Airport Finance: Observations on Planned Airport Development
Costs and Funding Levels and the Administration's Proposed
Changes in the Airport Improvement Program (29-JUN-07,
GAO-07-885).
To address the strain on the aviation system, the Federal
Aviation Administration (FAA) has proposed transitioning to the
Next Generation Air Transportation System (NextGen). To fund this
system and to make its costs to users more equitable, the
Administration has proposed fundamental changes in the way that
FAA is funded. As part of the reauthorization, the Administration
proposes major changes in the way that grants through the Airport
Improvement Program (AIP) are funded and allocated to the 3,400
airports in the national airport system. In response, GAO was
asked for an update on current funding levels for airport
development and the sufficiency of those levels to meet planned
development costs. This report comprises capital development
estimates made by FAA and Airports Council International (ACI), a
leading industry association; analyzes how much airports have
received for capital development and if sustained, whether it can
meet future planned development; and summarizes the effects of
proposed changes in funding for airport development. Airport
funding and planned development data are drawn from the best
available sources and have been assessed for their reliability.
The Department of Transportation agreed with the findings of this
report. This report does not contain recommendations.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-885
ACCNO: A71769
TITLE: Airport Finance: Observations on Planned Airport
Development Costs and Funding Levels and the Administration's
Proposed Changes in the Airport Improvement Program
DATE: 06/29/2007
SUBJECT: Airports
Commercial aviation
Cost analysis
Federal funds
Fuel taxes
Fund audits
Future budget projections
Grant administration
Strategic planning
Cost estimates
FAA Airport Improvement Program
Next Generation Air Transportation
System
Federal Aviation Administration
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GAO-07-885
* [1]Results in Brief
* [2]Background
* [3]Planned Development Costs at Least $14 Billion Annually
* [4]Airports Have Averaged about $13 Billion Annually in Capital
* [5]Total Planned Development Exceeds Past Funding Levels by At
* [6]Larger Airports--Planned Development Costs Exceed Past Fundin
* [7]Smaller Airports --Planned Development Costs Exceed Past Fund
* [8]Size of the Difference between Past Funding and Planned Deve
* [9]Financial Health of Airports Has Improved, Particularly for
* [10]Administration's FAA Reauthorization Proposal Would Increase
* [11]Administration's FAA Reauthorization Proposal Would Make Fun
* [12]Increasing the PFC Would More than Offset Loss of AIP Entitl
* [13]Uncertain Whether Proposed Fuel Tax Rates Would Yield the Re
* [14]Agency Comments
* [15]Appendix I: Sources of Airports' Capital Funding
* [16]Federal Grants
* [17]Passenger Facility Charges
* [18]Airport Bonds
* [19]State and Local Grants
* [20]Appendix II: Key Changes Proposed in AIP By The Administrati
* [21]Appendix III: Scope and Methodology
* [22]Appendix IV: GAO Contact and Staff Acknowledgments
* [23]GAO Contact
* [24]Staff Acknowledgments
* [25]Related GAO Products
* [26]Order by Mail or Phone
Contents
Letter 1
Results in Brief 3
Background 5
Planned Development Costs at Least $14 billion Annually 7
Airports Have Averaged about $13 Billion Annually in Capital Financing
over the Last 5 Years and Use a Variety of Funding Sources 8
Total Planned Development Exceeds Past Funding Levels by At Least $1
Billion Annually 10
Administration's FAA Reauthorization Proposal Would Increase Potential
Funding for Larger Airports, while Funding for Smaller Airports Could Be
Reduced 15
Agency Comments 20
Appendix I Sources of Airports' Capital Funding 22
Appendix II Key Changes Proposed in AIP 28
Appendix III Scope and Methodology 30
Appendix IV GAO Contacts and Staff Acknowledgments 32
Related GAO Products 33
Tables
Table 1: Sources of Airport Funding, 2001-2005 8
Table 2: Estimated Distribution of AIP Funds at $2.75 Billion and $3.5
Billion Funding Levels under Current and Proposed Authorization Formulas
17
Table 3: Effect of Proposed Authorization Formula on Smaller Airports 18
Table 4: Projected PFC Collections with a $6 PFC 19
Table 5: Projected Airport and Airway Trust Fund in 2009 under the
Reauthorization Proposal 20
Table 6: Comparison of Current AIP authorization and Proposed
Reauthorization 28
Figures
Figure 1: Categories of U.S. Airports 6
Figure 2: Funding Sources by Size of Airport, 2001-2005 9
Figure 3: Comparison of Past Airport Funding to Future Development Costs
10
Figure 4: Comparison of Larger Airports' Past Funding to Future
Development Costs 12
Figure 5: Comparison of Smaller Airports' Past Funding to Future
Development Costs 13
Figure 6: Comparison of Airports' Past Annual Funding to Future
Development Costs 14
Figure 7: AIP Grants to Airports by Category of Airport, 2001-2005 23
Figure 8: Passenger Facility Charges by Airport Category, 2001-2005 25
Figure 9: Airport Bonds Issued by Airport Category, 2001-2005 26
Figure 10: State Grants to Airports by Category of Airport, 2001-2005 27
Abbreviations
ACI Airports Council International
AIP Airport Improvement Program
DOT Department of Transportation
EAS Essential Air Service
FAA Federal Aviation Administration
GA General Aviation
NASAO National Association of State Aviation Officials
PFC passenger facility charge
RE&D Research, Engineering and Development
This is a work of the U.S. government and is not subject to copyright
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separately.
United States Government Accountability Office
Washington, DC 20548
June 29, 2007
The Honorable Jerry F. Costello
Chairman
Subcommittee on Aviation
Committee on Transportation and Infrastructure
House of Representatives
The Honorable Thomas E. Petri
Ranking Republican Member
Subcommittee on Aviation
Committee on Transportation and Infrastructure
House of
Once again, the nation's airports are having to cope with capacity issues.
Air traffic has risen back above pre-September 11 levels, as has the level
of delays. The Federal Aviation Administration (FAA) operates one of the
safest air transportation systems in the world, but it is also a system
under strain. Last year, one in four flights was subject to flight delays.
In addition, the system is expected to absorb a variety of new and
differing aircraft in the future, ranging from the jumbo Airbus A380,
which can hold more than 500 passengers, to very light jets, which carry
only a few passengers and could greatly increase the number of aircraft in
the air. Demand for air travel is expected to reach 1 billion passengers
by 2015, according to FAA estimates. The consensus of opinion is that the
current aviation system cannot expand to meet this projected growth. FAA
is developing a modernization program for its air traffic control system
called the Next Generation Air Transportation System (NextGen) to
accommodate this growth. To fund this system, FAA has proposed relying on
a cost-based system using airline user fees and increased fuel taxes
instead of passenger ticket taxes and other excise taxes that are due to
expire at the end of September 2007. In regard to airports, the
Administration is proposing $2.75 billion to fund the Airport Improvement
Program (AIP) --which is substantially less than the current level--and
changing the way that grants to the 3,400 airports in the national airport
system are funded and allocated under AIP. The Administration's proposal
Once again, the nation's airports are having to cope with capacity issues.
Air traffic has risen back above pre-September 11 levels, as has the level
of delays. The Federal Aviation Administration (FAA) operates one of the
safest air transportation systems in the world, but it is also a system
under strain. Last year, one in four flights was subject to flight delays.
In addition, the system is expected to absorb a variety of new and
differing aircraft in the future, ranging from the jumbo Airbus A380,
which can hold more than 500 passengers, to very light jets, which carry
only a few passengers and could greatly increase the number of aircraft in
the air. Demand for air travel is expected to reach 1 billion passengers
by 2015, according to FAA estimates. The consensus of opinion is that the
current aviation system cannot expand to meet this projected growth. FAA
is developing a modernization program for its air traffic control system
called the Next Generation Air Transportation System (NextGen) to
accommodate this growth. To fund this system, FAA has proposed relying on
a cost-based system using airline user fees and increased fuel taxes
instead of passenger ticket taxes and other excise taxes that are due to
expire at the end of September 2007. In regard to airports, the
Administration is proposing $2.75 billion to fund the Airport Improvement
Program (AIP) --which is substantially less than the current level--and
changing the way that grants to the 3,400 airports in the national airport
system are funded and allocated under AIP. The Administration's proposal
would also allow commercial airports to impose higher passenger facility
charges (PFC) to pay for capital projects.1
In anticipation of this year's reauthorization of FAA, you asked for an
update on airports' past funding levels from our previous reports,2 the
sufficiency of those levels to meet planned development, and how the
Administration's proposed reauthorization will affect airports. For this
update, we provided responses to these key questions:
o What is the estimated cost of planned airport capital
development for 2007 through 2011?
o How much have airports received for capital development and
where is the money coming from?
o If past funding levels continue, will they be sufficient to meet
planned capital development costs for 2007 through 2011?
o What are some of the potential effects of changes in how airport
development will be funded as part of the Administration's FAA
reauthorization legislation?
To determine how much planned development would cost over the next
5 years, we obtained planned capital development data from FAA and
the Airports Council International (ACI), a leading industry
association. To determine the sources of airport funding, we
obtained capital funding data from FAA, the National Association
of State Aviation Officials (NASAO), and Thomson Financial, a firm
that tracks all municipal bond issues. We obtained funding data
from 2001 through 2005 because these were the most recent years
for which consistent data were available and then adjusted the
amounts for inflation to 2006 dollars so that they could be
compared to planned development amounts, which are also expressed
in 2006 dollars. We screened the planned development and funding
data for accuracy and compared funding streams across databases
where possible. We did not, however, audit how the databases had
been compiled. We reviewed the reliability of these data and
concluded that the data were sufficiently reliable for our
purposes.
1The PFC Program allows the collection of PFC fees up to $4.50 for every
enplaned passenger at commercial airports controlled by public agencies.
Airports use these fees to fund FAA-approved projects that enhance safety,
security, or capacity; reduce noise; or increase air carrier competition.
2In 2003 and 1998, GAO reported on airport financing. See GAO Airport
Finance: Past Funding Levels May Not Be Sufficient to Meet Airports'
Planned Capital Development, (Washington, D.C.: Feb. 25, 2003) and Airport
Financing: Funding Sources for Airport Development, (Washington, D.C.:
Mar. 12, 1998).
We conducted our work from August 2006 to May 2007 in accordance
with generally accepted government auditing standards. More
details about the scope and the methodology of our work are
presented in appendix III.
Results in Brief
Planned airport capital development costs total at least $14
billion annually over the next 5 years as expressed in 2006
dollars. This estimate is a combination of FAA's estimate of $8.2
billion in AIP-eligible projects and $5.8 billion from ACI's
estimate of projects not eligible for AIP. FAA's estimate is based
on airport master plans that FAA planners have reviewed and
entered into a database of all national system airports. ACI also
estimates airports' planned development, based on a survey of the
100 largest airports, but its estimates include all projects
regardless of grant eligibility. Given the greater detail and
verification entailed in FAA's estimates, we used FAA's estimates
for AIP-eligible projects and, lacking any other source, used
ACI's estimate for non-eligible projects.
From 2001 through 2005, airports received an average of about $13
billion a year for planned capital development from a variety of
funding sources. This amount includes funding for all types of
projects, including those not eligible for AIP grants. The primary
source of this funding was municipal bond proceeds (backed
primarily by airport revenues), which averaged almost $6.5 billion
per year, followed by AIP and PFCs, which accounted for $3.6
billion and $2.2 billion, respectively. Of the $2.2 billion in PFC
collections, 30 percent could go to bond financing. Within the
national airport system, the 67 larger airports, which account for
90 percent of passengers, rely more heavily on bond financing to
fund their development, while the other approximately 3,300
smaller airports in the national system are more reliant on
federal grants.3
3We will follow conventions established in GAO's prior report on airport
finance in differentiating between larger (large and medium hub airports)
and smaller (all other categories of commercial and general aviation
airports). See GAO Airport Finance: Past Funding Levels May Not Be
Sufficient to Meet Airports' Planned Capital Development, [27]GAO-03-497T
(Washington D.C.: Feb. 25, 2003).
The combined estimate for FAA's AIP-eligible and ACI's
AIP-ineligible projects for 2007 through 2011 exceeds past funding
levels by at least $1 billion annually. While this difference is
not an absolute predictor of future funding shortfalls--both
funding and planned development may change in the future--it is
useful indicator of funding differences over time and between
different sizes of airports. This difference is smaller than the
$3 billion annual average we estimated in 1998 and 2003,
indicating that airports' financial health and access to capital
may have improved.4 A difference between past funding and future
development plans also exists for both larger and smaller
airports. The 67 larger airports averaged $9.4 billion annually in
funding, as compared to at least $10 billion annually in
AIP-eligible and ineligible projects--a difference of at least
$600 million annually. All other airports, including general
aviation airports, averaged $3.6 billion annually in funding, as
compared to at least $4 billion annually in AIP-eligible and
ineligible projects, a difference of at least $400 million
annually. The difference between past funding and planned
development may be larger than our estimate because of some double
counting of PFC collections that are used to finance bond proceeds
and because FAA's estimate of planned development may exclude some
eligible development.
The Administration's reauthorization proposal would provide more
money to larger airports through an increase in the PFC ceiling
but would not benefit smaller airports that are more reliant on
AIP. The proposal would reduce the AIP grants program by $750
million (or more than 20 percent of its current level) but
increase the amount that airports can collect from PFCs from $4.50
per passenger to $6.00 per passenger, potentially increasing
larger airports' collections by $1.1 billion. Smaller airports
would receive a larger portion of AIP funds, but this shift would
not compensate for the overall reduction in AIP, especially for
general aviation airports that have no ability to collect PFCs. As
a separate issue, the Administration's reauthorization proposal
would also change the way that AIP and other FAA programs are
funded. New fuel taxes that have been proposed to fund AIP and
other programs, and if they do not generate the amount of revenue
that is anticipated, additional sources of revenue may have to be
found.
We provided a draft of this report to DOT and ACI. FAA responded
for DOT and agreed with the facts of the report while ACI
suggested our report use a different approach in developing our
estimate. FAA's Manager of Airports Financial Assistance in the
Office of Airport Planning & Programming in e-mailed comments,
emphasized that any difference between past funding and future
planned development did not mean that necessary airport projects
would not be built. In FAA's view, large airports, in particular
can obtain additional private capital to meet their funding needs.
ACI's President in a letter to GAO suggested that our report
should provide a range of planned development and funding amounts
rather than a single amount. In ACI's view, the full amount of
their $15.6 billion planned development estimate should be used
and also suggested that we recalculate the historical funding
stream based on the effect of using PFCs to finance capital
development and preexisting claims on AIP funds in the future. As
explained elsewhere in this report, we used the best available
data to develop our estimates of both historical funding and
planned development in line with prior GAO reports on this topic.
Both DOT and ACI provided some clarifying and technical comments
which we have incorporated as appropriate.
4 GAO-03-497T and Airport Financing: Annual Funding as Much as $3 Billion
Less than Planned Development, [28]GAO/T-RCED-99-84 (Washington, D.C.:
Feb. 10, 1999).
Background
The United States has the largest, most extensive aviation system
in the world, with more than 19,000 airports. U.S. airports range
from large commercial transportation centers enplaning more than
49 million passengers annually to small grass airstrips serving
only a few aircraft each year. Of these, 3,364 are designated as
part of the national airport system and are therefore eligible for
federal assistance. The federal interest in capital investment for
airports has been guided by several objectives, most notably
ensuring safety and security, preserving and enlarging the
system's capacity, helping small commercial and general aviation
airports, funding noise mitigation, and environmental protection.
National system airports are of two types--commercial service
airports, which total 517, have scheduled service, and enplane
2,500 or more passengers; and general aviation airports, which
total 2,847, have no scheduled service, and enplane fewer than
2,500 passengers. (See fig. 1.) FAA further divides commercial
service airports into primary airports (enplaning more than 10,000
passengers annually) and other commercial service airports. The
382 primary airports are arranged into various classes of hub
airports--large, medium, small, and nonhub. Statutorily, large and
medium hub airports are designated as large primary airports and
must contribute a large share to projects funded under AIP as well
as forgo a portion of their AIP entitlement funds if they collect
PFCs.
Figure 1: Categories of U.S. Airports
Planned Development Costs at Least $14 Billion Annually
Planned airport development costs, expressed in 2006 dollars, are at least
$14 billion annually over the next 5 years. This estimate is a combination
of $8.2 billion from FAA's estimate of AIP-eligible planned development
and $5.8 billion from ACI's estimate of other planned development costs
not eligible for AIP. Projects that are eligible for AIP grants include
runways, taxiways, and noise mitigation and reduction efforts; projects
that are not eligible for AIP funding include parking garages, hangars,
and commercial space in terminals.
In combining FAA and ACI data, we attempted to provide the best possible
estimate of future airport development costs. FAA's estimate is based
primarily on airport master plans for all airports in the national system
and is verified by FAA planners as necessary future development. Despite
this scrutiny, however, the FAA's estimate is lacking in that some future
projects are removed from the database if funding from other sources (such
as PFCs or bonds) is identified, while some completed projects remain in
the database if they are still to be funded by AIP in future years.
Meanwhile, ACI's estimate is drawn from a survey of the 100 largest
airports and lacks project detail as compared to FAA's database which is
verified against the airport's master plan by an FAA airport planner.5 For
airports that did not respond to its survey, ACI either extrapolated
future costs based on the responses of similar-sized airports or used
FAA's estimates (for smaller airports). Therefore, given the greater
detail and verification entailed in FAA's estimates, we used FAA's
estimates for AIP-eligible projects, and lacking any other source, used
ACI's estimate for non eligible projects.6 This is the same approach that
we used in 1998 and 2003.
5FAA estimate of $41 billion and ACI estimate of $78 billion do not
consider cost increases such as rising construction costs. Going forward,
these costs may increase, especially construction costs, which have jumped
26 percent in 30 major U.S. cities over the past 3 years. FAA acknowledges
that development estimates may or may not include increases in costs based
on construction uncertainty and that annual cost increases are not
captured.
6ACI estimated total planned development costs of $87 billion (in nominal
dollars) for the 5-year period. ACI's total is $78 billion, or $15.6
billion (expressed in 2006 dollars), annually--split between $9.8 billion
of AIP-eligible costs and $5.8 billion of ineligible costs.
Airports Have Averaged about $13 Billion Annually in Capital Financing over the
Last 5 Years and Use a Variety of Funding Sources
From 2001 to 2005, the 3,364 active airports that make up the national
airport system received an average of about $13 billion per year for
planned capital development from a variety of funding sources. (Additional
information on each of these funding sources is contained in app. I.)
These funds are used for both AIP-eligible and ineligible projects. The
single largest source of these funds was bond proceeds, backed primarily
by airport revenues, followed by AIP grants, PFCs, and state and local
contributions (see table 1). Some airports use their PFCs to finance bond
issues--paying interest on existing bonds--as much as 30 percent of PFC
collections by some estimates, which is money that cannot be used for new
development. We were unable to make a precise estimate of how much is
being financed with PFCs by airport size. However, using 30 percent as a
gauge, the total amount of funds available to airports may be overstated
by as much as $660 million (30 percent of $2.2 billion in average annual
PFC collections).
Table 1: Sources of Airport Funding, 2001-2005
2006 dollars in
billions
2001-2005
average
annual Percentage of Source
Funding source funding total of funds
Airport bonds $6.5a 50 State and local
governments or airport
authorities issue
tax-exempt debt
AIP grants 3.6b 29 Congress makes funds
available from the
Airport and Airway Trust
Fund, which receives
revenue from various
aviation-related taxes
Passenger 2.2c 17 Funds come from
facility charges passenger fees of up to
$4.50 per trip segment
at commercial airports
State and local 0.7 4 Funds include state and
contributions local grants, loans, and
matching funds for AIP
grants
Total $13 100
Source: GAO analysis of FAA, Thomson Financial, and state grant data.
Note: Totals may not add because of rounding.
aNet of refinancing.
bAIP totaled on a fiscal year basis.
cAs much as $660 million (30 percent of total) of which is used to support
bond financing.
The amount and source of funding vary with the size of airports. The
nation's 67 larger airports, which handled almost 90 percent of the
passenger traffic in 2005, accounted for 72 percent of all funding ($9.4
billion annually), while the 3,297 other smaller commercial and general
aviation airports that make up the rest of the national airport system
accounted for the other 28 percent ($3.5 billion annually).7 As shown in
figure 2, airports' reliance on federal grants is inversely related to
their size---federal grants contributed a little over $1.3 billion
annually to larger airports (14 percent of their total funding) and $2.3
billion annually to smaller airports (64 percent of their total funding).
Figure 2: Funding Sources by Size of Airport, 2001-2005
Note: Totals may not add up due to rounding.
7As noted above, the total amount of funds may be somewhat overstated
because as much as 30 percent ($660 million) of PFCs may be used to
finance bond issues. This would particularly affect the total for larger
airports, which collect most of the PFCs.
Total Planned Development Exceeds Past Funding Levels by At Least $1 Billion
Annually
Total planned development of at least $14 billion annually exceeds past
funding levels of $13 billion. If the $13 billion annual average funding
continues over the next 5 years and were applied only to AIP-eligible
projects, it would cover all of the $8.2 billion for projects in FAA's
estimate. However, much of the funding available to airports is for
AIP-ineligible projects. We could not determine how much of this financing
is directed to AIP-eligible versus ineligible projects. Figure 3 compares
the $13 billion average annual funding airports received from 2001 through
2005 (adjusted for inflation to 2006 dollars) with the $14 billion (also
in 2006 dollars) in annual planned development costs for 2007 through
2011.8 As noted earlier, the $14 billion is the sum of FAA's estimated
AIP-eligible costs of $8.2 billion annually and ACI's estimated
AIP-ineligible costs of $5.8 billion annually. The overall difference of
at least $1 billion annually is not an absolute predictor of future
funding differences; both funding and planned development may change in
the future.
Figure 3: Comparison of Past Airport Funding to Future Development Costs
Note: Totals may not add up due to rounding.
8If the full measure of ACI's $15.6 billion estimate of planned
development is used, the difference increases to $2.6 billion annually.
The difference between past funding and future planned development may be
greater than $1 billion for several reasons, but how much greater the
difference will be hard to quantify for two reasons. First, past funding
may be overstated because some past PFC collections may be double counted
if they are used to finance bond proceeds, which could average as much as
$660 million annually. Second, FAA's estimate of planned development may
be understated because it excludes some projects that have identified
funding sources. FAA could not estimate how much in project costs may have
been withdrawn from its planning database. The narrowing between past
funding and planned development costs to about $1 billion is an indicator
of the improving financial health of the nation's airports.
Larger Airports--Planned Development Costs Exceed Past Funding by At Least $600
Million
The difference between past funding and planned development costs for
larger airports is at least $600 million if both AIP-eligible and
ineligible projects are considered.9 From 2001 through 2005, larger
airports collected an average of about $9.4 billion a year for capital
development, as compared to their estimate of at least $10 billion in
future annual planned development costs. Figure 4 shows the comparison of
average annual funding versus planned development costs for larger
airports. At $5.7 billion annually, the portion of costs not eligible for
AIP is 57 percent of the total planned development costs.
9PFC collections, as part of total funding, may be double counted if they
are used to finance bond proceeds.
Figure 4: Comparison of Larger Airports' Past Funding to Future
Development Costs
Note: Totals may not add up due to rounding.
Smaller Airports --Planned Development Costs Exceed Past Funding by At Least
$400 Million
The difference between past funding and planned development costs for
smaller airports is at least $400 million annually.10 At smaller airports,
average annual funding from 2001 through 2005 was about $3.6 billion a
year. Annual planned development costs for smaller airports from 2007
through 2011 are estimated to be at least $4 billion. Figure 5 compares
average annual funding to planned development costs for smaller airports.
As the figure shows, the portion of smaller airports' project costs not
eligible for AIP funding is relatively small--about $75 million annually,
or about 2 percent of total planned development costs.
Figure 5: Comparison of Smaller Airports' Past Funding to Future
Development Costs
Note: Totals may not add up due to rounding.
10PFC collections as part of total funding may be double counted if they
are used to finance bond proceeds.
Size of the Difference between Past Funding and Planned Development May Have
Declined since 1996
The difference between past funding and planned development appears to
have narrowed from our past estimates. As shown in figure 6, in 1996 we
reported that planned development exceeded past funding by $3.7 billion,
based on estimated funding of $8.7 billion and planned development of
$12.4 billion. In 2001, we reported that the difference was $3.6 billion
annually based on funding levels of $13.4 billion and planned development
of $17 billion. The more recent difference of $1 billion would represent a
significant narrowing in the difference between past funding and future
development costs would indicate that airports' improving financial health
was improving.
Figure 6: Comparison of Airports' Past Annual Funding to Future
Development Costs
Financial Health of Airports Has Improved, Particularly for Larger Airports
The financial health of airports is strong and has generally improved
since September 11, 2001, especially for larger airports. Passenger
traffic has rebounded to 2000 levels and bond ratings have improved.
Following September 11, many airports cut back on their costs and deferred
capital projects. However, credit rating agencies and financial experts
now agree that larger airports are generally financially strong and have
ready access to capital markets. A good indicator of airports' financial
strength is the number and scale of underlying bond ratings provided by
bond-rating agencies. More bonds were rated in 2007 than in 2002, and more
bonds are rated at the higher end of the rating scale in 2007, meaning
that the rating agencies consider them less of a risk today. Furthermore,
larger airports tended to have higher ratings than smaller airports.
Administration's FAA Reauthorization Proposal Would Increase Potential Funding
for Larger Airports, while Funding for Smaller Airports Could Be Reduced
The Administration's reauthorization proposal for AIP would increase
potential funding for larger airports, but funding for smaller airports
could be reduced because of the overall reduction in AIP. The 2008 fiscal
year budget reduces AIP funding from its past level of $3.5 billion in
fiscal years 2006 and 2007 to $2.75 billion. The proposal also would phase
out entitlement (otherwise known as apportionment) grants for larger
airports while increasing the PFC ceiling from $4.50 to $6 per
passenger.11 While larger airports that account for 90 percent of all
passengers will benefit from an increase in the PFC ceiling, this increase
in PFCs will not compensate smaller airports for the overall reduction in
AIP funding. As a separate issue, the Administration's reauthorization
proposal would change the way that AIP and other FAA programs are funded
and may not provide enough new tax revenue for anticipated AIP spending
even at the reduced levels proposed by the Administration.
Administration's FAA Reauthorization Proposal Would Make Fundamental Changes in
AIP
The Administration's 2008 FAA reauthorization proposal would reduce AIP
and change how AIP is allocated, and increase the PFC available to
commercial airports. (Key changes in the proposal's many elements are
outlined in app. II.) Unlike previous reauthorization proposals, which
made relatively modest changes in the structure of the AIP program, this
proposal contains some fundamental changes in the funding and structure of
the AIP program. Notably, following the pattern set by the 2000 FAA
reauthorization,12 which required larger airports to return a larger
percentage of their entitlement funding in exchange for an increase in the
PFC, the Administration proposes eliminating entitlement grants for larger
airports altogether and at the same time allowing those airports to charge
higher PFCs.
11AIP grants generally consist of two types--(1) entitlement funds that
are apportioned to airports or states by formula each year based on the
number of airport passengers or state population and (2) discretionary
funds that FAA approves based on a project's priority.
12The Wendell H. Ford Aviation Investment and Reform Act for the 21st
Century, Pub. L. No. 106-81 (Apr. 5, 2000).
The reauthorization proposal would eliminate some set-aside programs and
increase the proportion of discretionary grant funds available to FAA at
higher AIP funding levels.13 Table 2 compares AIP funding allocations
under the current funding formulas to the proposed reauthorization
allocations at both the current $3.5 billion level and at the
Administration's proposed $2.75 billion level. To make more discretionary
funding available, this proposal would also remove the funding trigger in
current law that doubles the amount of entitlement funds airports receive
if the overall AIP funding level is above $3.2 billion. According to FAA
officials, their objective is to increase the amount of discretionary
funding for airports so that higher-priority projects can be funded.
However, that objective is achieved only when total AIP funds are greater
than the $2.75 billion budgeted by the Administration. For example, at
$2.75 billion in AIP, the current law would generate $967 million in
discretionary grants versus $866 million under the proposed
reauthorization. This relationship reverses at $3.5 billion in AIP
funding, for which the proposal generates $1.328 billion in discretionary
grants versus $845 million under current law.
13Set-aside programs are designed with a specific purpose, e.g., Military
Airport Program (MAP) award grants to current or former military airfields
to assist in converting them to civil use and to reduce congestion at
existing airports experiencing significant delays.
Table 2: Estimated Distribution of AIP Funds at $2.75 Billion and $3.5
Billion Funding Levels under Current and Proposed Authorization Formulas
Dollars in millions
AIP allocations under current law compared to
proposed reauthorization
Fiscal year Fiscal year
Current 2008, as 2008, as
law proposed Current law proposed
$2.75 billion $3.5 billion
AIP funding (after
administrative and other
costs) $2,636 $2,636 $3,386 $3,386
Entitlements
Primary airports
Large 92 81 184 92
Medium 56 49 111 56
Small 131 230 262 262
Nonhub 154 269 307 307
Subtotal primary airports 433 629 864 717
Cargo 92 81 118 118
Alaska supplemental 11 19 21 21
Nonprimary entitlements 0 309 385 431
State apportionment 488 300 292 339
Carryover entitlements 432 432 432 432
Subtotal entitlements 1,455 1,769 2,113 2,058
Small airport fund
Nonhub commercial service 123 245
Nonprimary airports 61 122
Small hub 31 61
Subtotal entitlements and
nondiscretionary 1,669 1,769 2,541 2,058
Discretionary
Noise set-aside 338 211 296 271
Reliever set-aside 0 6
Military Airports (MAP)
set-aside 39 34
Subtotal discretionary
set-asides 377 211 336 271
Small airport discretionary
fund 136 266
Capacity, safety, security,
noise 442 389 382 594
Remaining discretionary 147 130 127 198
Subtotal discretionary 967 866 845 1,328
Total AIP available for
grants $2,636 $2,636 $3,386 $3,386
Source: FAA.
For smaller airports, the proposal's effect depends on whether AIP funding
is reduced to $2.75 billion, as the Administration proposes, or left at
the current level of $3.5 billion. At a funding level of $2.75 billion,
the proposal would reduce entitlements and other funding dedicated to
small airports by $436 million. (see table 3). At a funding level of $3.5
billion in AIP funding, smaller airports would lose $75 million in
entitlements and other dedicated funds under FAA's proposal, but
discretionary funds would increase by $282 million, making it less certain
how smaller airports would fare overall.
Table 3: Effect of Proposed Authorization Formula on Smaller Airports
Dollars in
millions
Current Proposed
law at law at
Funding $3.5 Proposed law at Difference $3.5 Difference
categories billion $2.75 billion from current billion from current
Entitlements $1,680 $1,244 -436 $1,605 -75
Discretionary 510 519 +9 792 +282
Source: GAO analysis of FAA data.
Increasing the PFC Would More than Offset Loss of AIP Entitlements for Larger
Airports but Might Not Compensate Smaller Airports for Loss of AIP
The Administration's proposed reauthorization would allow airports to
increase their PFC to a maximum of $6 and allow airports to use their PFC
collections for any airport projects while forgoing their entitlement
funds. A $6 PFC could generate an additional $1.1 billion for larger
airports, exceeding the $247 million in entitlements that FAA estimates
they would forgo under this reauthorization proposal (see table 4).14
However, smaller airports (small and nonhub) would not benefit as much
from this ability to increase PFCs because they collect less in PFCs and
are more reliant on AIP for funding.15 A change to a $6 PFC could yield as
much as an additional $171 million for smaller airports if they all
imposed a $6 PFC. On a net basis, this relatively small increase in PFCs
would not compensate smaller airports for the $436 million reduction in
AIP at a $2.75 billion funding level.
14This calculation assumes that the increased PFC would not affect
passenger demand for air travel. GAO has previously calculated that a PFC
increase could reduce passenger demand, which would reduce the PFC revenue
collected at the higher rate. Our previous work suggests the revenue
reduction due to demand effects would likely be small. See GAO, Passenger
Facility Charges: Program Implementation and the Potential Effects of
Proposed Changes, [29]GAO/RCED-99-138 (Washington, D.C.: May 19, 1999).
15General aviation airports are excluded since they do not have passengers
that would pay a PFC.
Table 5: Projected Airport and Airway Trust Fund in 2009 under the
Reauthorization Proposal
Forecast
2009
trust
Forecast fund
2009 receipts Forecast 2009
consumption (in trust fund
(millions of millions expenditures
Proposed gallons or of Trust fund (in millions
Revenue source tax rate passengers) dollars) expenditure of dollars)
Commercial $0.136 14,531 $1,976 AIP $ 2,900
fuel
General 0.136 1,711 232 Research, 140
aviation jet Engineering
fuel and
Development
General 0.136 280 38 Essential 50
aviation gas Air Service
International 6.39a 158 1,009
head tax
Total $ 3,255 $ 3,090
Source: GAO analysis of FAA data.
aPer arriving and departing passenger.
FAA officials confirmed for us that in estimating fuel tax revenues they
did not take into account possible reductions in fuel purchases due to the
increase in the tax rates. Although we do not know by how much, such
purchases would decline, conventional economic reasoning, supported by the
opinions of industry stakeholders, suggests that some decline might take
place. Therefore, the tax rate should be set taking into consideration
effects on use and the resulting impact on revenue. FAA officials told us
that they believe that these effects would be small because the increased
tax burden is a small share of aircraft operating costs and therefore
there was no need to take its impact into account. Representatives of
general aviation, however, have said that the impact could be more
substantial. If consumption possibly falls short of projections or
Congress appropriates more funds for AIP, RE&D, or EAS than is currently
proposed, then fuel tax rates and the international arrival and departure
tax would correspondingly have to be increased or additional funding from
another source, such as the trust fund's uncommitted balance or the
General Fund, would be needed.
Agency Comments
We provided copies of this report to the DOT and ACI for their review and
comment. FAA's Manager for Airports Financial Assistance in the Office of
Airport Planning and Programming responded for DOT agreed with the
findings of the report and provided some clarifying and technical
comments, which we have incorporated as appropriate. In e-mailed comments,
he emphasized that any difference between past funding and future planned
development does not mean that necessary airport projects would not be
built. In FAA's view, large airports, in particular, can obtain additional
private capital to fund their capital development. ACI also provided
comments and suggested that our report provide a range of planned
development and funding amounts rather than a single amount. In ACI's
view, the full amount of their $15.6 billion planned development estimate
should be used and also suggested that we recalculate the historical
funding stream based on the effect of using PFCs to finance capital
development and preexisting claims on AIP funds in the future. The outcome
of such an approach would be to provide a range much greater than the
annual average total difference of $1 billion between past funding and
planned development that we developed. We did not adopt such an approach
in this report because (1) it would be inconsistent with the approach we
took in 1998 and 2003 in estimating airport funding and planned
development and therefore make comparisons over time more difficult, (2)
we continue to believe that FAA's estimate of planned development is
better than ACI's for the AIP-eligible portion of projects as explained in
this report on page 7, and (3) we were unable to estimate the effect of
various factors, such as PFC bonding, on the funding stream across airport
types. ACI also offered technical corrections, which we have incorporated
into the report where appropriate.
As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan on no further distribution until 30 days from
the date of this letter. At that time, we will send copies of this report
to the Secretary of Transportation and the Administrator of FAA. We will
also make copies available to others upon request. In addition, the report
will be available at no charge on the GAO Web site at
[30]http://www.gao.gov .
If you or your staff have any questions about this report, please contact
me at (202) 512-2834 or DillinghamG@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. Staff who made key contributions to this report
are listed in appendix IV.
Gerald L. Dillingham, Ph.D.
Director, Physical Infrastructure Issues
Appendix I: Sources of Airports' Capital Funding
Funding for airport capital development comes from four primary sources:
federal Airport Improvement Program (AIP) grants, passenger facility
charges (PFC), municipal bonds, and state and local grants. Airports vary
in their reliance on these sources of funds.
Federal Grants
AIP grants are made available from the Airport and Airway Trust Fund.1 The
Federal Aviation Administration (FAA) allocates most AIP grants on the
basis of (1) a legislated apportionment formula, tied to the number of
passengers an airport enplanes in the case of primary airports, and (2)
set-aside categories earmarked for specific types of airports and
projects. AIP funding is usually limited to construction or improvements
related to aircraft operations, such as runways and taxiways. Commercial
revenue-producing facilities are generally not eligible for AIP funding,
nor are operational costs. Funds apportioned for large and medium airports
remain available for obligation during the fiscal year for which the
amount was apportioned and the 2 fiscal years immediately after that year.
Funds apportioned for small hub, nonhub, or nonprimary airports or states
remain available for obligation during the fiscal year for which the
amount was apportioned and the 3 fiscal years immediately following that
year. Apportioned funds that have been unused are protected and carry over
for the airports through the 3 or 4 year periods. As figure 7 shows, AIP
grants as measured in constant 2006 dollars have increased slightly from
$3.2 billion in 2001 to $3.3 billion in 2005.
1The trust fund is financed by taxes on domestic and international airline
travel, domestic cargo transported by air, or mail transported by air, and
various fuel taxes. (In addition to noncommercial aviation fuel, there are
also taxes on commercial aviation fuel, general aviation (GA) gasoline and
GA jet fuel.)
Figure 7: AIP Grants to Airports by Category of Airport, 2001-2005
Passenger Facility Charges
In 1990, Congress gave commercial airports the option to impose a PFC as
an additional means to raise funds for development. Beginning in 1992,
authorized airports were able to collect up to $3 per enplaned passenger
to use for projects that are eligible for AIP and for certain other types
of costs that are not, such as debt financing costs. The PFC program sets
forth several broad objectives for the use of these funds in furthering
airport development, including (1) preserving or enhancing airports'
safety, security, or capacity; (2) reducing noise; or (3) enhancing
airline competition. Airports must apply to FAA for approval of both the
collection of the fees and the specific projects that the money will pay
for. FAA officials note that as long as a project is eligible, meets a
program objective, and is adequately justified, they do not have the
authority to reject an airport's proposal for the collection or use of PFC
funds. Eligible projects under the AIP are also eligible for PFC funding.
At the same time airports must consult with airlines when considering
participation in the PFC program and the selection of projects to be
funded, although airports do not need airlines' agreement on the use of
PFCs or on project selection. Once FAA has approved the collection of PFCs
by an airport, the airlines are required by the statute to collect the
fees from passengers and transmit the funds to the airport. Going forward,
airlines have the responsibility under the statute for collecting the fee,
and must submit copies to FAA of quarterly reports on the collection and
distribution of PFCs to the airports on whose behalf the carriers collect
the PFC.
Each project in an application must qualify under various criteria
including (1) airport development or airport planning eligible under
subchapter I of 49 U.S.C. chapter 471; (2) terminal development as
described in 49 U.S.C. 47110(d); (3) airport noise compatibility planning
as described in 49 U.S.C. 47505; (4) noise compatibility measures eligible
for federal assistance under 49 U.S.C. 47504, without regard to whether
the measures have been approved under S47504, (as implemented by 14 CFR
Part 150); (5) construction of gates and related areas at which passengers
are enplaned or deplaned and other areas directly related to the movement
of passengers and baggage in air commerce within the boundaries of the
airport (these areas do not include restaurants, car rental facilities,
automobile parking facilities, or other concession space); or (6) the Air
Traffic Modernization Cost Sharing program. In addition to the eligibility
project types listed above, debt service and financing costs associated
with projects meeting the above criteria are also eligible.
Figure 8 shows PFC collections by category; large hub airports accounted
for over two-thirds of all PFC collections during 2001 through 2005, while
medium hub airports accounted for another 19 percent of total collections.
Figure 8: Passenger Facility Charges by Airport Category, 2001-2005
Vision 100 included a provision intended to streamline the PFC application
process for nonhub airports. The pilot program requires airport sponsors
to submit a notice of intent to impose a PFC and for use of PFC revenue
for each airport for which a PFC is to be imposed.2 The Secretary of
Transportation is not required to file a Federal Register notice for
public comment, but the department must review and document its findings
on eligibility, consultation, excluded class, and overall collection
amount, PFC level, and duration. Once this review is complete, the
department forwards a letter of acknowledgment to the airport sponsor
within 30 days. In 2005, 248 nonhub airports collected over $65 million in
PFCs.
2Certain types of projects are not eligible to be included in notices of
intent, including debt service and complex ground access projects.
Airport Bonds
The single largest category of airport funding is bonds, and large hubs
issue the most bonds. From 2001 through 2005, airports issued $32.2
billion worth of bonds, three-quarters of it going to large hub airports.
As figure 9 shows, the total amount of bonding (new finance only) varies
from year to year but declined in 2004 and 2005 from 2001 through 2003.
Figure 9: Airport Bonds Issued by Airport Category, 2001-2005
State and Local Grants
Nearly all states provide financial assistance to airports, primarily in
the form of grants as matching funds for AIP grants or as separate state
grants. States fund their grant programs through a variety of sources,
including aviation fuel and aircraft sales taxes, highway taxes, bonds,
and general fund appropriations. State funding data have been aggregated
periodically by the National Association of State Aviation Officials
(NASAO), which began its current annual reporting of state data in 1996.
States provided about $3.8 billion to national system airports in the
states' fiscal years 2001 through 2005. Figure 10 shows the distribution
of those grants by airport category.
Figure 10: State Grants to Airports by Category of Airport, 2001-2005
Appendix II: Key Changes Proposed in AIP By The Administration
Table 6: Comparison of Current AIP authorization and Proposed
Reauthorization
Current authorization for Administration's Proposed
Feature AIP AIP reauthorization
Funding Trust fund for all capital Trust fund is funded by fuel
programs is funded by an tax of 13.6 cents/gallon for
airline ticket tax, commercial and general
segment tax, international aviation and a reduced
departure and arrival international arrival and
taxes, varying rates of departure tax. Funding for
fuel taxes, and other AIP is appropriated from the
taxes. Funding for AIP is trust fund. If AIP is
appropriated from the increased, the tax rates
trust fund. would have to be increased,
the trust fund's uncommitted
balance would have to be
drawn down, or another
funding source would have to
found.
Entitlements Up to 75 percent of Entitlements for large and
entitlements for large and medium hub airports
medium hub airports eliminated, by 2010.
collecting a PFC are
turned back to the small
airport fund.
If AIPis greater than $3.2 The $3.2 billion trigger for
billion, primary airport doubling entitlements is
entitlements are doubled. eliminated except for small
and nonhub primary airports.
State apportionment is 20 State apportionment set at
percent of AIP (18.5 greater of 10 percent of AIP
percent if AIP is less or $300 million.
than $3.2 billion).
Nonprimary airport The nonprimary airport
entitlement of up to minimum entitlement of
$150,000. $150,000 per airport is
eliminated and replaced by a
tiered system of
entitlements ranging from
$400,000 for large general
aviation airports to
$100,000 for smaller general
aviation airports. The 750
airports that have less than
10 operational and
registered based aircraft
are guaranteed nothing but
remain eligible for
discretionary and state
apportionment.
Discretionary Reliever and military The set-aside for reliever
airport set-asides minimum and military airports is
discretionary funding set eliminated.
at $148 million.
Small airport fund funded Minimum discretionary
by large and medium hub funding set at $520 million.
airport PFC turnbacks of
up to 75 percent of PFC
collections.
Small airport fund equal to
20 percent of discretionary
funds.
Project Most types of airfield Expanded to include
eligibility projects, excluding additional revenue-producing
interest costs, nonrevenue aeronautical support
producing terminal space, facilities (e.g.,
and on-airport access self-service fuel pumps) at
project costs. General general aviation airports.
aviation airports may use
their entitlement funds
for some revenue-producing
activities (e.g.,
hangars).
Local government Government share set at 95 The 95 percent government
share of project percent for smaller share reverts to 90 percent
cost (local match) airports through 2007, and as scheduled under Vision
75 percent for large and 100 except for the very
medium hub airports (noise smallest airports. Now
80 percent). maximum share will be a
flexible amount with a
maximum percentage of 90
percent. Airfield
rehabilitation projects
lowered to 50 percent
maximum at large and medium
hubs.
PFCs Maximum rate is $4.50 per Maximum rate is $6 per
passenger. passenger.
All applications subject Review and approval are
to FAA review. streamlined.
PFCs can be used for all Eligibility expanded to
AIP-eligible projects, but include almost any
also interest costs on airport-related project,
airport bonds, terminal including off-airport
gates, and related areas, intermodal projects.
and noise mitigation can
also be used.
Up to 10 large and medium
hub airports willing to
assume the cost of air
navigation facilities are
allowed a $7 PFC.
Privatization Up to 5 airports, one of Up to 15 airports of any
each size, with strict size, no limit on rates and
limit on rates and charges charges and no airline veto,
and requires approval by but subject to Department of
65 percent of airlines. Transportation review and
approval.
Source: GAO.
Appendix III: Scope and Methodology
To determine how much planned development would cost over the next 5
years, we obtained planned development data from the Federal Aviation
Administration and Airports Council International-North America. To
determine how much airports of various sizes are spending on capital
development and from which sources, we sought data on airports' capital
funding because comprehensive airport spending data are limited and
because, over time, funding and spending should roughly equate. We
obtained capital funding data from FAA, ACI, the National Association of
State Aviation Officials, and Thomson Financial--a firm that tracks all
municipal bonds. We screened each of these databases for their accuracy to
ensure that airports were correctly classified and compared funding
streams across databases where possible. We did not, however, audit how
the databases had been compiled or test their overall accuracy, except in
the case of state grant data from NASAO and some of the Thomson Financial
bond data, which we independently confirmed. We determined the data to be
sufficiently reliable for our purposes. We subtotaled each funding stream
by year and airport category and added other funding streams to determine
the total funding. We met with FAA, bond-rating agencies, bond
underwriters, airport financial consultants, and airport and airline
industry associations and discussed the data and our conclusions to verify
their reasonableness and accuracy.
To determine whether current funding is sufficient to meet planned
development for the 5-year period from 2007 through 2011 for each airport
category and overall, we compared total funding to planned development. We
correlated each funding stream to each airport's size, as measured by
activity, and among other funding streams to better understand airports'
varying reliance on them and the relationships among sources of finance.
We then discussed our findings with FAA, bond rating agencies, bond
underwriters, airport financial consultants, and airport and airline
industry associations to determine how our findings compared with their
knowledge and experiences.
To determine some of the potential effects from changes to how airport
development is funded under the Administration's proposed FAA
reauthorization legislation, we first analyzed the proposed changes to the
Airport Improvement Program's funding and allocation. In particular we
analyzed the effect of various funding levels on how the program funds
would be allocated. Second, we evaluated the effects of raising the
passenger facility charge ceiling, as the Administration proposed, by
estimating the potential PFC collections under a $6 PFC on the basis of
2005 enplanements and collection rates, assuming all airports imposed a $6
PFC. Third, we determined the status of FAA's pilot program for airport
privatization. Moreover, we discussed the impact of all of the proposed
changes (funding/allocation, $6 PFC, and privatization) with FAA, bond-
rating agencies, bond underwriters, airport financial consultants, and
airport and airline industry associations.
Appendix IV: GAO Contact and Staff Acknowledgments
GAO Contact
Dr. Gerald Dillingham at (202) 512-4803 or [31]DillinghamG@gao.gov
Staff Acknowledgments
For further information on this report, please contact. Individuals making
key contributions to this report were Paul Aussendorf, Jay Cherlow,
Jessica Evans, David Hooper, Nick Nadarski, Edward Laughlin, Minette
Richardson, and Stan Stenersen.
Related GAO Products
Airport Finance: Preliminary Analysis Indicates Proposed Changes in the
Airport Improvement Program May Not Resolve Funding Needs for Smaller
Airports. [32]GAO-07-617T . Washington, D.C.: March 28, 2007.
Airport Finance: Past Funding Levels May Not Be Sufficient to Cover
Airports' Planned Capital Development. [33]GAO-03-497T . Washington, D.C.:
February 25, 2003.
Airport Financing: Annual Funding as Much as $3 Billion Less Than Planned
Development. [34]GAO/T-RCED-99-84 . Washington, D.C.: February 10, 1999.
Passenger Facility Charges: Program Implementation and the Potential
Effects of Proposed Changes, [35]GAO/RCED-99-138 . Washington, D.C.: May
19, 1999.
Airport Financing: Funding Sources for Airport Development.
[36]GAO/RCED-98-71. Washington, D.C.: March 12, 1998.
(540150)
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References
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27. http://www.gao.gov/cgi-bin/getrpt?GAO-03-497T
28. http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-99-84
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34. http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-99-84
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36. http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-71.
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