nation can make real strides towards making much-needed investments in our 21st century air cargo infrastructure. And as these investments will spark further growth in our trillion-dollar logistics industry, they will pay dividends in new jobs and business opportunities that far outweigh the costs.

David Holt is the Vice-President of Operations and Business Development for Conexus Indiana, the state's manufacturing and logistics initiative, and manages its Logistics Council.