[Senate Hearing 108-818]
[From the U.S. Government Publishing Office]
S. Hrg. 108-818
AIRPORT IMPROVEMENT PROGRAM AND OTHER AIRPORT FINANCING ISSUES
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HEARING
before the
SUBCOMMITTEE ON AVIATION
OF THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
FEBRUARY 25, 2003
__________
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Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K.INOUYE, Hawaii
TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois RON WYDEN, Oregon
JOHN ENSIGN, Nevada BARBARA BOXER, California
GEORGE ALLEN, Virginia BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire MARIA CANTWELL, Washington
FRANK LAUTENBERG, New Jersey
Jeanne Bumpus, Republican Staff Director and General Counsel
Robert W. Chamberlin, Republican Chief Counsel
Kevin D. Kayes, Democratic Staff Director and Chief Counsel
Gregg Elias, Democratic General Counsel
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SUBCOMMITTEE ON AVIATION
TRENT LOTT, Mississippi, Chairman
TED STEVENS, Arkansas ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine DANIEL K. INOUYE, Hawaii
SAM BROWNBACK, Kansas JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois RON WYDEN, Oregon
JOHN ENSIGN, Nevada BILL NELSON, Florida
GEORGE ALLEN, Virginia BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire MARIA CANTWELL, Washington
FRANK LAUTENBERG, New Jersey
C O N T E N T S
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Page
Hearing held on February 25, 2003................................ 1
Statement of Senator Lott........................................ 1
Statement of Senator Rockefeller................................. 36
Prepared statement........................................... 43
Statement of Senator Stevens..................................... 31
Statement of Senator Sununu...................................... 33
Witnesses
Dillingham, Gerald L., Director, Civil Aviation Issues, General
Accounting Office.............................................. 1
Prepared statement........................................... 4
Plavin, David Z., President, Airports Council International-North
America........................................................ 20
Prepared statement........................................... 23
Woodward, Woodie, Associate Administrator for Airports, Federal
Aviation Administration........................................ 14
Prepared statement........................................... 17
Appendix
Hollings, Hon. Ernest F., U.S. Senator from South Carolina,
prepared
statement...................................................... 47
Response to written questions submitted by Hon. John McCain to:
Gerald L. Dillingham......................................... 48
Woodie Woodward.............................................. 49
AIRPORT IMPROVEMENT PROGRAM AND OTHER AIRPORT FINANCING ISSUES
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TUESDAY, FEBRUARY 25, 2003
U.S. Senate,
Subcommittee on Aviation,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:40 a.m. in
room SR-253, Russell Senate Office Building, Hon. Trent Lott,
Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF HON. TRENT LOTT,
U.S. SENATOR FROM MISSISSIPPI
Senator Lott. The Subcommittee will come to order. This is
another in a series of hearings we plan at the full committee
level and the subcommittee level on aviation legislation,
aviation issues this year. We have already had, I believe,
three hearings, and we plan to have others to make sure that
all sectors of the aviation industry can be heard from. Today,
this is a hearing on the Airport Improvement Program and other
airport financing issues.
We are honored to have on this panel Dr. Gerald Dillingham,
director, Physical Infrastructure Issues of the GAO, Ms. Woodie
Woodward, associate administrator for airports, FAA, and Mr.
David Plavin, president, Airports Council International.
As the Subcommittee Chairman, I have tried to start a new
rule, that is hear from the witnesses first, and then the
senators can make their statements and ask questions, and
Senator Stevens has agreed to that process, and I hope Senator
Sununu. But also in that vein, we will give senators extended
time, if they need it, to make statements or ask questions.
We are pleased to have you all with us today, and we have
copies of your statements available to the senators, but we
would be glad for you to present those statements or an
abbreviated version of them.
Dr. Dillingham, we welcome you, and we thank you for coming
this morning, if you would like to proceed.
STATEMENT OF GERALD L. DILLINGHAM, DIRECTOR, CIVIL AVIATION
ISSUES, GENERAL ACCOUNTING OFFICE
Dr. Dillingham. Thank you, Mr. Chairman, Mr. Stevens, and
Members of the Subcommittee.
Since AIR-21 was enacted three years ago, Congress has
asked the GAO to undertake several studies related to aviation
finance in general, as well as studies of financing
infrastructure development at the Nation's airports. My
testimony this morning is drawn from these studies and will be
illustrated with the charts on my right, copies of which we
have provided to the members.
We will address three questions. First, what are the
estimated costs of planned capital development at airports?
Second, how much funding have airports historically received
for capital development? And if that funding continues at these
levels, will it be sufficient to meet future development plans?
And third, what options are available to address any potential
differences between the estimated cost of planned development
and available funding?
The bottom line regarding developmental cost is that
although there is a general consensus that maintaining the
integrity of the Nation's airport system requires continual
capital investment, there is not a consensus on how much and
what types of development are needed. This point is illustrated
in our first chart.
This chart contrasts FAA's cost estimates for various types
of development projects with estimates from the Airport Council
International. The bar on the left shows FAA's estimate for the
cost of airport planned development. FAA estimates the cost to
be a little over $9 billion annually between 2001 and 2005.
This estimate includes all types of projects, such as safety,
security, capacity, and standards, all of which are eligible
for Federal funding.
On the right is ACI's estimate. Their estimate includes an
annual addition of $5.7 billion. This additional $5.7 billion
covers a variety of types of projects, some of which are
eligible for Federal funding, some of which are not. This
brings the Council's total estimate to nearly $15 billion
annually.
The next question is, How much money have airports
historically received to fund development? This chart shows
that from all sources, airports receive a little less than $12
billion annually to fund development. A variety of bonds was
the largest source of funds and accounted for 60 percent of the
funds airports received. The next-largest sources of funds were
the AIP fund which contributed about 20 percent, and PFC
collections, which contributed about 13 percent. The remaining
funds came from State and local grants and airport revenues.
As the next chart shows, if past funding levels continue,
there would be more than enough money to cover FAA's overall
estimate of $9 billion for annual planned development. But as
you can see from the figure on the right side of the chart, it
would leave a gap of just over $3 billion from ACI's estimate
of $15 billion annually.
The potential policy implications of this gap can be seen
when you look at the analysis of how development plans and
funding sources differ by airport size. When you look at the
large- and medium-sized airports, ACI's estimate for
development, which is shown with the bar on the right side of
the chart, totals about $11.7 billion, compared with $9.4
billion in historical funding. For smaller airports, the
development costs total about $3.3 billion compared with about
$2.4 billion in historical funding.
As the pie chart on the left shows, this means that about
80 percent of the estimated costs for development of large-and
medium-sized airports would be covered. The pie chart on the
right side shows that almost 73 percent of the estimated costs
for development for smaller airports would have been covered.
Based on this comparison, it appears that it is more difficult
for smaller airports to finance their development than larger
airports.
You can see an interesting dynamic when you compare the
funding situations for airports today with the situation we
reported in 1998. In 1998, the funding gap for larger airports
was about 20 percent. Today, the situation is pretty much the
same; the gap is still about 20 percent. But there has been a
significant change for smaller airports. The figure on the left
shows that in 1998, their funding gap was almost 50 percent.
Today, the gap has dropped to 27 percent. However, 27 percent
is still a significant gap for those airports that are most
dependent on Federal funds.
This finding suggests two things. First, those
congressional initiatives, such as the recent increases in AIP
funds, have helped close the gap for smaller airports. And
second, those policies and programs that help smaller airports
continue to be important.
Mr. Chairman, neither FAA nor ACI's estimate includes the
cost for airport infrastructure modifications for security
enhancements. The most significant of these security-related
infrastructure modifications are those that will be necessary
to move those large explosive detection machines out of airport
lobbies and integrate them into the existing baggage
operations. These modifications have been estimated to cost
about a billion dollars a year for the next five years. How
that expense will be funded is a major unanswered question.
There is also a real concern that funding these
modifications with AIP funds will limit the ability of airports
to undertake or complete other infrastructure projects. After
9/11, AIP funding for security projects increased by more than
800 percent. It went from $57 billion--or $57 million in 2001
to just over a half a billion in 2002. This increase for
security projects had the effect of making less money available
to fund other types of capital development projects.
Finally, as a result of our studies, we identified some
options that the Congress may wish to consider to make more use
of existing funds or to generate additional funding for
development and security. These options include removing the
cap on the PFC funds, redistributing AIP funds among types of
airports, or expanding the use of letters of intent.
With regard to security, Congress might want to consider
the idea that if aviation security is a matter of national
security, it might be funded from a general fund rather than an
aviation-specific fund. Alternatively, Congress could consider
setting up a separate fund for security projects. And finally,
it has been suggested that such a security fund could operate
much like the AIP program, including using letters of intent to
leverage funds for security requirements.
Mr. Chairman, as the Congress moves forward with
reauthorizing FAA, it will have to decide on several key
issues, including how to set and balance priorities of both
airport development and aviation security. Many stakeholders
also see this as a window of opportunity, an opportunity to
prepare for the eventual rebound in the aviation industry and
to do what is necessary to prevent a reoccurrence of the
inefficiencies, congestion, and delays that the system
experienced prior to 9/11.
Thank you very much.
[The prepared statement of Dr. Dillingham follows:]
Prepared Statement of Gerald L. Dillingham, Director, Civil Aviation
Issues, General Accounting Office
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here today to discuss airport financing
issues, which are particularly important as you prepare to reauthorize
the Wendell H. Ford Aviation Investment and Reform Act for the 21
Century (AIR-21). Much has changed since the Congress enacted AIR-21 3
years ago. At that time, the focus was on reducing congestion and
flight delays. Today, flights are being canceled for lack of business,
two major air carriers are in bankruptcy, and attention has shifted
from increasing the capacity of the national airspace system to
enhancing aviation security. Furthermore, as the federal budget deficit
has increased, competition for federal resources has intensified, and
the costs of airport capital development are growing, especially with
the new requirements for security. Nonetheless, analysts expect the
demand for air traffic services to rebound. Until that time, the
unexpected slump in air traffic creates a window of opportunity to
improve the safety and efficiency of the national airport system.
My statement today is based on our ongoing and completed work on
airport funding and addresses the following questions:
1. What are the estimated costs of airports' planned capital
development?
2. How much funding did airports receive for planned capital
development in recent years, and what were their principal
sources of funding?
3. If past funding levels continue, will they be sufficient to
meet estimates of planned capital development?
4. What options are available to address any potential
difference between planned development and available funding?
Because our information on planned airport capital development,
including the information we obtained from surveying 400 smaller
airports, is preliminary, it is subject to change as we finalize our
ongoing work.
In summary:
Although there is general consensus among stakeholders that
maintaining the integrity of the national airport system
requires continual capital investment, estimates vary as to the
type and cost of planned airport capital development required
to ensure a safe and efficient system. For 2001 through 2005,
FAA has estimated annual planned capital development costs of
about $9 billion, while the Airport Council International
(ACI), a key organization representing the airport industry,
has estimated annual costs of about $15 billion for 2002
through 2006. The estimates differ primarily because FAA's
includes only projects that are eligible for federal funding,
whereas ACI's includes projects that may or may not be eligible
for federal funding. Neither FAA's nor ACI's estimate covers
the airport terminal modifications needed to accommodate the
new explosives detection systems required to screen checked
baggage. According to ACI, the total cost of these
modifications could be $3 billion to $5 billion over the next 5
years.
From 1999 through 2001, airports received an average of
about $12 billion a year for planned capital development. The
primary source of this funding was bonds, which accounted for
almost $7 billion, followed by federal grants and passenger
facility charges, which accounted for $2.4 billion and $1.6
billion, respectively. The amounts and types of funding also
varied by airport type. Of the $12 billion, large-and medium-
hub airports received over $9 billion, and smaller airports
received over $2 billion.
If airports continue to receive about $12 billion a year for
planned capital development, they would be able to fund all of
the projects included in FAA's estimate, but they would not be
able to fund about $3 billion in planned development estimated
by ACI. While this projected shortfall could change with
revisions in future funding, planned development, or both, it
nevertheless indicates where funding differences may be the
greatest.
Options are available to increase or make better use of the
funding for airport development, and these options would
benefit different types of airports to varying degrees. For
example, raising the current cap on passenger facility charges
would primarily benefit larger airports, while increasing or
redistributing Airport Improvement Program grant funds would be
more likely to help smaller airports.
FAA's and the Airport Industry's Estimates of Airports' Planned Capital
Development Vary Substantially
The estimated costs of planned airport capital development vary
depending on which projects are included in the estimates. According to
FAA's estimate, which includes only projects that are eligible for
Airport Improvement Program (AIP) grants, the total cost of airport
development will be about $46 billion, or about $9 billion per year,
for 2001 through 2005. FAA's estimate is based on the agency's National
Plan of Integrated Airport Systems, which FAA published in August 2002.
ACI's estimate includes all of the projects in FAA's estimate, plus
other planned airport capital projects that may or may not be eligible
for AIP grants. ACI estimates a total cost of almost $75 billion, or
nearly $15 billion per year for 2002 through 2006. Projects that are
eligible for AIP grants include runways, taxiways, and noise mitigation
and noise reduction efforts; projects that are not eligible for AIP
funding include parking garages, hangars, and expansions of commercial
space in terminals.
Both FAA's and ACI's estimates cover projects for every type of
airport. As table 1 indicates, the estimates are identical for all but
the large-and medium-hub airports, which are responsible for
transporting about 90 percent of the traveling public. For these
airports, ACI's estimate of planned development costs is about twice as
large as FAA's.
According to FAA's analysis of the planned capital development for
2001 through 2005, airports will use 61 percent of the $46 billion for
capacity enhancement, reconstruction, and modifications to bring
airports up to the agency's design standards and 39 percent to fund
safety, security, environmental, and other projects. See figure 1.
Neither ACI's nor FAA's estimate includes funding for the terminal
modification projects that are needed to accommodate the new explosives
detection systems required to screen checked baggage. ACI estimates
that these projects will cost a total of about $3 billion to $5 billion
over the next 5 years. A key reauthorization issue facing the Congress
is how these terminal modification projects will be funded. In 2001,
the Congress allowed FAA to use AIP funds to help pay for some new
security projects; however, this use of AIP funds affected the amount
of funding that was available for some development projects.
Specifically, in fiscal year 2002, FAA used $561 million in AIP grant
funds for security projects, or about 17 percent of the $3.3 billion
available. The use of AIP grant funds for new security projects in
fiscal year 2002 reduced the funding available for other airport
development projects, such as projects to bring airports up to FAA's
design standards and reconstruction projects. The use of AIP grant
funds for security also caused FAA to defer three letter-of-intent
payments totaling $28 million to three airports until fiscal year 2003
or later. \1\
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\1\ Letters of intent represent a nonbinding commitment from FAA to
provide multiyear funding to airports beyond the current authorization
period. This commitment enables airports to proceed with projects
without waiting for future AIP grant funds because it provides
reasonable assurance of reimbursement for allowable costs.
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Airports Recently Received About $12 Billion a Year, Mostly from Bonds
and Federal Sources
From 1999 through 2001, the 3,364 airports that make up the
national airport system received an average of about $12 billion per
year for planned capital development. The single largest source of
these funds was bonds, followed by AIP grants and passenger facility
charges. (See table 2.) It is important to note that the authorized AIP
funding for fiscal years 2002 and 2003 totaled $3.3 billion and $3.4
billion, respectively. However, because data for funding from other
sources were not available for these years, we used the figures from
1999 through 2001, the most recent years for which consistent data were
available.
The amount and type of funding vary depending on the airport's
size. For example, as shown in figure 2, the large-and medium-hub
airports depend primarily on bonds, while the smaller airports rely
principally on AIP grants. Passenger facility charges are a more
important source of revenue for the large-and medium-hub airports
because they have the majority of commercial-service passengers.
Past Funding Levels Would Cover All of FAA's Planned Development
Estimate but Would Fall About $3 Billion Short of ACI's
Estimate
If the funding for airport capital development remains at about $12
billion a year over the next 5 years, it would cover all of the
projects in FAA's estimate. However, it would be about $3 billion less
per year than ACI's estimate. Figure 3 compares the average annual
funding airports received from 1999 through 2001 with FAA's and ACI's
estimated annual planned development costs for 2001 through 2006. This
difference is not an absolute predictor of future funding shortfalls;
both funding and planned development may change in the future. However,
it does provide a useful indication of where funding differences may be
the greatest.
Funding Difference Would Affect Smaller Airports Proportionally More
Than Larger Airports
In percentage terms, the difference between recent funding levels
and ACI's estimate of planned capital development is somewhat greater
for smaller airports than it is for large-and medium-hub airports. From
1999 through 2001, smaller airports received an average of about $2.4
billion a year for planned capital development while large-and medium-
hub airports received an average of about $9.4 billion. If these
funding levels continued, smaller airports would not be able to fund
about 27 percent of their planned development, while large-and medium-
hub airports would not be able to fund about 20 percent of their
planned development. Figures 4 and 5 illustrate the differences between
recent funding levels and the costs of planned capital development
projected for smaller and for large-and medium-hub airports.
Ability to Fund Planned Capital Development Has Improved for Both
Smaller and Larger Airports
The difference between past funding and planned development has
declined over the past 5 years, and, at recent funding levels, airports
would be able to fund a higher percentage of their planned capital
development than they could fund in 1998. At that time, we reported
that smaller airports could fund about 52 percent of their planned
capital development, compared with about 73 percent today, which
represents an increase of 21 percent. We also reported that large-and
medium-hub airports were able to fund about 80 percent of their
development and are able to fund the same amount today. \2\ See figure
6.
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\2\ U.S. General Accounting Office, Airport Financing: Annual
Funding As Much As $3 Billion Less Than Planned Development, GAO/T-
RCED-99-84 (Washington, DC: Feb. 10, 1999).
The primary reason why smaller airports can fund more of their
planned capital development today than they could in 1998 is that AIR-
21 increased both the total amount of funding for AIP grants and the
proportion of AIP funding that went to smaller airports. Specifically,
AIR-21 increased the funding for two AIP funds that primarily or
exclusively benefit smaller airports--the state apportionment fund and
the small airport fund--and it created general aviation entitlement
grants, which also benefit smaller airports. \3\ As a result of these
changes, smaller airports received almost 63 percent of the $2.4
billion in AIP grant funds that airports received each year, on
average, from 1999 through 2001. Large-and medium-hub airports can also
fund more of their planned development today than they could in 1998
primarily because they are able to issue more bonds and to charge a
higher passenger facility fee.
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\3\ Moreover, if we replaced the AIP figures for 1999 through 2001
with the AIP figures appropriated for fiscal year 2002 and authorized
for fiscal year 2003 in our analysis, assuming no changes in the
distribution of AIP funds, smaller airports would be able to cover even
more of the estimated cost of their planned development because AIP
grant funds for fiscal years 2002 and 2003 are about $1 billion more
than the average annual AIP funding for 1999 through 2001. Because data
for funding from other sources were not available for these years, we
used the figures from 1999 through 2001, the most recent years for
which consistent data were available.
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Options Are Available to Address Difference between Funding and Planned
Development
Options are available to increase airport funding or to make better
use of the existing funding. These options, some of which were
authorized or implemented as part of AIR-21, include increasing the AIP
grant funding for smaller airports, increasing passenger facility
charges, creating a separate fund for new security projects, and using
innovative financing approaches. The various options would benefit
different types of airports to varying degrees. It is also important to
note that even though the airlines may be experiencing financial
problems, most large airports have very solid credit ratings and could,
if necessary, issue more debt without facing exorbitant interest rates.
To help address the difference between funding and planned
development, AIR-21 provided that up to $150,000 a year in AIP grant
funds be made available to all general aviation airports for up to 3
years for airfield capital projects, such as runways, taxiways, and
airfield construction and maintenance projects. On February 11, 2003,
we reported that since the program's inception in fiscal year 2001,
general aviation airports have received about $325 million, which they
have used primarily to help build runways, purchase navigational aids,
and maintain pavements and airfield lighting. \4\ Most of the state
aviation officials and general aviation airport managers we surveyed
said the grants were useful in meeting their needs, and some suggested
that the $150,000 grant limit be increased so that general aviation
airports could undertake larger projects. However, a number of state
officials cautioned that an increase in the general aviation
entitlement grant could cause a decrease in the state apportionment
fund that states use to address their aviation priorities.
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\4\ U.S. General Accounting Office, Aviation Finance:
Implementation of General Aviation Entitlement Grants, GAO-03-347
(Washington, DC: Feb. 11, 2003).
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Another option would be to increase or eliminate the cap on
passenger facility charges. This option would primarily benefit larger
airports, because passenger facility charges are a function of the
volume of passenger traffic. However, under AIP, large-and medium-hub
airports that collect passenger facility charges must forfeit a certain
percentage of their AIP formula funds. These forfeited funds are
subsequently divided between the small airport fund, which is to
receive 87.5 percent, and the discretionary fund, which is to receive
12.5 percent. Thus, smaller airports would benefit indirectly from any
increase in passenger facility charges. In our 1999 report on passenger
facility charges, \5\ we estimated that a small increase in these
charges would have a modest effect on passenger traffic. At that time,
we estimated that each $1 increase would reduce passenger levels by
about 0.5 to 1.8 percent, with a midrange estimate of 0.85 percent.
Since AIR-21 raised the cap on passenger facility charges from $3.00 to
$4.50, the full effect of the increase has not been realized because
only 17 of the 31 large-hub airports (55 percent) and 11 of the 37
medium-hub airports (30 percent) have increased their rates to $4.50.
Additionally, 3 large-hub airports and 6 medium-hub airports do not
charge a passenger facility fee. The reluctance to raise passenger
facility charges is likely the result of several factors, including the
views of airlines, which are opposed to any increase in passenger
facility charges because such an increase would raise passenger costs
and reduce passenger traffic. Nonetheless, if all airports were to
increase passenger facility charges to the current ceiling, additional
revenue could be generated.
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\5\ U.S. General Accounting Office, Passenger Facility Charges:
Program Implementation and the Potential Effects of Proposed Changes,
GAO/RCED-99-138 (Washington, DC: May 19, 1999).
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Recently, the head of the Transportation Security Administration
suggested setting up a separate fund for security projects. Such a fund
might be comparable to AIP, which receives revenue from various
aviation-related taxes through the Airport and Airway Trust Fund.
Having a separate fund would be consistent with the recent separation
of aviation safety and security responsibilities.
FAA has introduced other mechanisms to make better use of existing
funding sources, the most successful of which has been letters of
intent, a tool that has effectively leveraged private sources of
funding. As noted, letters of intent represents a nonbinding commitment
from FAA to provide multiyear funding to an airport beyond the current
AIP authorization period. Thus, the letter allows the airport to
proceed with a project without waiting for a future AIP grant because
the airport and investors know that allowable costs are likely to be
reimbursed. A letter of intent may also enable an airport to receive a
more favorable interest rate on bonds that are sold to refinance a
project because the federal government has indicated its support for
the project. FAA has issued 64 letters of intent with a total
commitment of about $3 billion; large-and medium-hub airports account
for the majority of the total.
Other approaches to making better use of existing funding resources
were authorized under AIR-21. Specifically, the act authorized FAA to
continue its innovative finance demonstration program, which is
designed to test the ability of innovative financing approaches to make
more efficient use of AIP funding. Under this program, FAA enabled
airports to leverage additional funds or lower development costs by (1)
permitting flexible local matching on some projects, (2) purchasing
commercial bond insurance, (3) paying interest costs on debt, and (4)
paying principal and interest debt service on terminal development
costs incurred before the enactment of AIR-21. FAA has provided about
$31 million for smaller airports to test these innovative uses of AIP
funding. According to FAA officials, the results of the program have
been mixed. The most popular option for airports has been flexible
matching, which has resulted in several creative loan arrangements.
In conclusion, Mr. Chairman, the aviation industry and the national
economy are still struggling to recover their health. Analysts
nonetheless expect the demand for air travel to rebound, and the
nation's aviation system must be ready to accommodate the projected
growth safely and securely. As the Congress moves forward with
reauthorizing FAA, it will have to decide on several key issues,
including how it wants to consider the airports' estimate of $15
billion a year for planned capital development over the next 5 years,
how terminal modification projects will be funded, and what priorities
it wants to set, both for development and security. Sustaining recent
funding levels would allow the majority of planned airport capital
development to move forward, but it would not cover all of the
airports' estimated costs, and it would not address the costly terminal
modifications needed to accommodate explosives detection systems.
Options such as additional AIP grant funds, increases in passenger
facility charges, or the creation of a separate fund for new security
projects could make more funding available for airport improvements.
However, the growing competition for federal budget dollars and
concerns about the impact of higher charges on airline ticket sales may
limit the practicality of these options.
Scope and Methodology
To determine how much planned development would cost over the next
5 years, we obtained planned development data from FAA and ACI. ACI
provided its estimate to us in January 2003, and we are still analyzing
the data on which the estimate is based. To determine the sources of
airport funding, we obtained capital funding data from FAA, the
National Association of State Aviation Officials, Thomson Financial,
and our survey of 400 general aviation and reliever airports. We
obtained funding data from 1999 through 2001 because these were the
most recent years for which consistent data were available. We screened
the planned development and funding data for accuracy and compared
funding streams across databases where possible. We also clarified
ambiguous development or funding source information directly with
airports. We did not, however, audit how the databases were compiled,
except for our own survey. However, we have not finished analyzing the
results of our survey, and the results presented in this testimony are
still preliminary.
We have been performing our ongoing work from May 2002 through
February 2003 in accordance with generally accepted government auditing
standards.
This concludes my statement. I would be pleased to answer any
questions that you or other Members of the Subcommittee might have.
Senator Lott. Thank you very much, Dr. Dillingham. Very
interesting testimony, and we'll want to ask you some questions
about it after we hear from the other two witnesses.
Ms. Woodward?
STATEMENT OF WOODIE WOODWARD, ASSOCIATE
ADMINISTRATOR FOR AIRPORTS, FEDERAL AVIATION
ADMINISTRATION
Ms. Woodward. Good morning, Mr. Chairman and other Members
of the Subcommittee. It is a pleasure to be with you today.
I commend the Committee for focusing attention on the
critical role airports play in the Nation's air transportation
system. As you know, airports are faced with meeting both pre-
September-11th capacity challenges as well as post-September-
11th security challenges.
Following the terrorist attacks, the financial consequences
for airports were substantial. In my opinion, airports did
everything in their financial power to minimize their operating
and maintenance costs, including imposing hiring freezes,
reallocating staff, restructuring or refinancing debt, and
reviewing and, in some cases, raising discretionary charges. As
a group, I believe airports continue to take the necessary
steps to improve security and their cash flow.
Today, I would like to provide the Committee with a brief
overview of the needs of the system, discuss what happened in
fiscal year 2002 as we tried to respond to the September 11th
attacks, and then touch on what we see as the outlook for the
future.
Our most recent National Plan of Integrated Airport
Systems, which we call the NPIAS and which Mr. Dillingham
referred to, estimates $46 billion in airport development needs
that are eligible for Federal aid for the period 2001 through
2005. This figure represents an increase of 32 percent over the
preceding estimate, or, on an annual basis, an increase from an
average of about $7 billion per year to $9.2 billion per year.
We see that every category of airport shows higher development
needs, with the greatest increases at large-hub, non-hub,
commercial service, and general aviation airports, and lesser
increases at medium-hub, small-hub, and reliever airports.
About two-thirds of the development in the plan is intended
to accommodate growth in air travel, including more passengers
and cargo and more and larger aircraft. Development that was
proposed before September 11th will still be needed, but some
of it may be deferred until activity rises to the point where
it is warranted. To date, we have seen little change in the
projected opening dates for the new runways that are being
planned at large-hub airports.
About one-third of the development estimates in our plan
are intended to rehabilitate existing infrastructure and to
keep airports up to standards. This includes accelerating
upgrades of all runway safety areas and projects and projects
associated with mitigation and prevention of runway incursions.
The need for this development has not significantly decreased
as a result of September 11th, but the timing of the
implementation may be affected by financial concerns of the
airports.
In contrast to airfield projects, the expansion of
passenger terminal buildings has slowed significantly since
September 11th due to uncertainty about future security
requirements, the temporary decline in traffic, and near-term
financial problems of both airlines and airports, and, in
particular, the airports who are dealing with declining
revenues and increased operating costs.
Historically, these projects receive nominal AIP funding,
with airport revenue bonds and passenger facility charges
serving as the principal financing tools. We project that these
projects will resume as air traffic achieves pre-September-11th
levels.
As the Committee knows, fiscal year 2002 was a real
challenge. Due to new security requirements airports needed to
consider not only improvements to existing access control
systems, but also changes in terminals and baggage systems, to
improve passenger flows through screening checkpoints, and to
accommodate the latest generation of baggage-screening devices.
DOT's inspector general recently testified that modifications
to terminals could be as high as $3 billion.
Clearly, the security challenges for airports were and
still are twofold--how to meet the new security requirements
while at the same time preserving customer service and
efficiency and, above all, how to pay for these new
requirements.
Airport operating costs have increased as revenues have
declined. However, absent further shocks to the system, most
large commercial service airports are maintaining their credit
profiles, albeit with lower financial margins and reduced
flexibility.
As the airport size diminishes, however, its ability to
recover is also diminished, as Mr. Dillingham said. The smaller
airports are feeling the effects of September 11th probably
more than any other segment. Many airports, especially those
that have marginal air service, were highly subsidized by local
communities before September 11th, and those financial
difficulties are compounded by the serious traffic declines and
higher security costs.
Congress responded to this situation by making the AIP
program temporarily more flexible. In fiscal year 2002, FAA
applied a record level of $561 million from AIP funds to
security projects. This represents, as Mr. Dillingham said, a
more than 800 percent increase over the level of security
funding awarded in fiscal year 2001.
Despite this record level of funding for security, the FAA
was still able to fund all safety projects, including runway
safety areas and runway incursion action team recommendations.
We were also able to fulfill our letter-of-intent commitments,
fund noise mitigation and reduction projects, and ongoing
projects that were phased.
However, balancing security and capacity costs will
continue to be a tough challenge in the future. Even though we
will see some fruits of our past capacity infrastructure
investment realized this year, with new runways becoming
operational at Denver, Miami, Houston, and Orlando, the outlook
for fiscal 2003 is shaping up to be similar to last year.
We expect that a level of AIP similar to that in fiscal
2002 will be used for security. Our colleagues at TSA and the
FAA are fully aware of this dynamic. We will continue to work
closely with them as they move to the new Department of
Homeland Security, and we will commit to being a part of the
examination of how these costs are to be borne in the future.
For fiscal year 2004, the good news is that with all the
other demands on the Federal budget, the President's budget
provides for a continuation of the healthy funding level of
AIR-21 for AIP of $3.4 billion. I think it is worth
highlighting this feature of our budget, because preserving
that level of support in the current budget environment speaks
volumes about how important the President, Secretary Mineta,
and Administrator Blakey believe Federal aid is to the Nation's
airports.
We also propose a restructuring of the AIP formulas to
address some of the issues that Mr. Dillingham raised. One, to
allow more funds to be targeted to those small airports with
the greatest need and dependence on Federal assistance, while
at the same time providing large airports access to Federal
grants to support important projects that will benefit the
airport system overall, and, finally, to make available a
stable source of noise mitigation funding for communities.
We expect that with this restructuring there will be
approximately $87 million more for small airports for the
fiscal year 2003 while still increasing discretionary grant
funds to enable us to target those projects that serve national
objectives and achieve the greatest system benefits overall,
regardless of airport size.
Details of how we would restructure AIP formulas will be
provided by our reauthorization proposal that the Secretary
expects to submit to you next month. The Administration's
comprehensive bill will not only restructure and simplify AIP
formulas but will also redesign the noise set-aside to provide
a more stable source of Federal funding for environmental
mitigation relating to airport development projects.
In closing, Mr. Chairman, let me say that I believe the
Nation's airports have been making good progress in meeting
security challenges presented by the attacks of September 11th.
The airport system was harshly affected by the attacks of the
11th, but thousands of State and local officials working in
cooperation with the FAA are doing a great job bolstering
security, and we are well into the long process of recovery and
stabilization. With Congress' support and guidance, I assure
you that we will continue to work hard to assist the Nation's
airports in meeting these challenges through a strong and
flexible airport improvement program.
That concludes my testimony. Thank you.
[The prepared statement of Ms. Woodward follows:]
Prepared Statement of Woodie Woodward, Associate Administrator for
Airports, Federal Aviation Administration
Good Morning Mr. Chairman and Members of the Subcommittee:
It is a pleasure to be here today to testify on the state of the
Nation's airports and the important role the Federal Aviation
Administration's (FAA) Airport Improvement Program (AIP) plays in
airport development. I commend the Committee for scheduling this
hearing because of the critical role airports play in our Nation's air
transportation system. There has been a lot of attention paid to how
air carriers are coping with the post-September-11th environment and
the current economic situation--justifiably so. But it is of equal
importance to examine the outlook for our country's airports. Airports
are faced with meeting both pre-September-11th capacity challenges and
post-September-11th security challenges. I must commend the airport
community for how they've responded. Following September 11th, they did
everything in their financial power to minimize their operating and
maintenance costs, including imposing hiring freezes, reallocating
staff, restructuring or refinancing debt, and considering raising
discretionary charges. As a group, airports continue to take the
necessary steps to improve security and their cash flow.
An understanding of the broad needs facing the airport community
should inform the debate on the next reauthorization of our programs.
Today I would like to provide the Committee with a brief overview of
the needs of the system, discuss what happened in fiscal year 2002 as
we tried to respond to the September 11th attacks, and then touch on
what we see as the outlook for the future.
The FAA periodically prepares a report to Congress called the
National Plan of Integrated Airport Systems (NPIAS). Among its
functions, the NPIAS provides a five-year estimate of airport
infrastructure development that is eligible for Federal aid and
determined by the Secretary to be warranted or justified over the next
5 years for all segments of civil aviation. The NPIAS published prior
to the enactment of the Wendell H. Ford Aviation Investment and Reform
Act for the Twenty First Century (AIR-21) estimated airport capital
requirements at $35 billion over the period of 1998-2002, an average of
$7 billion per year and an increase of 18 percent over the previous
NPIAS estimate. Infrastructure needs at the large hub airports
accounted for most of this increase, with terminal projects the major
source of new capital requirements. In the face of growing airport
infrastructure requirements, AIR-21 increased AIP by 70 percent and
raised the $3.00 cap on passenger facility charges (PFCs) to $4.50.
The most recent NPIAS, published last August, identified 3,364
existing airports that are significant to national air transportation.
It estimates $46 billion in airport development needs that are eligible
for Federal aid for the period of 2001-2005. This figure represents an
increase of 32 percent over the preceding estimate, or, on an annual
basis, an increase from an average of $7 billion per year to $9.2
billion per year. Every category of airport shows higher development
needs, with the greatest increases at large hub, non hub, commercial
service, and general aviation airports, and lesser increases at medium
hub, small hub, and reliever airports.
About two-thirds of the development in the NPIAS is intended to
accommodate growth in air travel, including more passengers and cargo
and more and larger aircraft. Development that was proposed before
September 11th will still be needed, but some of it could be deferred
until activity rises to the point where it is warranted. With respect
to capital development plans, as a group, most airports are continuing
with current capital expansions under way, but are revisiting contracts
not already let and plans not yet started. To date, we have seen little
change in the projected opening dates for the new runways that are
being planned at large hub airports. These are large-scale, long-term
programs that involve a sequence of planning and environmental reviews,
approvals, financing and construction, typically over a 10 year period,
and are not particularly sensitive to short-term fluctuations in
traffic. However, in some cases, airports have had to scale back or
defer major capital improvements, and we suspect that some of these
projects may be canceled over the 5-year horizon, but not on a wide
scale. Until traffic recovers, this only makes good business sense.
About one-third of the development estimates in the NPIAS are
intended to rehabilitate existing infrastructure and keep airports up
to standards. This includes accelerating upgrades of all runway safety
areas and projects associated with mitigation and prevention of runway
incursions. The need for this development has not significantly
decreased as a result of September 11th but the timing of the
implementation may be affected by financial concerns of airports,
particularly lower revenues and urgent security requirements.
In contrast to airfield projects, the expansion of passenger
terminal buildings has slowed significantly post-September-11th, due to
uncertainty about future security requirements, the temporary decline
in traffic, and near-term financial problems of airlines and airports
dealing with declining revenues and increased operating costs. These
projects are an increasingly important area of investment, as terminals
are modified, expanded and replaced to accommodate more passengers,
larger aircraft and increased competition among airlines. Historically,
these projects receive nominal AIP funding, with airport revenue bonds
and passenger facility charges (PFCs) serving as the principal
financing tools. Based on our consultations with municipal bond rating
agencies, underwriters, financial consultants and airports, we project
these projects will resume as air traffic achieves pre-September-11th
levels.
As the Committee knows, fiscal year 2002 was a real challenge as
the aftermath of September 11th continued to be a major driving force
for airports and aviation as a whole. Due to new security requirements,
airports needed to consider not only improvements to existing access
control systems, but also changes in terminals and baggage systems to
improve passenger flows through screening checkpoints and accommodate
the latest generation of baggage screening systems. The projected
capital cost of acquiring and installing security equipment has
increased substantially since September 11th, but a full and accurate
estimate is not yet available, so it is not possible to reflect the
increase in the NPIAS estimate. DOT's Inspector General recently
testified that modifications to terminals could be as high as $3
billion. Clearly, the security challenges for airports were--and still
are--twofold: how to meet new security requirements while at the same
time preserving customer service and efficiency; and how to pay for the
new requirements.
While some of the increased security measures at airports have been
visible to the public, what has not been so visible is the financial
strain on the airports. Their operating costs have increased, with much
of the staff on extended overtime. Additionally, there have been
numerous requirements for emergency contracts for security equipment
and services. At the same time, revenues have declined because large
airports derive most of their money from passengers, directly through
charges that are collected when airline tickets are sold, and
indirectly through concessions, parking, and airline rates and charges.
These major airports have had the greatest ability to rebound. Absent
further shocks to the system, most large commercial service airports
are maintaining their credit profiles, albeit with lower financial
margins and reduced flexibility. As the airport size diminishes,
however, its ability to recover is also diminished. The smaller
airports are feeling the effects of September 11th probably more than
any other segment. Many airports, especially those that have marginal
air service, were highly subsidized by local communities before
September 11th and those financial difficulties are compounded by the
serious traffic decline and the higher security costs.
Following September 11th, because airport operating costs were
significant, Congress provided that any security-related cost,
including operational and maintenance costs, could be funded using AIP
funds. However, this authority was provided for one year only.
Likewise, to make sure that airports did not default on loans, grant
authority was broadened to help prevent any defaults. It was believed
that by giving a temporary ability to fund these costs in the near
term, airports would be able to absorb these costs in the future as
traffic increases and the system recovers. In addition, Congress
provided an additional $175 million to be used to offset direct
operating costs for new security requirements placed on airports due to
September 11th. This funding has been important especially to our
nation's smaller airports.
In response to the emergency triggered by the attacks of September
11th, the FAA applied a record level of $561 million from AIP funds to
security projects in fiscal year 2002. This represents a more than 800
percent increase over the level of security funding awarded in fiscal
year 2001 of $57 million, and exceeded the previous record of $99
million, awarded in FY 1991, by more than $450 million. Despite this
record level of funding for security, the FAA was still able, through
innovative program management, to fund all safety projects, including
runway safety areas and runway incursion action team recommendations;
letter of intent commitments; noise mitigation and reduction projects,
and ongoing phased projects. In addition, in part due to record levels
of carryover entitlements, which the FAA converted into discretionary
funds, we were able to fund some new start projects for capacity,
rehabilitation and standards at the end of the year.
As a percentage of AIP investment, capacity, rehabilitation and
standards projects showed the greatest declines in fiscal year 2002
compared with fiscal year 2001. As a one-year phenomenon, a reduction
in spending in these areas did not have significant adverse
consequences for the aviation system. In fact, there was a bright side
to this scenario. Because of past investment in additional runways and
improved technology, and in light of the temporary decline in air
traffic activity, flight delays were down in 2002, with an annual on-
time arrival rate of 82 percent--compared to 76 percent in recent
years. Balancing security and capacity costs will continue to be a
tough challenge in the future. The FAA and the Transportation Security
Administration (TSA) are fully aware of this dynamic. We have been
working closely with TSA, and will continue to do so as they move to
the new Homeland Security Department. FAA will be a part of the
examination of how these costs are to be borne in the future.
As for the short-term future of AIP funding, the outlook for fiscal
2003 is shaping up to be very similar to last year--we expect that a
level of AIP similar to fiscal year 2002 will be used for security this
year. We have experienced some delays due to the lateness of the fiscal
year appropriations process, but now that the President has signed the
omnibus appropriation bill for this year, we expect that we will be
able to process pending grant applications by early spring. Even though
safety and security have always been and will continue to be our number
one priority, I assure you that we have not lost sight of the fact that
once traffic recovers and grows--and it will--the tremendous pressure
to expand capacity will return. In fact, we will see some of the fruits
of our past capacity infrastructure investment this year. New runways
will become operational at Denver, Miami, Houston, and Orlando.
As for the outlook for the longer term, there are considerable
challenges for our grant program. Namely, how can we help meet the
needs of the airport system as a whole and do so in a way that focuses
on national priorities but still recognizes the dependence of smaller
airports on AIP grants? One way is to ensure that our program has the
necessary flexibility to provide smaller airports the resources they
need, provide large airports access to Federal grant dollars to support
important projects that will benefit the airport system overall, and
make available a stable source of noise mitigation funding to
communities. To this end, for fiscal year 2004, the good news is that,
with all of the other demands on the Federal budget, the President's
Budget provides for a continuation of the healthy funding level of AIR-
21 for AIP of $3.4 billion. I think it's worth highlighting this
feature of our budget because preserving that level of support in the
current budget environment speaks volumes about how important the
President, Secretary Mineta and Administrator Blakey believe Federal
aid is to the Nation's airports. We also propose a restructuring of AIP
formulas to allow more funds to be targeted to those smaller airports
with the greatest need and dependence on Federal assistance. We expect
that, with this restructuring, there will be approximately $87 million
more available for small airports than in fiscal year 2003, while still
increasing discretionary grant funds to enable us to target those
projects that serve national objectives and achieve the greatest system
benefits, regardless of airport size. Details of how we would
restructure AIP formulas will be provided by our reauthorization
proposal that the Secretary expects to submit to you next month. The
Administration's comprehensive bill will not only restructure and
simplify AIP formulas but will also redesign the noise set-aside to
provide a more stable source of Federal funding for environmental
mitigation relating to airport development projects.
Finally, I should note that, in addition to the AIP program, grants
from state and local governments, bond financing, and their own rates
and charges, airports also have additional source of funding available
from PFCs. As of January 2003, FAA has approved 338 airports to collect
PFCs for eligible projects. Estimated collections for calendar year
2003 are projected to be $2.1 billion, up from an estimated $2.0
billion in calendar year 2002. This reflects the implementation of the
$4.50 PFC level authorized by AIR-21 by a growing number of airports.
Currently 170 airports (including 29 of the 68 large and medium hubs)
have requested and received authority to collect PFCs at the $4.50
level.
In closing, Mr. Chairman, let me say that I believe the nation's
airports have been making good progress in meeting the security
challenges presented by the attacks of September 11th and, at the same
time, increasing airfield capacity at major airports. The airport
system was harshly affected by the attacks of September 11th but
thousands of state and local officials, working in cooperation with the
FAA and TSA, are doing a great job of bolstering security and we are
well into the long process of recovery and stabilization. We know that
the financial consequences for airports have been substantial. With
Congress' support and guidance, I assure you that we will continue to
work hard to assist the Nation's airports in meeting these challenges
through a strong and flexible airport improvement program.
That concludes my testimony. I would be happy to answer any
questions you or Members of the Subcommittee may have.
Senator Lott. Thank you, Ms. Woodward.
Mr. Plavin, the president of the Airports Council
International, we would be glad to receive your testimony.
STATEMENT OF DAVID Z. PLAVIN, PRESIDENT, AIRPORTS COUNCIL
INTERNATIONAL-NORTH AMERICA
Mr. Plavin. Thank you, Mr. Chairman and Members of the
Subcommittee.
I thank Dr. Dillingham and Ms. Woodward for the
introduction that they have provided, because I think they have
given you an idea as to where the critical issues in our system
are. And I thought it might be useful, given the name on this
hearing today to talk a little bit about a broader set of
issues about how the airport system gets paid for, because I
believe that it is rather critical.
As with everything else, the system is not made up of
magic. The passengers or the taxpayers pay. And in the aviation
system, it is overwhelmingly the passengers and the shippers
who pay for the system. They obviously pay fares. They pay the
airlines for the airlines' costs and the things that they buy--
airplanes, fuel, airport services. They pay taxes to the
Airport and Airways Trust Fund to pay for air traffic control
and for the AIP system. And now they pay for TSA, as well. They
pay fees--customs fees, agricultural fees, immigration fees,
passenger facility charges, and they pay the airport for the
services they buy from airports.
The airport revenue picture for the operating side has
about 50 percent of it coming from the people who do business
at the airport--the airlines, the other tenants on the
airport--from landing fees and rents, for example. And about 50
percent of it comes from non-aeronautical charges, charges like
food and beverage, retail, parking, rental cars. So there is a
sizable portion of the airport operations that is not related
to the people who do business on the airports.
On the capital side, Dr. Dillingham, I think, has given you
an indication of where the various pieces are over a period of
time from 1999 through 2001. And as you can see from his
numbers, the State and local contributions, which particularly
focus on small airports, represent about 4 percent of the total
annual cost of doing business. The AIP funding from the trust
fund is about 20 percent. That number is considerably larger at
smaller airports, and rather--much smaller at smaller--at
larger airports. Everything else is generated at the airport--
airport revenues and reserves, about 4 percent; passenger
facility charges, about 14 percent. And as Dr. Dillingham
mentioned, about 60 percent of the total is paid for by airport
revenue bonds of one kind or another.
It is important that we pay attention to the fact, though,
that while we have been able to cover them, that particular
piece of revenue, those bond revenues, have to be repaid. And
when they get repaid, they get put into the landing fees for us
to then charge the people who are using our airports. So that
if we add $5 billion a year to our indebtedness, we are also
adding $400 million a year to our annual operating costs, and
that means that over the three-year period Dr. Dillingham was
looking at, our costs have been required to increase by some
$1.2 billion per year in order to cover the indebtedness that
the airports pick up as part of the overall cost of doing the
capital program. And that means that in the kind of situation
where we are today, where the airlines are in such significant
financial distress, adding that level of increment to what they
are going to have to pay in operating expenses, I think, is a
significant burden that I hope we will be able to address as we
talk about the reauthorization program.
And as Dr. Dillingham mentioned, these numbers do not
include the cost of security, either the operating costs or the
capital costs associated with actually putting in place a
solution which is a final solution, a permanent solution,
unlike the temporary solutions that TSA put in place quite
successfully in order to meet the deadlines that Congress put
in place for them. We estimate that the cost of doing that, of
putting in these ultimate solutions, probably ranges from $3-
to $5 billion, numbers that are not reflected in the numbers
that we were talking about so far.
Which brings me to the question about what are the
appropriate roles and responsibilities of the airports, the
Federal Government, the Transportation Security Administration,
the FAA, and so on. It is our view that we have moved from a
situation where we have had a partnership over the years to one
where the Federal Government and the organizations of the
Federal Government have been getting the local governments that
run airports, that are airports, to more and more relinquish
the kinds of roles and responsibilities that they have had up
to this point. I think the next FAA reauthorization provides
airports with an opportunity to begin improving that
relationship.
The written testimony talks about some of the specific
things that we think are important to address as we go through
the exercise. We need to provide the airports with the
resources they need to meet future demand. Capacity continues
to be an issue. While the passengers have not yet returned to
their year-2000 levels, aircraft are increasing much more
rapidly, which means that the congestion that we experienced in
the year 2000 will come back long before the numbers of
passengers come back. We have got smaller airplanes in the
system, which means that we actually are very close to the
level of aircraft operations that we were at well before 9/11.
Secondly, we believe that the capacity needs are long
overdue anyway, that airports have been considerably behind
their ability to meet those needs, and, as this Committee has
mentioned on a number of occasions, the ability to put a
capital improvement program in place, particularly with
runways, is made much more difficult by the kinds of
requirements that that process includes.
The FAA has done a very good job in trying to streamline
that process, but it is still quite lengthy. GAO has reported
that it often takes as much as 10 to 15 years to build a new
runway to deal with the kind of capacity we are talking about.
And ultimately, we also will need, therefore, to put additional
gates in place, additional square footage of terminals, access
roads, and so on, parking, at airports.
Mr. Chairman, I think the point I want to make today is
that we know the difficulties that the budget includes. We
understand the difficulties of trying to add additional
resources to the airport, to the aviation program. But we
believe that it is necessary. We believe that the airports must
have additional resources in order to satisfy the requirements
that have been mandated upon them.
One thing we can do, for example, is to talk about looking
at the kinds of conditions that are attached to AIP grants, to
PFCs, the process for getting them approved. We hope that it is
possible in the future to begin to look at all of the various
funding sources as being eligible to fund any lawful airport
purpose. We are not suggesting that the airports take the money
that they have and use it for non-airport purpose. On the
contrary, we believe very strongly that that is a critical part
of what makes it possible for the airports to get into the bond
markets. But, at the same time, the differences between those
various funding sources can be a significant obstacle to
funding the specific projects that need to be done.
We believe that we need to streamline that process, and we
have talked about that a number of times. We believe we need to
protect passenger facility charges when airlines are in
bankruptcy from being treated as just another set of funds from
the State of the bankrupt airline. We would like to eliminate
some of the bureaucratic restrictions now that occur in
conjunction with getting the AIP program grants and the PFCs
approved.
But, most importantly, we want to be recognized as the kind
of partner we have been over the years for the enhancement of
the aviation system and today, especially in the aviation
security business. We believe that the underlying requirements
for security are requirements that the airports have met for
many years, are consistent with their responsibilities as local
governments, and ones that we would very much like to
participate in, assuming that we will be allowed to do that.
Mr. Chairman, airports stand ready to become full partners
with the Federal Government. By working together, we can
marshal Federal and local resources to ensure that we have the
safest and most secure system possible. We can also be prepared
for the increasing number of passengers who will be using our
aviation system in the future.
Thank you very much.
[The prepared statement of Mr. Plavin follows:]
Prepared Statement of David Z. Plavin, President, Airports Council
International-North America
Chairman Lott, Ranking Member Rockefeller and Members the Senate
Commerce Subcommittee on Aviation, thank you for inviting me to appear
before your Committee to discuss airport financing. I am testifying
today on behalf of Airports Council International-North America (ACI-
NA) and the American Association of Airport Executives (AAAE). ACI-NA
represents local, regional and state governing bodies that own and
operate commercial airports in the United States and Canada. AAAE
represents the men and women who manage primary, commercial service,
reliever and general aviation airports.
Before I begin discussing airport financing and outlining our
recommendations for the next Federal Aviation Administration (FAA)
reauthorization bill, I would like to comment briefly on the current
relationship between airports and the Federal Government.
One of the most thoughtful and respected leaders in the airport
industry is James Wilding, the president and chief executive officer of
the Metropolitan Washington Airports Authority. Mr. Wilding recently
announced that he will be retiring in April after spending 43 years
rebuilding Ronald Reagan Washington National Airport and building and
expanding Washington Dulles International Airport.
Mr. Wilding has observed over many years that the relationship
between airports and the Federal Government has deteriorated
significantly. It has been moving from a partnership among federal,
state and local governments to an environment where the Federal
Government has forced local governments that are airports to relinquish
many of their traditional roles and responsibilities. The next FAA
reauthorization bill provides airports with an opportunity to begin
improving that relationship.
As everyone on this Committee knows, the Federal Government,
itself, plays a prominent role in the aviation industry. It regulates
airline safety, operates the national air traffic control system and
administers a user-financed grant program to assist with capital
investment in certain types of airport facilities. The Federal
Government usually performs those responsibilities exceptionally well.
The Federal Government, however, often fails to acknowledge the
unique roles and responsibilities that airports have in ensuring
safety, security, and capacity at their facilities, independent of the
growth in federal mandates. Airports are owned and operated by units of
state and/or local government. But the Federal Government increasingly
treats airports as if they are private, commercial entities that need
regulation in the public interest rather than local public entities.
Mr. Wilding, like airport operators around the country, would
prefer a more balanced relationship between airports and the Federal
Government. While there is no single legislative step that Congress can
take to accomplish that goal, we ask that Members of this Committee
protect and restore the traditional roles and responsibilities of
airports as you consider the next FAA reauthorization bill.
Airports stand ready to become full partners with the Federal
Government. By working together, we can marshal federal and local
resources to ensure that we have the safest and most secure aviation
system possible. We can also be prepared for the increasing number of
passengers who will be using our aviation system in the near future.
Provide Airports With the Resources They Need to Meet Future Demand
Mr. Chairman, I would like to begin my comments on airport finance
by thanking you and the Members of this Committee who worked on H.R.
1000, the Wendell H. Ford Aviation Investment and Reform Act for the
21st Century, also known as AIR-21. As most of you know, the last FAA
reauthorization bill included record funding levels for the Airport
Improvement Program (AIP).
Specifically, the law recognized the growing need for investment as
it included $3.2 billion for the AIP program in Fiscal Year 2001
(FY01), $3.3 billion in FY02, and $3.4 billion in FY03--a 64 percent
increase above previous levels in FY01 alone. The law also raised the
cap on Passenger Facility Charges (PFCs) from $3.00 to $4.50. Together,
these actions have improved safety and capacity at airports around the
country.
In addition to increasing funds for the AIP program, Members of
this Committee should also be commended for guaranteeing that all
revenue and interest paid into the aviation trust fund will be spent on
aviation. AIR-21 provides for budget points of order against any
appropriations bill that either fails to spend all the trust fund
receipts and interest or does not appropriate the total authorized
levels for FAA's capital programs.
But much has changed since Congress passed AIR-21 almost three
years ago. The downturn in the economy and the terrorist attacks on
September 11 has hit the aviation industry particularly hard. The
entire aviation system was shut down for the first time in history,
passenger levels declined and the nation's network carriers reduced
capacity.
In its Aerospace Forecast issued in March 2000, the FAA estimated
that airline passenger traffic would decrease to 600.3 million
enplanements in FY02. Despite this temporary reprieve, the agency
expects that airline passenger traffic will increase by an average rate
of 4 percent per year and reach one billion passengers by 2013--just a
few years later than the agency had predicted before September 11.
Given that airfield projects generally take a minimum of ten years and
more to complete, we have no time to lose.
Gerald Dillingham, the Director of Civil Aviation Issues for the
General Accounting Office (GAO), recently testified before the House
Transportation and Infrastructure Committee about the need for
additional capacity. He said, ``enhancing the capacity and efficiency
of the national airspace system through runway development and air
traffic modernization is critical to preparing for the projected growth
and demand for air travel.''
Ken Mead, the Inspector General of the U.S. Department of
Transportation (DOT), in recent testimony said, ``building aviation
system capacity and more efficient use of airspace'' is one of four key
issues for the next FAA reauthorization bill. Mead also suggested that
it would be shortsighted for the FAA not to be ``strategically
positioned for when demand returns through a combination of new
runways, better air traffic management technology, airspace redesign
and greater use of non-hub airports.''
We agree with the comments made by Dr. Dillingham, Mr. Mead, other
Administration officials and Members of Congress who have suggested
that we be prepared for future demand. We should use this temporary
downturn to our advantage and begin building new runways now--not later
when passengers experience delays and cancellations like they did in
2000 when one in four flights were delayed, cancelled or diverted,
affecting some 163 million passengers. In order to be prepared for
future demand, however, we need to continue making wise investments in
aviation infrastructure as Congress did in AIR-21.
ACI-NA recently surveyed airports around the country about their
capital needs in order to determine how much investment in aviation
infrastructure is necessary in the next few years. From that survey, we
estimate that capital development costs will total more than $61
billion between 2003 and 2006 at an average rate of about $15 billion
per year. This estimate includes the costs of construction projects
that are necessary but not eligible for AIP funds. These include
parking lots, cargo buildings and terminal development, for example, at
airports of all sizes.
Dr. Dillingham cited the ACI-NA survey in his recent testimony. He
also estimated that the average amount that airports received for
capital development from all sources was about $12 billion per year
between 1999 and 2001. If that trend continues, airports would face
about a $3.4 billion shortfall in capital needs and be forced to delay
important safety and capacity projects every year through FY06.
[Members of this Committee should know that we make every effort to
coordinate the distribution of our surveys with the FAA, the DOT
Inspector General and GAO.]
Ideally, AAAE and ACI-NA would prefer that Congress provide another
major increase in AIP funding, take the aviation trust fund off budget
and lift the federal cap on PFCs to help airports meet future demand.
Considering the current fiscal climate and the financial troubles
plaguing the airline industry, we realize these suggestions might seem
impractical to some Members of this Committee. However, we encourage
Congress to take these and other steps to ensure that airports have the
resources they need to meet future demand.
Provide Modest Increase in AIP Funding: We recognize the difficulty
in providing significant increases in AIP funding, but the alternative
is to fall further behind. Thus, we recommend that Congress authorize
AIP at $4 billion in FY04 and increase the funding levels by an
additional $100 million a year. By strengthening the trust fund we
would also have more money available for necessary infrastructure
investment as the industry turns around. Even at the funding level, a
gap would exist between funding from all sources of capital and the
annual capital needs of airports.
Maintain Current Budget Protections: We also urge you to continue
providing budget protections for the AIP program. The budget
protections that you included in AIR-21 have worked exceptionally well.
In fact, Congress has appropriated the same amount for AIP per year
that it authorized in AIR-21. As you consider the next FAA
reauthorization bill it is imperative that you maintain the current
budget protections that have worked so well under AIR-21.
Unleash AIP Funds, PFCs and Airport Bonds
Airports rely on a number of different sources to fund their
capital needs. The two that may be most familiar to Members of this
Committee are AIP and PFCs. Unlike many other transportation entities,
airports generate much of their capital themselves through airport
bonds, special facility bonds, state and local contributions and
revenue generated from airport fees, rates and charges.
One of the most important sources of funding, especially for small-
and non-hub airports is AIP. Airports use AIP funds to finance a
variety of capital improvements including runway and taxiway
construction, navigation aids and airfield lighting. Airports, however,
are strictly prohibited from using AIP funds for operational costs such
as salaries, marketing plans and constructing revenue-producing
terminal areas such as ticket counters and concession stands.
PFCs are another source of revenue for airports. The PFC program
allows airports to impose local fees on airline passengers enplaned at
their facilities in order to pay for the development of the facilities
they use at that airport. Airports may use PFCs for AIP-eligible
projects. Unlike AIP funds, airports can use PFCs to pay interest on
airport bonds and for construction on certain revenue-producing areas
of airport terminals. The FAA estimates that airports collected
approximately $2 billion from PFCs in FY02. Currently, 310 airports
impose PFCs proving this is a local decision.
Provide Airports with Flexibility on How They Can Use AIP funds and
PFCs: As I mentioned previously, airports use revenue generated from a
number of different sources. Each of these ``currencies'' has its own
strings attached that create significant problems for airports. We
believe that we should work toward an ``Airport Euro,'' a common
currency to eliminate these multiple rules and regulations and permit
airports to use AIP and PFC funds for any airport capital project,
provided that we retain necessary prohibitions against revenue
diversion and unjust discrimination.
Under our proposal, for instance, airports would be free to use AIP
funds and PFCs to acquire airline baggage systems, information
technology, ground support equipment, gates and ticket counters. These
measures are also responsible ways to support airline needs and
strengthen competition at the same time.
Streamline the PFC Process: In addition to giving airports
flexibility in how they can use AIP funds and PFCs, we think Congress
can improve the PFC program. Airports believe that the PFC program
would be more useful if it were treated more like airport rates and
charges. This would require less federal oversight and make the PFC
program more efficient. At the very least, we think the application
process should be streamlined.
It can currently take more than nine months for airports to gain
approval to begin collecting PFCs. This is simply too long, with no
added benefits accruing. Eliminating the duplicative Federal Register
comment process and the additional requirements placed upon airports
applying for $4.00 and $4.50 PFCs could reduce those delays and save
airports, airlines and taxpayers scarce dollars. We are encouraged by
our recent conversation with FAA Administrator Blakey and her staff who
suggest the FAA is seeking to streamline the PFC approval process.
Protect PFCs that Bankrupt Airlines Owe Airports: Airlines collect
PFCs on behalf of airports and then remit them to airports. Two major
airlines--United and U.S. Airways--have already filed for bankruptcy.
Other airlines may not be far behind especially if there is a war with
Iraq causing fuel prices to rise and international passenger traffic to
drop off. Airports now have to resort to the legal process to recover
PFCs owed to them. In December a U.S. Bankruptcy Court judge ordered
United Airlines to pay Denver International Airport $4.7 million in
PFCs that the airline collected. Congress should codify the principle
that PFCs are held in trust by the airlines and ensure that airports
receive their PFCs in a timely fashion from airlines whether they have
declared bankruptcy or not.
Eliminate Unnecessary and Bureaucratic Competition Plans: Airports
support almost of all of what was enacted in AIR-21. However, we hope
this Committee will revisit the section on ``competition plans'' when
it considers the next FAA reauthorization bill. AIR-21 included a
provision that prevents certain large- and medium-hub airports from
receiving AIP funds or collecting new PFCs unless they file competition
plans with DOT.
According to the report accompanying the House version of the
legislation, the purpose of that provision was to require airports to
demonstrate how they would provide access to new entrant carriers and
allow incumbent carriers to expand. Like the Members of this Committee,
airports want more competition--not less. There isn't a day that goes
by that airport operators are not thinking about how they can expand
service to their community. Airports realize that competition is the
key to their efforts to both develop air service and to hold fares at
reasonable levels for their passengers.
The provision in AIR-21 that requires airports to file competition
plans is unnecessary, burdensome and may have resulted in some
unintended consequences. For example, FAA issued a revised 15-page
Program Guidance Letter in November that tells airports that the agency
expects detailed information on some 60 items. The agency, for
instance, requests data on ``local passengers, average passenger trip
length, average passenger yield, and number of city-pair markets served
disaggregated by distance (distinguishing between markets of 750 miles
or less and markets over 750 miles) . . . '' Some airports have
informed us that the FAA treats these program guidance recommendations
as requirements, even though most are inapplicable to most airports.
Most of this data that DOT now collects is difficult and expensive
for airports to mine for useful information. According to a recent ACI-
NA survey, it took some airports more than 200 hours and considerable
cost to complete their competition plans. Moreover, some airports
informed us that it took the FAA nine months to review their
competition plans with little or no benefit provided to the traveling
public.
While we understand the goal that Congress had in mind when it
created this requirement, it has led to unintended and bureaucratic
consequences with no material change in the airports must do their
business and not demonstrable impact on competition. The current
financial straights in which U.S. airlines find themselves make such
efforts even more superfluous.
We encourage you to eliminate the competition plan requirement when
you consider the next FAA reauthorization bill. This is one positive
provision to recognize the unique roles of airports and restore their
rights, roles and responsibilities.
Reclassify Airport Bonds as Governmental: In addition to AIP funds
and PFCs, airports generate revenue from bonds. Unfortunately, federal
tax law unfairly classifies tens of billions of dollars in outstanding
airport bonds as so-called ``private activity'' bonds. As a result,
airport bond issuers are charged higher interest rates on their
borrowing than they otherwise would pay and are unable to ``advance
refund'' outstanding bonds to take advantage of lower interest rates.
The current charges to airport users would be reduced to reflect these
lower interest costs.
But, in addition, airports are public entities that serve a vital
public purpose. That fact has been proven true repeatedly in the
aftermath of the September 11th terrorist attacks. We believe that
Congress should take steps to reclassify these airport bonds as
``governmental.'' Doing so would save airports millions in financing
costs and would allow airports to take full advantage of historically
low interest rates in today's market to refinance outstanding debt.
After September 11, Congress gave New York City similar authority, and
billions of dollars were refinanced to the public's benefit.
Partner with Airports to Enhance Aviation Security
Chip Barclay, the President of AAAE, recently testified before this
Committee on behalf of AAAE and ACI-NA regarding aviation security.
During his opening comments, Mr. Barclay urged the Transportation
Security Administration (TSA) to work with airports as partners rather
than treat them like a privately regulated party. As he pointed out,
airports are ``TSA's partners with law enforcement powers and identical
incentives to keep our citizens safe.''
Mr. Barclay's comments go hand-in-hand with the remarks that I made
at the beginning of my testimony about the need to protect and take
advantage of the traditional roles and responsibilities of airports. As
you begin considering the next FAA reauthorization bill, the key
security recommendations that we outlined in that testimony are
consistent with a partnership approach and are worth repeating.
Prevent AIP Funds From Being Drained for Security-Related Projects:
DOT Inspector General Mead said that ``striking a balance on how
airport funds will be used for aviation system capacity, airport safety
and security'' will be another major issue for the next FAA
reauthorization bill. He also pointed out that ``continuing to use a
significant portion of AIP funds and passenger facility charges (PFCs)
on security projects will have an impact on airports' abilities to fund
capacity projects.''
We share Mr. Mead's concerns about who is going to pay for
installing explosive detection systems (EDS) at airports and the
potential impact that this could have on safety and security projects
at airports. AAAE and ACI-NA have been making the case that airports
should not be forced to choose between spending AIP funds on much-
needed safety and capacity projects or on security-related projects
mandated by the Federal Government. Even if we were faced with such a
choice, there is simply an inadequate amount of revenue generated by
the trust fund to finance EDS installation.
Unfortunately, as the GAO has made clear, current policy is forcing
airports to choose between safety and capacity or security. In FY02,
airports spent approximately $561 million in AIP to pay for security-
related projects. This is ten times more than the $56 million that
airports spent on security during the previous fiscal year. In other
words, airports deferred more than $500 million in AIP funds to improve
safety and capacity last year because there is not a separate source of
funds available to pay for security-related construction projects.
While this may have been justifiable for a year, it is not sustainable
for the long-term if we prudently plan for future growth and manage
current safety issues.
Congress has attempted to provide airports with at least some of
the funding necessary to install EDS machines. The FY02 supplemental
appropriations bill included $738 million for that purpose. Airports do
not know how TSA has spent that $738 million to date, and we look
forward to the results of the DOT Inspector General's review of the
spending.
Even if the full $738 million were spent exactly as Congress
intended, it still will not be enough to cover the costs of installing
EDS machines behind the ticket counter and integrating them into
baggage systems. Boeing estimates that this will cost $3 billion. Based
on surveys conducted by ACI-NA, we think that cost could reach $5
billion.
I would like to stress that installing EDS machines behind the
ticket counter is not for aesthetic purposes as some have suggested. At
many of the 429 commercial service airports, TSA temporarily installed
EDS machines in crowded airport lobbies in an effort to meet the
December 31, 2002 deadline for screening all checked baggage. But
keeping these EDS machines in airport lobbies rather than integrating
them into baggage systems behind ticket counters has created numerous
problems that go well beyond aesthetics.
DOT Inspector General Mead pointed out recently that the only way
you can efficiently screen 100 percent of the baggage for explosives at
large airports is by integrating EDS machines into baggage systems.
Second, leaving EDS machines in airport lobbies results in less
productive use of machines, requires more TSA staff to operate them and
causes passengers to spend longer times at ticket counters, creating
unnecessary security and safety risks. Airports around the world have
many years of experience with the risks associated with the
concentration of large numbers of people at the front of the terminal.
On a related issue, we must also strive to reduce the so-called
``hassle factor'' that is exacerbated when passengers are forced to
wait in several queues at the ticket counter even before they even
reach the security checkpoint and the airline gate. This may seem
insignificant, but the ``hassle factor'' is just one more reason why
some passengers have simply avoided flying altogether since September
11.
Reimburse Airports for New Security Requirements: In addition to
new construction costs associated with installing EDS machines,
airports are now paying for new operational security costs. After the
terrorist attacks on September 11, the FAA and later the TSA required
airports to deploy additional law enforcement personnel, enhance
airport surveillance and revalidate all airport-issued identification.
For the last two years, this has resulted in a 38 percent increase in
airport operational security costs.
Congress authorized $1.5 billion in FY02 and FY03 to reimburse
airports for these additional security mandates as part of the aviation
security bill. Unfortunately, airports did not receive the necessary
appropriations. As part of the FY02 Department of Defense
appropriations bill, which included emergency funding for other
agencies, Congress approved $175 million to reimburse airports for new
security requirements. Airports, however, submitted approximately $445
million in requests that the FAA deemed acceptable leaving about a $270
million shortfall.
Congress approved an additional $150 million in the FY02
supplemental appropriations bill to reimburse airports for their
operational costs. However, Congress designated those as contingent
emergency funds, and the President ultimately decided not to spend $5.1
billion in the bill including the $150 million that was slated to go to
airports.
Moreover, security costs are escalating again as airports respond
to a higher threat level that has been in place since February 7. The
orange threat level forces some airports to close parking, conduct more
random vehicle searches and deploy more law enforcement officers. It is
unclear how long the higher threat level will be in place; however, it
could continue for some time especially if the United States goes to
war with Iraq.
Since the previous authorization of $1.5 billion expires in FY03,
we encourage this Committee, as part of the next FAA reauthorization,
to authorize $500 million per year to reimburse airports for new
security requirements, such as deploying additional law enforcement
officers. These new security requirements are federal national security
mandates, and airports should be reimbursed for the cost of
implementing them. Without reimbursement from the Federal Government,
airports will have no other choice than to pass those additional costs
on to the array of airport users, including in large part, the airlines
that are facing their own financial challenges.
Require FAA and TSA to Pay for Space the Agencies Use at Airports:
The FY02 omnibus appropriations bill also includes a provision that
requires FAA and TSA to pay for the space the agencies use at airports.
It precludes the use of space at security checkpoints that airports
provide to TSA without cost. With TSA deploying some 62,000 federal
screeners at airports around the country, the agency has requested
significant amounts of space at airports for employee training, office
space, break rooms and other purposes. It is only fair that FAA and
TSA--like other airport tenants who occupy space for which airports
incur the cost of construction and maintenance--should be required to
pay for the space they use. In addition, we share the DOT Inspector
General's view that the new Department of Homeland Security should make
every effort to consolidate airport facilities with other federal
tenants.
We are pleased that the Administration's FY04 budget request
includes a general provision that would require FAA to pay for the
space the agency uses at airports. Although Congress has supported
airports on this issue in the appropriations process, we encourage this
Committee to include a provision in the next FAA reauthorization bill
that will require FAA and TSA to pay for the space the agencies use at
airports.
Allow Airports to Make Decisions About Parking: TSA has asserted
that it has the authority to determine whether vehicles should be
allowed to park within 300 feet of airport terminals. This issue of the
``300 foot rule'' has been a source of continuing friction between TSA,
airports and the traveling public.
While TSA has made some improvements recently, we strongly believe
that airports are able to make their own decisions about parking near
their terminals after they consult with their Federal Security
Directors and with other state and local law enforcement authorities.
The Federal Government does not dictate to local governments on how
they protect shopping malls, office buildings, schools, museums or
sports stadiums. The non-aeronautical areas of airports should not be
treated any differently.
Use New Technology to Enhance Security and Expedite the Processing
of Passengers: Just a few days after the terrorist attacks, DOT
Secretary Norman Mineta formed two teams to examine ways to improve
airport and aircraft safety. The Rapid Response Team on Airport
Security recommended that new technologies should be used at airports
to identify passengers, workers and crews. The team also concluded that
there is an urgent need to establish a nationwide program of voluntary
pre-screening of passengers, together with the issuance of ``smart''
credentials to expedite the processing of passengers.
We cannot run an efficient public transportation system if we try
to treat all 700 million passengers a year like potential terrorists.
We need a voluntary system that allows frequent travelers to provide
enough information on themselves, so government and industry can agree
they belong in a ``low-risk'' pool.
The aviation security bill that Congress passed last year called on
DOT to study options for improving positive identification for
passengers including the use of biometrics and smart cards. We
encourage this Committee to take additional steps toward deploying new
technologies when it considers the next FAA reauthorization bill.
Allow Airports to Continue to Control Perimeter Security: Airports
should continue to be responsible for maintaining perimeter security.
Again, this relates to the proper relationship between airports and the
Federal Government that I discussed at the beginning of my statement.
Providing perimeter security is inherently an airport responsibility.
We strongly encourage this Committee to ensure that airports continue
to control the perimeter around their facilities.
Require TSA to Conduct Regulatory Burden Tests Like Other Federal
Agencies: Airports understand that there are times when TSA must issue
emergency directives that don't fall under the typical Federal Register
process required of other federal agencies. Nevertheless, that does not
justify TSA issuing operational directives that duplicate airport-
center responsibilities. At the very least, TSA should have to spell
out why they need to intrude on a traditional local government, airport
responsibility and share proposed operational requirements with airport
operators. Too often, representatives of airports have either not been
briefed or given so little time to respond that it is clear that the
input was pro-forma rather than designed for true interchange among
partners.
Reimburse Airlines for New Security Costs: When he testified before
the Senate Commerce Subcommittee on Aviation on February 12, James May,
the new President and CEO of the Air Transport Association, argued that
``Congress must establish and enforce an unalterable policy that
aviation security is the responsibility of the Federal Government.''
Airports, too, agree that paying for this national security need should
be the responsibility of the Federal Government. Airports have a
symbiotic relationship with airlines, and we want the airlines to
succeed. We hope that Congress will consider authorizing funds from the
general treasury to reimburse carriers for their new security costs
just as we are asking you to reimburse airports for our new capital and
operational security costs.
Improve Air Service to Small Communities
Since Congress deregulated the airline industry in 1978, it has
been difficult for many small communities to retain and attract new
commercial air service. The terrorist attacks on September 11 and the
downturn in the economy have made that challenge even more difficult.
Airline passenger traffic has declined, and airlines responded by
cutting capacity and service to less profitable small communities.
In March 2002, the GAO reported that the total number of daily
departures from airports in small communities that it studied declined
by almost 20 percent between October 2000 and October 2001. Moreover,
the agency found that the number of small communities served by only
one airline increased to 47 percent during the same time period. The
GAO pointed out that when one or more airlines pulled out of some small
communities, passengers lost connecting service destinations and became
more vulnerable to noncompetitive pricing.
The DOT Inspector General also found that non-hub airports have
been disproportionately losing access to large airports. According to
the DOT Inspector General, direct service from non-hub airports in
small communities to the largest 31 airports declined by approximately
17 percent between September 2000 and September 2002. By contrast,
access from medium and large airports to the largest 31 airports
declined by 5 to 10 percent during the same period.
Unfortunately for many small communities around the country, it
doesn't appear that it will be any easier for them to attract new
commercial air service any time soon. As I noted earlier in my
testimony, two major airlines have already filed for bankruptcy and
other airlines may not be far behind. This would likely place even more
pressure on airlines to reduce capacity and cut service to small
communities.
All sizes of airports have adversely affected by the economic
downturn and by the terrorist attacks on September 11. But it is clear
from reports issued by the GAO and DOT Inspector General that small
communities have suffered greatly. The challenge for this Committee
will be to preserve air service to small communities when it considers
the next FAA reauthorization bill. AAAE and ACI-NA have a few
recommendations on how to improve air service to small communities.
Expand the Small Community Air Service Development Pilot Program:
On behalf of small airports around the country, AAAE and ACI-NA would
like to thank the Members of this Committee for creating the Small
Community Air Service Development Pilot Program in AIR-21. Although
that program has been up and running for less than a year, we are
confident that it will help improve air service to airports that suffer
from infrequent service and high airfares as Congress intended.
As all of you know, AIR-21 authorized $20 million for the program
in FY01 and $27.5 million in FY02 and FY03. After Congress appropriated
$20 million for the program as part of the FY02 DOT Appropriations
bill, DOT selected 40 communities from 38 states to participate in the
program.
The program was extraordinarily successful, reflecting the pent-up
demand for creative solutions. Unfortunately, however, 139 communities
that applied for funds did not receive any. As we expected, the demand
for grants far exceeded the $20 million that Congress appropriated for
the program in the FY02 DOT appropriations bill. The fact that DOT
received 179 proposals requesting more than $142 million underscores
how much interest there is in this program.
Congress should be commended for appropriating another $20 million
for the Small Community Air Service Development Pilot Program in the
FY03 omnibus appropriations bill. However, given the number of
communities that applied for funds from this program and the continuing
reduction in air service to small communities, we urge this Committee
to consider making a greater investment in the Small Community Air
Service Development Program. We urge you to approve a major increase in
funding for the Small Community Air Service Development Program that
reflects current demand.
Maintain the Essential Air Service Program: The Essential Air
Service (EAS) program is another program that has helped small
communities for many years. Congress created the program in an effort
to ensure that certain small communities would continue to receive
commercial service after it deregulated the airline industry. The EAS
program has suffered in recent years from irregular funding and at
times unreliable service from carriers facing higher operating costs.
We encourage Congress to improve the Essential Air Service program
rather than let it die on the vine as the Administration is proposing.
The Administration's budget request includes only $50 million for the
EAS program--$65 million less than the amount that Congress approved
for the program as part of the FY03 omnibus appropriations bill. The
President's request calls on local communities to provide up to a 25
percent matching share.
Like the Federal Government, state and local governments have been
hard hit by the downturn in the economy and the attacks on September
11. Some communities simply do not have the resources to come up with
the local match required under the Administration's proposal. With
small communities being disproportionately hit by the industry's
economic declines, now is the time to step up our efforts to help small
communities--not abandon them and prevent people from having access to
the air transportation system simply because the live in a small
community. Access is one of the most vital ingredients of the public
purposes served by our national aviation system.
Invest in the FAA's Contract Tower Program: Another program that
has improved service and safety at airports in small communities is the
FAA's Contract Tower Program. This program, which is endorsed by the
DOT Inspector General, has been in place since 1982 and currently
provides for the cost-effective operation of air traffic control towers
at 219 smaller airports in 46 states.
With help from this Committee, AIR-21 created the Contract Tower
Cost Share Program, which allows more than 30 airports that fall
slightly below the eligibility criteria to participate in the program
if they provide local funds. We recommend that this Committee authorize
$8 million for the Contract Tower Cost Share Program per year to allow
additional airports to participate in the program and improve air
traffic safety at their facilities.
Prevent Future Delays by Increasing Aviation Capacity
Two years ago, the biggest issue facing the aviation industry
seemed to be a combination of diminishing capacity and increasing
number of flight delays and cancellations. In 2000, one in four flights
were delayed, cancelled or diverted affecting some 163 million
passengers. AAAE and ACI-NA responded by developing the Expedited
Airport System Enhancement (EASE)--an initiative to expedite the review
and approval process for projects that would enhance capacity and
reduce delays at the nation's busiest airports.
For instance, we called for a coordinated federal review of
critical national airport capacity enhancement projects and recommended
that the list of categorical exclusions be expanded. We also suggested
that airports should be allowed to provide funds to the FAA to hire
additional, project-specific staff and consultants to expedite the
review of critical capacity projects.
On behalf of airports around the country, we want to thank the
Members of the Senate Commerce Committee for the significant progress
you have made on project streamlining in the past two years. We would
particularly like to thank Sen. Hutchison and Sen. Rockefeller for
sponsoring S. 633, the Aviation Delay Prevention Act. And we thank the
rest of the Senate Commerce Committee for approving this bill in 2001.
I commented earlier about the need to protect the roles and
responsibilities of airports. With that in mind, we urge you to
reconsider a provision in S. 633 that would prevent certain airports
from receiving AIP funds and collecting new PFCs if they ``decline to
undertake expansion.'' This proposed penalty is unnecessary and wrongly
suggests that airports somehow desire fewer runways, less capacity and
more delays. Nothing could be further from the truth.
Airports around the country are exceptionally frustrated by the
fact that it often takes them 10 to 15 years to construct a new runway,
and that is why we are seeking legislative assistance. We hope that
this Committee will revisit this unnecessary provision in the next FAA
reauthorization bill.
Despite the welcome progress that this Committee has made in the
past two years on project-streamlining, Congress was unable to send a
bill to the President's desk before the 107th Congress adjourned. We
hope Congress will pick up where it left off last year and pass a
stand-alone, project-streamlining bill soon. If necessary, we encourage
Members of this Committee to include project-streamlining provisions in
the next FAA reauthorization bill.
Chairman Lott, Ranking Member Rockefeller and Members of the Senate
Commerce Subcommittee on Aviation, thank you for inviting me to
participate in today's hearing on airport financing. All of us at ACI-
NA and AAAE look forward to working with you during the 108th Congress
as you consider the next FAA reauthorization bill.
Senator Lott. Thank you very much.
Senator Stevens, I believe, has another meeting he needs to
go to, so I would like to yield to him.
Now, how is the Ted Stevens International Airport doing? Is
security pretty good up there?
Senator Stevens. I just left it, and it looks good.
Senator Lott. Good, all right.
STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
Senator Stevens. I am concerned about the President's
recommendation--I approve it--to target medium and small
airports in the AIP funding portion of the budget this year,
but I wonder how realistic that is in view of the size of these
terminals at the major airports.
As I travel around the country, I have the impression that
there is a contest between architects to see who can build the
highest ceilings and the most garish types of airports. Why are
you all funding those enormous projects, in terms of the size
of these terminals?
Ms. Woodward. Senator, terminal projects are not eligible
for funding out of the AIP program. Many airports choose to use
their passenger-facility-charge-generated money for those. But
certainly airport improvement grants are not used at all for
those terminals.
Senator Stevens. Are they all funded by bonds, totally?
Ms. Woodward. From bonds, passenger facility charges, and
the airlines contribute to some of the funding; it's a
combination of funding.
Senator Stevens. You are telling me that none of the money
for those large monstrosities is coming out of the money that
should be going to small- and medium-sized airports?
Ms. Woodward. Correct. AIP money cannot be used for
terminal projects.
Mr. Plavin. Senator, I think it is also true that the kind
of costs that you have been seeing associated with airport
terminals is not typically a function of the architecture; it
is simply a function of the space that needs to be provided,
and they are costs that are typically negotiated with the local
airport tenants to be sure that they, who are ultimately going
to have to pay the bill for this, are satisfied with both what
it looks like and what it can provide for them.
Senator Stevens. All right, I stand corrected, but I do not
know why they have to have 50-foot ceilings in those airports.
It is still something--someone is paying for it.
Mr. Plavin. Well, the actual cost of the increased
ceilings, I think we saw an example of that when we went to
look at the buildings of the Washington National Airport. That
was actually modified at the request of the airlines with that
kind of a criticism in mind. And it turns out it did not really
save an awful lot of money to bring that down. We do need the
volume to accommodate the number of passengers who are actually
being accommodated, and the passenger experience, I think, has
become a very important part of what people are looking for
when they travel.
Senator Stevens. What do you think about the security
program? As you mentioned, all three of you mentioned, we are
really not dealing with that money here today. It is going
through another department now, but it is going to be sizeable.
I was in Nome recently, and I saw that the terminal there had
been--a third of the terminal had been taken over by the
security agency. They just moved the airlines aside and said,
``We need space,'' and took it. That means that those airlines
have to expand the space if they are going to continue to
operate. So it does seem to me that the burden of that security
program is put on the small- and medium-sized airports much
more than the large airports. Have you all got a plan to figure
out who is going to pay for that?
Mr. Plavin. Senator, the current situation does not show
any Federal funding for any of those projects. That leads us to
assume that the airports, once again, will have to identify the
sources from within their own capabilities to fund those.
Admiral Loy suggested the last time he testified that he
recognized that there was a wake that he had left as he had
gone through the airports in installing the equipment necessary
to meet the short-term deadlines. But I think we all agree that
the long-term solution probably requires us to build new
baggage capabilities somewhere behind the ticket counters so
that we actually get the flow moving, so that we do not have to
have the lines we have been experiencing.
And as you point out, the number of square feet that has
been taken over by the need to actually screen some of those
bags has been enormous. And it is not just confined to the
small airports, although the small airports are the ones where
it is most obvious. Fort Lauderdale, for example, reports that
their lines, because they used to be in the terminal, have now
actually extended outside into the roadway because of the
amount of property that has been taken over, you know, for the
screening purposes, and that is not atypical. That is rather
common. So that--and TSA is aware of this, and they have been
working with us.
Obviously, we are still trying to find the revenue, and
that is one of the reasons we have been talking with them about
either a letter-of-intent program or a memorandum-of-
understanding program where the airports would step up and say,
``We'll fund the long-term program, but we would hope that,
subject to appropriation, obviously, over time, we could be
reimbursed for some of those costs in the same way that we are
today through the AIP's letter-of-intent program.''
Senator Stevens. Well, I come from a State where 75 percent
of the travel between cities is by air. As a matter of fact, 75
percent of the cities can be reached only by air. And when you
look at the small- and the medium-sized airports, they have got
a much different burden today. The delays in those smaller
airports are much greater than those in the larger airports
throughout the--what I call the ``megapolis centers'' of the
country. And I am very worried about how we are going to fund
that. If you come into this part of the country, you can drive
between cities, and there seems to be an increasing number of
people taking that option. We do not have that option, and yet
we seem to be at the low end of the totem pole as far as
getting funding for these facilities that are demanded by the
security systems.
I want to urge a review of the security systems at small
airports. Intrastate security does not need to be the same as
the interstate security, but today it is, and I think that is a
burden on intrastate travel. So I hope we can find some way to
review those costs and not put them so heavily upon the small-
and medium-sized airports, particularly in States such as mine.
Thank you very much.
Senator Lott. Thank you, Mr. Chairman. I am sure we will be
talking to you further about some appropriations that might be
needed on some of these issues.
Under the early-bird rule, Senator Sununu, we will be glad
to take your questions or comments.
STATEMENT OF HON. JOHN E. SUNUNU,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Sununu. Thank you, Mr. Chairman.
Mr. Plavin, you talked about the burden for the costs of a
lot of these improvements and expenditures on infrastructure
and the burden being carried by, I think you said the
passengers and the shippers, and you tried to give a picture of
how the burden was carried. But you did not really say whether
that was appropriate or not.
Mr. Plavin. Well, I think----
Senator Sununu. Is----
Mr. Plavin.--that's a very fair question. From airport-
specific point of view, since I represent airports, obviously I
would like to see more of the burden picked up by the taxpayer,
because it becomes increasingly difficult with the small number
of players in our business to find the revenue in order to keep
up with the----
Senator Sununu. Well, I think it is a pretty fair
assumption, though, that those that are flying on airplanes,
are taxpayers; those that are buying the products that are
shipped on airfreight and incur the costs of airfreight, those
consumers are taxpayers. So I think you should qualify that.
You are suggesting it should be paid by those taxpayers that
are not necessarily flying as much as the taxpayers who are
flying and buying products that were shipped by air.
Mr. Plavin. I guess this is a sort of a classic political
call and probably above my pay grade, but----
Senator Sununu. Well, no, it----
Mr. Plavin.--my sense is exactly that.
Senator Sununu.--it's a practical recommendation.
Mr. Plavin. My sense is exactly that, in fact, the
taxpayers, generally, even those who do not fly, get a
significant benefit out of the system. They get the benefit of
having their packages delivered to home, they get the benefit--
--
Senator Sununu. But the costs incurred----
Mr. Plavin.--of people being able to travel.
Senator Sununu.--by the shippers who are using the air and
whatever security that warrants, whatever the freight costs
including transit, fuel, security, and overhead, it is
incorporated into the cost of the product, is it not?
Mr. Plavin. Oh, I think that is right. And I think that the
point is that at the----
Senator Sununu. So who is benefitting from the air system
and not paying for it?
Mr. Plavin. I think that there are general public examples,
like, for example, those people who use the roadways which
would otherwise be used by people who are now flying airplanes.
There are people who use the railroads, for example, or could
use the railroads, who are now flying airplanes. I think there
are a lot of opportunities----
Senator Sununu. That is good for the air industry.
Mr. Plavin. Well, it may or may not be good for the air
industry.
Senator Sununu. Well, if they are paying their PFCs and
their airline ticket tax, I assume it is good for
infrastructure construction.
Mr. Plavin. I guess my sense of it is that a strong
aviation system has been demonstrated to be good for the
broader economy, that, as Senator Stevens pointed out, there
are some parts of the country where the economy literally
cannot function without a strong aviation system. And I think,
generally speaking, since the passenger pays for virtually
everything in the system right now, my argument would be that I
think the general taxpayer probably ought to pick up some
portion of the burden, especially if we are talking about
national security kinds of issues, that those kinds of things
are not problems only for people in the--who are on the
airplanes, as we, unfortunately, saw on 9/11.
Senator Sununu. I agree wholeheartedly that it is important
to our economy, and that is why we have supported it in the
past, and that is why we will continue to support it, but it
does seem to me that the costs that are borne by those that
benefit from the system right now seem appropriate. What I am
trying to get at is whether or not you are recommending a
significant change from the current burden-sharing. And to be
sure, those--what you refer to as taxpayers, but, you know, you
might describe more as those that do not utilize the air
transportation system right now, they are picking up a share.
They are--in the AIP program, whether it's $2 billion or $3
billion.
And you, I can understand, are advocating for a bigger
investment in AIP. We are going to do the reauthorization and I
have a sneaking suspicion, a sneaking suspicion, in the new
authorization bill, there will be more set aside for AIP than
in the old authorization bill, but I do not want to go too far
afield.
Mr. Plavin. Senator, the AIP program----
Senator Sununu. So, but----
Mr. Plavin.--is actually----
Senator Sununu.--but the----
Mr. Plavin.--funded by the passengers, as well, because the
ticket tax that you pay on your ticket goes into the trust
fund, which is the source of the AIP funds. That was really the
point I was trying to make.
Senator Sununu. Okay. So those--you do not consider them to
be the taxpayers--at least you use that phrase generally. You
are talking about non-AIP now----
Mr. Plavin. Right.
Senator Sununu.--general fund, income taxes, find yet
another source of revenue for AIP or other infrastructure.
Okay. Thank you for clarifying there.
My other question may be a little bit more of a criticism,
and I hope I do not hurt anyone's feeling here, but, Mr.
Dillingham, you went through a presentation where you talked
about the funding gap based on the perceived needs. I think the
numbers came from ACI, right? The $15 billion number, although
I add 9 and 5.7, and I get $14.7 billion, not $15 billion on
your first chart. But I do not want to quibble over a mere $300
million.
But that is the--certainly not--so that is the anticipated
need. Now, then you show, sort of a, sources or current levels,
and you show an average funding level of $11.8 billion. Now, it
seems to me that we are looking out toward anticipated needs in
the future, and you are looking at an average funding level
from 1999 to 2001. And you have got AIP grants of $2.4 billion
in your summary total of $11.8 billion. But that does not seem
to me to really reflect the current level of AIP or even a
reasonable projection of AIP. What was the AIP funding for
2002, the actual for 2002 or the estimate for 2003?
Dr. Dillingham. Senator Sununu, I think, at least I meant
to say, ``about'' 15 billion. I was not trying to be exact.
Senator Sununu. Sure.
Dr. Dillingham. The figures that we used represented an
average--a three-year average.
And with respect to the specific question that you asked, I
think AIP was around $3.4 billion. We used figures where we
could get all the information, including for bonds as well, so
we would have a complete picture. If, in fact, we had used the
2002 AIP, we would still have a gap. The gap would be smaller.
Instead of 27 percent for smaller airports, I think our
calculations were that the gap would be about 12 percent. It
would be about 17 percent for large- and medium-hubs airports.
Senator Sununu. Thank you. And I think that is important. I
understand there are still going to be needs, but we, as
policymakers, are trying to make the best decisions we can
based on the best information we have. And if, based on current
appropriations and PFCs in the AIP program, you know, there is
a gap of 12 percent versus 27 percent, that is a pretty big
difference. Now, I have no fundamental issue with rounding 14.7
to 15, but I do think there is a big difference between a 12
percent funding gap and a 27 percent funding gap. Both are
important, both are significant, but we may undertake some very
different policy approaches to deal with it.
I think the passenger charge that you have, the average
PFC, again, it was projected before we raised the ceiling up to
$450 million. So PFCs right now, I think, are running about 2
billion, maybe even a little bit more than 2 billion, as
opposed to 1.6 billion. You add up these differences, and I
think that is how you get from a gap of 27 percent down to a
gap of 12 percent.
Now, again, that is not insignificant, but we are trying to
make good decisions here based on the best information
available, and it just seems to me that taking 1999 and 2000
and averaging that and then comparing that to what you think we
might need or want in 2002 or 2003 or 2006, that is really not
the best data or the best information available.
In particular, a final point, is that all of this data
comes from pre-September-11th. And things have fundamentally
changed--in some good ways, in terms of funding and addressing
security issues, and some very bad ways, in terms of the costs
that we are incurring.
So I just did not find the, sort of, the funding comparison
that you made especially helpful in looking forward and trying
to address, as a policymaker, our future needs. I understand
you were working with whatever information you had available,
but I think it is a concern. I think we need to have
information that more accurately reflects the current state of
the program.
It is an important program. I very much agree with some of
the thoughts expressed by Senator Stevens, where, you know, we
need to make sure that we have got the right balance for the
large airports and the smaller airports. And I hope and I
believe we are going to have the leadership necessary to
address that this year.
One final question, and I know you have been more than
generous. There was some talk about the PFCs, flexibility on
the PFCs, and I think that is something of real interest, what
kind of requirements do we put on AIP or PFCs. What would you
change, any of the panelists, if you were to add more
flexibility to what the PFCs could be used for? What do you
want to use them for that we do not allow you to use them for
right now?
Mr. Plavin. Well, specifically, I think both AIP and PFC
have limitations on how they can be used for things where there
is revenue associated with it. So for parking, for certain
kinds of terminal projects, for cargo buildings, all of those
kinds of things are specifically precluded. They are general
lawful airport purposes under the statute, but you are not
allowed to use the PFCs or the AIP for a lot of those, and
there are very significant restrictions on how you actually use
them, what kind of process you use, what kind of contracting
you use, what kind of procurement or solicitation you use, as
well.
Senator Sununu. Parking garages, concessions, and--within
terminals?
Mr. Plavin. As examples, yes.
Senator Sununu. Okay, thank you.
Thank you, Mr. Chairman.
Senator Lott. I will recognize the ranking member of the
Subcommittee, Senator Rockefeller.
STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
Senator Rockefeller. Thank you, Mr. Chairman.
I would just ask, I guess, Ms. Woodward, when you're
thinking about the hub-and-spoke system--there has been some
talk recently that that is going to disappear. I am not one of
those people who believe that. I think it is here to stay and
it is inevitable, it is inexorable. So when you come down to
it, and you have indicated in your testimony you have
passengers who are traveling somewhat less and their incomes
are not doing very well; you have airlines that are traveling
somewhat less, and their incomes are not doing very well; and
you have a Federal budget deficit--this is all pre- whatever
might happen in Iraq and rebuilding Afghanistan and the war
against terrorism. With that as a background, understanding
that there are not any easy ways out, I would just be
interested, philosophically--do not be thrown off by this--how
you look upon the role of the small airport where people are
utterly dependent on it, not as dramatically as Senator
Stevens, you know, where there is just no other way, but where,
in effect, if you do not have a good airport, you are probably
going to dry up as a State eventually, particularly if the next
10 or 15 years are as difficult as I think they are going to
be.
So how do you, when you are talking about O'Hare, for
example, or LaGuardia, and then you get to a place like
Charleston or, you know--what happens in your head when you
think about a small airport in a rural area where people have
no other choice and a large airport in an urban area where they
may, in fact, have another choice but there are more people?
How do you balance that?
Ms. Woodward. I think that is a good discussion to have,
too, as we approach reauthorization, because you do have small
areas where airports are great economic drivers. Not only are
they important to transport people in and out of those
communities; but for the communities themselves, they are
important economic drivers.
So first, as we look at reauthorization, we will make some
proposals that are very specific, namely at ways in which we
can maintain, through the formula grants, the money that the
larger airports need. But we keep in mind, too, as these
airports increase PFCs or collect PFCs, part of their AIP
monies goes back to the pot of money to be doled out to the
smaller airports. So that gives us some flexibility, and that
is what we look for.
Two, we are going to look at ways, through formula changes,
to increase the funding, the percentage of funding, going to
those smaller airports, because we do believe that smaller
airports provide unique service and unique abilities for those
areas to continue to grow. So we will continue to do that.
I think also if we do, as we are going to propose, increase
the discretionary money that we have, we will be able to target
money to the larger projects that need to be funded, but also
find that right balance to give money to the smaller airports
that are critical to their communities.
Senator Rockefeller. But isn't that really too comfortable
an answer for you? I mean, it rolls off nicely, and I have no
reason not to trust you completely, but we are in an era, I
think, maybe for the next 20 years, where there is going to be
absolutely brutal competition between airlines that say they
can't and they have got a good case; passengers who say they
can't, and they have got a good case; local folks who say they
cannot, they have a good case; the Federal Government will say
they can't, they have a good case. So then, philosophically,
you are left with, ``I guess we just can't do it.'' Now, you
used the word--I think it was on the AIP program--about
``restructuring.'' And that is one of those words that always
makes me very, very nervous, you know, because it does not
necessarily bode well for the Huntington or Charleston or
Elkins, West Virginia. Essential air services have been cut and
a lot of things have been cut. So I want to press you further
on that.
Ms. Woodward. I think there are a couple of things. One,
there has been funding, thanks to the Congress, in the last two
years, for the small community service program, which is
operated--at $20 million--it's operated by DOT to help focus
attention on smaller communities that need service and to find
ways to entice airlines to come there.
I think when you mentioned in your earlier comments about
looking at the hub system, I think you are seeing the airlines
behave differently. You are seeing de-peaking, you are seeing
flying some direct service to airports they have not flown to
before. For example, I go down to South Georgia, where I grew
up, to visit my parents about once a month, and I used to have
to go through Atlanta or Charlotte to go to Jacksonville, where
I fly. And now Delta has a non-stop flight from National to
Jacksonville, which makes travel much easier. So I think you
are seeing behaviors by the airlines themselves that are
spreading out some of that traffic.
Maybe I do sound too comfortable, but I am optimistic that
this will continue and that we will not see a battle of the
large versus the small. We will see more of an evening out of
where the airlines will go. Maybe I am overly optimistic.
Senator Rockefeller. Where does O'Hare stand?
Ms. Woodward. We are in the process--the airport has
submitted an airport layout plan that we are currently
reviewing in our Great Lakes region. We are just beginning the
environmental assessment process. And they have submitted a PFC
application for funding some of the work for the environmental
process. So we are just beginning a very long journey with that
project, I think.
Senator Rockefeller. Mr. Plavin, maybe I could ask you,
when you think of rural airports, and Senator Lott and I surely
specialize in those, how do you think of that in the realistic
national priority budget allocation mix----
Mr. Plavin. I----
Senator Rockefeller.--in what are going to be obviously
budget years? How do you really look at small rural airports?
Mr. Plavin. I would say that airports look at the national
system of 4,000 or 5,000 airports as a system, so that--I mean,
because the large airports need the small airports, as well. I
mean, that is--they get passengers from those. Their
interactions with those are part of what the large airports see
as their function in ``the system.''
In my mind, I think what the means is that you recognize
that the small airports probably cannot survive without
significant kinds of aid out of the national system,
particularly an AIP-type system. PFCs do not help a lot,
because they do not have a lot of passengers to generate a lot
of PFC money. So again we are looking primarily at AIP.
My perspective suggests that what that means is that you
wind up letting the airports of all sizes do what they can do.
So the large airports have some ability to do some things
outside the Federal program. My argument would be, we ought to
let them do it. We ought to give them more operational freedom,
more financial freedom. Right now, they are very heavily
constrained by Federal policy and law about----
Senator Rockefeller. Would it be----
Mr. Plavin.--how they can charge, what they can----
Senator Rockefeller.--would it be your view, therefore,
that security funds should not come out of the AIP program?
Mr. Plavin. Yes, absolutely. In my view--I think we have
articulated this a number of times--is as a national security
matter, it really should not come out of the base that we now
desperately need both to let the small airports operate it and
to let the system renew itself and expand to meet capacity.
Senator Rockefeller. Thank you, Mr. Chairman.
Senator Lott. Thank you again for the testimony from all
three of you.
Ms. Woodward, I have asked others from the Administration
as to when we might expect the Administration's proposal so
that we could consider that before we begin fully developing
the legislation that we hope to move. As I look at the calendar
for, really, the next 18 months, I can see that we are going to
have a logjam later on this year and next year. And I also
think that there is an urgency about this need for this
reauthorization and things, hopefully some improvements we can
include in that legislation. And therefore, we are hoping that
we can move forward in March and hopefully have this on the
floor before the end of May.
Senator Lott. So when can we expect to receive the
Administration's proposal?
Ms. Woodward. Senator, like you, we are anxious to get it
out there, too, because we think there are some critical issues
that need to be addressed. The word that we have is that we are
shooting to have the bill up to you sometime in March, as you
indicated.
Senator Lott. Please do not delay too much, because I would
be of a disposition to go forward without you----
Ms. Woodward. We will get it here.
Senator Lott.--if you wait too long, because we need to get
it done, and if we do not get in the front of the line, we are
going to get squeezed out later on in the year. So it is not a
threat, other than just we need to get this moving.
Let's see here. Dr. Dillingham, some parts of the airline
industry have recommended a tax holiday, or--if there is war,
for instance, they are going to be coming in right away to seek
some relief, and that would be one of their proposals. And of
course, that goes in the Aviation Trust Fund. Have you
evaluated what effect that would have on FAA's program, such as
the Airport Improvement Program?
Dr. Dillingham. Mr. Chairman, we have not evaluated that
issue, but I can reflect back to 1996/1997, when there was,
sort of, a tax holiday. That is, the taxes were not
reauthorized. And at that point in time, we were beginning to
see capital improvement projects being delayed and postponed.
We have a request from your Committee to look at the
effects of a tax holiday. There are so many factors that need
to be considered. For example, how long would this tax holiday
be?
Senator Lott. When you----
Dr. Dillingham. And what taxes would we be talking about? I
mean, there are just a lot of factors that go into this to see
the effect, and we hope to be able to provide you that
information.
Senator Lott. Well, that would be very helpful, and I hope
you will move forward on that, because we may be faced with a
decision on that also within the next month or two, and it
would be very helpful if we had that information.
As you know, more than 560 million in AIP funds were used
for security-related expenses in fiscal year 2002, up from only
57 million the previous year. And recently, TSA Under Secretary
of the new Homeland Security Department testified that TSA
would like to have, quote, ``one more bite at the apple'' in
fiscal year 2003 to use AIP for high-priority projects.
Frankly, I do not like that idea. I think we are undermining
the AIP program for security costs.
Now, when you add to that, perhaps, the further limitation,
high-priority security projects, maybe that is a different
thing. We gave them a tough task, and they had to do it
quickly, within a prescribed period of time, and I think they
have done a pretty good job. Of course, they also have exceeded
the money that they were allocated, and I think that maybe they
in some respects gold-plated some of the things that they have
done in terms of how much space they have taken over, how much
money the spend, how many people they employed, and all of
that. But I just think that there is a real problem with
another big bite out of AIP funds for security. How do you
react to that?
Dr. Dillingham. We reported that, of course, there was an
800 percent increase last year on security funding. When we did
our analysis, FAA indicated that they could probably provide
one more allocation of money for security out of AIP without
hurting funding for capacity projects. We did see some indirect
effects on capacity projects. FAA says that they were able to
fund their safety and security and other kinds of capacity
projects, but that money that went to security also created a
situation where some LOIs for airports were delayed. It also
meant that there was about $140 million reduction in
reconstruction projects that were not funded, and another $156
million reduction in standards projects.
Senator Lott. If you would, what kind of environmental
projects were not funded?
Dr. Dillingham. Reconstruction projects, which, as you
know, included fixing taxiways and runways and things like
that.
So indirectly, there was an impact on capacity when with
the money that was used for security could have been used for
some of those capacity projects.
Senator Lott. Over a two-year period, if you take over a
billion dollars out of any program, it is going to have an
impact, I would think.
How do you respond to that same question, Ms. Woodward?
Ms. Woodward. I agree with Mr. Dillingham. $561 million out
of the program last year was a sizeable chunk. We survived
because we have what we call ``carryover money,'' which is
money that airports have been allocated and they were not able
to use it and they turn it back to us. So we had a ``windfall''
of carryover money at the end of the year, which helped us fund
the security projects and still get to some of the other
projects. But that will catch up with us in the end.
We have been talking with the TSA about working with them
this year, and have been very clear with them that this year is
it, in terms of how long we think we could tolerate this kind
of bite out of the AIP. Because as you say, the AIP was not
intended for that. It was intended for capacity, safety, and
security projects, but, quite frankly, we all know, for more
capital projects like capacity and safety.
So, as Mr. Dillingham said, we are taking the hit in some
of the reconstruction projects or rehab projects the airports
have planned over the years. They could probably put those off
for maybe a year or so, but we cannot do that over the long
haul.
Senator Lott. Mr. Plavin, the same question.
Mr. Plavin. I think both Dr. Dillingham and Ms. Woodward
are right, but I think there is another dimension, as well. And
that is that to the extent that there were high-priority
projects that would have been funded with AIP, and there were,
obviously, some of those, what also happens is that the
airports have to go out and borrow in the markets for
additional kinds of revenue to do the kinds of things they
might otherwise have used AIP money to pay for. So there is an
additional cost to the system of having more indebtedness laid
on it, which, of course, then raises the charges even further
to those folks who are paying for the debt service.
Senator Lott. I guess I take a little different position
than I think Senator Sununu was taking. I really think State
and local governments ought to bear more of the costs of
airport activities. I am from a State that has been
aggressively pursuing economic development. You know, we have
got a Nissan plant coming in, $1.5 billion investment for the
State, made a substantial investment of money, commitment, and
funds from other sources that help bring that in because of the
jobs. Well, a lot of these communities, a regional airport, let
alone an international airport, it has a huge impact
economically, and I just have a problem with the Federal
Government building access roads and parking lots. I really
kind of think that it is a jobs program, and the States only
come up with 4 percent, State and local. I really think maybe
they ought to bear a little bit more of the burden. And I am
from a State that is very poor. But if you are going to get the
benefit economically, you ought to put a little bit more money
in there.
How do you react to that?
Mr. Plavin. Senator, I think in some respects the
aggregation of the numbers in the GAO report, sort of, hides
the fact that at smaller airports, airports smaller than, let's
say, medium-hub airports, it is not at all unusual today for
State and local governments to put in a sizeable amount of
money in the smaller regional airports, particularly. That 4
percent, remember, is 4 percent of a total that includes all of
the large airports, and those folks are probably 75 percent of
the total. If you take them out, I would be real surprised if
we were not talking about a much higher percentage at the
smaller airports today.
Senator Lott. Maybe I should ask you this, but I may have
to come back to Dr. Dillingham, too. This average annual plan
development, FAA talking 9 billion, you are talking 15 billion,
what is the big difference?
Mr. Plavin. I think the biggest--well, first of all, the
FAA number is the--what Woodie referred to as the NPIAS. That's
the AIP-eligible program. There is a sizeable number of
projects that airports do that are not eligible for AIP--
certain kinds of terminal work, certain kinds of cargo
buildings, for example, certain kinds of parking structures,
for example--they are not eligible for AIP, but they are things
that need to be done under any circumstances that we need to
find the revenue for.
Senator Lott. Ms. Woodward, you seem to be wanting to
respond to that.
Ms. Woodward. I just wanted to point out what Mr. Plavin
just pointed out, which is that our figure represents the
Federal eligibility, those projects that are eligible for
Federal funds. Their numbers represent projects above and
beyond that.
Senator Lott. All right. Well, while I have got you, Ms.
Woodward, under the AIR-21, FAA was authorized to continue its
innovative finance demonstration program, which gets to what
Mr. Plavin was talking about a little bit, other ways, other
ideas of how we can get revenue into these airport needs. And
under the program, FAA enabled airports to leverage additional
funds or lower development costs by permitting flexible local
matching of some projects, purchasing commercial bond
insurance, paying interest costs on debt, and paying principal
and interest debt service on terminal development costs. What
have been the results of that program?
Ms. Woodward. It has had very good results. We have had a
number of airports that have taken advantage of this, and it
has really been to their benefit. Louisville, Kentucky, comes
to mind as one that was particularly strong. It has been a very
good program, and I would anticipate that it would continue,
because it is a very successful program.
Senator Lott. I have not been in enough airports yet, and I
want to get around to all different sizes, and I do acknowledge
that in some of these airports, the baggage checking things are
right out there in the lobby. But when you are dealing with
security and a terrorist threat, aesthetics are not your main
consideration, or even a little inconvenience. And I do think
that airline passengers have been very tolerant and patient
with the things we have had to do the last couple of years. But
I just do not feel an overwhelming urge to add a lot more money
to move those machines underground or behind the ticket counter
just for appearance sake.
Now, in some airports, you suggested the smaller airports,
you know, it may be a real problem. You do not have enough
space. I think maybe TSA has grabbed off too much space and
should be pushed back, too. I am not after TSA. I think they
have done a good job of what they were told to do. But I think
now we have got to evaluate how much is enough and how much
space you really need and how much did you take that really you
don't need. And I am not--I just do not get all that excited
about moving those things.
For instance, I understand at one airport that I did visit,
Lexington Airport, they put in these new conveyor belts that
you put the baggage on the conveyer belts and if there is a
problem, it throws the luggage off to the side. Now, they have
got modern computers that show different color codes when there
is a potential problem. The manager told me, there, that the
money they are saving on manpower and other costs actually is
going to pay for the system in two years. And they have been
aggressive and innovative. It is modern at a pretty small
regional airport. So why can't more of that be done?
Mr. Plavin. I think that is exactly where we believe we
should be going. I think Lexington's a model of what we think a
well-functioning system should look like. Our concern, frankly,
has almost nothing to do with aesthetics. Rather, I think the
concern is that in those places where we are so congested in
the front of the terminal, we believe that is a safety and
security issue in and of itself. And I think the Lexington
model is one that, frankly, we would like to see as one for
airports of all sizes. And the particular problem of having
that many people aggregated in the front of the terminal in a
kind of an uncontrolled fashion, I think gives us some real
problems on an operating basis. Not to mention the fact that
what we have got now is grossly inefficient. The ability, as
you pointed out, to save the kind of money that you can save by
automating the system is a remarkable improvement in what it
will cost on an annual basis, and we think that not putting
that kind of long-range solution in place is going to be not
only a safety and security problem, but very expensive, to
boot.
Senator Lott. Okay. Mr. Plavin, you also indicated that it
would be helpful if we could eliminate--I am not sure whether
you said some paperwork or some bureaucracy, probably both, in
the process of getting AIP funds. I do not know if I want you
to necessarily give specificity now, but if you could get that
information to us for the record so we could get it to FAA or
if we need to do anything legislatively to help make sure that
actually happens, we would like to do that.
Mr. Plavin. Yeah, we have it in our written testimony,
Senator.
Senator Lott. Do you? Okay.
Senator Rockefeller, do you have more questions?
Senator Rockefeller. Just one.
First of all, I would like to put my opening statement in
the record, Mr. Chairman.
Senator Lott. Without objection. Yes, sir.
[The prepared statement of Senator Rockefeller follows:]
Prepared Statement of John D. Rockefeller IV,
U.S. Senator from West Virginia
Thank you, Mr. Chairman, for convening this morning's hearing.
I would like to reiterate a sentiment expressed by Chairman McCain
at a hearing recently: it is imperative that the Administration present
its FAA reauthorization proposal as soon as possible.
FAA reauthorization is a top priority in the 108th Congress, and we
will have to begin crafting a bill soon. I think everyone agrees that
it would be preferable to have the Administration's proposal in-hand
before legislation begins to move.
A blueprint from the Administration is particularly important this
year because of the very difficult problems we are confronting.
By all accounts, there will be at least a $3 billion shortfall in
aviation security funding next year. And there are no good options for
making up those funds.
In 2002 we spent $561 million of Airport Improvement Program funds
for security related projects. That is more than ten times the $56
million of AIP funds spent on security in the preceding year.
While I acknowledge the extenuating circumstances that necessitated
the spending of AlP funds on security related items, I am wary of
making that a long-term practice.
Over the next several years, it is essential that we continue to
make progress in increasing capacity.
Therefore, perhaps our principal challenge in reauthorizing the FAA
will be ensuring that there is sufficient funding for airport security
without threatening long-term airport expansion.
One of the ways we can facilitate airport expansion is by
revisiting legislation I co-sponsored last year entitled the Aviation
Delay Prevention Act.
That bill, which passed out of this Committee by voice vote, seeks
to address delay problems by requiring the FAA to expedite and
streamline the airport construction process. I continue to believe that
this is a meritorious proposal, and I hope the Committee will consider
it again this year.
In the budget that the President recently submitted, however, AIP
funds are flat-lined, Essential Air Service dollars are cut, and no
funds are requested for the Small Community Air Service Development
Program.
All of this leads me to wonder what the Administration's plans are
for airport improvement in general and for small community air service
in particular.
As I've said many times, I believe that decent air service is vital
to job creation, economic growth and quality of life in rural
communities.
There is no question but that our nation is currently facing a
number of daunting challenges, both at home and abroad. Nevertheless,
it would be ill-advised to threaten the future economic health of our
small and rural communities by failing to invest in air service for
them now.
I will not accept a bifurcated system wherein only large urban
areas have commercial air service.
Mr. Chairman, it is my hope that the Administration will not keep
us guessing for very much longer. I look forward to receiving its
proposal for FAA reauthorization and to working with you and the rest
of the Committee to get a bill passed quickly.
Thank you, Mr. Chairman. I look forward to hearing from Our
witnesses.
Senator Rockefeller. I would also like to, all three of
you, to tell me how wonderful you think the Aviation Delay
Prevention Act is.
Senator Lott. Is that your bill?
Senator Rockefeller. Yeah.
[Laughter.]
Ms. Woodward. It is wonderful.
[Laughter.]
Senator Rockefeller. Now, you know what it does, right?
Mr. Plavin. Yes.
Dr. Dillingham. I agree, it's wonderful.
Senator Rockefeller. Okay, that is--I just need that for
the record, Mr. Chairman.
[Laughter.]
Senator Rockefeller. Kay Bailey and I did that one.
And the final thing is that AIP--I see AIP in a very
special light, because I have watched our airports in West
Virginia. And when the AIP came on the scene, it was like all
of a sudden they began to change their mentality. And actually,
we started to learn this when some of us went down and looked
at the Shenandoah Airport, which obviously, is in Virginia,
it's a very small catchment area, but they have done a superb
job in marketing the airport, which is their money, and having
success. We used to have a rather large percentage of our
people drive to Cincinnati or Columbus to get on a cheaper
airport, a jet, not a propeller. That has now almost been
eliminated out of our major cities, because the airports are
marketing themselves. They do not see themselves as static
pieces of runway and infrastructure. They have to reach out to
the public and pull the public in and tell them that they are
getting a good deal.
In that context, would you just give me a quick summation
of how you think regional jets, which, more than anything, take
a rural State, like Mississippi and West Virginia, and give
passengers and businesspeople who are looking at expanding and
investing a whole new view.
A regional jet is a class act. I am not saying that the
things that takes me three days to get my spine straightened
out are not good, but we will take what we can get. I have to
get to Washington. But a regional jet is an unbelievably
important psychological lift, just as AIP was. What is the
status of regional jets? What is going on now with them?
Mr. Plavin. The airlines have made a significant number of
commitments to regional jets. In fact, a huge proportion of the
aircraft that they are buying these days are regional jets. One
of the things that is obviously a limitation from the airline's
point of view is they still have to deal with the various
contractual scope clauses that they have with their pilots that
determine how many regional jets they will actually be allowed
to fly and in what kind of markets.
Senator Rockefeller. Isn't there a backlog on orders?
Mr. Plavin. There is absolutely a backlog in orders.
Senator Rockefeller. Now, how do you describe that backlog
in such a compressed economic situation?
Mr. Plavin. I think what it reflects is the fact that the
number of passengers has fallen off significantly in the system
as a whole. We are down probably 10 to 15 percent on the
passenger side. We are actually no longer able to compete, or
the airlines are no longer able to compete, simply by putting
more seats in the market. So what they have been doing is
reducing the number of seats in some of the major markets and
actually adding frequencies to make that number up, which is
why I made the point before that for large airports, regional
jets can be something of a problem, because they are now back
to the number of aircraft movements or closer to the number of
aircraft movements they were at before, but with a lot few
seats in the market. Now, the airlines hope that that will
force the fares up to a level that is economic. That is
obviously an issue for them.
For the smaller airports, you are really on the exact
reverse side of the coin. A new system, higher level of
service, larger number of seats per takeoff and landing, but
the problem is they still have to have a place to land at the
other end of their trip. And that is the kind of balance that I
think for a long time we have tried to figure out how to
accommodate, being sure that there is access to the larger
airports from the smaller communities and, at the same time,
not allow the congestion levels at those larger airports to
resume with so many fewer seats for capacity.
Senator Rockefeller. Mr. Chairman, I thank all of our
witnesses, and I thank you.
Senator Lott. I thank the witnesses for your time and for
your testimony, and we look forward to working with you as we
develop the legislation this year.
The Subcommittee is adjourned.
[Whereupon, at 10:50 a.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Ernest F. Hollings,
U.S. Senator from South Carolina
Good Morning. Today's hearing provides a valuable opportunity for
the Commerce Committee to assess the outlook for airports in the U.S.,
and the impact that their needs and the Airport Improvement Program
(AIP) will have on the pending reauthorization of the Federal Aviation
Administration (FAA). The world has changed greatly since Congress last
considered FAA reauthorization during the 106th Congress, and these
changes have had a particularly dramatic effect on the nation's
aviation industry. The terrorist attacks of September 11, 2001, coupled
with the slumping American economy, have put our airlines in their
worst financial shape ever. As a result, we are faced with increased
competition for dwindling federal funds while the national debt has
begun to grow again. It is under these difficult conditions that we
must move forward with the crafting of legislation that continues to
make progress on the safety, security, efficiency and the environmental
friendliness of our nation's air transportation system.
While the aftermath of September 11, 2001, has presented a
monumental challenge to all facets of aviation, the decline in
passenger traffic has provided an opening for us to reassess the
industry as a whole. Congress has already acted to institute a major
overhaul of the aviation security system, and now, we have an
opportunity to ensure the safety and efficiency of the national airport
system until the demand for air travel resurfaces. With the need for
reauthorization of the FAA's programs, we should take a close look at
the estimated costs of planned capital development at airports in the
U.S. and the availability of funding to cover these costs. It is
essential that Congress provide balanced AIP funding that will best
meet the needs of all Americans that seek the benefits of using our air
transportation system.
Safety and security considerations must remain paramount to our
thinking, and we must continue to develop approaches that ensure we do
not shortchange the traveling public on these two fronts. It will not
be easy. Department of Transportation Inspector General (DOT IG) Ken
Mead recently testified before this Committee that the costs of making
necessary modifications to the nation's airportsfor the implementation
of Explosive Detection Systems (EDS) at all commercial facilities could
cost as much as $3 billion. Last year, the AIP was tapped to cover a
significant piece of the security costs, and the FAA did an admirable
job of making these security needs fit into their budget framework. In
the future, using the AIP to fund major security costs must be
carefully considered to ensure that we do not pay for security upgrades
at the expense of safety needs or the viability of the system.
Prior to September 11, 2001, our focus was centered on improving
capacity, and concerns over future demand will again become an issue as
our security needs are more completely addressed. The FAA's Terminal
Area Forecast maintains that enplanements in the U.S. are expected to
increase by roughly 50 percent over the next decade, with as many as 1
billion passenger boardings annually by 2013. We must be prepared for
this increase by planning and making the necessary facility upgrades
now. Investing in our Air Traffic Control (ATC) system, and adding
runways will provide a needed boost for our National Airspace System
(NAS) as the system continues to grow.
There have been numerous suggestions for improving the current
system of funding our airports and each of these will have to be
carefully considered. I believe the Aviation Investment and Reform Act
for the 21st Century (AIR-21) served us extremely well during a very
difficult period, and we should recognize that. Congress has to accept
the need for further progress and fully fund the Airport Improvement
Program (AIP) at levels above and beyond the last FAA reauthorization
bill, but any sweeping changes to AIP or other matters under the
reauthorization proposal should be cautiously studied before taking
action. For example, requirements for certain airports to file
competition plans with DOT before receiving AIP funding or collecting
new PFCs have been questioned as a burden by some, but many in Congress
and the Administration feel this mandate has served a valuable purpose
by providing useful information about key facilities where questions of
accountability had been raised. Larger plans to vastly restructure the
airport grant process also raise concerns, and we must make certain
that they will improve the entire system and not be detrimental to
safety before proceeding.
We have an opportunity to move into the 21st Century with
legislation that can make a tremendous difference to the future of our
nation's air transportation system. I know that the Chairman is anxious
to get us all moving, so let the debate begin and let us move forward
expeditiously in order to fund these critically important programs.
______
Response to Written Questions Submitted by Hon. John McCain to
Gerald L. Dillingham
Question 1. Some parts of the airline industry have recommended a
``tax holiday'' for taxes they pay into the aviation trust fund. What
would be the effect of such a ``holiday'' on the FAA's programs--
especially the Airport Improvement Program?
Answer. The impact of a tax holiday on FAA's ability to continue to
fund its programs would vary depending on the type of tax that would be
suspended. For example, suspending all of the taxes accruing to the
Trust Fund for a year would require (1) suspension of accounts related
to the Airport Improvement Program, Facilities and Equipment, and
Research and Engineering Development from September 2003 through April
2004, (2) create significant termination costs, and (3) require
additional general fund support to keep air traffic control system
functioning. In contrast, suspending the fuel tax or cargo waybill tax
would have the least affect on FAA's ability to fund its programs.
FAA's projections indicate that suspending the fuel tax would deplete
the uncommitted balance of the Trust Fund by October 2006 while
suspending the cargo waybill tax would reduce the uncommitted balance
of the Trust Fund to under $100 million in 2008.
Question 2. If substantial amount of AIP funds are used once again
during FY 2003 for security, is it possible to determine what type of
projects will not receive the amount of funding that they normally
would?
Answer. In October of 2002, we reported that standards and
reconstruction projects experienced the largest reductions and that
certain letter-of-intent payments were deferred, resulting in delays in
capacity projects at three airports. \1\ If AIP funds continue to be
used at a similar level for security in 2003 as in 2002, and if other
factors remain relatively unchanged, we can probably expect that some
of the projects that were not funded in 2002 may not be funded in 2003.
\1\ U.S. General Accounting Office. Airport Finance: Using Airport
Grant Funds for Security Projects Has Affected Some Development
Projects. GAO-03-27. Washington DC: October 15, 2002.
---------------------------------------------------------------------------
Question 3. In your testimony you note that one big uncertainty in
the whole airport funding picture is estimating the cost of fully
integrating explosive detection systems into the airport baggage
systems. Why is it so difficult to develop such an estimate? Which
Federal agency should be responsible for developing such an estimate
and are they developing one?
Answer. Developing an estimate of the cost of integrating explosive
detection systems into airport baggage systems is challenging, in part,
because it is not clear whether TSA has finalized all the security
requirements that will be part of the explosive detection system (EDS)
approach. Additionally, FAA's requirement that TSA must approve the EDS
approach at each airport before FAA will fund any part of it inhibits
airport planning for EDS. The lack of certainty about security
requirements and funding approvals may also be discouraging airports
from making EDS-related final estimates and decisions and may be
contributing to a lack of information about EDS systems. TSA said that
while certain airports--such as Dallas and Boston--have estimated costs
and even planned for the integration of EDS into airport baggage
systems as part of long-term security solutions, it has not
systematically tracked these efforts and does not know what the overall
costs would be.
Because TSA is the agency responsible for ensuring the installation
of EDS systems, it would probably be the appropriate agency for
developing an overall estimate of what EDS systems will cost. TSA does
not currently have estimates of the costs to install EDS at airports.
Question 4. In your testimony, you discuss options to make up the
spending shortfall for capital improvements. You discuss the benefits
of some options to larger airports and the benefits of other options to
smaller airports. In your opinion, if we have to make a choice, which
group has greater need?
Answer. In our view, deciding which group has a greater need is a
policy question. However, in making this decision, Congress should be
aware of several factors. First, small airports receive the majority of
their funding from federal programs, such as AIP. Second, larger
airports receive the majority of their funding from the bond market.
Finally, there is little consensus among airlines, airports, and FAA as
to what constitutes an airport ``need''. As such, when comparing
estimates of available funding with estimates of airport planned
development, not all planned development may not qualify as needed
development.
Question 5. Have you reviewed the Administration's proposals for
changes in the funding formula structure of the AIP program? What is
your opinion on that?
Answer. The Administration's proposal was not released until March
25, 2003. As a result, we have not had a chance to review it in detail.
Question 6. Have you reviewed the Administration's proposed changes
in the EAS program? What is your opinion on that? Do you believe that
the EAS program has been effective? What about the Small Community Air
Service Development Program?
Answer. We have reviewed neither the Administration's Essential Air
Service (EAS) proposal nor the Small Community Air Service Development
Pilot Program in detail, so we are unable to express unqualified
opinions. However, we have completed recent work on the EAS program,
and have concluded that it has not provided an effective transportation
solution for passengers at many EAS-subsidized communities. Passengers
often prefer to drive to an alternate airport, even if that facility
might be several hours' drive away. We reported in August 2002 \2\ on
several options to enhance the long-term viability of the EAS program.
We are encouraged that the Pilot Program funded innovative approaches
to air service development at several communities, and look forward to
learning how effective they were.
\2\ U. S. General Accounting Office. Options to Enhance the Long-
term Viability of the Essential Air Service Program. GAO-02-997R.
Washington, D. C.: August 30, 2002.
---------------------------------------------------------------------------
Question 7. One of your charts shows that small airports have been
the biggest beneficiaries of the large increases in AIP funding under
AIR 21. Is it therefore fair to state that they will also be the most
affected by the FAA's plan to spend almost $500 million in AIP funding
on security this year?
Answer. In our October 2002 report, we noted that the increase in
AIP funding for security affected the distribution of grant funds by
airport type. Large and small hub airports experienced increases in AIP
funding while all other airports, including non-hub, general aviation,
and relievers, experienced decreases in FY 2002. According to FAA
officials, the increase in AIP funding to large hub airports can be
attributed to their higher security needs and the decrease in funding
to non-hub airports was because their security needs were much lower
than those of large hub airports.
______
Response to Written Questions Submitted by Hon. John McCain to
Woodie Woodward
AIP Funding for Security
Question Your testimony indicates that the FAA intends to use a
substantial amount of AIP funding for security related projects in
2003. Who decided this would be the case? What is your time frame for
making these grant awards? Will these be discretionary or formula
grants?
Answer. The FAA has committed to make available for security
related projects an amount roughly equal to the $561 million spent for
security projects in FY 2002. The decision was made collaboratively
among the FAA, TSA and senior officials within the Department of
Transportation. The decision was made in consideration of both the
continuing need for substantial investment in airport infrastructure
for security and on the impact of higher levels of security funding on
the rest of AIP. Specifically as to need, the costs of modifying
airport infrastructure to accommodate installation of EDS equipment is
substantial and far exceeds TSA resources available for this purpose.
As to AIP impacts, spending on security at the FY 2002 level still
permitted the FAA to fund all identified safety and security
requirements; meet all commitments to fund ongoing capacity projects--
including letter of intent commitments; and meet statutory requirements
to fund noise compatibility projects and projects at military airport
program airports and relievers. The security funding was accommodated
by modest reductions in the shares of AIP going to rehabilitation,
reconstruction and standards projects.
The FAA and TSA are currently reviewing proposed security project
candidates for AIP funding at the national level to optimize the
combination of AIP and TSA funds available for financing security-
related airport infrastructure projects. Once a spending plan has been
developed for the use of AIP funds, the FAA will begin processing
grants. We intend to allocate the $561 million between discretionary
and entitlement funds in roughly the same proportion as in FY 2002,
i.e. approximately $199 million in entitlements and $362 million in
discretionary funds.
PFC Streamlining
Question Will the Administration consider ``streamlining'' the
process for approval of PFC applications, as David Plavin has suggested
in his testimony?
Answer. I am pleased to report that the Administration's FAA
reauthorization bill contains a number of provisions to streamline the
PFC application and approval process. These proposals are based on the
result of a comprehensive study of the history of the PFC program which
identified opportunities to simplify or eliminate elements of the PFC
application and approval process without sacrificing the benefits to
the public interest in the Federal PFC review process. First, the
Administration bill would make the Federal Register comment process
discretionary, rather than mandatory, for each PFC application.
However, airports would be required to provide an opportunity for
public comment at the local level. Second, the bill would reduce the
burden of the carrier consultation requirement by limiting the
requirement for individual carrier consultation to those carriers that
have a significant presence at the airport. The airport could rely on
general notice for those carriers with limited activity at the airport.
Third, the administration bill would eliminate the substantial
contribution test for imposition of a $4.50 PFC at medium and large hub
airports and allow projects to be approved under the adequate
justification test applicable to all other airports. Our experience
showed that the bifurcated test did not enhance the qualify of projects
being submitted for $4.50 PFC approval at medium and large hub airports
because those projects were already of the highest caliber under the
adequate justification test, but the bifurcated test greatly
complicated the application and review process. Finally we are
proposing a pilot program for non-hub airports that would permit them
to impose a PFC based on the filing of a simplified written notice to
the FAA. Following submission of the notice, the airport could impose
the PFC unless the FAA objected.
Current Airport Infrastructure Needs
Question The FAA recently revised estimates of when its passenger
traffic will reach pre-September-11 levels. Do you believe there is a
real need for immediate infrastructure investments?
Answer. At its recent Conference on Aerospace Forecasts, the FAA
announced that it expects the period of recovery for the aviation
industry to extend by one or two additional years over what was
forecast last year, to 2005-2006. Airport investment decisions, by
their very nature, must take a long-term perspective. Although traffic
fluctuates in the short term as we are now experiencing, I am confident
that the demand for air travel will continue its long-term growth. It
takes many years to build new runways and other airport infrastructure.
I believe airports should be constructed or expanded to accommodate the
long-term growth of air traffic, and that it is prudent for airports to
continue working toward accommodating long term needs even during
short-term down turns in traffic as we are currently experiencing.