Airport Financing: Smaller Airports Face Future Funding Shortfalls
(Testimony, 02/22/99, GAO/T-RCED-99-96).

Pursuant to a congressional request, GAO discussed airport funding
issues as they apply to smaller airports, focusing on: 1) how much
funding has been made available to airports, particularly smaller
airports, for their capital development and what are the sources of
these funds; (2) comparing airports' plans for future development with
current funding levels; and (3) what effect will various proposals to
increase or make better use of existing funding have on smaller
airports' ability to fulfill their capital development plans.

GAO noted that: (1) in 1998, GAO reported that the 3,304 airports that
make up the federally supported national airport system obtained about
$7 billion from federal and private sources for capital development; (2)
the nation's 3,233 smaller airports accounted for 22 percent of this
total, or about $1.5 billion; (3) as a group, smaller airports depend
heavily on federal grants, receiving half of their funding from the
federally-funded Airport Improvement Program (AIP) and the rest from
airport bonds, state grants, and passenger facility charges; (4) by
contrast, the 71 largest airports in the national airport system
obtained +$5.5 billion in funding, mostly from tax-exempt bonds and
relied on AIP for only 10 percent of their funding; (5) small airports
planned to spend nearly $3 billion per year for capital development
during 1997 through 2001, or $1.4 billion per year more than they were
able to fund in 1996; (6) smaller airports' planned development consists
of projects eligible for AIP grants, like runways, and projects not
eligible for grants, like terminal retail space; (7) at least $945
million and as much as $1.4 billion of smaller airports' planned
development that are eligible for grants may not be funded on an annual
basis; (8) the difference between funding and planned development is
much greater for smaller commercial and general aviation airports than
it is for large airports; (9) several initiatives to increase or make
better use of existing funding have emerged in recent years, including
increasing the amount of AIP funding and raising the maximum amount
airports can levy in passenger facility charges; (10) under current
formulas, increasing the amount of AIP funding would help smaller
airports more than larger airports, while raising passenger facility
charges would mainly help larger airports; and (11) other initiatives
for making better use of federal grant monies, such as AIP block grants
to states, have primarily been directed toward smaller airports, but
none appears to offer a major breakthrough in reducing the shortfall
between funding and the levels airports plan to spend on development.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-99-96
     TITLE:  Airport Financing: Smaller Airports Face Future Funding 
             Shortfalls
      DATE:  02/22/99
   SUBJECT:  Airports
             Federal grants
             Facility construction
             Air transportation operations
             Future budget projections
             Federal aid for transportation
IDENTIFIER:  FAA Airport Improvement Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Aviation, Committee on Transportation and
Infrastructure, House of Representatives

For Release
on Delivery
Expected at
11:30 a.m.  EST
Monday
February 22, 1999

AIRPORT FINANCING - SMALLER
AIRPORTS FACE FUTURE FUNDING
SHORTFALLS

Statement of Gerald L.  Dillingham,
Associate Director, Transportation Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-99-96

GAO/RCED-99-96T


(348153)


Abbreviations
=============================================================== ABBREV

  AIP -
  FAA -
  PFC -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are here today to discuss airport funding issues, especially as
they apply to smaller airports.  For our discussion, small airports
include all but the 71 largest airports in the national airport
system and range in size from small hub airports like Wichita ,
Kansas', Mid-Continent Airport to small general aviation airports
with only a few aircraft based at them.\1 Today's testimony focuses
on three questions important to smaller airports:  (1) how much
funding has been made available to airports, particularly smaller
airports, for their capital development and what are the sources of
these funds?  (2) if current funding levels continue, how do they
compare with the levels small airports plan for future development? 
and (3) what effect will various proposals to increase or make better
use of existing funding have on smaller airports' ability to fulfill
their capital development plans? 

In summary: 

  -- In 1998, we reported that the 3,304 airports that make up the
     federally supported national airport system obtained about $7
     billion from federal and private sources for capital
     development.\2 The nation's 3,233 smaller airports accounted for
     22 percent of this total, or about $1.5 billion.  As a group,
     smaller airports depend heavily on federal grants, receiving
     half of their funding from the federally funded Airport
     Improvement Program and the rest from airport bonds, state
     grants, and passenger facility charges.\3 By contrast, the 71
     largest airports in the national airport system obtained $5.5
     billion in funding, mostly from tax-exempt bonds and relied on
     the Airport Improvement Program for only 10 percent of their
     funding. 

  -- Small airports planned to spend nearly $3 billion per year for
     capital development during 1997 through 2001, or $1.4 billion
     per year more than they were able to fund in 1996.  Smaller
     airports' planned development consists of projects eligible for
     Airport Improvement Program grants, like runways, and projects
     not eligible for grants, like terminal retail space.  At least
     $945 million and as much as $1.4 billion of smaller airports'
     planned development that is eligible for grants may not be
     funded on an annual basis.  The difference between funding and
     planned development is much greater for smaller commercial and
     general aviation airports than it is for large airports. 

  -- Several initiatives to increase or make better use of existing
     funding have emerged in recent years, including increasing the
     amount of Airport Improvement Program funding and raising the
     maximum amount airports can levy in passenger facility charges. 
     Under current formulas, increasing the amount of Airport
     Improvement Program funding would help smaller airports more
     than larger airports, while raising passenger facility charges
     would mainly help larger airports.  Other initiatives for making
     better use of federal grant monies, such as Airport Improvement
     Program block grants to states, have primarily been directed
     toward smaller airports, but none appears to offer a major
     breakthrough in reducing the shortfall between funding and the
     levels airports plan to spend on development.  Several
     initiatives to increase or make better use of existing funding
     have emerged in recent years, including increasing the amount of
     funding for the Airport Improvement Program and raising the
     maximum amount airports can levy in passenger facility charges. 
     Under current formulas, increasing the amount of program funding
     would help smaller airports more than larger airports, while
     raising passenger facility charges would mainly help larger
     airports.  Other initiatives for making better use of federal
     grant monies, such as Airport Improvement Program block grants
     to the states, have primarily been directed toward smaller
     aiports, but none appears to offer a major breakthrough in
     reducing the shortfall between funding and the levels airports
     plan to spend on development. 


--------------------
\1 Airports are classified according to the number of passenger
boardings, or enplanements, they accommodate in a year.  An airport
is considered small if it enplaned 1,603,909 or rewer passengers in
1997 (fewer than .25 percent of total scheduled passenger
enplanements) and include small hubs, nonbubs, other commerical
service, and general aviation airports.  Large airports are defined
under statute (49 U.S.C.  sections 47109(a) and 47114(f)) as having
more than .25 percent of total scheduled passenger enplanements and
include large and medium hub airports. 

\2 Airport Financing:  Funding Sources for Airport Development
(GAO/RCED-98-71, Mar.  12, 1998).  This report was based on airport
funding in 1996, the most recent year for which we have conducted an
analysis. 

\3 Passenger facility charges are fees paid by passengers to an
airport.  Airports may currently impose a fee of $1, $2, or $3 per
flight segment, up to a maximum of four segments per round trip to
finance eligible airport-related projects, subject to the Federal
Aviation Administration's approval. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Airports are a linchpin in the nation's air transportation system. 
This is true for both the 71 largest airports, as well as for the
nation's 3,233 smaller commercial and general aviation airports. 
While small airports handle only about 10 percent of scheduled
passenger traffic in total , they also serve a majority of the
nation's general aviation activity.  For many communities, a small
airport is their primary access to air transportation.  Smaller
airports also provide important economic benefits to their
communities in the form of jobs and transport.  The National Civil
Aviation Review Commission--established by the Congress to determine
how to fund U.S.  civil aviation--reported in December 1997 that more
funding is needed, not only to develop system capacity at the larger
airports but also to preserve smaller airports. 


   FUNDING SOURCES VARY DEPENDING
   ON AIRPORTS' SIZE
---------------------------------------------------------- Chapter 0:2

In 1996, tax-exempt bonds, the Airport Improvement Program (AIP), and
passenger facility charges (PFC) together provided about $6.6 billion
of the total $7 billion in funding for large and small airports. 
State grants and airport revenue contributed the remaining funding
for airports.  Table 1 lists these sources of funding and their
amounts in 1996. 



                                Table 1
                
                 Sources of Funding for Large and Small
                                Airports

                         (Dollars in billions)

                                Percenta
                          1996     ge of
Funding source          amount     total  Source of funds
--------------------  --------  --------  ----------------------------
Tax-exempt bonds      $3,690\a        53  State and local governments
                                           or airport authorities
                                           issue tax-exampt bonds.
Airport Improvement     $1,372        20  The Congress makes funds
 Program (AIP)                             available from the
                                           Airportand Airway Trust
                                           Fund, which receives
                                           revenues from taxes on
                                           domestic and international
                                           travel, domestic cargo
                                           transported by air, and
                                           noncommercial aviation
                                           fuel.
Passenger facility      $1,114        16  Funds come from passenger
 charges                                   fees of $1, $2, or $3 per
                                           trip segment at commercial
                                           airports, up to a maximum
                                           of four trip segments per
                                           round trip.
Special facility         $.414         6  Issued on the behalf of
 bonds                                     beneficiaries other than
                                           airports, such as airlines.
State contributions    $.285\b         4  Funds come from such sources
                                           as state aviation fuel and
                                           airline property taxes,
                                           aircraft registration fees,
                                           state bonds, and state
                                           general fund
                                           appropriations. The extent
                                           to which these sources are
                                           used varies by state.
Airport revenue        $.153\c         2  Funds are generated from (1)
                                           revenues derived from the
                                           operation and landing of
                                           aircraft, passengers, or
                                           freight and (2) revienues
                                           derived from concessions
                                           and leases.
======================================================================
Total                   $7,028     100\d
----------------------------------------------------------------------
\a Net of refinancing. 

\b State grants only.  Amounts for local capital subsidies are
unknown but, we believe, are minimal. 

\c Net operating revenue in excess of a minimum coverage ratio of 125
percent of debt service (principal and interest payments). 

\d May not total to 100 percent due to rounding. 

The amount and type of funding varies significantly with airports'
size.  The nation's 3,233 smaller national system airports obtained
about $1.5 billion in funding in 1996, about 22 percent of the total
for 1996.  As shown in figure 1, smaller airports relied on AIP
grants for half of their funding, followed by tax-exempt airport and
special facility bonds,\4 and state grants.  PFCs accounted for only
7 percent of smaller airports' funding mix.  Conversely, larger
airports received more than $5.5 billion in funding, relying on
airport bonds for 62 percent of their total funding, followed by PFC
collections.  AIP grants accounted for only 10 percent of larger
airports' funding. 

   Figure 1:  Distribution of 1996
   Funding Sources for Large and
   Small Airports

   (See figure in printed
   edition.)


--------------------
\4 The entire amount of special facility bond financing is
attributable to a single general aviation airport, Forth Worth
Alliance Airport, which issued $250 million in special facility bonds
in 1996. 


   FUNDING LEVELS FALL SHORT OF
   SMALL AIRPORTS' PLANS FOR
   DEVELOPMENT
---------------------------------------------------------- Chapter 0:3

Small airports' planned capital development during 1997 through 2001
may cost nearly $3 billion per year, or $1.4 billion per year more
than these airports raised in 1996.\5 Figure 2 compares small
airports' total funding for capital development in 1996 with their
annual planned spending for development.  Funding for 1996, the bar
on the left, is shown by source (AIP, PFCs, state grants, and bonds). 
Planned spending for small airports, the bar on the right, is shown
by the relative priority FAA has assigned to the projects, as
follows: 

  -- Reconstruction and mandated projects, FAA's highest priorities,
     total $750 million per year and are for projects to maintain
     existing infrastructure (reconstruction) or to meet federal
     mandates, including safety, security, and environmental
     requirements (including noise mitigation requirements).\6

  -- Other high-priority projects, primarily adding capacity, account
     for another $373 million per year. 

  -- Other AIP-eligible projects, a lower priority for FAA, such as
     bringing airports up to FAA's design standards, add another
     $1.37 billion per year, for a total of nearly $2.5 billion per
     year in projects eligible for AIP funding. 

  -- Finally, small airports anticipate another $465 million per year
     on projects that are not eligible for AIP funding, such as
     expanding commercial space in terminals and constructing parking
     garages. 

   Figure 2:  1996 Funding
   Compared With Annual Planned
   Development Costs for Smaller
   Airports

   (See figure in printed
   edition.)

Given this picture of funding and planned spending for development
for small airports, it is difficult to develop a precise estimate of
the extent to which AIP-eligible projects are deferred or canceled
because some form of funding cannot be found for them.  FAA does not
maintain information on whether eligible projects that do not receive
AIP funding are funded from other sources, deferred, or canceled.  We
were not successful in developing an estimate from other information
sources, mainly because comprehensive data are not kept on the uses
to which airport and special facility bonds are put.  But even if the
entire bond financing available to smaller airports were spent on
AIP-eligible projects, these airports would have, at a minimum, about
$945 million a year in AIP-eligible projects that are not funded. 
Conversely, if none of the financing from bonds were applied to
AIP-eligible projects, then the full $1.41 billion funding shortfall
for smaller airports would apply to these projects. 

As a proportion of total funding, the potential funding shortfall for
smaller airports is more significant than it is for large airports. 
For large airports, the difference between 1996 funding and planned
development is about $1.5 billion.  However, because large airports
obtained $5.5 billion in funding in 1996 versus $1.5 billion for
small airports, large airports' potential shortfall represents 21
percent of their planned development costs as compared to small
airports' potential shortfall of 48 percent.  Therefore, while larger
and smaller airports' respective shortfalls are similar in size, the
greater scale of larger airports' planned development causes their
shortfall to differ considerably in proportion. 


--------------------
\5 Estimates of planned development costs are contained in our report
entitled Airport Development Needs:  Estimating Future Costs
(GAO/RCED-97=99, Apr.  7, 1997).  As that report noted, estimating
future devleopment is fraught with complications.  Unanticipated
needs and political and financial feasibility affect actual airport
development, and the estimates themselves are subject to problems
with data accuracy. 

\6 These estimates of planned development costs generally do not
include the costs of maintaining the nation's airport runways in good
condition beyond the next few years.  We recently reported that the
cost of maintaining just one-third of these runways could reach $1.38
billion over 10 years.  See Airfield Pavement:  Keeping Nation's
Runways in Good Condition Could Require Substantially Higher Spending
(GAO/RCED-98-226, July 31, 1998). 


   EFFECT ON SMALLER AIRPORTS OF
   PROPOSALS TO INCREASE AND
   BETTER USE AIRPORT FUNDING
   VARIES
---------------------------------------------------------- Chapter 0:4

Proposals to increase airport funding or make better use of existing
funding vary in the extent to which they would help smaller airports
and close the gap between their funding and the costs of planned
development.  For example, increasing AIP funding would help smaller
airports more than larger airports because current funding formulas
would channel an increasing proportion of AIP funds to them. 
Conversely, any increase in PFC funding would help larger airports
almost exclusively because they handle more passengers and are more
likely to have a PFC in place.  Changes to the current design of AIP
or PFCs could, however, lessen the concentration of benefits on one
group of airports.  FAA has also used other mechanisms to better use
and extend existing funding sources, such as state block grants and
pilot projects to test innovative financing.  So far, these
mechanisms have had mixed success. 


      INCREASING AIP WOULD HELP
      SMALLER AIRPORTS MOST
-------------------------------------------------------- Chapter 0:4.1

Under the existing distribution formula, increasing total AIP funding
would proportionately help smaller airports more than large and
medium hub airports.  Appropriated AIP funding for fiscal year 1998
was $1.7 billion; smaller airports received about 60 percent of this
total.\7 We calculated how much funding each group would receive
under the existing formula, at funding levels of $2 billion and
$2.347 billion.  We chose these funding levels because the National
Civil Aviation Review Commission and the Air Transport Association
(ATA), the commercial airline trade association, have recommended
that future AIP funding levels be stabilized at a minimum of $2
billion annually, while two airport trade groupsï¿½the American
Association of Airport Executives and the Airports Council
International-North Americaï¿½have recommended a higher funding level,
such as AIP's authorized funding level of $2.347 billion for fiscal
year 1998.  Table 2 shows the results.  As indicated, smaller
airports' share of AIP would increase under higher funding levels if
the current distribution formula were used to apportion the
additional funds. 



                                Table 2
                
                 Estimated Distribution of AIP Funds at
                        Different Funding Levels

                                              Small, nonhub, other
                 Large and medium hub       commerical service, and
                      airports\a               general aviation\a
              --------------------------  ----------------------------
AIP funding                 Percentage                  Percentage of
level         Amount\b      of total      Amount\b      total
------------  ------------  ------------  ------------  --------------
$1,700.0      $628.9        39.4          $965.8        60.6

$2,000.0      $718.1        37.9          $1,176.7      62.1

$2,347.0      $821.2        36.6          $1,420.6      63.4
----------------------------------------------------------------------
\a Dollar amounts are based on the number of passengers boarding
commercial flights in 1996 and exclude about $105.2 million in
estimated carryover amounts. 

\b The distribution of funds is based on the proportional
distribution of those funds during fiscal year 1997, the first year
under the revised distribution formula established in the 1996
reauthorization. 


--------------------
\7 Fiscal year 1999 AIP funding is $1.95 billion, although AIP is
authorized only through Mar.  31, 1999, and therefore, not more than
$975 million may be obligated until AIP is further extended.  (Title
I, section 101(g) of the Omnibus Consolidated and Emergency
Supplemental Appropriations Act of 1999 (P.L.  105-277, Oct.  21,
1998)).  The President's fiscal year 2000 budget has proposed AIP
funding of $1.6 billion. 


      INCREASING PFC-BASED FUNDING
      WOULD AID LARGER AIRPORTS
-------------------------------------------------------- Chapter 0:4.2

Increasing PFC-based funding, as proposed by the Department of
Transportation and backed by airport groups, would mainly help larger
airports, for several reasons.\8 First, large and medium hub
airports, which accounted for nearly 90 percent of all passengers in
1996, have the greatest opportunity to levy PFCs.  Second, such
airports are more likely than smaller airports to have an approved
PFC in place.\9 Finally, large and medium hub airports would forgo
little AIP funding if the PFC ceiling were raised or eliminated. 
Most of these airports already return the maximum amount that must be
turned back for redistribution to smaller airports in exchange for
the opportunity to levy PFCs.\10

If the airports currently charging PFCs were permitted to increase
them beyond the current $3 ceiling, total collections would increase
from the $1.35 billion that FAA estimates was collected during 1998. 
Most of the additional collections would go to larger airports.  For
every $1 increase in the PFC ceiling, we estimate that large and
medium hub airports would collect an additional $432 million, while
smaller airports would collect an additional $46 million (see fig. 
2).  In total, a $4 PFC ceiling would yield $1.9 billion, a $5 PFC
would yield $2.4 billion, and a $6 PFC would yield $2.8 billion in
total estimated collections.\11

   Figure 3:  Projected PFC
   Collections Under $3, $4, $5,
   and $6 PFC Ceilings, January
   1999

   (See figure in printed
   edition.)


--------------------
\8 The President's fiscal year 2000 budget has proposed that the
current ceiling on PFCs be raised from $3 to $5. 

\9 As of Oct.  1, 1998, 273 commercial service airports--about 52
percent of eligible airports--imposed a PFC, but 80 percent of all
large and medium hub airports had a PFC. 

\10 49 U.S.C.  section 47114(f) requires that the yearly grants to
large and medium hub airports be reduced by 50 percent of their
annual collections or 50 percent of their annual apportionment,
whichever is less.  The foregone grants are redistributed as
discretionary grants, primarily to smaller airports.  Through fiscal
year 1998, $921 million in AIP funding had been redistributed under
this provision, $806 million of it to smaller airports. 

\11 Estimates are based on FPCs in place as of Oct.  1, 1998, 1997
passenger boardings, and median collection rates for each airport
category in 1997.  We are currently studying the effects of a PFC
increase and plan to report our results later this year. 


      FAA'S EFFORTS TO MAKE BETTER
      USE OF EXISTING AIP GRANTS
      HAVE HAD MIXED RESULTS
-------------------------------------------------------- Chapter 0:4.3

In recent years, the Congress has directed FAA to undertake steps to
find ways to extend existing AIP funds, especially for small airports
that rely more extensively on AIP funds than do large airports.  The
airport community's interest in these efforts has varied.  For
example, the state block grant program, which allows the
participating states to direct grants to smaller airports, has been
proven successful.  Others efforts, such as pilot projects to test
innovative financing and privatization, have received less interest
from airports and are still being tested.  Finally, one idea, using
AIP grants to capitalize state revolving loan funds, has not been
attempted but could help smaller airports.  Implementing this idea
would require legislative changes. 


         STATE BLOCK GRANT PROGRAM
         HAS HELPED SMALLER
         AIRPORTS
------------------------------------------------------ Chapter 0:4.3.1

In 1996, we testified before this Subcommittee that FAA's pilot
program for state block grants was a success.\12 The program allows
FAA to award AIP funds in the form of block grants to designated
states, which, in turn, select and fund AIP projects at small
airports.  In 1996, the program was expanded from seven to nine
states and made permanent.  Both FAA and the participating states
believe that they are benefiting from the program. 


--------------------
\12 Airport Improvement Program:  State Block Grant Pilot Program Is
a Success (GAO/RCED-96-86, Mar.  14, 1996). 


         BENEFITS OF INNOVATIVE
         FINANCING ARE BEING
         TESTED
------------------------------------------------------ Chapter 0:4.3.2

In recent years, FAA, with congressional urging and direction, has
sought to expand airports' available capital funding through more
innovative methods, including the more flexible application of AIP
funding and efforts to attract more private capital.  The 1996
Federal Aviation Reauthorization Act gave FAA the authority to test
three new uses for AIP funding--(1) projects with greater percentages
of local matching funds, (2) interest costs on debt, and (3) bond
insurance.  These three innovative uses could be tested on up to a
total of 10 projects.\13

Another innovative financing mechanism that we have
recommended--using AIP funding to help capitalize state airport
revolving funds--while not currently permitted, may hold some
promise.\14

FAA is testing 10 innovative uses of AIP funding totaling $24.16
million, all at smaller airports.  Five projects tested the benefits
of the first innovative use of AIP funding--allowing local
contributions in excess of the standard matching amount, which for
most airports and projects is otherwise fixed at 10 percent of the
AIP grant.\15

FAA and state aviation representatives generally support the concept
of flexible matching because it allows projects to begin that
otherwise might be postponed for lack of sufficient FAA funding; in
addition, flexible funding may ultimately increase funding to
airports.  The remaining five projects test the other two mechanisms
for innovative financing.  Applicants have generally shown less
interest in these other options, which, according to FAA officials,
warrant further study. 


--------------------
\13 Section 148 of the Federal Aviation Reauthorization Act of 1996
(P.L.  104-264). 

\14 Airport Financing:  Funding Sources for Airport Development
(GAO/RCED-98-71, Mar.  12, 1998). 

\15 There are three exceptions to the 10-percent local matching
requirement, each of which entails a higher local contribution: 
terminal development (25 percent), airport planning and development
for large and medium hub airports (25 percent), and noise
compatibility programs for large and medium hub airports (20
percent). 


         STATE REVOLVING LOAN
         FUNDS COULD EXTEND THE
         USE OF AIP GRANTS FOR
         SMALLER AIRPORTS
------------------------------------------------------ Chapter 0:4.3.3

Some federal transportation, state aviation, and airport bond rating
and underwriting officials believe using AIP funding to capitalize
state revolving loan funds would help smaller airports obtain
additional financing.  Currently, FAA cannot use AIP funds for this
purpose because AIP construction grants can go only to designated
airports and projects.  However, state revolving loan funds have been
successfully employed to finance other types of infrastructure
projects, such as wastewater projects and, more recently, drinking
water and surface transportation projects.\16 While loan funds can be
structured in various ways, they use federal and state moneys to
capitalize the funds from which loans are then made.  Interest and
principal payments are recycled to provide additional loans.  Once
established, a loan fund can be expanded through the issuance of
bonds that use the fund's capital and loan portfolio as collateral. 
These revolving funds would not create any contingent liability for
the U.S.  government because they would be under state control. 


--------------------
\16 Florida has an established revolving loan program.  Between 1985
and 1998, the state has provided $75 million in loans to airports for
land acquisition and capital projects.  While some of the loans are
later reimbursed through AIP funding for eligible projects, the state
funds the loan program itself.  In addition, the Virginia legislature
is considering establishing a state airport revolving fund.  In
total, 39 states have established state infrastructure banks using
federal and state grant money fo fund surface transportation
projects.  This same arrangement could be used if authorized by the
state to fund aviation projects, and at least one state--Ohio--has
already authorized its state infrastructure bank to fund aviation
projects with state funds. 


         INTEREST IN AIRPORT
         PRIVATIZATION PILOT
         PROGRAM IS LIMITED
------------------------------------------------------ Chapter 0:4.3.4

Declining airport grants and broader government privatization efforts
spurred interest in airport privatization as another innovative means
of bringing more capital to airport development, but thus far efforts
have shown only limited results.  As we previously reported, the sale
or lease of airports in the United States faces many hurdles,
including legal and economic constraints.\17 As a way to test
privatization's potential, the Congress directed FAA to establish a
limited pilot program under which some of these constraints would be
eased.\18

Starting on December 1, 1997, FAA began accepting applications from
airports to participate in the pilot program on a first-come,
first-served basis for up to five airports, at least one of which
must be a general aviation airport.  Thus far, two airportsï¿½one
general aviation and one nonhub commercial service airport--have
applied to be part of the program.\19


--------------------
\17 Airport Privatization:  Issues Related to the Sale or Lease of
U.S.  Commercial Airports (GAO/RCED-97-3, Nov.  7, 1996). 

\18 Section 149 of the Federal Aviation Reauthorization Act of 1996
(P.L.  104-264). 

\19 These airports are Brown Field near San Diego, a general aviation
airport, and Stewart International in New York, a nonhub airport,
which has submitted its final application to participate in the
pilot. 


-------------------------------------------------------- Chapter 0:4.4

Mr.  Chairman, this concludes my prepared statement.  I would be
happy to respond to any questions that you or Members of the
Subcommittee may have. 


*** End of document. ***