A review of tax laws—two in particular—could usher in a new era of airport privatization in the United States, according to a report called Incentivizing US Airport Privatization from the public policy think tank, the American Enterprise Institute (AEI).

Written by Robert Poole, the director of transportation policy at another think tank, the Los Angeles-based Reason Foundation, the paper says that U.S. tax policy “is a significant reason for the near-total absence of airport privatization” in the biggest aviation market in the world. To date, the only privatized commercial air gateway in the United States is San Juan’s Luis Muñoz Marín International Airport (SJU) in Puerto Rico.

It is interesting that the United States is known around the world for private enterprise and is a magnet for entrepreneurs from all over the world. Yes, while the country has had several decades of long-term public-private partnerships (PPPs) in the highways and transportation sectors, airports are not on the list. “All but one of its commercial airports are government-owned,” notes Poole.

Several research reports and analyses—including from Airports Council International (see here) and Modalis Infrastructure’s own Curtis Grad (see here)—have identified the need for, and benefits of, airport privatization. This includes “significantly better performance,” says the report, which is why “governments in Australia, Europe, Latin America, and portions of Asia have privatized large fractions of their commercial airports.” This has either been via outright sale or, more often, long-term PPP leases.

Poole explains that Congress has enacted several versions of a law to permit government airport owners to enter into long-term PPP leases of their airports. So far, only SJU has entered into such an arrangement, although planned leases of Chicago Midway and St. Louis Lambert have attracted significant investor interest.

Are Tax Changes Best for PPPs?

Federal bodies have looked into why airport privatization has not caught on in the United States. Poole said: “Airline opposition is no longer a significant factor, with airline-friendly lease terms worked out for the three cases noted above. The policy that could most likely open the U.S. airport privatization market appears to be tax changes to put airport financing on a level playing field with countries where airport privatization and PPPs are widely used.”

The new report explores two tax law changes. One would remove the requirement that tax-exempt airport bonds must be paid off before there is a change in control, such as a long-term lease. The other would expand the scope of successful surface transportation tax-exempt private activity bonds (PABs) to include airports and other transportation infrastructure.