Mike Palicz

ATR Opposes Government Power Grab of Airfare Refund Policy

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Posted by Mike Palicz on Friday, June 26th, 2020, 5:09 PM PERMALINK

Senate Democrats are renewing their push for greater regulation and increased price controls on commercial air travel. Five Senate Democrats, including Sen. Elizabeth Warren (MA) and Sen. Edward Markey (MA), have recently introduced legislation that would require major carriers and third-party ticket sellers to offer full refunds, in cash, for any reservation cancelation during the Coronavirus outbreak, even if that cancelation results from an individual deciding not to travel.

The effort is only the latest attempt from Congressional Democrats to assert greater control over the cash-strapped airline industry through regulation and price controls. In March, Senate Democrats delayed the Coronavirus relief package over a host of provisions unrelated to the pandemic. Sen. Sheldon Whitehouse (D-RI) insisted that “carbon offsets,” which would deliberately raise airfare costs during a demand crunch, be a prerequisite of any deal. Sen. Markey withheld his support of a deal while publicly insisting on a new batch of regulations ranging from price controls on baggage fees to government mandates on passenger seat size. 

Ultimately, the relief package passed and provided financial assistance to airlines suffering from a dramatic decrease in passenger volume largely due to government-imposed travel bans and stay at home orders. However, this relief did not come without significant strings attached. In order to qualify for assistance, airlines must refrain from involuntary furloughs or reductions in compensation until the end of September, refrain from performing stock buybacks, or issuing dividends for 18 months and must freeze the compensation of company executives. These limitations were the result of a bipartisan agreement meant to cover airline operating costs and keep airline employees on payroll and off of unemployment lines.

Now Senate Democrats are abandoning this agreement and pushing for more regulation. 

While Democrats claim their bill is pro-consumer, the reality is that such legislation will only increase the cost of airfare and reduce the number of flights available. All while increasing the likelihood that taxpayers would be on the hook for an additional round of airline relief funding. 

In reality, market forces have already driven airlines to address the concerns of their customers. Carriers have greatly increased consumer flexibility during Coronavirus, including waiving change and cancelation fees, offering credits for the full value of a reservation, and even extending the life of previously purchased tickets, meaning flights can be rescheduled or used towards future travel. 

Just this week, the largest airline trade association for U.S. airlines announced that its members will fully refund tickets for any passenger who is found to have an elevated temperature during the pre-boarding screening process. These offers from airlines, paired with lower ticket prices from reduced demand and waived ticket taxes, are successfully addressing the concerns of customers as passenger volume begins to increase

Americans for Tax Reform opposes the effort to have the federal government insert itself into the refund policy of private companies and urges Members of Congress to reject this legislation.

Photo Credit: Jason O'Halloran

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Pelosi Plan Bails Out Ethanol Producers

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Posted by Mike Palicz on Friday, May 15th, 2020, 3:26 PM PERMALINK

House Speaker Nancy Pelosi’s recently released $3 trillion Coronavirus relief package would provide cash payments to ethanol producers.

The bailout, thinly disguised as a “reimbursement program,” would send $0.45 in taxpayer money for each gallon of qualified fuel produced between January 1 and May 1, 2020. Qualified fuels include renewable fuel or advanced biofuels outlined in the Clean Air Act, including renewable fuel from corn starch feedstock. 

Pelosi’s legislation would also extend financial assistance to biofuel producers who failed to produce any quantities of qualifying fuel in this timeframe by paying them for 50 percent of the number of gallons produced in the corresponding month of 2019 at the same rate of $0.45 per gallon. Meaning, House Democrats are proposing to “reimburse” ethanol producers for fuel they never even produced during the COVID-19 outbreak.

Here it is, straight from the bill’s text:

“If the Secretary determines that the eligible entity was unable to produce any qualified fuel throughout 1 or more calendar months during the applicable period due to the COVID–19 pandemic, $0.45 multiplied by 50 percent of the number of gallons produced by the eligible entity in the corresponding month.”

This taxpayer handout to the politically favored ethanol industry was one of few energy provisions included in the House Democrats’ relief package. Other energy provisions were primarily directed towards providing financial assistance to consumers unable to pay their utility bills. 

Photo Credit: Adam Johnson

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Good News: EPA Considers Waiving Ethanol Blending Requirements to Aid Recovery

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Posted by Mike Palicz on Thursday, April 23rd, 2020, 11:14 AM PERMALINK

The U.S. Environmental Protection Agency is reportedly considering a temporary waiver of ethanol blending mandates as part of its response to collapsing oil prices caused by the Coronavirus outbreak. 

The Renewable Fuel Standard (RFS) is a market-distorting regulation that requires fuel blenders to use an amount of biofuel beyond consumer demand while raising costs and imposing economic harm, a reality highlighted by the Coronavirus outbreak.

The energy industry is in the midst of a severe demand crunch as travel restrictions and government-imposed stay at home orders have severely curbed consumer need for fuel as gasoline demand has fallen by over 30%. The crisis was only exacerbated by a Russia-Saudi Arabia oil price war that sought to leverage the pandemic to kill off competition. As the sharp demand cut causes production to slow and workers to be furloughed, the RFS forces refineries to comply with standards by using costly biofuels or by purchasing credits based on projected consumption - projections that are now entirely off base for 2020. The cost of compliance with RFS requirements in the face of rock-bottom demand from consumers threatens to push some refineries towards shutting down production entirely, costing thousands of workers their jobs in the process. 

Americans for Tax Reform urges the Trump EPA to use its authority to waive biofuel requirements for the remainder of 2020 and allow blending volumes to match consumer demand. Issuing waivers from RFS requirements is well within EPA’s existing authority under Section 211(o)(7) of the Clean Air Act. Temporary suspension of RFS requirements will reduce artificially added costs for fuel producers (which ultimately get passed on to consumers) and will help them maintain production and keep workers on payroll.

News that the EPA is considering waiving biofuel requirements under the RFS for the remainder of 2020 comes after a bipartisan group of governors urged the EPA to take action in a letter sent last week. 

 The letter, signed by Texas Gov. Greg Abbott (R), Oklahoma Gov. Kevin Stitt (R), Utah Gov. Gary Herbert (R), Wyoming Gov. Mark Gordon (R) and Louisiana Gov. John Bel Edwards (D), argues that "the macroeconomic impacts of COVID-19 have resulted in suppressed international demand for refined products, like motor fuels and diesel.” Having to add ethanol “present[s] a clear threat to the industry under such circumstances,” the governors added.

Temporarily waiving RFS requirements is in line with the host of deregulatory actions taken to remove regulatory burdens dragging down American economic growth – now all the more important in the face of the current global crisis. ATR urges the Trump Administration and the EPA to temporarily suspend RFS requirements and to continue removing barriers to America's economic recovery.

Photo Credit: TexasGOPVote.com

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Cutting Domestic Royalty Rates Better Than Imposing New Tariffs on Energy Industry

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Posted by Mike Palicz on Monday, April 20th, 2020, 8:42 PM PERMALINK

Oil prices collapsed on Monday, trading below $0.00 for the first time in history as the coronavirus pandemic continues causing consumer demand to plummet.  

Stay at home orders and restrictions on travel have kept demand for oil at rock-bottom levels. The crisis was only exacerbated by a Russia-Saudi Arabia oil price war that sought to leverage the pandemic to kill off competition. Consequently, thousands of energy workers are now in danger of losing their jobs as energy producers prepare to halt production and hundreds of companies are in danger of going bankrupt. 

The Trump administration is reportedly weighing policy options to provide relief to the energy sector, proposals that range from a $3 billion oil purchase for the nation's Strategic Petroleum Reserve, to potentially paying oil producers to keep the oil they produce in the ground. Some in Congress have even begun pushing for new tariffs on oil sourced from foreign markets. 

As the Trump administration weighs options for relief to the energy sector, limited government intervention in the market should be the default position of all parties involved. Meddling in questions about supply and demand of oil could do irreparable harm to the ability of the industry to recover long-term. Among the tools at the administration's disposal, however, include tax relief for developers in America. 

Specifically, the Trump administration could suspend or reduce royalty taxes paid by companies extracting and developing energy on federal lands. Doing so would reduce the cost of energy development, helping slow down the rate of companies shutting down production as a result of historic-low prices. By delaying decisions about current development projects, companies might be able to keep thousands of workers on payroll in these tough economic times. 

The key issue policymakers should aim to address is not overproduction on the supply side but rather a severe demand crunch brought on by the suppression of market forces required to fight a public health crisis. Consumers are not currently seeing the benefits of low energy prices because they are under instruction from public officials to stay in their homes and avoid travel. That will change in the coming months. 

At current prices, American energy development is largely a money-losing proposition. Extracting federal tax collections from developers further fuels losses and exacerbates the pressure to close down operations across the country. According to the Government Accountability Office, royalty relief could reduce the cost of resource development immediately by 12.5 to 18.75 percent. This would temporarily provide some of the much-needed relief businesses are searching for as they plot their 3, 6, and 12 month futures in the market.

This is not a solution being sought by major energy executives, who at a recent White House meeting expressed opposition to both a spending bailout and temporary royalty rate tax cuts. Targeted and temporary tax relief is not a "bailout" and should not be viewed as such. 

While federal action to provide relief for American businesses has largely relied upon massive government spending - a tough pill for conservatives to swallow - providing royalty relief is a proposal that cuts taxes and reduces government involvement in energy markets. 

The added benefit of cutting taxes while prices are so low is that the temporary loss in revenue to states and the federal government is minimal. It also may ensure that there is a competitive domestic resource production market once demand re-stabilizes over the coming year by keeping more small businesses active within the industry. Without tax relief, many smaller businesses may find themselves bankrupt and America may find itself more reliant on oil sourced from foreign markets. If this occurs, ramping up domestic production won't simply occur overnight and the Energy Dominance agenda of this administration could falter. 

Under present law, the Secretary of the Interior has existing authority to provide royalty relief and requires no new action from Congress to enact a policy change. The administration can provide this across-the-board relief on a temporary basis while Congress re-examines and compares our own royalty rates against those of our foreign competitors in the years to come. 

Americans for Tax Reform urges the Trump administration and the Secretary of Interior to consider this policy tool as an alternative to heavy-handed intervention in the market that interferes with the natural laws of supply and demand. 

Photo Credit: The White House

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Airline Rescue Package Should Provide Tax Relief

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Posted by Mike Palicz on Thursday, March 19th, 2020, 1:09 PM PERMALINK

On Wednesday, President Trump announced that the airline industry “would be the number one priority” for a federal assistance package in response to a demand drop-off following government restrictions on travel to combat the Coronavirus outbreak.

The airline industry now faces a dire situation as flight cancellations are rapidly outpacing new flight bookings. Industry trade groups are estimating that revenue loss could total $113 billion globally. In response to the crisis, Treasury Secretary Steven Mnuchin was on Capitol Hill Tuesday meeting with Senators to discuss the terms of a rescue package for the industry.

As the Trump administration and Congress weigh options for an aid package, providing tax relief for airline companies should be at the forefront of policy options.

Specifically, this would include the temporary repeal of excise taxes paid by airline companies. This would include excise taxes on jet fuel, cargo and passenger tickets. Providing relief on excise taxes would also crucially increase consumer demand that has plummeted from the virus’s outbreak. Taxes currently make up over 20% of the cost of a domestic airline ticket. Temporary tax relief will lower airfare costs to increase consumer demand after the outbreak is contained and travel restrictions are lifted. 

Rebates of these same excise taxes that have already been paid by airlines should also be considered. Monthly Treasury reports show that collections of these taxes paid into the Airport and Airway Trust Fund totaled close to $4.3 billion through February. Given the sharp demand drop off experienced in March, it is reasonable to assume that total collections thus far are not significantly higher. Currently, the trust fund has an uncommitted balance approaching $6.5 billion. This means a rebate of excise taxes already collected in 2020 could be paid for with the uncommitted balance of the trust fund.

Given the AATF is funded on a user fee model, the principle should be maintained in reverse to fund any airline relief package. This will reduce the need to fund a package with transfers from general revenue, thus reducing the burden placed upon taxpayers in any relief package.

Photo Credit: Jason O'Halloran

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DOT waives hours of service regulations for truck drivers providing relief to Coronavirus outbreak

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Posted by Mike Palicz on Monday, March 16th, 2020, 12:43 PM PERMALINK

As part of the Trump Administration’s response to the Coronavirus, The U.S. Department of Transportation will exempt commercial truck drivers transporting emergency medical supplies from regulations limiting how many hours they can drive.

In a statement released Friday, the Federal Motor Carrier Safety Administration (FMCSA) announced a national emergency declaration to provide hours-of-service regulatory relief to commercial vehicle drivers transporting emergency relief in response to the nationwide Coronavirus (COVID-19) outbreak.

This deregulatory action will allow greater flexibility for truck drivers transporting goods such as necessary medical supplies, testing equipment, hand sanitizer, disinfectants and food required for emergency restocking of stores. This action from DOT and FMCSA is part of a larger effort from the Trump administration to reduce regulatory burdens obstructing relief for the Coronavirus outbreak.

Jim Mullen, FMCSA Acting Administrator, thanked President Trump and DOT Secretary Elaine Chao for their leadership in reducing hours-of-service- regulations.

“Because of the decisive leadership of President Trump and Secretary Chao, this declaration will help America’s commercial drivers get these critical goods to impacted areas faster and more efficiently. FMCSA is continuing to closely monitor the Coronavirus outbreak and stands ready to use its authority to protect the health and safety of the American people.”  - FMCSA Acting Administrator Jim Mullen.  

Americans for Tax Reform previously led a coalition of free-market organizations calling for FMCSA to ease hours-of-service regulations imposed upon commercial truck drivers. Such rules impose a top-down, one-size-fits-all approach to regulation where bureaucrats in Washington mandate when drivers must take a break from driving, rather than relying on professional drivers to make that decision for themselves. 

ATR applauds this decision from the Trump administration to provide regulatory relief to commercial vehicle drivers transporting emergency relief in response to the Coronavirus. This action will make crucial supplies and goods more available to the public in a critical time of need.

You can find the full FMCSA emergency declaration on trucking hours-of-service here.
 

Photo Credit: Randen Peterson

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ATR Urges Congress to Reject Any Gas Tax Hike

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Posted by Mike Palicz on Monday, February 3rd, 2020, 4:11 PM PERMALINK

Today, Americans for Tax Reform sent a letter to Members of Congress urging them to reject any increase to the federal gas tax.

In the letter, ATR President Grover Norquist states:

“It should be clear to Congress that the public is already paying more than its fair share in gas taxes. American drivers are forced to pay an average tax of 48.06 cents per gallon when combining federal and state gas taxes, according to the U.S. Energy Information Administration. The government has no business asking consumers to pay more in taxes."

The letter comes shortly after a House Ways and Means Committee hearing was held to discuss funding for the $760 billion infrastructure proposal introduced by House Democrats last week.

Please see below for the full content of the letter or click here.

Dear Members of Congress,

Americans for Tax Reform urges lawmakers to reject any increase to the federal gas tax. Raising the gas tax will disproportionately harm lower- and middle-income Americans while encouraging further wasteful spending.

According to the Congressional Budget Office, raising the tax rate on gasoline would “impose a proportionally larger burden, as a share of income, on middle- and lower-income households,” while also imposing “a disproportionate burden on rural households.” Additionally, the CBO found that raising the gas tax would increase the cost of everyday consumer goods that “would increase the relative burden on low-income households, which spend a larger share of their income (compared with higher-income households) on food, clothing, and other transported goods.”

It should be clear to Congress that the public is already paying more than its fair share in gas taxes. American drivers are forced to pay an average tax of 48.06 cents per gallon when combining federal and state gas taxes, according to the U.S. Energy Information Administration. The government has no business asking consumers to pay more in taxes.

Raising the gas tax would also have a severe impact on the U.S. economy. For example, a gas tax hike of 25 cents in 2020 would cause an average employment shortfall of 62,150 jobs, peaking at a shortfall of 364,000 jobs in 2040, according to the Heritage Foundation. According to Strategas Research Partners, 60% of the federal income tax cut would be wiped out by a $0.25 gas tax increase and rising prices.

The gas tax is not a user fee. Supporters of a gas tax hike often incorrectly claim that the gas tax is a user-fee. This wrongly ignores that every 2.86 cents of the 18.4 cent federal gas tax is diverted to mass transit and that over 28% of Highway Trust Fund revenue is siphoned off to pay for non-highway programs. Misuse of HTF revenue has even included diverting funds to pay for squirrel sanctuaries and to finance driving simulators. Instead of increasing taxes on consumers, Congress should prioritize cutting such wasteful spending and ending revenue diversions.

Lawmakers can find further savings through suspending the Davis-Bacon Act, which needlessly increases the cost of infrastructure projects. The Davis Bacon Act requires contractors working on government projects to be paid “prevailing wages.” However, the Department of Labor uses a highly flawed methodology which sets prevailing wages 22 percent above market rates. The CBO estimates that repealing Davis-Bacon would save $12 billion in discretionary outlays by reducing construction cost.

Rather than raising taxes and digging further into the pockets of American drivers, Congress should instead prioritize spending reforms that ensure existing revenues are spent wisely.  

Onwards,

Grover G. Norquist

President, Americans for Tax Reform

 

Photo Credit: Chris Potter

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10 Things 2020 Dems Would Ban for a "Climate Crisis"

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Posted by Mike Palicz, Jordan Leppo on Thursday, January 30th, 2020, 12:55 PM PERMALINK

The 2020 Democratic Primary has revealed the environmental radicalism of the Democratic candidates. As voting is set to begin next week in Iowa, it is worth highlighting all of the things the Democratic field has promised to ban in the name of a "climate crisis." From the natural gas, coal and nuclear energy that powers and heats our homes down to everyday items like plastic bags and straws, Democrats have promised to ban it all. 

  1. Nuclear Power: Despite producing roughly 20 percent of the nation’s electricity, nuclear energy has been in the crosshairs of major Democratic candidates. Elizabeth Warren has called to ban the construction of new nuclear plants and to ultimately end nuclear energy, stating “we won't be building new nuclear plants. We will start weaning ourselves off nuclear and replace it with renewables." Likewise, Bernie Sanders’ climate plan calls for an end to building new nuclear plants and enacts a “moratorium on nuclear power plant license renewals.” Former New York Mayor Mike Bloomberg told the Washington Post, “no new plants at this time.”

 

  1. Gas-powered cars: Senator Sanders has backed legislation to ban the sale of gas-powered cars by 2040. In addition to an outright ban on purchasing gas-powered cars, Sanders would spend $2 trillion in taxpayer dollars to put Americans in electric vehicles. At a campaign event, Elizabeth Warren told a crowd "by 2030, no more cars with carbon emissions." Warren added that she would also disallow the building of homes with carbon emissions by 2028 and ban electricity produced with carbon emissions by 2035. 

 

  1. Plastic Straws: Although she has now terminated her campaign, Senator Kamala Harris called for a ban on plastic straws at the CNN Climate Town Hall. Likewise, Mayor Pete Buttigieg declared that those who use plastic straws are responsible for climate change and “part of the problem” along with those who eat hamburgers.  

 

  1. Plastic bags: At a campaign event in Iowa on January 2nd, 2020, Joe Biden agreed “100 percent” with a nationwide ban on plastic bags. Responding to a question from the audience, Biden responded by saying, “I agree with you 100 percent. We should not be allowing plastic. What we should do is phasing it out.” 

 

  1. Coal Power Plants: At a New Hampshire campaign rally in December of 2019, former Vice President Joe Biden proposed terminating the jobs and economic anchor of thousands of workers of coal-mining communities as part of his plan to combat climate change. Biden said that “Anybody who can go down 300-3,000 feet in a mine sure as hell can learn how to program as well. Anybody who can throw coal into furnace can learn how to program for God’s sake.”

 

  1. Fracking: Sanders’ website proposes the complete ban of importing and exporting fossil fuels, as Sanders believes that it will “end incentives for extraction around the world.” Elizabeth Warren has also told the Washington Post that she supports a ban on fracking.

 

  1. Offshore drilling: Presidential-hopeful Bernie Sanders has explicitly stated on his campaign website that he is serious about banning offshore drilling. Sanders’ website states, “If we are serious about moving beyond oil toward energy independence… then we must ban offshore drilling…Congress must not open new areas to offshore oil drilling and ban drilling in the Arctic Circle and the Arctic National Wildlife Refuge.” Elizabeth Warren has also said she would “end offshore drilling on day one.”

 

  1. Pipeline Building: When talking to a voter in New Hampshire, Joe Biden stated that he would end both the practice of fracking and the building of new pipelines across America.  Sanders has expressed similar hostility towards pipelines, promising to shutdown both the Keystone and Dakota Access pipelines while in the past saying "We can't afford to build new pipelines that lock us into burning more fossil fuels." 

 

  1. Exporting fossil fuels: Bernie Sanders’ climate plan would outright ban the import and export of fossil fuels, including coal and natural coals. Elizabeth Warren has also signaled her support ending fossil fuel exports and would ban the exportation of crude oil. Candidates Tulsi Gabbard and Steyer also support ending fossil fuel exports.

 

  1. Fossil Fuel production on federal lands: From 2017 data,  42 percent of coal, 24 percent of crude oil and 13 percent of natural gas production occur on federal lands. Yet, Elizabeth Warren has promised she will enact a “total moratorium” on fossil fuel extraction on federal lands. Joe Biden’s climate plan calls for “banning new oil and gas permitting on public lands and waters.” Michael Bloomberg has said he will “immediately end all new fossil fuel leases on federal land.”  Bernie Sanders is the bill sponsor of the Keep It in the Ground Act and has stated that “we must keep oil, gas, and coal in the ground.” Amy Klobuchar has also stated her support for ending fossil fuel extraction on federal lands.

Photo Credit: Gage Skidmore


Dems Want to Blow $86 Billion on Government-Built Broadband

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Posted by Mike Palicz on Wednesday, January 29th, 2020, 4:30 PM PERMALINK

In their "infrastructure" plan released today House Democrats proposed spending $86 billion in taxpayer money for a government-built broadband scheme. Americans for Tax Reform has documented the extensive track record of failure from government involvement in broadband networks which limit competition and consumer choice.

Democrats called for $80 billion for government-deployed broadband and another $5 billion for sweetheart low-interest loans given out to “eligible entities” that are left undefined in the plan.

For context of how significant of an increase in government spending this would be, the Federal Communications Commission (FCC) spent a combined $1.5 billion on Broadband deployment throughout the first three years of the Trump presidency.

The proposal is strikingly similar to 2020 Presidential candidate Elizabeth Warren’s call to spend $85 billion on broadband deployment. Warren’s plan calls for the creation of a taxpayer funded "federal Office of Broadband Access" with "publicly-owned and operated networks."

Of course, Democrats offered no plan on paying for their broadband plan, or the rest of the infrastructure proposal which totals a $760 billion spending spree over a 5-year period. However, in other portions of the framework Democrats suggest raising revenue through “user-based mechanisms” and direct subsidy bonds which likely implies raising the gas tax and debt financing.

As shown in an ATR infographic, government-owned broadband networks have an abysmal track record.

Proponents of big government typically sell Government Owned Networks (GONs) as providing competition and additional choices. In reality, however, this nice-sounding idea never works as planned.

In addition to the initial construction cost of building out a basic fiber network, frequent and expensive technology upgrades are necessary in order to remain current in such an innovative field. Government entities rarely consider this fact, however, and thus grossly underestimate the true costs of a GON.

Government entities also overestimate the demand for a GON. Despite having access to a government-owned and operated network, most consumers choose to remain with their trusted private sector provider. Overestimated demand and underestimated costs is a recipe for a financial gap that taxpayers will always be forced to fill. 

In addition to the financial risks at stake, GONs also jeopardize access to new technologies. Unlike government, private sector providers cannot charge below the cost of service because it would drive them out of business. As if control of the permitting process and possession of regulatory authority were not enough of an advantage, government entities would also able to charge consumers below the cost of service since they can subsidize costs with tax dollars.

This manufactured “competition” with government would discourage private providers from expanding and investing in areas where GONs are present, as their odds of success would be hindered by competing with an entity that does not need to turn a profit. Since it is vigorous competition between private providers that spurs innovation, improves quality of service, and drives consumer prices down, GONs would lead to fewer choices for consumers, outmoded technology, and deteriorating service.

For example, Tennessee alone has had several GONs that have either failed outright or are currently being propped up. These cautionary tales (and the GON failure in nearby Bristol, Virginia) can be found on the infographic linked here and on the list below:

Fayetteville, Tennessee:

Fayetteville Public Utilities rolled out its broadband network in 2000, spending more than $11 million. While it is technically cash flow “positive,” Fayetteville’s GON would take more than 60 years – as much as double the useful life of the network – to make money.

Memphis, Tennessee: 

In 2001, the Memphis Light, Gas, and Water Division’s GON, Memphis Networx, was made available to the public. Fewer than 5 years later, it was clear that this undertaking was a big financial mistake, and by 2007, the GON was sold off to a private company at a $20.5 million loss on its $32 million investment.

Bristol, Virginia:

The Bristol Virginia Utility Authority began is GON, OptiNet, in 2002. Despite being improperly subsidized by BVU’s electric revenues, it still failed to turn a profit and was eventually sold at a loss of more than $80 million. A federal criminal investigation was launched into OptiNet, revealing that along with the improper subsidies, BVU officials also illegally saved the network hundreds of thousands by undercharging it for pole attachments, and also falsified invoices and took kickbacks.

Pulaski, Tennessee:

In 2005, Pulaski Electric System poured around $8.5 million into building out its GON, PES Energize. Despite being a cash flow positive project, its rate of return is so poor that it would take somewhere between 450 and 500 years to break even.

Morristown, Tennessee:

In 2006, Morristown Utility Systems rolled out its GON, MUS Fibernet, for more than $25 million. Over the years, interest in this GON has been so low that it cannot cover basic operational costs, and will never break even.

Tullahoma, Tennessee: 

The Tullahoma Utilities Authority started its municipal broadband network, lightTUBe, in 2007 for around $17 million. Since there were already numerous private providers serving this small town, it is unsurprising to learn that lightTUBe has not attracted many subscribers. LightTUBe’s rate of return is so low that it would take more than 100 years to pay off its debts.

Clarksville, Tennessee:

In 2007, the Clarksville Department of Electricity rolled out its fiber network, which was originally projected to cost $40,200,000. Between construction cost overruns and basic operation expenses that it could not afford to cover, CDE was forced to borrow an additional $20 million. Clarksville’s GON has lost so much money over the years that it will never be able to stand on its own.

Chattanooga, Tennessee:

In 2008, Chattanooga’s Electric Power Board began its fiber-to-the-home service. Including a $50 million loan from the EBP’s electric power division that was used to finance initial planning, $162 million in local revenue bonds that were used to finance the construction, and a one-time $111.5 million subsidy from the federal government, it would take more than 680 years – well beyond its useful life – for this GON to break even.

Photo Credit: Sean MacEntee

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New Study Confirms the Obvious: PFC Hike Would Raise Airline Ticket Prices.

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Posted by Mike Palicz on Tuesday, January 21st, 2020, 12:33 PM PERMALINK

Last week, Congress released a new study on airport infrastructure funding. The study in part focuses on the impact of the Passenger Facility Charge (PFC) – a government-imposed fee collected from enplaned passengers at commercial airports controlled by local and state governments. Revenue earned through the PFC program is used to fund airport improvement projects and is currently capped at $4.50 per enplanement at a maximum of $18 per round trip.

The study comes as Congress is expected to consider raising the PFC in the coming weeks. As taxes and fees already account for over 20% of the cost of a domestic airline ticket, Congress should be focused on reducing this burden placed upon consumers rather than adding to it. Americans for Tax Reform has continuously opposed efforts to raise the PFC and urges lawmakers to reject any effort to raise the cap on the PFC.

Key findings from the study:

  1. Raising the PFC cap will increase ticket prices for airline travelers - The study concludes that “an increase in the PFC cap would likely result in higher ticket prices for passengers traveling through airports that raised their PFC collections.” This finding is in line with a past study conducted by the Government Accountability Office which also concluded raising the PFC cap would increases ticket prices, causing “reduced passenger demand” that “could also marginally slow passenger growth and therefore the growth in revenues to the Airport and Airway Trust Fund (AATF).”

 

  1. Inflation is an invalid argument to raise the PFC – The authors of the study note that although inflation has caused the purchasing power of a dollar of PFC revenues to erode, aggregate PFC revenues have grown to outpace inflation. Here is the finding straight from the report:

 

“It is important to note that increases in the number of airports that charge a PFC, the number of airports that charge the maximum allowable PFC of $4.50, and the number of passengers at these airports have resulted in the inflation-adjusted value of total PFC collections increasing over time despite declines in the value of a single passenger’s PFC.”

Translation: airports collectively have greater purchasing power from their total PFC collections in 2018 than they did in 2000, the last time the PFC cap was raised.

  1. No evidence the PFC promotes competition between airlines – Proponents of raising the PFC cap often claim a higher PFC would promote competition between airlines as projects funded from PFC revenues don’t require the same sign-off from airlines that alternative funding sources necessitate, thus handing more control over airport expansion decisions back to airports. Airports, the argument goes, would then be less beholden to large airlines benefiting from restrictive leases of gates and other essential facilities.

 

However, it remains unclear that there is any data backing up this pro-competition assertion from those advocating for a PFC hike. The authors of the study point out that they are “not aware of any analysis that estimates the effect of PFCs on competition or prices at airports or city markets.”

In fact, reality has proven the PFC to have the opposite effect, adding an additional barrier for smaller airline companies who operate under an ultra-low-cost business model. These smaller airlines have the most price-sensitive customers with a high demand-elasticity in reaction to price-increases. Higher ticket fees hit them hardest. This explains why ultra-low-cost carriers such as Spirit Airlines have testified in Congress against raising the PFC.   

This argument against raising the PFC is only bolstered by the fact that the study’s authors concluded their analysis “cannot determine whether an individual PFC project affects competition and prices.” However, the study did find that “any effects of individual PFC projects are, on average, small relative to other factors, such as local economic conditions and airline hubbing decisions,” and that “no single PFC project is likely to significantly alter the competitive landscape in an individual market.” While PFC funded projects are unlikely to alter competition, the higher ticket prices caused by fee hikes will disproportionately impact smaller airlines, thus damaging competition between airline companies.  

Despite these findings, the authors of study recommend raising the PFC and do so with no compelling reason offered.

While recommending that the PFC cap be raised from $4.50 per enplanement to $7.44 for passengers – a staggering 65% fee hike – the authors state, “We are not aware of compelling evidence or data justifying a particular level for a new cap. Any number could be chosen, but we note that if the $4.50 cap had been indexed to inflation in 2000 using the Producer Price Index for construction materials, it would now be set at $7.44.”

Despite completely debunking the inflation argument in their own study (as outlined above in key findings) the authors almost comically conclude that the PFC should be raised anyway. Rather than laying out a case justifying such a drastic fee hike for American travels, the authors just throw their hands in the air and highlight that this is what the cap would be had Congress initially pegged the PFC to inflation, which lawmakers at the time deliberately chose not to do.

Americans for Tax Reform urges lawmakers to reject this recommendation from the authors of the study and to protect American travelers and consumers from inflated ticket prices resulting from even more government taxes and fees. After all, as the authors themselves states, there is no “compelling evidence or data” justifying a hike to the PFC.

Photo Credit: Eric Salard

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