The Economic Implications of Evolving Aviation Funding Policy in Tennessee

The majority of state funding for capital improvements at Tennessee’s general aviation and commercial airports comes through grants awarded from the Tennessee Transportation Equity Trust Fund (TETF). Through a 4.5 percent sales and use tax on the consumption of aviation fuel, users help to fund the continued improvement and maintenance of aviation facilities around the state. Aircraft refueling operations associated with the FedEx “SuperHub” in Memphis were responsible for two-thirds of the TETF’s revenue for Fiscal Year 2014. In response to speculation that FedEx would relocate its refueling operations to reduce its fuel tax liability, the Tennessee General Assembly passed legislation in May 2015 to cap the amount of aviation fuel taxes that could be remitted by any one contributor. This study presents the economic consequences of that decision. In order to realize the full scope and weight of these consequences, an understanding of the economic output of the state’s aviation system at non-capped TETF levels is required. Supported by data from airport surveys and publicly available resources, economic models were used to estimate the output of the state’s commercial airports, general aviation airports, and aviation system as a whole. Those models showed that Tennessee’s commercial airports are responsible for over 96 percent of the economic output of the state’s aviation system. Further analysis of the data shows that capping TETF contributions will limit the ability of all state airports to make capital improvements and the state’s general aviation airports will bear most of those consequences. However, due to an absence of a relationship between airport capital investments and airport economic output, the policy decision should not negatively affect the total economic output of the state’s aviation system. The effects of the reduced capability to make capital improvement investments and its implications for safety and long-term viability are unknown. Regardless of magnitude of impact in the short-term, it is insignificant when compared to the alternative consequences of FedEx relocating its refueling operations to another state.