Ancient China’s Challenge to spend Taxes wisely on Airport Infrastructure may Benefit from FAA Tools

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ARTICLE: Chinese Airlines Face New Tax Hike For Airport Costs

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The above Chinese characters are a reminder that the country is millennia older than the United States and as such has learned many wise lessons. However, the aviation history of our country, particularly as it involves the development of aviation infrastructure, may provide some lessons to our sovereign across the Pacific.

This AinOnline article reports that the Civil Aviation Administration of China (CAAC) plans to increase taxation on the revenues of local airlines to the China Airport Construction and Development Fund (CACDF). Raising the rate from 5 percent to 6 percent on such a broad base of fares should create a handsome fund.

The need for expansion of airfield capacity is great and China’s 12th Five-Year Plan (2011-2015) forecasts that 60 new airports will be required. That’s a lot of Yuan (¥)!

The collection of those funds is a minor part of the governmental exercise. The distribution of those Yuan is a difficult test even in the centrally controlled economy of the world’s largest nation. It will be particularly difficult to prioritize “investment” of the CACDF funds in one airport versus another. The evaluation of competing economic benefits is not intuitive.

The FAA has been distributing billions of AIP grant dollars for many years. The decisions as to where to place those grants has been subject to tremendous political influence and scrutiny. Yet the records of decisions by the FAA as to where to spend what forms a good precedent as to how to spend money wisely. Over the course of deciding on many AIP requests, the agency staff defined a set of well-scrubbed standards which they assiduously follow when establishing the merits of individual airport proposals and which they use to make comparative judgments.

The analytical discipline is labeled as Benefit/Cost Analysis (BCA). Even that relatively objective analytical tool is subject to manipulation of some of the numbers; the FAA has refined this basic econometric tool with a number of further statements of the programs’ goals, the more precise valuation of some of the factors (i.e. safety, capacity, collateral benefits) and refinements of both costs and benefits:

Airport Benefit-Cost Analysis Guidance

• Airway Planning Standard Number One, Order 7031.2c

• Economic Analysis of Investment and Regulatory Decisions

• Economic Values for Evaluation of FAA Investment and Regulatory Decisions

• Estimating the Regional Economic Significance of Airports

Planning Information Needed for FAA Headquarters Review of Benefit Cost Analysis (BCA) – March 31, 2006

• Principles for Federal Infrastructure Investments (Executive Order 12893) – January 26, 1994

These thoughtful planning documents should help CAAC in its doling out of Yuan to the country’s massive explosion of aviation infrastructure.

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