Airport Finance
Preliminary Analysis Indicates Proposed Changes in the Airport Improvement Program May Not Resolve Funding Needs for Smaller Airports Gao ID: GAO-07-617T March 28, 2007To address the strain on the aviation system, the Federal Aviation Administration (FAA) has proposed transitioning to the Next Generation Air Transportation System (NextGen). To finance this system and to make its costs to users more equitable, the administration has proposed fundamental changes in the way that FAA is financed. As part of the reauthorization, the administration proposes major changes in the way that grants through the Airport Improvement Program (AIP) are funded and allocated to the 3,400 airports in the national airport system. In response, GAO was asked for an update on current funding levels for airport development and the sufficiency of those levels to meet planned development costs. This testimony comprises capital development estimates made by FAA and Airports Council International (ACI), the chief industry association; analyzes how much airports have received for capital development and whether this is sufficient to meet future planned development; and summarizes the effects of proposed changes in funding for airport development. This testimony is based on ongoing GAO work. Airport funding and planned development data are drawn from the best available sources and have been assessed for their reliability. This testimony does not contain recommendations.
ACI's estimate for planned development costs is considerably larger than FAA's, reflecting a broader range of projects included as well as differences in when and how the estimates are made. For 2007 through 2011, FAA estimated annual planned capital development costs at $8.2 billion, while ACI estimated annual costs at $15.6 billion. The estimates differ primarily because FAA's estimate only includes projects that are eligible for AIP grants, while ACI's covers all projects, including $5.8 billion for projects not eligible for federal funding, such as parking garages. From 2001 through 2005, airports received an average of about $13 billion a year for planned capital development. This amount covers all types of projects, including those not eligible for federal grants. The primary source of this funding was bonds, which averaged almost $6.5 billion per year, followed by federal grants and passenger facility charges (PFC), which accounted for $3.6 billion and $2.2 billion, respectively (see figure below). If airports continue to attract this level of funding for planned capital development, this amount would annually fall about $1 billion short of the $14 billion in total planned development costs (the sum of FAA's estimated $8.2 billion in eligible costs and the industry's $5.8 billion in ineligible costs). Larger airports foresee a shortfall of about $600 million annually, while smaller airports foresee a shortfall of $400 million annually. FAA's reauthorization proposal would reduce the size of AIP by $750 million but increase the amount that airports can collect from PFCs. However, the benefit from increased PFCs would accrue mostly to larger airports and may not offset a reduced AIP grants program for smaller airports. The proposal would also change the way that AIP and other FAA programs are funded. The new fuel taxes that FAA has proposed may not provide the revenues for AIP that FAA anticipates.
GAO-07-617T, Airport Finance: Preliminary Analysis Indicates Proposed Changes in the Airport Improvement Program May Not Resolve Funding Needs for Smaller Airports
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Testimony:
Before the Subcommittee on Aviation, Committee on Transportation and
Infrastructure, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Wednesday, March 28, 2007:
Airport Finance:
Preliminary Analysis Indicates Proposed Changes in the Airport
Improvement Program May Not Resolve Funding Needs for Smaller Airports:
Statement of Gerald L. Dillingham, Ph.D:
Director, Physical Infrastructure:
GAO-07-617T:
GAO Highlights:
Highlights of GAO-07-617T, a testimony to Before the Subcommittee on
Aviation, House Committee on Transportation and Infrastructure
Why GAO Did This Study:
To address the strain on the aviation system, the Federal Aviation
Administration (FAA) has proposed transitioning to the Next Generation
Air Transportation System (NextGen). To finance this system and to make
its costs to users more equitable, the administration has proposed
fundamental changes in the way that FAA is financed.
As part of the reauthorization, the administration proposes major
changes in the way that grants through the Airport Improvement Program
(AIP) are funded and allocated to the 3,400 airports in the national
airport system. In response, GAO was asked for an update on current
funding levels for airport development and the sufficiency of those
levels to meet planned development costs. This testimony comprises
capital development estimates made by FAA and Airports Council
International (ACI), the chief industry association; analyzes how much
airports have received for capital development and whether this is
sufficient to meet future planned development; and summarizes the
effects of proposed changes in funding for airport development.
This testimony is based on ongoing GAO work. Airport funding and
planned development data are drawn from the best available sources and
have been assessed for their reliability.
This testimony does not contain recommendations.
What GAO Found:
ACI‘s estimate for planned development costs is considerably larger
than FAA‘s, reflecting a broader range of projects included as well as
differences in when and how the estimates are made. For 2007 through
2011, FAA estimated annual planned capital development costs at $8.2
billion, while ACI estimated annual costs at $15.6 billion. The
estimates differ primarily because FAA‘s estimate only includes
projects that are eligible for AIP grants, while ACI‘s covers all
projects, including $5.8 billion for projects not eligible for federal
funding, such as parking garages.
From 2001 through 2005, airports received an average of about $13
billion a year for planned capital development. This amount covers all
types of projects, including those not eligible for federal grants. The
primary source of this funding was bonds, which averaged almost $6.5
billion per year, followed by federal grants and passenger facility
charges (PFC), which accounted for $3.6 billion and $2.2 billion,
respectively (see figure below). If airports continue to attract this
level of funding for planned capital development, this amount would
annually fall about $1 billion short of the $14 billion in total
planned development costs (the sum of FAA‘s estimated $8.2 billion in
eligible costs and the industry‘s $5.8 billion in ineligible costs).
Larger airports foresee a shortfall of about $600 million annually,
while smaller airports foresee a shortfall of $400 million annually.
FAA‘s reauthorization proposal would reduce the size of AIP by $750
million but increase the amount that airports can collect from PFCs.
However, the benefit from increased PFCs would accrue mostly to larger
airports and may not offset a reduced AIP grants program for smaller
airports. The proposal would also change the way that AIP and other FAA
programs are funded. The new fuel taxes that FAA has proposed may not
provide the revenues for AIP that FAA anticipates.
Figure: Comparison of Historical Airport Funding to Future Development
Costs:
[See PDF for Image]
Source: GAO analysis of FAA, ACI, Thomson Financial, and state grant
data.
[End of figure]
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-617T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gerald L. Dillingham at
(202) 512-2834 or DillinghamG@gao.gov.
[End of figure]
Mr. Chairman and Members of the Subcommittee:
I appreciate the opportunity to testify before you today as you
consider the Federal Aviation Administration's (FAA) reauthorization
proposal including the Airport Improvement Program (AIP) for fiscal
years 2008-2010.[Footnote 1]
Once again, the nation's airports are having to cope with capacity
issues. Air traffic has risen back above pre-September 11 levels, as
has the level of delays. FAA operates one of the safest air
transportation systems in the world, but it is also a system under
strain. Already last year, one in four flights was subject to flight
delays. In addition, the system is expected to absorb a variety of new
and differing aircraft in the future, ranging from the jumbo Airbus
A380, which can hold more than 500 passengers, to very light jets,
which carry only a few passengers and could greatly increase the number
of aircraft in the air. Demand for air travel is expected to reach 1
billion passengers by 2015, according to FAA estimates. The consensus
of opinion is that the current aviation system cannot expand to meet
this projected growth. FAA is developing a modernization program for
its air traffic control system called the Next Generation Air
Transportation System (NextGen) to accommodate this growth. To fund
this system, FAA has proposed relying on a cost-based system using
airline user fees and fuel taxes instead of passenger ticket taxes and
other excise taxes that are due to expire at the end of September 2007.
In regard to airports, the administration is proposing $2.75 billion to
fund the AIP program--which is substantially less than the current
level--and changing the way that grants to the 3,400 airports in the
national airport system are funded and allocated under AIP. The
administration's proposal would also allow commercial airports to
impose higher passenger facility charges (PFC) to pay for capital
projects.[Footnote 2]
In anticipation of this year's reauthorization of FAA, you asked for an
update on airports' current funding levels from our previous
reports,[Footnote 3] the sufficiency of those levels to meet planned
development, and how the administration's proposed reauthorization will
affect airports. For this update, we are providing preliminary
responses to these key questions:
* How do FAA and Airports Council International (ACI) estimates of
capital development compare?
* How much have airports received for capital development and where is
the money coming from?
* If current funding levels continue, will they be sufficient to meet
planned capital development costs for 2007 through 2011?
* What are some of the potential effects of changes in how airport
development will be funded as part of the administration's FAA
reauthorization legislation?
To determine how much planned development would cost over the next 5
years, we obtained planned capital development data from FAA and ACI, a
key industry association. To determine the sources of airport funding,
we obtained capital funding data from FAA, the National Association of
State Aviation Officials (NASAO) and Thomson Financial, a firm that
tracks all municipal bond issues. We obtained funding data from 2001
through 2005 because these were the most recent years for which
consistent data were available and then adjusted the amounts for
inflation to 2006 dollars so that they could be compared to planned
development amounts, which are also expressed in 2006 dollars. We
screened the planned development and funding data for accuracy and
compared funding streams across databases where possible. We did not,
however, audit how the databases were compiled. To compare the
estimates between FAA and industry, we reconciled survey data and
identified areas where the largest differences occur. We reviewed the
reliability of these data and concluded that they were sufficiently
reliable for our purposes.
We conducted our work from August 2006 to March 2007 in accordance with
generally accepted government auditing standards. More details about
the scope and the methodology of our work are presented in appendix II.
In summary:
* CI's estimate of planned development costs is considerably larger
than FAA's, reflecting the broader range of projects included as well
as differences in when and how the estimates are reported. For 2007
through 2011, FAA estimated annual planned capital development costs at
$8.2 billion, while ACI estimated annual costs at $15.6 billion, a
difference of $7.4 billion annually. The estimates differ primarily
because FAA's estimate includes only projects that are eligible for
federal airport improvement grants, while ACI's includes all projects,
including those that may not be eligible for federal grants. Types of
projects not eligible for federal grants include parking garages and
commercial space in terminals. However, even when comparing only AIP-
eligible projects, ACI's estimate exceeds FAA's by $1.6 billion
annually because of differences in the definition, measurement, and
timing of projects.
* From 2001 through 2005, airports received an average of about $13
billion a year for planned capital development from a variety of
funding sources. This includes funding for all types of projects,
including those not eligible for AIP grants. The primary source of this
funding was municipal bond proceeds (backed primarily by airport
revenues), which averaged almost $6.5 billion per year, followed by AIP
and PFCs which accounted for $3.6 billion and $2.2 billion,
respectively. The 67 larger airports, which account for 90 percent of
passengers, rely more heavily on bond financing to fund their
development, while the other approximately 3,300 smaller airports in
the national system are more reliant on federal grants.[Footnote 4]
* The total of FAA and ACI estimates of planned development for 2007
through 2011 exceeds historical funding levels by about $1 billion
annually. The difference between past funding and future development
plans is not the same for larger and smaller airports. The 67 larger
airports averaged $9.4 billion annually in funding, as compared to $10
billion annually in AIP-eligible and ineligible projects--a difference
of $600 million annually. All other airports, including general
aviation airports, averaged $3.6 billion annually in funding, as
compared to $4 billion annually in AIP-eligible and ineligible project,
a difference of $400 million annually.
* The administration's reauthorization proposal would provide more
money to larger airports through an increase in PFCs, but its impact on
smaller airports is uncertain because these airports are more reliant
on AIP, whose funding level is being reduced and whose allocation is
being changed. The proposal would reduce the AIP grants program by $750
million (or more than 20 percent of its current level) but increase the
amount that airports can collect from PFCs from $4.50 per passenger to
$6.00 per passenger, potentially increasing larger airports'
collections by $1.1 billion. For smaller airports that collect far less
from PFCs, the increase in PFCs may not compensate for the overall
reduction in AIP, especially for general aviation airports that have no
ability to collect PFCs. As a separate issue, the administration's
reauthorization proposal would also change the way that AIP and other
FAA programs are funded. The new fuel taxes that have been proposed to
fund AIP and other programs may not generate the amount of revenue that
is anticipated and additional sources of revenue may have to be found.
The Size and Scope of FAA and ACI Airport Capital Estimates Differ:
ACI's estimate of planned capital development costs is considerably
larger than FAA's because it reported a broader base of projects.
According to FAA's estimate, which includes only projects that are
eligible for AIP grants, the total cost of airport development will be
about $41 billion, or about $8.2 billion per year for 2007 through
2011. (See table 1.) ACI estimates annual costs of about $78 billion,
or about $15.6 billion per year, for the same period. These estimates
differ mainly because ACI's estimate includes all future projects that
may or may not have an identified funding source or be eligible for
federal funding and also because they are based on different estimating
approaches. Projects that are eligible for AIP grants include runways,
taxiways, and noise mitigation and reduction efforts; projects that are
not eligible for AIP funding include parking garages, hangars, and
expansions of commercial space in terminals.
Table 1: Average Annual Planned Development Costs Estimated by FAA and
ACI, by Airport Type, 2007-2011:
Dollars in millions.
Larger Airports.
Airport Type: Large hub;
Number of Airports: 30;
Estimated average annual costs: FAA: $3,414;
Estimated average annual costs: ACI: $8,280.
Airport Type: Medium hub;
Number of Airports: 37;
Estimated average annual costs: FAA: 933;
Estimated average annual costs: ACI: 3,066.
Airport Type: Subtotal;
Number of Airports: 67;
Estimated average annual costs: FAA: 4,347;
Estimated average annual costs: ACI: 11,346.
Smaller airports.
Airport Type: Small hub;
Number of Airports: 72;
Estimated average annual costs: FAA: 629;
Estimated average annual costs: ACI: 1,146.
Airport Type: Non hub;
Number of Airports: 243;
Estimated average annual costs: FAA: 840;
Estimated average annual costs: ACI: 840[A].
Airport Type: Other commercial service;
Number of Airports: 135;
Estimated average annual costs: FAA: 146;
Estimated average annual costs: ACI: 146[A].
Airport Type: Reliever;
Number of Airports: 274;
Estimated average annual costs: FAA: 579;
Estimated average annual costs: ACI: 579[A].
Airport Type: General aviation;
Number of Airports: 2574;
Estimated average annual costs: FAA: 1,528;
Estimated average annual costs: ACI: 1,528[A].
Airport Type: New airports;
Number of Airports: 67;
Estimated average annual costs: FAA: 111;
Estimated average annual costs: ACI: -.
Airport Type: Subtotal;
Number of Airports: 3,365;
Estimated average annual costs: FAA: 3,833;
Estimated average annual costs: ACI: 4,239.
Airport Type: Total;
Number of Airports: 3,432;
Estimated average annual costs: FAA: $8,180;
Estimated average annual costs: ACI: $15,585.
Source: GAO analysis of FAA and ACI data:
[A] ACI's estimate for these categories of airports is drawn directly
from FAA's estimate.
[End of table]
Attempts to Reconcile ACI and FAA Estimates of Planned Development
Costs Illustrate Differences:
Several factors account for the differences between the FAA and ACI
estimates of future development costs. The biggest difference stems
from ACI's inclusion of projects that are not eligible for AIP grants,
while FAA's estimate includes only AIP-eligible projects (see table 2).
However, even when comparing just the AIP-eligible portions of the
respective estimates, ACI's estimate is 20 percent ($8 billion in total
or $1.6 billion annually) greater. This points to differences in how
the two estimates are formed.
Table 2: Comparison of ACI and FAA Estimates of Planned Development for
2007-2011 (Dollars in billions):
Source: ACI total estimate;
Total: $78; For all airports surveyed: $51;
For large hubs surveyed: $36;
For medium hubs surveyed: $11.3;
For small hubs surveyed: $2.0.
Source: Less: AIP-ineligible or unknown;
Total: 29;
For all airports surveyed: 23;
For large hubs surveyed: 15.2;
For medium hubs surveyed: 6.6; For small hubs surveyed: .8.
Source: ACI AIP-eligible portion;
Total: 49; For all airports surveyed: 28[A];
For large hubs surveyed: 21.2;
For medium hubs surveyed: 4.6;
For small hubs surveyed: 1.2.
Source: FAA Estimate of AIP-eligible;
Total: 41; For all airports surveyed: 21;
For large hubs surveyed: 15.7;
For medium hubs surveyed: 3.4;
For small hubs surveyed: 1.3.
Source: Difference;
Total: $8;
For all airports surveyed: $7;
For large hubs surveyed: $5.5;
For medium hubs surveyed: $1.2;
For small hubs surveyed: $.6.
Source: GAO analysis of FAA and ACI data.
[A] Total for large, medium, and small hub airports does not equal all
airports surveyed because ACI also surveyed a few GA and nonhub
airports.
[End of table]
One difference is the estimating approach. FAA's estimates cover
projects for every airport in the national system, while ACI surveyed
the 100 largest airports (mostly large and medium hub airports) and
then extrapolated a total based on cost per enplanement calculations
for small, medium, and large hub airports that did not respond.
Further analysis on a project-by-project level shows variances related
to three other factors:
* Definition--FAA data are based on planned project information taken
from airport master plans and state system plans, minus projects that
already have an identified funding source, while ACI includes all
projects, whether funding has been identified or not. For example,
ACI's estimate for Washington Dulles airport includes $278 million for
an automated people mover, but FAA's estimate does not because it is
being funded by a PFC approved in 2006.
* Measurement--FAA data include only the portion of a project that is
eligible for AIP, while ACI estimates the total value project cost. On
a terminal construction project at Dulles International Airport, ACI
estimated total costs of $1.6 billion for construction; however, only a
small portion is eligible for AIP funding. FAA did not report any
amount because under FAA AIP rules only a small portion ($20 million)
was eligible for AIP funding and the airport had exhausted the AIP
funds that could be used for this type of project.
* Timing--The ACI and FAA estimated planned development costs for the
same five year time period, but the estimates were made at different
times--the ACI survey was completed in early 2007, while FAA's estimate
is based on information collected in early 2006. Further, the ACI
estimate includes projects that FAA does not believe will be
commissioned during the next 5 years. At Fort Lauderdale International
Airport, for example, ACI reported a $700 million runway project but
FAA reports less than $200 million for the same project. According to
FAA, the remaining costs are beyond 2011.
FAA and ACI estimates do not consider cost increases such as rising
construction costs. Going forward these costs may increase, especially
construction costs which have jumped 26 percent in 30 major U.S. cities
over the past three years. Industry experts predict that construction
costs will continue to increase project costs. FAA acknowledges that
development estimates may or may not include increase in costs based on
construction uncertainty and that annual costs increases are not
captured.
Airports Have Averaged About $13 Billion Annually in Capital Financing
over the Last 5 Years and Use a Variety of Funding Sources:
From 2001 to 2005, the 3,364 active airports that make up the national
airport system received an average of about $13 billion per year for
planned capital development from a variety of funding sources. These
funds are used for both AIP-eligible and ineligible projects. The
single largest source of these funds was bond proceeds, backed
primarily by airport revenues, followed by AIP grants, PFCs, and state
and local contributions (see table 3).
Table 3: Sources of Airport Funding, 2001-2005:
2006 Dollars in billions.
Funding Source: Airport bonds;
2001-2005 average annual funding: $6.5[A];
Percent of total: 50;
Source of funds: State and local governments or airport authorities
issue tax-exempt debt.
Funding Source: AIP grants;
2001-2005 average annual funding: 3.6[B];
Percent of total: 29;
Source of funds: The Congress makes funds available from the Airport
and Airway Trust Fund, which receives revenue from various aviation-
related taxes.
Funding Source: Passenger facility charges;
2001-2005 average annual funding: 2.2[C];
Percent of total: 17;
Source of funds: Funds come from passenger fees of up to $4.50 per trip
segment at commercial airports.
Funding Source: State and local contributions;
2001-2005 average annual funding: .7;
Percent of total: 4;
Source of funds: Funds include state and local grants, loans, and
matching funds for AIP grants.
Funding Source: Total;
2001-2005 average annual funding: $13;
Percent of total: 100;
Source of funds: [Empty].
Source: GAO analysis of FAA, Thomson Financial, and state grant data:
Note: Totals may not add because of rounding.
[A] Net of refinancing.
[B] AIP totaled on a fiscal year basis.
[C] Some airports use their PFCs to finance bond issues, as much as 30
percent of PFC collections by some estimates. As a result, the total
amount of funds available to airports may be overstated by as much as
$660 million (30 percent of $2.2 billion).
[End of table]
The amount and source of funding vary with the size of airports. The
nation's 67 larger airports, which handled almost 90 percent of the
passenger traffic in 2005, accounted for 72 percent of all funding
($9.4 billion annually), while the 3,297 other smaller commercial and
general aviation airports that make up the rest of the national system
accounted for the other 28 percent ($3.5 billion annually).[Footnote 5]
As shown in figure 1, airports' reliance on federal grants is inversely
related to their size---federal grants contributed a little over $1.3
billion annually to larger airports (14 percent of their total funding)
and $2.3 billion annually to smaller airports (64 percent of their
total funding).
Figure 1: Funding Sources by Size of Airport, 2001-2005:
[See PDF for image]
Source: GAO analysis of FAA, ACI, Thomson Financial, and state grant
data.
Note: Totals may not add up due to rounding:
[End of figure]
Total Planned Development Exceeds Past Funding Levels by About $1
Billion Annually:
Based on past funding levels, airports' funding is about $1 billion per
year less than estimated planned capital development costs. If the $13
billion annual average funding continues over the next 5 years and were
applied only to AIP-eligible projects, it would cover all of the
projects in FAA's estimate. However, much of the funding available to
airports is for AIP-ineligible projects that can attract private bond
financing. We could not determine how much of this financing is
directed to AIP-eligible versus ineligible projects. Figure 2 compares
the $13 billion average annual funding airports received from 2001
through 2005 (adjusted for inflation to 2006 dollars) with the $14
billion in annual planned development costs for 2007 through 2011. The
$14 billion is the sum of FAA's estimated AIP-eligible costs of $8.2
billion annually and ACI's estimated ineligible costs of $5.8 billion
annually. The overall difference of about $1 billion annually is not an
absolute predictor of future funding shortfalls; both funding and
planned development may change in the future.
Figure 2: Comparison of Historical Airport Funding to Future
Development Costs:
[See PDF for image]
Source: GAO analysis of FAA, ACI, Thomson Financial, and state grant
data.
Note: Totals may not add up due to rounding:
[End of figure]
Larger Airports--Planned Development Costs Exceed Past Funding by About
$600 Million Annually:
The difference between current funding and planned development costs
for larger airports is about $600 million if both AIP-eligible and
ineligible projects are considered. From 2001 through 2005, larger
airports collected an average of about $9.4 billion a year for capital
development, as compared to over $10 billion in annual planned
development costs. Figure 3 shows the comparison of average annual
funding versus planned development costs for larger airports. At $5.7
billion annually, the ineligible portion of costs is 57 percent of the
total planned development costs.
Figure 3: Comparison of Larger Airports' Historical Funding to Future
Development Costs:
[See PDF for image]
Source: GAO analysis of FAA, ACI, Thomson Financial, and state grant
data.
Note: Totals may not add up due to rounding:
[End of figure]
Smaller Airports---Planned Development Costs Exceed Past Funding by
About $400 Million Annually:
The difference between past funding and planned development costs for
smaller airports is roughly $400 million annually. At smaller airports,
average annual funding from 2001 through 2005 was about $3.6 billion a
year (expressed in 2006 dollars). Annual planned development costs for
smaller airports from 2007 through 2011 is estimated at about $4
billion. Figure 4 compares average annual funding to planned
development costs. As the figure shows, the portion of smaller
airports' project costs not eligible for AIP funding is relatively
small--about $75 million annually, or about 2 percent of total planned
development costs.
Figure 4: Comparison of Smaller Airports' Historical Funding to Future
Development Costs:
[See PDF for image]
Source: GAO analysis of FAA, ACI, Thomson Financial, and state grant
data.
Note: Totals may not add up due to rounding:
[End of figure]
Financial Health of Airports Has Improved for Larger Airports:
The financial health of airports is strong and has generally improved
since September 11, 2001, especially for larger airports. Passenger
traffic has rebounded to 2000 levels and bond ratings have improved.
Following September 11, many airports cut back on their costs and
deferred capital projects. However, credit rating agencies and
financial experts now agree that larger airports are generally
financially strong and have ready access to capital markets. A good
indicator of airports' financial strength is the number and scale of
underlying bond ratings provided by bond rating agencies. More bonds
were rated in 2007 than 2002, and more bonds are rated at the higher
end of the rating scale in 2007, meaning that the rating agencies
consider them less of a risk today. Furthermore, larger airports tended
to have higher ratings than smaller airports.
Administration's FAA Reauthorization Proposal Would Increase Funding
for Larger Airports, while the Effect on Smaller Airports is Uncertain:
The administration's reauthorization proposal for AIP would increase
funding for larger airports, but its effect on smaller airports is
uncertain because of the overall reduction in AIP and the proposed
changes in how AIP grants are allocated between larger and smaller
airports. The 2008 fiscal year budget reduces AIP funding from its past
level of $3.5 billion in fiscal years 2006 and 2007 to $2.75 billion in
2008. The proposal also would eliminate entitlement, otherwise known as
apportionment, grants for larger airports while increasing the PFC
ceiling from $4.50 to $6 per passenger.[Footnote 6] While larger
airports that account for 90 percent of all passengers will come out
ahead, an increased PFC may not compensate smaller airports for the
overall reduction in AIP, even with the proposed changes in how AIP is
allocated between larger and smaller airports. As a separate issue, the
administration's reauthorization proposal would change the way that AIP
and other FAA programs are funded and may not provide enough monies for
these programs, even at the reduced levels proposed by the
administration.
Administration's FAA Reauthorization Proposal Would Make Fundamental
Changes in AIP:
The administration's 2008 FAA reauthorization proposal would reduce
AIP, change how AIP is allocated, and increase the PFC available to
commercial airports. (Key changes in the proposal's many elements are
outlined in appendix I.) Unlike previous reauthorization proposals,
which made relatively modest changes in the structure of the AIP
program, this proposal contains some fundamental changes in the funding
and structure of the AIP program. Notably, following the pattern set by
the 2000 FAA reauthorization,[Footnote 7] which required larger
airports to return a certain percentage of their entitlement funding in
exchange for an increase in the PFC, the administration proposes
eliminating entitlement grants for larger airports altogether and at
the same time allowing those airports to charge a higher PFC.
The reauthorization proposal would eliminate some set-aside programs
and increase the proportion of discretionary grant funds available to
FAA at higher AIP funding levels. Table 4 compares AIP funding
allocations under the current funding formulas to the proposed
reauthorization allocations at both the current $3.5 billion level and
at the proposed $2.75 billion level. Another change is to the
entitlement formulas--for example, removing the funding trigger in
current law that doubles the amount of entitlement funds airports
receive if the overall AIP funding level is above $3.2 billion--is
intended to make more discretionary funding available. According to FAA
officials, their objective is to increase the amount of discretionary
funding for airports so that higher priority projects can be funded;
however, that is only achieved when total AIP funds are greater than
the $2.75 billion budgeted by the administration. For example, at $2.75
billion in AIP, the current law would generate $967 million in
discretionary grants versus $866 million under the proposed
reauthorization. This reverses at $3.5 billion in AIP funding, for
which the proposal generates $1.328 billion in discretionary grants
versus $845 million under current law.
Table 4: Estimated Distribution of AIP Funds at $2.75 and $3.5 Billion
Funding Levels under Current and Proposed Authorization Formulas:
Dollars in millions.
AIP funding (after administrative and other costs);
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: $2,636;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: $2,636;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: $3,386;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: $3,386.
Primary airports.
Entitlements: Large;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 92;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 81;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: $184;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: $92.
Entitlements: Medium;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 56;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 49;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 111;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 56.
Entitlements: Small;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 131;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 230;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 262;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 262.
Entitlements: Nonhub;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 154;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 269;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 307;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 307.
Subtotal primary airports;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 433;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 629;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 864;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 717.
Entitlements: Cargo;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 92;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 81;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 118;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 118.
Entitlements: Alaska supplemental;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 11;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 19;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 21;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 21.
Entitlements: Nonprimary entitlements;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 0;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 309;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 385;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 431.
Entitlements: State apportionment;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 488;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 300;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 292;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 339.
Entitlements: Carryover entitlements;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 432;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 432;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 432;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 432.
Subtotal entitlements;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 1,455;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 1,769;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 2,113;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 2,058.
Small airport fund.
Nonhub commercial service;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 123;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: [Empty];
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 245;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: [Empty].
Nonprimary airports;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 61;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: [Empty];
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 122;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: [Empty].
Small hub;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 31;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: [Empty];
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 61;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: [Empty].
Subtotal entitlements and nondiscretionary; AIP allocations under
current law compared to proposed reauthorization: Current law: $2.75
Billion: 1,669;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 1,769;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 2,541;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 2,058.
Discretionary.
Noise set-aside;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 338;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 211;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 296;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 271.
Reliever set-aside;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 0;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: [Empty];
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 6;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: [Empty].
Military Airports (MAP) set-aside;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 39;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: [Empty];
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 34;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: [Empty].
Subtotal disc set-asides;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 377;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 211;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 336;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 271.
Small airport discretionary fund;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: [Empty];
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 136;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: [Empty];
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 266.
Capacity, safety, security, noise;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 442;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 389;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 382;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 594.
Remaining discretionary;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 147;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 130;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 127;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 198.
Subtotal discretionary;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: 967;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: 866;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: 845;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: 1,328.
Total AIP available for grants;
AIP allocations under current law compared to proposed reauthorization:
Current law: $2.75 Billion: $2,636;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $2.75 Billion: $2,636;
AIP allocations under current law compared to proposed reauthorization:
Current law: $3.5 Billion: $3,386;
AIP allocations under current law compared to proposed reauthorization:
FY2008 as proposed: $3.5 Billion: $3,386.
Source: FAA:
[End of table]
Increasing the PFC Would More Than Offset Loss of AIP Entitlements For
Larger Airports but Impact on Smaller Airports Is Uncertain:
The administration's proposed reauthorization would allow airports to
increase their PFC to a maximum of $6 and allow airports to use their
collections for any airport projects while forgoing their entitlement
funds. A $6 PFC could generate an additional $1.1 billion for larger
airports that currently have a PFC in place, far exceeding the $247
million in entitlements that FAA estimates they would forego under this
reauthorization proposal (see table 5).[Footnote 8] However, the impact
on smaller airports is uncertain because they collect far less in PFCs
and are more reliant on AIP for funding. A change to a $6 PFC would
yield an additional $110 million for small hub airports based on
airports that currently have a PFC in place and $132 million if every
one of the small hub airports had a $6 PFC. It is uncertain whether the
proposed allocation of AIP under the administration's proposal would
shift a greater proportion of funds to smaller airports to compensate
for the overall reduction in AIP. The reauthorization proposal would
also relax project eligibility criteria to allow airports to use their
collections in the same way as they use internally generated revenue,
including off-airport intermodal transportation projects. The
application and review process would also be streamlined; as a result,
FAA would no longer approve collections but rather ensure compliance
with PFC and airport revenue rules.
Table 5: Projected PFC Collections with a $6 PFC:
Dollars in Billions.
Large hub;
2005 Collections: $1.769;
2005 Collections if $6 PFC: Current incidence of PFCs: $2.594;
2005 Collections if $6 PFC: Increase over 2005 collections: $.825;
2005 Collections if $6 PFC: If all airports had a $6 PFC: $2.695;
2005 Collections if $6 PFC: Increase over 2005 collections: $.925.
Medium hub;
2005 Collections: .442;
2005 Collections if $6 PFC: Current incidence of PFCs: .725;
2005 Collections if $6 PFC: Increase over 2005 collections: .283;
2005 Collections if $6 PFC: If all airports had a $6 PFC: .781;
2005 Collections if $6 PFC: Increase over 2005 collections: .339.
Subtotal;
2005 Collections: 2.211;
2005 Collections if $6 PFC: Current incidence of PFCs: 3.319;
2005 Collections if $6 PFC: Increase over 2005 collections: 1.108;
2005 Collections if $6 PFC: If all airports had a $6 PFC: 3.476;
2005 Collections if $6 PFC: Increase over 2005 collections: 1.265.
Small hub;
2005 Collections: .170;
2005 Collections if $6 PFC: Current incidence of PFCs: .281;
2005 Collections if $6 PFC: Increase over 2005 collections: .110;
2005 Collections if $6 PFC: If all airports had a $6 PFC: .302;
2005 Collections if $6 PFC: Increase over 2005 collections: .132.
Total;
2005 Collections: $2.381;
2005 Collections if $6 PFC: Current incidence of PFCs: $3.599;
2005 Collections if $6 PFC: Increase over 2005 collections: $1.218;
2005 Collections if $6 PFC: If all airports had a $6 PFC: $3.778;
2005 Collections if $6 PFC: Increase over 2005 collections: $1.397.
Source: GAO analysis of FAA data:
[End of table]
Airport Privatization:
The administration's proposal would modify the current pilot program on
private ownership of airports in two key ways. First, the proposed
modifications will expand eligibility beyond the current statutory
limit of 5 to 15 airports. Restrictions limiting participation in the
pilot program to specific airport size categories would also be
eliminated. Second, the pilot program would be amended to eliminate the
veto power that airlines can exercise under current law to prevent
privatization transactions at commercial airports. Under current law,
the sale of an airport to private interests may only proceed if a super-
majority of the airlines at that airport approve of the sale or
lease.[Footnote 9] Additionally, the airline veto power to prevent fee
increases higher than inflation rates would be repealed. In place of
these veto powers, the airport sponsor would need to demonstrate to the
Secretary of Transportation that the airlines using that airport were
consulted prior to the transaction proceeding.[Footnote 10]
Congress established the Airport Privatization Pilot Program in October
1996 to determine if privatization could produce alternative sources of
capital for airport development and provide benefits such as
improvements in customer service. It also hoped to determine if new
investment and capital from the private sector could be attracted
through innovative financial arrangements. Proponents of privatization
believe that the privatization of airports can lead to capacity-
increasing investment in airports through the commitment of private
capital, lower operating costs, and greater efficiency and that
privatization can increase customer satisfaction.
Overall, there has been relatively little interest in the current pilot
program. Six airports have applied for participation in the program and
three of those airports withdrew their applications in 2001. To date,
Stewart International Airport, located in Newburgh, New York, is the
only airport accepted into the pilot program. The airport received this
exemption in March 2005, but is currently being purchased back by a
public owner, the Port Authority of New York and New Jersey. In
September 2006, the City of Chicago submitted a preliminary application
for Chicago Midway International Airport. FAA completed its review of
the Midway preliminary application and determined that it meets the
procedural requirements for participation in the pilot program.
Consequently, the City of Chicago can now proceed to select a private
operator, negotiate an agreement, and submit a final application to FAA
for exemption.
Proposed Fuel Tax Rates May Not Yield the Revenue Anticipated to Fund
AIP:
In addition to concerns about the level and allocation of AIP funds,
another concern is that the fuel tax revenues that the administration's
reauthorization proposal has designated to largely fund AIP after 2009
may not be as great as anticipated. Currently, AIP and other FAA
programs are principally funded by the Airport and Airway Trust Fund
(trust fund), which receives revenue from passenger ticket taxes and
segment taxes, airline and general aviation fuel taxes, and other
taxes. The administration's reauthorization proposal would fund air
traffic control through user fees for commercial aircraft and fuel
taxes for general aviation while limiting the sources of revenue for
the trust fund and its uses. Under the proposal, beginning in 2009, the
trust fund would continue but only to fund three programs--AIP,
Research, Engineering and Development (RE&D), and Essential Air Service
(EAS)--and would be funded solely by an equal fuel tax on commercial
and general aviation fuel purchases and an international arrival and
departure tax.
FAA officials confirmed for us that in estimating fuel tax revenues
they did not take into account possible reductions in fuel purchases
due to the increase in the tax rates. Although we do not know by how
much such purchases would decline, conventional economic reasoning,
supported by the opinions of industry stakeholders, suggests that some
decline would take place. Therefore, the tax rate should be set taking
into consideration effects on use and the resulting impact on revenue.
FAA officials told us that they believe that these effects would be
small because the increased tax burden is a small share of aircraft
operating costs and therefore there was no need to take its impact into
account. Representatives of general aviation, however, have said that
the impact could be more substantial. If consumption possibly falls
short of projections or Congress appropriates more funds for AIP, RE&D,
or EAS than currently proposed, then fuel tax rates and the
international arrival and departure tax would correspondingly have to
be increased or additional funding from another source, such as the
trust fund's uncommitted balance or the General Fund, would be needed.
In conclusion, Mr. Chairman, airports have rebounded financially from
the September 2001 terrorist attacks. We expect the demand for air
travel to continue to increase, the system capacity to be stretched,
and airports to increase their demand for capital improvements to
relieve congestion and improve their services. As Congress moves
forward with reauthorizing FAA, it will have to decide on several key
issues, including how it wants to fund and distribute grants under the
AIP. While some elements of the administration's proposal are to be
commended--for example, simplifying the funding formulas and giving FAA
more discretion to fund high priority projects--other parts of the
proposal raise concerns. For example, the extent to which the
administration's proposed cuts in AIP funding will affect development
at smaller airports is unclear.
GAO Contacts and Staff Acknowledgements:
For further information on this statement, please contact Dr. Gerald
Dillingham at (202) 512-2834 or DillinghamG@gao.gov. Individuals making
key contributions to this testimony were Paul Aussendorf, Jay Cherlow,
Jessica Evans, David Hooper, Nick Nadarski, Edward Laughlin, Minette
Richardson, and Stan Stenersen.
[End of section]
Appendix I: Key Changes Proposed in AIP:
Feature: Funding;
Current authorization for AIP: Trust fund for all capital programs are
funded by an airline ticket tax, segment tax, international departure
and arrival taxes, varying rates of fuel taxes and other taxes. Funding
for AIP is appropriated from the trust fund;
Proposed AIP reauthorization: Trust fund is funded by fuel tax of 13.6
cents/gallon for commercial and general aviation and a reduced
international arrival and departure tax. Funding for AIP is
appropriated from the Trust Fund. If AIP is increased, the tax rates
would have to be increased, the trust fund's uncommitted balance would
have to be drawn down, or another funding source would have to found.
Feature: Entitlements;
Current authorization for AIP: Up to 75 percent of entitlements for
large and medium hub airports collecting a PFC are turned back to the
small airport fund;
Proposed AIP reauthorization: Entitlements for large and medium hub
airports eliminated by 2010.
Feature: Entitlements;
Current authorization for AIP: If AIP greater than $3.2 billion,
primary airport entitlements are doubled;
Proposed AIP reauthorization: $3.2 billion trigger for doubling
entitlements is eliminated except for small and nonhub primary
airports.
Feature: Entitlements;
Current authorization for AIP: State apportionment is 20 percent of AIP
(18.5 percent if AIP is less than $3.2 billion);
Proposed AIP reauthorization: State apportionment set at greater of 10
percent of AIP or $300 million.
Feature: Entitlements;
Current authorization for AIP: Nonprimary airport entitlement of up to
$150,000;
Proposed AIP reauthorization: The nonprimary airport minimum
entitlement of $150,000 per airport is eliminated and replaced by a
tiered system of entitlements ranging from $400,000 for large general
aviation airports to $100,000 for smaller general aviation airports.
The 750 airports that have less than 10 operational and registered
based aircraft are guaranteed nothing.
Feature: Discretionary;
Current authorization for AIP: Reliever and military airport set asides
minimum discretionary funding set at $148 million;
Proposed AIP reauthorization: The set-aside for reliever and military
airports is eliminated.
Feature: Discretionary;
Current authorization for AIP: Small airport fund funded by large and
medium hub airport PFC turnbacks of up to 75 percent of PFC
collections;
Proposed AIP reauthorization: Minimum discretionary funding set at
$520 million.
Small airport fund equal to 20 percent of discretionary funds.
Feature: Project eligibility;
Current authorization for AIP: Most types of airfield projects,
excluding interest costs, nonrevenue producing terminal space and on-
airport access project costs. General aviation airports may use their
entitlement funds for some revenue producing activities (e.g.,
hangars);
Proposed AIP reauthorization: Expanded to include additional revenue
producing aeronautical support facilities (e.g., self-service fuel
pumps) at general aviation airports.
Feature: Local government share of project cost (local match);
Current authorization for AIP: Government share set at 95 percent for
smaller airports through 2007, and 75 percent for large and medium hub
airports (noise 80 percent);
Proposed AIP reauthorization: Eliminates 95 percent government share
except for the very smallest airports. Now maximum share will be a
flexible amount with a maximum percentage of 90 percent. Airfield
rehabilitation projects lowered to 50 percent maximum at large and
medium hubs.
Feature: PFCs;
Current authorization for AIP: Maximum rate is $4.50 per passenger;
Proposed AIP reauthorization: Maximum rate is $6 per passenger.
Feature: PFCs;
Current authorization for AIP: All applications subject to FAA review;
Proposed AIP reauthorization: Review and approval is streamlined.
Feature: PFCs;
Current authorization for AIP: PFCs can be used for all AIP eligible
projects, but also interest costs on airport bonds, terminal gates and
related areas, and noise mitigation can also be used;
Proposed AIP reauthorization: Eligibility expanded to include almost
any airport -related project, including off-airport intermodal
projects.
Up to 10 large and medium hub airports willing to assume the cost of
air navigation facilities are allowed a $7 PFC.
Feature: Privatization;
Current authorization for AIP: Up to five airports, one of each size,
with strict limit on rates and charges and requires approval by 65
percent of airlines;
Proposed AIP reauthorization: Up to 15 airports of any size, no limit
on rates and charges and no airline veto, but subject to DOT review and
approval.
Source: GAO.
[End of table]
[End of section]
Appendix II: Scope and Methodology:
To determine how much planned development would cost over the next 5
years, we obtained planned development data from the Federal Aviation
Administration (FAA) and Airports Council International-North America
(ACI). To determine how much airports of various sizes are spending on
capital development and from which sources, we sought data on airports'
capital funding because comprehensive airport spending data are limited
and because, over time, funding and spending should roughly equate. We
obtained capital funding data from the FAA, ACI, the National
Association of State Aviation Officials (NASAO), and Thomson Financial-
-a firm that tracks all municipal bonds. We screened each of these
databases for their accuracy to ensure that airports were correctly
classified and compared funding streams across databases where
possible. We did not, however, audit how the databases were compiled or
test their overall accuracy, except in the case of state grant data
from the NASAO and some of the Thomson Financial bond data, which we
independently confirmed. We determined the data to be sufficiently
reliable for our purposes. We subtotaled each funding stream by year
and airport category and added other funding streams to determine the
total funding. We met with FAA, bond rating agencies, bond
underwriters, airport financial consultants, and airport and airline
industry associations and discussed the data and our conclusions to
verify their reasonableness and accuracy.
To determine whether current funding is sufficient to meet planned
development for the 5-year period from 2007--2011 for each airport
category and overall, we compared total funding to planned development.
We correlated each funding stream to each airports' size, as measured
by activity, and among other funding streams to better understand
airports' varying reliance on them and the relationships among sources
of finance. We then discussed our findings with FAA, bond rating
agencies, bond underwriters, airport financial consultants, and airport
and airline industry associations to determine how our findings
compared with their knowledge and experiences.
To determine some of the potential effects from changes to how airport
development is funded under the administration's proposed FAA
reauthorization legislation, we first analyzed the suggested changes to
the Airport Improvement Program's (AIP) funding and allocation. In
particular we analyzed the effect of various funding levels on how the
program funds would be allocated. Second, we evaluated the effects of
raising the passenger facility charge (PFC) ceiling, as the
administration proposal suggests, by estimating the potential PFC
collections under a $6 PFC on the basis of 2005 enplanements and
collection rates assuming all airports imposed a $6 PFC. Third, we
determined the status of FAA's pilot program for airport privatization.
Moreover, we discussed the impact of all of the proposed changes
(funding/allocation, $6 PFC, and privatization) with FAA, bond rating
agencies, bond underwriters, airport financial consultants, and airport
and airline industry associations.
[End of section]
(540133):
FOOTNOTES
[1] The FAA administers federal funds for airport capital improvements
through grants awarded from the Airport and Airway Trust Fund under the
AIP.
[2] The PFC Program allows the collection of PFC fees up to $4.50 for
every enplaned passenger at commercial airports controlled by public
agencies. Airports use these fees to fund FAA-approved projects that
enhance safety, security, or capacity; reduce noise; or increase air
carrier competition.
[3] In 2003 and 1998, GAO reported on airport financing. See Airport
Finance: Past Funding Levels May Not Be Sufficient to Meet Airports'
Planned Capital Development, GAO-03-497T (Washington D.C.: Feb. 25,
2003) and Airport Financing: Funding Sources for Airport Development,
GAO/RCED-98-71 (Washington D.C.: Mar. 12, 1998).
[4] We will follow conventions established in GAO's prior report on
airport finance in differentiating between larger (large and medium hub
airports) and smaller (all other categories of commercial and general
aviation airports). See Airport Finance: Past Funding Levels May Not Be
Sufficient to Meet Airports' Planned Capital Development, GAO-03-497T
(Washington D.C.: Feb. 25, 2003).
[5] As noted in Table 3, the total amount of funds may be somewhat
overstated because as much as 30 percent of PFCs are used to finance
bond issues. This would particularly affect the total for larger
airports, which collect most of the PFCs.
[6] AIP grants generally consist of two types--(1) entitlement funds
that are apportioned to airports or states by formula each year based
on the number of airport passengers or state population and (2)
discretionary funds that FAA approves based on a project's priority.
[7] The Wendell H. Ford Aviation Investment and Reform Act for the 21st
Century, Pub. L. No. 106-81 (Apr. 5, 2000).
[8] This calculation assumes that the increased PFC would not affect
passenger demand for air travel. GAO has previously calculated that a
PFC increase could reduce passenger demand. See Passenger Facility
Charges: Program Implementation and the Potential Effects of Proposed
Changes, GAO/RCED-99-138 (Washington D.C.: May 19, 1999).
[9] The law defines super-majority as at least 65 percent of the
scheduled air carriers at a primary airport.
[10] At non-primary airports, the exemption would continue to be based
on consultation with at least 65% of the based-aircraft owners.
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