United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Aviation, 

Committee on Transportation and 

Infrastructure, House of Representatives

AIRPORT FINANCE 

Preliminary Analysis 

Indicates Proposed Changes 

in the Airport Improvement 

Program May Not Resolve 

Funding Needs for Smaller 

Airports 

Statement of Gerald L. Dillingham, Ph.D 

Director, Physical Infrastructure 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Wednesday, March 28, 2007

 

GAO-07-617T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 28, 2007

AIRPORT FINANCE

Preliminary Analysis Indicates Proposed 

Changes in the Airport Improvement 

Program May Not Resolve Funding Needs 

for Smaller Airports 

Highlights of GAO-07-617T, a testimony to 

Before the Subcommittee on Aviation, 

House Committee on Transportation and 

Infrastructure 

ACI’s estimate for planned development costs is considerably larger than 

FAA’s, reflecting a broader range of projects included as well as differences

in when and how the estimates are made. For 2007 through 2011, FAA 

estimated annual planned capital development costs at $8.2 billion, while 

ACI estimated annual costs at $15.6 billion. The estimates differ primarily 

because FAA’s estimate only includes projects that are eligible for AIP 

grants, while ACI’s covers all projects, including $5.8 billion for projects not 

eligible for federal funding, such as parking garages. 

From 2001 through 2005, airports received an average of about $13 billion a 

year for planned capital development. This amount covers all types of 

projects, including those not eligible for federal grants. The primary source 

of this funding was bonds, which averaged almost $6.5 billion per year, 

followed by federal grants and passenger facility charges (PFC), which 

accounted for $3.6 billion and $2.2 billion, respectively (see figure below). If 

airports continue to attract this level of funding for planned capital 

development, this amount would annually fall about $1 billion short of the 

$14 billion in total planned development costs (the sum of FAA’s estimated 

$8.2 billion in eligible costs and the industry’s $5.8 billion in ineligible costs). 

Larger airports foresee a shortfall of about $600 million annually, while 

smaller airports foresee a shortfall of $400 million annually. 

FAA’s reauthorization proposal would reduce the size of AIP by $750 million 

but increase the amount that airports can collect from PFCs. However, the 

benefit from increased PFCs would accrue mostly to larger airports and may 

not offset a reduced AIP grants program for smaller airports. The proposal 

would also change the way that AIP and other FAA programs are funded. 

The new fuel taxes that FAA has proposed may not provide the revenues for 

AIP that FAA anticipates.

Comparison of Historical Airport Funding to Future Development Costs 

To address the strain on the aviation 

system, the Federal Aviation 

Administration (FAA) has proposed

transitioning to the Next Generation

Air Transportation System

(NextGen). To finance this system 

and to make its costs to users more 

equitable, the administration has 

proposed fundamental changes in 

the way that FAA is financed. 

As part of the reauthorization, the 

administration proposes major 

changes in the way that grants 

through the Airport Improvement 

Program (AIP) are funded and 

allocated to the 3,400 airports in the 

national airport system. In response, 

GAO was asked for an update on

current funding levels for airport

development and the sufficiency of 

those levels to meet planned 

development costs. This testimony 

comprises capital development 

estimates made by FAA and Airports 

Council International (ACI), the 

chief industry association; analyzes 

how much airports have received for 

capital development and whether 

this is sufficient to meet future 

planned development; and 

summarizes the effects of proposed 

changes in funding for airport 

development.

This testimony is based on ongoing 

GAO work. Airport funding and 

planned development data are

drawn from the best available

sources and have been assessed for

their reliability. 

This testimony does not contain 

recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-07-617T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Gerald L. 

Dillingham at (202) 512-2834 or 

DillinghamG@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I appreciate the opportunity to testify before you today as you consider 

the Federal Aviation Administration’s (FAA) reauthorization proposal 

including the Airport Improvement Program (AIP) for fiscal years 2008-

2010.

1

Once again, the nation’s airports are having to cope with capacity issues. 

Air traffic has risen back above pre-September 11 levels, as has the level of

delays. FAA operates one of the safest air transportation systems in the 

world, but it is also a system under strain. Already last year, one in four 

flights was subject to flight delays. In addition, the system is expected to 

absorb a variety of new and differing aircraft in the future, ranging from 

the jumbo Airbus A380, which can hold more than 500 passengers, to very

light jets, which carry only a few passengers and could greatly increase the 

number of aircraft in the air. Demand for air travel is expected to reach 1 

billion passengers by 2015, according to FAA estimates. The consensus of 

opinion is that the current aviation system cannot expand to meet this 

projected growth. FAA is developing a modernization program for its air 

traffic control system called the Next Generation Air Transportation 

System (NextGen) to accommodate this growth. To fund this system, FAA 

has proposed relying on a cost-based system using airline user fees and 

fuel taxes instead of passenger ticket taxes and other excise taxes that are 

due to expire at the end of September 2007. In regard to airports, the 

administration is proposing $2.75 billion to fund the AIP program—which 

is substantially less than the current level—and changing the way that 

grants to the 3,400 airports in the national airport system are funded and 

allocated under AIP. The administration’s proposal would also allow 

commercial airports to impose higher passenger facility charges (PFC) to 

pay for capital projects.2

 1

The FAA administers federal funds for airport capital improvements through grants

awarded from the Airport and Airway Trust Fund under the AIP.

2

The PFC Program allows the collection of PFC fees up to $4.50 for every enplaned 

passenger at commercial airports controlled by public agencies. Airports use these fees to

fund FAA-approved projects that enhance safety, security, or capacity; reduce noise; or

increase air carrier competition. 

Page 1 GAO-07-617T 
In anticipation of this year’s reauthorization of FAA, you asked for an 

update on airports’ current funding levels from our previous reports,3

 the 

sufficiency of those levels to meet planned development, and how the 

administration’s proposed reauthorization will affect airports. For this 

update, we are providing preliminary responses to these key questions: 

• How do FAA and Airports Council International (ACI) estimates of capital 

development compare? 

• How much have airports received for capital development and where is 

the money coming from? 

• If current funding levels continue, will they be sufficient to meet planned 

capital development costs for 2007 through 2011? 

• What are some of the potential effects of changes in how airport 

development will be funded as part of the administration’s FAA 

reauthorization legislation? 

To determine how much planned development would cost over the next 5 

years, we obtained planned capital development data from FAA and ACI, a

key industry association. To determine the sources of airport funding, we 

obtained capital funding data from FAA, the National Association of State 

Aviation Officials (NASAO) and Thomson Financial, a firm that tracks all 

municipal bond issues. We obtained funding data from 2001 through 2005 

because these were the most recent years for which consistent data were

available and then adjusted the amounts for inflation to 2006 dollars so 

that they could be compared to planned development amounts, which are 

also expressed in 2006 dollars. We screened the planned development and 

funding data for accuracy and compared funding streams across databases 

where possible. We did not, however, audit how the databases were 

compiled. To compare the estimates between FAA and industry, we 

reconciled survey data and identified areas where the largest differences 

occur. We reviewed the reliability of these data and concluded that they 

were sufficiently reliable for our purposes. 

 3

In 2003 and 1998, GAO reported on airport financing. See Airport Finance: Past Funding 

Levels May Not Be Sufficient to Meet Airports’ Planned Capital Development, 

GAO-03-497T (Washington D.C.: Feb. 25, 2003) and Airport Financing: Funding Sources 

for Airport Development, GAO/RCED-98-71 (Washington D.C.: Mar. 12, 1998). 

Page 2 GAO-07-617T 
We conducted our work from August 2006 to March 2007 in accordance 

with generally accepted government auditing standards. More details 

about the scope and the methodology of our work are presented in 

appendix II.

In summary: 

• ACI’s estimate of planned development costs is considerably larger than

FAA’s, reflecting the broader range of projects included as well as 

differences in when and how the estimates are reported. For 2007 through 

2011, FAA estimated annual planned capital development costs at $8.2 

billion, while ACI estimated annual costs at $15.6 billion, a difference of 

$7.4 billion annually. The estimates differ primarily because FAA’s 

estimate includes only projects that are eligible for federal airport 

improvement grants, while ACI’s includes all projects, including those that 

may not be eligible for federal grants. Types of projects not eligible for 

federal grants include parking garages and commercial space in terminals. 

However, even when comparing only AIP-eligible projects, ACI’s estimate 

exceeds FAA’s by $1.6 billion annually because of differences in the 

definition, measurement, and timing of projects. 

• From 2001 through 2005, airports received an average of about $13 billion 

a year for planned capital development from a variety of funding sources. 

This includes funding for all types of projects, including those not eligible

for AIP grants. The primary source of this funding was municipal bond 

proceeds (backed primarily by airport revenues), which averaged almost 

$6.5 billion per year, followed by AIP and PFCs which accounted for $3.6 

billion and $2.2 billion, respectively. The 67 larger airports, which account 

for 90 percent of passengers, rely more heavily on bond financing to fund

their development, while the other approximately 3,300 smaller airports in 

the national system are more reliant on federal grants.4

• The total of FAA and ACI estimates of planned development for 2007 

through 2011 exceeds historical funding levels by about $1 billion 

annually. The difference between past funding and future development 

plans is not the same for larger and smaller airports. The 67 larger airports 

averaged $9.4 billion annually in funding, as compared to $10 billion 

 4

We will follow conventions established in GAO’s prior report on airport finance in 

differentiating between larger (large and medium hub airports) and smaller (all other 

categories of commercial and general aviation airports). See Airport Finance: Past 

Funding Levels May Not Be Sufficient to Meet Airports’ Planned Capital Development,

GAO-03-497T (Washington D.C.: Feb. 25, 2003).

Page 3 GAO-07-617T 
annually in AIP-eligible and ineligible projects—a difference of $600 

million annually. All other airports, including general aviation airports, 

averaged $3.6 billion annually in funding, as compared to $4 billion 

annually in AIP-eligible and ineligible project, a difference of $400 million 

annually. 

• The administration’s reauthorization proposal would provide more money 

to larger airports through an increase in PFCs, but its impact on smaller 

airports is uncertain because these airports are more reliant on AIP, whose 

funding level is being reduced and whose allocation is being changed. The 

proposal would reduce the AIP grants program by $750 million (or more 

than 20 percent of its current level) but increase the amount that airports 

can collect from PFCs from $4.50 per passenger to $6.00 per passenger, 

potentially increasing larger airports’ collections by $1.1 billion. For 

smaller airports that collect far less from PFCs, the increase in PFCs may 

not compensate for the overall reduction in AIP, especially for general 

aviation airports that have no ability to collect PFCs. As a separate issue, 

the administration’s reauthorization proposal would also change the way 

that AIP and other FAA programs are funded. The new fuel taxes that have 

been proposed to fund AIP and other programs may not generate the 

amount of revenue that is anticipated and additional sources of revenue

may have to be found. 

ACI’s estimate of planned capital development costs is considerably larger 

than FAA’s because it reported a broader base of projects. According to 

FAA’s estimate, which includes only projects that are eligible for AIP 

grants, the total cost of airport development will be about $41 billion, or 

about $8.2 billion per year for 2007 through 2011. (See table 1.) ACI 

estimates annual costs of about $78 billion, or about $15.6 billion per year, 

for the same period. These estimates differ mainly because ACI’s estimate 

includes all future projects that may or may not have an identified funding 

source or be eligible for federal funding and also because they are based

on different estimating approaches. Projects that are eligible for AIP 

grants include runways, taxiways, and noise mitigation and reduction 

efforts; projects that are not eligible for AIP funding include parking 

garages, hangars, and expansions of commercial space in terminals. 

The Size and Scope of 

FAA and ACI Airport 

Capital Estimates 

Differ 

Page 4 GAO-07-617T 
Table 1: Average Annual Planned Development Costs Estimated by FAA and ACI, 

by Airport Type, 2007-2011

Dollars in millions 

Estimated average annual costs

Airport Type

Number of 

Airports FAA ACI

Larger Airports 

Large hub 30 $3,414 $8,280

Medium hub 37 933 3,066

Subtotal 67 4,347 11,346

Smaller airports

Small hub 72 629 1,146

Non hub 243 840 840a

Other commercial 

service 135 146 146a

Reliever 274 579 579a

General aviation 2574 1,528 1,528a

New airports 67 111 -

Subtotal 3,365 3,833 4,239

Total 3,432 $8,180 $15,585

Source: GAO analysis of FAA and ACI data 

a

ACI’s estimate for these categories of airports is drawn directly from FAA’s estimate. 

Several factors account for the differences between the FAA and ACI 

estimates of future development costs. The biggest difference stems from 

ACI’s inclusion of projects that are not eligible for AIP grants, while FAA’s 

estimate includes only AIP-eligible projects (see table 2). However, even 

when comparing just the AIP-eligible portions of the respective estimates, 

ACI’s estimate is 20 percent ($8 billion in total or $1.6 billion annually) 

greater. This points to differences in how the two estimates are formed. 

Attempts to Reconcile ACI 

and FAA Estimates of 

Planned Development 

Costs Illustrate 

Differences 

Page 5 GAO-07-617T 
Table 2: Comparison of ACI and FAA Estimates of Planned Development for 2007-2011 (Dollars in billions) 

Source Total

For all airports

surveyed

For large hubs 

surveyed

For medium hubs

surveyed

For small 

hubs

surveyed

ACI total estimate $78 $51 $36 $11.3 $2.0

Less: AIP-ineligible or 

unknown 29 23 15.2 6.6 .8

ACI AIP-eligible portion 49 28a21.2 4.6 1.2

FAA Estimate of AIPeligible 41 21 15.7 3.4 1.3

Difference $8 $7 $5.5 $1.2 $.6

Source: GAO analysis of FAA and ACI data. 

a

Total for large, medium, and small hub airports does not equal all airports surveyed because ACI

also surveyed a few GA and nonhub airports. 

One difference is the estimating approach. FAA’s estimates cover projects 

for every airport in the national system, while ACI surveyed the 100 largest 

airports (mostly large and medium hub airports) and then extrapolated a 

total based on cost per enplanement calculations for small, medium, and 

large hub airports that did not respond. 

Further analysis on a project-by-project level shows variances related to 

three other factors: 

• Definition—FAA data are based on planned project information taken 

from airport master plans and state system plans, minus projects that 

already have an identified funding source, while ACI includes all projects, 

whether funding has been identified or not. For example, ACI’s estimate 

for Washington Dulles airport includes $278 million for an automated 

people mover, but FAA’s estimate does not because it is being funded by a 

PFC approved in 2006. 

• Measurement—FAA data include only the portion of a project that is 

eligible for AIP, while ACI estimates the total value project cost. On a 

terminal construction project at Dulles International Airport, ACI 

estimated total costs of $1.6 billion for construction; however, only a small 

portion is eligible for AIP funding. FAA did not report any amount because

under FAA AIP rules only a small portion ($20 million) was eligible for AIP 

funding and the airport had exhausted the AIP funds that could be used for 

Page 6 GAO-07-617T 
this type of project. 

• Timing—The ACI and FAA estimated planned development costs for the 

same five year time period, but the estimates were made at different 

times—the ACI survey was completed in early 2007, while FAA’s estimate 

is based on information collected in early 2006. Further, the ACI estimate 

includes projects that FAA does not believe will be commissioned during 

the next 5 years. At Fort Lauderdale International Airport, for example, 

ACI reported a $700 million runway project but FAA reports less than $200 

million for the same project. According to FAA, the remaining costs are 

beyond 2011. 

FAA and ACI estimates do not consider cost increases such as rising

construction costs. Going forward these costs may increase, especially

construction costs which have jumped 26 percent in 30 major U.S. cities 

over the past three years. Industry experts predict that construction costs 

will continue to increase project costs. FAA acknowledges that 

development estimates may or may not include increase in costs based on 

construction uncertainty and that annual costs increases are not captured.

From 2001 to 2005, the 3,364 active airports that make up the national 

airport system received an average of about $13 billion per year for 

planned capital development from a variety of funding sources. These 

funds are used for both AIP-eligible and ineligible projects. The single 

largest source of these funds was bond proceeds, backed primarily by 

airport revenues, followed by AIP grants, PFCs, and state and local 

contributions (see table 3). 

Airports Have 

Averaged About $13 

Billion Annually in 

Capital Financing 

over the Last 5 Years 

and Use a Variety of 

Funding Sources 

Page 7 GAO-07-617T 
Table 3: Sources of Airport Funding, 2001- 2005 

2006 Dollars in billions

Funding

Source 

2001-2005 

average annual 

funding

Percent of

total Source of funds 

Airport bonds $6.5a50 State and local governments or 

airport authorities issue tax-exempt 

debt

AIP grants 3.6b29 The Congress makes funds 

available from the Airport and 

Airway Trust Fund, which receives 

revenue from various aviationrelated taxes

Passenger 

facility charges

2.2c17 Funds come from passenger fees 

of up to $4.50 per trip segment at 

commercial airports

State and local

contributions 

.7 4 Funds include state and 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. 

a

Net of refinancing. 

b

AIP totaled on a fiscal year basis.

c

Some airports use their PFCs to finance bond issues, as much as 30 percent of PFC collections by

some estimates. As a result, the total amount of funds available to airports may be overstated by as 

much as $660 million (30 percent of $2.2 billion). 

The amount and source of funding vary with the size of airports. The 

nation’s 67 larger airports, which handled almost 90 percent of the 

passenger traffic in 2005, accounted for 72 percent of all funding ($9.4 

billion annually), while the 3,297 other smaller commercial and general

aviation airports that make up the rest of the national system accounted 

for the other 28 percent ($3.5 billion annually).5

 As shown in figure 1, 

airports’ reliance on federal grants is inversely related to their size—-

federal grants contributed a little over $1.3 billion annually to larger 

airports (14 percent of their total funding) and $2.3 billion annually to 

smaller airports (64 percent of their total funding). 

 5

As noted in Table 3, the total amount of funds may be somewhat overstated because as 

much as 30 percent of PFCs are used to finance bond issues. This would particularly affect 

the total for larger airports, which collect most of the PFCs. 

Page 8 GAO-07-617T 
Figure 1: Funding Sources by Size of Airport, 2001-2005

Note: Totals may not add up due to rounding 

Based on past funding levels, airports’ funding is about $1 billion per year 

less than estimated planned capital development costs. If the $13 billion 

annual average funding continues over the next 5 years and were applied 

only to AIP-eligible projects, it would cover all of the projects in FAA’s 

estimate. However, much of the funding available to airports is for AIPineligible projects that can attract private bond financing. We could not 

determine how much of this financing is directed to AIP-eligible versus 

ineligible projects. Figure 2 compares the $13 billion average annual 

funding airports received from 2001 through 2005 (adjusted for inflation to

2006 dollars) with the $14 billion in annual planned development costs for 

2007 through 2011. The $14 billion is the sum of FAA’s estimated AIPeligible costs of $8.2 billion annually and ACI’s estimated ineligible costs 

of $5.8 billion annually. The overall difference of about $1 billion annually 

is not an absolute predictor of future funding shortfalls; both funding and 

planned development may change in the future. 

Total Planned 

Development Exceeds 

Past Funding Levels 

by About $1 Billion 

Annually 

Page 9 GAO-07-617T 
Figure 2: Comparison of Historical Airport Funding to Future Development Costs 

Note: Totals may not add up due to rounding 

The difference between current funding and planned development costs 

for larger airports is about $600 million if both AIP-eligible and ineligible

projects are considered. From 2001 through 2005, larger airports collected

an average of about $9.4 billion a year for capital development, as 

compared to over $10 billion in annual planned development costs. Figure 

3 shows the comparison of average annual funding versus planned 

development costs for larger airports. At $5.7 billion annually, the 

ineligible portion of costs is 57 percent of the total planned development 

costs. 

Larger Airports–-Planned 

Development Costs 

Exceed Past Funding by 

About $600 Million 

Annually 

Page 10 GAO-07-617T 
Figure 3: Comparison of Larger Airports’ Historical Funding to Future Development 

Costs 

Note: Totals may not add up due to rounding 

The difference between past funding and planned development costs for 

smaller airports is roughly $400 million annually. At smaller airports, 

average annual funding from 2001 through 2005 was about $3.6 billion a 

year (expressed in 2006 dollars). Annual planned development costs for 

smaller airports from 2007 through 2011 is estimated at about $4 billion.

Figure 4 compares average annual funding to planned development costs. 

As the figure shows, the portion of smaller airports’ project costs not 

eligible for AIP funding is relatively small—about $75 million annually, or

about 2 percent of total planned development costs. 

Smaller Airports—-

Planned Development 

Costs Exceed Past 

Funding by About $400 

Million Annually 

Page 11 GAO-07-617T 
Figure 4: Comparison of Smaller Airports’ Historical Funding to Future

Development Costs 

Note: Totals may not add up due to rounding 

The financial health of airports is strong and has generally improved since 

September 11, 2001, especially for larger airports. Passenger traffic has 

rebounded to 2000 levels and bond ratings have improved. Following 

September 11, many airports cut back on their costs and deferred capital 

projects. However, credit rating agencies and financial experts now agree 

that larger airports are generally financially strong and have ready access 

to capital markets. A good indicator of airports’ financial strength is the 

number and scale of underlying bond ratings provided by bond rating 

agencies. More bonds were rated in 2007 than 2002, and more bonds are 

rated at the higher end of the rating scale in 2007, meaning that the rating

agencies consider them less of a risk today. Furthermore, larger airports 

tended to have higher ratings than smaller airports. 

Financial Health of 

Airports Has Improved for 

Larger Airports 

Page 12 GAO-07-617T 
The administration’s reauthorization proposal for AIP would increase 

funding for larger airports, but its effect on smaller airports is uncertain 

because of the overall reduction in AIP and the proposed changes in how 

AIP grants are allocated between larger and smaller airports. The 2008 

fiscal year budget reduces AIP funding from its past level of $3.5 billion in

fiscal years 2006 and 2007 to $2.75 billion in 2008. The proposal also would 

eliminate entitlement, otherwise known as apportionment, grants for 

larger airports while increasing the PFC ceiling from $4.50 to $6 per 

passenger.6

 While larger airports that account for 90 percent of all 

passengers will come out ahead, an increased PFC may not compensate 

smaller airports for the overall reduction in AIP, even with the proposed

changes in how AIP is allocated between larger and smaller airports. As a 

separate issue, the administration’s reauthorization proposal would 

change the way that AIP and other FAA programs are funded and may not 

provide enough monies for these programs, even at the reduced levels 

proposed by the administration. 

The administration’s 2008 FAA reauthorization proposal would reduce 

AIP, change how AIP is allocated, and increase the PFC available to 

commercial airports. (Key changes in the proposal’s many elements are 

outlined in appendix I.) Unlike previous reauthorization proposals, which 

made relatively modest changes in the structure of the AIP program, this 

proposal contains some fundamental changes in the funding and structure 

of the AIP program. Notably, following the pattern set by the 2000 FAA 

reauthorization,7

 which required larger airports to return a certain 

percentage of their entitlement funding in exchange for an increase in the 

PFC, the administration proposes eliminating entitlement grants for larger 

airports altogether and at the same time allowing those airports to charge 

a higher PFC. 

The reauthorization proposal would eliminate some set-aside programs 

and increase the proportion of discretionary grant funds available to FAA 

at higher AIP funding levels. Table 4 compares AIP funding allocations 

under the current funding formulas to the proposed reauthorization 

Administration’s FAA 

Reauthorization 

Proposal Would 

Increase Funding for 

Larger Airports, while 

the Effect on Smaller 

Airports is Uncertain

Administration’s FAA 

Reauthorization Proposal 

Would Make Fundamental 

Changes in AIP 

 6

AIP grants generally consist of two types—(1) entitlement funds that are apportioned to

airports or states by formula each year based on the number of airport passengers or state 

population and (2) discretionary funds that FAA approves based on a project’s priority. 

7

The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century, Pub. L. No. 

106-81 (Apr. 5, 2000). 

Page 13 GAO-07-617T 
allocations at both the current $3.5 billion level and at the proposed $2.75 

billion level. Another change is to the entitlement formulas—for example, 

removing the funding trigger in current law that doubles the amount of 

entitlement funds airports receive if the overall AIP funding level is above 

$3.2 billion—is intended to make more discretionary funding available. 

According to FAA officials, their objective is to increase the amount of 

discretionary funding for airports so that higher priority projects can be

funded; however, that is only achieved when total AIP funds are greater 

than the $2.75 billion budgeted by the administration. For example, at 

$2.75 billion in AIP, the current law would generate $967 million in 

discretionary grants versus $866 million under the proposed 

reauthorization. This reverses at $3.5 billion in AIP funding, for which the 

proposal generates $1.328 billion in discretionary grants versus $845 

million under current law. 

Table 4: Estimated Distribution of AIP Funds at $2.75 and $3.5 Billion Funding

Levels under Current and Proposed Authorization Formulas 

Dollars in millions

AIP allocations under current law compared to proposed

reauthorization

Current law

FY2008 as

proposed Current law

FY2008 as

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

Page 14 GAO-07-617T 
Dollars in millions

AIP allocations under current law compared to proposed

reauthorization

Current law

FY2008 as

proposed Current law

FY2008 as

proposed

$2.75 Billion $3.5 Billion 

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 disc setasides 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 

Page 15 GAO-07-617T 
The administration’s proposed reauthorization would allow airports to 

increase their PFC to a maximum of $6 and allow airports to use their 

collections for any airport projects while forgoing their entitlement funds. 

A $6 PFC could generate an additional $1.1 billion for larger airports that 

currently have a PFC in place, far exceeding the $247 million in 

entitlements that FAA estimates they would forego under this 

reauthorization proposal (see table 5).8

 However, the impact on smaller 

airports is uncertain because they collect far less in PFCs and are more 

reliant on AIP for funding. A change to a $6 PFC would yield an additional 

$110 million for small hub airports based on airports that currently have a 

PFC in place and $132 million if every one of the small hub airports had a 

$6 PFC. It is uncertain whether the proposed allocation of AIP under the 

administration’s proposal would shift a greater proportion of funds to 

smaller airports to compensate for the overall reduction in AIP. The 

reauthorization proposal would also relax project eligibility criteria to 

allow airports to use their collections in the same way as they use 

internally generated revenue, including off-airport intermodal 

transportation projects. The application and review process would also be 

streamlined; as a result, FAA would no longer approve collections but 

rather ensure compliance with PFC and airport revenue rules. 

Table 5: Projected PFC Collections with a $6 PFC 

Increasing the PFC Would 

More Than Offset Loss of 

AIP Entitlements For 

Larger Airports but Impact 

on Smaller Airports Is 

Uncertain 

Dollars in Billions

2005 Collections if $6 PFC 

2005 

Collections

Current 

incidence of

PFCs

Increase 

over 2005 

collections

If all 

airports 

had a $6 

PFC

Increase 

over 2005 

collections

Large hub $1.769 $2.594 $.825 $2.695 $.925

Medium 

hub 

.442 .725 .283 .781 .339

Subtotal 2.211 3.319 1.108 3.476 1.265

Small hub .170 .281 .110 .302 .132

Total $2.381 $3.599 $1.218 $3.778 $1.397

Source: GAO analysis of FAA data 

 8

This calculation assumes that the increased PFC would not affect passenger demand for 

air travel. GAO has previously calculated that a PFC increase could reduce passenger 

demand. See Passenger Facility Charges: Program Implementation and the Potential

Effects of Proposed Changes, GAO/RCED-99-138 (Washington D.C.: May 19, 1999). 

Page 16 GAO-07-617T 
The administration’s proposal would modify the current pilot program on 

private ownership of airports in two key ways. First, the proposed 

modifications will expand eligibility beyond the current statutory limit of 5 

to 15 airports. Restrictions limiting participation in the pilot program to 

specific airport size categories would also be eliminated. Second, the pilot 

program would be amended to eliminate the veto power that airlines can 

exercise under current law to prevent privatization transactions at 

commercial airports. Under current law, the sale of an airport to private 

interests may only proceed if a super-majority of the airlines at that airport 

approve of the sale or lease.9

 Additionally, the airline veto power to 

prevent fee increases higher than inflation rates would be repealed. In 

place of these veto powers, the airport sponsor would need to

demonstrate to the Secretary of Transportation that the airlines using that

airport were consulted prior to the transaction proceeding.10

Congress established the Airport Privatization Pilot Program in October 

1996 to determine if privatization could produce alternative sources of 

capital for airport development and provide benefits such as 

improvements in customer service. It also hoped to determine if new 

investment and capital from the private sector could be attracted through 

innovative financial arrangements. Proponents of privatization believe that 

the privatization of airports can lead to capacity-increasing investment in 

airports through the commitment of private capital, lower operating costs,

and greater efficiency and that privatization can increase customer 

satisfaction. 

Overall, there has been relatively little interest in the current pilot 

program. Six airports have applied for participation in the program and 

three of those airports withdrew their applications in 2001. To date, 

Stewart International Airport, located in Newburgh, New York, is the only 

airport accepted into the pilot program. The airport received this 

exemption in March 2005, but is currently being purchased back by a 

public owner, the Port Authority of New York and New Jersey. In 

September 2006, the City of Chicago submitted a preliminary application

for Chicago Midway International Airport. FAA completed its review of the 

Midway preliminary application and determined that it meets the 

Airport Privatization 

 9

The law defines super-majority as at least 65 percent of the scheduled air carriers at a

primary airport. 

10At non-primary airports, the exemption would continue to be based on consultation with 

at least 65% of the based-aircraft owners. 

Page 17 GAO-07-617T 
procedural requirements for participation in the pilot program. 

Consequently, the City of Chicago can now proceed to select a private 

operator, negotiate an agreement, and submit a final application to FAA 

for exemption. 

In addition to concerns about the level and allocation of AIP funds, 

another concern is that the fuel tax revenues that the administration’s 

reauthorization proposal has designated to largely fund AIP after 2009 may 

not be as great as anticipated. Currently, AIP and other FAA programs are 

principally funded by the Airport and Airway Trust Fund (trust fund), 

which receives revenue from passenger ticket taxes and segment taxes, 

airline and general aviation fuel taxes, and other taxes. The 

administration’s reauthorization proposal would fund air traffic control 

through user fees for commercial aircraft and fuel taxes for general 

aviation while limiting the sources of revenue for the trust fund and its 

uses. Under the proposal, beginning in 2009, the trust fund would continue 

but only to fund three programs—AIP, Research, Engineering and 

Development (RE&D), and Essential Air Service (EAS)—and would be 

funded solely by an equal fuel tax on commercial and general aviation fuel

purchases and an international arrival and departure tax. 

FAA officials confirmed for us that in estimating fuel tax revenues they did 

not take into account possible reductions in fuel purchases due to the 

increase in the tax rates. Although we do not know by how much such 

purchases would decline, conventional economic reasoning, supported by 

the opinions of industry stakeholders, suggests that some decline would 

take place. Therefore, the tax rate should be set taking into consideration 

effects on use and the resulting impact on revenue. FAA officials told us 

that they believe that these effects would be small because the increased 

tax burden is a small share of aircraft operating costs and therefore there 

was no need to take its impact into account. Representatives of general

aviation, however, have said that the impact could be more substantial. If

consumption possibly falls short of projections or Congress appropriates 

more funds for AIP, RE&D, or EAS than currently proposed, then fuel tax 

rates and the international arrival and departure tax would 

correspondingly have to be increased or additional funding from another 

source, such as the trust fund’s uncommitted balance or the General Fund, 

would be needed. 

In conclusion, Mr. Chairman, airports have rebounded financially from the 

September 2001 terrorist attacks. We expect the demand for air travel to 

continue to increase, the system capacity to be stretched, and airports to 

Proposed Fuel Tax Rates 

May Not Yield the Revenue 

Anticipated to Fund AIP 

Page 18 GAO-07-617T 
increase their demand for capital improvements to relieve congestion and 

improve their services. As Congress moves forward with reauthorizing 

FAA, it will have to decide on several key issues, including how it wants to 

fund and distribute grants under the AIP. While some elements of the 

administration’s proposal are to be commended—for example, simplifying 

the funding formulas and giving FAA more discretion to fund high priority 

projects—other parts of the proposal raise concerns. For example, the 

extent to which the administration’s proposed cuts in AIP funding will 

affect development at smaller airports is unclear. 

For further information on this statement, please contact Dr. Gerald 

Dillingham at (202) 512-2834 or DillinghamG@gao.gov. Individuals making 

key contributions to this testimony were Paul Aussendorf, Jay Cherlow, 

Jessica Evans, David Hooper, Nick Nadarski, Edward Laughlin, Minette 

Richardson, and Stan Stenersen. 

GAO Contacts and 

Staff 

Acknowledgements 

Page 19 GAO-07-617T 
Page 20 GAO-07-617T 

Feature Current authorization for AIP Proposed AIP reauthorization 

Funding Trust fund for all capital programs are 

funded by an airline ticket tax, segment tax, 

international departure and arrival taxes, 

varying rates of fuel taxes and other taxes. 

Funding for AIP is appropriated from the 

trust fund. 

Trust fund is funded by fuel tax of 13.6 

cents/gallon for commercial and general 

aviation and a reduced international arrival 

and departure tax. Funding for AIP is 

appropriated from the Trust Fund. If AIP is 

increased, the tax rates would have to be 

increased, the trust fund’s uncommitted 

balance would have to be drawn down, or 

another funding source would have to 

found.

Entitlements Up to 75 percent of entitlements for large 

and medium hub airports collecting a PFC 

are turned back to the small airport fund. 

Entitlements for large and medium hub 

airports eliminated by 2010. 

If AIP greater than $3.2 billion, primary 

airport entitlements are doubled. 

$3.2 billion trigger for doubling entitlements 

is eliminated except for small and nonhub 

primary airports. 

State apportionment is 20 percent of AIP 

(18.5 percent if AIP is less than $3.2 

billion). 

State apportionment set at greater of 10 

percent of AIP or $300 million.

Nonprimary airport entitlement of up to 

$150,000. 

The nonprimary airport minimum 

entitlement of $150,000 per airport is 

eliminated and replaced by a tiered system 

of entitlements ranging from $400,000 for 

large general aviation airports to $100,000 

for smaller general aviation airports. The 

750 airports that have less than 10 

operational and registered based aircraft 

are guaranteed nothing. 

Discretionary Reliever and military airport set asides 

minimum discretionary funding set at $148 

million. 

The set-aside for reliever and military 

airports is eliminated. 

Small airport fund funded by large and 

medium hub airport PFC turnbacks of up to 

75 percent of PFC collections. 

Minimum discretionary funding set at $520 

million. 

Small airport fund equal to 20 percent of 

discretionary funds.

Project eligibility Most types of airfield projects, excluding 

interest costs, nonrevenue producing 

terminal space and on-airport access 

project costs. General aviation airports may 

use their entitlement funds for some 

revenue producing activities (e.g., 

hangars). 

Expanded to include additional revenue 

producing aeronautical support facilities 

(e.g., self-service fuel pumps) at general

aviation airports. 

Appendix I: Key Changes Proposed in AIP 
Feature Current authorization for AIP Proposed AIP reauthorization 

Local government share of project cost 

(local match) 

Government share set at 95 percent for 

smaller airports through 2007, and 75 

percent for large and medium hub airports 

(noise 80 percent). 

Eliminates 95 percent government share 

except for the very smallest airports. Now 

maximum share will be a flexible amount 

with a maximum percentage of 90 percent. 

Airfield rehabilitation projects lowered to 50 

percent maximum at large and medium 

hubs.

PFCs Maximum rate is $4.50 per passenger. Maximum rate is $6 per passenger. 

All applications subject to FAA review. Review and approval is streamlined. 

PFCs can be used for all AIP eligible 

projects, but also interest costs on airport 

bonds, terminal gates and related areas, 

and noise mitigation can also be used. 

Eligibility expanded to include almost any 

airport –related project, including off-airport 

intermodal projects. 

Up to 10 large and medium hub airports 

willing to assume the cost of air navigation 

facilities are allowed a $7 PFC.

Privatization Up to five airports, one of each size, with 

strict limit on rates and charges and 

requires approval by 65 percent of airlines. 

Up to 15 airports of any size, no limit on

rates and charges and no airline veto, but 

subject to DOT review and approval.

Source: GAO.

Page 21 GAO-07-617T 
Page 22 GAO-07-617T 

Appendix II: Scope and Methodology 

To determine how much planned development would cost over the next 5 

years, we obtained planned development data from the Federal Aviation 

Administration (FAA) and Airports Council International-North America 

(ACI). To determine how much airports of various sizes are spending on 

capital development and from which sources, we sought data on airports’ 

capital funding because comprehensive airport spending data are limited

and because, over time, funding and spending should roughly equate. We 

obtained capital funding data from the FAA, ACI, the National Association 

of State Aviation Officials (NASAO), and Thomson Financial—a firm that 

tracks all municipal bonds. We screened each of these databases for their 

accuracy to ensure that airports were correctly classified and compared 

funding streams across databases where possible. We did not, however, 

audit how the databases were compiled or test their overall accuracy, 

except in the case of state grant data from the NASAO and some of the 

Thomson Financial bond data, which we independently confirmed. We 

determined the data to be sufficiently reliable for our purposes. We 

subtotaled each funding stream by year and airport category and added 

other funding streams to determine the total funding. We met with FAA, 

bond rating agencies, bond underwriters, airport financial consultants, and 

airport and airline industry associations and discussed the data and our 

conclusions to verify their reasonableness and accuracy. 

To determine whether current funding is sufficient to meet planned 

development for the 5-year period from 2007—2011 for each airport 

category and overall, we compared total funding to planned development. 

We correlated each funding stream to each airports’ size, as measured by 

activity, and among other funding streams to better understand airports’ 

varying reliance on them and the relationships among sources of finance. 

We then discussed our findings with FAA, bond rating agencies, bond 

underwriters, airport financial consultants, and airport and airline industry 

associations to determine how our findings compared with their 

knowledge and experiences. 

To determine some of the potential effects from changes to how airport 

development is funded under the administration’s proposed FAA 

reauthorization legislation, we first analyzed the suggested changes to the 

Airport Improvement Program’s (AIP) funding and allocation. In particular 

we analyzed the effect of various funding levels on how the program funds 

would be allocated. Second, we evaluated the effects of raising the 

passenger facility charge (PFC) ceiling, as the administration proposal 

suggests, by estimating the potential PFC collections under a $6 PFC on 

the basis of 2005 enplanements and collection rates assuming all airports

imposed a $6 PFC. Third, we determined the status of FAA’s pilot program 
for airport privatization. Moreover, we discussed the impact of all of the 

proposed changes (funding/allocation, $6 PFC, and privatization) with 

FAA, bond rating agencies, bond underwriters, airport financial 

consultants, and airport and airline industry associations. 

Page 23 GAO-07-617T (540133) 
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