```

[Senate Hearing 114-199]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-199
 
                  FAA REAUTHORIZATION: AIRPORT ISSUES 
                      AND INFRASTRUCTURE FINANCING

=======================================================================

                                HEARING

                               before the

       SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 23, 2015

                               __________

    Printed for the use of the Committee on Commerce, Science, and Transportation
    
    
    
    
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                   JOHN THUNE, South Dakota, Chairman
ROGER F. WICKER, Mississippi         BILL NELSON, Florida, Ranking
ROY BLUNT, Missouri                  MARIA CANTWELL, Washington
MARCO RUBIO, Florida                 CLAIRE McCASKILL, Missouri
KELLY AYOTTE, New Hampshire          AMY KLOBUCHAR, Minnesota
TED CRUZ, Texas                      RICHARD BLUMENTHAL, Connecticut
DEB FISCHER, Nebraska                BRIAN SCHATZ, Hawaii
JERRY MORAN, Kansas                  EDWARD MARKEY, Massachusetts
DAN SULLIVAN, Alaska                 CORY BOOKER, New Jersey
RON JOHNSON, Wisconsin               TOM UDALL, New Mexico
DEAN HELLER, Nevada                  JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado               GARY PETERS, Michigan
STEVE DAINES, Montana
                    David Schwietert, Staff Director
                   Nick Rossi, Deputy Staff Director
                    Rebecca Seidel, General Counsel
                 Jason Van Beek, Deputy General Counsel
                 Kim Lipsky, Democratic Staff Director
              Chris Day, Democratic Deputy Staff Director
       Clint Odom, Democratic General Counsel and Policy Director
                                 ------                                

       SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY

KELLY AYOTTE, New Hampshire,         MARIA CANTWELL, Washington, 
    Chairman                             Ranking
ROGER F. WICKER, Mississippi         AMY KLOBUCHAR, Minnesota
ROY BLUNT, Missouri                  RICHARD BLUMENTHAL, Connecticut
MARCO RUBIO, Florida                 BRIAN SCHATZ, Hawaii
TED CRUZ, Texas                      EDWARD MARKEY, Massachusetts
DEB FISCHER, Nebraska                CORY BOOKER, New Jersey
JERRY MORAN, Kansas                  TOM UDALL, New Mexico
DAN SULLIVAN, Alaska                 JOE MANCHIN III, West Virginia
RON JOHNSON, Wisconsin               GARY PETERS, Michigan
DEAN HELLER, Nevada
CORY GARDNER, Colorado

                                 (II)

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 23, 2015...................................     1
Statement of Senator Ayotte......................................     1
Statement of Senator Cantwell....................................     3
Statement of Senator Daines......................................    45
Statement of Senator Nelson......................................    47
Statement of Senator Wicker......................................    52
Statement of Senator Gardner.....................................    54
Statement of Senator Klobuchar...................................    56
Statement of Senator Booker......................................    58
Statement of Senator Schatz......................................    60
Statement of Senator Sullivan....................................    62
Statement of Senator Blumenthal..................................    66

                               Witnesses

Gerald L. Dillingham, Ph.D., Director of Civil Aviation Issues, 
  U.S. Government Accountability Office..........................     5
    Prepared statement...........................................     6
Sharon Pinkerton, Senior Vice President, Legislative and 
  Regulatory Affairs, Airlines for America.......................    21
    Prepared statement...........................................    22
Todd Hauptli, President And CEO, American Association Of Airport 
  Executives.....................................................    23
    Prepared statement...........................................    25
Mark M. Reis, Managing Director, Seattle-Tacoma International 
  Airport........................................................    36
    Prepared statement...........................................    37
Michael J. Minerva, Vice President, Government and Airport 
  Affairs, American Airlines.....................................    42
    Prepared statement...........................................    44

    FAA REAUTHORIZATION: AIRPORT ISSUES AND INFRASTRUCTURE FINANCING

                              ----------                              

                        THURSDAY, APRIL 23, 2015

                               U.S. Senate,
 Subcommittee on Aviation, Operations, Safety, and 
                                          Security,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:45 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Kelly Ayotte, 
Chairman of the Subcommittee, presiding.
    Present: Senators Ayotte [presiding], Wicker, Fischer, 
Moran, Sullivan, Johnson, Gardner, Daines, Cantwell, Klobuchar, 
Nelson, Blumenthal, Schatz, Booker, Manchin, and Peters.

            OPENING STATEMENT OF HON. KELLY AYOTTE, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Ayotte. Good afternoon, and welcome. Or, good 
morning, and welcome.
    [Laughter.]
    Senator Ayotte. Today's hearing is the second in a series 
we are holding in preparation for this year's Federal Aviation 
Administration's reauthorization effort. Last week, the full 
committee heard from FAA Administrator Huerta on a number of 
issues in relation to the FAA reauthorization. And two days 
ago, we engaged with a number of stakeholders regarding the 
certification process and competitiveness for the airline 
industry. So, I really want to thank the witnesses who are here 
with us today.
    The American aviation system consists of 19,000 airports 
ranging from facilities that handle tens of millions of 
passengers each year down to grass landing strips. Of those 
19,000 airports, 3,300 are eligible for Federal funding 
assistance. Today, we will have the opportunity to discuss the 
funding of those airports' capital needs through mechanisms 
such as the Airport Improvement Program, Passenger Facility 
Charges, bonds, and state and local sources. Additionally, we 
will look at the Federal Contract Tower Program, small 
community air service issues, aircraft noise, and the Airport 
Disadvantaged Business Enterprise Program.
    Our aviation system depends on adequate infrastructure. 
Although passenger totals have fluctuated, demand is now 
growing, and updating airport structure and capacity is an 
important practical and policy goal.
    Of note in the discussion on infrastructure demands in 
funding are projections of capacity limitations at airports. 
While needs go beyond the air-side components, such as gates 
and runways, FAA's most recent capacity report forecasts an 
overall decline in capacity investment needs through 2030, as 
compared to prior projections. This measure looks at what 
investments are needed for airports to operate without 
significant delays. This does not mean we should stop investing 
in aviation infrastructure, but it should inform our approaches 
to ensuring that funding mechanisms are tailored to projected 
needs.
    One of the primary means of funding airport capital needs 
occurs through the Airport Improvement Program, which provides 
Federal grants to airports for safety and capacity projects, 
with $3.35 billion set for the program in 2015. For example, 
AIP helps airports build runways and improve airport safety, 
such as through requiring snow removal equipment. And I can 
tell you that, in New Hampshire--New Hampshire got a lot of 
snow this past winter, and I always appreciate the work done, 
certainly at the Manchester Airport and at others, when you 
land and it is actually cleared.
    Another funding source comes from the Passenger Facility 
Charges, which are federally authorized local fees on each 
airline passenger enplanement. The PFC cap is $4.50, with 
airports seeking to collect high PFCs foregoing a portion of 
their AIP funding.
    There has been a lot of attention focused on the PFC rate 
cap. The President's Fiscal Year 2016 budget proposal calls for 
hiking the PFC cap to $8 while lowering the AIP funding to $2.9 
billion. This proposal, or any related to altering the AIP/PFC 
mix, has generated a lot of feedback from stakeholders. I'm 
sure that we will have a lively discussion among our panelists 
today about the merits and drawbacks of changing the PFC cap. 
And I look forward to hearing from all of you on your thoughts 
on this issue so that we can strike the right balance.
    It is easy to see that the ``raise-the-PFC'' or ``keep-the-
PFC-the-same'' arguments as merely a dispute between airports 
and airlines. However, it's our job on this committee to 
consider policies that will strengthen our infrastructure, keep 
our aviation system safe, and reduce burdens and costs on the 
traveling public. So, we really do have to hear from all of you 
on what the proper balance is.
    We owe it to traveling Americans to ensure that we promote 
efficient financing mechanisms. As a frequent traveler, I can 
tell you that I value good facilities that help me get home to 
my kids safely. And I know that my constituents do, as well.
    This hearing is also an opportunity to discuss our smaller 
airports and community needs. I look forward to hearing more 
about the Federal Contract Tower Program through which FAA 
contracts air traffic control services at certain airports, 
including airports that are important in New Hampshire, 
including my hometown of Nashua.
    I believe contract towers represent a wise investment, 
particularly in our resource-constrained Federal budget 
environment. A DOT inspector general audit of the FAA Contract 
Tower Program concluded that FAA contract towers provide cost-
effective and safe air traffic control services and operate at 
a lower cost than similar FAA-operated towers.
    Also, as one of our panelists notes, as we look at this 
issue, the Inspector General found that contract towers, on 
average, cost $1.5 million less per tower compared to FAA 
towers, and about 80 percent of contract tower controllers are 
veterans, and they serve our aviation system very well. I 
visited the contract tower at Nashua, that I mentioned, at New 
Hampshire's Boire Field, and can attest to the professionalism 
and efficiency of that operation.
    Finally, given aviation's unique dynamics in various parts 
of our Nation, including connecting rural and urban regions, I 
look forward to hearing from the panelists and my colleagues 
about small-community air-service issues.
    Today, we will hear from five witnesses: Dr. Gerald 
Dillingham, who was just before the Committee the other day, so 
we appreciate all your work and attention and time that you are 
spending with us this week--he is the Director of Civil 
Aviation Issues at the U.S. Government Accountability Office; 
Ms. Sharon Pinkerton, Senior Vice President, Legislative and 
Regulatory Affairs for the Airlines for America; Mr. Todd 
Hauptli, President and CEO of American Association of Airport 
Executives; Mr. Mark Reis, Managing Director of Aviation 
Division, Port of Seattle--certainly my Ranking Member, coming 
from the state of Washington, we appreciate his being here; Mr. 
Michael J. Minerva, Vice President of Government and Airport 
Affairs of American Airlines.
    Thank you all.
    And I'd like to turn it over to Ranking Member Cantwell.

               STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. Thank you, Madam Chair. And thank you for 
holding this important hearing.
    And thank you, to all the witnesses, for being here today. 
Three of you are local to Washington, D.C., but, as the Chair 
mentioned, Mark Reis is here from Seattle as the Managing 
Director of the Seattle-Tacoma International Airport. We thank 
you for traveling here and being with us today.
    In 2004, over 660 million air passengers traveled in our 
domestic aviation system. That means that people are spending 
time in 389 of our commercial airports. And that comprises the 
core of our air transportation network. These airports come in 
all shapes and sizes, but each one is critical to the community 
it serves, and it helps support the economy.
    The impact of air service on our Nation cannot be 
overstated. Just ask any community that has fought to keep 
commercial service. whether connected by commercial service or 
general aviation, an airport is indispensable to the elements 
of a public infrastructure, just like roads and transit are 
connections for our public citizens.
    We're here today to discuss the current state of our 
airport infrastructure and what we can do to make sure that 
that infrastructure meets the needs of every community. And, 
while we must consider our airports as an integrated system, 
just as we do air traffic control operations, which are 
inherently local, we'll have a lot of discussion about that 
this morning.
    Managed by public aviation authorities or local 
governments, each airport has a mission to serve its community 
and provide connectivity to families and friends in the global 
economy. Some of our airports have kept pace with the rate of 
growth, but others have fallen behind. And we constantly hear 
complaints about the infrastructure needs in various parts of 
our country.
    Across the country, airports reflect the community they 
serve. And this is important. It's a very important economic 
development tool for any community. This is one of the reasons 
why Congress created the Passenger Facility Charge in 1990 to 
fund airport infrastructure investment. These PFCs, which may 
be collected as part of an airline ticket, are locally-levied 
user fees that are invested back into the airport. While the 
PFC is a critical component of airport funding, it is one of 
the several funding streams available to airports, which also 
include the FAA's improvement program, tax-exempt bonds, and 
State and local government grants. And I hope that this morning 
we'll be able to get into some of the discussion about those 
various revenue streams and how we move forward on moving 
legislation.
    As Congress debates whether to increase the PFC--so that we 
can keep pace with economic growth, we must consider how 
airports will invest these dollars. And as part of this 
discussion, I hope we can find ways to improve the passenger 
experience and keep commerce moving.
    Many of the airports' experience do directly impact 
passengers. And, Madam Chair, last time we did a large, 
comprehensive bill, we had a Passenger's Bill of Rights that I 
think was very important in reviewing the needs of the 
traveling public. And I think we should get an update on that 
and look at possible new issues that we need address.
    But, obviously, airports have different business models 
that are about helping to return economic benefit back into the 
infrastructure. So, we really want to look at that as we look 
at the demand on that infrastructure over the next several 
decades. Some airports--and I am sure Sea-Tac will tell us 
about this today--about how much growth they are trying to meet 
and how do they meet that growth without some tools for 
infrastructure investment.
    Airports and aviation, in general, have tried to become 
more efficient. And I'm sure we're going to hear about that 
today, as well. I think one issue that we really want to 
understand is how we all move more aggressively toward the 
implementation of the Next Gen system, because there are 
efficiencies there. But, airports have done everything from 
providing for pre-conditioned air, to planes parked at gates, 
to enabling them to save fuel off their power unit systems, to 
providing electrical power to airlines to convert their airport 
fleets to run on electricity, to operating its own ramp tower, 
which allows controllers to efficiently guide aircraft to and 
from 69 mainline aircraft gates. So, the accumulation of these 
projects have resulted in a reduction of over 55,000 metric 
tons of greenhouse gases, and they've resulted in annual 
savings of approximately 20 million for airlines who serve Sea-
Tac. So, obviously, that's good news for both Sea-Tac and for 
those airlines. And we want to think more about how we 
implement Next Gen across the airport system, which is a lot of 
coordination by both the airports and the airlines and the FAA. 
But, there are real savings there, and we need to focus on how 
we help with those savings, make investments into this 
infrastructure.
    Finally, I know that many members of the Committee and 
Congress have concerns about the health of the Contract Tower 
Program. Contract towers provide a vital layer of safety to the 
national airspace system. And I look forward to hearing from 
our panel about this important issue. Our airports are a 
critical component of civil aviation system, and I know that 
we'll have a lively discussion about this. But, again, airports 
are key economic tools to any community, and we need to 
continue to keep them to be robust aspects of our 
transportation system.
    So, thank you, Madam Chair, and I look forward to hearing 
from the witnesses.
    Senator Ayotte. Thank you so much, Senator Cantwell.
    And we will hear, first, from Dr. Gerald Dillingham, the 
Director of Civil Aviation Issues at the U.S. Government 
Accountability Office.
    Thank you, Doctor.

           STATEMENT OF GERALD L. DILLINGHAM, Ph.D.,

                DIRECTOR, CIVIL AVIATION ISSUES,

             U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Dr. Dillingham. Thank you, Madam Chair. Good morning, 
Ranking Member Cantwell, distinguished members of the 
Subcommittee.
    My statement this morning focuses on two aspects of airport 
funding. First, what is known about the potential scope and 
cost of planned airport development? And, second, what are the 
available sources of funding to finance that development?
    Regarding the scope and cost of airports' planned 
development, according to FAA, overall airport capacity--that 
is, the scope of infrastructure needed to help airports operate 
without significant delays--has generally improved. In 2004, 
FAA projected that 41 airports would be capacity-constrained by 
2020 unless additional investment occurred. However, in its 
2015 report, FAA projected only six airports will be capacity-
constrained by 2020. FAA's latest 5-year estimate for future 
development costs is $33.5 billion, a 21 percent decline from 
its previous estimate. In contrast, the Airport Association's 
total estimated cost of planned development for that same 5-
year period is $72.5 billion, about a 6.2 increase from their 
prior estimate, and more than twice the FAA estimate.
    These estimates differ because the FAA estimate consists of 
only projects eligible for Federal airport grants, while the 
airports' estimate also includes projects that are not eligible 
for Federal airport grants as well as projects for which 
financing has already been identified.
    Turning to available funding sources for airport 
development. Overall, Federal funding for airport development 
has decreased, while reliance on debt and alternative revenues 
has grown. For example, the annual appropriations for the AIP 
decreased by $150 million since 2011, and the President's 2016 
budget calls for a continued reduction in AIP appropriations 
from $3.4 billion to $2.9 billion, in conjunction with an 
increase in the PFC cap.
    Speaking of PFCs, the Federal PFC cap of $4.50 per flight 
segment has not increased since 2000 and, thus, has not kept up 
with inflation. As the vast majority of airports already have a 
PFC, total collections have remained flat in recent years. The 
President's 2016 budget and airport organizations have called 
for increasing the PFC cap. When we analyzed the potential 
impact of increasing the PFC, we found, obviously, that it 
would substantially increase airport revenues, it could also 
slightly slow the growth of passenger traffic and, therefore, 
the growth of the trust fund revenues.
    Partially in response to declines in Federal support for 
airport development, airports have sought to increase their 
non-aviation revenues. These non-aviation revenues account for 
roughly $5 billion at commercial airports, which is almost as 
much as these airports' aviation revenues, and far more than 
PFCs collected at these airports. However, non-aviation 
revenues may not be available to all airports, especially 
smaller airports.
    Madam Chair, Ranking Member Cantwell, and members of the 
Subcommittee, in determining the best course for future Federal 
investment in our national airspace system, Congress has to 
weigh the interests of all aviation stakeholders, including 
airports, airlines, and, most importantly, passengers, to help 
ensure that we not only maintain the safest system in the 
world, but also have a system capable of efficiently handling 
the predicted future growth.
    Thank you. This concludes my oral statement.
    [The prepared statement of Dr. Dillingham follows:]

 Prepared Statement of Gerald L. Dillingham, Ph.D., Director, Physical 
 Infrastructure Issues, United States Government Accountability Office

Airport Funding--Changes in Aviation Activity Are Reflected in Reduced 
                           Capacity Concerns

What GAO Found
    Economic factors, since 2007, have led to fewer scheduled 
commercial flights, a trend more pronounced for some types of airports. 
These economic factors include not just the volatile fuel prices and 
the 2007 to 2009 recession but also evolving airline practices, such as 
airline mergers and the adoption of business models that demonstrate 
capacity management. For example, as GAO reported in June 2014, the 
number of scheduled flights at medium-and small-hub airports has 
declined at least 20 percent from 2007 to 2013, compared to about a 9 
percent decline at large-hub airports. General Aviation (GA) has also 
declined in activity, as measured by the number of GA aircraft 
operations and hours flown, due to similar economic factors. In recent 
years, however, passenger growth has rebounded. According to the 
Federal Aviation Administration's (FAA) projections, U.S. airline 
passenger growth is predicted to grow 2 percent per year through 2035--
a growth rate that is slightly lower than that of past forecasts.
    According to FAA estimates, the number of airports that require 
additional capacity to handle flight operations to avoid delays has 
declined since 2004. Similarly, the future cost of planned airport 
development has also declined in recent years. Earlier this year, FAA 
projected that 6 airports will be capacity constrained in 2020 compared 
to 41 in the 2004 projection. Even with this improvement, some 
airports--like those in the New York City area region--will remain 
capacity constrained, according to FAA. The overall improved capacity 
situation is also reflected in reduced estimates of future airport-
development costs that are eligible for Federal grants. In September 
2014, the FAA estimated that for the period 2015 through 2019, airports 
have about $33.5 billion in planned development projects eligible for 
Federal Airport Improvement Program (AIP) grants--a 21 percent 
reduction from the $42.5 billion estimate for the time period 2013 
through 2017. The biggest decline in planned development costs among 
project categories is in capacity projects such as new runway projects. 
However, an airport industry association estimated planned airport 
capital project costs, both those eligible and not eligible for AIP, of 
$72.5 billion for 2015 through 2019, an increase of 6.2 percent from 
the association's prior 5-year estimate for 2013 through 2017.
    As traditional funding sources for airport development have 
generally declined, airports have increasingly relied on other sources 
of financing. Specifically, Federal AIP grants and Passenger Facility 
Charges (PFC) are two primary sources of federally authorized funding 
for airports. The amount made available for AIP decreased from over 
$3.5 billion for Fiscal Years 2007 through 2011 to less than $3.4 
billion for Fiscal Year 2015. Further the President's 2016 proposed 
budget calls for additional reductions in AIP, though it would be 
offset with a proposed increase in the PFC cap, which is currently 
$4.50 per flight segment. Airports have sought additional opportunities 
to collect non-aviation revenues. As a result, according to FAA, non-
aviation revenue has increased each year from 2008 through 2014. For 
example, airports have 1) partnered with the private sector to fund 
airport improvements; 2) identified new business ventures on airport 
property including the development of commercial retail, leisure 
activities, and medical facilities; and 3) explored options for 
privatization.
                                 ______
                                 
    Madam Chair Ayotte, Ranking Member Cantwell, and Members of the 
Subcommittee:

    I am pleased to be here today to discuss airport capacity and 
funding issues in light of a changing aviation industry. U.S. airports 
are important contributors to our economy, providing mobility for 
people and goods both domestically and internationally, and 
contributing to the economic success of the communities they serve.
    Aviation activity in the United States experienced a decline since 
operations and passenger activity peaked in 2007, especially in the 
amount of commercial aircraft operations at U.S. airports. While 
passenger activity has rebounded close to 2007 levels, the total number 
of operations has not, leaving many airports with reduced activity. 
Even so, airport capacity--that is, the maximum number of flight 
operations an airport can handle over a period of time--is still a 
problem for some airports, resulting in significant delays for 
passengers throughout the National Airspace System (NAS). While, 
according to Federal Aviation Administration (FAA), only nine new 
commercial service airports have been built in the United States over 
the last three decades, billions of dollars have been invested in 
expanding new capacity, such as runways, and in maintaining and 
upgrading existing airports during that time.\1\ However, since 2007, 
Federal financing sources for airport development have seen small 
declines, especially when considering inflation. The FAA forecasts that 
the NAS will need to accommodate more than 1 billion passenger 
enplanements and almost 57 million aircraft operations annually by 
2029--an increase from 756 million enplanements and 49 million aircraft 
operations in 2014--as FAA forecasts aviation activity to grow by an 
average of 2 percent per year over the next 20 years.\2\ FAA's growth 
rate for 2015 through 2035 was slightly lower than in previous 
years.\3\ In response to these pressures, airports have sought to 
increase the statutorily-capped, airport-imposed Passenger Facility 
Charge (PFC)--which are airport fees collected by the airlines on 
passenger tickets and remitted to the airports--and have also worked to 
develop new funding sources.\4\
---------------------------------------------------------------------------
    \1\ Over the last 30 years, 9 commercial airports have opened--
Denver International, Austin-Bergstrom, Northwest Arkansas Regional, 
and 6 other smaller commercial airports.
    \2\ See FAA, FAA Aerospace Forecast: Fiscal Years 2015-2035, OK 15-
0814, (Washington, D.C.: 2015).
    \3\ See FAA, FAA Aerospace Forecast: Fiscal Years 2014-2034, OK 14-
0723, (Washington, D.C.: 2014).
    \4\ 49 U.S.C. 40117.
---------------------------------------------------------------------------
    My statement today focuses on current trends in airport capacity 
and funding for airport development. Specifically, this statement 
discusses trends in (1) aviation activity at airports since 2007, (2) 
airports' capacity needs and planned development costs, and (3) 
financing for airport development.
    This statement draws from our body of work completed from June 2007 
through December 2014 examining airport and aviation industry trends. 
Specific products from this work are cited throughout the statement. 
The products cited contain descriptions of the methods we used to 
conduct this work. We have updated our work through April 2015 with 
FAA's reports and analyses, including FAA's 2015 aviation forecast, the 
2015-2019 National Plan of Integrated Airport Systems (NPIAS), and 
airport funding and cost data spanning from 2004 through March 2015. We 
also examined the FAA's Fiscal Year 2016 budget proposal and obtained 
updated information on FAA program activities from public sources. In 
addition, we have ongoing work examining airport funding and planned 
capital development for which we plan to issue a report later this 
year.
    More detailed information on our objectives, scope, and methodology 
for our prior work can be found in the issued reports. We conducted the 
work on which this statement is based in accordance with generally 
accepted government auditing standards. Those standards require that we 
plan and perform the audit to obtain sufficient, appropriate evidence 
to provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives.
Background
    The United States has the largest, most extensive aviation system 
in the world with over 19,000 airports ranging from large commercial 
transportation centers handling millions of passengers annually to 
small grass airstrips serving only a few aircraft each year. Of these, 
roughly 3,300 airports are designated by FAA as part of the national 
airport system and thus are eligible for Federal assistance.
    The national airport system consists of two primary types of 
airports--commercial service airports, which have scheduled service and 
enplane 2,500 or more passengers per year, and general aviation (GA) 
airports, which have no scheduled service and enplane fewer than 2,500 
passengers annually. FAA divides commercial service airports into 
primary airports (enplaning more than 10,000 passengers annually) and 
commercial service nonprimary airports. The 395 current primary 
airports are classified by hub type--large-, medium-, small-, and 
nonhub--based on passenger traffic.\5\ Passenger traffic is highly 
concentrated: 88 percent of all passengers in the United States 
enplaned at the 63 large-or medium-hub airports in 2013 (see fig. 
1).\6\
---------------------------------------------------------------------------
    \5\ 49 U.S.C. Sec. 40102(29), (31), (42), and (34).
    \6\ Commercial service airports are categorized into hub types 
based on their share of passenger enplanements.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: GAO presentation of FAA data. GAO-15-498T
    Note: The term ``hub'' is defined in Federal law to identify 
commercial service airports as measured by passenger boardings, and the 
airports are grouped into four hub categories. (49 U.S.C. Sec. 40102 
(29), (31), (42), and (34)).

    More than 2,900 airports in the national system are designated as 
GA airports. These airports range from large business aviation and 
cargo shipment centers that handle thousands of operations a year to 
small rural airports that may handle only a few hundred operations per 
year but may provide important access to the national transportation 
system for their communities.
    Generally, the level of aviation activity, whether commercial 
passenger and cargo or general aviation business and private aircraft, 
helps to generate the funds that finance airport development. The three 
primary sources of funding for airport development are Airport 
Improvement Program (AIP) grants, PFCs, and locally generated revenue. 
All three sources of funds are linked to passenger aviation activity.

   AIP is supported by the Airport and Airway Trust Fund 
        (AATF), which is funded by airline ticket taxes and fees;\7\ GA 
        flights contribute to the AATF through a tax on aviation jet 
        fuel. Airports included in FAA's NPIAS are eligible to receive 
        AIP entitlement (apportionment) grants based on airports' size 
        and can also compete for AIP discretionary grants.\8\ AIP 
        grants can only be used for eligible capital projects, 
        generally those that enhance capacity, safety, and 
        environmental conditions, such as runway construction and 
        rehabilitation, airfield lighting and marking, and airplane 
        noise mitigation.\9\ The amount made available in AIP 
        appropriations totaled $3.35 billion in Fiscal Year 2014. The 
        grants generally require matching funds from the local match 
        ranging from 10 to 25 percent depending on the size of the 
        airport and type of project.
---------------------------------------------------------------------------
    \7\ In total, the AATF collected $13.5 billion from various taxes 
in Fiscal Year 2014 and appropriated $12.6 billion from the trust fund 
to fund FAA and its various programs, including AIP grants. The 
uncommitted AATF balance at the end of Fiscal Year 2014 was $5.7 
billion. The manner in which the trust fund is funded has not changed 
significantly since it was established in 1970 and several attempts to 
implement a user fee system have not been successful. See 26 U.S.C. 
Sec. 9502.
    \8\ NPIAS airports are public-use airports that are deemed by FAA 
to be important to the national air transportation system and, 
therefore, eligible for AIP funding. AIP grants generally consist of 
two types--(1) entitlement funds that are apportioned to airports or 
states by formula each year based on the number of airport passengers 
or state population and (2) discretionary funds that FAA approves based 
on a project's priority.
    \9\ 49 U.S.C. Sec. 47102(3).

   PFCs, another source of funding for airport development 
        projects, are a federally authorized, statutorily-capped, 
        airport-imposed fee of up to a maximum of $4.50 per enplaned 
        passenger per flight segment, and a maximum of $18 per round 
        trip ticket. The PFC is collected by the airline on the 
        passenger ticket and remitted to the airports (minus a small 
        administrative fee retained by the airline).\10\ Introduced in 
        1991, and capped at $3.00 per flight segment,\11\ PFC 
        collections can be used by airports for the same types of 
        projects as AIP grants, but also to pay interest costs on debt 
        issued for those projects.\12\ Since its inception, landside 
        development projects--including, for example, new terminal 
        projects--and interest payments on debt used to finance 
        eligible projects have each accounted for 34 percent of total 
        PFC collections spent. The maximum level of PFCs was last 
        increased in 2000.\13\ Collections totaled almost $2.8 billion 
        in calendar year 2014. According to FAA, 358 commercial service 
        airports are collecting PFCs as of February 2015.
---------------------------------------------------------------------------
    \10\ 49 U.S.C. Sec. 40117(b)(4).
    \11\ Pub. L. No. 101-508, Sec. 9110(2), 104 Stat. 1388-357.
    \12\ 49 U.S.C. Sec. 40117(b)(64).
    \13\ Pub. L. No. 106-181, Sec. 105(a), 114 Stat. 71, 83 (2000).

   Airports also fund development projects from revenues 
        generated directly by the airport. Airports generate revenues 
        from aviation activities such as aircraft landing fees and 
        terminal rentals, and non-aviation activities such as 
        concessions, parking, and land leases. Aviation revenues are 
        the traditional method for funding airport development and, 
        along with PFCs, are used to finance the issuance of local tax-
        exempt debt. Because of the size and duration of some airport 
        development projects--for example, a new runway can take more 
        than a decade and several billion dollars to complete--long-
        term debt can be the only way to finance these types of 
---------------------------------------------------------------------------
        projects.

    FAA's main planning tool for identifying future airport-capital 
projects is the NPIAS.\14\ FAA relies on airports, through their 
planning processes, to identify individual projects for funding 
consideration. According to FAA officials, FAA reviews input from 
individual airports and state aviation agencies and validates both 
eligibility and justification for the project over the ensuing five-
year period. Because the estimated cost of eligible airport projects 
that airports plan to perform greatly exceeds the available grant 
funding available for these projects, FAA uses a priority system based 
on airport and project type to allocate the available funds.\15\ The 
Airports Council International-North America (ACI-NA), a trade 
association for airports, also estimates the cost of planned airport 
capital projects.
---------------------------------------------------------------------------
    \14\ 49 U.S.C. Sec. 47103.
    \15\ 62 Fed. Reg. 45008 (Aug. 25, 1997).
---------------------------------------------------------------------------
    While almost all airport sponsors in the United States are states, 
municipalities, or specially created public authorities, there is still 
a significant reliance on the private sector for finance, expertise, 
and control of airport assets.\16\ For example, we have previously 
reported that the majority of airport employees at the Nation's major 
airports are employed by private sector firms, such as concessionaires, 
and some airports are also operated by private companies.\17\ Pursuant 
to statutory authorization, since 1996, FAA has been piloting an 
airport privatization program that relaxes certain restrictions on the 
sale or lease of airports to private entities.\18\
---------------------------------------------------------------------------
    \16\ A sponsor is any public agency or private owner of a public 
use airport, codified at 49 U.S.C. Sec. 47102(24).
    \17\ GAO, Airport Funding: Aviation Industry Changes Affect Airport 
Development Costs and Financing, GAO-14-658T (Washington, D.C.: June 
18, 2014).
    \18\ 49 U.S.C. Sec. 41734.
---------------------------------------------------------------------------
Aviation Activity at Many Airports Has Slowed Since 2007
    A variety of factors has had a substantial impact on the airline 
industry. We reported in June 2014 that economic issues such as 
volatile fuel prices and the economic recession have affected the 
industry as have airlines' consolidation and an adoption of business 
models that focus more on capacity management.\19\ For instance, the 
2007-2009 recession combined with a spike in fuel prices, helped spur 
industry mergers and a change in airline business models. Specifically, 
Delta acquired Northwest in 2008, United and Continental merged in 
2010, Southwest acquired AirTran in 2011, and U.S. Airways and American 
Airlines merged in 2014. Although passenger traffic has generally 
rebounded as the economy has recovered, the number of commercial 
aircraft operations has not returned to 2007 levels as airlines are 
flying larger and fuller aircraft.
---------------------------------------------------------------------------
    \19\ GAO, Airline Competition: The Average Number of Competitors in 
Markets Serving the Majority of Passengers Has Changed Little in Recent 
Years, but Stakeholders Voice Concerns about Competition, GAO-14-515 
(Washington, D.C.: Jun 11, 2014).
---------------------------------------------------------------------------
    In June 2014, we found that one outcome of economic pressures and 
industry changes had been reductions in U.S. passenger aircraft 
operations as measured by scheduled flight operations.\20\ Many 
airports lost both available seats and flights since 2007 when aircraft 
operations last peaked. However, medium-and small-hub airports had 
proportionally lost more service than large-hub or nonhub airports, as 
major airlines merged and consolidated their flight schedules at the 
largest airports. In June 2014, we found--based on our analysis of 
Department of Transportation's (DOT) data--that there were about 1.2 
million fewer scheduled domestic flights in 2007 as compared to 2013 at 
large-, medium-, small-hub, and nonhub airports.\21\ The greatest 
reduction in scheduled flights occurred at medium-hub airports,\22\ 
which decreased nearly 24 percent from 2007 to 2013, compared to a 
decrease of about 9 percent at large-hub airports and about 20 percent 
at small-hub airports. Medium-hub airports also experienced the 
greatest percentage reduction in air service as measured by available 
seats \23\ (see fig. 2). While 2014 passenger activity as represented 
by the number of passengers onboard aircraft departing U.S. airports 
has rebounded nearly back to 2007 levels (down 4 percent), the total 
number of commercial passenger and cargo aircraft departures 
(operations) in 2014 is still down 18.5 percent since 2007. Declining 
operations reduces pressure on airports' airside capacity, while 
rebounding passenger traffic could put pressure on airports' terminals 
and gates to accommodate passengers.
---------------------------------------------------------------------------
    \20\ GAO-14-658T.
    \21\ GAO-14-515.
    \22\ Medium-hub declines can be partly attributed to airline 
``dehubbing'' after a merger, whereby an airline sharply reduces the 
number of flights that connect at the airport. For example, Memphis, 
Cleveland, and Cincinnati all experienced significant loss of traffic 
after a merger.
    \23\ GAO-14-515.
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Source: GAO analysis of DOT data. GAO-15-498T
    Note: The term ``hub'' is defined in Federal law to identify 
primary commercial service airports as measured by passenger boardings. 
These airports are grouped into four hub categories--large-, medium-, 
small-hub, and nonhub. (49 U.S.C. Sec. 40102(29), (31), (42) and (34)).

    We found in June 2014 that air service to small airports, which 
generally serve small communities, has declined since 2007 due, in 
part, to volatile fuel costs and declining populations in small 
communities.\24\ According to a study by the Massachusetts Institute of 
Technology (MIT), regional aircraft--those mostly used to provide air 
service to small communities--are 40 to 60 percent less fuel efficient 
than the aircraft used by mainline carriers at larger hub airports. 
Further, from 2002 to 2012, fuels costs quadrupled and became the 
airlines' largest expense at nearly 30 percent of airlines' operating 
costs. While more recently oil prices have dropped, it remains 
uncertain whether currently low oil prices will continue. The second 
major factor affecting small community service is declining population 
in many regions of the country over the last 30 years. As a result, in 
previous work, we have found that population movement has decreased 
demand for air service to certain small communities.\25\ For example, 
geographic areas, especially in the Midwest and Great Plains states, 
lost population from 1980 through 2010, as illustrated in figure 3 
below. As a result, certain areas of the country are less densely 
populated than they were 35 years ago when the airlines were 
deregulated and the Essential Air Service (EAS) was created.\26\ For 
small communities located close to larger cities and larger airports, a 
lack of local demand can be exacerbated by passengers choosing to drive 
to airports in larger cities to access better service and lower fares. 
The EAS program was created in 1978 to provide subsidies to some small 
communities that had service at the time of deregulation. We reported 
last year that EAS has grown in cost but did help stem the declines in 
service to those communities as compared to other airports.\27\
---------------------------------------------------------------------------
    \24\ GAO, Commercial Aviation: Status of Air Service to Small 
Communities and the Federal Programs Involved, GAO-14-454T (Washington, 
D.C.: Apr 30, 2014).
    \25\ See GAO, National Transportation System: Options and 
Analytical Tools to Strengthen DOT's Approach to Supporting 
Communities' Access to the System, GAO-09-753 (Washington, D.C.: Jul 
24, 2009).
    \26\ Pub. L. No. 95--504, 92 Stat. 1705 (1978).
    \27\ GAO-14-454T.
    
    
    In June 2014, we reported that GA activity has also declined since 
2007, particularly affecting airports that rely on general aviation 
activity for a large share of their revenue.\28\ For GA airports--which 
generate revenues from landing fees, fuel sales, and hangar rents--the 
loss of traffic can have a significant effect on their ability to fund 
development. A 2012 MIT study that examined trends for GA operations at 
U.S. airports with air-traffic control towers indicated that from 2000 
to 2010, total GA operations dropped 35 percent.\29\ According to the 
MIT study, the number of annual hours flown by GA pilots, as estimated 
by FAA, has also decreased over the past decade.\30\ Numerous factors 
affect the level of GA operations including the level of fuel prices, 
the costs of owning and operating personal aircraft, and the total 
number of private pilots and GA aircraft. For example, we recently 
reported on the availability of airline pilots and found that the GA 
pilot supply pipeline has decreased as fewer students enter and 
complete collegiate pilot-training programs and fewer military pilots 
are available than in the past.\31\
---------------------------------------------------------------------------
    \28\ GAO-14-658T.
    \29\ Kamala I. Shetty and R. John Hansman, Current and Historical 
Trends in General Aviation in the United States, Massachusetts 
Institute of Technology International Center for Air Transportation 
(August 2012).
    \30\ Unlike commercial service aviation, GA operators are not 
required to report flight activity to FAA. To have some idea of the 
activity, FAA estimates GA flight hours based on estimates derived from 
its annual survey of GA operators and the Part 135 Activity Survey. We 
reported in 2012 that the GA survey has long suffered from 
methodological and conceptual limitations, even with FAA's efforts to 
improve it over the years.
    \31\ GAO, Aviation Workforce: Current and Future Availability of 
Airline Pilots, GAO-14-232 (Washington, D.C.: Feb 28, 2014).
---------------------------------------------------------------------------
Airport Capacity Needs and AIP-Eligible Planned Development Costs Have 
        Mostly Declined
The Projected Number of Future Capacity Constrained Airports Has 
        Declined
    Earlier this year, FAA reported on airport capacity needs through 
2030.\32\ The focus of FAA's analysis was not on the broad range of 
investments airports make to serve passengers and aircraft, but on the 
capacity of airports to operate without significant delay. Therefore, 
the primary focus was on airside capacity, especially runway capacity. 
To do this, FAA modeled recent and forecasted changes in aviation 
activity, current and planned FAA investments in air-traffic-control 
modernization, and airport investments in infrastructure, such as new 
runways, to determine which airports are likely to be congested or 
capacity constrained in future years.\33\ The FACT3 report is the third 
such study FAA has conducted, with previous studies in 2004 and 2007 
following a similar methodology. The most recent study found that the 
number of capacity-constrained airports expected in the future has 
fallen dramatically from the number projected in earlier reports, 
referred to as FACT1 and FACT2 (see fig. 4). For example, in 2004, FAA 
projected that 41 airports would be capacity constrained by 2020 unless 
additional investment occurred. However, in the 2015 report, FAA 
projected that 6 airports will be capacity constrained in 2020. FAA 
attributed this improvement to changes in aviation activity, investment 
in air-traffic-control modernization, and the addition of airport 
runways.
---------------------------------------------------------------------------
    \32\ FAA, FACT3: Airport Capacity Needs in the National Airspace 
System, (January 2015).
    \33\ Congested airports are defined as having an average delay per 
flight of 7 minutes or more and capacity-constrained as having an 
average delay per flight of 15 minutes or more delay per flight.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: FAA. GAO-15-498T
    Note: FAA has published three reports--FACT 1 (2004), FACT2 (2007), 
and FACT3 (2015)--that examined current and future capacity needs 
throughout the national airspace system.

    As noted above, FAA's most recent capacity report forecasts that 6 
airports will need additional investment to improve capacity by 2020, 5 
of which are expected to remain capacity constrained even if planned 
investments are made (See Table 1). Five of the airports identified in 
the FAA analyses--including the 3 in the New York City area--have 
experienced capacity constraints since 2004 when FAA first published 
its analysis. These 6 airports continue to have among the worst on-time 
performance of U.S. airports. In our May 2010 report on air-traffic-
control delays, we identified these same 6 airports plus Chicago O'Hare 
as being responsible for 80 percent of all departure delays in the 
NAS.\34\ Since 2001, the $8.7-billion Chicago O'Hare modernization 
program has helped to increase capacity and reduce congestion there.
---------------------------------------------------------------------------
    \34\ GAO, National Airspace System: Setting On-Time Performance 
Targets at Congested Airports Could Help Focus FAA's Actions, GAO-10-
542, (Washington, D.C.: May 26, 2010).

 
 
----------------------------------------------------------------------------------------------------------------
 

 Table 1.--Six Airports Identified by the Federal Aviation Administration as Needing Additional Capacity in 2020
----------------------------------------------------------------------------------------------------------------
                                          No further  improvements beyond      After planned  improvements with
  Airport name (location identifier)             near-term NextGen               midterm  NextGen and runways
----------------------------------------------------------------------------------------------------------------
Hartsfield-Jackson Atlanta                                               X                                    X
 International (ATL)
----------------------------------------------------------------------------------------------------------------
Newark Liberty International (EWR)                                       X                                    X
----------------------------------------------------------------------------------------------------------------
John F. Kennedy International (JFK)                                      X                                    X
----------------------------------------------------------------------------------------------------------------
LaGuardia (LGA)                                                          X                                    X
----------------------------------------------------------------------------------------------------------------
Philadelphia International (PHL)                                         X                                    X
----------------------------------------------------------------------------------------------------------------
San Francisco International (SFO)                                        X
----------------------------------------------------------------------------------------------------------------
Total                                                                    6                                    5
----------------------------------------------------------------------------------------------------------------
Source: FAA FACT3 Report/GAO-15-498T
Note: NextGen is an advanced technology air-traffic management system that FAA anticipates will replace the
  current ground-radar-based system.

    As we concluded in our April 2013 report, an important factor to 
reducing congestion is air-traffic-control modernization. FAA is 
collaborating with other Federal agencies and the aviation industry on 
the implementation of the Next Generation Air Transportation System 
(NextGen), a complex, multi-year, multi-billion dollar, and incremental 
process to implement an advanced technology air-traffic management 
system that will eventually replace the current ground-radar-based 
system. NextGen capabilities are expected to help airports accommodate 
the demand for additional capacity in a safe, efficient, and more 
environmentally responsible manner. While FAA anticipates that NextGen 
improvements will keep airport delays from getting worse than would be 
expected without the improvements, the transformation to NextGen will 
depend on the ability of airports to handle greater capacity.\35\ For 
example, the improved efficiency in runway and airspace use that is 
projected to result from some NextGen technologies may require more 
capacity in other areas, such as taxiways, terminal gates, or parking 
areas for aircraft.
---------------------------------------------------------------------------
    \35\ GAO, FAA Has Made Some Progress in Midterm Implementation, but 
Ongoing Challenges Limit Expected Benefits, GAO-13-264 (Washington, 
D.C.: Apr 8, 2013).
---------------------------------------------------------------------------
    FAA's NextGen Priorities Joint Implementation Plan released in 
October 2014 identified two NextGen improvements that FAA asserts would 
help increase airport capacity. The Joint Implementation Plan 
summarizes the high-level commitments that FAA and the aviation 
community collectively agreed to accomplish in the next 3 years and 
provides a timeline of capability milestones and locations.\36\ The 
first improvement under the plan is to improve airport surface 
operations, including the improved data sharing and coordination as 
well as surface-metering methods that help efficiently queue airplanes 
to better predict hourly departure demand and assigning airlines 
departure slots in a queue based on the data. For example, an MIT 
report on metering programs at JFK airport in New York found that 
metering significantly reduced taxi times, fuel burned, and carbon 
emissions.\37\ The second improvement agreed to in the plan is to 
increase the use of parallel runway operations. In April 2013, we 
concluded that revised standards for using closely spaced parallel 
runways and integration of airborne-and surface-traffic management will 
be important to ensuring NextGen benefits are realized, since benefits 
from the various capabilities are interdependent.\38\
---------------------------------------------------------------------------
    \36\ The high-priority capabilities also include implementing 
performance based navigation procedures and data communication 
improvements. The data communications program--referred to as 
DataComm--has an approved cost, schedule, and performance baseline with 
a longer timeline.
    \37\ Alex Nakahara and Tom G. Reynolds, Massachusetts Institute of 
Technology Lincoln Laboratory Thomas White, Chris Maccarone, and Ron 
Dunsky, PASSUR Aerospace, Stamford, CT. Analysis of a Surface 
Congestion Management Technique at New York JFK Airport.
    \38\ GAO-13-264.
---------------------------------------------------------------------------
    The FAA Modernization and Reform Act of 2012 (2012 Act) \39\ 
included a number of provisions aimed at accelerating NextGen benefits 
through the creation of performance-based navigation (PBN) procedures, 
such as following precise routes that use the Global Positioning System 
that can save airlines and other aircraft operators money through 
reduced fuel and flight time. As part of the 2012 Act, FAA was granted 
a categorical exclusion from environmental review for PBN procedures in 
cases that could demonstrate measurable reductions in fuel consumption, 
carbon dioxide emissions, and noise, on a per-flight basis, as compared 
to aircraft operations that follow existing procedures.\40\ However, 
our April 2013 report found that, according to FAA, potential noise 
impacts are measured cumulatively for all flights not on a per-flight 
basis. In 2014, FAA sought public comments on how to implement this 
exclusion, and according to an FAA official, the agency plans to issue 
a notice later this year on how to apply this new categorical 
exclusion.\41\
---------------------------------------------------------------------------
    \39\ Pub. L. No. 112-95 Sec. 213, 126 Stat. 11, 46.
    \40\ A Federal action may be categorically excluded--thus exempting 
it from further Federal environmental review--if, based on agency 
experience, the agency has determined that the proposed action is 
within a category of actions that do not individually or cumulatively 
have a significant effect on the environment and there are no 
extraordinary circumstances in which a normally excluded action may 
have a significant environmental effect. See 40 C.F.R. Sec. 1508.4.
    \41\ 79 Fed, Reg. 49141 (Aug. 19, 2014).
---------------------------------------------------------------------------
    Some airports remain capacity constrained despite significant 
investment and operational improvements. For example, despite 
investments in capacity, operational improvements, and an airspace 
redesign for the entire New York metroplex, the three New York area 
airports remain capacity constrained.\42\ As we found in July 2008, 
these constraints impose a considerable economic burden on the region, 
while the delays that emanate from those airports propagate throughout 
the NAS.\43\ FAA imposed operating authorizations to take-off or land, 
called slot controls, at those airports in the late 1960s to reduce 
airport and system delays.\44\ At times when slot controls have been 
relaxed or suspended as a result of statutory changes and FAA actions, 
delays have ballooned. For example, in 2000, the Wendell H. Ford 
Aviation Investment and Reform Act for the 21st Century required the 
High Density Rule to be phased out at JFK and LaGuardia by January 1, 
2007,\45\ and as a result, airlines scheduled more flights at LaGuardia 
than the airport could handle without unreasonable delays. FAA 
subsequently issued temporary orders limiting scheduled operations at 
LaGuardia, JFK, and Newark, which have been in place since 2007.
---------------------------------------------------------------------------
    \42\ GAO, FAA Airspace Redesign: An Analysis of the New York/New 
Jersey/Philadelphia Project, GAO-08-786 (July 31, 2008).
    \43\ GAO-08-786.
    \44\ 34 Fed. Reg. 2603 (Feb. 26, 1969).
    \45\ Pub. L. No. 106-181, 231(b)(2), 114 Stat. 108 (2000).
---------------------------------------------------------------------------
    In our 2012 report on slot controls, we found problems with certain 
aspects of the slot control rules, including FAA's management of them 
at the New York City area airports.\46\ These problems contribute to 
not using existing capacity or using it inefficiently at these 
airports. This situation may hinder the ability of some new entrant 
airlines to obtain slots that they could use to offer new service 
destinations and lower fares.\47\ Because opportunities to build new 
capacity at these airports are limited, optimizing the available 
capacity is paramount. We made six recommendations to FAA and the DOT 
to improve the management of the slots to maximize the use of available 
capacity at these airports, enhance competition through greater airline 
access to slots,\48\ and enhance transparency of slot information. DOT 
partly or fully concurred with the recommendations, but has not yet 
fully addressed them. On January 8, 2015, DOT proposed new rules to 
replace the temporary FAA orders for managing the slots at these 
airports and comments are now being submitted to DOT and are currently 
due May 8, 2015. The new rules, as proposed, do not provide for 
increased capacity at these airports, keeping hourly slot limits at the 
same level and introducing a new daily slot limit.\49\
---------------------------------------------------------------------------
    \46\ GAO, Slot-Controlled Airports: FAA's Rules Could Be Improved 
to Enhance Competition and Use of Available Capacity, GAO-12-902, 
(Washington, D.C.: Sep 13, 2012).
    \47\ GAO-12-902.
    \48\ Pub. L. No. 106-181, 231(b)(2), 114 Stat. 108 (2000).
    \49\ Slot Management and Transparency for LaGuardia Airport, John 
F. Kennedy International Airport, and Newark Liberty International 
Airport, 80 Fed. Reg. 1274 (Jan. 8, 2015).
---------------------------------------------------------------------------
Estimated AIP-Eligible Development Costs for Next 5 Years Are Lower, 
        Though 
        Estimates of Overall Development Costs Have Increased
    In the September 2014 NPIAS, FAA estimated that airports have 
roughly $33.5 billion in planned development projects for the period 
2015 through 2019 that are eligible for Federal support in the form of 
AIP grants.\50\ This estimate is roughly 21 percent less than FAA's 
previous estimate of $42.5 billion for the period 2013 through 2017 
(see fig. 5). FAA reported a decrease in estimated needs for most hub-
airport categories and all types of airport development except projects 
to reconstruct or rehabilitate airport facilities, security related 
infrastructure projects, and safety projects (see fig. 6). Notably, 
according to FAA, planned capacity-related development decreased to 
$4.9 billion, a 50-percent decrease. Planned terminal-related 
development also saw a major decline, down by 69 percent from the 
previous estimate.
---------------------------------------------------------------------------
    \50\ National Plan of Integrated Airport Systems for 2015-2019, 
FAA, September 2014. AIP and PFC project eligibility standards are 
similar; however, some PFC uses (such as debt service) are not eligible 
for AIP.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: GAO presentation of FAA data. GAO-15-498T
    Note: Dollars expressed in the year of estimate.
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Source: GAO presentation of FAA data. GAO-15-498T
    Note: Dollars expressed in the year of estimate. N/A means not 
applicable.

    The ACI-NA also estimated airports' planned development for the 
2015 through 2019 period for projects both eligible and not eligible 
for AIP funding. According to ACI-NA, the total estimated planned-
development cost for 2015 through 2019 is $72.5 billion, more than 
twice FAA's estimate for just AIP eligible projects.\51\ ACI-NA's 
estimate increased 6.2 percent over its prior estimate of $68.7 billion 
for the prior 2013-2017 estimating period. According to ACI-NA, the 
difference in the respective estimates is attributable to ACI-NA's 
including all projects rather than just AIP-eligible projects like the 
NPIAS, as well as including projects with identified funding sources, 
which the NPIAS excludes. For example, ACI-NA's estimate includes AIP-
ineligible projects such as parking facilities, airport hangars, and 
commercial space in large passenger terminal buildings. ACI-NA 
attributed more than half of the development costs to the need to 
accommodate growth in passenger and cargo activity. ACI-NA estimated 
that 36 percent of planned development costs were for terminal 
projects. We are currently analyzing FAA and ACI-NA's most recent plan 
estimates and will be reporting later this year on the results.
---------------------------------------------------------------------------
    \51\ ACI-NA reported $75.7 billion over 5 years, or $15.1 billion 
per year but that included an inflation adjustment.
---------------------------------------------------------------------------
Federal Support for Airport Development Has Decreased, While Debt 
        Levels May Leave Little Room for New Development at Some 
        Airports
Federal Funding for Airport Development Has Declined in Recent Years
    In Fiscal Year 2015, Congress made $3.35 billion available in 
appropriations acts for AIP funding, a reduction from the annual 
appropriations of $3.52 billion for Fiscal Years 2007 through 2011.\52\ 
The President's 2016 budget proposal calls for a reduction in annual 
AIP funding to $2.9 billion in conjunction with an increase in the PFC 
cap. As we testified in June 2014, if amounts made available in 
appropriations acts for AIP fall below the $3.2 billion level 
established in the Wendell H. Ford Aviation Investment and Reform Act 
for the 21st Century of 2000 \53\ and no adjustments are made, under 
the 2000 Act the amount of AIP entitlement grants would be reduced, but 
more AIP discretionary grants could be made as a result. The larger 
amount of AIP funding that would go to discretionary grants would give 
FAA greater decision-making power over the development projects that 
receive funding.
---------------------------------------------------------------------------
    \52\ Congress sets an amount FAA can obligate during a Fiscal Year 
in appropriations acts. For Fiscal Year 2009, in addition to the amount 
made available of $3.5 billion, AIP received appropriation of $1.1 
billion under the American Recovery and Reinvestment Act of 2009 (Pub. 
L. No. 111-5, 123 Stat. 115, 205 (2009). The amount made available for 
each Fiscal Year includes amounts for AIP grants to airports as well as 
for other components of the AIP program. For example, of the $3.515 
billion made available for the AIP program in Fiscal Year 2010, $3.4 
billion was for AIP grants, $93.4 million was for administrative 
expenses of the FAA's Office of Airports, $22.5 million was for the 
Airport Technology Research Program, $15 million was for the Airport 
Cooperative Research Program, and $6 million was used for the Small 
Community Air Service Development Program.
    \53\ 49 U.S.C. Sec. 47114.
---------------------------------------------------------------------------
    Previous proposals have considered changing how GA airports are 
allocated their share of AIP funds, which represented approximately 
one-quarter of total AIP funds in Fiscal Year 2014. For example, in 
2007, the Administration's FAA reauthorization proposal suggested 
changing the funding structure for GA airports. Specifically, FAA would 
have tiered GA airports' funding based on level of and type of aviation 
activities. AIP entitlement funding would then range, based on the 
tier, up to $400,000. While this proposal was not adopted, FAA recently 
undertook an exercise to classify GA airports based on their activity 
levels.\54\ In 2014, FAA reported that 281 airports remained 
unclassified because they did not meet the criteria for inclusion in 
any of the new categories, thus having no clearly defined Federal 
role.\55\ This figure included 227 publicly owned airports with few or 
no based aircraft. According to the most recent NPIAS report, many of 
these 227 airports have received AIP funding in the past and may be 
considered for future funding if and when their activity levels meet 
FAA's criteria for inclusion.
---------------------------------------------------------------------------
    \54\ In a 2012 report, FAA categorized GA airports as National 
(84), Regional (467), Local (1,236), and Basic (668). In addition, 
another 497 GA airports were unclassified. Federal Aviation 
Administration, General Aviation Airports: A National Asset (ASSET 1), 
May 2012.
    \55\ FAA, ASSET 2: In-Depth Review of 497 Unclassified Airports, 
March 2014.
---------------------------------------------------------------------------
    We also found that the Federal PFC cap of $4.50 has not increased 
since 2000 and thus has not kept pace with inflation; accordingly, 
total collections have remained flat since 2007.\56\ PFC collections 
peaked in 2006 at over $2.93 billion and in 2014 totaled $2.78 billion. 
Approximately 90 percent of PFC collections go to large-and medium-hub 
airports, but large-and medium-hub airports collecting PFCs must return 
a portion of their AIP entitlement grants, which are then redistributed 
to smaller airports through the AIP.\57\ As previously noted, 68 
percent of PFCs have been used to pay for landside development 
(terminals) and interest charges on debt. In addition, many airports' 
future PFC collections are already committed to pay off debt for past 
projects, leaving little room for new development. For example, at 
least 50 airports have leveraged their PFCs through 2030 or later, 
according to FAA data.
---------------------------------------------------------------------------
    \56\ GAO, Commercial Aviation: Raising Passenger Facility Charges 
Would Increase Airport Funding, but Other Effects Less Certain, GAO-15-
107 (Dec 11, 2014).
    \57\ Medium-and large-hub airports return 50 percent of their AIP 
entitlement funds if their PFC level is $3.00 or less and 75 percent of 
their entitlement if their PFC level is above $3.00 (49 U.S C 
Sec. 47114(f)). FAA's Small Airport fund--for use by small-hubs, 
nonhubs, general aviation, and reliever airports--receives 87.5 percent 
of the total returned amount, and the other 12.5 percent goes toward 
AIP discretionary funds (49 U.S.C Sec. 47116).
---------------------------------------------------------------------------
    The President's Fiscal Year 2016 budget proposal and airports have 
called for increasing the PFC cap to $8--which is intended to account 
for inflation since 2000, when the maximum PFC cap was last raised--and 
eliminate AIP entitlements for large-hub airports.\58\ Earlier this 
year, we reported on the effects of increasing PFCs on airport revenues 
and passenger demand.\59\ Specifically, we found that increasing the 
PFC cap would significantly increase PFC collections available to 
airports under the three scenarios we modeled but could also marginally 
slow passenger growth and therefore the growth in revenues to the AATF. 
We modeled the potential economic effects of increased PFC caps for 
Fiscal Years 2016 through 2024 as shown in figure 7 below. Under all 
three scenarios, trust fund revenues, which totaled $12.9 billion in 
2013 and fund FAA activities, would likely continue to grow overall 
based on current projections of passenger growth; however, the modeled 
cap increases could reduce the growth in total AATF revenues by roughly 
1 percent because of reduced passenger demand if airlines pass the full 
amount of the PFC increase along to consumers in the form of increased 
ticket prices.
---------------------------------------------------------------------------
    \58\ Airport trade associations, the ACI-NA and the American 
Association of Airport Executives, have made prior proposals to raise 
the PFC cap to $8.50 with periodic adjustments for inflation.
    \59\ GAO, Commercial Aviation: Raising Passenger Facility Charges 
Would Increase Airport Funding, but Other Effects Less Certain, GAO-15-
107, (Washington, D.C.: Dec 11, 2014).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: GAO analysis of DOT data. GAO-15-498T
    Note: Model assumptions are (1) an elasticity rate of -0.8; (2) 
airlines would pass the total fee increase to passengers through higher 
ticket prices; and (3) airports that currently impose a PFC would raise 
it to the maximum allowed in the first year. ACI-NA/AAAEE did not 
specify which inflation index it used in its proposal; therefore, we 
used the CPI as it is the Federal inflation-index standard.

    As with any modeling exercise, these projected effects depend on 
key assumptions regarding consumers' sensitivity to a fare increase 
caused by an increase in the PFC, whether airlines would pass on the 
full increase to consumers, and the rate at which airports would adopt 
the increased PFC cap. First, there is uncertainty associated with 
demand analysis, because the estimated reductions in air travel are 
highly dependent on the assumptions about consumers' sensitivities to 
changes in price. Second, we assumed that the entire PFC increase would 
be fully passed on to consumers and not absorbed by the airlines by 
adjusting their base fares downward. Airline statements and experts 
with whom we spoke largely supported our assumption that airlines would 
attempt to pass the PFC increase on to consumers. Finally, we assumed 
that airports that currently impose a PFC would raise it to the maximum 
allowed amount in the first year. While all airports likely would not 
immediately raise their PFC level in the first year, based on near 
universal adoption of the current maximum by nearly all of the largest 
airports, it is not unrealistic to expect that most airports would be 
at the maximum by 2024.
    Airlines have historically opposed PFC increases because they 
assert that higher ticket prices could reduce demand for air travel 
and, therefore, airline revenues. While we have reported that a PFC 
increase could marginally slow passenger demand, another issue in this 
debate is how increasing PFCs could affect the airlines' ability to 
influence airport investment decisions.\60\ PFCs were introduced in 
1991, in part, to give airports greater independence from airlines over 
investment decisions. While airports must notify and consult with the 
airlines on how they spend PFCs, as long as FAA approves, airlines 
cannot block these decisions. Airlines can choose to serve other 
airports, however, so airports have an incentive to listen to airline 
concerns. However, all else being equal, an increase in PFC collections 
would provide airports with more influence over airport infrastructure 
decisions while a lower PFC would make airports more reliant on 
airlines to help fund local capital-funding decisions.
---------------------------------------------------------------------------
    \60\ GAO-15-107.
---------------------------------------------------------------------------
    Congress directed GAO to study alternative methods to collect PFCs 
as part of the last Reauthorization.\61\ As part of our work for this 
report, we interviewed officials from airports and airlines. Officials 
from some of these airports and airlines said they would consider 
removing airport fees from the airline ticket altogether and allowing 
airports to collect fees themselves. We examined alternative collection 
mechanisms, such as airport kiosks and internet-enabled devices such as 
smartphones that could be used to collect PFCs separate from the 
ticket. We determined that none of these alternatives were better than 
the current method. Specifically, we determined that each of the 
alternatives negatively impacted the passenger experience and the 
transparency of fees relative to the current method.\62\ While airports 
have generally supported the current collection method, some told us 
they might consider using an alternative method if it allowed them to 
remove the PFC cap.
---------------------------------------------------------------------------
    \61\ Pub. L. No. 112-95, Sec. 112, 126 Stat. 11, 18 (2012).
    \62\ GAO, Transportation: Alternative Methods for Collecting 
Passenger Facility Charges, GAO-13-262R, (Washington, D.C.: Feb 14, 
2013).
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Airports Rely on a Variety of Local Revenues, Which Have Increased 
        since 2004
    We also found in 2014 that to help fund airport development, 
commercial service airports increasingly rely on a variety of locally 
generated revenues.\63\ Airports receive nearly as much non-aviation 
revenue as revenue from passengers and aircrafts. According to FAA, in 
2014, at commercial service airports for which they have data, aviation 
revenues totaled $5.2 billion, while nonaviation revenues were just 
over $5 billion.\64\ According to ACI-NA, non-aviation revenue has 
grown faster than passenger growth since 2004, over 4 percent on 
average for non-aviation revenue versus 1.5 percent average growth in 
passenger boardings over the same period. Further, some airports have 
developed unique commercial activities with stakeholders from local 
jurisdictions and the private sector to help develop airport properties 
into retail, business, and leisure destinations.\65\ Some examples 
include:
---------------------------------------------------------------------------
    \63\ GAO-14-658T.
    \64\ FAA, CATS financial reports of 442 commercial service 
airports.
    \65\ Airport-centric development--development at and around 
airports, in part, to generate non-aviation revenue and stimulate 
regional development--has taken place at airports around the world. 
This form of development has also been referred to as aerotropolis or 
airport-city. For more information on factors that may support this 
form of development, see: GAO, National Airspace System: Airport-
Centric Development, GAO-13-261 (Washington, D.C.: March 28, 2013).

   Non-aviation development on airport property: Airports have 
        turned to an increasing range of unique developments on airport 
        property, including high-end commercial retail and leisure 
        activities, hotels and business centers, and medical facilities 
        for non-aviation revenues.\66\ For example, airports in Denver, 
        Miami, and Indianapolis have built cold storage facilities on 
        airport property in an effort to generate revenue by leasing 
        cold storage space to freight forwarders and businesses that 
        transport low-volume, high-valued goods, including 
        pharmaceuticals, produce, and other time-sensitive or 
        perishable items.
---------------------------------------------------------------------------
    \66\ GAO-13-261.

   Public-private partnerships: Airports can fund airport 
        improvements with private sector participation. Public-private 
        partnerships, involving airports and developers, have been used 
        to finance airport development projects without increasing the 
        amount of debt already incurred by airports. For example, the 
        Port Authority of New York and New Jersey has recently received 
        responses for its request for proposals for the private sector 
        to demolish old terminal buildings and construct, partially 
        finance, operate, and maintain a new Central Terminal Building 
---------------------------------------------------------------------------
        for LaGuardia Airport in New York City.

   Privatization: FAA's Airport Privatization Pilot Program 
        (APPP), which was established in 1997 to reduce barriers to 
        airport privatization that we identified in 1996, has generated 
        limited interest from the public and private sectors.\67\ As we 
        reported in November 2014, 10 airports have applied to be part 
        of the pilot program and one airport--San Juan Luis Munoz Marin 
        International Airport in Puerto Rico--has been privatized (see 
        fig. 8).\68\ In our report, we noted that several factors 
        reduce interest in the APPP--such as higher financing costs for 
        privatized airports, the lack of state and local property tax 
        exemptions, and the length of time to complete a privatization 
        under the program. Public sector airport owners have also found 
        ways to gain some of the potential benefits of privatization 
        without full privatization, such as entering airport management 
        contracts and joint development agreements for managing and 
        building an airport terminal.
---------------------------------------------------------------------------
    \67\ GAO/RCED-97-3.See 49 U.S.C. Sec. 47134.
    \68\ GAO, Airport Privatization: Limited Interest despite FAA's 
Pilot Program, GAO-15-42, (Washington, D.C.: Nov 19, 2014). Stewart 
Airport in New York was privatized in 1999 under a 99-year lease to a 
private sector operator, but in 2007 the lease was assumed by the Port 
Authority of New York and New Jersey after the private sector operator 
ceased to operate the airport.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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    Source: GAO analysis of FAA data. GAO-15-498T

    In conclusion, last year commemorated one century since the first 
commercial airline flight,\69\ and in that relatively short time span 
commercial aviation has grown at an amazing pace to become an 
ubiquitous and mature industry in the United States. While commercial 
aviation still has many exciting growth prospects for its second 
century, it also faces many challenges--among them how to ensure that 
the aviation system can accommodate millions of flights and hundreds of 
millions of passengers every year in the midst of shifting aviation 
activity and constrained Federal funding. Despite recent declines in 
airport operations, it remains important for airports to be maintained 
as well as upgraded to maintain safety and accommodate future growth. 
Declines in airport operations have reduced demands on AIP, but 
rebounded passenger activity could continue to put pressure on PFCs to 
finance terminal and other projects. Developing airports will require 
the combined resources of federal, state, and local governments, as 
well as private companies' capital and expertise. Effectively 
supporting this development involves focusing Federal resources on 
FAA's key priorities of maintaining the world's safest aviation system 
and providing adequate system capacity, while allowing sufficient 
flexibility for local airport sponsors to maximize local investment and 
revenue opportunities. In deciding the best course for future Federal 
investment in our national airport system, Congress is faced with 
weighing the interests of all aviation stakeholders, including 
airports, airlines, other airport users, and most importantly 
passengers, to help ensure a safe and vibrant aviation system.
---------------------------------------------------------------------------
    \69\ On Jan. 1, 1914, the St. Petersburg-Tampa Airboat Line became 
the world's first scheduled passenger airline service, operating 
between St. Petersburg and Tampa, Fla. It was a short-lived endeavor--
only 3 months.
---------------------------------------------------------------------------
    Madam Chair Ayotte, Ranking Member Cantwell, and Members of the 
Subcommittee, this completes my prepared statement. I would be pleased 
to respond to any questions that you may have at this time.

    Senator Ayotte. Thank you, Dr. Dillingham.
    I would--now would like to call Ms. Sharon Pinkerton, 
Senior Vice President for Legislative and Regulatory Affairs at 
Airlines for America.
    Thank you, Ms. Pinkerton.

           STATEMENT OF SHARON PINKERTON, SENIOR VICE

             PRESIDENT, LEGISLATIVE AND REGULATORY

                 AFFAIRS, AIRLINES FOR AMERICA

    Ms. Pinkerton. Thank you for the opportunity to participate 
in the Committee's examination of airport financing.
    If you take one thing away from today's hearing, we want 
you to know that we support airport infrastructure investments. 
These investments are critical to ensuring that our aviation 
system is developed in a way that meets the needs of 
passengers, encourages travel and tourism, and helps support 
the incredible benefits that the aviation industry delivers 
every day across our economy.
    One important benefit is the service we provide to small, 
medium, and large communities. As airlines have recovered from 
the bankruptcies of the past decade and become more financially 
stable, we've reinvested profits back into adding service, 
hiring back some of the 160,000 employees we had to lay off, 
buying $100 billion worth of new environmentally friendly and 
customer friendly aircraft; and, importantly for this hearing, 
we're investing money into airports. All of these investments 
are to improve the customer experience.
    So, the issue here today is not whether we should invest--
because we agree there's a need--it's really about how those 
investments are financed. And, given the plentiful and robust 
variety of funding sources for airport financing, raising a 
passenger tax is not the best way to move forward. After all, 
all airports have investment-grade credit ratings giving them 
easy access to cheap financing, which is the number-one way 
airport projects have always been funded. In fact, airlines and 
airports have a history of partnering together on significant 
improvements. Since 2008, over $70 billion of capital projects 
have been completed, are underway, or have been approved at the 
Nation's largest 30 airports alone, and development is robust 
at small airports, as well.
    This investment has enabled new runways and terminals, 
better facilities and more amenities. Some of the examples you 
might be familiar with: multimillion-dollar terminal 
renovations at Sioux Falls, all done without a PFC; Sea-Tac, 
you're going to hear more about incredible investment there, 
but also in smaller communities in Washington; Wichita, Kansas, 
is expecting a new $160 million terminal that's slated to open 
in May 2015, along with a $40 million parking and rental car 
facility; and, of course, Reno--in 2013, they unveiled a $27 
million gateway project which added 11,000 square feet to their 
terminal. And all of this investment, the $70 billion, occurred 
with existing financing resources.
    The fact is that airports across our country are in 
incredibly strong financial condition and already receive 
billions from passengers and the government, alike. In 2013, 
airports collected a record $24.5 billion. That's record 
amounts of money from airlines, $10 billion in landing fees and 
rents, record amounts in what I like to call ``airport 
ancillaries''; $8.2 billion in concessions; $2.8 billion from 
PFCs; $3.4 billion from AIP. The point is, airports have 
several tools in the toolbox to finance airports, and the PFC 
is only one of those tools.
    In addition, U.S. airports have more than $11.4 billion in 
cash in the bank. I do not know many businesses, much less 
families, that have a year's worth of liquidity in the bank. 
However, if airports were to need more money, they can easily 
access the bond market. Airports, frankly, are flush with cash 
and have numerous available pools of funding, which means 
projects can easily be financed without raising taxes.
    There's one more aspect of the aviation system's resources 
that's notable. While you all are trying to fix a bankrupt 
Highway Trust Fund, the Aviation Trust Fund is flush with cash. 
It has a $6 billion unobligated balance, its highest level 
since 2001.
    So, thank you for allowing us to testify on behalf of our 
member companies and our customers. I'll conclude like I began. 
We support airport infrastructure. We're committed to it. And 
we believe it can be done without increasing taxes on 
passengers. We're putting our money on the table so that our 
passengers do not have to.
    Thank you.
    [The prepared statement of Ms. Pinkerton follows:]

    Prepared Statement of Sharon Pinkerton, Senior Vice President, 
        Legislative and Regulatory Affairs, Airlines For America
    Thank you for the opportunity to participate in the Committee's 
examination of airport financing as part of your deliberations on the 
next Federal Aviation Administration (FAA) reauthorization. I'm not 
sure if it was planned this way, but it is very apropos we are having 
this discussion one week after tax day.
    If you take one thing away from this hearing, we want you to know 
that airlines strongly support necessary investments in airports across 
the country. These investments are critical in ensuring that our 
aviation system is developed in a way that supports the incredible 
economic benefits the aviation industry delivers.
    In fact, airlines and airports have a history of partnering on 
significant improvements. Since 2008, over $70 billion of capital 
projects have been completed, are underway, or have been approved at 
the Nation's 30 largest airports alone, and development is robust at 
smaller airports across the country as well. This funding enabled new 
runways and terminals, better facilities and more amenities for 
passengers. All of this investment has occurred without any new taxes.
    Given the current abundance of resources in the aviation system, it 
takes a bit of chutzpah for our airport partners to advocate for a 
historic tax hike on the traveling public through a nearly 90 percent 
increase in the PFC airport tax. It simply is not necessary since 
significant airline investments combined with the existing streams of 
resources and funding provide airports with the funds for improvement 
projects needed today and in the future.
    The fact is that airports across our country are in a very strong 
financial position and already receive billions of dollars from 
passengers and the government alike. In 2013, U.S. airports collected a 
record $24.5 billion in revenue--a 52 percent increase on a per 
passenger basis from 2000--including $10 billion in airline rents and 
fees, $2.8 billion from existing PFCs, $8.2 billion in non-airline 
revenues and $3.4 billion from the FAA's Airport Improvement Program 
(AIP). The data clearly shows that projects can easily be done without 
raising taxes on passengers.
    According to their own financial reports filed with the FAA, U.S. 
airports have more than $11.4 billion of unrestricted cash and 
investments on hand, or approximately 357 days of liquidity. I am not 
aware of many businesses, much less families that have the luxury of 
having a year's worth of operating expenses saved up. If airports need 
more money, they can easily utilize the bond market to raise revenue. 
With investment-grade credit ratings, airports can obtain inexpensive 
financing, which is a much better alternative than Congress increasing 
taxes on passengers.
    There's another aspect of the aviation system's resources that's 
notable. While the Highway Trust Fund is bankrupt and needs to be 
replenished, the Aviation Trust Fund is at its highest level since 
2001, with an uncommitted balance of $6 billion, leaving the AIP 
program stable and secure to provide ample funding for airport 
projects. In 2014 PFC revenue reached $2.8 billion, which is close to 
the all-time high set in 2006. This is at a time when the current 
activity levels at U.S. airports still remain below the peak set in 
2007--airline operations and passengers for the most recent 12 months 
are down 16 percent and 2 percent respectively as compared to 2007 
levels. Again, projects can easily be done without raising taxes on 
passengers.
    We would also like the Committee to step back and take a look at 
the big picture. Too often, the airport community focuses the 
discussion on their sole aspiration of increasing PFCs without looking 
at the overall taxation level of U.S. airlines and their passengers. 
While it is easy to get caught in that vacuum, it is our hope that you 
recognize air travelers are already overburdened with government-
imposed taxes and fees. In fact, the U.S. aviation industry and its 
customers already pay $20 billion in 17 unique taxes and fees imposed 
by the Federal government. Federal taxes and fees account for $63 on a 
typical domestic round-trip ticket of $300--approximately 21 percent of 
the total cost going to taxes and fees--putting air travel in the same 
tax bracket as ``so-called'' sin products, which are taxed to 
discourage use.
    Make no mistake; a PFC increase would be a system-wide and 
permanent tax increase with real repercussions. Even a $1 increase in 
the PFC would cost passengers an additional $700 million annually; 
increasing the PFC to $8 or higher would cost in excess of $2.5 billion 
annually. With airport funding at historic levels, we simply should not 
be increasing this already large tax burden.
    With that said, we do not want you to get the impression that we do 
not support our airport friends in other ways. While airlines are 
sensitive about the implications of bond funding because we pay the 
rents and fees airports use to back the bonds, we intentionally prefer 
this payment mechanism because, while an expense, it avoids the harmful 
effect on demand that additional passenger taxes produce.
    Additionally, utilizing the bond market brings discipline to 
airport development scoping and encourages the pursuit of projects that 
are economically sustainable, thereby discouraging unnecessary and 
inefficient projects. To that end, we also encourage Congress make 
permanent the tax-exempt status of airport bonds. This is something I 
think both airlines and airports could agree on and the outcome is 
clearly in the public interest, while another airline passenger tax 
increase is not.
    Thank you for allowing us to testify on behalf of our member 
companies and our customers. I will conclude like I began, airlines 
strongly support necessary investments in airports across the country. 
We are committed to airport infrastructure projects and believe they 
can easily be done without increasing taxes. Despite the hyperbole, the 
facts clearly show there is not a funding crisis at our Nation's 
airports.

    Senator Ayotte. Thank you, Ms. Pinkerton.
    And we'll now hear from Mr. Todd Hauptli, President and CEO 
of American Association of Airport Executives.
    Mr. Hauptli.

    STATEMENT OF TODD HAUPTLI, PRESIDENT AND CEO, AMERICAN 
               ASSOCIATION OF AIRPORT EXECUTIVES

    Mr. Hauptli. Thank you, Senator. Thank you, members of the 
Subcommittee for being here, for holding this hearing, and for 
your service to the Nation.
    I have, in my written remarks, covered many of the areas 
that Senator Ayotte has mentioned in her opening statement and 
would be pleased to talk about any of those in the question 
period. Let me make three points this morning:
    The first point is that we are systematically and 
chronically under-investing in infrastructure in this country. 
And it is not just airport infrastructure or aviation 
infrastructure or, for that matter, transportation 
infrastructure. We are under-investing in water infrastructure, 
power infrastructure, and communications infrastructure. And 
increasingly this lack of investment in infrastructure across 
the board is having a negative impact on our domestic and our 
international competitiveness. And, expressing at least my 
opinion, we need to deal with this for ourselves, for the next 
generation, and for generations that follow.
    Point number two: in this economic, fiscal, and political 
environment that we find ourselves in today, we don't believe 
that the Federal Government, and the Federal Government alone, 
can solve this problem.
    I'll use airport infrastructure as an example. The AIP 
program that was mentioned earlier is the principal 
construction program for airports. The FAA--not airports, but 
the FAA--says that there are nearly $7 billion a year in 
eligible projects. Yet you, in the United States Congress, fund 
that program a little over $3 billion a year. You could 
literally double the Federal investment in airport 
infrastructure and still be in no danger of overinvesting. And 
does anyone in this room believe today that a non-defense 
discretionary spending program as good as AIP may be is going 
to see triple-digit growth or, for that matter, even double-
digit growth in the years ahead? It's for that reason we 
believe it's absolutely imperative to modernize the Passenger 
Facility Charge Program, last addressed in Congress 15 years 
ago.
    The PFC has lost, over the years, half of its purchasing 
power due to inflation and rising construction costs. We're 
talking about giving airports the self-help that they need to 
build these projects, because the Federal Government can't do 
it alone. Said respectfully, it's time for Congress and the 
Federal Government to get out of the way and let airports build 
what needs to be built if you can't provide the resources to us 
to do that.
    Third point: Airports and airlines have been going about 
this for the past 25 years. The past quarter of a century we've 
fought over PFCs. And it's about money, it's about control, and 
it's about perspective. Airlines look at the world in 90-day 
increments of time, the next quarterly report. That's 
understandable; their job is to maximize shareholder value. 
Airports look at the world in a 3, 5, 7, 10, 12, and even 15-
year window of time because that's how long it takes to build 
the necessary infrastructure. Airports are stewards in their 
community, as all of you are. Airports are trying to provide 
best opportunities for competition and enhanced service.
    An airline, if it doesn't like what's going on in a 
particular community, is unhappy with the yield, can pull out 
and leave. And I suspect that a number of you on the Committee 
have seen that occur in your states. We believe that our 
interest, as local government, aligns with your interest, as 
members of the U.S. Senate, in looking out for what is in the 
best interest of your community. Push this decision down to the 
lowest local unit of government, to the city councils, to the 
mayors, to the airport boards. That's where this decision 
belongs. And I urge all of you to support an increase and 
modernize the Passenger Facility Charge Program.
    Thank you, Mr. Chair.
    [The prepared statement of Mr. Hauptli follows:]

    Prepared Statement of Todd Hauptli, President and CEO, American 
                   Association of Airport Executives
    Chair Ayotte, Ranking Member Cantwell, and members of the Senate 
Aviation Subcommittee, thank you for inviting me to participate in this 
hearing on airport issues and infrastructure financing. It is an honor 
for me to be here today.
    AAAE is the world's largest professional organization representing 
the men and women who manage primary, commercial service, reliever, and 
general aviation airports around the country. On behalf of all our 
members, I would like to thank each of you for being good partners and 
strong advocates for airports in your states.
    I am pleased to be here with Mark Reis, the Managing Director of 
the Seattle-Tacoma International Airport and Immediate Past Chair of 
Airports Council International-North America (ACI-NA). Mark is an 
exceptionally talented and well-respected leader in the aviation 
industry. It's been a pleasure to work with him and ACI-NA President 
and CEO Kevin Burke.
    AAAE and ACI-NA have put together a number of detailed policy 
proposals for consideration as part of reauthorization for the Federal 
Aviation Administration (FAA) that we have shared with your staff. 
Today, I would like to discuss some of our key proposals including 
those pertaining to small community air service and highlight 
recommendations that would help airports of all sizes build critical 
infrastructure during the current fiscal climate.
    By any measure, airports around the country need additional 
resources to upgrade aging facilities, accommodate rising demand, and 
to keep pace with evolving safety and security standards. 
Unfortunately, infrastructure investment in the United States is still 
behind other countries in the world. According to the latest Global 
Competitiveness report, the United States has the 12th best 
infrastructure in the world and the ninth best aviation infrastructure. 
I hope all of us would agree that ninth place simply isn't good enough.
    At a time when there is enormous pressure to reduce Federal 
spending, modernizing the local Passenger Facility Charge (PFC) is the 
best way to deliver additional resource to airports and make our 
infrastructure more competitive. That's why AAAE, ACI-NA, and a group 
of large hub airports that participate in the Gateway Airports Council 
are urging you to update the Federal cap on PFCs from $4.50 to $8.50 
and allow it to be periodically adjusted for inflation.
    Last adjusted in 2000, a modernized PFC would help airports of all 
sizes. In fact, some of the most compelling calls for self-help come 
from small airports in communities like Manchester, New Hampshire; 
Sioux Falls, South Dakota; and Spokane, Washington. The following 
includes a more detailed discussion of PFCs as well as other financing 
recommendations.
Increasing Demand and Congestion; Airport Capital Needs
    Increasing Demand: Airports, airlines, and Federal agencies are all 
expecting passenger levels to increase in the short-and long-term. 
Airlines for America (A4A) is predicting that air travel this spring 
will reach 2.2 million passengers per day and rise to the ``highest 
level in seven years.'' The airlines estimate that almost 135 million 
passengers will fly on U.S. carriers between March 1 and April 30--an 
increase of 6.6 million passengers from same two-month period in 2013.
    The FAA also anticipates that passenger levels will continue to 
climb. The agency estimates that U.S. commercial air carrier 
enplanements will increase from less than 740 million in 2013 to almost 
776 million this year--an increase of 36 million passengers. That's 
more than the combined populations of Florida, Washington, New 
Hampshire, and South Dakota.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The FAA's latest Aerospace Forecast also indicates that 
enplanements are expected to increase to more than 800 million 
passengers by 2017. The agency anticipates that passenger enplanements 
will reach the one billion mark by 2029--just 14 years from now. By 
2034, passenger levels are expected to exceed 1.1 billion.
    Another 320 million passengers is the equivalent of adding the 
entire U.S. population to our already constrained aviation system. That 
may seem like a long time into the future, and the FAA's estimates may 
change some. But planning, designing, and building runways and other 
capacity-enhancing projects can take an enormous amount of time.
    Airports simply don't have the luxury of being able to flip a 
switch and instantly complete a new runway or some other large capacity 
project. The Department of Transportation (DOT) ``Beyond Traffic'' 
report points out that ``building a new airport runway can easily take 
more than a decade. . . .''
    Airports need to begin preparing now for increasing passengers and 
start planning and financing time-consuming infrastructure projects. 
And it will be increasingly difficult for airports to fund those 
projects if PFCs remain artificially capped at $4.50 as they have been 
since 2000.
    Increasing Flight Delays, Cancellations, and Complaints: Without 
adequate airport infrastructure investment, increasing demand will 
likely translate into increasing congestion, more flight delays, more 
cancellations, and more customer complaints.
    Airline flight delays and cancellations have been creeping back up 
in the past few years. According to the Bureau of Transportation 
Statistics (BTS), more than 21.3 percent of arrivals were delayed in 
2014--up from 16.7 percent in 2012. Travel over the busy holidays is 
also becoming more challenging. Twenty-two percent of flights were 
delayed over the Thanksgiving holiday last year--the highest percentage 
since 2007.
    The number of cancelled flights has been rising, too. BTS indicates 
that U.S. carriers cancelled almost 127,000 flights last year--the most 
since 2008.
    With increasing flight delays and cancellations, it's no wonder 
that passenger complaints are escalating. According to DOT Air Travel 
Consumer Reports, the agency received almost 5,000 complaints about 
flight delays, cancellations, and misconnections last year. That number 
is up about 25 percent from 2013.
    Airport Capital Needs: With increasing passenger levels, airports 
are also facing significant capital needs. As part of its 2015 National 
Plan of Integrated Airports System (NPIAS), the FAA estimated that 
there are $33.5 billion in AIP-eligible projects between 2015 and 2019 
or approximately $6.7 billion per year. The annual average is twice the 
current funding level.
    The FAA's NPIAS provides a snapshot of certain airport capital 
needs. But it is important to note that the FAA estimate only reflects 
those projects that are eligible for Federal funds. The FAA report does 
not include other necessary but ineligible infrastructure projects such 
as gates and certain terminal projects that airports fund with PFCs and 
other revenue sources.
    Like the FAA, ACI-NA has a long track record of evaluating airport 
capital needs. The association's latest Capital Needs Survey estimates 
that airports will have $75.7 billion in capital needs between 2015 and 
2019 or more than $15.1 billion annually for AIP-eligible and other 
necessary projects. This is more than twice the $6.2 billion that 
airports expect to receive in AIP funds and PFC revenue this year.
Recommendations for Helping Airports Finance Critical Infrastructure 
        Projects
    Airports rely on a combination of PFCs, AIP funds, bonds, state and 
local grants, and other airport revenue to finance infrastructure 
projects at their facilities. But it is important to note that unlike 
AIP and PFCs, bonds are not a revenue source--they are essentially 
loans that airports need to pay back. As one airport executive 
described it:

        ``Bonding is a stop-gap fix for a lack of funding needed for 
        immediate projects. It is a loan, plain and simple, and is not 
        a revenue source. Any use of bonding is simply kicking the can 
        down the road for future passengers to pay.''

    In terms of additional borrowing, many airports are unable to issue 
new bonds because they have reached the limits of their debt capacity. 
Other small airports are unable to go to the bond market to finance 
infrastructure projects. In fact, FAA financial reports show that 
airports had $84 billion in debt at the end of 2013.
    Ensuring that airports collectively have adequate funding to build 
critical infrastructure projects will require Congressional action on 
PFCs, AIP, and the tax-treatment of airport bonds. Needless to say, 
flat or reduced AIP funding will only increase pressure on airports to 
secure funds from other revenue sources like PFCs.
    Modernize Federal Cap on Local PFCs: AAAE, ACI-NA, and the Gateway 
Airports Council--a group of large hub airports--are united behind a 
proposal to update the Federal cap on local PFCs from $4.50 to $8.50 
and to allow for the periodic adjustment of the cap for inflation. 
Modernizing the PFC cap continues to be our top priority for the next 
FAA reauthorization bill.
    For 25 years, the PFC program has helped airports increase safety, 
security, and capacity; mitigate the impact of aircraft noise; and 
increase competition. Airports use money generated from PFCs for a 
variety of purposes including building new runways, taxiways, and 
terminals.
    PFCs are local fees that must be approved locally, imposed locally, 
and used locally for projects approved by DOT in consultation with the 
airlines. There is an inherent level of accountability locally that 
ensures any revenues raised through the PFC are used for critical 
locally-supported projects.
    A PFC adjustment is long overdue. The cap has not been adjusted 
since 2000 -15 years ago. Considering the ongoing pressure to reduce 
Federal spending, it is now more important than ever that Congress 
raise the Federal cap on local PFCs. Modernizing the cap would allow 
airports to finance a greater share of critical infrastructure projects 
with their own local revenues.
    The $253 million cut in AIP funding that airports sustained in 2013 
as part of the sequestration process underscores the need for Congress 
to update the Federal cap on local PFCs. Modernizing the PFC cap would 
provide airports with the self-help they need to finance critical 
infrastructure projects without relying as much on scarce Federal 
funds.
    PFCs Help Increase Capacity; Enhance Competition: Airports use PFC 
revenue to build infrastructure projects that increase capacity, reduce 
delays, and enhance competition among carriers.
    Port Authority of New York and New Jersey: The Port Authority of 
New York and New Jersey, for example, is using PFCs and other sources 
of revenue to reconstruct runways at John F. Kennedy International 
Airport. The improved runways will help increase capacity, reduce 
delays, and enhance safety at one of the Nation's busiest airports.
    The Port Authority is both widening its runways to accommodate 
larger aircraft and raising them by a foot for flood mitigation. In the 
past five years, the Port Authority has used $470 million in PFC 
revenue for runway widening and raising, $162 million for Runway Safety 
Areas, and $115 million for delay reduction. Again, this $750 million 
in capacity-and safety-related projects simply wouldn't be possible 
without local user fees.
    Meanwhile, the Port Authority is moving forward with plans to 
replace the aging Central Terminal at LaGuardia Airport. Airport 
terminals--like runways and taxiways--increase capacity. Without a new 
terminal, LaGuardia simply wouldn't be able to efficiently accommodate 
four million additional passengers annually.
    Almost half of the funding for the more than $3 billion Central 
Terminal project will come from PFCs. Raising the PFC cap to $8.50 and 
indexing it for inflation would allow airports like those in New York 
and New Jersey to invest in additional capacity-and safety-related 
projects on the airside and the landside.
    Tampa International Airport: PFCs can help increase airline 
competition, and that's exactly what happened at the Tampa 
International Airport. The airport's international terminal in 2011 was 
at capacity and needed to be expanded. The airport embarked on a $27 
million terminal project that would not have been possible without $8 
million in PFC revenue.
    As a result of the PFC investment, the airport was able to bring in 
three new airlines: Edelweiss Airlines, Copa Airlines, and Lufthansa. 
The return on investment is substantial. The airport used $8 million in 
PFCs, and airport officials estimate that the new service will have an 
annual economic impact on the region of at least $120 million.
    PFCs Help Small Airports: Although large airports obviously benefit 
from PFCs, the local user fee is an important source of income for 
smaller commercial service airports, too. Small airports rely on PFCs 
to augment their AIP funding and to help pay the higher local matching 
requirement for AIP funds.
    The last FAA bill reduced the Federal share for projects at small 
airports from 95 percent to 90 percent. Doubling the local match 
requirement had an enormous financial impact on small airports. 
Adjusting the PFC cap to $8.50 would help small airports generate more 
local revenue to meet their higher local requirements.
    Manchester Regional Airport: The Manchester-Boston Regional 
Airport, a small hub airport in New Hampshire, is pressing for a 
modernized PFC. Airport Director and AAAE First Past Chair Mark Brewer, 
A.A.E, said that the airport could use the increased PFC revenue to 
make additional payments on its existing debt service on PFC projects--
a proposal that would help airlines operating at the New Hampshire 
airport.
    ``By using PFC revenue for that purpose we could reduce the debt 
load on airline rates and charges,'' Brewer told lawmakers when he 
appeared before the House Aviation Subcommittee in late 2013. ``This is 
yet another example of where airports and airlines would truly benefit 
from a PFC increase.''
    Spokane International Airport: The Spokane International Airport 
has used PFCs to fund almost $120 million in safety, efficiency, and 
capacity improvements over the years. Larry Krauter, A.A.E., the Chief 
Executive Officer at the airport, says that some of those projects may 
not have been completed without revenue from the local user fee. Other 
projects may have taken longer to implement, cost more to complete, and 
required the airport to issue more debt.
    The Spokane airport plans to use additional PFC revenue to finance 
a number of important projects such as airfield perimeter security 
enhancements and security access control improvements. A higher PFC cap 
would allow the airport to fund a needed terminal renovation and 
expansion project on a pay-as-you-go basis while simultaneously 
reducing or eliminating the need to issue more debt, which again would 
increase cost and time.
    The Spokane airport values it relationships with its airline 
partners, and revenue from airline rates and charges helps pay for 
airport operating expenses. But like many small-and medium-sized 
airports around the country, airport officials are not expecting the 
airlines to make substantial investments in their capital projects--
especially for projects that enhance competition.
    ``Historically, the airlines have spent very little on improvements 
at Spokane International Airport and do not have any intentions of 
spending significant amounts of capital funds to improve the passenger 
experience at SIA or to address other deficiencies,'' Krauter said. 
``That is why the PFC is important as well as why we support its 
modernization to restore the lost buying power that has eroded since it 
was last adjusted in 2000.''
    Sioux Falls Regional Airport: Because of the increasing pressure on 
AIP funding, some smaller airports that haven't collected PFCs in the 
past are turning to the local fee for help. Airport officials at the 
Sioux Falls Regional Airport recently explained why the small hub 
airport in South Dakota plans to use PFCs to finance its infrastructure 
projects.
    ``Due to the shrinking Airport Improvement Program. . .our ability 
to fund major projects is in jeopardy. We actually have two projects 
planned for our primary runway with costs in the multiple tens of 
millions,'' airport officials explained. ``At this time, it appears 
that AIP will only cover a portion of that need. There is simply not 
enough discretionary funding to support the projects. The result is 
that we are forced to pursue PFC funding.''
    Other small commercial service and general aviation airports that 
don't collect PFCs also benefit from the PFC program. That's because 
large and medium hub airports that collect PFCs turn back up to 75 
percent of their AIP entitlements, and a large percentage of those 
withheld funds are distributed to small airports through the Small 
Airport Fund. Small airports received roughly $500 million from the 
fund in FY15.
    Construction Cost Inflation: Airport efforts to prepare for 
increasing passenger levels have been hampered by rising construction 
costs. According to the Means Construction Cost Indexes, the average 
construction costs for 30 major U.S. cities jumped more than 70 percent 
since 2000--the last time Congress raised the PFC cap.
    Unfortunately, rising construction costs have eroded the purchasing 
power of PFCs and AIP funds. For instance, a $4.50 PFC is worth 
approximately half that amount today--about $2.41 according to the 
Engineering News Record Construction Cost Indexes and about $2.24 
according to the Means Construction Cost Indexes. Unless corrective 
action is taken, the value of PFCs will erode even more.
    In order to keep up with construction inflation, it is necessary to 
raise the PFC cap to $8.50 today. Keep in mind that raising the cap to 
that level would only allow PFCs to keep up with construction cost 
inflation that has already occurred. The cap also needs to be adjusted 
periodically to prevent further erosion.
``Classic Example of a User Fee''
    Despite claims from the airline industry, PFCs are not taxes. PFCs 
are local user fees charged to passengers using airport facilities to 
help defray the costs of building airport infrastructure. Moreover, 
PFCs are imposed by states or units of local government--not the 
Federal government. PFCs are not collected by the Federal government, 
not spent by the Federal government, and not deposited into the U.S. 
Treasury.
    The highly-respected and non-partisan Congressional Research 
Service agrees that PFCs are not taxes. In a January 2015 report, CRS 
accurately describes the PFC as ``a state, local, or port authority 
fee, not a federally imposed tax deposited into the Treasury.''
    Marc Scribner from the libertarian Competitive Enterprise Institute 
recently described PFCs as ``classic example of a user fee.'' He 
correctly pointed out that ``unlike taxes, user fees can only be 
imposed on the service beneficiaries. . .The primary beneficiaries of 
airports are the passengers who use the airports; thus, charging them a 
facility user fee that will be used solely for specific, statutorily-
defined airport improvements cannot constitute a tax.''
    A Closer Look at Airport Revenue: Our airline partners have been 
trying to make the case that adjusting the PFC cap isn't necessary 
because commercial service airports collected $24.5 billion in revenues 
in 2013. But they conveniently ignore the fact that there are expenses 
associated with operating commercial service airports. The airlines 
might have a point if airports could have devoted the entire $24.5 
billion for capital projects. But that is most certainly not the case.
    The fact is almost half of the airline's estimate--or $11.7 
billion--paid for airport operating expenses such as personnel costs, 
firefighting and law enforcement, utilities, janitorial services, 
insurance, materials and supplies. According to airport financial 
reports, airports also had $6.3 billion in debt service costs in 2013. 
That's the amount of principal and interest that airports paid for 
long-term bonds during the year. When combined with airport operating 
expenses, airport non-capital costs were $18 billion in 2013--or 73 
percent of A4A's estimate.

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    The carriers go on to argue that they paid $10 billion in ``airline 
rents and fees'' in 2013. It is true that airports collected that much 
in ``aeronautical revenue.'' But not all of it came from the airlines 
as A4A claims. The ``aeronautical revenue'' category also includes 
revenue from Fixed Base Operators and landing fees from general 
aviation and the military. The ``passenger airline'' portion of 
aeronautical revenue was $8.1 billion--almost $2 billion less than 
A4A's claim.
    Another 25 percent of A4A's estimate--or $6.2 billion--came from 
AIP funds and PFCs. And that estimate is misleading because airports 
didn't actually receive the full $3.4 billion in AIP grants. According 
to the FAA, airports received less than $3 billion in AIP grants in 
2013 and slightly less than $2.8 billion from PFCs. There's no question 
that $5.8 billion is a large amount of money. But revenue from those 
two programs would only cover 38 percent of the more than $15 billion 
in annual airport capital needs.
    The airlines also argue that modernizing the PFC isn't necessary 
because airports had $11.4 billion in unrestricted cash at the end of 
2013. Like many Americans and businesses around the country, airports 
wisely put aside revenue for unexpected emergencies. This ensures that 
airports are prepared in case a natural disaster happens or when 
incoming revenue suddenly declines such as when a carrier reduces 
service or pulls out of a market all together.
    If airports didn't have those reserves on hand, their credit 
ratings would likely be downgraded. A lower bond rating would increase 
airport borrowing costs, which airports would be forced to pass on to 
airlines. It's seems odd for the airlines to suggest that airports 
should have less unrestricted cash, since doing so could result in 
higher borrowing costs and ultimately higher fees for the airlines 
themselves.
    In a 2012 report on rating criteria for airports, Fitch Ratings 
argues that ``airports should have liquidity at least equal to several 
months of operating/debt service ready.'' Fitch explains why:

        ``An important part of its analysis focuses on unrestricted 
        liquidity as the airport sector is susceptible to adverse 
        conditions, whether they come from carrier actions, macro 
        events, or economic cycles. Metrics considered include cash to 
        debt and days cash on hand. With healthy reserves, airports can 
        use unencumbered funds in several ways, including weathering a 
        likely airline bankruptcy, terrorist/health incident, or 
        natural disaster, and also the cash funding of capital 
        improvements or lowering the cost burden passed on to airlines 
        or passengers.''

    Finally, A4A's estimate also doesn't take into account the amount 
of debt that airports have outstanding. Airport financial reports show 
that airports had more than $83 billion in outstanding debt in 2013. 
Without a PFC increase, airports will have to issue even more debt to 
finance their infrastructure projects. Modernizing the PFC cap and 
paying for more projects on a is a fiscally responsible approach that 
helps airports and airlines.
    Provide Adequate AIP Funding: AAAE and ACI-NA are also urging 
Congress to maintain adequate funding for airport infrastructure 
projects in the next FAA reauthorization bill. No general fund revenues 
are used for AIP grants. The AIP program is supported entirely by users 
of the aviation system through various taxes and fees that are 
deposited into the Airport and Airway Trust Fund.
    AIP is a critical source of funding for airports of all sizes and 
especially smaller airports around the country that don't generate as 
much PFC revenue or have easy access to the bond market. Large and 
medium hub airports also depend on AIP funding--particularly money 
distributed through the Letter of Intent Program--to help pay for large 
capacity-enhancing projects.
    Unfortunately, AIP funding has been trending downwards. S. 223, the 
Senate-passed version of the last the FAA reauthorization bill proposed 
$4.1 billion for AIP in FY11. However, the final version of the 
legislation (H.R. 658) ratcheted funding back to $3.35 billion 
annually.
    The AIP program received approximately $3.1 billion in Fiscal Year 
2013 after the diversion of $253 million to pay for FAA operations. 
Again, it is important to point out that not all AIP funding actually 
goes toward airport capital projects. In FY13, for instance, slightly 
more than $100 million of AIP went to the FAA to operate the program. 
Only about $2.9 billion actually went to airport infrastructure 
projects.
    Overall AIP funding ticked back up to $3.35 billion in FY14 and in 
FY15. However, AIP funding levels have not been nearly enough to cover 
the FAA's estimated $6.7 billion in annual AIP-eligible projects. Like 
the stagnant PFC cap, flat AIP funding has lost ground to construction 
cost inflation over the years.

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    Opportunity to Recalibrate AIP: Raising the PFC cap to $8.50 and 
periodically adjusting it for inflation could potentially open the door 
to recalibrate the AIP program. With a PFC increase firmly in place, 
limited Federal funds could be focused on smaller airports that need 
AIP funds the most. Many large airports are willing to give up their 
entitlements in exchange for a sufficient PFC increase. But again, any 
effort to modify the AIP program must begin by modernizing the PFC cap 
and indexing it for inflation.
    The Administration has proposed to raise the PFC cap to $8 and 
reduce AIP from $3.35 billion to $2.9 billion--saving about $450 
million annually. The Administration is also simultaneously proposing 
to eliminate entitlements for large hub airports. But the 
Administration has rightfully made it clear that its proposal to reduce 
AIP funding is contingent upon raising the PFC cap.
    The Administration's plan represents a step in the right direction. 
However, airports are calling on Congress to update the PFC cap 
slightly higher to $8.50 and to index it for inflation. If our proposal 
were adopted, the AIP program could also be recalibrated to focus 
limited Federal funds on smaller airports. But a number of steps would 
be required to ensure that small communities are kept whole if AIP 
funding dips below $3.2 billion because of formulas in current law.
    AIP Funding and ATC Reform: As Congress considers proposals to 
reform the Nation's Air Traffic Control system and transform how the 
FAA is financed, we urge you to keep the fundamental structure of the 
Federal AIP program intact. While some may say the Air Traffic Control 
modernization process is broken, most would agree that the AIP program 
is not.
    The AIP program has a decades-long, demonstrated record of success 
in building critical infrastructure at airports of all sizes. 
Maintaining a solid Federal program with sufficient funds for large and 
small airports is essential to the long-term viability of airports 
around the country and the entire aviation system.
    As you consider proposals to transform the FAA, we urge you to 
maintain a sufficient and stable revenue stream to support capital 
projects at large and small airports. Airport operators strongly 
believe that they should continue to receive revenue from a dedicated 
airport trust fund rather than the less predictable general fund as 
some have proposed.
    Preserve and Restore Tax Exempt Financing for Airport Bonds: While 
it isn't under this committee's jurisdiction, airports urge you to work 
with your colleagues on the Senate Finance Committee to help finance 
infrastructure projects with bonds. Specifically, we are urging 
Congress to retain the tax exemption for municipal bonds and to 
eliminate the tax burden of the Alternative Minimum Tax (AMT) on 
airport private activity bonds.
    AAAE and ACI-NA have long argued that Federal tax law unfairly 
classifies the vast majority of bonds that airports use as private 
activity even though they are used to finance runways, taxiways and 
other facilities that benefit the public. Since private activity bonds 
are subject to the AMT, airport bond issuers traditionally have been 
charged higher interest rates on their borrowing.
    A permanent AMT fix would help airports reduce their borrowing 
costs, allow them to invest in more infrastructure projects, and 
support more jobs. Since reducing borrowing costs would benefit 
airports and their customers, this is one airport infrastructure 
financing proposal that airports and airlines will likely continue to 
agree makes sense.
    Close Bag Fee Loophole: While airports and airlines may agree on 
the need for AMT relief, we continue to have a fundamental disagreement 
over the airlines' increasing reliance on baggage fees and other 
ancillary charges. Airports are recommending that those fees be subject 
to the same aviation excise taxes as base air fares and that the 
revenue be deposited into the Airport and Airway Trust Fund.
    Airport operators respect our airline partners and the highly 
competitive nature of the commercial airline industry. However, at a 
time when Federal funding for airport infrastructure projects is 
stagnant, and the purchasing power of PFCs is eroding, the airlines' 
current business model simultaneously reduces funds that could be used 
for airport infrastructure projects and air traffic control 
modernization.
    Air carriers are increasingly relying on revenue generated from 
checked baggage fees and other ancillary charges and less on funds from 
base airline tickets. Unlike airline tickets, baggage fees and some 
other ancillary charges are not subject to a 7.5 percent excise tax. In 
other words, the airlines' a la carte pricing model allows carriers to 
avoid paying aviation excise taxes for services that were once included 
in the price of traditional airline tickets.
    The airlines' reliance on baggage fees and the shrinking percentage 
of revenue from base fares has been a growing trend in recent years. 
According to BTS, the percentage of airline revenue from base fares has 
dropped from almost 88 percent in 1990 to slightly less than 71 percent 
in 2013--the last full year currently available.

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    According to BTS, U.S. airlines collected slightly more than $3.35 
billion in baggage fees in 2013--and the carriers were on track to 
collect at least that amount in 2014. Those figures are for bag fees 
alone and do not include revenue that carriers generate from 
reservation change fees and other ancillary charges. The 2013 airline 
bag fee revenue is almost the same amount that Congress approved for 
AIP in FY14 and FY15. It's also more than airports collected in PFC 
revenue last year.

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    The airlines' use of ancillary fees shortchanges the Airport and 
Airway Trust Fund of revenue that could otherwise support airport 
infrastructure projects, air traffic control modernization, and other 
aviation system improvements. Between 2008 and the third quarter of 
2014, the airlines raked in more than $20 billion in revenue from bag 
fees.
    Closing the baggage fee loophole and charging the same 7.5 percent 
as base fares would have generated approximately $250 million in 2013--
about the same amount of AIP cuts that airports sustained that year to 
fund FAA operations. From 2008 through the third quarter of 2014, the 
bag fee loophole cost the trust fund $1.5 billion. Again, that's 
revenue that could be used to pay for NextGen and airport 
infrastructure projects.

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    We appreciate the airlines' responsibility to answer to their 
shareholders. And airports want our airline partners to be successful. 
But the ancillary fee loophole should be closed. Doing so would 
generate about $1 billion every four years that could be used for AIP 
and NextGen. It would also help the Nation meet the long-term needs of 
our aviation system.
Recommendations for Helping Small Communities
    This Committee has a long bipartisan track record of looking out 
for small communities and supporting programs that ensure people who 
live and work in rural areas have access to our aviation system. As you 
consider the next FAA bill, we urge you to maintain funding for small 
community programs and protect the cost-effective Contract Tower 
Program.
    Essential Air Service: Congress created the Essential Air Service 
(EAS) program as part of the Airline Deregulation Act of 1978 to ensure 
that small communities could maintain a minimal level of scheduled air 
service. Since then, this program has successfully allowed people who 
live in rural and less populated areas to have access to the national 
aviation system. According to DOT, 160 communities participate in the 
EAS program including 44 in Alaska.
    Commercial air service is not just a matter of convenience for 
leisure travelers. It is also critical to economic development efforts 
in communities around the country. Without reliable commercial air 
service made possible by the EAS program, it would be difficult for 
many small communities to retain and attract businesses that create 
jobs.
    The last FAA bill included a number of EAS reforms. For instance, 
the bill eliminated service to communities with fewer than 10 
enplanements a day except those communities more than 175 miles from a 
large or medium hub airport and those located in Alaska and Hawaii. The 
bill also left intact a provision to eliminate service to communities 
with more than $1,000 per passenger subsidy--a proposal that Congress 
approved as part of a previous short-term extension.
    Small Community Air Service Development Program: AAAE and ACI-NA 
have been long-time proponents of the Small Community Air Service 
Development Program. Since Congress created the program as part of H.R. 
1000, the Wendell H. Ford Aviation Investment and Reform Act for the 
21st Century, it has helped numerous small communities suffering from 
insufficient air service or unreasonably high fares.
    DOT Assistant Secretary for Aviation and International Affairs 
Susan Kurland told House lawmakers last year that small community 
grants ``fund a wide range of projects, including various kinds of 
financial incentives to airlines, intermodal solutions such as shuttle 
services to the airport, leakage studies, cutting edge marketing 
techniques, and start-up cost offsets.''
    It is worth noting that small communities that participate in the 
program bring significant local funds to the table. According to 
Assistant Secretary Kurland, more than half of grantees contributed at 
least 20 percent of the costs, and 12 percent paid at least 50 percent 
of the costs.
    Small airports around the country face numerous challenges 
including a consolidated airline industry and regional airlines that 
terminate service because they say there is a shortage of commercial 
pilots. Since many small communities are struggling to maintain and 
attract new commercial service it is now more important than ever to 
fund this program.
    Vision 100 authorized $35 million per year for the Small Community 
program. Congress reduced that level to $6 million annually in the last 
FAA reauthorization bill. We urge you to authorize at least $6 million 
annually for this program in the next FAA bill.
    We also urge you to make a technical change to the program. Under 
current law, only those airports that were classified as a small hub 
airport or smaller in calendar year 1997 are eligible to participate in 
the Small Community program. That requirement unfairly excludes a 
handful of small airports from participating in the program because 
they were classified as a medium hub in 1997 even though they are 
classified as a small hub today.
    Airports that have dropped out of the medium hub category in recent 
years should be eligible to participate in the Small Community Air 
Service Development Program just like other small airports. Allowing 
all current small hub and non-hub airports to be eligible to 
participate in this program would be a welcome technical fix that could 
help more small airports suffering from insufficient air service or 
unreasonably high fares.
    Contract Tower Program: On behalf of the 252 airports in 46 states 
that participate in the FAA Contract Tower (FCT) Program, we would like 
to thank members of this Committee for your long-standing and critical 
support of this program. We are grateful that so many of you led the 
charge to keep 149 Contract Towers open during the first round of 
sequestration in 2013.
    As a result of this 33-year government/industry partnership, the 
FCT Program enhances aviation safety at airports that otherwise would 
not have a tower. It also plays a key role in connecting smaller 
airports and rural communities with the national air transportation 
system. It is interesting to note that approximately 80 percent of all 
contract controllers are veterans.
    Before an airport is admitted into the contract tower program, the 
FAA performs a rigorous cost benefit analysis to ensure that the safety 
benefits will outweigh the economic costs. This has worked well. But 
now the agency is in the process of revising its cost benefit 
methodology in a way that could put the thumb on the cost side of the 
scale and against the clear safety benefits these towers provide the 
national air transportation system. This means that some airports may 
lose their contract tower or have to pay an onerous portion of the 
costs.
    AAAE and its affiliated organization--the U.S. Contract Tower 
Association--are asking this Committee to consider taking a handful of 
steps in order to keep a fair and balanced cost benefit analysis 
intact. We look forward to working with all of you to ensure that FCT 
continues to be a cost-effective and proven way to enhance air traffic 
safety at smaller airports across the country.
    Pilot Shortage: A number of small communities have experienced 
commercial air service reductions in the past year, in part, because 
carriers say that there are not enough qualified pilots to operate 
their flights. Not surprisingly, airport operators around the country 
are concerned about possible short-and long-term repercussions.
    Mainline carriers often tap pilots from the regional airlines that 
provide service to smaller communities. So a number of airport 
directors at small-and medium-sized facilities are concerned that this 
situation could make it more challenging for them to attract and retain 
commercial air service.
    To complicate matters, a large number of pilots are also expected 
to retire in the next several years. InterVistas Consulting Group 
estimates that 16,000 pilots at the big four U.S. carriers will retire 
between now and 2022. In 2013, Boeing estimated that the airlines 
around the world will need to hire almost 500,000 pilots by 2032--or 
about 25,000 annually.
    Airports would like to work with you and other aviation 
stakeholders to ensure that there are enough pilots in the pipeline to 
accommodate rising demand and to fill the seats of those who are 
expected to retire. Working together we can also ensure that people who 
live in smaller communities continue to have access to our national 
aviation system.
Conclusion
    Chair Ayotte, Ranking Member Cantwell, and members of the Senate 
Aviation Subcommittee, thank you again for inviting me to participate 
in this hearing on airport issues and infrastructure financing. I look 
forward to working with you as you continue preparing for the next FAA 
reauthorization bill.

    Senator Daines [presiding]. Thank you, Mr. Hauptli.
    Mr. Reis.

 STATEMENT OF MARK M. REIS, MANAGING DIRECTOR, SEATTLE-TACOMA 
                     INTERNATIONAL SEATTLE

    Mr. Reis. Thank you, Mr. Chairman. And thank you for the 
invitation to testify today.
    Today, I will tell a story of one airport, but it is 
representative of the challenges that other airports are facing 
across the country.
    Last year, Seattle-Tacoma International Airport--Sea-Tac, 
as we call it--was the fastest-growing large-hub airport in the 
country. So far this year, passenger loads have grown by 13 
percent. Both the vibrant Seattle economy and the increasingly 
important role Sea-Tac plays in the national airspace system, 
NAS, is responsible for this. Our current 5-year capital 
program will cost $1.7 billion and requires us to issue $1.2 
billion in new debt. We will also commit essentially all of our 
PFC capacity through 2035.
    We are now developing a 20-year airport master plan, which 
is identifying our facility needs beyond the next 5 years. The 
forecast indicates we will need to handle 66 million passengers 
in 2034, almost 30 million more than we did last year. We 
currently project the need for 35 more gates as part of a 
complex program of improvements, which we think will cost in 
excess of $10 billion.
    To fund these investments, we will borrow a lot of money, 
but bonds no more pay for airport investments than getting a 
mortgage from a bank pays for a home. The question is, How will 
we pay back the borrowed capital? Much of it will, in fact, 
have to be paid by the airlines, but a very early projection 
suggests that Sea-Tac's cost per enplanement could go up by 150 
percent between 2019 and 2034. Such an increase could 
dramatically change airline perspectives on serving Sea-Tac, 
and thus, penalize our economy as airlines make decisions based 
on their profit-and-loss statements, not what is good for 
Seattle or the NAS.
    Another option is the use of non-aeronautical revenues. 
However, our current airline agreement requires the airport to 
use half of that net income to reduce airline rates. The other 
half will be needed to fund the dining and retail 
infrastructure, parking, and roadways, which cannot be paid for 
by airline rates, PFCs, or Federal grants. This leaves the 
Airport Improvement Program, AIP, and Passenger Facility 
Charges.
    Congress capped spending at $3.3 billion in the AIP in 
2011. It is not realistic to think that a large hub like Sea-
Tac will get sufficient AIP grants to make a meaningful dent in 
a $10 billion program. In fact, I am not sure we should. AIP 
grants are a critical lifeline to fund projects at general 
aviation, non-hub, small-hub, and many medium-sized airports. 
As AIP has lost ground against inflation, smaller airports have 
felt the pinch, seeing fewer projects funded by AIP and local 
matching requirements go up.
    The final option is the Passenger Facility Charge. It is 
the only funding source that aligns directly with the 
passengers who will use the new facilities needed to meet the 
requirements of both our economy in our region and the NAS. As 
you are aware, the PFC is a locally approved user fee. As much 
as some would like to reinvent it as a tax, the Federal 
Government never touches the money, and the decision to charge 
a PFC is made by local airport governing bodies.
    Our current capital program commits 90 percent of our 
projected PFC revenue stream through 2035. Because of the PFC 
cap imposed 15 years ago, Sea-Tac will have available only 
about $8 million of PFCs in 2016 for new projects; thereafter, 
growing at less than 3 percent. This is a drop in the bucket 
compared to a $10 billion need.
    If Congress would modernize the PFC by making its current 
spending power equivalent to the cap imposed in 2000, the Port 
of Seattle Commission could then determine the appropriate PFC 
level, which could support up to $3 billion in master-plan 
investments.
    Now, you've heard some claim that increasing the PFC would 
have a negative impact on the willingness of the American 
public to fly. This assertion flies in the face of the data. At 
Sea-Tac, average airfares increased by 27 percent between 2009 
and 2014. During that same period, passenger volumes increased 
by over 22 percent. National data tell the same story.
    Airlines for America has also asserted that a PFC increase 
is not needed because the airlines will happily pay the cost of 
new facilities. That is different message than what we are 
hearing in Seattle. Multiple airlines are pleading for us to 
devote our limited PFCs to their preferred projects so they 
don't have to pay for those improvements in their rates and 
charges. So, the airlines are saying here that PFC is 
unnecessary, but in Seattle they are aggressively competing for 
limited PFCs.
    Madam Chairman, let me close by saying, first, that the 
greater Seattle region is relying on Seattle-Tacoma 
International Airport to match airport capacity with our 
economy's needs; and, second, that Sea-Tac very much needs a 
modernized PFC to fulfill that responsibility.
    Thank you. And I look forward to your questions.
    [The prepared statement of Mr. Reis follows:]

        Prepared Statement of Mark M. Reis, Managing Director, 
                  Seattle-Tacoma International Airport
    Thank you, Chairwoman Ayotte, Ranking Member Cantwell, and members 
of the Subcommittee for inviting me to testify on Airport Issues and 
Infrastructure Financing.
    I am the Managing Director of Seattle Tacoma International Airport 
(Sea-Tac) and the Immediate Past Chair of Airports Council 
International-North America (ACI-NA).
    Located in Washington state, Sea-Tac is an increasingly critical 
part of America's aviation system. In 2014, we facilitated over 18.7 
million enplanements and were the 13th largest airport in the United 
States. In fact, with a 7.7 percent increase in passengers in 2014, 
Sea-Tac was the fastest growing large hub airport in the United States. 
So far in 2015, our passenger load has grown by 13.1 percent (Q1, 2015 
vs. Q1, 2014).
    The vibrant economy of the Greater Seattle region has been a major 
driver of this growth. In 2013, Seattle was the fastest growing large 
city in the U.S., according to the U.S. Census Bureau. Today, Sea-Tac 
proudly supports more than 170,000 jobs in the region, totaling about 
$6.1 billion in personal income and $16.3 billion in business revenue. 
Our international traffic has grown by 67 percent since 2007, providing 
tremendous economic benefit to the region. In fact, each new 
international flight at Sea-Tac adds about $75 million annually to our 
regional economy.
    But it is not just the robust Seattle economy that is requiring 
Sea-Tac Airport to scramble to handle this extraordinary increase in 
airline traffic. In fact, Sea-Tac is playing an increasingly important 
role in the National Airspace System (NAS). Each and every new flight--
last year we handled over 23,000 more take-offs and landings--came to 
Seattle as a result of an airline decision. For example, in 2014 Delta 
Airlines grew by 1,606,585 passengers (+37.7 percent) and 10,141 
landings (+79.3 percent); Alaska Airlines grew by 1,341,253 passengers 
(+7.5 percent) and 3,756 landings (+4.3 percent). These decisions were 
in part a result of very significant changes in the global aviation 
marketplace. As aircraft technology has evolved and as foreign flag 
airlines have initiated non-stop service from cities across Asia to 
U.S. cities, Seattle's role as a critical U.S. gateway to Asia has 
become more pronounced. This circumstance has certainly benefited the 
Seattle region but, more importantly, it has made the NAS more 
efficient by effectively replacing a Northeast Asia hub with a U.S. 
gateway hub. Quite logically, there is a growing amount of ``feed'' 
traffic from all over the United States to Seattle to make the most 
efficient use of a gateway that is closer than any other in the U.S. to 
the vast majority of Asian destinations.
    Sea-Tac's extraordinary growth is just one example of how airports, 
airlines, and the Federal government must act in concert to ensure that 
we can meet the needs of airports and the NAS in the face of increasing 
economic growth nationwide.
    While Sea-Tac's growth may be among the most extraordinary, 
airports across America are facing the challenge of meeting the demands 
of our resurgent economy. The Federal Aviation Administration (FAA) 
estimates that U.S. airport enplanements will grow to more than $1.14 
billion over the next 20 years. So Sea-Tac's experience is not unique. 
But it is an excellent case study in the real-world challenges that the 
American airport industry faces today. In this testimony I will outline 
these challenges and demands, with a particular focus on Sea-Tac's 
challenges to meet the needs of the NAS and the region's continued 
economic growth as a result of the limited financial tools available to 
U.S. airports.
    Today's airport industry is vastly changed from just a few years 
ago. Expanding global networks, surging passenger demand, and domestic-
carrier consolidation have forced airports to adapt their business 
models. In our business today, U.S. airports are working to become more 
efficient and more customer-friendly in order to compete with each 
other, with other modes of transportation, and with our international 
counterparts who are setting new standards for airport customer 
service. But the fact that four major carriers handle about 85 percent 
of all U.S. traffic makes our operating environment more difficult as 
our communities have seen airline competition go down and airfares go 
up. So airports are expected to provide better customer service and 
modernized facilities all the while trying to keep airline rates and 
charges as low as possible. In this environment, many airports have 
struggled to retain their current air service and passenger flows, let 
alone attract new business.
    Unless something changes, this constrained environment will, 
unfortunately, become the new normal--much to the detriment of regional 
economies across the Nation.
    The Port of Seattle's statutory responsibilities and Federal 
obligations require Sea-Tac to do everything we can to provide the 
aeronautical capacity to support the NAS and our region's economic 
demands. That obligation is becoming tremendously more challenging. We 
are now in the midst of a 20-year master planning process. So far, we 
have completed the forecast that indicates that the region's economy 
will need Sea-Tac to handle 66 million passengers in 2034, 28.5 million 
(76 percent) more than we did last year. This passenger growth will 
require us to handle nearly 200,000 (+ 60 percent) more operations 
during that period. That will mean we will have 36 percent more 
aircraft on our airfield during peak hourly operations; we will need to 
handle 70 percent more deplaning passengers during peak arrivals times 
and 58 percent more enplaning passengers during peak departure times.
    Because Sea-Tac`s operational area (i.e., the airfield and terminal 
footprint) is only 1,500 acres, we simply have no ``elbow room'' to 
easily handle this substantial increase in activity. Thus, providing 
the facilities that our region and the NAS needs at Sea-Tac will 
require major investments and financial resources.
    While in the middle of this master planning, Sea-Tac is also in the 
midst of a five-year capital improvement program which will modernize 
our North Satellite concourse including the addition of eight new gates 
($512 million), reconstructing one of our runways ($100 million), 
updating our baggage system to improve security and efficiency ($317 
million), and constructing a new International Arrivals Facility 
(approximately $600 million) to replace our 1970s facility that cannot 
handle current demands. The financing plan for this $1.7 billion 
program includes $1.2 billion in new debt, most of which will result in 
higher airline rates and charges and a commitment of essentially all of 
our PFC capacity through 2035.
    Yet despite this significant investment, Sea-Tac will not be able 
to keep up with airline or passenger demands. In 2021--even after 
adding the eight new gates--we anticipate that the airlines will need 
to load and unload some flights by transporting passengers by bus to 
and from as many as 12 remote hardstand locations because we will not 
have sufficient gate capacity. The preliminary master planning work 
indicates that, to serve 66 million passengers, Sea-Tac would need to 
add 35 more gates, dramatically expand our ticketing/check-in 
facilities, and substantially redesign and rebuild our vehicle drives 
systems. Because we do not have readily available expansion space, we 
will likely need to move three airline maintenance hangars, several 
cargo buildings, an Aircraft Rescue and Firefighting (ARFF) station 
and, perhaps, a freeway. At this point we believe these capital 
expenditures will cost at least $10 billion to implement--above and 
beyond our current capital plan and financing plan.
    I would like to share with the Subcommittee how I think about the 
options Sea-Tac faces as we contemplate this massive investment 
challenge. First, let me note that, while some airlines identify 
airports' access to the bond market as one of the reasons that there is 
not an airport funding problem, in fact bond revenues are only a means 
of financing construction. The bonds--with interest--must be paid back. 
Claiming that bonds are the answer to the airports' funding needs would 
be like claiming that a home mortgage was the answer to someone's 
housing needs. Yes, a mortgage will help buy a house but the homeowner 
needs to have a source of income to pay the debt service on the 
mortgage. So the options addressed below are those we could use to 
either fund directly, or pay bonds issued to finance, the capital 
investments.
    One option--in fact, the option the airlines claim should be the 
default--is to put the costs of these investments into the airlines' 
rate base. The vast majority of the $10+ billion investments will 
indeed support airline activity. Putting the debt service costs of, 
say, $8.5 billion of aeronautical investments in the airlines' rates 
and charges could drive their costs per enplanement (CPE) at Sea-Tac 
from $14.00 (current projection for 2019) to $35.00 in 2030 (due to the 
many unknowns about the many factors associated with future projects, 
the financing environment and the pace of passenger growth, this figure 
is an informed but very preliminary projection). This increase could 
dramatically change the airlines' propensity to serve Sea-Tac and, 
thus, penalize our economy as airlines headquartered in other parts of 
the country make corporate decisions based on their profit and loss 
statements, not what is good for Seattle region or the NAS.
    Some could argue that a better option would be to use local taxes 
to build local airport facilities. While the Port of Seattle does have 
limited additional property taxing authority, it is critical to funding 
the Port's seaport facilities. More to the point, though, as we 
consider airport investments and the NAS, is that only about one third 
of Sea-Tac passengers are King County residents (those who would pay 
increased property taxes). As I mentioned above, Sea-Tac is 
increasingly playing a significant role as a gateway for international 
flights; our best estimate is that fully 40 percent of our 
international passengers are connecting at Sea-Tac to reach another 
U.S. destination. It would be highly inequitable to require all King 
County taxpayers--including those who seldom or never use the airport--
to pay for facilities used by travelers from all over Washington state 
and the United States, as well as passengers from all over the world.
    Another source of funding some propose to be adequate to the task 
is the non-aeronautical revenues the airport receives from dining and 
retail, parking and other non-airline sources. While this is in fact a 
growing source of net income at Sea-Tac, our current airline agreement 
requires the airport to devote half of that net income to reduce 
airline rates. The net income retained by the airport will be needed to 
fund airport operations and facilities (e.g., dining and retail 
infrastructure, parking, roadways, etc.) that are not eligible to be 
paid by airline rates, PFCs or Federal grants.
    It is worth taking a moment to note that, in addition to ensuring 
adequate, safe aeronautical capacity is in place, airports must also 
make substantial investments to provide for a wide variety of non-
airline facilities. Providing for the many facets of the passenger 
experience requires airports to build ground transportation roadways 
and parking areas, restaurants and stores, recycling facilities, cell 
phone lots, etc. No Federal grants and no PFCs can be used to pay for 
these facilities.
    If increased airline rates and charges, local taxes and non-airline 
net income are inappropriate or inadequate to the task, what about the 
options within the jurisdiction of the Congress: The Airport 
Improvement Program and Passenger Facility Charges?
    In 2011, Congress capped the Airport Improvement Program (AIP) at 
$3.3 billion, six percent less than its funding level in 2007-2011. Not 
only was the authorization an overall funding cut, but the amount of 
AIP that is actually going to fund projects at airports has also 
decreased as administrative costs for the Office of Airports have 
grown. For a large hub like Sea-Tac, AIP can provide a share of the 
cost of an airfield project, but the AIP is wholly inadequate to have a 
meaningful impact on the funding needs of larger airports. However, AIP 
is critical to smaller airports throughout the Nation. It serves as a 
funding lifeline for projects at general aviation, non-hub, small hub 
and many medium size airports. The overall distribution of funds for 
decades has worked extremely well, balancing the needs of both general 
aviation and commercial service airports. As the AIP pot of money has 
decreased, though, smaller airports have felt the pinch as money 
available to fund AIP-eligible projects has decreased and local match 
requirement have increased. As a result, all size airports have had to 
turn to other funding options to pay for projects.
    The AIP is funded through the Airport and Airways Trust Fund 
(AATF), which as a contract authority program has provided funding 
stability for airside projects in the entire airport system. As 
Congress explores options for changes for reforming FAA and the AATF, 
it is vitally important that airports be a part of that conversation.
    The final option is the Passenger Facility Charge (PFC)--the 
funding source that, at Sea-Tac, is most closely aligned with the 
passengers who are using the airport and, along with the airlines, 
causing us to plan and pay for the tremendous facility expansion ahead. 
PFCs can and must be a critical part of the funding plan for Sea-Tac to 
meet the needs of our region and the NAS. The Federal cap on PFC user 
fees was last adjusted fifteen years ago--by $1.50 per enplanement. As 
you are aware, the PFC is a locally generated and approved user fee, 
not Federal funding. The Federal government never touches the fees and 
the decision to charge a PFC is made on an airport-by-airport basis by 
local airport governing bodies. In the case of Sea-Tac Airport, that 
would be the directly-elected (by the voters of King County) Port of 
Seattle Commission. While airlines and community stakeholders play a 
role in the PFC approval process, the decision about whether or not to 
charge a PFC user fee and use it as a funding source is truly a local 
decision and impacts only those passengers that utilize the airport's 
facilities. This allows airports and their governing bodies to make 
decisions that are in the best interest of their region to encourage 
competition among carriers, secure capacity increases and support 
economic growth through a passenger's direct investment in local 
airport infrastructure. As public institutions accountable to local 
citizens, airports balance the very real need to keep costs low while 
ensuring that aviation specific infrastructure meets regional demand.
    As I mentioned above, the financing plan for our current capital 
program commits all but 10 percent of our projected PFC revenue stream 
until 2035. The remaining 10 percent would equate to about $8 million 
per year (in 2016) and, as you can imagine, would make a negligible 
impact on the $10+ billion cost of implementing our master plan.
    This current Federal cap on the PFC means that in 2015 it is worth 
less than half of its spending power when the cap was adjusted in 2000. 
To provide airports the same PFC spending power today, the PFC cap 
would need to be $8.50. The outdated cap on the PFC prevents airports 
like Sea-Tac from making the capital investments required to meet the 
air travel needs of both our communities and the Nation. In addition, 
the Federal cap substitutes the Congress's one-size-fits-all decision 
making for that of locally-elected officials regarding appropriate fees 
for passengers at individual airports.
    Our preliminary analysis indicates that, if Congress would 
modernize the PFC by making its spending power equivalent to the cap 
imposed in 2000, the Port of Seattle Commission would have the option 
of determining the appropriate PFC level and potentially make available 
$3 billion of capital to help pay for our $10+ billion master planning 
investments. This would be $3 billion that would not need to go into 
the airlines' rates and charges.
    I would like to pause here to address two of the often-articulated 
concerns about raising the PFC. First, many airlines claim that 
increasing the PFC would have a negative impact on the propensity of 
the American public to fly. This assertion flies in the face of the 
data. At Sea-Tac, average airfares increased by 27 percent between 2009 
and 2014; during that same period, passenger volumes increased by over 
22 percent. If one is concerned that there may be a lag in the impact 
of those airfare increases, that impact has not yet shown up at Sea-
Tac: As noted previously, passenger volumes continue to grow, 
increasing by 13.1 percent through the first quarter of this year.
    The national data tell the same story: The airlines' argument seems 
to make no sense when you compare a small adjustment in the PFC to the 
rising price of airline tickets. According to the Bureau of 
Transportation Statistics since 2009, nationwide airfares have 
increased by more than 23 percent, while air travel has increased by 
more than 7 percent. In addition, bag fees have increased 99 percent, 
resulting in $11 billion in airline profits over the same time period. 
The four dollars airports are seeking in order to fund projects that 
improve passenger service and benefit local communities pales in 
comparison to the billions of dollars that passengers are paying in 
higher airfares, bag fees, change fees, seat reservation fees, etc.
    The airline trade association is also quick to claim that a PFC 
increase is not needed because the airlines are more than prepared to 
pay the costs of capital improvements through their rates and charges. 
While I cannot speak to what may be happening in other parts of the 
country, I will note for the Subcommittee that in the past few weeks, 
five separate airlines have appeared in front of the Port of Seattle 
Commission, to plead that the Port allocate our limited PFCs to the 
project that would reduce the rates and charges of the individual 
airline. Some airlines are quite articulate regarding the merits of the 
PFCs being used to fund a new International Arrivals Facility (thus, 
decreasing the costs of one rate base) or to fund other terminal 
investments (thus, decreasing the costs of other rate bases). None of 
the airlines disputes the importance of any of the projects, but they 
are all quite clear that they would prefer that PFCs be used for their 
preferred project in order to decrease their rates and charges.
    The airlines' positions in Seattle seems to run counter to Airlines 
for America's messaging here in Washington, suggesting that the issue 
for the airlines is not so much whether increased PFCs would be a 
valuable funding tool, but who gets to make decisions about which 
airports increase PFCs, for what projects and to what levels.
    I will conclude my discussion about our experience at Sea-Tac by 
reiterating that--at this point in time and based on what we now know 
while in the middle of our master planning process--Seattle-Tacoma 
International Airport will require increased Passenger Facility Charge 
fees in order to make the investments required to meet both the needs 
of our region and the needs of the NAS. If Congress is not prepared to 
eliminate the cap and leave such decisions wholly to locally-
accountable officials, it should increase the cap to at least $8.50 and 
index it to account for inflation.
    While Sea-Tac may, more than other airports, be facing the 
challenge of remarkable growth right now, our airport is not a lone 
exception. Other airports throughout the United States--large, medium, 
and small--face similar financial challenges. According to ACI-NA's 
most recent capital needs study, airports of all sizes need over $15.14 
billion annually in infrastructure improvements to modernize aging 
runways and terminals, relieve congestion and delays, and spur new 
airline competition--far more than the $6.2 billion that airports 
received last year from both PFCs and AIP. As a result, infrastructure 
projects all over the country are stalled because of declining Federal 
grant dollars and the eroding purchasing power of today's PFC. ACI-NA 
and AAAE have chronicled several of these examples in a report it 
shared with many of you and posted on the AirportsUnited.com website, 
but let me highlight a few now:

   JFK, Pittsburgh, and San Diego need new terminal projects to 
        meet growing demand and to spur competition in their markets.

   Newark and LaGuardia need to make airfield improvements to 
        reduce chronic traffic delays in the New Jersey-New York 
        metropolitan region.

   Chicago, Fort Myers, Kansas City, San Antonio, Dallas and 
        Jackson, MS, all have delayed runway projects, which are 
        constraining capacity at their airports.

   Los Angeles needs to move forward with a transformational 
        ground-transportation plan for their severely land-locked 
        facility.

   Reno and Savannah-Hilton Head both need to expand their 
        Customs and Border Protection facilities to meet increased 
        demand for international service.

   Gerald Ford in Michigan needs to build a consolidated 
        checkpoint for TSA.

   Oakland needs to repair its airfield-perimeter dikes that do 
        not meet FEMA's current flood-control standards.

   The list goes on and on . . .

    In conclusion, America's airports are powerful economic engines, 
generating more than $1.1 trillion in annual activity and supporting 
more than 9.6 million jobs. New investments in airports will help local 
communities all across the country maintain their current air service 
and attract new carriers, which will increase competition and lead to 
lower fares for passengers. As I have detailed, the airport community 
is united in its belief that modernizing the PFC user fee and 
maintaining AIP are the best options for strengthening our Nation's 
airport system to meet the needs of today and the challenges of 
tomorrow. I appreciate this opportunity to testify before you today and 
welcome your questions.

    Senator Daines. Thank you, Mr. Reis.
    Mr. Minerva.

STATEMENT OF MICHAEL J. MINERVA, VICE PRESIDENT, GOVERNMENT AND 
               AIRPORT AFFAIRS, AMERICAN AIRLINES

    Mr. Minerva. Thank you, Mr. Chairman and members of the 
Subcommittee. Thank you for the opportunity to testify today 
about airport issues and infrastructure financing.
    My name is Michael Minerva, and I am Vice President of 
Government and Airport Affairs for American Airlines. I am 
particularly pleased to be speaking with you since airport 
funding at the 225 domestic airports served by American 
Airlines is an everyday part of my job. I'm responsible for 
negotiating with airports over lease arrangements, capital 
projects, in addition to handling State and local government 
affairs.
    I would like to talk to you today about what I experience 
firsthand when airports and airlines sit down together at 
tables to hash out how projects should be financed. I'd like to 
make two points:
    First, airport by airport, airlines and airports are 
reaching agreements on capital spending, and will continue to 
do so without any change in the statutory PFC scheme.
    Second, there is no lack of funding for airport improvement 
projects. Any gaps that exist between an airport's current 
conditions and the desired conditions result from the lead 
times and complexity involved in competing--completing airport 
projects, and not from any lack of funding. Many of our 
Nation's airport terminals, airfields, and systems are nearing 
the end of their useful lives. The airlines not only support 
projects to repair and improve airport infrastructure, we 
demand it, and we are willing to pay for it.
    At the Nation's large-hub airports, generally, there are 
$70 billion in completed projects, underway projects, and 
approved projects. If the PFC tripled tomorrow, the incomplete 
projects would not move faster. That's because the pacing item 
for airport improvement projects is not a lack of funding, it 
is simply the lengthy process required to complete such complex 
projects, even when done exactly right.
    For example, a new runway in Charlotte that is no more than 
a 2-mile paving project will take 7 years to complete, not 
because of funding, but because of the complexities of planning 
for, designing, and building a project on an active airfield.
    A fully-funded $2.7 billion terminal improvement project at 
Dallas-Fort Worth Airport will take several more years to 
complete, because only a few gates can be closed at a time. The 
limited factor is not funding.
    And these examples are not exceptions, they are the norm, 
and they illustrate that increasing PFC funds today will not 
translate into changes tomorrow, due to the complexities 
inherent in airport improvements.
    Now, it's no surprise that airports would welcome the extra 
cash from an increase in PFCs. Often, airports are under local 
pressure to undertake projects that are not urgent or 
necessary. And this is not a sufficient reason to fundamentally 
alter the existing dynamic that encourages airports and 
airlines to reach consensus on airport improvements. And, 
despite airport protestations to the contrary, this dynamic is 
generating tens of billions in new project dollars at the 
current PFC levels.
    In fact, as someone who leads and works with a team that 
spends its days traveling to your communities and talking to 
the professionals who run your airports, I can tell you, 
airports and airlines work toward consensus much more than one 
might assume, listening to this policy debate in Washington. 
And, unfortunately, here in Washington, there's a lot of 
information about PFCs. Here are some facts:
    First, indexing PFCs to inflation is not needed, because 
airport rent has well outpaced inflation. That is giving 
airports money to spend at a rate that increases faster than 
inflation and faster than ticket prices.
    Second, local officials and airport directors tell airlines 
that they want us to keep fares in their communities 
competitive. Increasing the PFC makes it more costly for the 
public to fly.
    And, third, airports have great access to financing for 
capital improvements, since their basic cost structures are 
guaranteed by the airlines. If an airport takes in less money 
than it spends, the airlines make up the difference.
    Counterarguments to all these points were made 3 years ago 
as part of the last FAA reauthorization debate. Yet, since that 
time, airports and airlines have agreed to fund tens of 
billions of dollars in new projects. And the same will happen 
at the current PFC rates.
    In closing, please consider that airports and airlines 
agree on the scope, pace, and funding of airport capital 
improvement projects, almost without exception and with the 
current PFC structures in place. Those capital improvements are 
coming, often not as fast as we all would like, because airport 
improvement projects take so long, despite the best efforts of 
everyone involved.
    I'd be happy to answer any questions from the Committee 
members.
    [The prepared statement of Mr. Minerva follows:]

 Prepared Statement of Michael J. Minerva, Vice President, Government 
                 and Airport Affairs, American Airlines
    Good morning Chairman Ayotte, Ranking Member Cantwell, and members 
of the Subcommittee. Thank you for opportunity to testify today about 
airport issues and infrastructure financing. My name is Michael Minerva 
and I serve as Vice President of Government and Airport Affairs for 
American Airlines. I am particularly pleased to be speaking with you 
since airport funding at the 225 domestic airports American serves is 
an everyday part of my job. I am responsible for negotiating with 
airports over lease agreements and capital projects in addition to 
state and local government affairs.
    I would like to talk to you today about what I experience 
firsthand--when airports and airlines sit in rooms and hash out how 
projects should be financed. I'll make two basic points. First, airport 
by airport, airlines and airports are reaching agreements on capital 
spending and will continue to do so without any change in the statutory 
PFC scheme. Second, there is no lack of funding for airport improvement 
projects. Any gaps that exist between an airport's current conditions 
and desired conditions result from the lead times and complexity 
involved in completing airport projects and not from any lack of 
funding.
    If your only exposure to the PFC issue was at the national level, 
you might reasonably assume that arguing about PFCs dominates airport 
and airline discussions. That's not the case. The airline-airport 
relationship does not play out on the national stage. It's handled on 
an airport-by-airport basis with the airlines working directly with 
airport directors. Airports and airlines generally work together very 
effectively and have been doing so for years. The relationship is not 
simply one of landlord-tenant. We and our airport counterparts consider 
ourselves business and civic partners. Neither of us can exist without 
the other.
    From a funding perspective, when you look at airports on an 
individual basis, as I do with over 225 domestic airports, you will not 
see the funding shortfall that is often claimed in Washington. Airports 
are funded by their users and not from general revenue--not even of the 
city, county or state where the airport is located. The agreements 
between the airlines and airports are structured so that the airlines 
protect the airport from any cost overruns and revenue shortfalls 
without accessing any taxpayer funds. If an airport brings in less 
money than it spends, the airlines make up the difference. Any cost 
certainty the airlines have comes from the managerial acumen of the 
airport staff. That's one reason we care so passionately about how 
airport projects are designed, managed and funded.
    Many of our Nation's airport terminals and systems are nearing the 
end of their useful lives. The airlines not only support projects to 
repair and improve airport infrastructure, we demand it, and we are 
willing to pay for it. At the Nation's large hub airports generally, 
there are $70 billion in projects completed, underway or approved. If 
the PFC tripled tomorrow, the incomplete projects would not move 
faster. That's because the pacing item for airport improvement projects 
is not a lack of funding. It is simply the lengthy process required to 
complete such complex projects, even when done exactly right.
    For example: the Charlotte airport wants to build a new runway to 
be online in the early 2020s to handle future demand. The airlines will 
pay for it--even though the PFC in Charlotte remains at 2/3 of the 
current statutory maximum. The airport, which has a strong history of 
executing projects efficiently, is starting the process in 2015 because 
the runway will take seven years to build--with half of that time 
needed just to prepare for and complete the environmental review 
process. The two-mile paving project--and that's all it is--will take a 
total of seven years because of the complexities of planning for, 
designing and building a project on an active airfield. That's just how 
long it takes--it has nothing to do with funding availability.
    Terminal improvement projects face timing, not funding, challenges 
as well. An example of that is DFW, where the $2.7 billion fully funded 
Terminal Repair and Improvement Program, or TRIP, is underway. If you 
visit Terminal C at DFW, you see an old terminal. But if you visit the 
low Terminal A gates, you see a brand new one. That's because the TRIP 
program must be completed in small phases across the airport. A project 
like this takes a considerable amount of time, because only a few gates 
can be closed at a time, which means the project has to move slowly. 
The limiting factor is not funding.
    These examples are not exceptions. They are the norm and they 
illustrate that increasing PFC funds today will not translate into 
changes tomorrow due to complexities inherent in airport improvements.
    It's no surprise that airports would welcome the extra cash from an 
increase in PFCs. Often, airports are under local pressure to undertake 
projects that are not urgent or necessary. This is not a sufficient 
reason to fundamentally alter the existing dynamic that encourages 
airports and airlines to reach consensus on airport improvements. 
Despite airport protestations to the contrary, this dynamic is 
generating tens of billions in new project dollars at the current PFC 
levels.
    As I've stated, airlines and individual airports address their 
capital needs without arguing about the PFC issue. But the fact remains 
that there is a lot of misinformation out there about PFCs. Here are 
some facts:

   Indexing PFCs to inflation is not needed because airport 
        rent has well outpaced inflation. That is giving airports money 
        to spend at a rate that increases faster than inflation and 
        faster than ticket prices.

   Local officials and airport directors want airlines to keep 
        fares competitive. Increasing the PFC makes it more costly for 
        the public to fly.

   Airports have great access to financing for capital 
        improvements since their basic cost structures are guaranteed 
        by the airlines.

    Counter arguments to all these points were made three years ago as 
part of the last FAA reauthorization debate. Yet since that time, 
airlines and airports have agreed to fund tens of billions of dollars 
of new projects. The same will continue to happen if the PFC remains at 
its current rates. That is because airlines believe in and support 
spending for airport infrastructure.
    In closing, please consider that the airports and airlines agree on 
the scope, pace, and funding of airport capital improvement projects 
almost without exception, and with the current laws and PFC structures 
in place. Those capital improvements are coming--often not as fast as 
we would like, but only because airport improvement projects take so 
long despite the best efforts of everyone involved.
    More PFC taxes simply will not deliver airport improvements any 
sooner. The airports as a group want significantly increased PFC funds 
they can spend on projects without the inconvenience of having to 
negotiate with the airlines that pay for airport facilities. The 
airlines prefer our current system whereby we and the airports continue 
to work collaboratively to determine how billions of our dollars are 
spent to improve the Nation's airports.
    I'll be happy to address any questions from committee members.

                STATEMENT OF HON. STEVE DAINES, 
                   U.S. SENATOR FROM MONTANA

    Senator Daines. I want to extend my thanks to the actual 
Chair of this committee for yielding to the Acting Chair to 
start with my questions. So, thank you, Senator Ayotte.
    In my hometown of Bozeman, Gallatin Field's been operating 
since 1941. We are part of the Bozeman-Yellowstone 
International Airport. It has come a long ways to opening up 
that area. In fact, between 2000-2007, Bozeman pursued rapid 
infrastructure development fueled by increased tourism to 
Yellowstone National Park and a growing tech sector. The 
continued economic growth of the region is largely contingent 
on the ability to maintain regular air service. I can tell you, 
I can do this job, going back and forth, because of the great 
air service in and out of Bozeman.
    We opened up a new terminal in 2011. And the FAA delegated 
Bozeman as a ``small hub.'' In the four years leading up to the 
airport expansion, we saw a 15 percent increase in passenger 
enplanements in Bozeman, and, most recently, we've seen a 26 
percent increase, compared to 4 percent nationally.
    We've been very appreciative of the Contract Tower Program, 
because, without it, the Bozeman Airport would not have a 
tower. However, the airport's grown so much that it's now one 
of the busiest contract towers in the country. The airport 
continues to struggle with less staffing than their Federal 
counterparts. In fact, there are approximately 100 Federal FAA 
towers with less operations than Bozeman. While it's more 
common for a Federal tower to convert to a contract tower, 
Bozeman Airport is interested in possibly converting into a 
Federal tower. The airport has informed me, just recently, that 
the FAA has been exploring this issue for years. And, when I 
inquire with the FAA about it, they said the FAA does not, 
quote, ``convert contract towers to Federal towers,'' and they 
have no criteria for doing so. Despite the fact we have 100 
Federal FAA towers with smaller operations than Bozeman, we're 
now Montana's busiest airport.
    Mr. Hauptli, as a representative for small airports, it 
seems to me that there needs to be a mechanism for the FAA to 
right-size Federal towers to the busiest airports, and contract 
towers to the slower or smaller airports. Would you have any 
suggestions on how to best address this issue from an airport 
and the FAA's perspective?
    Mr. Hauptli. Sure, Senator. I can't speak for the FAA, but 
I can speak for the airport side of that equation. The 
statistics that you cite, I think, are significant in terms of 
the growth that you've experienced at that facility and in your 
community. We'd be happy to work with you and your staff, talk 
with the FAA about potentially developing criteria for the 
conversion that you talk about. That's something, obviously, in 
the context of this upcoming FAA reauthorization bill that you 
could consider--that the Committee could consider--including in 
the legislation. Be happy to talk to you about that.
    But, my understanding is you're correct, the FAA doesn't 
believe that they have, currently, criteria to deal with that 
issue.
    Senator Daines. Yes. Seems, again, with 100 airports right 
now with smaller operations with FAA towers, it seems like we 
could find a path forward there to solve that problem. So, 
thanks for your help on that, Mr. Hauptli.
    Mr. Hauptli. Yes.
    Senator Daines. Mr. Dillingham, in your testimony, you 
discussed the decline in airport operations at most airports. 
While we've got airports that are growing, like the Bozeman 
Airport, and, now that we're a small hub, would you have any 
recommendations on how they can address growing infrastructure 
and funding needs?
    Dr. Dillingham. Are you referring to smaller----
    Senator Daines. Small airports that are growing.
    Dr. Dillingham. Right.
    Senator Daines. Yes.
    Dr. Dillingham. I think that the way the current Federal 
funding is organized, where there's a cross-subsidy for--from 
the AIP program to the smaller airports, that that is, in fact, 
one of the best ways to make sure that smaller airports can 
acquire the kind of funds that they need for infrastructure 
development. And, as you mentioned before, the Contract Tower 
Program is also another element that helps to make those small 
hubs more efficient. I mean, it's--one of the things that is 
sort of a consensus out there is that we need the spokes in the 
wheel to go to the major hubs. And those small airports make up 
part of that national airspace system or airport system.
    Senator Daines. Thank you for that thoughtful answer.
    Mr. Hauptli, could you give us an example of some projects 
that have not moved forward because there hasn't been a 
Passenger Facility Charge increase? Raising airline ticket 
prices through PFCs is not an option when it already costs us 
more to fly to other cities because we have to connect through 
a hub to get to our final destination. So, what exactly is not 
getting funded at airports and why do we need to see an 
increase in the PFCs.
    Mr. Hauptli. Sure, Senator. Thank you for the question.
    It is a regular contention of my colleagues on the airline 
side of the equation that, ``Well, you don't need an PFC 
increase, because things are getting built.'' And, to a large 
extent, many of the projects are, in fact, getting built at 
major facilities across the country. What happens is, they take 
much longer to get built, and it costs much more money than it 
should. It's much less efficient than it should be. Airports 
have a series of--from across the country, in various states--
projects that we'd like to see accomplished through an increase 
in the PFC.
    And, Senator, since you also are very focused on the small 
communities, I'd offer an example for your consideration of an 
unintended consequence in public policy in the last 
reauthorization bill. Congress doubled the requirement for 
local communities to come up with their share in order to get 
grants from the FAA. That has been very expensive, very hard 
for small communities to come up with those resources. An 
increase in the PFC would allow these smaller communities to 
use that for their local matching share and be able to build 
some of these projects.
    Senator Daines. Thank you.
    Yield back to the Chair Ayotte.
    Senator Ayotte [presiding]. Well, thank you, Senator 
Daines, for taking over for us while we had another committee 
hearing going on, myself and the Ranking Member.
    But, we're very pleased to have the Ranking Member of the 
overall Commerce Committee here today, Senator Nelson. I would 
like to call on him.
    Thank you.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Madam Chairman.
    And I just want to raise one issue. No doubt you all are 
aware that, last December, it was discovered, a plot of 
smuggling guns onto airplanes in the Atlanta Airport, flying to 
New York. The police were quite frustrated because all these 
guns were showing up on the streets of Brooklyn, and they 
couldn't figure out how they were getting there. They had 
policed I-95 and so forth. Well, the scheme was that, because 
there are many entry points for airport employees at the 
Atlanta Airport, that there is not extensive screening, an 
airport employee carried guns in. Then that employee went up to 
the sterile area of passengers and rendezvoused with a 
passenger who had an empty backpack, and transferred the guns 
into the backpack, and the guns were transported by plane. And 
it included a carbine. And when they arrested him--and this is 
going on several months, several trips--when they arrested him 
in December, he had 16 guns in the backpack. Now, it's a good 
thing he was a criminal and not a terrorist.
    So, obviously, this has been addressed by the Access 
Control Working Group of which you all have been a part. But, 
lo and behold, I was very pleased to discover that, out of the 
450 airports in this country, two airports that have addressed 
the problem are in my state. First, Miami, when they discovered 
a drug-smuggling ring, way back in 1999. And recently, a 
similar drug-smuggling deal in Orlando, in 2007. And what they 
did was common sense. They took the hundreds of entry points 
and boiled it down to a handful, and then put up the screening 
that is similar to what we, as passengers, go through. And not 
only do they screen the employees, the employee has a badge, 
the picture has to match, the swipe has to be current. And, in 
the case of Orlando, they've got to punch in an identification 
number.
    Now, that's so common sense to take care of this problem. 
What do you all think about that?
    Ms. Pinkerton. Senator Nelson, thank you so much for that 
question. Sharon Pinkerton, representing the airlines here. And 
I'm from Florida, so I'm very familiar with Miami and Orlando. 
And, in fact, I testified on this very issue about a month ago, 
after the Atlanta incident.
    Since that time, as you're aware, we've worked very closely 
with Secretary Johnson, who announced the results of the 
Working Group and the recommendations that have been made. We 
think we need to pursue those recommendations as soon as 
possible and some of the things are those that you mentioned. 
For example, we need to reduce the number of access points at 
airports right now. We need to increase screening of employees, 
and we need to make sure that, when employees are traveling on 
personal business, they're not using their employee card to 
avoid screening. There's a list of 20-some recommendations. I 
can assure you, it's a very high priority for the airlines.
    Senator Nelson. Well, Madam Chairman, I'll just say that 
this has been taken care of in two of the major airports. There 
are--but, there are 448 more airports, just in this country. 
And it seems, to this Senator, that it's common sense if we are 
going to give the assurances to the traveling public that they 
are going to be safe. And this is a serious breach of potential 
safety.
    Thank you, Madam Chairman.
    Senator Ayotte. I want to thank Senator Nelson. You raise 
such an important issue here. And I have to say, just having 
reviewed the response to both Chairman Thune and yourself from 
the TSA Acting Administrator, this is something that leaves me 
with more questions than answers, because one of the things, as 
I see in this response--and I think, Mr. Hauptli, you can help 
me with this--is basically, when it comes to lost, stolen, or 
otherwise unaccounted for badges or airport credentials in the 
last 5 years, the Acting Administrator says, ``TSA does not 
maintain a record of lost or unaccounted-for airport IDs,'' and 
basically turns it back to the airport, saying, ``Airport 
operators issue and are responsible for conducting periodic 
audits and maintaining records for one year.'' And if the 
percentage of those unaccounted sort of reaches a breach level, 
then there may be something done about it, but it doesn't seem 
like that information gets translated back at all to TSA. So, 
where are we left with all of this? I see this as a huge, 
gaping problem that the Ranking Member rightly--obviously, he's 
got some ideas from his airports. But, what are your thoughts 
on this?
    Mr. Hauptli. Thank you, Senator.
    The Aviation Security Advisory Committee that was 
referenced earlier has come out with a series of 
recommendations--28 in all. Secretary Johnson announced the 
other day five immediate actions that would be taken including 
additional recurrent vetting--the point that you raised, 
Senator--to try and make sure that we are, on a more continuous 
basis, vetting those employees. And the airport community is 
supportive of that effort, going forward.
    You are correct that if a particular facility reaches a 
threshold, a single-digit, I would say single-digit threshold, 
then it triggers rebadging the entire population. I met, 
yesterday, with the acting head of TSA, and we discussed this 
issue, discussed how we can strengthen this effort, going 
forward. It is, I would say to all of you on here, a multi-
layered, risk-based effort that needs to be undertaken to 
prevent these kinds of breaches.
    Senator Ayotte. Yes, I appreciate it. This is obviously of 
deep concern, because if you think about that you're doing on a 
percentage basis, in terms of the review, the risk-based 
assessment becomes even more important, because it's not really 
the number of people who get issued the badge, but those that 
are unaccounted for, or the security credentials unaccounted 
for, because it only takes one. Right? So, I think that looking 
at the review and the risk-based element becomes even more 
important, rather than the number. So, I'm glad you're focusing 
on it. I see this as something that I'm glad the Ranking Member 
raised, because it's incredibly important. And I was a little 
troubled by the response of TSA. I think we need to be more 
direct in addressing this.
    I wanted to follow up, Mr. Hauptli, on the contract tower 
issue. The Inspector General audit of the FAA Contract Tower 
Program concluded that FAA contract towers provide cost-
effective and safe air traffic control services and operate a 
lower cost than similar FAA-operated towers. The Inspector 
General found that contract towers, on average, cost $1.5 
million less per tower compared to the FAA tower system. Mr. 
Hauptli, in your testimony, you note that the FAA is in the 
process of revising its cost-benefit methodology in a way that 
could skew the analysis of a contract tower's value, 
potentially threatening their continued operation, which would 
be--you know, as I look at communities in New Hampshire, 
especially Nashua, New Hampshire--that would be bad for the 
safety of the flying public. Can you please expand on your 
statement and also address how you believe this new cost-
benefit methodology could impact the Contract Tower Program?
    Mr. Hauptli. Sure. Thank you for the question, Senator.
    Hit the rewind button just a little bit and go back to 
sequestration, round 1, where the FAA attempted to close many 
contract towers.
    Senator Ayotte. I remember this well.
    [Laughter.]
    Senator Ayotte. I think many of us on this committee do.
    Mr. Hauptli. I wanted to mention it because it would 
provide me an opportunity to say thank you to members of the 
Committee for your very vigorous support of the Contract Tower 
Program and your efforts to address this. And we greatly 
appreciate it, airports around the country.
    You're correct, the Contract Tower Program handles 28 
percent of the operations in this country, yet only costs 14 
percent of the cost. There are tremendous cost savings 
involved. The safety level is without question. It's a very 
effective program and, frankly, we believe, should serve as a 
model for other areas of government, a partnership between 
industry and government, going forward.
    As it relates to what's taking place today at the FAA, we 
are concerned. The FAA is looking at revising the cost-benefit 
analysis. And our concern is, early indications have us 
thinking they're putting their thumb pretty hard on the scale 
of the cost side, but they really aren't doing the same when it 
comes to the benefits. We believe, as an example, that once a 
cost-benefit analysis of a tower is done, that that should be 
it, and the tower should be able to operate. The FAA wants to 
do almost--I won't say ``continuous''--but much more repetitive 
cost-benefit analysis at some of these facilities. And we just 
are concerned that, in the administration's efforts to save 
money in certain areas, that this is one area where they 
haven't really shown that they have as great of appreciation 
for the Contract Tower Program as many of the members of this 
committee do. So, we're watching that very carefully and would 
ask the Committee, in its consideration of the next FAA 
reauthorization bill, to be vigilant in that regard, as well.
    Senator Ayotte. Thank you.
    I'd like to call on Senator Cantwell.
    Senator Cantwell. Thank you, Madam Chair.
    And let's--I want to dig into this issue on how we move 
forward, because I think probably nobody cares more about the 
health of airlines than a Senator from Washington who wants the 
aviation industry to be strong, in general.
    Obviously, airlines oppose increasing the Passenger 
Facility Charge, because the PFC is one of the fees included in 
total ticket price, and they argue that that impacts the 
passenger demand. And airlines also maintain that there has 
been ample funding in the PFC, looking at 2014 reaching a 
record high of $2.9 billion. So, the past decade has been a 
very challenging one for airlines. But, the current financial 
state of the industry has improved, and obviously we need to 
make infrastructure investments, as well.
    So, Mr. Reis, do you want to talk a little bit about what--
how you've dealt with this at Sea-Tac? Because I know that 
airports are able to generate revenue from non-aeronautical 
operations, such as the dining and parking and stores. And, you 
know, if you've ever been to Dubai, you look at that airport, 
and you think, ``OK, how much money are they generating from 
all those activities?'' But, that revenue that we generate here 
in the U.S. can be used to fund operations or facilities which 
are not permitted uses of AIP or the PFC. So, the current 
agreement between Sea-Tac and airlines require that half of the 
net income from those non-aviation operations be diverted to 
reducing the fee charged to airlines and airports.
    So, is that something that's across the board? Do you think 
this is something that we should be looking at as part of 
legislation?
    Mr. Reis. Thank you for the question, Senator.
    You're absolutely correct that, at Sea-Tac Airport, fully 
half of our net income from all of our non-airline sources is 
used to actually reduce the rates and charges of the airlines. 
Now, that is a provision in our lease agreement with the 
airlines. And it's important to note that the old saying of 
``When you've seen one airport, you've seen one airport'' 
applies to lease and use agreements just like it does to 
facilities and local politics, et cetera. So, each airport and 
the airlines that serve that airport have a lease agreement of 
one sort or another, with very few exceptions, which operate 
under an operating agreement. And the provisions of those all 
vary.
    So, in our instance, we generate about $45 million of net 
income from our non-airline revenue sources. Half of that is 
used to reduce airline costs, and the rest of it, we need to 
invest in various facilities. Mostly, we seek to use that money 
for projects that the airlines are not responsible to pay for 
under the lease agreement and are not eligible for Federal 
moneys. On the other hand, we--one of the major projects we are 
undertaking at the moment is a new international arrivals 
facility. And we are proposing to invest a very significant 
amount of our net income, our retained earnings from non-
aeronautical sources, in that facility in order to bring the 
cost of the facility down.
    Now, interestingly, Mr. Minerva and Ms. Pinkerton both made 
a very big point of, ``Airlines and airports work together and 
work all this stuff out.'' And it is true. The vast majority of 
the cases, that really does happen. In this particular 
instance, though, many of the domestic airlines are indicating 
they intend to vote against this international arrivals 
facility because they don't like the financing arrangement.
    Nobody thinks we don't desperately need a new international 
arrivals facility. Certainly, the Senator knows, if you arrive 
at Sea-Tac today, going through a 40-year-old facility that is 
subterranean is not a very good front door. So, airlines, 
airports, everybody, the community, knows we need to build the 
facility. The airlines are indicating that they're going to 
vote against this and seek to stop the project because we are 
not devoting enough PFCs to that project. It's not because they 
don't think the project's a good project. It's because they 
want us----
    Senator Cantwell. The airlines, in this case, want the PFC 
that's already--revenue allocated to this.
    Mr. Reis. Correct. The argument is that we are devoting too 
many PFCs to this international arrivals facility, and not 
enough to other projects. So, it really comes down to which 
airline rate base will get the benefit of PFCs, because 
airports cannot charge the airlines for the costs of a project 
that are paid for by PFCs.
    So, as I said in my oral statement, in Washington, D.C., 
the airlines are saying a PFC is not necessary. In Seattle, on 
the ground in the real world, they're arguing about the 
allocation of the PFC to a project because it will reduce their 
rates and charges.
    Senator Cantwell. Well, I have 11 seconds left. Well, I can 
wait and hear from the airlines. But, I do want to hear from 
them on what they say about this. But, I also want to make a 
point about----
    I think we need to dig into this issue overall. I really 
want to understand how all the revenue from the airports are 
generated. I really do have some concerns about the flying 
public, who basically get charged an exorbitant rate for a 
bottle of water, when they really want a different product.
    I do want to congratulate Sea-Tac for having, I think, been 
voted one of the healthier foods of the airport industry. And 
that's not just from me. I cringe when I see pilots, here at 
D.C. National, trying to find something that they want to eat. 
And I guarantee you, there's very little at National Airport 
that I want pilots eating, because it's high-fat-content fast 
food that is not what I really want pilots eating. So, I think 
there are a lot of issues about, what else can airports do in 
generating--you know, I mentioned Dubai, but I really do think 
that this issue about, what are the future partners for airport 
facilities to generate more revenue? Particularly now that 
consumers, because of safety have more time there.
    But, anyway, I want the airlines to comment about their--
this PFC issue. And I'm happy to wait for an answer, Madam 
Chair, on the next round, too. So----
    Senator Ayotte. OK. Why don't we--I know that Senator 
Wicker has to get going, so why----
    Senator Cantwell. Yes, fine.
    Senator Ayotte.--don't we go to him.
    Senator Cantwell. Thank you.
    Senator Ayotte. Thank you.

              STATEMENT OF HON. ROGER F. WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Wicker. Thank you.
    And thank you, gentlemen.
    Mr. Hauptli, I came here with hopes, in my 5 minutes, of 
talking about AIP, contract towers, and Passenger Facility 
Charges.
    Mr. Hauptli. Yes, on all three, Senator.
    [Laughter.]
    Senator Wicker. Yes. So, I'm glad the Chair, Senator 
Ayotte, covered the contract towers question. Let me just 
reiterate that, in the industry and in Congress, the Contract 
Tower Program is viewed as one of the most successful 
government-industry partnership programs. And, it's my 
understanding--and correct me if I'm wrong, sir--contract 
towers handle about 28 percent of all tower aircraft 
operations, but account for only about 14 percent of the 
spending.
    Mr. Hauptli. You're exactly right, Senator.
    Senator Wicker. Very good.
    Well, let's move on, then, since Senator Ayotte covered 
that, to the AIP program. The President proposes $2.9 billion 
for the next Fiscal Year, although there's a $3.2 billion AIP 
funding threshold. This would mean that all direct 
apportionments would be cut for nonprimary designated airports 
and entitlements to airport, with a primary designation being 
reduced drastically. In my state of Mississippi, only three of 
the 74 airports are designated as primary.
    So, what types of airports are most reliant on AIP funding? 
And what airports would stand to lose the most if AIP continues 
to be cut as the President has proposed? And how would small 
communities and nonprimary airports be affected by the 
administration's proposal?
    Mr. Hauptli. Right. Senator, thank you for the question.
    While airports of all sizes benefit from the Airport 
Improvement Program, certainly the smaller the airport, the 
greater the percentage reliance on that funding stream, that 
Federal funding stream represented through the AIP program. So, 
I'd say that virtually all of the airports in your State, 
Senator, would be jeopardized by the administration's proposed 
funding level of $2.9 billion, certainly without Congress 
stepping in to make an adjustment to deal with that threshold 
at $3.2 billion that you suggest, that you reference in your 
question.
    We believe that the AIP program, as I mentioned earlier, 
has according to the FAA nearly $7 billion in eligible 
projects, yet Congress is funding at closer to this $3 billion 
level. We believe that there is more than enough justification 
for a higher authorization level for the Passenger Facility 
Charge Program. This committee, in the previous FAA 
reauthorization bill, had a much higher authorization level for 
the program, and it got whittled down as that bill made its way 
through the final process. So, we would support very robust 
funding for AIP in the future to guarantee that revenue stream 
to protect the smaller airports in the country.
    Senator Wicker. As a matter of fact, our calculations are 
that we'd--would--96 percent of my airports in Mississippi 
would be disadvantaged under this proposal.
    Now, you said your answer to the PFC question would be yes. 
So, I've just got to learn to phrase it correctly----
    [Laughter.]
    Senator Wicker.--so it will be a question that I want to 
get a ``yes'' answer to.
    Mr. Hauptli. ``Should I vote for an increase in the 
Passenger Facility Charge?'' I think was your question.
    [Laughter.]
    Mr. Hauptli. The answer is yes, Senator.
    [Laughter.]
    Senator Wicker. Tell me again. Why--I think we understand 
why the larger airports are in favor of this--why are so many 
small and medium-sized airports with lower passenger volumes 
also interested in this issue?
    Mr. Hauptli. It's a great question. And it's, frankly, sort 
of counterintuitive. But----
    Senator Wicker. It is.
    Mr. Hauptli.--some of the biggest supporters of an increase 
here in modernizing this program come from some of the smallest 
airports. One reason is that in the last round of FAA 
reauthorization Congress agreed with an administration 
suggestion and lowered the percentage that the Federal 
Government would support in what the match would be for a 
smaller airport. In other words, airports--smallest airports 
now--instead of only having to come up with a 5-percent 
matching share requirement, are now required, under Federal 
law, to come up with 10 percent. And, as you know, Senator, in 
many small airports, many small communities, coming up with 
that increased local matching share is very challenging. An 
increase in the Passenger Facility Charge would allow those 
smaller airports to come up with that local matching share.
    Senator Wicker. So, that's one reason.
    Mr. Hauptli. Yes, sir.
    Another reason would be to increase the Passenger Facility 
Charge at the smaller airports, is that it is a necessary 
function for them in order to build some of these additional 
projects that the airlines wouldn't necessarily be supportive 
of. So, greater autonomy in deciding how and what gets built in 
their community. And again, Senator, our contention is that the 
unit of government closest to the people--the city councils, 
the mayors, the airport boards--are the ones who should be 
making this decision, not all of us here in Washington, D.C.
    Senator Wicker. Thank you.
    Thank you, Madam Chair.
    Senator Ayotte. Thank you, Senator Wicker.
    Senator Gardner.

                STATEMENT OF HON. CORY GARDNER, 
                   U.S. SENATOR FROM COLORADO

    Senator Gardner. Thank you, Madam Chair, for the hearing.
    And thanks, to the witnesses today, for your time and 
testimony.
    I just--I kind of want to follow up and just have a little 
bit of a discussion on the--this PFC issue and the negotiations 
that take place. And so, Mr. Hauptli, Mr. Reis, when you are 
negotiating with an air carrier to--airline--to have gates at 
your airport, you negotiate a set price or rate, right, for the 
use of that facility and that gate?
    Mr. Reis. Well, Senator, our airline agreement, like the 
vast majority, is a cost-based agreement. So, we, on an annual 
basis, calculate what we need to charge for gates, ticket 
counters, ramp space, et cetera, based on formulas that are in 
our airline agreement that define these, in our instance, for a 
5-year agreement; sometimes they're 7-, 10-, 20-year 
agreements. So----
    Senator Gardner. And does that vary by airline, if it's 5 
years or 3 years or 10 years? Does it vary by airline at the 
airport?
    Mr. Reis. No. We have an agreement that covers every single 
one of the signature airlines. So, there are some airlines who 
might fly once a day, might fly three times a week, with a 
single flight, who choose not to become a signatory to the 
agreement with the airport. But, we have 28 airlines who are 
signatories to our agreement. This includes, of course, all of 
the large airlines, but many ones who don't fly very much at 
all. And it's that agreement that defines the cost-based cost-
recovery rates for each of our facilities.
    Senator Gardner. So, would the PFC go into this discussion 
if it was a--you know, if the administration's proposal or 
other proposals were to go to $8, $8.50, would that be a part 
of the discussion, in terms of the rates that these--that they 
would pay? Would they ask for a lower rate, you would 
anticipate?
    Mr. Reis. Well, it would be an automatic part of the 
calculation, because a very, very large part of the cost-
recovery rate for all of our facilities is the cost of 
capital--paying back debt service for bonds, et cetera. And if 
we use a PFC to build some gates, or we use it to build a 
runway, we don't charge the airlines for that.
    For example, in 2008 we opened our third runway. It was 
about a 20-year project, most of which was permitting. Very--we 
built it pretty quickly once we got all the permits and the 
litigation overdue. And we have paid all of the debt service 
for that runway through PFCs. So, as a result, a brand-new 
runway that cost us a billion dollars to build, mostly because 
of the civil engineering in order to create the space to build 
the runway, the airlines do not pay a penny for. So, that's how 
the rates and charges--PFCs will play into the rates and 
charges.
    Senator Gardner. And so, I guess, Mr. Minerva, then if the 
rates--or PFC were to increase, would you be looking for 
something out of the airport to try to offset that--the PFC cap 
were to be lifted?
    Mr. Minerva. I think the way that Mr. Reis described it 
makes the most sense. And let me actually--about the leases--
and let me start from a ground zero. Because this is the way 
that airlines look at our airport leases.
    Airport leases are a way of allocating costs and revenues 
at the airport. And the revenues at the airport come from the 
airlines--the passengers, whether they're coming there to fly 
or they're parking, they're buying good, whatever. Those--
that--those are the sources of revenue. So, an airport will, 
basically, add up all of its costs, add up all of its revenues, 
and then the lease agreement determines how those things are 
allocated.
    Now, a lot of those costs--when an airport takes on an 
additional project or takes on additional cost--the burgers 
cost what the burgers cost, right? The parking costs what the 
parking costs. So, those things tend to sit at their level. Any 
additional costs tend to be incurred by the airlines. And a lot 
of that is cost of capital. So, if an airport goes out, sells 
bonds to fund a project, then the debt service goes into that 
stackup of costs, which is generally paid for by the airlines. 
In a PFC, the money comes out of our ticket. It's not free to 
us.
    Senator Gardner. Right.
    Mr. Minerva. The money comes out of the tickets that we 
sell. And it comes out of that source rather than out of--than 
being added to the stack of airport costs. So, it's really--
when you look at any new project, you say, well, some may be 
bond, some pay be PFCs. All may be bonds, all may be PFCs. It 
doesn't reduce the operating cost of the airport, it just is a 
separate funding stream.
    Senator Gardner. In terms of changes you would like to see, 
if PFC caps were to be lifted, what changes would you like to 
see in oversight, in involvement, more say in where money is 
spent?
    Mr. Minerva. I'm having trouble envisioning a world in 
which I'm living with a higher PFC, so the conditions that 
would apply in that world are a bit foreign to me. We don't 
think there is a problem that a higher PFC would solve. And we 
would urge the Committee to look closely at the examples of 
projects that are not being done. We're not really aware of--I 
mean, we have seen a list from the airports. Some of the list 
of projects on that list have already been done, some of them 
our airports have never even talked to us about. So, we think, 
really, the focus ought to be on what projects are not getting 
done and what projects are getting done.
    Senator Gardner. And so, that could be a change, even under 
existing PFCs. You're talking about concerns with what is being 
done at the existing rate it is. And that's one idea for 
additional involvement?
    Mr. Minerva. Well, we think that the current system drives 
a lot of airport and airline consensus. And one of the things 
you heard Mr. Hauptli say is that decisions should be made at 
the local level--we agree with that; by the airport directors--
we agree with that, in part. But, we think that it's best made 
in conjunction with the airlines so that the local officials, 
city, State, airport operator, working with the airlines. We 
don't think those decisions ought to be made unilaterally. 
Because, when you have projects of 700 million, a billion, $2 
billion, we think that you get better projects when the 
airports and the airlines work together. That's what's 
happening today.
    Senator Gardner. And, to the best of your knowledge, did 
the gyrocopter pay a PFC?
    [Laughter.]
    Senator Gardner. Thanks, Madam Chair.
    Senator Ayotte. Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Madam Chair.
    Thank you so much, all of you, for being here. Many of my 
colleagues remember the last FAA reauthorization bill and the 
tough issues. And, unfortunately, delays on coming to an 
agreement, as we all remember, led to 23 separate short-term 
extensions and a partial shutdown of the FAA. I remember how 
much that affected some of our smaller airports. And I really 
do not want that to happen again. So, I'm going to start with 
that.
    I know that many in the aviation issues have--industry have 
issues that they'd like to see addressed this year, but I also 
think we need to stress that we need more certainty provided by 
a long-term reauthorization bill. Even the last reauthorization 
caused some uncertainty for our airports.
    Mr. Reis, how important is a long-term reauthorization in 
planning for the future for airport investments?
    Mr. Reis. Well, you've raised a very good and very hot 
issue, in many ways. Certainly, the reality that the FAA faced 
in that period of time when we had the succession of 6-month 
extensions, 3-month extension, 2-week extensions, was quite 
unnerving. They could not issue grants, because they really 
didn't know how much money they would really have for the 
entire year. So, it was--especially for small airports that 
need grants and need them on an annual basis, it really 
required them to delay projects and, in some instances, lose an 
entire construction season because the FAA could not make a 
grant, even though both the FAA airports office and the airport 
understood that it was programmed, because they technically did 
not have a commitment of the money. In some instances, those 
projects actually delayed through a summer and into the next 
construction season.
    Senator Klobuchar. OK, thank you. I know there has been a 
number of discussions related to reforming the air traffic 
control system in the FAA reauthorization. I know we're going 
to have a more detailed hearing on that later. But, I'd like to 
get the airport perspective on the proposals that would put the 
Airport Improvement Program into discretionary funds and remove 
it from the trust fund. Maybe, Mr. Hauptli, if you want to take 
that. Can you please share your thoughts on what this would do 
to the program?
    Mr. Hauptli. Sure. Thank you, Senator. Great question, very 
topical question, and an item of significant concern for the 
airports.
    We want to make sure, in whatever goes forward with air 
traffic control modernization, that the AIP, the Airport 
Improvement Program, piece of it remain within the Aviation 
Trust Fund. We need that predictable, stable funding stream 
that is supported by the users of the system rather than 
subject AIP funding to the vagaries of the Federal budget 
process and general revenues.
    Senator Klobuchar. Very good. Thank you. I like that term, 
``vagaries.'' That would be correct.
    Dr. Dillingham, our Nation's airports are located in small 
rural areas, as well as big ones. We have a big hub that we're 
proud of in Minneapolis and St. Paul, a little like Newark. 
Maybe not quite as big.
    [Laughter.]
    Senator Klobuchar. But, we also have a lot of small rural 
airports. And the Small Community Air Development Grant Program 
and the Essential Air Service are crucial to keeping these 
rural areas thriving and connected to the rest of the world. 
What, if any, steps has GAO indicated can be taken to address 
these--some of the issues we've--having at the smaller 
airports? And, you know, what do you think we need to do to 
keep these routes strong?
    Dr. Dillingham. Thank you, Senator, for the question.
    Yes, GAO has looked at both the EAS program and the Small 
Community Development Program. We have recommended that the 
Congress may want to look at extending the eligibility for the 
Small Community Development Program. We've also said, in fact, 
that the EAS program, although controversial, is necessary for 
some small rural communities. We also recommended--when we did 
our work, a couple of years ago, that we should be also 
thinking intermodally. And, by that, I mean----
    Senator Klobuchar. The hub, the--uh-huh.
    Dr. Dillingham. Right, exactly. But, also the--to the 
extent that it is--it makes sense, you could think about 
whether there's a bus link to a bigger hub or a close hub, or 
even an air taxi to a hub. So, you know, all of our work has 
suggested that we have a national system and we need to have 
that national system connected by the most efficient means that 
are available.
    Senator Klobuchar. Very good.
    Last--I'll just put this on the record--but, in the last 
FAA reauthorization, I made sure to include the language, in 
Section 154, that required the FAA to give processing priority 
to airport construction projects carried out in states where 
the weather during a typical year prevents construction 
projects from being carried out before May 1, like states like 
mine, where, as I noted at our weather hearing yesterday, it 
was 41 below zero, without windchill, and embarrassed Minnesota 
one day last month. But, the point is, is that I think that's 
been helpful. And I guess I'll put that on the record for you, 
Mr. Hauptli, to give those states some priority when they 
have--during those construction seasons.
    Mr. Hauptli. Right. And I would just add, very briefly, 
Senator, I was in the great state of Minnesota on Tuesday, 
meeting with the great airport director, Jeff Hamiel at 
Minneapolis, and there were snow flurries----
    Senator Klobuchar. Yes, OK, thank you.
    Mr. Hauptli.--on Tuesday.
    Senator Klobuchar. Thank you for backing that up. And we 
will put----
    Mr. Hauptli. So, it backs your point.
    Senator Klobuchar.--we will put that on the record, despite 
the fact that Senator Sullivan claims that Alaska is colder. 
That is just not true.
    [Laughter.]
    Senator Klobuchar. All right. Thank you very much.
    Senator Ayotte. Senator Booker.

                STATEMENT OF HON. CORY BOOKER, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Booker. Jumping in real quick. And thank you, 
Chairwoman.
    We've got a problem in our region. You know, we have, 
serving New Jersey, the busiest airports in America. At least 
four of the five airports in the United States, the FAA has 
already identified four of the five Jersey-serving airports--
or, four of the five busiest airports are Jersey-serving 
airports that the FAA has identified as capacity-constrained 
all the way through 2030. There's congestion, there's demand, 
and it's such a critical area of our global and national 
economy. To me, it's just unacceptable that the three airports 
in the New York/New Jersey region, or, as I like to call it, 
the New Jersey/New York region----
    [Laughter.]
    Senator Booker.--are ranked--they're ranked on the bottom 
of all on-time arrivals because of these problems.
    There's an urgent need to invest in New Jersey's airports. 
A report last year showed that we're ranked last--last in the 
50 states--in the amount of Federal airport improvement grants 
we receive per passenger. We need to invest more in this 
infrastructure. And it's frustrating to me to see that we're 
not in some way keeping up. And so, I'm eager to work with 
everybody--a lot of my friends in the airlines, in the 
airports, and the FAA--see if we can come together to figure 
out how to deal with this specific regional crisis.
    I do want to explore more--and we don't have the time 
here--a lot of the different views I'm seeing on some of these 
issues. But, just really quick, Mr. Hauptli, over the last four 
decades, investments in our airports have not kept pace with 
what's needed, as I've just described. And I'm curious, are 
there some investments that should be being made in our region 
that could really help with airport capacity and the increased 
on-time arrivals?
    Mr. Hauptli. Absolutely, Senator. And thank you for the 
question.
    Just as an observation, in your region, in the aftermath of 
the superstorm, you know, we saw pictures and video of runways 
under water. The Port Authority of New York and New Jersey has 
undertaken a very significant project to both expand runways at 
JFK, widen them, and then also raise them so that we don't have 
this safety concern in the future. Passenger Facility Charges 
are a vital element in that project, going forward.
    Senator Booker. Right. I'm sorry, did you want to--Ms. 
Pinkerton?
    Ms. Pinkerton. Yes, we completely agree that the airports 
in New Jersey and New York are critical. I know United is 
working closely with the airport there to pursue improvements 
at Newark. I also think that there--is a lot to know--the Vice 
President has cited LaGuardia's central business terminal as an 
example. And we support that need. I think, unfortunately, 
what's holding back some of these projects, and that project in 
particular, the Governor decided that he wanted to wait to pick 
a public/private partner in LaGuardia. So, there's private 
money that's begging to get into LaGuardia, but, because they 
have to wait for this redesign competition to be done, that 
project has been delayed yet again.
    I think another thing that's unique about New York, but 
there are also other projects that fall into this category, a 
series of airports exist today that are called ``revenue 
diversion airports.'' And under that scheme, there's about--
almost $430 million every year that goes off of the airport--
airport revenue that goes off of the airport.
    So, I mean, what we've tried to lay out here today, 
Senator, is, we want JFK, Newark, and LaGuardia to be 
modernized, and we're standing ready, willing, and able. The 
question here is, Do you want to raise the rate base, which 
airlines are saying we're ready to do that, or do you want to 
increase taxes? And so, we think there are a lot of other 
issues--I agree with Senator Cantwell----
    Senator Booker. Well, that's the picture--if I can, just to 
get out my last question--I mean, that's the picture--
everybody's identifying the urgency. We're spending less in 
Fiscal Year 2015 on airport improvement investments than we 
were in 2007. My frustration is, is that the money does not 
seem to be getting to where we need it. And is the question 
that we need to raise the fees or do we need to better allocate 
the dollars that we have? And I see, Mr. Minerva, you referred 
to that, as well.
    So, I just want to--just let me end with this. You know, 
there's a dramatically growing number of passengers, and we see 
that, the volume continuing to grow. I'm worried that we get 
the least percentage of AIP per-passenger funds. As I look at 
the allocation of those dollars nationally, in New Jersey, 
we're really at the bottom. And so, really quickly, in the 
seconds I have left, we know we haven't even--the PFC, there 
are a lot of calls for it to be adjusted to inflation. There's 
debates back and forth whether we have enough money, or not. 
But--so, Ms. Pinkerton, let me just end with you. What steps 
are airlines taking to ensure the proper investment in our 
airport infrastructure in order to allow for the growing 
demand, and especially in the highly congested hubs? And again, 
I need to----
    Ms. Pinkerton. Yes.
    Senator Booker.--explore this more, but----
    Ms. Pinkerton. Well, I think you've raised an interesting 
question about how AIP is allocated. And I think what you heard 
Dr. Dillingham say--right now, AIP, there's no doubt about it, 
the vast majority of AIP goes to small and non-hub airports. In 
fact, $1.8 billion, or 55 percent, of AIP goes to airports that 
support 3 percent of passenger traffic. Now, a lot of that is 
because the GA airports are getting a tremendous amount of 
money. So, it's a balance, because I've heard a lot of other 
folks on the Committee today say they want that money to go to 
small communities. And I understand that.
    So, what are we doing? We're investing our own money in 
these airports. I mentioned earlier, JFK, you've got JetBlue's 
terminal 5, Delta's terminal 4, Newark, as well, is an example. 
So, we are literally--not just PFCs, not just AIP, but we are 
putting our own money in these airports. And we're committed.
    Senator Booker. OK, thank you.
    Thank you.
    Senator Ayotte. Senator Schatz.

                STATEMENT OF HON. BRIAN SCHATZ, 
                    U.S. SENATOR FROM HAWAII

    Senator Schatz. Thank you very much.
    I have a question for the panel. The Commerce Department 
has an ambitious but reachable goal of attracting 100 million 
international visitors by 2021. It's supported by the private 
sector, State and local tourism authorities. But, a potential 
chokepoint is the airports, themselves. A recent U.S. travel 
survey estimates that, within the next 6 years, the top 30 U.S. 
airports will experience Thanksgiving-like congestion at least 
once a week. Not the most welcoming impression for our 
international visitors. One study estimates that the U.S. 
economy will lose 48 billion a year in lost travel spending by 
the year 2034 because of capacity constraints. With 
international travel expected to increase by more than 2 
percent each year, we've got to make sure that our airport 
infrastructure is up to the task.
    So, the question for the panel is, What infrastructure 
improvements do we need to make to ensure that our airports are 
globally competitive and that we can meet our ambitious but 
reachable goal? And I'll start with Dr. Dillingham.
    Dr. Dillingham. Thank you, Senator.
    I think one of the most important things that we need to 
focus on is the implementation of the NextGen, the next-
generation air transportation system, and all of the 
capabilities which that is forecasted to bring, in terms of 
increasing the efficiency and capacity at the airports as well 
as in the air. That would be the number-one suggestion that we 
would make, to make the U.S., and keep the U.S., competitive in 
international travel.
    Senator Schatz. Thank you.
    Ms. Pinkerton. Yes, thank you, Senator.
    I've worked very closely with the White House and DHS on 
that travel and tourism initiative. Frankly, our focus has been 
on what we think is the real chokepoint--Customs lines have 
been extraordinary long. We face three and four hour waits. 
Again, airlines have taken it upon themselves to spend their 
own money, through rates and charges, on what are called APC 
kiosks, so that now, when people are coming into JFK, the lines 
are much shorter. Miami's been another focus for us. So, I 
think we need to continue to work on that entry process and 
also continue to work on the infrastructure at those gateway 
airports, which, again, we are investing our own money, and 
we're committed to continue to do that.
    Senator Schatz. Before we move on, I agree with you about 
Customs and Border Protection, and I agree that that's 
currently the--likely the rate-limiting factor for a lot of our 
international arrivals. And I also understand that the--a fair 
amount of progress has been made--consular offices and 
everybody else is working on this, and progress is being made. 
But, it is a question of physical infrastructure, as well. And 
so, to me, part of working the strategy is to understand that, 
as we improve CBP, that we will then find ourselves with the 
infrastructure being the problem. And the problem with 
infrastructure needs is that you cannot make operational 
changes that will overcome a lack of planning or a lack of 
funding. In other words, they will be upon us, and we'll be 5, 
10 years behind the eight ball. Whereas, some relatively 
simple, you know, executive branch changes made a real 
difference.
    So, I just wanted to say, I think you're right. I think the 
administration has done the right thing here. But, from a long-
term infrastructure planning standpoint, we've got to get on 
the physical aspects of the airports if we really want to reach 
100 million international visitors.
    Mr. Minerva. Senator, we certainly agree with that. And I 
think one way to look at this--the way that the airlines, and I 
would say the airports, tend to look at it is less on a 
national basis and more on an airport-by-airport basis and 
looking what each--at each airport needs, see an expansion of 
the Tom Bradley International Terminal in Los Angeles, a recent 
North Terminal in Miami. Mr. Reis talked about his facility, 
which, you know, we have a different view on, in terms of the 
funding question there, where there are six funding options, 
and there's a disagreement as to which funding option. Not 
every airport has six funding options. But, Sea-Tac was able to 
lay out six separate ideas. And so, right now you're sort of in 
the middle of the--it can be a rough-and-tumble world out there 
between the airlines at airports. And the airlines disagree on 
which of the six to fund. But, it's--there's no lack of funding 
and no need for a higher PFC there.
    So it really is something where we look at each airport and 
try to figure out what the growth at that airport will be, and 
how to handle it. Because those passengers, when they start 
clicking on the Website to the time they finish their final 
journey, they've paid us for that journey, and they hold us 
responsible for every bad thing that happens on that journey, 
whether it's a line in immigration or at TSA and things that we 
don't have as much control over.
    Senator Schatz. I'll take the rest of the answers for the 
record.
    But, I did want to mention, Mr. Hauptli, if you wouldn't 
mind taking a question for the record. I'm deeply passionate 
about Essential Air Service. It's especially important in an 
island State. We're the most isolated populated place on the 
planet, and we really depend on Essential Air Service, and want 
to make sure that, from an appropriations standpoint, an 
authorization standpoint, that we continue to be supportive.
    I'm sorry, my time is expired.
    Mr. Hauptli. Senator, I will take that for the record. And 
I just wanted to very quickly echo what you said about----
    Senator Schatz. With the Chair's permission.
    Mr. Hauptli.--physical--Ma'am?--physical infrastructure, 
very quickly. I just wanted to compliment you, Senator, and 
your staff. You talked about the limiters on international 
arrivals. In Hawaii, one of the big limiters is the fact that 
there's only a single point of entry: Honolulu. You and your 
staff have worked very hard with the Hawaii Department of 
Transportation, working with CBP, to try and get them to open 
up a facility in Kona. That will make a huge difference in your 
State.
    Senator Schatz. Thank you. That was definitely worth the 
time. I appreciate it.
    [Laughter.]
    Senator Ayotte. I'm glad.
    Senator Sullivan.

                STATEMENT OF HON. DAN SULLIVAN, 
                    U.S. SENATOR FROM ALASKA

    Senator Sullivan. Thank you, Madam Chair.
    And I actually want to also encourage you to continue your 
focus on Essential Air Service. The great state of Alaska and 
the great state of Hawaii have a lot in common on a whole host 
of issues, despite our size differences.
    And I also, Madam Chair, want to mention what--Senator 
Klobuchar, what she mentioned. I did mention that, every day--
you know, 41 below zero, yesterday in our hearing, when we were 
talking about that, is kind of just another day in Alaska. But, 
the issue, seriously, of shorter construction seasons in 
certain states is a very important one for a lot of us, 
including my state.
    I wanted to talk about another topic that I think, in my 
view, holds a lot of risk for aviation infrastructure. I 
recently had the opportunity to speak at a conference about 
some of the biggest risks and threats to energy infrastructure 
in the United States. And some of the panelists were talking 
about terrorists and cyber attacks and things like this. My 
view is that the--some of the risks are a lot closer to home, 
particularly our own Federal Government. And whenever we talk 
about financing, in infrastructure, I think a lot of times we 
forget about just the mountains of red tape that have been 
piled up, year after year. We see it. We see it everywhere. 
Keystone, 6 years. We can't even move that. We--we're not even 
close. In Alaska, between litigation and permitting from the 
Federal Government, we had a mine that took 20 years to permit. 
I think, on average now, it takes 8 years to permit a bridge in 
America. These numbers are ridiculous, and they add huge costs 
to infrastructure.
    I'm wondering if any of you would like to comment on that. 
I fear that this kind of regulatory redtape--we're always 
looking for more dollars, but we're not always looking for ways 
to make our own permitting system more efficient, timely, and 
certain.
    Would any of you like to comment on that? Because I think 
it's a huge overlooked issue. And if you have recommendations 
on how we can do that better--we have to do it better. In every 
infrastructure area, particularly yours, if you have comments 
or suggestions, I would welcome those.
    Mr. Hauptli. Senator, it's a great question. And we are 
constantly looking for opportunities to streamline some of the 
regulatory process, whether that is environmental reviews----
    Senator Sullivan. But, they only grow. They only grow----
    Mr. Hauptli. They only grow.
    Senator Sullivan.--coming out of Washington.
    Mr. Hauptli. My colleague to my left, Mr. Reis, runs the 
Seattle airport. As he mentioned earlier, they opened a new 
runway in 2008. What he didn't mention is that they built the 
great pyramids of Egypt faster than they built that runway. It 
took longer to build that runway than the great pyramids of 
Egypt. And that's----
    Senator Sullivan. How many years from the beginning of 
permitting to end of construction?
    Mr. Reis. Well, I will clarify. It only took us about three 
and a half years, 4 years, to build it. It took about 15 years 
to get through the permitting and the litigation.
    Senator Sullivan. Fifteen years. Do you think that added a 
few dollars to the project?
    Mr. Reis. Now, some of the----
    Senator Sullivan. Did that add a few dollars to the 
project?
    Mr. Reis. There's just--well, it certainly added some 
dollars to the project, and there were certainly outcomes of 
the regulatory process, the environmental review, that were 
meritorious. And so, the issue was--is not, ``Should or 
shouldn't these''----
    Senator Sullivan. No, nobody wants to cut corners, but--on 
the environment, on protecting the environment--but nobody 
wants 15 years for a permitting process.
    Mr. Reis. That's----
    Senator Sullivan. It's lunacy.
    Mr. Reis. That's the exact point I was going to make, is 
that it's not so much the substance of the outcome, but the 
process to get to that outcome, that really was very 
debilitating to the----
    Senator Sullivan. Well----
    Mr. Reis.--to the cost.
    Senator Sullivan.--we would welcome any very specific 
recommendations that you have with regard to this issue. I 
think it's an enormous issue, and we always--we just add more.
    Let me give you one example. Mr. Reis, Mr. Hauptli, you--in 
the testimony or statements that you put forward--or the--from 
the North American Airports Council International on the 
proposed rule for the waters of the United States from the EPA, 
that testimony, Madam Chair, which I'd like to have submitted 
for the record, states that that rule will pose a significant 
regulatory threat to ongoing airport construction, compliance 
with certain Federal aviation safety requirements. It will have 
significant impacts on the time required, cost of, and 
construction of the projects.
    Can you--would you care to comment on that rule, 
specifically?
    Mr. Reis. I would ask, Senator, if we could submit a 
response for the record, because I'm not personally that 
familiar with the details. But, I will ask the Airport Council 
International staff to provide me some information that I can 
put in the record for you.
    Senator Sullivan. Great.
    Thank you, Madam Chair.
    Mr. Minerva. Senator, if I may add. This is an area where 
the airports and the airlines really agree. It's a common 
frustration we share. When I talked about how long these 
projects take, it's not for failure of execution on the part of 
the airports, it is just how long it takes even to get started 
when we all agree and we're ready to go and the money is there, 
and we wait.
    Senator Sullivan. Well, we really, really need your 
detailed, detailed comments on how to fix it. We will work to 
fix it.
    Thank you.
    Senator Ayotte. Thank you, Senator Sullivan. I think you 
made some very good points about how we could improve the 
system for everyone. So, it--we'd look forward to those 
comments as we go through the authorization.
    And I would like to turn it back to my Ranking Member, 
Senator Cantwell.
    Senator Cantwell. Thank you, Madam Chair.
    So, I want to go back to this infrastructure funding 
question, and give the airlines a chance to talk about that.
    You started, Ms. Pinkerton, talking about the rate base as 
a different alternative. I look at this--the whole question and 
think mostly about our constituents and the consumer, because 
they're the one who's ultimately paying for all of this, as Mr. 
Minerva said, in the purchase of an airline ticket or in the 
PFC charge, itself, or going to the facility. So, what is it 
you would prefer instead?
    Ms. Pinkerton. Yes. As I said earlier, I think what this 
boils down to is a choice, frankly, between forcing the 
passenger to pay on the ticket, which I do think has a 
disproportionate impact on small communities because of the 
connections, or putting it in the rate base and having airlines 
pay. And some people say we pass everything on to consumers. 
That's not exactly true. I mean, if we passed everything on to 
consumers, we would have never lost the $50 billion that we 
lost, a decade ago.
    Senator Cantwell. So, you're saying you--the exorbitant 
amount of fuel cost increase, you didn't pass on to consumers, 
and you made--airlines made other choices about how to deal 
with that, right?
    Ms. Pinkerton. Yes. Absolutely. And that's what resulted in 
the losses. And so, thank goodness that's turned around a bit. 
In 2014, we made four and a half cents on the dollar. And the 
good thing about carriers being able to make modest margins is, 
we turn around--we bought--we've got $100 billion worth of 
planes on order right now. That's good for customers, more 
environmentally friendly, and we're reinvesting back into 
airports.
    Again, I want to stress, the international facility in 
Seattle is going to get built. All of these projects are going 
forward within existing resources. Some are being paid with 
PFCs, some are being paid with AIP. And, because of airports' 
incredible investment-grade credit ratings, they've got cheap 
access to bonds. We simply don't see the need to increase 
taxes. We think it is a choice: either have carriers pay for it 
or have the consumer pay for it. Also, like United Travelers, 
consumer groups have come out and opposed a PFC increase.
    Senator Cantwell. Mr. Reis or others, do you have a comment 
about that?
    Mr. Reis. Well, I think that it's, frankly and 
respectfully, a little disingenuous to say that the airlines do 
not pass costs on to the consumers. As I said, the airfare in 
Seattle grew by 27 percent in the last 5 years. And, of course, 
we all know the long litany of change fees, reservation fees, 
seat fees, food fees, and bag fees that the airlines have 
added. So, if someone did an objective analysis of the 
additional average incremental cost to the consumers over a 5-
year, 10-year period, you would find a very large number of--
associated with the increased cost to the consumer. So, to say 
that a $4 increase in the PFC per segment is going to have a 
very deleterious effect upon the American public is just, 
frankly, not looking objectively at the data of the costs to 
the American public of flying over the last 10 years.
    So, then the question comes, if the airlines are saying 
they want to put this in the rate base, as opposed to the PFC--
and, as I said earlier, the entire billion-dollar runway at 
Sea-Tac Airport, the airlines are not paying any amount of, 
because it's in--been paid for by PFCs--then I think it really 
comes down to control. As Ms. Pinkerton said, and Mr. Minerva 
said, the international arrivals facility is a facility at Sea-
Tac that everybody involved believes should go forward. It's 
not a question of whether we desperately need it. It really 
comes down to who gets to make the decision on how we're going 
to finance it. Should the Port of Seattle Commission, elected 
by the people in King County, make that decision, or should the 
airlines make that decision? And our view is that there are 
certain decisions that should be made by the local government, 
by allocating funding sources appropriately, following our 
airline agreement. And the airlines are disagreeing, and they 
want more PFCs into that facility. So, it's----
    Senator Cantwell. Well, what's----
    Mr. Reis.--really all about control.
    Senator Cantwell.--what about the rate base don't you like? 
Because, obviously, Ms. Pinkerton brought something up that I 
think is a valid point about--connecter flights obviously would 
be paying more. So, if you're just by the nature of Washington, 
a lot of connections through Sea-Tac and you're paying a ticket 
tax from Spokane to Sea-Tac and then Sea-Tac to L.A.--and, of 
course, we're trying to improve that with more direct flights 
and things of that nature--but, you know, you've got a lot of 
people, if you're in those--if you're a connecter, then you're 
paying twice. Is that your--that was your point, right, Ms.----
    Ms. Pinkerton. Yes.
    Senator Cantwell.--Pinkerton? So--but, there may be some 
aversion to the rate base here that I'm not understanding.
    Mr. Reis. Well, again, if I had to fly with a one-stop 
flight to D.C. here yesterday, instead of flying nonstop, I--my 
ticket would have included--if the Congress would increase the 
PFC to $8.50, as we suggest, my ticket would have included an 
$8 increase in PFCs, as opposed to $4 on a nonstop flight. That 
still pales in comparison to the increased costs that the 
airlines are imposing on their passengers.
    So, yes, it would be--an effect upon the passenger would be 
greater, because there would be on--two stops--or one stop and 
two segments fees from the PFC. But, ultimately, the facilities 
need to get built. And, while the airlines can point to many 
examples where the airlines and the airports work together to 
approve a facility, we can find plenty of examples where the 
airlines are resisting the airport putting things into their 
rate base. And, because they have a--an airline agreement that 
allows them to veto, in some instances, those projects, some of 
those projects are not getting done.
    So, it varies by facility, it varies by airport. But, 
ultimately, with an increased PFC, something that would just 
give us back the spending power we had in 2000, then local 
governing boards would have a tool. They don't have to raise 
the PFC. They would have the ability to choose to do so, and--
because they determine that it was the most cost-effective way 
to fund a project.
    Senator Cantwell. Well, I see that I'm over my time again, 
and yet still have more to discuss here, but I want to turn it 
back to the Chair. And I see our colleague is here.
    Senator Ayotte. Thank you.
    Senator Blumenthal.

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thank you, Madam Chairman.
    Unlike some other means of raising resources, the money 
that airlines earn on ticket fares, the monies that airlines 
recoup from ancillary costs, like baggage fees, is not subject 
to Federal excise taxes, which means that the Federal 
Government is, in effect, losing out on hundreds of millions of 
dollars in revenue that could go to our airports and improving 
their economic contribution to the Nation. I don't need to 
belabor the point that has been made by many of my colleagues 
about the lagging investment in our air infrastructure. But, 
shouldn't there be Federal excise taxes on funds that are 
raised from bag-checking and all these other ancillary fees? 
I'll open that to any of the members of----
    Mr. Hauptli. Senator, I completely agree with you on that 
point. And the AAAE Board of Directors, 2 years ago, passed a 
policy position that those fees should be subject to the excise 
taxes. The airlines, since 2008, have collected $20 billion in 
baggage fees that have not been subject to taxes. If those fees 
had been subject to the excise tax, that would have represented 
$1.5 billion additionally that could have been used for Next-
Gen advancements, and infrastructure advancements throughout 
the country. We think that is a very clear-cut case that those 
bag fees and ancillary fees should, in fact, be subject to the 
tax.
    Senator Blumenthal. What year was that?
    Mr. Hauptli. From 2008 until last year.
    Senator Blumenthal. And----
    Mr. Hauptli. And, Senator, the airline----
    Senator Blumenthal.--those numbers would hold true for 
subsequent years?
    Mr. Hauptli. Yes. In fact, last year, the airlines 
collected more in bag fees than the Federal Government funded 
for Airport Improvement Program projects.
    Ms. Pinkerton. So, if I can respond, I think it's 
unfortunate that the airport community chooses to tax bag fees, 
as opposed to talking about what we're trying to talk about at 
this hearing, which is to get needed projects done.
    Senator Blumenthal. Did you say ``attack'' bag fees?
    Ms. Pinkerton. Well, I'm saying that Mr. Hauptli is 
supporting taxing bag fees.
    Senator Blumenthal. OK.
    Ms. Pinkerton. What we have going on in aviation resources, 
unlike what's happening in the Highway Trust Fund--I know you 
work on that a lot--which is bankrupt and needs to be 
replenished, we're at all time record highs of revenue in the 
Aviation Trust Fund--$13.6 billion last year. The Aviation 
Trust Fund has $6 billion in cash sitting in the bank that's 
unobligated right now.
    You know, I could talk about the airport's ancillary 
charges on food and whether or not that should be taxed. But, 
the fact of the matter is, we don't have a revenue problem. 
Fortunately--and we are committed to moving forward on these 
airport projects that need to be done within existing 
resources. So, additional taxes, either on airports or 
airlines, simply aren't needed.
    Senator Blumenthal. I'm not sure I understand. You're 
saying, basically, no new money is necessary.
    Ms. Pinkerton. Existing resources--when you look at the $11 
billion that the airports have in the bank, the $6 billion 
that's sitting in the Trust Fund now, they had record revenues 
from concessions this year, and every airport, unlike airlines, 
has the ability to obtain cheap financing on the bond market. 
Airport projects have always been primarily funded through 
bonding. It makes sense. You've got a project with a useful 
life of 20, 30, and 40 years, and you want to spread the cost 
of that over the life of the useful asset.
    So, as I said, this comes down to, Do you want to increase 
the cost of travel, which I think negatively impacts small 
communities, or have it go into the rate base, which airlines 
are saying, ``Yes, we're willing to pay''?
    Senator Blumenthal. Well, let me ask you, because my time 
is going to expire shortly. Wouldn't the fees, themselves, be 
reduced, as has been the experience with the base ticket fares, 
if this tax were imposed, and thereby improve the travel 
experience, but also provide an additional source of revenue 
for infrastructure?
    Ms. Pinkerton. Well, again, we don't need an additional 
source of revenue, since there are so many robust and plentiful 
resources of revenues that are out there right now. And, 
frankly, I don't think that adding a tax to a bag fee is going 
to reduce the cost of travel--it's just going to increase the 
cost.
    Mr. Hauptli. Senator, there's a short answer to your 
question. And it's yes.
    Ms. Pinkerton. And one other thing, just for the record. I 
noticed, when Senator Daines asked Mr. Hauptli for an example 
of an airport project that wasn't moving forward because it 
didn't have an extra PFC increase, there hasn't been a 
response.
    Senator Blumenthal. Any other members of the panel want to 
weigh in on this?
    Mr. Reis. Senator, I would like to address the assertion 
that airports have this very large pot of cash available on our 
balance sheets, and that that could be used for funding 
projects. A number of years ago, post-9/11, the airlines were 
in deep trouble, and the airlines were looking to airports to 
do everything we could to reduce their rates and charges. At 
Sea-Tac--and this was replicated at airports around the 
country--we looked at the way we charge airlines for our use of 
capital, and changed it dramatically. We changed it so that, 
rather than charging the airlines a non-cash expense, basically 
coverage on our bond debt service in order to have the cushion 
that the rating agencies wanted us to have to ensure that we 
had enough resources to pay back the debt, we eliminated that 
for the airlines and, instead, retained a higher amount of cash 
because it was a cheaper way for us to have the security we 
needed for issuing bonds, and didn't cost the airlines 
anything. So, it dramatically reduced the airlines' rates and 
charges when we made that change, a reduction that remains 
today. But, the costs for us, of being able to do that, and 
retain the very good bond rating that Ms. Pinkerton continues 
to underline, is, we had to have higher levels of cash on our 
balance sheet. That was the security. So, we're using balance 
sheet security instead of income statement security to 
dramatically reduce the airlines' rates and charges, but it is 
what is behind our high bond rating.
    So, on one hand, Ms. Pinkerton really wants to underline 
how valuable our high bond ratings are and, thus, our low-cost 
capital. And she's absolutely correct. But, on the other hand 
she's saying we should spend down the cash that is on the 
airport balance sheets that makes it possible for us to have 
those low--or those very good bond ratings.
    Senator Blumenthal. Mr. Minerva, I'd be interested in your 
point of view in representing the airlines.
    Mr. Minerva. Absolutely, thank you.
    I think, you know, the airlines are not necessarily--and, 
in most cases, are not--asking airports to spend down their 
cash. There's a great range of days of cash on hand across 
airports. We think some have too many. But, that's not--but, 
for the most part, it's very rare that we go to an airport and 
say, ``Spend your cash.'' We will ask an airport to fund a 
project through bonds. And we will pay the debt service on 
those bonds. And what happens out there in the airports, you 
have projects--sometimes the airport brings them forward, 
sometimes the airline brings them forward. You have sort of a 
slow conversation, ``You know, in a couple of years, we might 
need something here.'' The airport and the airlines talk 
together. First, we agree on the wisdom, the scope, the pace of 
the project, and then we turn to the financing and we go for 
whatever sources are available. The primary source is airport 
bond funds. And we tell our airports that we support a project, 
we pay the bonds. And that's what happens out there almost all 
of the time.
    A lot of the disagreements that you hear at this table just 
are not reflected. In fact, I think when Mr. Reis talks about 
his airport and the things they did after 9/11, that's a great 
example of how airports and airlines have worked together. And 
we continue to work together. And that's what I see every day 
in the airports that I deal with the most and the airports that 
we have at American. Those things get done. And there's a very 
positive relationship between airports and airlines. We 
consider ourselves business partners. We're part of the 
communities we serve. And so, a lot of these things about bag 
fees and inflation indexing, that's not what we talk about out 
there when we get these projects done.
    Senator Ayotte. I want to make sure that we can--so, we're 
4 minutes over, and I know that Senator Cantwell has some 
follow-up, and----
    Senator Blumenthal. Thank you.
    Senator Ayotte.--so, appreciate it. So, I want to make sure 
I can get to Senator Cantwell. So----
    Well, we're going to have a vote called soon, too----
    Senator Cantwell. Yes.
    Senator Ayotte.--and then--I won't leave without to you, 
Dr. Dillingham.
    Senator Cantwell. Yes. I know people want to wrap up. I 
want to round out this discussion about this very important 
subject. And I think it's good that you're all being 
forthcoming about this, because I think it's going to help us 
get to where we ultimately need to get to.
    But--and I do want to thank Dr. Dillingham, too. I really 
appreciate--I feel like you're one of the most tech-savvy 
people I've met at GAO, the fact that you were talking about 
where we need to go with UAVs, and now you're making the point 
that we're going to get these huge savings out of Next Gen, and 
that's what we ought to be thinking about--very, very helpful. 
So, thank you for understanding the technology and where 
aviation is going.
    To this issue, I feel that airports are stewards of our 
economy. They represent a economic tool. Mr. Reis has to be 
accountable to a board of commissioners. And those 
commissioners have to be accountable to the public. And the 
public, I'm sure, eats up a lot of Mr. Reis's time about what 
it is--to my colleague from Alaska, I guarantee you there are a 
lot of neighborhoods that like to have a say about things, 
particularly noise and other things. Part of the process. But, 
on this issue, Mr. Reis has to look--or airports, in general--
globally about the economic development tool that an airport 
represents. So, he has to plan for that. And if he has to plan 
for that, and, every time he has to plan for that, he has to go 
out for rate-based conclusion from the airlines about what 
you're willing to do in a negotiation to pay for that 
infrastructure, he doesn't have all the tools--I'm assuming 
that this is why they probably prefer the PFC, because it gives 
them that ability to then look at that resource.
    But, I think this is a very important issue, in general. 
So, I feel the competition from the airlines and what we're 
seeing on the international front. We have to do a better job 
of--I think, on our Open Skies policy, in making sure that U.S. 
carriers get a fair shake. I also think that airports across 
America, who now all of a sudden no longer have wide-body 
service or single aisle service--they've got regional jets, and 
yet their huge infrastructures, like Pittsburgh--these cities 
are without an economic development tool.
    So, I don't know, Mr. Reis, if you want to comment on that, 
but I have a feeling that one of the reasons you prefer a 
different mechanism is because you do have to plan. So, while 
the airlines might even be arguing with each other over routes 
and slots and all these other things, your day-to-day job is to 
plan for that economic commerce and expansion and serving the 
public. And it is a broader view, and it must become 
challenging, at times, then trying to figure out how to get 
cooperation from a bunch of airlines that are generally working 
together, but oftentimes also competing.
    Mr. Reis. Well, you're absolutely correct. And, in the one 
project that I've mentioned several times, we have a profound 
disagreement among the airlines about how we should fund it. 
And----
    Senator Cantwell. You mean ``among the airlines.''
    Mr. Reis. Among the airlines. Not just between the Port of 
Seattle and the airlines, but between airlines. They have a 
different view of that.
    To the point of the process and the question of who gets--
--
    Senator Cantwell. So just so everybody understands--
basically, you're being stymied on trying to plan what you know 
is necessary economic development for the Port so that it can 
continue to sustain the business that we have in the Northwest. 
But, you can't, because the airlines, who compete with each 
other, are arguing about how to pay for it, because it would be 
a rate-base issue.
    Mr. Reis. Well, we're working through it. I will say, this, 
again, has to do with our international arrivals facility. We 
had the first meeting with the airlines on the problem, on the 
need for us to deal with this profound congestion problem, in 
September 2010. We are now in the process, four and a half 
years later, of procuring the design-build contractor to 
actually carry out the project. And the airlines are still 
arguing about how to fund the project, and arguing that--the 
airlines who have a great deal of international service want us 
to put more PFCs into the facility, because it'll bring the 
rate down for the carriers who use the facility and pay for it 
in their rate base. The carriers who have none or very little 
international service are arguing that, no, we should not put 
PFCs into that project, or we should put very little PFCs into 
it, and, instead, we should put it in other projects. So, here 
we are, four and a half years after we started the conversation 
with the airlines, and the airlines are still arguing among 
themselves and arguing with this--with us on the funding.
    So, it comes down, as you said, Senator, to: How do we do 
what's right for the region's economy? How do we do what's 
right, not just for the city of Seattle, the greater Seattle 
area, but the entire Pacific Northwest? And 40 percent of our 
international traffic connects at Sea-Tac to other airports all 
over the United States. How do we do that, when the airlines 
are seeking to slow the project down in order to get the 
funding in their----
    Senator Cantwell. Yes.
    Mr. Reis.--preferred way? And that takes a toll on the 
greater Seattle area.
    Senator Cantwell. Thank you.
    Thank you, Madam Chairman.
    Senator Ayotte. Thank you.
    So, before we wrap this hearing up, which I'm about to do, 
I want to give Dr. Dillingham the last word here. Thank you, 
sir. Especially since you've appeared before the Committee 
twice this week. You deserve the last word.
    Dr. Dillingham. Thank you, Madam Chairman. Always a 
privilege.
    I was going to respond to Senator Schatz that, just to 
remind the Committee that, in 2010, GAO made a recommendation 
that, if the Congress determined that taxing baggage fees and 
other untaxed ancillary fees would be useful for the Trust 
Fund, that they could consider amending the IRS code and the 
Treasury regulations and move forward with that. So, that was 
what I wanted to try to share with the Committee and with 
Senator Schatz, as well.
    Thank you very much.
    Senator Ayotte. Thank you.
    I want to thank all of you for being here. This was a 
robust discussion today on a very important issue that we need 
to address in the reauthorization. But, I thought that we had a 
good variety of viewpoints represented on this important issue. 
And I think all of us share the concern to make sure that we 
can continue to invest in our airport infrastructure, also 
focusing on the passengers and their experience, and that 
they're, as consumers, paying for all of this. So, I know we 
appreciate this testimony today, and we'll be taking it under 
advisement as we work on the authorization. And I'm sure we'll 
have follow up questions for all of you and those that you 
represent.
    So, with that, I'm going to close out this hearing and note 
that the record will be open for 2 weeks. And, during this 
time, Senators are asked to submit any questions for the 
record. Upon receipt, if each of you would submit your written 
answers to the Committee as soon as you can, we'd appreciate 
it.
    And I want to thank you all for being here today for this 
important hearing.
    This hearing is now adjourned.
    [Whereupon, at 11:45 a.m., the hearing was adjourned.]
```