Bigger NJ Tax on Aviation Fuel Advances, United Airlines Not Pleased

John Reitmeyer | September 25, 2018 | Budget
Millions of dollars in increased revenue eyed to fund extension of PATH train service to Newark airport. United spokesman raises prospect of re-evaluating future investments in New Jersey

Credit: Wikimedia Commons
United plane, Newark
New Jersey would collect millions of dollars in new revenue under a proposal to change the way the state taxes aviation fuel. The expanded tax would be used to help fund an extension of the Port Authority’s PATH train service to Newark Liberty Airport, but Republicans say it would also lead to increased airfares.

The measure, which was approved by the Senate Budget and Appropriations Committee along party lines, would expand the tax on aviation fuel to cover all fuel purchased in New Jersey. Currently, the state’s 4-cent tax is only levied on the fuel that’s used by airplanes during taxiing and takeoffs.

The bill drew heavy criticism yesterday from Republican lawmakers and lobbyists representing the airline industry; they argued it would only lead to increased costs that would be passed along to consumers. But representatives from a key airport-worker union and other supporters said it would generate much-needed revenue for airport capital improvements, including the proposed PATH extension, which may not receive enough federal funding from the Trump administration to complete the project under its current finance plan.

The original version of the bill would have directed all the new revenue from the proposed change in the fuel tax to the PATH extension. Furthermore, it would have applied only to the fuel purchased by United Airlines, the dominant carrier at Newark airport. An amendment, approved by the committee yesterday, widened the scope of the bill to apply to all aviation-fuel purchases in New Jersey.

Another amendment calls for revenue from the aviation-fuel tax to go toward funding the PATH extension, as well as other airport capital projects in New Jersey that “qualify as federally permitted uses of airport revenue.” That change came as questions have been raised over whether federal law would prohibit the state from using the revenue for that purpose.

Questions over PATH funding

The latest 10-year capital plan, approved by the Port Authority last year, calls for $1.7 billion to be spent on extending PATH service to Newark airport beyond its current terminus at Newark Penn Station. The Port Authority is expecting to receive federal grant funding to cover a significant part of the cost of the PATH extension, but that will require cooperation from President Donald Trump’s administration, which has not been eager to fund such projects in the Northeast region.

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While the PATH proposal has faced some criticism, since it would use the Port Authority’s limited resources to better link Wall Street with the airport, officials in Newark have offered strong support for the project, which they see as a way to generate economic development in a part of the city that is largely cut off from mass transit. Lawmakers have also viewed the project as part of a potential “Plan B” for expanding trans-Hudson rail capacity amid a stalemate with the Trump administration over federal funding for a new Hudson River rail tunnel.

Under the amended version of the bill that was passed by the Senate Budget and Appropriations Committee yesterday, as much $40 million in new revenue would be generated by applying the state’s aviation-fuel tax to all fuel purchased in New Jersey instead of just the so-called “burnout” fuel that’s used during taxiing and takeoffs.

“This is a legitimate and effective means of funding upgrades and improvements to a system that provides direct services to the airport,” said Sen. Sandra Cunningham (D-Hudson). “It will benefit the entire northern region of the state.”

But Sean Williams, a representative of the industry group Airlines for America, said per-passenger costs at Newark Liberty are already as high as any in the country, and he suggested the change in tax policy, if it were to be enacted, would be passed along to airline customers.

“Anytime you increase costs, that puts upward pressure on fares,” Williams said.

‘…discriminatory tax scheme’

And while United is no longer being singled out for the tax increase thanks to the amendment, Dan Lynch, the company’s vice president for state and local government affairs, said the proposed policy change could still impact business decisions made by the airline, which has an estimated 14,000 employees at Newark Liberty.

“United has six other hubs, including another on the East Coast at Washington-Dulles airport,” Lynch said. “We have to weigh all factors when we consider where to grow, and if this excessive and discriminatory tax scheme becomes law, it’s my profound concern that increasing costs could stunt United’s future investments at Newark and, in turn, New Jersey.”

Lynch also raised concerns about federal law, which likely prohibits the revenue generated by the state’s aviation-fuel tax from being used for anything other than infrastructure improvements at an airport, not at a rail line terminating at one. Several lawmakers said they shared that concern even as they voted to move the bill out of committee yesterday.

Kevin Brown, of the Service Employees International Union, testifying yesterday before the Senate committee
Meanwhile, the bill’s advancement comes as unionized airport workers have been pressing the Port Authority to increase wages at the agency’s airports, and specifically to put the workers at Newark Liberty on par with those working at facilities in New York. Under a proposal backed by Gov. Phil Murphy that could win final approval later this week, the minimum hourly rate for workers at Newark Liberty would jump from $10.45 to $19 over the next five years. Workers who already make a minimum wage of $13 at the airports in New York would also get a phased-in increase.

Kevin Brown, state director of the Service Employees International Union’s 32BJ, said United is resisting paying the higher rate proposed by the Port Authority even as the company is benefitting from what he called a “jet-fuel loophole” in New Jersey. He also noted that the gasoline tax levied on motorists who fill up their cars in New Jersey was increased by nearly 23 cents in 2016 even as the aviation-fuel tax rate remained flat.

“It’s time for United Airlines to pay (its) fair share,” Brown said.

Helping Newark’s South Ward

Sponsors of the bill argue the airline will also likely benefit from the PATH extension, which would be expected to increase the volume of customers who choose to fly out of Newark instead of one of the airports in New York.

The PATH extension would also allow for the building of a station in Newark’s South Ward. “This could generate substantial economic development in the area,” said Sen. Teresa Ruiz (D-Essex).

But Senate Minority Leader Tom Kean Jr. (R-Union) argued the tax could ultimately hurt the overall state economy as the tourism industry would take a hit from increased plane fares.

“This will raise the cost of family vacations, hurt Atlantic City’s efforts to draw tourists from farther away, and raise the price of business travel for employers who already struggle to justify staying in New Jersey,” he said.