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96–269 PDF 2005

S. HRG. 108–818

AIRPORT IMPROVEMENT PROGRAM AND OTHER

AIRPORT FINANCING ISSUES

HEARING

BEFORE THE

SUBCOMMITTEE ON AVIATION

OF THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

FEBRUARY 25, 2003

Printed for the use of the Committee on Commerce, Science, and Transportation

(

(II)

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JOHN McCAIN, Arizona, Chairman 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

ERNEST F. HOLLINGS, South Carolina 

DANIEL K.INOUYE, Hawaii 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK LAUTENBERG, New Jersey 

JEANNE BUMPUS, Republican Staff Director and General Counsel 

ROBERT W. CHAMBERLIN, Republican Chief Counsel 

KEVIN D. KAYES, Democratic Staff Director and Chief Counsel 

GREGG ELIAS, Democratic General Counsel 

SUBCOMMITTEE ON AVIATION 

TRENT LOTT, Mississippi, Chairman 

TED STEVENS, Arkansas 

CONRAD BURNS, Montana 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

ERNEST F. HOLLINGS, South Carolina 

JOHN D. ROCKEFELLER IV, West Virginia 

DANIEL K. INOUYE, Hawaii 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

BILL NELSON, Florida 

BARBARA BOXER, California 

MARIA CANTWELL, Washington 

FRANK LAUTENBERG, New Jersey 

(III)

C O N T E N T S 

Page 

Hearing held on February 25, 2003 ....................................................................... 1

Statement of Senator Lott ...................................................................................... 1

Statement of Senator Rockefeller ........................................................................... 36

Prepared statement .......................................................................................... 43

Statement of Senator Stevens ................................................................................ 31

Statement of Senator Sununu ................................................................................ 33

WITNESSES

Dillingham, Gerald L., Director, Civil Aviation Issues, General Accounting 

Office ..................................................................................................................... 1

Prepared statement .......................................................................................... 4

Plavin, David Z., President, Airports Council International-North America ..... 20

Prepared statement .......................................................................................... 23

Woodward, Woodie, Associate Administrator for Airports, Federal Aviation 

Administration ..................................................................................................... 14

Prepared statement .......................................................................................... 17

APPENDIX

Hollings, Hon. Ernest F., U.S. Senator from South Carolina, prepared

statement .............................................................................................................. 47

Response to written questions submitted by Hon. John McCain to: 

Gerald L. Dillingham ....................................................................................... 48

Woodie Woodward ............................................................................................ 49

(1)

AIRPORT IMPROVEMENT PROGRAM AND 

OTHER AIRPORT FINANCING ISSUES 

TUESDAY, FEBRUARY 25, 2003

U.S. SENATE, SUBCOMMITTEE ON AVIATION, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:40 a.m. in room 

SR–253, Russell Senate Office Building, Hon. Trent Lott,

Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF HON. TRENT LOTT,

U.S. SENATOR FROM MISSISSIPPI 

Senator LOTT. The Subcommittee will come to order. This is another in a series of hearings we plan at the full committee level 

and the subcommittee level on aviation legislation, aviation issues 

this year. We have already had, I believe, three hearings, and we 

plan to have others to make sure that all sectors of the aviation 

industry can be heard from. Today, this is a hearing on the Airport 

Improvement Program and other airport financing issues. 

We are honored to have on this panel Dr. Gerald Dillingham, director, Physical Infrastructure Issues of the GAO, Ms. Woodie 

Woodward, associate administrator for airports, FAA, and Mr. 

David Plavin, president, Airports Council International. 

As the Subcommittee Chairman, I have tried to start a new rule, 

that is hear from the witnesses first, and then the senators can 

make their statements and ask questions, and Senator Stevens has 

agreed to that process, and I hope Senator Sununu. But also in 

that vein, we will give senators extended time, if they need it, to 

make statements or ask questions. 

We are pleased to have you all with us today, and we have copies 

of your statements available to the senators, but we would be glad 

for you to present those statements or an abbreviated version of 

them. 

Dr. Dillingham, we welcome you, and we thank you for coming 

this morning, if you would like to proceed. 

STATEMENT OF GERALD L. DILLINGHAM, DIRECTOR, CIVIL 

AVIATION ISSUES, GENERAL ACCOUNTING OFFICE 

Dr. DILLINGHAM. Thank you, Mr. Chairman, Mr. Stevens, and 

Members of the Subcommittee. 

Since AIR–21 was enacted three years ago, Congress has asked 

the GAO to undertake several studies related to aviation finance 

in general, as well as studies of financing infrastructure developVerDate 0ct 09 2002 11:52 May 16, 2005 Jkt 096269 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\96269.TXT JACK PsN: JACKF
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ment at the Nation’s airports. My testimony this morning is drawn 

from these studies and will be illustrated with the charts on my 

right, copies of which we have provided to the members. 

We will address three questions. First, what are the estimated 

costs of planned capital development at airports? Second, how 

much funding have airports historically received for capital development? And if that funding continues at these levels, will it be 

sufficient to meet future development plans? And third, what options are available to address any potential differences between the 

estimated cost of planned development and available funding? 

The bottom line regarding developmental cost is that although 

there is a general consensus that maintaining the integrity of the 

Nation’s airport system requires continual capital investment, 

there is not a consensus on how much and what types of development are needed. This point is illustrated in our first chart. 

This chart contrasts FAA’s cost estimates for various types of development projects with estimates from the Airport Council International. The bar on the left shows FAA’s estimate for the cost of 

airport planned development. FAA estimates the cost to be a little 

over $9 billion annually between 2001 and 2005. This estimate includes all types of projects, such as safety, security, capacity, and 

standards, all of which are eligible for Federal funding. 

On the right is ACI’s estimate. Their estimate includes an an- nual addition of $5.7 billion. This additional $5.7 billion covers a 

variety of types of projects, some of which are eligible for Federal 

funding, some of which are not. This brings the Council’s total estimate to nearly $15 billion annually. 

The next question is, How much money have airports historically 

received to fund development? This chart shows that from all 

sources, airports receive a little less than $12 billion annually to 

fund development. A variety of bonds was the largest source of 

funds and accounted for 60 percent of the funds airports received. 

The next-largest sources of funds were the AIP fund which contributed about 20 percent, and PFC collections, which contributed 

about 13 percent. The remaining funds came from State and local 

grants and airport revenues. 

As the next chart shows, if past funding levels continue, there 

would be more than enough money to cover FAA’s overall estimate 

of $9 billion for annual planned development. But as you can see 

from the figure on the right side of the chart, it would leave a gap 

of just over $3 billion from ACI’s estimate of $15 billion annually. 

The potential policy implications of this gap can be seen when 

you look at the analysis of how development plans and funding 

sources differ by airport size. When you look at the large- and medium-sized airports, ACI’s estimate for development, which is 

shown with the bar on the right side of the chart, totals about 

$11.7 billion, compared with $9.4 billion in historical funding. For 

smaller airports, the development costs total about $3.3 billion 

compared with about $2.4 billion in historical funding. 

As the pie chart on the left shows, this means that about 80 percent of the estimated costs for development of large-and mediumsized airports would be covered. The pie chart on the right side 

shows that almost 73 percent of the estimated costs for development for smaller airports would have been covered. Based on this 

3

comparison, it appears that it is more difficult for smaller airports 

to finance their development than larger airports. 

You can see an interesting dynamic when you compare the funding situations for airports today with the situation we reported in 

1998. In 1998, the funding gap for larger airports was about 20 

percent. Today, the situation is pretty much the same; the gap is 

still about 20 percent. But there has been a significant change for 

smaller airports. The figure on the left shows that in 1998, their 

funding gap was almost 50 percent. Today, the gap has dropped to 

27 percent. However, 27 percent is still a significant gap for those 

airports that are most dependent on Federal funds. 

This finding suggests two things. First, those congressional initiatives, such as the recent increases in AIP funds, have helped 

close the gap for smaller airports. And second, those policies and 

programs that help smaller airports continue to be important. 

Mr. Chairman, neither FAA nor ACI’s estimate includes the cost 

for airport infrastructure modifications for security enhancements. 

The most significant of these security-related infrastructure modifications are those that will be necessary to move those large explosive detection machines out of airport lobbies and integrate them 

into the existing baggage operations. These modifications have 

been estimated to cost about a billion dollars a year for the next 

five years. How that expense will be funded is a major unanswered 

question. 

There is also a real concern that funding these modifications 

with AIP funds will limit the ability of airports to undertake or 

complete other infrastructure projects. After 9/11, AIP funding for 

security projects increased by more than 800 percent. It went from 

$57 billion—or $57 million in 2001 to just over a half a billion in 

2002. This increase for security projects had the effect of making 

less money available to fund other types of capital development 

projects. 

Finally, as a result of our studies, we identified some options 

that the Congress may wish to consider to make more use of existing funds or to generate additional funding for development and security. These options include removing the cap on the PFC funds, 

redistributing AIP funds among types of airports, or expanding the 

use of letters of intent. 

With regard to security, Congress might want to consider the 

idea that if aviation security is a matter of national security, it 

might be funded from a general fund rather than an aviation-specific fund. Alternatively, Congress could consider setting up a separate fund for security projects. And finally, it has been suggested 

that such a security fund could operate much like the AIP program, 

including using letters of intent to leverage funds for security requirements. 

Mr. Chairman, as the Congress moves forward with reauthorizing FAA, it will have to decide on several key issues, including 

how to set and balance priorities of both airport development and 

aviation security. Many stakeholders also see this as a window of 

opportunity, an opportunity to prepare for the eventual rebound in 

the aviation industry and to do what is necessary to prevent a reoccurrence of the inefficiencies, congestion, and delays that the system experienced prior to 9/11. 

4

Thank you very much. 

[The prepared statement of Dr. Dillingham follows:]

PREPARED STATEMENT OF GERALD L. DILLINGHAM, DIRECTOR, CIVIL AVIATION

ISSUES, GENERAL ACCOUNTING OFFICE

Mr. Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss airport financing issues, which are particularly important as you prepare to reauthorize the Wendell H. Ford Aviation Investment and Reform Act for the 21 Century (AIR–21). Much has changed since the 

Congress enacted AIR–21 3 years ago. At that time, the focus was on reducing congestion and flight delays. Today, flights are being canceled for lack of business, two 

major air carriers are in bankruptcy, and attention has shifted from increasing the 

capacity of the national airspace system to enhancing aviation security. Furthermore, as the federal budget deficit has increased, competition for federal resources 

has intensified, and the costs of airport capital development are growing, especially 

with the new requirements for security. Nonetheless, analysts expect the demand 

for air traffic services to rebound. Until that time, the unexpected slump in air traffic creates a window of opportunity to improve the safety and efficiency of the national airport system. 

My statement today is based on our ongoing and completed work on airport funding and addresses the following questions:

1. What are the estimated costs of airports’ planned capital development?

2. How much funding did airports receive for planned capital development in 

recent years, and what were their principal sources of funding?

3. If past funding levels continue, will they be sufficient to meet estimates of 

planned capital development?

4. What options are available to address any potential difference between 

planned development and available funding?

Because our information on planned airport capital development, including the information we obtained from surveying 400 smaller airports, is preliminary, it is subject to change as we finalize our ongoing work. 

In summary:

• Although there is general consensus among stakeholders that maintaining the 

integrity of the national airport system requires continual capital investment, 

estimates vary as to the type and cost of planned airport capital development 

required to ensure a safe and efficient system. For 2001 through 2005, FAA has 

estimated annual planned capital development costs of about $9 billion, while 

the Airport Council International (ACI), a key organization representing the airport industry, has estimated annual costs of about $15 billion for 2002 through 

2006. The estimates differ primarily because FAA’s includes only projects that 

are eligible for federal funding, whereas ACI’s includes projects that may or 

may not be eligible for federal funding. Neither FAA’s nor ACI’s estimate covers 

the airport terminal modifications needed to accommodate the new explosives 

detection systems required to screen checked baggage. According to ACI, the 

total cost of these modifications could be $3 billion to $5 billion over the next 

5 years.

• From 1999 through 2001, airports received an average of about $12 billion a 

year for planned capital development. The primary source of this funding was 

bonds, which accounted for almost $7 billion, followed by federal grants and 

passenger facility charges, which accounted for $2.4 billion and $1.6 billion, respectively. The amounts and types of funding also varied by airport type. Of the 

$12 billion, large-and medium-hub airports received over $9 billion, and smaller 

airports received over $2 billion.

• If airports continue to receive about $12 billion a year for planned capital development, they would be able to fund all of the projects included in FAA’s estimate, but they would not be able to fund about $3 billion in planned development estimated by ACI. While this projected shortfall could change with revisions in future funding, planned development, or both, it nevertheless indicates 

where funding differences may be the greatest.

• Options are available to increase or make better use of the funding for airport 

development, and these options would benefit different types of airports to varying degrees. For example, raising the current cap on passenger facility charges 

would primarily benefit larger airports, while increasing or redistributing AirVerDate 0ct 09 2002 11:52 May 16, 2005 Jkt 096269 PO 00000 Frm 00008 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\96269.TXT JACK PsN: JACKF
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port Improvement Program grant funds would be more likely to help smaller 

airports. 

FAA’s and the Airport Industry’s Estimates of Airports’ Planned Capital

Development Vary Substantially 

The estimated costs of planned airport capital development vary depending on 

which projects are included in the estimates. According to FAA’s estimate, which includes only projects that are eligible for Airport Improvement Program (AIP) grants, 

the total cost of airport development will be about $46 billion, or about $9 billion 

per year, for 2001 through 2005. FAA’s estimate is based on the agency’s National 

Plan of Integrated Airport Systems, which FAA published in August 2002. ACI’s estimate includes all of the projects in FAA’s estimate, plus other planned airport capital projects that may or may not be eligible for AIP grants. ACI estimates a total 

cost of almost $75 billion, or nearly $15 billion per year for 2002 through 2006. 

Projects that are eligible for AIP grants include runways, taxiways, and noise mitigation and noise reduction efforts; projects that are not eligible for AIP funding include parking garages, hangars, and expansions of commercial space in terminals. 

Both FAA’s and ACI’s estimates cover projects for every type of airport. As table 

1 indicates, the estimates are identical for all but the large-and medium-hub airports, which are responsible for transporting about 90 percent of the traveling public. For these airports, ACI’s estimate of planned development costs is about twice 

as large as FAA’s.

According to FAA’s analysis of the planned capital development for 2001 through 

2005, airports will use 61 percent of the $46 billion for capacity enhancement, reconstruction, and modifications to bring airports up to the agency’s design standards 

and 39 percent to fund safety, security, environmental, and other projects. See figure 1.


225dill.eps
6

1Letters of intent represent a nonbinding commitment from FAA to provide multiyear funding 

to airports beyond the current authorization period. This commitment enables airports to proceed with projects without waiting for future AIP grant funds because it provides reasonable 

assurance of reimbursement for allowable costs. 

Neither ACI’s nor FAA’s estimate includes funding for the terminal modification 

projects that are needed to accommodate the new explosives detection systems required to screen checked baggage. ACI estimates that these projects will cost a total 

of about $3 billion to $5 billion over the next 5 years. A key reauthorization issue 

facing the Congress is how these terminal modification projects will be funded. In 

2001, the Congress allowed FAA to use AIP funds to help pay for some new security 

projects; however, this use of AIP funds affected the amount of funding that was 

available for some development projects. Specifically, in fiscal year 2002, FAA used 

$561 million in AIP grant funds for security projects, or about 17 percent of the $3.3 

billion available. The use of AIP grant funds for new security projects in fiscal year 

2002 reduced the funding available for other airport development projects, such as 

projects to bring airports up to FAA’s design standards and reconstruction projects. 

The use of AIP grant funds for security also caused FAA to defer three letter-ofintent payments totaling $28 million to three airports until fiscal year 2003 or 

later. 1

Airports Recently Received About $12 Billion a Year, Mostly from Bonds 

and Federal Sources 

From 1999 through 2001, the 3,364 airports that make up the national airport 

system received an average of about $12 billion per year for planned capital developVerDate 0ct 09 2002 11:52 May 16, 2005 Jkt 096269 PO 00000 Frm 00010 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\96269.TXT JACK PsN: JACKF

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ment. The single largest source of these funds was bonds, followed by AIP grants 

and passenger facility charges. (See table 2.) It is important to note that the authorized AIP funding for fiscal years 2002 and 2003 totaled $3.3 billion and $3.4 billion, 

respectively. However, because data for funding from other sources were not available for these years, we used the figures from 1999 through 2001, the most recent 

years for which consistent data were available.

The amount and type of funding vary depending on the airport’s size. For example, as shown in figure 2, the large-and medium-hub airports depend primarily on 

bonds, while the smaller airports rely principally on AIP grants. Passenger facility 

charges are a more important source of revenue for the large-and medium-hub airports because they have the majority of commercial-service passengers.


225dill1.eps
8

Past Funding Levels Would Cover All of FAA’s Planned Development

Estimate but Would Fall About $3 Billion Short of ACI’s Estimate 

If the funding for airport capital development remains at about $12 billion a year 

over the next 5 years, it would cover all of the projects in FAA’s estimate. However, 

it would be about $3 billion less per year than ACI’s estimate. Figure 3 compares 

the average annual funding airports received from 1999 through 2001 with FAA’s 

and ACI’s estimated annual planned development costs for 2001 through 2006. This 

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

planned development may change in the future. However, it does provide a useful 

indication of where funding differences may be the greatest.


225dill2.eps
9

Funding Difference Would Affect Smaller Airports Proportionally More Than Larger 

Airports 

In percentage terms, the difference between recent funding levels and ACI’s estimate of planned capital development is somewhat greater for smaller airports than 

it is for large-and medium-hub airports. From 1999 through 2001, smaller airports 

received an average of about $2.4 billion a year for planned capital development 

while large-and medium-hub airports received an average of about $9.4 billion. If 

these funding levels continued, smaller airports would not be able to fund about 27 

percent of their planned development, while large-and medium-hub airports would 

not be able to fund about 20 percent of their planned development. Figures 4 and 

5 illustrate the differences between recent funding levels and the costs of planned 

capital development projected for smaller and for large-and medium-hub airports.


225dill3.eps
10


225dill4.eps
11

2 U.S. General Accounting Office, Airport Financing: Annual Funding As Much As $3 Billion 

Less Than Planned Development, GAO/T–RCED–99–84 (Washington, DC: Feb. 10, 1999).

Ability to Fund Planned Capital Development Has Improved for Both Smaller and 

Larger Airports 

The difference between past funding and planned development has declined over 

the past 5 years, and, at recent funding levels, airports would be able to fund a 

higher percentage of their planned capital development than they could fund in 

1998. At that time, we reported that smaller airports could fund about 52 percent 

of their planned capital development, compared with about 73 percent today, which 

represents an increase of 21 percent. We also reported that large-and medium-hub 

airports were able to fund about 80 percent of their development and are able to 

fund the same amount today. 2 See figure 6. 


225dill5.eps
12

3Moreover, if we replaced the AIP figures for 1999 through 2001 with the AIP figures appropriated for fiscal year 2002 and authorized for fiscal year 2003 in our analysis, assuming no 

changes in the distribution of AIP funds, smaller airports would be able to cover even more of 

the estimated cost of their planned development because AIP grant funds for fiscal years 2002 

and 2003 are about $1 billion more than the average annual AIP funding for 1999 through 2001. 

Because data for funding from other sources were not available for these years, we used the 

figures from 1999 through 2001, the most recent years for which consistent data were available. 

The primary reason why smaller airports can fund more of their planned capital 

development today than they could in 1998 is that AIR–21 increased both the total 

amount of funding for AIP grants and the proportion of AIP funding that went to 

smaller airports. Specifically, AIR–21 increased the funding for two AIP funds that 

primarily or exclusively benefit smaller airports—the state apportionment fund and 

the small airport fund—and it created general aviation entitlement grants, which 

also benefit smaller airports. 3 As a result of these changes, smaller airports re- ceived almost 63 percent of the $2.4 billion in AIP grant funds that airports received 

each year, on average, from 1999 through 2001. Large-and medium-hub airports can 

also fund more of their planned development today than they could in 1998 primarily because they are able to issue more bonds and to charge a higher passenger 

facility fee. 

Options Are Available to Address Difference between Funding and Planned 

Development 

Options are available to increase airport funding or to make better use of the existing funding. These options, some of which were authorized or implemented as 

part of AIR–21, include increasing the AIP grant funding for smaller airports, increasing passenger facility charges, creating a separate fund for new security 

projects, and using innovative financing approaches. The various options would benefit different types of airports to varying degrees. It is also important to note that 

even though the airlines may be experiencing financial problems, most large airVerDate 0ct 09 2002 11:52 May 16, 2005 Jkt 096269 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\96269.TXT JACK PsN: JACKF

225dill6.eps
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4 U.S. General Accounting Office, Aviation Finance: Implementation of General Aviation Entitlement Grants, GAO–03–347 (Washington, DC: Feb. 11, 2003). 5 U.S. General Accounting Office, Passenger Facility Charges: Program Implementation and 

the Potential Effects of Proposed Changes, GAO/RCED–99–138 (Washington, DC: May 19, 

1999). 

ports have very solid credit ratings and could, if necessary, issue more debt without 

facing exorbitant interest rates. 

To help address the difference between funding and planned development, AIR– 21 provided that up to $150,000 a year in AIP grant funds be made available to 

all general aviation airports for up to 3 years for airfield capital projects, such as 

runways, taxiways, and airfield construction and maintenance projects. On February 11, 2003, we reported that since the program’s inception in fiscal year 2001, 

general aviation airports have received about $325 million, which they have used 

primarily to help build runways, purchase navigational aids, and maintain pavements and airfield lighting. 4 Most of the state aviation officials and general aviation 

airport managers we surveyed said the grants were useful in meeting their needs, 

and some suggested that the $150,000 grant limit be increased so that general aviation airports could undertake larger projects. However, a number of state officials 

cautioned that an increase in the general aviation entitlement grant could cause a 

decrease in the state apportionment fund that states use to address their aviation 

priorities. 

Another option would be to increase or eliminate the cap on passenger facility 

charges. This option would primarily benefit larger airports, because passenger facility charges are a function of the volume of passenger traffic. However, under AIP, 

large-and medium-hub airports that collect passenger facility charges must forfeit 

a certain percentage of their AIP formula funds. These forfeited funds are subsequently divided between the small airport fund, which is to receive 87.5 percent, 

and the discretionary fund, which is to receive 12.5 percent. Thus, smaller airports 

would benefit indirectly from any increase in passenger facility charges. In our 1999 

report on passenger facility charges, 5 we estimated that a small increase in these 

charges would have a modest effect on passenger traffic. At that time, we estimated 

that each $1 increase would reduce passenger levels by about 0.5 to 1.8 percent, 

with a midrange estimate of 0.85 percent. Since AIR–21 raised the cap on passenger 

facility charges from $3.00 to $4.50, the full effect of the increase has not been realized because only 17 of the 31 large-hub airports (55 percent) and 11 of the 37 medium-hub airports (30 percent) have increased their rates to $4.50. Additionally, 3 

large-hub airports and 6 medium-hub airports do not charge a passenger facility fee. 

The reluctance to raise passenger facility charges is likely the result of several factors, including the views of airlines, which are opposed to any increase in passenger 

facility charges because such an increase would raise passenger costs and reduce 

passenger traffic. Nonetheless, if all airports were to increase passenger facility 

charges to the current ceiling, additional revenue could be generated. 

Recently, the head of the Transportation Security Administration suggested setting up a separate fund for security projects. Such a fund might be comparable to 

AIP, which receives revenue from various aviation-related taxes through the Airport 

and Airway Trust Fund. Having a separate fund would be consistent with the recent 

separation of aviation safety and security responsibilities. 

FAA has introduced other mechanisms to make better use of existing funding 

sources, the most successful of which has been letters of intent, a tool that has effectively leveraged private sources of funding. As noted, letters of intent represents a 

nonbinding commitment from FAA to provide multiyear funding to an airport beyond the current AIP authorization period. Thus, the letter allows the airport to 

proceed with a project without waiting for a future AIP grant because the airport 

and investors know that allowable costs are likely to be reimbursed. A letter of intent may also enable an airport to receive a more favorable interest rate on bonds 

that are sold to refinance a project because the federal government has indicated 

its support for the project. FAA has issued 64 letters of intent with a total commitment of about $3 billion; large-and medium-hub airports account for the majority 

of the total. 

Other approaches to making better use of existing funding resources were authorized under AIR–21. Specifically, the act authorized FAA to continue its innovative 

finance demonstration program, which is designed to test the ability of innovative 

financing approaches to make more efficient use of AIP funding. Under this program, FAA enabled airports to leverage additional funds or lower development costs 

by (1) permitting flexible local matching on some projects, (2) purchasing commercial bond insurance, (3) paying interest costs on debt, and (4) paying principal and 

interest debt service on terminal development costs incurred before the enactment 

14

of AIR–21. FAA has provided about $31 million for smaller airports to test these 

innovative uses of AIP funding. According to FAA officials, the results of the program have been mixed. The most popular option for airports has been flexible 

matching, which has resulted in several creative loan arrangements. 

In conclusion, Mr. Chairman, the aviation industry and the national economy are 

still struggling to recover their health. Analysts nonetheless expect the demand for 

air travel to rebound, and the nation’s aviation system must be ready to accommodate the projected growth safely and securely. As the Congress moves forward with 

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

wants to consider the airports’ estimate of $15 billion a year for planned capital development over the next 5 years, how terminal modification projects will be funded, 

and what priorities it wants to set, both for development and security. Sustaining 

recent funding levels would allow the majority of planned airport capital development to move forward, but it would not cover all of the airports’ estimated costs, 

and it would not address the costly terminal modifications needed to accommodate 

explosives detection systems. Options such as additional AIP grant funds, increases 

in passenger facility charges, or the creation of a separate fund for new security 

projects could make more funding available for airport improvements. However, the 

growing competition for federal budget dollars and concerns about the impact of 

higher charges on airline ticket sales may limit the practicality of these options. 

Scope and Methodology 

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

we obtained planned development data from FAA and ACI. ACI provided its estimate to us in January 2003, and we are still analyzing the data on which the estimate is based. To determine the sources of airport funding, we obtained capital 

funding data from FAA, the National Association of State Aviation Officials, Thomson Financial, and our survey of 400 general aviation and reliever airports. We obtained funding data from 1999 through 2001 because these were the most recent 

years for which consistent data were available. We screened the planned development and funding data for accuracy and compared funding streams across databases 

where possible. We also clarified ambiguous development or funding source information directly with airports. We did not, however, audit how the databases were compiled, except for our own survey. However, we have not finished analyzing the results of our survey, and the results presented in this testimony are still preliminary. 

We have been performing our ongoing work from May 2002 through February 

2003 in accordance with generally accepted government auditing standards. 

This concludes my statement. I would be pleased to answer any questions that 

you or other Members of the Subcommittee might have.

Senator LOTT. Thank you very much, Dr. Dillingham. Very interesting testimony, and we’ll want to ask you some questions about 

it after we hear from the other two witnesses. 

Ms. Woodward? 

STATEMENT OF WOODIE WOODWARD, ASSOCIATE

ADMINISTRATOR FOR AIRPORTS, FEDERAL AVIATION

ADMINISTRATION 

Ms. WOODWARD. Good morning, Mr. Chairman and other Members of the Subcommittee. It is a pleasure to be with you today. 

I commend the Committee for focusing attention on the critical 

role airports play in the Nation’s air transportation system. As you 

know, airports are faced with meeting both pre-September-11th capacity challenges as well as post-September-11th security challenges. 

Following the terrorist attacks, the financial consequences for 

airports were substantial. In my opinion, airports did everything in 

their financial power to minimize their operating and maintenance 

costs, including imposing hiring freezes, reallocating staff, restructuring or refinancing debt, and reviewing and, in some cases, raising discretionary charges. As a group, I believe airports continue 

to take the necessary steps to improve security and their cash flow. 

15

Today, I would like to provide the Committee with a brief overview of the needs of the system, discuss what happened in fiscal 

year 2002 as we tried to respond to the September 11th attacks, 

and then touch on what we see as the outlook for the future. 

Our most recent National Plan of Integrated Airport Systems, 

which we call the NPIAS and which Mr. Dillingham referred to, estimates $46 billion in airport development needs that are eligible 

for Federal aid for the period 2001 through 2005. This figure represents an increase of 32 percent over the preceding estimate, or, 

on an annual basis, an increase from an average of about $7 billion 

per year to $9.2 billion per year. We see that every category of airport shows higher development needs, with the greatest increases 

at large-hub, non-hub, commercial service, and general aviation 

airports, and lesser increases at medium-hub, small-hub, and reliever airports. 

About two-thirds of the development in the plan is intended to 

accommodate growth in air travel, including more passengers and 

cargo and more and larger aircraft. Development that was proposed 

before September 11th will still be needed, but some of it may be 

deferred until activity rises to the point where it is warranted. To 

date, we have seen little change in the projected opening dates for 

the new runways that are being planned at large-hub airports. 

About one-third of the development estimates in our plan are intended to rehabilitate existing infrastructure and to keep airports 

up to standards. This includes accelerating upgrades of all runway 

safety areas and projects and projects associated with mitigation 

and prevention of runway incursions. The need for this development has not significantly decreased as a result of September 11th, 

but the timing of the implementation may be affected by financial 

concerns of the airports. 

In contrast to airfield projects, the expansion of passenger terminal buildings has slowed significantly since September 11th due 

to uncertainty about future security requirements, the temporary 

decline in traffic, and near-term financial problems of both airlines 

and airports, and, in particular, the airports who are dealing with 

declining revenues and increased operating costs. 

Historically, these projects receive nominal AIP funding, with 

airport revenue bonds and passenger facility charges serving as the 

principal financing tools. We project that these projects will resume 

as air traffic achieves pre-September-11th levels. 

As the Committee knows, fiscal year 2002 was a real challenge. 

Due to new security requirements airports needed to consider not 

only improvements to existing access control systems, but also 

changes in terminals and baggage systems, to improve passenger 

flows through screening checkpoints, and to accommodate the latest generation of baggage-screening devices. DOT’s inspector general recently testified that modifications to terminals could be as 

high as $3 billion. 

Clearly, the security challenges for airports were and still are 

twofold—how to meet the new security requirements while at the 

same time preserving customer service and efficiency and, above 

all, how to pay for these new requirements. 

Airport operating costs have increased as revenues have declined. However, absent further shocks to the system, most large 

16

commercial service airports are maintaining their credit profiles, 

albeit with lower financial margins and reduced flexibility. 

As the airport size diminishes, however, its ability to recover is 

also diminished, as Mr. Dillingham said. The smaller airports are 

feeling the effects of September 11th probably more than any other 

segment. Many airports, especially those that have marginal air 

service, were highly subsidized by local communities before September 11th, and those financial difficulties are compounded by the 

serious traffic declines and higher security costs. 

Congress responded to this situation by making the AIP program 

temporarily more flexible. In fiscal year 2002, FAA applied a record 

level of $561 million from AIP funds to security projects. This represents, as Mr. Dillingham said, a more than 800 percent increase 

over the level of security funding awarded in fiscal year 2001. 

Despite this record level of funding for security, the FAA was 

still able to fund all safety projects, including runway safety areas 

and runway incursion action team recommendations. We were also 

able to fulfill our letter-of-intent commitments, fund noise mitigation and reduction projects, and ongoing projects that were phased. 

However, balancing security and capacity costs will continue to 

be a tough challenge in the future. Even though we will see some 

fruits of our past capacity infrastructure investment realized this 

year, with new runways becoming operational at Denver, Miami, 

Houston, and Orlando, the outlook for fiscal 2003 is shaping up to 

be similar to last year. 

We expect that a level of AIP similar to that in fiscal 2002 will 

be used for security. Our colleagues at TSA and the FAA are fully 

aware of this dynamic. We will continue to work closely with them 

as they move to the new Department of Homeland Security, and 

we will commit to being a part of the examination of how these 

costs are to be borne in the future. 

For fiscal year 2004, the good news is that with all the other demands on the Federal budget, the President’s budget provides for 

a continuation of the healthy funding level of AIR–21 for AIP of 

$3.4 billion. I think it is worth highlighting this feature of our 

budget, because preserving that level of support in the current 

budget environment speaks volumes about how important the 

President, Secretary Mineta, and Administrator Blakey believe 

Federal aid is to the Nation’s airports. 

We also propose a restructuring of the AIP formulas to address 

some of the issues that Mr. Dillingham raised. One, to allow more 

funds to be targeted to those small airports with the greatest need 

and dependence on Federal assistance, while at the same time providing large airports access to Federal grants to support important 

projects that will benefit the airport system overall, and, finally, to 

make available a stable source of noise mitigation funding for communities. 

We expect that with this restructuring there will be approximately $87 million more for small airports for the fiscal year 2003 

while still increasing discretionary grant funds to enable us to target those projects that serve national objectives and achieve the 

greatest system benefits overall, regardless of airport size. 

Details of how we would restructure AIP formulas will be provided by our reauthorization proposal that the Secretary expects to 

17

submit to you next month. The Administration’s comprehensive bill 

will not only restructure and simplify AIP formulas but will also 

redesign the noise set-aside to provide a more stable source of Federal funding for environmental mitigation relating to airport development projects. 

In closing, Mr. Chairman, let me say that I believe the Nation’s 

airports have been making good progress in meeting security challenges presented by the attacks of September 11th. The airport system was harshly affected by the attacks of the 11th, but thousands 

of State and local officials working in cooperation with the FAA are 

doing a great job bolstering security, and we are well into the long 

process of recovery and stabilization. With Congress’ support and 

guidance, I assure you that we will continue to work hard to assist 

the Nation’s airports in meeting these challenges through a strong 

and flexible airport improvement program. 

That concludes my testimony. Thank you. 

[The prepared statement of Ms. Woodward follows:]

PREPARED STATEMENT OF WOODIE WOODWARD, ASSOCIATE ADMINISTRATOR FOR

AIRPORTS, FEDERAL AVIATION ADMINISTRATION

Good Morning Mr. Chairman and Members of the Subcommittee: 

It is a pleasure to be here today to testify on the state of the Nation’s airports 

and the important role the Federal Aviation Administration’s (FAA) Airport Improvement Program (AIP) plays in airport development. I commend the Committee 

for scheduling this hearing because of the critical role airports play in our Nation’s 

air transportation system. There has been a lot of attention paid to how air carriers 

are coping with the post-September-11th environment and the current economic situation—justifiably so. But it is of equal importance to examine the outlook for our 

country’s airports. Airports are faced with meeting both pre-September-11th capacity challenges and post-September-11th security challenges. I must commend the 

airport community for how they’ve responded. Following September 11th, they did 

everything in their financial power to minimize their operating and maintenance 

costs, including imposing hiring freezes, reallocating staff, restructuring or refinancing debt, and considering raising discretionary charges. As a group, airports 

continue to take the necessary steps to improve security and their cash flow. 

An understanding of the broad needs facing the airport community should inform 

the debate on the next reauthorization of our programs. Today I would like to provide the Committee with a brief overview of the needs of the system, discuss what 

happened in fiscal year 2002 as we tried to respond to the September 11th attacks, 

and then touch on what we see as the outlook for the future. 

The FAA periodically prepares a report to Congress called the National Plan of 

Integrated Airport Systems (NPIAS). Among its functions, the NPIAS provides a 

five-year estimate of airport infrastructure development that is eligible for Federal 

aid and determined by the Secretary to be warranted or justified over the next 5 

years for all segments of civil aviation. The NPIAS published prior to the enactment 

of the Wendell H. Ford Aviation Investment and Reform Act for the Twenty First 

Century (AIR–21) estimated airport capital requirements at $35 billion over the period of 1998–2002, an average of $7 billion per year and an increase of 18 percent 

over the previous NPIAS estimate. Infrastructure needs at the large hub airports 

accounted for most of this increase, with terminal projects the major source of new 

capital requirements. In the face of growing airport infrastructure requirements, 

AIR–21 increased AIP by 70 percent and raised the $3.00 cap on passenger facility 

charges (PFCs) to $4.50. 

The most recent NPIAS, published last August, identified 3,364 existing airports 

that are significant to national air transportation. It estimates $46 billion in airport 

development needs that are eligible for Federal aid for the period of 2001–2005. This 

figure represents an increase of 32 percent over the preceding estimate, or, on an 

annual basis, an increase from an average of $7 billion per year to $9.2 billion per 

year. Every category of airport shows higher development needs, with the greatest 

increases at large hub, non hub, commercial service, and general aviation airports, 

and lesser increases at medium hub, small hub, and reliever airports. 

18

About two-thirds of the development in the NPIAS is intended to accommodate 

growth in air travel, including more passengers and cargo and more and larger aircraft. Development that was proposed before September 11th will still be needed, 

but some of it could be deferred until activity rises to the point where it is warranted. With respect to capital development plans, as a group, most airports are 

continuing with current capital expansions under way, but are revisiting contracts 

not already let and plans not yet started. To date, we have seen little change in 

the projected opening dates for the new runways that are being planned at large 

hub airports. These are large-scale, long-term programs that involve a sequence of 

planning and environmental reviews, approvals, financing and construction, typically over a 10 year period, and are not particularly sensitive to short-term fluctuations in traffic. However, in some cases, airports have had to scale back or defer 

major capital improvements, and we suspect that some of these projects may be canceled over the 5-year horizon, but not on a wide scale. Until traffic recovers, this 

only makes good business sense. 

About one-third of the development estimates in the NPIAS are intended to rehabilitate existing infrastructure and keep airports up to standards. This includes accelerating upgrades of all runway safety areas and projects associated with mitigation and prevention of runway incursions. The need for this development has not 

significantly decreased as a result of September 11th but the timing of the implementation may be affected by financial concerns of airports, particularly lower revenues and urgent security requirements. 

In contrast to airfield projects, the expansion of passenger terminal buildings has 

slowed significantly post-September-11th, due to uncertainty about future security 

requirements, the temporary decline in traffic, and near-term financial problems of 

airlines and airports dealing with declining revenues and increased operating costs. 

These projects are an increasingly important area of investment, as terminals are 

modified, expanded and replaced to accommodate more passengers, larger aircraft 

and increased competition among airlines. Historically, these projects receive nominal AIP funding, with airport revenue bonds and passenger facility charges (PFCs) 

serving as the principal financing tools. Based on our consultations with municipal 

bond rating agencies, underwriters, financial consultants and airports, we project 

these projects will resume as air traffic achieves pre-September-11th levels. 

As the Committee knows, fiscal year 2002 was a real challenge as the aftermath 

of September 11th continued to be a major driving force for airports and aviation 

as a whole. Due to new security requirements, airports needed to consider not only 

improvements to existing access control systems, but also changes in terminals and 

baggage systems to improve passenger flows through screening checkpoints and accommodate the latest generation of baggage screening systems. The projected capital cost of acquiring and installing security equipment has increased substantially 

since September 11th, but a full and accurate estimate is not yet available, so it 

is not possible to reflect the increase in the NPIAS estimate. DOT’s Inspector General recently testified that modifications to terminals could be as high as $3 billion. 

Clearly, the security challenges for airports were—and still are—twofold: how to 

meet new security requirements while at the same time preserving customer service 

and efficiency; and how to pay for the new requirements. 

While some of the increased security measures at airports have been visible to 

the public, what has not been so visible is the financial strain on the airports. Their 

operating costs have increased, with much of the staff on extended overtime. Additionally, there have been numerous requirements for emergency contracts for security equipment and services. At the same time, revenues have declined because 

large airports derive most of their money from passengers, directly through charges 

that are collected when airline tickets are sold, and indirectly through concessions, 

parking, and airline rates and charges. These major airports have had the greatest 

ability to rebound. Absent further shocks to the system, most large commercial service airports are maintaining their credit profiles, albeit with lower financial margins 

and reduced flexibility. As the airport size diminishes, however, its ability to recover 

is also diminished. The smaller airports are feeling the effects of September 11th 

probably more than any other segment. Many airports, especially those that have 

marginal air service, were highly subsidized by local communities before September 

11th and those financial difficulties are compounded by the serious traffic decline 

and the higher security costs. 

Following September 11th, because airport operating costs were significant, Congress provided that any security-related cost, including operational and maintenance 

costs, could be funded using AIP funds. However, this authority was provided for 

one year only. Likewise, to make sure that airports did not default on loans, grant 

authority was broadened to help prevent any defaults. It was believed that by giving 

a temporary ability to fund these costs in the near term, airports would be able to 

19

absorb these costs in the future as traffic increases and the system recovers. In addition, Congress provided an additional $175 million to be used to offset direct operating costs for new security requirements placed on airports due to September 11th. 

This funding has been important especially to our nation’s smaller airports. 

In response to the emergency triggered by the attacks of September 11th, the FAA applied a record level of $561 million from AIP funds to security projects in fiscal 

year 2002. This represents a more than 800 percent increase over the level of security funding awarded in fiscal year 2001 of $57 million, and exceeded the previous 

record of $99 million, awarded in FY 1991, by more than $450 million. Despite this 

record level of funding for security, the FAA was still able, through innovative program management, to fund all safety projects, including runway safety areas and 

runway incursion action team recommendations; letter of intent commitments; noise 

mitigation and reduction projects, and ongoing phased projects. In addition, in part 

due to record levels of carryover entitlements, which the FAA converted into discretionary funds, we were able to fund some new start projects for capacity, rehabilitation and standards at the end of the year. 

As a percentage of AIP investment, capacity, rehabilitation and standards projects 

showed the greatest declines in fiscal year 2002 compared with fiscal year 2001. As 

a one-year phenomenon, a reduction in spending in these areas did not have significant adverse consequences for the aviation system. In fact, there was a bright side 

to this scenario. Because of past investment in additional runways and improved 

technology, and in light of the temporary decline in air traffic activity, flight delays 

were down in 2002, with an annual on-time arrival rate of 82 percent—compared 

to 76 percent in recent years. Balancing security and capacity costs will continue 

to be a tough challenge in the future. The FAA and the Transportation Security Administration (TSA) are fully aware of this dynamic. We have been working closely 

with TSA, and will continue to do so as they move to the new Homeland Security 

Department. FAA will be a part of the examination of how these costs are to be 

borne in the future. 

As for the short-term future of AIP funding, the outlook for fiscal 2003 is shaping 

up to be very similar to last year—we expect that a level of AIP similar to fiscal 

year 2002 will be used for security this year. We have experienced some delays due 

to the lateness of the fiscal year appropriations process, but now that the President 

has signed the omnibus appropriation bill for this year, we expect that we will be 

able to process pending grant applications by early spring. Even though safety and 

security have always been and will continue to be our number one priority, I assure 

you that we have not lost sight of the fact that once traffic recovers and grows—

and it will—the tremendous pressure to expand capacity will return. In fact, we will 

see some of the fruits of our past capacity infrastructure investment this year. New 

runways will become operational at Denver, Miami, Houston, and Orlando. 

As for the outlook for the longer term, there are considerable challenges for our 

grant program. Namely, how can we help meet the needs of the airport system as 

a whole and do so in a way that focuses on national priorities but still recognizes 

the dependence of smaller airports on AIP grants? One way is to ensure that our 

program has the necessary flexibility to provide smaller airports the resources they 

need, provide large airports access to Federal grant dollars to support important 

projects that will benefit the airport system overall, and make available a stable 

source of noise mitigation funding to communities. To this end, for fiscal year 2004, 

the good news is that, with all of the other demands on the Federal budget, the 

President’s Budget provides for a continuation of the healthy funding level of AIR–

21 for AIP of $3.4 billion. I think it’s worth highlighting this feature of our budget 

because preserving that level of support in the current budget environment speaks 

volumes about how important the President, Secretary Mineta and Administrator 

Blakey believe Federal aid is to the Nation’s airports. We also propose a restructuring of AIP formulas to allow more funds to be targeted to those smaller airports 

with the greatest need and dependence on Federal assistance. We expect that, with 

this restructuring, there will be approximately $87 million more available for small 

airports than in fiscal year 2003, while still increasing discretionary grant funds to 

enable us to target those projects that serve national objectives and achieve the 

greatest system benefits, regardless of airport size. Details of how we would restructure AIP formulas will be provided by our reauthorization proposal that the Secretary expects to submit to you next month. The Administration’s comprehensive 

bill will not only restructure and simplify AIP formulas but will also redesign the 

noise set-aside to provide a more stable source of Federal funding for environmental 

mitigation relating to airport development projects. 

Finally, I should note that, in addition to the AIP program, grants from state and 

local governments, bond financing, and their own rates and charges, airports also 

have additional source of funding available from PFCs. As of January 2003, FAA 

20

has approved 338 airports to collect PFCs for eligible projects. Estimated collections 

for calendar year 2003 are projected to be $2.1 billion, up from an estimated $2.0 

billion in calendar year 2002. This reflects the implementation of the $4.50 PFC 

level authorized by AIR–21 by a growing number of airports. Currently 170 airports 

(including 29 of the 68 large and medium hubs) have requested and received authority to collect PFCs at the $4.50 level. 

In closing, Mr. Chairman, let me say that I believe the nation’s airports have been 

making good progress in meeting the security challenges presented by the attacks 

of September 11th and, at the same time, increasing airfield capacity at major airports. The airport system was harshly affected by the attacks of September 11th but 

thousands of state and local officials, working in cooperation with the FAA and TSA, 

are doing a great job of bolstering security and we are well into the long process 

of recovery and stabilization. We know that the financial consequences for airports 

have been substantial. With Congress’ support and guidance, I assure you that we 

will continue to work hard to assist the Nation’s airports in meeting these challenges through a strong and flexible airport improvement program. 

That concludes my testimony. I would be happy to answer any questions you or 

Members of the Subcommittee may have.

Senator LOTT. Thank you, Ms. Woodward. 

Mr. Plavin, the president of the Airports Council International, 

we would be glad to receive your testimony. 

STATEMENT OF DAVID Z. PLAVIN, PRESIDENT, AIRPORTS 

COUNCIL INTERNATIONAL–NORTH AMERICA 

Mr. PLAVIN. Thank you, Mr. Chairman and Members of the Subcommittee. 

I thank Dr. Dillingham and Ms. Woodward for the introduction 

that they have provided, because I think they have given you an 

idea as to where the critical issues in our system are. And I 

thought it might be useful, given the name on this hearing today 

to talk a little bit about a broader set of issues about how the airport system gets paid for, because I believe that it is rather critical. 

As with everything else, the system is not made up of magic. The 

passengers or the taxpayers pay. And in the aviation system, it is 

overwhelmingly the passengers and the shippers who pay for the 

system. They obviously pay fares. They pay the airlines for the airlines’ costs and the things that they buy—airplanes, fuel, airport 

services. They pay taxes to the Airport and Airways Trust Fund to 

pay for air traffic control and for the AIP system. And now they 

pay for TSA, as well. They pay fees—customs fees, agricultural 

fees, immigration fees, passenger facility charges, and they pay the 

airport for the services they buy from airports. 

The airport revenue picture for the operating side has about 50 

percent of it coming from the people who do business at the airport—the airlines, the other tenants on the airport—from landing 

fees and rents, for example. And about 50 percent of it comes from 

non-aeronautical charges, charges like food and beverage, retail, 

parking, rental cars. So there is a sizable portion of the airport operations that is not related to the people who do business on the 

airports. 

On the capital side, Dr. Dillingham, I think, has given you an indication of where the various pieces are over a period of time from 

1999 through 2001. And as you can see from his numbers, the 

State and local contributions, which particularly focus on small airports, represent about 4 percent of the total annual cost of doing 

business. The AIP funding from the trust fund is about 20 percent. 

That number is considerably larger at smaller airports, and rathVerDate 0ct 09 2002 11:52 May 16, 2005 Jkt 096269 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\96269.TXT JACK PsN: JACKF
21

er—much smaller at smaller—at larger airports. Everything else is 

generated at the airport—airport revenues and reserves, about 4 

percent; passenger facility charges, about 14 percent. And as Dr. 

Dillingham mentioned, about 60 percent of the total is paid for by 

airport revenue bonds of one kind or another. 

It is important that we pay attention to the fact, though, that 

while we have been able to cover them, that particular piece of revenue, those bond revenues, have to be repaid. And when they get 

repaid, they get put into the landing fees for us to then charge the 

people who are using our airports. So that if we add $5 billion a 

year to our indebtedness, we are also adding $400 million a year 

to our annual operating costs, and that means that over the threeyear period Dr. Dillingham was looking at, our costs have been required to increase by some $1.2 billion per year in order to cover 

the indebtedness that the airports pick up as part of the overall 

cost of doing the capital program. And that means that in the kind 

of situation where we are today, where the airlines are in such significant financial distress, adding that level of increment to what 

they are going to have to pay in operating expenses, I think, is a 

significant burden that I hope we will be able to address as we talk 

about the reauthorization program. 

And as Dr. Dillingham mentioned, these numbers do not include 

the cost of security, either the operating costs or the capital costs 

associated with actually putting in place a solution which is a final 

solution, a permanent solution, unlike the temporary solutions that 

TSA put in place quite successfully in order to meet the deadlines 

that Congress put in place for them. We estimate that the cost of 

doing that, of putting in these ultimate solutions, probably ranges 

from $3- to $5 billion, numbers that are not reflected in the numbers that we were talking about so far. 

Which brings me to the question about what are the appropriate 

roles and responsibilities of the airports, the Federal Government, 

the Transportation Security Administration, the FAA, and so on. It 

is our view that we have moved from a situation where we have 

had a partnership over the years to one where the Federal Government and the organizations of the Federal Government have been 

getting the local governments that run airports, that are airports, 

to more and more relinquish the kinds of roles and responsibilities 

that they have had up to this point. I think the next FAA reauthorization provides airports with an opportunity to begin improving 

that relationship. 

The written testimony talks about some of the specific things 

that we think are important to address as we go through the exercise. We need to provide the airports with the resources they need 

to meet future demand. Capacity continues to be an issue. While 

the passengers have not yet returned to their year-2000 levels, aircraft are increasing much more rapidly, which means that the congestion that we experienced in the year 2000 will come back long 

before the numbers of passengers come back. We have got smaller 

airplanes in the system, which means that we actually are very 

close to the level of aircraft operations that we were at well before 

9/11. 

Secondly, we believe that the capacity needs are long overdue 

anyway, that airports have been considerably behind their ability 

22

to meet those needs, and, as this Committee has mentioned on a 

number of occasions, the ability to put a capital improvement program in place, particularly with runways, is made much more difficult by the kinds of requirements that that process includes. 

The FAA has done a very good job in trying to streamline that 

process, but it is still quite lengthy. GAO has reported that it often 

takes as much as 10 to 15 years to build a new runway to deal 

with the kind of capacity we are talking about. And ultimately, we 

also will need, therefore, to put additional gates in place, additional 

square footage of terminals, access roads, and so on, parking, at 

airports. 

Mr. Chairman, I think the point I want to make today is that 

we know the difficulties that the budget includes. We understand 

the difficulties of trying to add additional resources to the airport, 

to the aviation program. But we believe that it is necessary. We believe that the airports must have additional resources in order to 

satisfy the requirements that have been mandated upon them. 

One thing we can do, for example, is to talk about looking at the 

kinds of conditions that are attached to AIP grants, to PFCs, the 

process for getting them approved. We hope that it is possible in 

the future to begin to look at all of the various funding sources as 

being eligible to fund any lawful airport purpose. We are not suggesting that the airports take the money that they have and use 

it for non-airport purpose. On the contrary, we believe very strongly that that is a critical part of what makes it possible for the airports to get into the bond markets. But, at the same time, the differences between those various funding sources can be a significant 

obstacle to funding the specific projects that need to be done. 

We believe that we need to streamline that process, and we have 

talked about that a number of times. We believe we need to protect 

passenger facility charges when airlines are in bankruptcy from 

being treated as just another set of funds from the State of the 

bankrupt airline. We would like to eliminate some of the bureaucratic restrictions now that occur in conjunction with getting the 

AIP program grants and the PFCs approved. 

But, most importantly, we want to be recognized as the kind of 

partner we have been over the years for the enhancement of the 

aviation system and today, especially in the aviation security business. We believe that the underlying requirements for security are 

requirements that the airports have met for many years, are consistent with their responsibilities as local governments, and ones 

that we would very much like to participate in, assuming that we 

will be allowed to do that. 

Mr. Chairman, airports stand ready to become full partners with 

the Federal Government. By working together, we can marshal 

Federal and local resources to ensure that we have the safest and 

most secure system possible. We can also be prepared for the increasing number of passengers who will be using our aviation system in the future. 

Thank you very much. 

[The prepared statement of Mr. Plavin follows:]

23

PREPARED STATEMENT OF DAVID Z. PLAVIN, PRESIDENT, AIRPORTS COUNCIL

INTERNATIONAL-NORTH AMERICA

Chairman Lott, Ranking Member Rockefeller and Members the Senate Commerce 

Subcommittee on Aviation, thank you for inviting me to appear before your Committee to discuss airport financing. I am testifying today on behalf of Airports Council International-North America (ACI–NA) and the American Association of Airport 

Executives (AAAE). ACI–NA represents local, regional and state governing bodies 

that own and operate commercial airports in the United States and Canada. AAAE 

represents the men and women who manage primary, commercial service, reliever 

and general aviation airports. 

Before I begin discussing airport financing and outlining our recommendations for 

the next Federal Aviation Administration (FAA) reauthorization bill, I would like 

to comment briefly on the current relationship between airports and the Federal 

Government. 

One of the most thoughtful and respected leaders in the airport industry is James 

Wilding, the president and chief executive officer of the Metropolitan Washington 

Airports Authority. Mr. Wilding recently announced that he will be retiring in April 

after spending 43 years rebuilding Ronald Reagan Washington National Airport and 

building and expanding Washington Dulles International Airport. 

Mr. Wilding has observed over many years that the relationship between airports 

and the Federal Government has deteriorated significantly. It has been moving from 

a partnership among federal, state and local governments to an environment where 

the Federal Government has forced local governments that are airports to relinquish 

many of their traditional roles and responsibilities. The next FAA reauthorization 

bill provides airports with an opportunity to begin improving that relationship. 

As everyone on this Committee knows, the Federal Government, itself, plays a 

prominent role in the aviation industry. It regulates airline safety, operates the national air traffic control system and administers a user-financed grant program to 

assist with capital investment in certain types of airport facilities. The Federal Government usually performs those responsibilities exceptionally well. 

The Federal Government, however, often fails to acknowledge the unique roles 

and responsibilities that airports have in ensuring safety, security, and capacity at 

their facilities, independent of the growth in federal mandates. Airports are owned 

and operated by units of state and/or local government. But the Federal Government increasingly treats airports as if they are private, commercial entities that 

need regulation in the public interest rather than local public entities. 

Mr. Wilding, like airport operators around the country, would prefer a more balanced relationship between airports and the Federal Government. While there is no 

single legislative step that Congress can take to accomplish that goal, we ask that 

Members of this Committee protect and restore the traditional roles and responsibilities of airports as you consider the next FAA reauthorization bill. 

Airports stand ready to become full partners with the Federal Government. By 

working together, we can marshal federal and local resources to ensure that we 

have the safest and most secure aviation system possible. We can also be prepared 

for the increasing number of passengers who will be using our aviation system in 

the near future. 

Provide Airports With the Resources They Need to Meet Future Demand 

Mr. Chairman, I would like to begin my comments on airport finance by thanking 

you and the Members of this Committee who worked on H.R. 1000, the Wendell H. 

Ford Aviation Investment and Reform Act for the 21st Century, also known as AIR–

21. As most of you know, the last FAA reauthorization bill included record funding 

levels for the Airport Improvement Program (AIP). 

Specifically, the law recognized the growing need for investment as it included 

$3.2 billion for the AIP program in Fiscal Year 2001 (FY01), $3.3 billion in FY02, 

and $3.4 billion in FY03—a 64 percent increase above previous levels in FY01 alone. 

The law also raised the cap on Passenger Facility Charges (PFCs) from $3.00 to 

$4.50. Together, these actions have improved safety and capacity at airports around 

the country. 

In addition to increasing funds for the AIP program, Members of this Committee 

should also be commended for guaranteeing that all revenue and interest paid into 

the aviation trust fund will be spent on aviation. AIR–21 provides for budget points 

of order against any appropriations bill that either fails to spend all the trust fund 

receipts and interest or does not appropriate the total authorized levels for FAA’s 

capital programs. 

But much has changed since Congress passed AIR–21 almost three years ago. The 

downturn in the economy and the terrorist attacks on September 11 has hit the 

24

aviation industry particularly hard. The entire aviation system was shut down for 

the first time in history, passenger levels declined and the nation’s network carriers 

reduced capacity. 

In its Aerospace Forecast issued in March 2000, the FAA estimated that airline 

passenger traffic would decrease to 600.3 million enplanements in FY02. Despite 

this temporary reprieve, the agency expects that airline passenger traffic will increase by an average rate of 4 percent per year and reach one billion passengers 

by 2013—just a few years later than the agency had predicted before September 11. 

Given that airfield projects generally take a minimum of ten years and more to complete, we have no time to lose. 

Gerald Dillingham, the Director of Civil Aviation Issues for the General Accounting Office (GAO), recently testified before the House Transportation and Infrastructure Committee about the need for additional capacity. He said, ‘‘enhancing the capacity and efficiency of the national airspace system through runway development 

and air traffic modernization is critical to preparing for the projected growth and 

demand for air travel.’’

Ken Mead, the Inspector General of the U.S. Department of Transportation 

(DOT), in recent testimony said, ‘‘building aviation system capacity and more efficient use of airspace’’ is one of four key issues for the next FAA reauthorization bill. 

Mead also suggested that it would be shortsighted for the FAA not to be ‘‘strategically positioned for when demand returns through a combination of new runways, 

better air traffic management technology, airspace redesign and greater use of nonhub airports.’’

We agree with the comments made by Dr. Dillingham, Mr. Mead, other Administration officials and Members of Congress who have suggested that we be prepared 

for future demand. We should use this temporary downturn to our advantage and 

begin building new runways now—not later when passengers experience delays and 

cancellations like they did in 2000 when one in four flights were delayed, cancelled 

or diverted, affecting some 163 million passengers. In order to be prepared for future demand, however, we need to continue making wise investments in aviation 

infrastructure as Congress did in AIR–21. 

ACI–NA recently surveyed airports around the country about their capital needs 

in order to determine how much investment in aviation infrastructure is necessary 

in the next few years. From that survey, we estimate that capital development costs 

will total more than $61 billion between 2003 and 2006 at an average rate of about 

$15 billion per year. This estimate includes the costs of construction projects that 

are necessary but not eligible for AIP funds. These include parking lots, cargo buildings and terminal development, for example, at airports of all sizes. 

Dr. Dillingham cited the ACI–NA survey in his recent testimony. He also estimated that the average amount that airports received for capital development from 

all sources was about $12 billion per year between 1999 and 2001. If that trend continues, airports would face about a $3.4 billion shortfall in capital needs and be 

forced to delay important safety and capacity projects every year through FY06. 

[Members of this Committee should know that we make every effort to coordinate 

the distribution of our surveys with the FAA, the DOT Inspector General and GAO.] 

Ideally, AAAE and ACI–NA would prefer that Congress provide another major increase in AIP funding, take the aviation trust fund off budget and lift the federal 

cap on PFCs to help airports meet future demand. Considering the current fiscal 

climate and the financial troubles plaguing the airline industry, we realize these 

suggestions might seem impractical to some Members of this Committee. However, 

we encourage Congress to take these and other steps to ensure that airports have 

the resources they need to meet future demand. 

Provide Modest Increase in AIP Funding: We recognize the difficulty in providing 

significant increases in AIP funding, but the alternative is to fall further behind. 

Thus, we recommend that Congress authorize AIP at $4 billion in FY04 and increase the funding levels by an additional $100 million a year. By strengthening the 

trust fund we would also have more money available for necessary infrastructure 

investment as the industry turns around. Even at the funding level, a gap would 

exist between funding from all sources of capital and the annual capital needs of 

airports. 

Maintain Current Budget Protections: We also urge you to continue providing 

budget protections for the AIP program. The budget protections that you included 

in AIR–21 have worked exceptionally well. In fact, Congress has appropriated the 

same amount for AIP per year that it authorized in AIR–21. As you consider the 

next FAA reauthorization bill it is imperative that you maintain the current budget 

protections that have worked so well under AIR–21. 

25

Unleash AIP Funds, PFCs and Airport Bonds 

Airports rely on a number of different sources to fund their capital needs. The two 

that may be most familiar to Members of this Committee are AIP and PFCs. Unlike 

many other transportation entities, airports generate much of their capital themselves through airport bonds, special facility bonds, state and local contributions and 

revenue generated from airport fees, rates and charges. 

One of the most important sources of funding, especially for small- and non-hub 

airports is AIP. Airports use AIP funds to finance a variety of capital improvements 

including runway and taxiway construction, navigation aids and airfield lighting. 

Airports, however, are strictly prohibited from using AIP funds for operational costs 

such as salaries, marketing plans and constructing revenue-producing terminal 

areas such as ticket counters and concession stands. 

PFCs are another source of revenue for airports. The PFC program allows airports 

to impose local fees on airline passengers enplaned at their facilities in order to pay 

for the development of the facilities they use at that airport. Airports may use PFCs 

for AIP-eligible projects. Unlike AIP funds, airports can use PFCs to pay interest 

on airport bonds and for construction on certain revenue-producing areas of airport 

terminals. The FAA estimates that airports collected approximately $2 billion from 

PFCs in FY02. Currently, 310 airports impose PFCs proving this is a local decision. 

Provide Airports with Flexibility on How They Can Use AIP funds and PFCs: As 

I mentioned previously, airports use revenue generated from a number of different 

sources. Each of these ‘‘currencies’’ has its own strings attached that create significant problems for airports. We believe that we should work toward an ‘‘Airport 

Euro,’’ a common currency to eliminate these multiple rules and regulations and 

permit airports to use AIP and PFC funds for any airport capital project, provided 

that we retain necessary prohibitions against revenue diversion and unjust discrimination. 

Under our proposal, for instance, airports would be free to use AIP funds and 

PFCs to acquire airline baggage systems, information technology, ground support 

equipment, gates and ticket counters. These measures are also responsible ways to 

support airline needs and strengthen competition at the same time. 

Streamline the PFC Process: In addition to giving airports flexibility in how they 

can use AIP funds and PFCs, we think Congress can improve the PFC program. Airports believe that the PFC program would be more useful if it were treated more 

like airport rates and charges. This would require less federal oversight and make 

the PFC program more efficient. At the very least, we think the application process 

should be streamlined. 

It can currently take more than nine months for airports to gain approval to begin 

collecting PFCs. This is simply too long, with no added benefits accruing. Eliminating the duplicative Federal Register comment process and the additional requirements placed upon airports applying for $4.00 and $4.50 PFCs could reduce those 

delays and save airports, airlines and taxpayers scarce dollars. We are encouraged 

by our recent conversation with FAA Administrator Blakey and her staff who suggest the FAA is seeking to streamline the PFC approval process. 

Protect PFCs that Bankrupt Airlines Owe Airports: Airlines collect PFCs on behalf 

of airports and then remit them to airports. Two major airlines—United and U.S. 

Airways—have already filed for bankruptcy. Other airlines may not be far behind 

especially if there is a war with Iraq causing fuel prices to rise and international 

passenger traffic to drop off. Airports now have to resort to the legal process to recover PFCs owed to them. In December a U.S. Bankruptcy Court judge ordered 

United Airlines to pay Denver International Airport $4.7 million in PFCs that the 

airline collected. Congress should codify the principle that PFCs are held in trust 

by the airlines and ensure that airports receive their PFCs in a timely fashion from 

airlines whether they have declared bankruptcy or not. 

Eliminate Unnecessary and Bureaucratic Competition Plans: Airports support almost of all of what was enacted in AIR–21. However, we hope this Committee will 

revisit the section on ‘‘competition plans’’ when it considers the next FAA reauthorization bill. AIR–21 included a provision that prevents certain large- and mediumhub airports from receiving AIP funds or collecting new PFCs unless they file competition plans with DOT. 

According to the report accompanying the House version of the legislation, the 

purpose of that provision was to require airports to demonstrate how they would 

provide access to new entrant carriers and allow incumbent carriers to expand. Like 

the Members of this Committee, airports want more competition—not less. There 

isn’t a day that goes by that airport operators are not thinking about how they can 

expand service to their community. Airports realize that competition is the key to 

their efforts to both develop air service and to hold fares at reasonable levels for 

their passengers. 

26

The provision in AIR–21 that requires airports to file competition plans is unnecessary, burdensome and may have resulted in some unintended consequences. For 

example, FAA issued a revised 15-page Program Guidance Letter in November that 

tells airports that the agency expects detailed information on some 60 items. The 

agency, for instance, requests data on ‘‘local passengers, average passenger trip 

length, average passenger yield, and number of city-pair markets served 

disaggregated by distance (distinguishing between markets of 750 miles or less and 

markets over 750 miles) . . . ’’ Some airports have informed us that the FAA treats 

these program guidance recommendations as requirements, even though most are 

inapplicable to most airports. 

Most of this data that DOT now collects is difficult and expensive for airports to 

mine for useful information. According to a recent ACI–NA survey, it took some airports more than 200 hours and considerable cost to complete their competition 

plans. Moreover, some airports informed us that it took the FAA nine months to 

review their competition plans with little or no benefit provided to the traveling 

public. 

While we understand the goal that Congress had in mind when it created this 

requirement, it has led to unintended and bureaucratic consequences with no material change in the airports must do their business and not demonstrable impact on 

competition. The current financial straights in which U.S. airlines find themselves 

make such efforts even more superfluous. 

We encourage you to eliminate the competition plan requirement when you consider the next FAA reauthorization bill. This is one positive provision to recognize 

the unique roles of airports and restore their rights, roles and responsibilities. 

Reclassify Airport Bonds as Governmental: In addition to AIP funds and PFCs, 

airports generate revenue from bonds. Unfortunately, federal tax law unfairly classifies tens of billions of dollars in outstanding airport bonds as so-called ‘‘private activity’’ bonds. As a result, airport bond issuers are charged higher interest rates on 

their borrowing than they otherwise would pay and are unable to ‘‘advance refund’’ 

outstanding bonds to take advantage of lower interest rates. The current charges 

to airport users would be reduced to reflect these lower interest costs. 

But, in addition, airports are public entities that serve a vital public purpose. 

That fact has been proven true repeatedly in the aftermath of the September 11th 

terrorist attacks. We believe that Congress should take steps to reclassify these airport bonds as ‘‘governmental.’’ Doing so would save airports millions in financing 

costs and would allow airports to take full advantage of historically low interest 

rates in today’s market to refinance outstanding debt. After September 11, Congress 

gave New York City similar authority, and billions of dollars were refinanced to the 

public’s benefit. 

Partner with Airports to Enhance Aviation Security 

Chip Barclay, the President of AAAE, recently testified before this Committee on 

behalf of AAAE and ACI–NA regarding aviation security. During his opening comments, Mr. Barclay urged the Transportation Security Administration (TSA) to work 

with airports as partners rather than treat them like a privately regulated party. 

As he pointed out, airports are ‘‘TSA’s partners with law enforcement powers and 

identical incentives to keep our citizens safe.’’

Mr. Barclay’s comments go hand-in-hand with the remarks that I made at the beginning of my testimony about the need to protect and take advantage of the traditional roles and responsibilities of airports. As you begin considering the next FAA 

reauthorization bill, the key security recommendations that we outlined in that testimony are consistent with a partnership approach and are worth repeating. 

Prevent AIP Funds From Being Drained for Security-Related Projects: DOT Inspector General Mead said that ‘‘striking a balance on how airport funds will be 

used for aviation system capacity, airport safety and security’’ will be another major 

issue for the next FAA reauthorization bill. He also pointed out that ‘‘continuing to 

use a significant portion of AIP funds and passenger facility charges (PFCs) on security projects will have an impact on airports’ abilities to fund capacity projects.’’

We share Mr. Mead’s concerns about who is going to pay for installing explosive 

detection systems (EDS) at airports and the potential impact that this could have 

on safety and security projects at airports. AAAE and ACI–NA have been making 

the case that airports should not be forced to choose between spending AIP funds 

on much-needed safety and capacity projects or on security-related projects mandated by the Federal Government. Even if we were faced with such a choice, there 

is simply an inadequate amount of revenue generated by the trust fund to finance 

EDS installation. 

Unfortunately, as the GAO has made clear, current policy is forcing airports to 

choose between safety and capacity or security. In FY02, airports spent approxiVerDate 0ct 09 2002 11:52 May 16, 2005 Jkt 096269 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\96269.TXT JACK PsN: JACKF
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mately $561 million in AIP to pay for security-related projects. This is ten times 

more than the $56 million that airports spent on security during the previous fiscal 

year. In other words, airports deferred more than $500 million in AIP funds to improve safety and capacity last year because there is not a separate source of funds 

available to pay for security-related construction projects. While this may have been 

justifiable for a year, it is not sustainable for the long-term if we prudently plan 

for future growth and manage current safety issues. 

Congress has attempted to provide airports with at least some of the funding necessary to install EDS machines. The FY02 supplemental appropriations bill included 

$738 million for that purpose. Airports do not know how TSA has spent that $738 

million to date, and we look forward to the results of the DOT Inspector General’s 

review of the spending. Even if the full $738 million were spent exactly as Congress intended, it still will 

not be enough to cover the costs of installing EDS machines behind the ticket 

counter and integrating them into baggage systems. Boeing estimates that this will 

cost $3 billion. Based on surveys conducted by ACI–NA, we think that cost could 

reach $5 billion. 

I would like to stress that installing EDS machines behind the ticket counter is 

not for aesthetic purposes as some have suggested. At many of the 429 commercial 

service airports, TSA temporarily installed EDS machines in crowded airport lobbies 

in an effort to meet the December 31, 2002 deadline for screening all checked baggage. But keeping these EDS machines in airport lobbies rather than integrating 

them into baggage systems behind ticket counters has created numerous problems 

that go well beyond aesthetics. 

DOT Inspector General Mead pointed out recently that the only way you can efficiently screen 100 percent of the baggage for explosives at large airports is by integrating EDS machines into baggage systems. Second, leaving EDS machines in airport lobbies results in less productive use of machines, requires more TSA staff to 

operate them and causes passengers to spend longer times at ticket counters, creating unnecessary security and safety risks. Airports around the world have many 

years of experience with the risks associated with the concentration of large numbers of people at the front of the terminal. 

On a related issue, we must also strive to reduce the so-called ‘‘hassle factor’’ that 

is exacerbated when passengers are forced to wait in several queues at the ticket 

counter even before they even reach the security checkpoint and the airline gate. 

This may seem insignificant, but the ‘‘hassle factor’’ is just one more reason why 

some passengers have simply avoided flying altogether since September 11. 

Reimburse Airports for New Security Requirements: In addition to new construction costs associated with installing EDS machines, airports are now paying for new 

operational security costs. After the terrorist attacks on September 11, the FAA and 

later the TSA required airports to deploy additional law enforcement personnel, enhance airport surveillance and revalidate all airport-issued identification. For the 

last two years, this has resulted in a 38 percent increase in airport operational security costs. 

Congress authorized $1.5 billion in FY02 and FY03 to reimburse airports for these 

additional security mandates as part of the aviation security bill. Unfortunately, airports did not receive the necessary appropriations. As part of the FY02 Department 

of Defense appropriations bill, which included emergency funding for other agencies, 

Congress approved $175 million to reimburse airports for new security requirements. Airports, however, submitted approximately $445 million in requests that 

the FAA deemed acceptable leaving about a $270 million shortfall. 

Congress approved an additional $150 million in the FY02 supplemental appropriations bill to reimburse airports for their operational costs. However, Congress 

designated those as contingent emergency funds, and the President ultimately decided not to spend $5.1 billion in the bill including the $150 million that was slated 

to go to airports. 

Moreover, security costs are escalating again as airports respond to a higher 

threat level that has been in place since February 7. The orange threat level forces 

some airports to close parking, conduct more random vehicle searches and deploy 

more law enforcement officers. It is unclear how long the higher threat level will 

be in place; however, it could continue for some time especially if the United States 

goes to war with Iraq. 

Since the previous authorization of $1.5 billion expires in FY03, we encourage this 

Committee, as part of the next FAA reauthorization, to authorize $500 million per 

year to reimburse airports for new security requirements, such as deploying additional law enforcement officers. These new security requirements are federal national security mandates, and airports should be reimbursed for the cost of implementing them. Without reimbursement from the Federal Government, airports will 

28

have no other choice than to pass those additional costs on to the array of airport 

users, including in large part, the airlines that are facing their own financial challenges. 

Require FAA and TSA to Pay for Space the Agencies Use at Airports: The FY02 

omnibus appropriations bill also includes a provision that requires FAA and TSA 

to pay for the space the agencies use at airports. It precludes the use of space at 

security checkpoints that airports provide to TSA without cost. With TSA deploying 

some 62,000 federal screeners at airports around the country, the agency has requested significant amounts of space at airports for employee training, office space, 

break rooms and other purposes. It is only fair that FAA and TSA—like other airport tenants who occupy space for which airports incur the cost of construction and 

maintenance—should be required to pay for the space they use. In addition, we 

share the DOT Inspector General’s view that the new Department of Homeland Security should make every effort to consolidate airport facilities with other federal 

tenants. 

We are pleased that the Administration’s FY04 budget request includes a general 

provision that would require FAA to pay for the space the agency uses at airports. 

Although Congress has supported airports on this issue in the appropriations process, we encourage this Committee to include a provision in the next FAA reauthorization bill that will require FAA and TSA to pay for the space the agencies use 

at airports. 

Allow Airports to Make Decisions About Parking: TSA has asserted that it has the 

authority to determine whether vehicles should be allowed to park within 300 feet 

of airport terminals. This issue of the ‘‘300 foot rule’’ has been a source of continuing 

friction between TSA, airports and the traveling public. 

While TSA has made some improvements recently, we strongly believe that airports are able to make their own decisions about parking near their terminals after 

they consult with their Federal Security Directors and with other state and local 

law enforcement authorities. The Federal Government does not dictate to local governments on how they protect shopping malls, office buildings, schools, museums or 

sports stadiums. The non-aeronautical areas of airports should not be treated any 

differently. 

Use New Technology to Enhance Security and Expedite the Processing of Passengers: Just a few days after the terrorist attacks, DOT Secretary Norman Mineta 

formed two teams to examine ways to improve airport and aircraft safety. The 

Rapid Response Team on Airport Security recommended that new technologies 

should be used at airports to identify passengers, workers and crews. The team also 

concluded that there is an urgent need to establish a nationwide program of voluntary pre-screening of passengers, together with the issuance of ‘‘smart’’ credentials to expedite the processing of passengers. 

We cannot run an efficient public transportation system if we try to treat all 700 

million passengers a year like potential terrorists. We need a voluntary system that 

allows frequent travelers to provide enough information on themselves, so government and industry can agree they belong in a ‘‘low-risk’’ pool. 

The aviation security bill that Congress passed last year called on DOT to study 

options for improving positive identification for passengers including the use of biometrics and smart cards. We encourage this Committee to take additional steps toward deploying new technologies when it considers the next FAA reauthorization 

bill. 

Allow Airports to Continue to Control Perimeter Security: Airports should continue 

to be responsible for maintaining perimeter security. Again, this relates to the proper relationship between airports and the Federal Government that I discussed at 

the beginning of my statement. Providing perimeter security is inherently an airport 

responsibility. We strongly encourage this Committee to ensure that airports continue to control the perimeter around their facilities. 

Require TSA to Conduct Regulatory Burden Tests Like Other Federal Agencies: 

Airports understand that there are times when TSA must issue emergency directives that don’t fall under the typical Federal Register process required of other federal agencies. Nevertheless, that does not justify TSA issuing operational directives 

that duplicate airport-center responsibilities. At the very least, TSA should have to 

spell out why they need to intrude on a traditional local government, airport responsibility and share proposed operational requirements with airport operators. Too 

often, representatives of airports have either not been briefed or given so little time 

to respond that it is clear that the input was pro-forma rather than designed for 

true interchange among partners. 

Reimburse Airlines for New Security Costs: When he testified before the Senate 

Commerce Subcommittee on Aviation on February 12, James May, the new President and CEO of the Air Transport Association, argued that ‘‘Congress must estabVerDate 0ct 09 2002 11:52 May 16, 2005 Jkt 096269 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\96269.TXT JACK PsN: JACKF
29

lish and enforce an unalterable policy that aviation security is the responsibility of 

the Federal Government.’’ Airports, too, agree that paying for this national security 

need should be the responsibility of the Federal Government. Airports have a symbiotic relationship with airlines, and we want the airlines to succeed. We hope that 

Congress will consider authorizing funds from the general treasury to reimburse 

carriers for their new security costs just as we are asking you to reimburse airports 

for our new capital and operational security costs. 

Improve Air Service to Small Communities 

Since Congress deregulated the airline industry in 1978, it has been difficult for 

many small communities to retain and attract new commercial air service. The terrorist attacks on September 11 and the downturn in the economy have made that 

challenge even more difficult. Airline passenger traffic has declined, and airlines responded by cutting capacity and service to less profitable small communities. 

In March 2002, the GAO reported that the total number of daily departures from 

airports in small communities that it studied declined by almost 20 percent between 

October 2000 and October 2001. Moreover, the agency found that the number of 

small communities served by only one airline increased to 47 percent during the 

same time period. The GAO pointed out that when one or more airlines pulled out 

of some small communities, passengers lost connecting service destinations and became more vulnerable to noncompetitive pricing. 

The DOT Inspector General also found that non-hub airports have been disproportionately losing access to large airports. According to the DOT Inspector General, 

direct service from non-hub airports in small communities to the largest 31 airports 

declined by approximately 17 percent between September 2000 and September 2002. 

By contrast, access from medium and large airports to the largest 31 airports declined by 5 to 10 percent during the same period. 

Unfortunately for many small communities around the country, it doesn’t appear 

that it will be any easier for them to attract new commercial air service any time 

soon. As I noted earlier in my testimony, two major airlines have already filed for 

bankruptcy and other airlines may not be far behind. This would likely place even 

more pressure on airlines to reduce capacity and cut service to small communities. 

All sizes of airports have adversely affected by the economic downturn and by the 

terrorist attacks on September 11. But it is clear from reports issued by the GAO 

and DOT Inspector General that small communities have suffered greatly. The challenge for this Committee will be to preserve air service to small communities when 

it considers the next FAA reauthorization bill. AAAE and ACI–NA have a few recommendations on how to improve air service to small communities. 

Expand the Small Community Air Service Development Pilot Program: On behalf 

of small airports around the country, AAAE and ACI–NA would like to thank the 

Members of this Committee for creating the Small Community Air Service Development Pilot Program in AIR–21. Although that program has been up and running 

for less than a year, we are confident that it will help improve air service to airports 

that suffer from infrequent service and high airfares as Congress intended. 

As all of you know, AIR–21 authorized $20 million for the program in FY01 and 

$27.5 million in FY02 and FY03. After Congress appropriated $20 million for the 

program as part of the FY02 DOT Appropriations bill, DOT selected 40 communities 

from 38 states to participate in the program. 

The program was extraordinarily successful, reflecting the pent-up demand for 

creative solutions. Unfortunately, however, 139 communities that applied for funds 

did not receive any. As we expected, the demand for grants far exceeded the $20 

million that Congress appropriated for the program in the FY02 DOT appropriations 

bill. The fact that DOT received 179 proposals requesting more than $142 million 

underscores how much interest there is in this program. 

Congress should be commended for appropriating another $20 million for the 

Small Community Air Service Development Pilot Program in the FY03 omnibus appropriations bill. However, given the number of communities that applied for funds 

from this program and the continuing reduction in air service to small communities, 

we urge this Committee to consider making a greater investment in the Small Community Air Service Development Program. We urge you to approve a major increase 

in funding for the Small Community Air Service Development Program that reflects 

current demand. 

Maintain the Essential Air Service Program: The Essential Air Service (EAS) program is another program that has helped small communities for many years. Congress created the program in an effort to ensure that certain small communities 

would continue to receive commercial service after it deregulated the airline industry. The EAS program has suffered in recent years from irregular funding and at 

times unreliable service from carriers facing higher operating costs. 

30

We encourage Congress to improve the Essential Air Service program rather than 

let it die on the vine as the Administration is proposing. The Administration’s budget request includes only $50 million for the EAS program—$65 million less than the 

amount that Congress approved for the program as part of the FY03 omnibus appropriations bill. The President’s request calls on local communities to provide up to 

a 25 percent matching share. 

Like the Federal Government, state and local governments have been hard hit by 

the downturn in the economy and the attacks on September 11. Some communities 

simply do not have the resources to come up with the local match required under 

the Administration’s proposal. With small communities being disproportionately hit 

by the industry’s economic declines, now is the time to step up our efforts to help 

small communities—not abandon them and prevent people from having access to 

the air transportation system simply because the live in a small community. Access 

is one of the most vital ingredients of the public purposes served by our national 

aviation system. 

Invest in the FAA’s Contract Tower Program: Another program that has improved 

service and safety at airports in small communities is the FAA’s Contract Tower 

Program. This program, which is endorsed by the DOT Inspector General, has been 

in place since 1982 and currently provides for the cost-effective operation of air traffic control towers at 219 smaller airports in 46 states. 

With help from this Committee, AIR–21 created the Contract Tower Cost Share 

Program, which allows more than 30 airports that fall slightly below the eligibility 

criteria to participate in the program if they provide local funds. We recommend 

that this Committee authorize $8 million for the Contract Tower Cost Share Program per year to allow additional airports to participate in the program and improve air traffic safety at their facilities. 

Prevent Future Delays by Increasing Aviation Capacity 

Two years ago, the biggest issue facing the aviation industry seemed to be a combination of diminishing capacity and increasing number of flight delays and cancellations. In 2000, one in four flights were delayed, cancelled or diverted affecting 

some 163 million passengers. AAAE and ACI–NA responded by developing the Expedited Airport System Enhancement (EASE)—an initiative to expedite the review 

and approval process for projects that would enhance capacity and reduce delays at 

the nation’s busiest airports. 

For instance, we called for a coordinated federal review of critical national airport 

capacity enhancement projects and recommended that the list of categorical exclusions be expanded. We also suggested that airports should be allowed to provide 

funds to the FAA to hire additional, project-specific staff and consultants to expedite 

the review of critical capacity projects. 

On behalf of airports around the country, we want to thank the Members of the 

Senate Commerce Committee for the significant progress you have made on project 

streamlining in the past two years. We would particularly like to thank Sen. 

Hutchison and Sen. Rockefeller for sponsoring S. 633, the Aviation Delay Prevention 

Act. And we thank the rest of the Senate Commerce Committee for approving this 

bill in 2001. 

I commented earlier about the need to protect the roles and responsibilities of airports. With that in mind, we urge you to reconsider a provision in S. 633 that would 

prevent certain airports from receiving AIP funds and collecting new PFCs if they 

‘‘decline to undertake expansion.’’ This proposed penalty is unnecessary and wrongly 

suggests that airports somehow desire fewer runways, less capacity and more 

delays. Nothing could be further from the truth. 

Airports around the country are exceptionally frustrated by the fact that it often 

takes them 10 to 15 years to construct a new runway, and that is why we are seeking legislative assistance. We hope that this Committee will revisit this unnecessary 

provision in the next FAA reauthorization bill. 

Despite the welcome progress that this Committee has made in the past two years 

on project-streamlining, Congress was unable to send a bill to the President’s desk 

before the 107th Congress adjourned. We hope Congress will pick up where it left 

off last year and pass a stand-alone, project-streamlining bill soon. If necessary, we 

encourage Members of this Committee to include project-streamlining provisions in 

the next FAA reauthorization bill. 

Chairman Lott, Ranking Member Rockefeller and Members of the Senate Commerce Subcommittee on Aviation, thank you for inviting me to participate in today’s 

hearing on airport financing. All of us at ACI–NA and AAAE look forward to working with you during the 108th Congress as you consider the next FAA reauthorization bill.

31

Senator LOTT. Thank you very much. 

Senator Stevens, I believe, has another meeting he needs to go 

to, so I would like to yield to him. 

Now, how is the Ted Stevens International Airport doing? Is security pretty good up there? 

Senator STEVENS. I just left it, and it looks good. 

Senator LOTT. Good, all right. 

STATEMENT OF HON. TED STEVENS,

U.S. SENATOR FROM ALASKA 

Senator STEVENS. I am concerned about the President’s recommendation—I approve it—to target medium and small airports 

in the AIP funding portion of the budget this year, but I wonder 

how realistic that is in view of the size of these terminals at the 

major airports. 

As I travel around the country, I have the impression that there 

is a contest between architects to see who can build the highest 

ceilings and the most garish types of airports. Why are you all 

funding those enormous projects, in terms of the size of these terminals? 

Ms. WOODWARD. Senator, terminal projects are not eligible for 

funding out of the AIP program. Many airports choose to use their 

passenger-facility-charge-generated money for those. But certainly 

airport improvement grants are not used at all for those terminals. 

Senator STEVENS. Are they all funded by bonds, totally? 

Ms. WOODWARD. From bonds, passenger facility charges, and the 

airlines contribute to some of the funding; it’s a combination of 

funding. 

Senator STEVENS. You are telling me that none of the money for 

those large monstrosities is coming out of the money that should 

be going to small- and medium-sized airports? 

Ms. WOODWARD. Correct. AIP money cannot be used for terminal 

projects. 

Mr. PLAVIN. Senator, I think it is also true that the kind of costs 

that you have been seeing associated with airport terminals is not 

typically a function of the architecture; it is simply a function of 

the space that needs to be provided, and they are costs that are 

typically negotiated with the local airport tenants to be sure that 

they, who are ultimately going to have to pay the bill for this, are 

satisfied with both what it looks like and what it can provide for 

them. 

Senator STEVENS. All right, I stand corrected, but I do not know 

why they have to have 50-foot ceilings in those airports. It is still 

something—someone is paying for it. 

Mr. PLAVIN. Well, the actual cost of the increased ceilings, I 

think we saw an example of that when we went to look at the 

buildings of the Washington National Airport. That was actually 

modified at the request of the airlines with that kind of a criticism 

in mind. And it turns out it did not really save an awful lot of 

money to bring that down. We do need the volume to accommodate 

the number of passengers who are actually being accommodated, 

and the passenger experience, I think, has become a very important part of what people are looking for when they travel. 

32

Senator STEVENS. What do you think about the security program? As you mentioned, all three of you mentioned, we are really 

not dealing with that money here today. It is going through another department now, but it is going to be sizeable. I was in Nome 

recently, and I saw that the terminal there had been—a third of 

the terminal had been taken over by the security agency. They just 

moved the airlines aside and said, ‘‘We need space,’’ and took it. 

That means that those airlines have to expand the space if they are 

going to continue to operate. So it does seem to me that the burden 

of that security program is put on the small- and medium-sized airports much more than the large airports. Have you all got a plan 

to figure out who is going to pay for that? 

Mr. PLAVIN. Senator, the current situation does not show any 

Federal funding for any of those projects. That leads us to assume 

that the airports, once again, will have to identify the sources from 

within their own capabilities to fund those. 

Admiral Loy suggested the last time he testified that he recognized that there was a wake that he had left as he had gone 

through the airports in installing the equipment necessary to meet 

the short-term deadlines. But I think we all agree that the longterm solution probably requires us to build new baggage capabilities somewhere behind the ticket counters so that we actually get 

the flow moving, so that we do not have to have the lines we have 

been experiencing. 

And as you point out, the number of square feet that has been 

taken over by the need to actually screen some of those bags has 

been enormous. And it is not just confined to the small airports, 

although the small airports are the ones where it is most obvious. 

Fort Lauderdale, for example, reports that their lines, because they 

used to be in the terminal, have now actually extended outside into 

the roadway because of the amount of property that has been taken 

over, you know, for the screening purposes, and that is not atypical. That is rather common. So that—and TSA is aware of this, and 

they have been working with us. 

Obviously, we are still trying to find the revenue, and that is one 

of the reasons we have been talking with them about either a letter-of-intent program or a memorandum-of-understanding program 

where the airports would step up and say, ‘‘We’ll fund the longterm program, but we would hope that, subject to appropriation, 

obviously, over time, we could be reimbursed for some of those 

costs in the same way that we are today through the AIP’s letterof-intent program.’’

Senator STEVENS. Well, I come from a State where 75 percent of 

the travel between cities is by air. As a matter of fact, 75 percent 

of the cities can be reached only by air. And when you look at the 

small- and the medium-sized airports, they have got a much different burden today. The delays in those smaller airports are much 

greater than those in the larger airports throughout the—what I 

call the ‘‘megapolis centers’’ of the country. And I am very worried 

about how we are going to fund that. If you come into this part of 

the country, you can drive between cities, and there seems to be 

an increasing number of people taking that option. We do not have 

that option, and yet we seem to be at the low end of the totem pole 

33

as far as getting funding for these facilities that are demanded by 

the security systems. 

I want to urge a review of the security systems at small airports. 

Intrastate security does not need to be the same as the interstate 

security, but today it is, and I think that is a burden on intrastate 

travel. So I hope we can find some way to review those costs and 

not put them so heavily upon the small- and medium-sized airports, particularly in States such as mine. 

Thank you very much. 

Senator LOTT. Thank you, Mr. Chairman. I am sure we will be 

talking to you further about some appropriations that might be 

needed on some of these issues. 

Under the early-bird rule, Senator Sununu, we will be glad to 

take your questions or comments. 

STATEMENT OF HON. JOHN E. SUNUNU,

U.S. SENATOR FROM NEW HAMPSHIRE 

Senator SUNUNU. Thank you, Mr. Chairman. 

Mr. Plavin, you talked about the burden for the costs of a lot of 

these improvements and expenditures on infrastructure and the 

burden being carried by, I think you said the passengers and the 

shippers, and you tried to give a picture of how the burden was 

carried. But you did not really say whether that was appropriate 

or not. 

Mr. PLAVIN. Well, I think——

Senator SUNUNU. Is——

Mr. PLAVIN.—that’s a very fair question. From airport-specific 

point of view, since I represent airports, obviously I would like to 

see more of the burden picked up by the taxpayer, because it becomes increasingly difficult with the small number of players in 

our business to find the revenue in order to keep up with the——

Senator SUNUNU. Well, I think it is a pretty fair assumption, 

though, that those that are flying on airplanes, are taxpayers; 

those that are buying the products that are shipped on airfreight 

and incur the costs of airfreight, those consumers are taxpayers. So 

I think you should qualify that. You are suggesting it should be 

paid by those taxpayers that are not necessarily flying as much as 

the taxpayers who are flying and buying products that were 

shipped by air. 

Mr. PLAVIN. I guess this is a sort of a classic political call and 

probably above my pay grade, but——

Senator SUNUNU. Well, no, it——

Mr. PLAVIN.—my sense is exactly that. 

Senator SUNUNU.—it’s a practical recommendation. 

Mr. PLAVIN. My sense is exactly that, in fact, the taxpayers, generally, even those who do not fly, get a significant benefit out of 

the system. They get the benefit of having their packages delivered 

to home, they get the benefit——

Senator SUNUNU. But the costs incurred——

Mr. PLAVIN.—of people being able to travel. 

Senator SUNUNU.—by the shippers who are using the air and 

whatever security that warrants, whatever the freight costs including transit, fuel, security, and overhead, it is incorporated into the 

cost of the product, is it not? 

34

Mr. PLAVIN. Oh, I think that is right. And I think that the point 

is that at the——

Senator SUNUNU. So who is benefitting from the air system and 

not paying for it? 

Mr. PLAVIN. I think that there are general public examples, like, 

for example, those people who use the roadways which would otherwise be used by people who are now flying airplanes. There are 

people who use the railroads, for example, or could use the railroads, who are now flying airplanes. I think there are a lot of opportunities——

Senator SUNUNU. That is good for the air industry. 

Mr. PLAVIN. Well, it may or may not be good for the air industry. 

Senator SUNUNU. Well, if they are paying their PFCs and their 

airline ticket tax, I assume it is good for infrastructure construction. 

Mr. PLAVIN. I guess my sense of it is that a strong aviation system has been demonstrated to be good for the broader economy, 

that, as Senator Stevens pointed out, there are some parts of the 

country where the economy literally cannot function without a 

strong aviation system. And I think, generally speaking, since the 

passenger pays for virtually everything in the system right now, 

my argument would be that I think the general taxpayer probably 

ought to pick up some portion of the burden, especially if we are 

talking about national security kinds of issues, that those kinds of 

things are not problems only for people in the—who are on the airplanes, as we, unfortunately, saw on 9/11. 

Senator SUNUNU. I agree wholeheartedly that it is important to 

our economy, and that is why we have supported it in the past, and 

that is why we will continue to support it, but it does seem to me 

that the costs that are borne by those that benefit from the system 

right now seem appropriate. What I am trying to get at is whether 

or not you are recommending a significant change from the current 

burden-sharing. And to be sure, those—what you refer to as taxpayers, but, you know, you might describe more as those that do 

not utilize the air transportation system right now, they are picking up a share. They are—in the AIP program, whether it’s $2 billion or $3 billion. 

And you, I can understand, are advocating for a bigger investment in AIP. We are going to do the reauthorization and I have 

a sneaking suspicion, a sneaking suspicion, in the new authorization bill, there will be more set aside for AIP than in the old authorization bill, but I do not want to go too far afield. 

Mr. PLAVIN. Senator, the AIP program——

Senator SUNUNU. So, but——

Mr. PLAVIN.—is actually——

Senator SUNUNU.—but the——

Mr. PLAVIN.—funded by the passengers, as well, because the 

ticket tax that you pay on your ticket goes into the trust fund, 

which is the source of the AIP funds. That was really the point I 

was trying to make. 

Senator SUNUNU. Okay. So those—you do not consider them to 

be the taxpayers—at least you use that phrase generally. You are 

talking about non–AIP now——

Mr. PLAVIN. Right. 

35

Senator SUNUNU.—general fund, income taxes, find yet another 

source of revenue for AIP or other infrastructure. Okay. Thank you 

for clarifying there. 

My other question may be a little bit more of a criticism, and I 

hope I do not hurt anyone’s feeling here, but, Mr. Dillingham, you 

went through a presentation where you talked about the funding 

gap based on the perceived needs. I think the numbers came from 

ACI, right? The $15 billion number, although I add 9 and 5.7, and 

I get $14.7 billion, not $15 billion on your first chart. But I do not 

want to quibble over a mere $300 million. 

But that is the—certainly not—so that is the anticipated need. 

Now, then you show, sort of a, sources or current levels, and you 

show an average funding level of $11.8 billion. Now, it seems to me 

that we are looking out toward anticipated needs in the future, and 

you are looking at an average funding level from 1999 to 2001. And 

you have got AIP grants of $2.4 billion in your summary total of 

$11.8 billion. But that does not seem to me to really reflect the current level of AIP or even a reasonable projection of AIP. What was 

the AIP funding for 2002, the actual for 2002 or the estimate for 

2003? 

Dr. DILLINGHAM. Senator Sununu, I think, at least I meant to 

say, ‘‘about’’ 15 billion. I was not trying to be exact. 

Senator SUNUNU. Sure. 

Dr. DILLINGHAM. The figures that we used represented an average—a three-year average. 

And with respect to the specific question that you asked, I think AIP was around $3.4 billion. We used figures where we could get 

all the information, including for bonds as well, so we would have 

a complete picture. If, in fact, we had used the 2002 AIP, we would 

still have a gap. The gap would be smaller. Instead of 27 percent 

for smaller airports, I think our calculations were that the gap 

would be about 12 percent. It would be about 17 percent for largeand medium-hubs airports. 

Senator SUNUNU. Thank you. And I think that is important. I 

understand there are still going to be needs, but we, as policymakers, are trying to make the best decisions we can based on the 

best information we have. And if, based on current appropriations 

and PFCs in the AIP program, you know, there is a gap of 12 percent versus 27 percent, that is a pretty big difference. Now, I have 

no fundamental issue with rounding 14.7 to 15, but I do think 

there is a big difference between a 12 percent funding gap and a 

27 percent funding gap. Both are important, both are significant, 

but we may undertake some very different policy approaches to 

deal with it. 

I think the passenger charge that you have, the average PFC, 

again, it was projected before we raised the ceiling up to $450 million. So PFCs right now, I think, are running about 2 billion, 

maybe even a little bit more than 2 billion, as opposed to 1.6 billion. You add up these differences, and I think that is how you get 

from a gap of 27 percent down to a gap of 12 percent. 

Now, again, that is not insignificant, but we are trying to make 

good decisions here based on the best information available, and it 

just seems to me that taking 1999 and 2000 and averaging that 

and then comparing that to what you think we might need or want 

36

in 2002 or 2003 or 2006, that is really not the best data or the best 

information available. 

In particular, a final point, is that all of this data comes from 

pre-September-11th. And things have fundamentally changed—in 

some good ways, in terms of funding and addressing security 

issues, and some very bad ways, in terms of the costs that we are 

incurring. 

So I just did not find the, sort of, the funding comparison that 

you made especially helpful in looking forward and trying to address, as a policymaker, our future needs. I understand you were 

working with whatever information you had available, but I think 

it is a concern. I think we need to have information that more accurately reflects the current state of the program. 

It is an important program. I very much agree with some of the 

thoughts expressed by Senator Stevens, where, you know, we need 

to make sure that we have got the right balance for the large airports and the smaller airports. And I hope and I believe we are 

going to have the leadership necessary to address that this year. 

One final question, and I know you have been more than generous. There was some talk about the PFCs, flexibility on the 

PFCs, and I think that is something of real interest, what kind of 

requirements do we put on AIP or PFCs. What would you change, 

any of the panelists, if you were to add more flexibility to what the 

PFCs could be used for? What do you want to use them for that 

we do not allow you to use them for right now? 

Mr. PLAVIN. Well, specifically, I think both AIP and PFC have 

limitations on how they can be used for things where there is revenue associated with it. So for parking, for certain kinds of terminal projects, for cargo buildings, all of those kinds of things are 

specifically precluded. They are general lawful airport purposes 

under the statute, but you are not allowed to use the PFCs or the 

AIP for a lot of those, and there are very significant restrictions on 

how you actually use them, what kind of process you use, what 

kind of contracting you use, what kind of procurement or solicitation you use, as well. 

Senator SUNUNU. Parking garages, concessions, and—within terminals? 

Mr. PLAVIN. As examples, yes. 

Senator SUNUNU. Okay, thank you. 

Thank you, Mr. Chairman. 

Senator LOTT. I will recognize the ranking member of the Subcommittee, Senator Rockefeller. 

STATEMENT OF HON. JOHN D. ROCKEFELLER IV,

U.S. SENATOR FROM WEST VIRGINIA 

Senator ROCKEFELLER. Thank you, Mr. Chairman. 

I would just ask, I guess, Ms. Woodward, when you’re thinking 

about the hub-and-spoke system—there has been some talk recently that that is going to disappear. I am not one of those people 

who believe that. I think it is here to stay and it is inevitable, it 

is inexorable. So when you come down to it, and you have indicated 

in your testimony you have passengers who are traveling somewhat less and their incomes are not doing very well; you have airlines that are traveling somewhat less, and their incomes are not 

37

doing very well; and you have a Federal budget deficit—this is all 

pre- whatever might happen in Iraq and rebuilding Afghanistan 

and the war against terrorism. With that as a background, understanding that there are not any easy ways out, I would just be interested, philosophically—do not be thrown off by this—how you 

look upon the role of the small airport where people are utterly dependent on it, not as dramatically as Senator Stevens, you know, 

where there is just no other way, but where, in effect, if you do not 

have a good airport, you are probably going to dry up as a State 

eventually, particularly if the next 10 or 15 years are as difficult 

as I think they are going to be. 

So how do you, when you are talking about O’Hare, for example, 

or LaGuardia, and then you get to a place like Charleston or, you 

know—what happens in your head when you think about a small 

airport in a rural area where people have no other choice and a 

large airport in an urban area where they may, in fact, have another choice but there are more people? How do you balance that? 

Ms. WOODWARD. I think that is a good discussion to have, too, 

as we approach reauthorization, because you do have small areas 

where airports are great economic drivers. Not only are they important to transport people in and out of those communities; but for 

the communities themselves, they are important economic drivers. 

So first, as we look at reauthorization, we will make some proposals that are very specific, namely at ways in which we can 

maintain, through the formula grants, the money that the larger 

airports need. But we keep in mind, too, as these airports increase 

PFCs or collect PFCs, part of their AIP monies goes back to the pot 

of money to be doled out to the smaller airports. So that gives us 

some flexibility, and that is what we look for. 

Two, we are going to look at ways, through formula changes, to 

increase the funding, the percentage of funding, going to those 

smaller airports, because we do believe that smaller airports provide unique service and unique abilities for those areas to continue 

to grow. So we will continue to do that. 

I think also if we do, as we are going to propose, increase the 

discretionary money that we have, we will be able to target money 

to the larger projects that need to be funded, but also find that 

right balance to give money to the smaller airports that are critical 

to their communities. 

Senator ROCKEFELLER. But isn’t that really too comfortable an 

answer for you? I mean, it rolls off nicely, and I have no reason 

not to trust you completely, but we are in an era, I think, maybe 

for the next 20 years, where there is going to be absolutely brutal 

competition between airlines that say they can’t and they have got 

a good case; passengers who say they can’t, and they have got a 

good case; local folks who say they cannot, they have a good case; 

the Federal Government will say they can’t, they have a good case. 

So then, philosophically, you are left with, ‘‘I guess we just can’t 

do it.’’ Now, you used the word—I think it was on the AIP program—about ‘‘restructuring.’’ And that is one of those words that 

always makes me very, very nervous, you know, because it does not 

necessarily bode well for the Huntington or Charleston or Elkins, 

West Virginia. Essential air services have been cut and a lot of 

things have been cut. So I want to press you further on that. 

38

Ms. WOODWARD. I think there are a couple of things. One, there 

has been funding, thanks to the Congress, in the last two years, 

for the small community service program, which is operated—at 

$20 million—it’s operated by DOT to help focus attention on smaller communities that need service and to find ways to entice airlines 

to come there. 

I think when you mentioned in your earlier comments about 

looking at the hub system, I think you are seeing the airlines behave differently. You are seeing de-peaking, you are seeing flying 

some direct service to airports they have not flown to before. For 

example, I go down to South Georgia, where I grew up, to visit my 

parents about once a month, and I used to have to go through Atlanta or Charlotte to go to Jacksonville, where I fly. And now Delta 

has a non-stop flight from National to Jacksonville, which makes 

travel much easier. So I think you are seeing behaviors by the airlines themselves that are spreading out some of that traffic. 

Maybe I do sound too comfortable, but I am optimistic that this 

will continue and that we will not see a battle of the large versus 

the small. We will see more of an evening out of where the airlines 

will go. Maybe I am overly optimistic. 

Senator ROCKEFELLER. Where does O’Hare stand? 

Ms. WOODWARD. We are in the process—the airport has submitted an airport layout plan that we are currently reviewing in 

our Great Lakes region. We are just beginning the environmental 

assessment process. And they have submitted a PFC application for 

funding some of the work for the environmental process. So we are 

just beginning a very long journey with that project, I think. 

Senator ROCKEFELLER. Mr. Plavin, maybe I could ask you, when 

you think of rural airports, and Senator Lott and I surely specialize 

in those, how do you think of that in the realistic national priority 

budget allocation mix——

Mr. PLAVIN. I——

Senator ROCKEFELLER.—in what are going to be obviously budget 

years? How do you really look at small rural airports? 

Mr. PLAVIN. I would say that airports look at the national system 

of 4,000 or 5,000 airports as a system, so that—I mean, because the 

large airports need the small airports, as well. I mean, that is—

they get passengers from those. Their interactions with those are 

part of what the large airports see as their function in ‘‘the system.’’

In my mind, I think what the means is that you recognize that 

the small airports probably cannot survive without significant 

kinds of aid out of the national system, particularly an AIP-type 

system. PFCs do not help a lot, because they do not have a lot of 

passengers to generate a lot of PFC money. So again we are looking primarily at AIP. 

My perspective suggests that what that means is that you wind 

up letting the airports of all sizes do what they can do. So the large 

airports have some ability to do some things outside the Federal 

program. My argument would be, we ought to let them do it. We 

ought to give them more operational freedom, more financial freedom. Right now, they are very heavily constrained by Federal policy and law about——

Senator ROCKEFELLER. Would it be——

39

Mr. PLAVIN.—how they can charge, what they can——

Senator ROCKEFELLER.—would it be your view, therefore, that security funds should not come out of the AIP program? 

Mr. PLAVIN. Yes, absolutely. In my view—I think we have articulated this a number of times—is as a national security matter, it 

really should not come out of the base that we now desperately 

need both to let the small airports operate it and to let the system 

renew itself and expand to meet capacity. 

Senator ROCKEFELLER. Thank you, Mr. Chairman. 

Senator LOTT. Thank you again for the testimony from all three 

of you. 

Ms. Woodward, I have asked others from the Administration as 

to when we might expect the Administration’s proposal so that we 

could consider that before we begin fully developing the legislation 

that we hope to move. As I look at the calendar for, really, the next 

18 months, I can see that we are going to have a logjam later on 

this year and next year. And I also think that there is an urgency 

about this need for this reauthorization and things, hopefully some 

improvements we can include in that legislation. And therefore, we 

are hoping that we can move forward in March and hopefully have 

this on the floor before the end of May. 

Senator LOTT. So when can we expect to receive the Administration’s proposal? 

Ms. WOODWARD. Senator, like you, we are anxious to get it out 

there, too, because we think there are some critical issues that 

need to be addressed. The word that we have is that we are shooting to have the bill up to you sometime in March, as you indicated. 

Senator LOTT. Please do not delay too much, because I would be 

of a disposition to go forward without you——

Ms. WOODWARD. We will get it here. 

Senator LOTT.—if you wait too long, because we need to get it 

done, and if we do not get in the front of the line, we are going 

to get squeezed out later on in the year. So it is not a threat, other 

than just we need to get this moving. 

Let’s see here. Dr. Dillingham, some parts of the airline industry 

have recommended a tax holiday, or—if there is war, for instance, 

they are going to be coming in right away to seek some relief, and 

that would be one of their proposals. And of course, that goes in 

the Aviation Trust Fund. Have you evaluated what effect that 

would have on FAA’s program, such as the Airport Improvement 

Program? 

Dr. DILLINGHAM. Mr. Chairman, we have not evaluated that 

issue, but I can reflect back to 1996/1997, when there was, sort of, 

a tax holiday. That is, the taxes were not reauthorized. And at that 

point in time, we were beginning to see capital improvement 

projects being delayed and postponed. 

We have a request from your Committee to look at the effects of 

a tax holiday. There are so many factors that need to be considered. For example, how long would this tax holiday be? 

Senator LOTT. When you——

Dr. DILLINGHAM. And what taxes would we be talking about? I 

mean, there are just a lot of factors that go into this to see the effect, and we hope to be able to provide you that information. 

40

Senator LOTT. Well, that would be very helpful, and I hope you 

will move forward on that, because we may be faced with a decision 

on that also within the next month or two, and it would be very 

helpful if we had that information. 

As you know, more than 560 million in AIP funds were used for 

security-related expenses in fiscal year 2002, up from only 57 million the previous year. And recently, TSA Under Secretary of the 

new Homeland Security Department testified that TSA would like 

to have, quote, ‘‘one more bite at the apple’’ in fiscal year 2003 to 

use AIP for high-priority projects. Frankly, I do not like that idea. 

I think we are undermining the AIP program for security costs. 

Now, when you add to that, perhaps, the further limitation, highpriority security projects, maybe that is a different thing. We gave 

them a tough task, and they had to do it quickly, within a prescribed period of time, and I think they have done a pretty good 

job. Of course, they also have exceeded the money that they were 

allocated, and I think that maybe they in some respects gold-plated 

some of the things that they have done in terms of how much space 

they have taken over, how much money the spend, how many people they employed, and all of that. But I just think that there is 

a real problem with another big bite out of AIP funds for security. 

How do you react to that? 

Dr. DILLINGHAM. We reported that, of course, there was an 800 

percent increase last year on security funding. When we did our 

analysis, FAA indicated that they could probably provide one more 

allocation of money for security out of AIP without hurting funding 

for capacity projects. We did see some indirect effects on capacity 

projects. FAA says that they were able to fund their safety and security and other kinds of capacity projects, but that money that 

went to security also created a situation where some LOIs for airports were delayed. It also meant that there was about $140 million reduction in reconstruction projects that were not funded, and 

another $156 million reduction in standards projects. 

Senator LOTT. If you would, what kind of environmental projects 

were not funded? 

Dr. DILLINGHAM. Reconstruction projects, which, as you know, included fixing taxiways and runways and things like that. 

So indirectly, there was an impact on capacity when with the 

money that was used for security could have been used for some 

of those capacity projects. 

Senator LOTT. Over a two-year period, if you take over a billion 

dollars out of any program, it is going to have an impact, I would 

think. 

How do you respond to that same question, Ms. Woodward? 

Ms. WOODWARD. I agree with Mr. Dillingham. $561 million out 

of the program last year was a sizeable chunk. We survived because we have what we call ‘‘carryover money,’’ which is money 

that airports have been allocated and they were not able to use it 

and they turn it back to us. So we had a ‘‘windfall’’ of carryover 

money at the end of the year, which helped us fund the security 

projects and still get to some of the other projects. But that will 

catch up with us in the end. 

We have been talking with the TSA about working with them 

this year, and have been very clear with them that this year is it, 

41

in terms of how long we think we could tolerate this kind of bite 

out of the AIP. Because as you say, the AIP was not intended for 

that. It was intended for capacity, safety, and security projects, but, 

quite frankly, we all know, for more capital projects like capacity 

and safety. 

So, as Mr. Dillingham said, we are taking the hit in some of the 

reconstruction projects or rehab projects the airports have planned 

over the years. They could probably put those off for maybe a year 

or so, but we cannot do that over the long haul. 

Senator LOTT. Mr. Plavin, the same question. 

Mr. PLAVIN. I think both Dr. Dillingham and Ms. Woodward are 

right, but I think there is another dimension, as well. And that is 

that to the extent that there were high-priority projects that would 

have been funded with AIP, and there were, obviously, some of 

those, what also happens is that the airports have to go out and 

borrow in the markets for additional kinds of revenue to do the 

kinds of things they might otherwise have used AIP money to pay 

for. So there is an additional cost to the system of having more indebtedness laid on it, which, of course, then raises the charges even 

further to those folks who are paying for the debt service. 

Senator LOTT. I guess I take a little different position than I 

think Senator Sununu was taking. I really think State and local 

governments ought to bear more of the costs of airport activities. 

I am from a State that has been aggressively pursuing economic 

development. You know, we have got a Nissan plant coming in, 

$1.5 billion investment for the State, made a substantial investment of money, commitment, and funds from other sources that 

help bring that in because of the jobs. Well, a lot of these communities, a regional airport, let alone an international airport, it has 

a huge impact economically, and I just have a problem with the 

Federal Government building access roads and parking lots. I really kind of think that it is a jobs program, and the States only come 

up with 4 percent, State and local. I really think maybe they ought 

to bear a little bit more of the burden. And I am from a State that 

is very poor. But if you are going to get the benefit economically, 

you ought to put a little bit more money in there. 

How do you react to that? 

Mr. PLAVIN. Senator, I think in some respects the aggregation of 

the numbers in the GAO report, sort of, hides the fact that at 

smaller airports, airports smaller than, let’s say, medium-hub airports, it is not at all unusual today for State and local governments 

to put in a sizeable amount of money in the smaller regional airports, particularly. That 4 percent, remember, is 4 percent of a 

total that includes all of the large airports, and those folks are 

probably 75 percent of the total. If you take them out, I would be 

real surprised if we were not talking about a much higher percentage at the smaller airports today. 

Senator LOTT. Maybe I should ask you this, but I may have to 

come back to Dr. Dillingham, too. This average annual plan development, FAA talking 9 billion, you are talking 15 billion, what is 

the big difference? 

Mr. PLAVIN. I think the biggest—well, first of all, the FAA number is the—what Woodie referred to as the NPIAS. That’s the AIPeligible program. There is a sizeable number of projects that airVerDate 0ct 09 2002 11:52 May 16, 2005 Jkt 096269 PO 00000 Frm 00045 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\96269.TXT JACK PsN: JACKF
42

ports do that are not eligible for AIP—certain kinds of terminal 

work, certain kinds of cargo buildings, for example, certain kinds 

of parking structures, for example—they are not eligible for AIP, 

but they are things that need to be done under any circumstances 

that we need to find the revenue for. 

Senator LOTT. Ms. Woodward, you seem to be wanting to respond 

to that. 

Ms. WOODWARD. I just wanted to point out what Mr. Plavin just 

pointed out, which is that our figure represents the Federal eligibility, those projects that are eligible for Federal funds. Their numbers represent projects above and beyond that. 

Senator LOTT. All right. Well, while I have got you, Ms. Woodward, under the AIR–21, FAA was authorized to continue its innovative finance demonstration program, which gets to what Mr. 

Plavin was talking about a little bit, other ways, other ideas of how 

we can get revenue into these airport needs. And under the program, FAA enabled airports to leverage additional funds or lower 

development costs by permitting flexible local matching of some 

projects, purchasing commercial bond insurance, paying interest 

costs on debt, and paying principal and interest debt service on terminal development costs. What have been the results of that program? 

Ms. WOODWARD. It has had very good results. We have had a 

number of airports that have taken advantage of this, and it has 

really been to their benefit. Louisville, Kentucky, comes to mind as 

one that was particularly strong. It has been a very good program, 

and I would anticipate that it would continue, because it is a very 

successful program. 

Senator LOTT. I have not been in enough airports yet, and I want 

to get around to all different sizes, and I do acknowledge that in 

some of these airports, the baggage checking things are right out 

there in the lobby. But when you are dealing with security and a 

terrorist threat, aesthetics are not your main consideration, or even 

a little inconvenience. And I do think that airline passengers have 

been very tolerant and patient with the things we have had to do 

the last couple of years. But I just do not feel an overwhelming 

urge to add a lot more money to move those machines underground 

or behind the ticket counter just for appearance sake. 

Now, in some airports, you suggested the smaller airports, you 

know, it may be a real problem. You do not have enough space. I 

think maybe TSA has grabbed off too much space and should be 

pushed back, too. I am not after TSA. I think they have done a 

good job of what they were told to do. But I think now we have 

got to evaluate how much is enough and how much space you really need and how much did you take that really you don’t need. And 

I am not—I just do not get all that excited about moving those 

things. 

For instance, I understand at one airport that I did visit, Lexington Airport, they put in these new conveyor belts that you put 

the baggage on the conveyer belts and if there is a problem, it 

throws the luggage off to the side. Now, they have got modern computers that show different color codes when there is a potential 

problem. The manager told me, there, that the money they are saving on manpower and other costs actually is going to pay for the 

43

system in two years. And they have been aggressive and innovative. It is modern at a pretty small regional airport. So why can’t 

more of that be done? 

Mr. PLAVIN. I think that is exactly where we believe we should 

be going. I think Lexington’s a model of what we think a well-functioning system should look like. Our concern, frankly, has almost 

nothing to do with aesthetics. Rather, I think the concern is that 

in those places where we are so congested in the front of the terminal, we believe that is a safety and security issue in and of itself. 

And I think the Lexington model is one that, frankly, we would like 

to see as one for airports of all sizes. And the particular problem 

of having that many people aggregated in the front of the terminal 

in a kind of an uncontrolled fashion, I think gives us some real 

problems on an operating basis. Not to mention the fact that what 

we have got now is grossly inefficient. The ability, as you pointed 

out, to save the kind of money that you can save by automating 

the system is a remarkable improvement in what it will cost on an 

annual basis, and we think that not putting that kind of long-range 

solution in place is going to be not only a safety and security problem, but very expensive, to boot. 

Senator LOTT. Okay. Mr. Plavin, you also indicated that it would 

be helpful if we could eliminate—I am not sure whether you said 

some paperwork or some bureaucracy, probably both, in the process 

of getting AIP funds. I do not know if I want you to necessarily 

give specificity now, but if you could get that information to us for 

the record so we could get it to FAA or if we need to do anything 

legislatively to help make sure that actually happens, we would 

like to do that. 

Mr. PLAVIN. Yeah, we have it in our written testimony, Senator. 

Senator LOTT. Do you? Okay. 

Senator Rockefeller, do you have more questions? 

Senator ROCKEFELLER. Just one. 

First of all, I would like to put my opening statement in the 

record, Mr. Chairman. 

Senator LOTT. Without objection. Yes, sir. 

[The prepared statement of Senator Rockefeller follows:]

PREPARED STATEMENT OF JOHN D. ROCKEFELLER IV,

U.S. SENATOR FROM WEST VIRGINIA

Thank you, Mr. Chairman, for convening this morning’s hearing. 

I would like to reiterate a sentiment expressed by Chairman McCain at a hearing 

recently: it is imperative that the Administration present its FAA reauthorization 

proposal as soon as possible. 

FAA reauthorization is a top priority in the 108th Congress, and we will have to 

begin crafting a bill soon. I think everyone agrees that it would be preferable to 

have the Administration’s proposal in-hand before legislation begins to move. 

A blueprint from the Administration is particularly important this year because 

of the very difficult problems we are confronting. By all accounts, there will be at least a $3 billion shortfall in aviation security 

funding next year. And there are no good options for making up those funds. In 2002 we spent $561 million of Airport Improvement Program funds for security related projects. That is more than ten times the $56 million of AIP funds spent 

on security in the preceding year. 

While I acknowledge the extenuating circumstances that necessitated the spending of AlP funds on security related items, I am wary of making that a long-term 

practice. 

Over the next several years, it is essential that we continue to make progress in 

increasing capacity. 

44

Therefore, perhaps our principal challenge in reauthorizing the FAA will be ensuring that there is sufficient funding for airport security without threatening longterm airport expansion. One of the ways we can facilitate airport expansion is by revisiting legislation I 

co-sponsored last year entitled the Aviation Delay Prevention Act. 

That bill, which passed out of this Committee by voice vote, seeks to address 

delay problems by requiring the FAA to expedite and streamline the airport construction process. I continue to believe that this is a meritorious proposal, and I 

hope the Committee will consider it again this year. 

In the budget that the President recently submitted, however, AIP funds are flatlined, Essential Air Service dollars are cut, and no funds are requested for the Small 

Community Air Service Development Program. 

All of this leads me to wonder what the Administration’s plans are for airport improvement in general and for small community air service in particular. 

As I’ve said many times, I believe that decent air service is vital to job creation, 

economic growth and quality of life in rural communities. 

There is no question but that our nation is currently facing a number of daunting 

challenges, both at home and abroad. Nevertheless, it would be ill-advised to threaten the future economic health of our small and rural communities by failing to invest in air service for them now. 

I will not accept a bifurcated system wherein only large urban areas have commercial air service. 

Mr. Chairman, it is my hope that the Administration will not keep us guessing 

for very much longer. I look forward to receiving its proposal for FAA reauthorization and to working with you and the rest of the Committee to get a bill passed 

quickly. 

Thank you, Mr. Chairman. I look forward to hearing from Our witnesses.

Senator ROCKEFELLER. I would also like to, all three of you, to 

tell me how wonderful you think the Aviation Delay Prevention Act 

is. 

Senator LOTT. Is that your bill? 

Senator ROCKEFELLER. Yeah. 

[Laughter.] 

Ms. WOODWARD. It is wonderful. 

[Laughter.] 

Senator ROCKEFELLER. Now, you know what it does, right? 

Mr. PLAVIN. Yes. 

Dr. DILLINGHAM. I agree, it’s wonderful. 

Senator ROCKEFELLER. Okay, that is—I just need that for the 

record, Mr. Chairman. 

[Laughter.] 

Senator ROCKEFELLER. Kay Bailey and I did that one. 

And the final thing is that AIP—I see AIP in a very special light, 

because I have watched our airports in West Virginia. And when 

the AIP came on the scene, it was like all of a sudden they began 

to change their mentality. And actually, we started to learn this 

when some of us went down and looked at the Shenandoah Airport, 

which obviously, is in Virginia, it’s a very small catchment area, 

but they have done a superb job in marketing the airport, which 

is their money, and having success. We used to have a rather large 

percentage of our people drive to Cincinnati or Columbus to get on 

a cheaper airport, a jet, not a propeller. That has now almost been 

eliminated out of our major cities, because the airports are marketing themselves. They do not see themselves as static pieces of 

runway and infrastructure. They have to reach out to the public 

and pull the public in and tell them that they are getting a good 

deal. 

In that context, would you just give me a quick summation of 

how you think regional jets, which, more than anything, take a 

45

rural State, like Mississippi and West Virginia, and give passengers and businesspeople who are looking at expanding and investing a whole new view. 

A regional jet is a class act. I am not saying that the things that 

takes me three days to get my spine straightened out are not good, 

but we will take what we can get. I have to get to Washington. But 

a regional jet is an unbelievably important psychological lift, just 

as AIP was. What is the status of regional jets? What is going on 

now with them? 

Mr. PLAVIN. The airlines have made a significant number of commitments to regional jets. In fact, a huge proportion of the aircraft 

that they are buying these days are regional jets. One of the things 

that is obviously a limitation from the airline’s point of view is they 

still have to deal with the various contractual scope clauses that 

they have with their pilots that determine how many regional jets 

they will actually be allowed to fly and in what kind of markets. 

Senator ROCKEFELLER. Isn’t there a backlog on orders? 

Mr. PLAVIN. There is absolutely a backlog in orders. 

Senator ROCKEFELLER. Now, how do you describe that backlog in 

such a compressed economic situation? 

Mr. PLAVIN. I think what it reflects is the fact that the number 

of passengers has fallen off significantly in the system as a whole. 

We are down probably 10 to 15 percent on the passenger side. We 

are actually no longer able to compete, or the airlines are no longer 

able to compete, simply by putting more seats in the market. So 

what they have been doing is reducing the number of seats in some 

of the major markets and actually adding frequencies to make that 

number up, which is why I made the point before that for large airports, regional jets can be something of a problem, because they are 

now back to the number of aircraft movements or closer to the 

number of aircraft movements they were at before, but with a lot 

few seats in the market. Now, the airlines hope that that will force 

the fares up to a level that is economic. That is obviously an issue 

for them. 

For the smaller airports, you are really on the exact reverse side 

of the coin. A new system, higher level of service, larger number 

of seats per takeoff and landing, but the problem is they still have 

to have a place to land at the other end of their trip. And that is 

the kind of balance that I think for a long time we have tried to 

figure out how to accommodate, being sure that there is access to 

the larger airports from the smaller communities and, at the same 

time, not allow the congestion levels at those larger airports to resume with so many fewer seats for capacity. 

Senator ROCKEFELLER. Mr. Chairman, I thank all of our witnesses, and I thank you. 

Senator LOTT. I thank the witnesses for your time and for your 

testimony, and we look forward to working with you as we develop 

the legislation this year. 

The Subcommittee is adjourned. 

[Whereupon, at 10:50 a.m., the hearing was adjourned.] 

(47)

APPENDIX

PREPARED STATEMENT OF HON. ERNEST F. HOLLINGS, U.S. SENATOR FROM SOUTH CAROLINA

Good Morning. Today’s hearing provides a valuable opportunity for the Commerce 

Committee to assess the outlook for airports in the U.S., and the impact that their 

needs and the Airport Improvement Program (AIP) will have on the pending reauthorization of the Federal Aviation Administration (FAA). The world has changed 

greatly since Congress last considered FAA reauthorization during the 106th Congress, and these changes have had a particularly dramatic effect on the nation’s 

aviation industry. The terrorist attacks of September 11, 2001, coupled with the 

slumping American economy, have put our airlines in their worst financial shape 

ever. As a result, we are faced with increased competition for dwindling federal 

funds while the national debt has begun to grow again. It is under these difficult 

conditions that we must move forward with the crafting of legislation that continues 

to make progress on the safety, security, efficiency and the environmental friendliness of our nation’s air transportation system. 

While the aftermath of September 11, 2001, has presented a monumental challenge to all facets of aviation, the decline in passenger traffic has provided an opening for us to reassess the industry as a whole. Congress has already acted to institute a major overhaul of the aviation security system, and now, we have an opportunity to ensure the safety and efficiency of the national airport system until the 

demand for air travel resurfaces. With the need for reauthorization of the FAA’s 

programs, we should take a close look at the estimated costs of planned capital development at airports in the U.S. and the availability of funding to cover these costs. 

It is essential that Congress provide balanced AIP funding that will best meet the 

needs of all Americans that seek the benefits of using our air transportation system. 

Safety and security considerations must remain paramount to our thinking, and 

we must continue to develop approaches that ensure we do not shortchange the 

traveling public on these two fronts. It will not be easy. Department of Transportation Inspector General (DOT IG) Ken Mead recently testified before this Committee that the costs of making necessary modifications to the nation’s airportsfor 

the implementation of Explosive Detection Systems (EDS) at all commercial facilities could cost as much as $3 billion. Last year, the AIP was tapped to cover a significant piece of the security costs, and the FAA did an admirable job of making 

these security needs fit into their budget framework. In the future, using the AIP 

to fund major security costs must be carefully considered to ensure that we do not 

pay for security upgrades at the expense of safety needs or the viability of the system. 

Prior to September 11, 2001, our focus was centered on improving capacity, and 

concerns over future demand will again become an issue as our security needs are 

more completely addressed. The FAA’s Terminal Area Forecast maintains that 

enplanements in the U.S. are expected to increase by roughly 50 percent over the 

next decade, with as many as 1 billion passenger boardings annually by 2013. We 

must be prepared for this increase by planning and making the necessary facility 

upgrades now. Investing in our Air Traffic Control (ATC) system, and adding runways will provide a needed boost for our National Airspace System (NAS) as the 

system continues to grow. 

There have been numerous suggestions for improving the current system of funding our airports and each of these will have to be carefully considered. I believe the 

Aviation Investment and Reform Act for the 21st Century (AIR–21) served us extremely well during a very difficult period, and we should recognize that. Congress 

has to accept the need for further progress and fully fund the Airport Improvement 

Program (AIP) at levels above and beyond the last FAA reauthorization bill, but any 

sweeping changes to AIP or other matters under the reauthorization proposal 

should be cautiously studied before taking action. For example, requirements for 

certain airports to file competition plans with DOT before receiving AIP funding or 

collecting new PFCs have been questioned as a burden by some, but many in ConVerDate 0ct 09 2002 11:52 May 16, 2005 Jkt 096269 PO 00000 Frm 00051 Fmt 6601 Sfmt 6621 S:\WPSHR\GPO\DOCS\96269.TXT JACK PsN: JACKF
48

1 U.S. General Accounting Office. Airport Finance: Using Airport Grant Funds for Security 

Projects Has Affected Some Development Projects. GAO–03–27. Washington DC: October 15, 

2002. 

gress and the Administration feel this mandate has served a valuable purpose by 

providing useful information about key facilities where questions of accountability 

had been raised. Larger plans to vastly restructure the airport grant process also 

raise concerns, and we must make certain that they will improve the entire system 

and not be detrimental to safety before proceeding. 

We have an opportunity to move into the 21st Century with legislation that can 

make a tremendous difference to the future of our nation’s air transportation system. I know that the Chairman is anxious to get us all moving, so let the debate 

begin and let us move forward expeditiously in order to fund these critically important programs. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO

GERALD L. DILLINGHAM

Question 1. Some parts of the airline industry have recommended a ‘‘tax holiday’’ 

for taxes they pay into the aviation trust fund. What would be the effect of such 

a ‘‘holiday’’ on the FAA’s programs—especially the Airport Improvement Program? 

Answer. The impact of a tax holiday on FAA’s ability to continue to fund its programs would vary depending on the type of tax that would be suspended. For example, suspending all of the taxes accruing to the Trust Fund for a year would require 

(1) suspension of accounts related to the Airport Improvement Program, Facilities 

and Equipment, and Research and Engineering Development from September 2003 

through April 2004, (2) create significant termination costs, and (3) require additional general fund support to keep air traffic control system functioning. In contrast, suspending the fuel tax or cargo waybill tax would have the least affect on 

FAA’s ability to fund its programs. FAA’s projections indicate that suspending the 

fuel tax would deplete the uncommitted balance of the Trust Fund by October 2006 

while suspending the cargo waybill tax would reduce the uncommitted balance of 

the Trust Fund to under $100 million in 2008.

Question 2. If substantial amount of AIP funds are used once again during FY 

2003 for security, is it possible to determine what type of projects will not receive 

the amount of funding that they normally would? 

Answer. In October of 2002, we reported that standards and reconstruction 

projects experienced the largest reductions and that certain letter-of-intent payments were deferred, resulting in delays in capacity projects at three airports. 1 If 

AIP funds continue to be used at a similar level for security in 2003 as in 2002, 

and if other factors remain relatively unchanged, we can probably expect that some 

of the projects that were not funded in 2002 may not be funded in 2003.

Question 3. In your testimony you note that one big uncertainty in the whole airport funding picture is estimating the cost of fully integrating explosive detection 

systems into the airport baggage systems. Why is it so difficult to develop such an 

estimate? Which Federal agency should be responsible for developing such an estimate and are they developing one? 

Answer. Developing an estimate of the cost of integrating explosive detection systems into airport baggage systems is challenging, in part, because it is not clear 

whether TSA has finalized all the security requirements that will be part of the explosive detection system (EDS) approach. Additionally, FAA’s requirement that TSA 

must approve the EDS approach at each airport before FAA will fund any part of 

it inhibits airport planning for EDS. The lack of certainty about security requirements and funding approvals may also be discouraging airports from making EDSrelated final estimates and decisions and may be contributing to a lack of information about EDS systems. TSA said that while certain airports—such as Dallas and 

Boston—have estimated costs and even planned for the integration of EDS into airport baggage systems as part of long-term security solutions, it has not systematically tracked these efforts and does not know what the overall costs would be. 

Because TSA is the agency responsible for ensuring the installation of EDS systems, it would probably be the appropriate agency for developing an overall estimate 

of what EDS systems will cost. TSA does not currently have estimates of the costs 

to install EDS at airports.

Question 4. In your testimony, you discuss options to make up the spending shortfall for capital improvements. You discuss the benefits of some options to larger airports and the benefits of other options to smaller airports. In your opinion, if we 

have to make a choice, which group has greater need? 

49

2 U. S. General Accounting Office. Options to Enhance the Long-term Viability of the Essential 

Air Service Program. GAO–02–997R. Washington, D. C.: August 30, 2002. 

Answer. In our view, deciding which group has a greater need is a policy question. 

However, in making this decision, Congress should be aware of several factors. 

First, small airports receive the majority of their funding from federal programs, 

such as AIP. Second, larger airports receive the majority of their funding from the 

bond market. Finally, there is little consensus among airlines, airports, and FAA as 

to what constitutes an airport ‘‘need’’. As such, when comparing estimates of available funding with estimates of airport planned development, not all planned development may not qualify as needed development.

Question 5. Have you reviewed the Administration’s proposals for changes in the 

funding formula structure of the AIP program? What is your opinion on that? 

Answer. The Administration’s proposal was not released until March 25, 2003. As 

a result, we have not had a chance to review it in detail.

Question 6. Have you reviewed the Administration’s proposed changes in the EAS 

program? What is your opinion on that? Do you believe that the EAS program has 

been effective? What about the Small Community Air Service Development Program? 

Answer. We have reviewed neither the Administration’s Essential Air Service 

(EAS) proposal nor the Small Community Air Service Development Pilot Program 

in detail, so we are unable to express unqualified opinions. However, we have completed recent work on the EAS program, and have concluded that it has not provided an effective transportation solution for passengers at many EAS-subsidized 

communities. Passengers often prefer to drive to an alternate airport, even if that 

facility might be several hours’ drive away. We reported in August 2002 2 on several 

options to enhance the long-term viability of the EAS program. We are encouraged 

that the Pilot Program funded innovative approaches to air service development at 

several communities, and look forward to learning how effective they were.

Question 7. One of your charts shows that small airports have been the biggest 

beneficiaries of the large increases in AIP funding under AIR 21. Is it therefore fair 

to state that they will also be the most affected by the FAA’s plan to spend almost 

$500 million in AIP funding on security this year? 

Answer. In our October 2002 report, we noted that the increase in AIP funding 

for security affected the distribution of grant funds by airport type. Large and small 

hub airports experienced increases in AIP funding while all other airports, including 

non-hub, general aviation, and relievers, experienced decreases in FY 2002. According to FAA officials, the increase in AIP funding to large hub airports can be attributed to their higher security needs and the decrease in funding to non-hub airports 

was because their security needs were much lower than those of large hub airports. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO

WOODIE WOODWARD

AIP Funding for Security 

Question Your testimony indicates that the FAA intends to use a substantial 

amount of AIP funding for security related projects in 2003. Who decided this would 

be the case? What is your time frame for making these grant awards? Will these 

be discretionary or formula grants? 

Answer. The FAA has committed to make available for security related projects 

an amount roughly equal to the $561 million spent for security projects in FY 2002. 

The decision was made collaboratively among the FAA, TSA and senior officials 

within the Department of Transportation. The decision was made in consideration 

of both the continuing need for substantial investment in airport infrastructure for 

security and on the impact of higher levels of security funding on the rest of AIP. 

Specifically as to need, the costs of modifying airport infrastructure to accommodate 

installation of EDS equipment is substantial and far exceeds TSA resources available for this purpose. As to AIP impacts, spending on security at the FY 2002 level 

still permitted the FAA to fund all identified safety and security requirements; meet 

all commitments to fund ongoing capacity projects—including letter of intent commitments; and meet statutory requirements to fund noise compatibility projects and 

projects at military airport program airports and relievers. The security funding was 

accommodated by modest reductions in the shares of AIP going to rehabilitation, reconstruction and standards projects. 

The FAA and TSA are currently reviewing proposed security project candidates 

for AIP funding at the national level to optimize the combination of AIP and TSA 

50

funds available for financing security-related airport infrastructure projects. Once a 

spending plan has been developed for the use of AIP funds, the FAA will begin processing grants. We intend to allocate the $561 million between discretionary and entitlement funds in roughly the same proportion as in FY 2002, i.e. approximately 

$199 million in entitlements and $362 million in discretionary funds. 

PFC Streamlining 

Question Will the Administration consider ‘‘streamlining’’ the process for approval 

of PFC applications, as David Plavin has suggested in his testimony? 

Answer. I am pleased to report that the Administration’s FAA reauthorization bill 

contains a number of provisions to streamline the PFC application and approval 

process. These proposals are based on the result of a comprehensive study of the 

history of the PFC program which identified opportunities to simplify or eliminate 

elements of the PFC application and approval process without sacrificing the benefits to the public interest in the Federal PFC review process. First, the Administration bill would make the Federal Register comment process discretionary, rather 

than mandatory, for each PFC application. However, airports would be required to 

provide an opportunity for public comment at the local level. Second, the bill would 

reduce the burden of the carrier consultation requirement by limiting the requirement for individual carrier consultation to those carriers that have a significant 

presence at the airport. The airport could rely on general notice for those carriers 

with limited activity at the airport. Third, the administration bill would eliminate 

the substantial contribution test for imposition of a $4.50 PFC at medium and large 

hub airports and allow projects to be approved under the adequate justification test 

applicable to all other airports. Our experience showed that the bifurcated test did 

not enhance the qualify of projects being submitted for $4.50 PFC approval at medium and large hub airports because those projects were already of the highest caliber under the adequate justification test, but the bifurcated test greatly complicated the application and review process. Finally we are proposing a pilot program for non-hub airports that would permit them to impose a PFC based on the 

filing of a simplified written notice to the FAA. Following submission of the notice, 

the airport could impose the PFC unless the FAA objected. 

Current Airport Infrastructure Needs 

Question The FAA recently revised estimates of when its passenger traffic will 

reach pre-September-11 levels. Do you believe there is a real need for immediate 

infrastructure investments? 

Answer. At its recent Conference on Aerospace Forecasts, the FAA announced 

that it expects the period of recovery for the aviation industry to extend by one or 

two additional years over what was forecast last year, to 2005–2006. Airport investment decisions, by their very nature, must take a long-term perspective. Although 

traffic fluctuates in the short term as we are now experiencing, I am confident that 

the demand for air travel will continue its long-term growth. It takes many years 

to build new runways and other airport infrastructure. I believe airports should be 

constructed or expanded to accommodate the long-term growth of air traffic, and 

that it is prudent for airports to continue working toward accommodating long term 

needs even during short-term down turns in traffic as we are currently experiencing.

Æ