Document ID: FAA-2011-1178-0001
Agency: faa
Document Type: Notice
Title: Airport Improvement Program: Modifications to Benefit Cost Analysis Threshold
Posted Date: 2011-10-24T04:00Z

[Federal Register Volume 76, Number 205 (Monday, October 24, 2011)]
[Notices]
[Pages 65769-65772]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-27364]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

Airport Improvement Program: Modifications to Benefit Cost 
Analysis (BCA) Threshold

AGENCY: Federal Aviation Administration (FAA); DOT.

ACTION: Notice of changes; comments and responses.

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SUMMARY: This document announces the publication of the final policy 
changes to the Federal Aviation Administration's policy requiring a 
benefit cost analysis (BCA) for capacity projects funded by Airport 
Improvement Program (AIP) discretionary funds. On December 16, 2010, 
the FAA issued a Notice of Availability of Draft Guidance and Request 
for Comments with regard to the modification of its policy requiring 
benefit cost analyses (BCA) for capacity projects, which was published 
in the Federal Register. (78 FR 78798-02, December 16, 2010). The FAA 
now is (1) Issuing the final policy modifying the threshold at which 
BCAs are required from $5 million to $10 million in Airport Improvement 
Program (AIP) Discretionary funds, and (2) responding to comments 
requested in the Notice on December 16, 2010.

DATES: Effective date of the modified policy October 24, 2011.

ADDRESSES: Copies of the final guidance to begin the implementation of 
the policy for conducting BCAs can be obtained from the Federal 
Aviation Administration, Office of Airport Planning and Programming, 
Airports Financial Assistance Division (APP-500), 800 Independence 
Avenue, SW., Washington, DC 20591. An electronic copy of the guidance 
will be posted on the FAA's Airport's Division Web site at http://www.faa.gov/airports/aip/bc_analysis within 7 days of publication of 
this notice.

FOR FURTHER INFORMATION CONTACT: Frank San Martin, Manager, Financial 
Assistance Division (APP-500), Office of Airport Planning and 
Programming, Federal Aviation Administration, 800 Independence Avenue, 
SW., Washington, DC 20591, (202) 267-3831.

SUPPLEMENTARY INFORMATION:

A. Background

Policy History

    In 1994, the FAA established its policy on Benefit Cost Analysis 
(BCA) requirements for airport capacity projects. Factors leading to 
these requirements included:
    1. The need to improve the effectiveness of federal airport 
infrastructure investments in light of a decline in federal AIP 
budgets;
    2. Issuance of Executive Order No. 12893, ``Principles for Federal 
Infrastructure Investments,'' 59 FR 4233, Jan. 26, 1994;
    3. Guidance from Congress citing the need for economic airport 
investment criteria; and
    4. Statutory language from 1994 included in Title 49 U.S.C. 47115 
(d) specifying that, in selecting projects for discretionary grants to 
preserve and enhance capacity at airports, the Secretary shall consider 
the benefits and costs of the projects.
    The FAA implemented BCA requirements for capacity projects at all 
categories of airports in order to limit the FAA's risks when investing 
large amounts of discretionary funds. The FAA uses the conclusions 
reached in the BCA review to make policy and funding decisions on 
possible future federal investments.
    In 1997, a new FAA policy transferred responsibility for preparing 
BCAs from the FAA to the sponsor. In addition, the policy lowered the 
projected cost threshold from $10 million in AIP discretionary funds 
(established in 1994) to $5 million.
    The $5 million threshold change was made policy in 1997 and 
formalized in a 1999 Federal Register notice, Federal Aviation 
Administration Policy and Final Guidance Regarding Benefit Cost 
Analysis (BCA) on Airport Capacity Projects for FAA Decisions on 
Airport Improvement Program (AIP) Discretionary Grants and Letters of 
Intent (LOI), 64 FR 70107 (Dec. 15, 1999).
    Since 1997, sponsors have been required to conduct BCAs for 
capacity projects for which more than $5 million in AIP discretionary 
funding will be requested. In developing the new draft guidance 
increasing the threshold, the FAA reviewed the reasons for lowering the 
BCA threshold amount in 1997 and concluded that those reasons do not 
present sufficient basis to warrant maintaining the $5 million level 
threshold today.
    The FAA has gained valuable experience assessing the implementation 
of the policy and the need to further clarify the threshold

[[Page 65770]]

requirements for BCA. The $5 million threshold has remained unchanged 
for over 13 years while costs of construction have risen significantly. 
Using a construction cost index that approximates heavy civil 
infrastructure costs and is maintained by the Bureau of Labor and 
Statistics, construction costs of $5 million in 1997 are equivalent to 
costs of $9.6 million in July 2011. FAA's use of BLS construction cost 
data is explained later in Section C. b. ``Setting of the New Threshold 
Level.''
    Based on the increase in construction costs, the FAA has concluded 
that $10 million in AIP Discretionary funds is the appropriate 
threshold for Fiscal Year 2012 and beyond. Though the BCA threshold is 
being increased, the FAA retains the right to require a BCA for any 
capacity project in order to evaluate the reasonableness of project 
costs relative to project benefits.

Procedural History

    On December 16, 2010, the FAA published in the Federal Register a 
Notice of Availability of Draft Guidance and Request for Comments 
regarding the modification of its policy requiring benefit cost 
analyses (BCA) for capacity projects (78 FR 78798-02, December 16, 
2010). This Notice requested comments on AIP grant and LOI cost 
threshold, above which BCAs must be performed; a total of three 
commenters responded to this request. Two commenters, the Airports 
Council International (ACI) and Mr. Joseph M. Polk of the Memphis-
Shelby County Airport Authority, expressed support for the draft 
guidance, stating that it will reduce the need for potentially costly 
and time-consuming BCAs where limited AIP discretionary funds are 
involved. A third commenter, the Air Transport Association (ATA), 
expressed a series of questions and concerns about the draft guidance. 
The FAA has reviewed and addressed these comments below, consolidating 
and arranging them in a manner that enables us to best respond.

B. Modifications to Policy

    The previous AIP grant policy, issued June 24, 1997 and commencing 
in Fiscal Year 1998, stated that airport sponsors seeking $5 million or 
more in AIP discretionary funds for capacity projects were required to 
provide a completed BCA with the grant application. The Letters Of 
Intent (LOI) policy stated that a BCA was required for any LOI request 
to be issued in Fiscal Year 1997 or thereafter. In 1999, federal policy 
exempted certain reconstruction projects from the BCA requirement.
    The FAA will be issuing a companion Program Guidance Letter (PGL) 
12-01 titled ``Revised BCA Guidance'' on the date of publication in the 
Federal Register which incorporates the BCA requirement threshold 
modification from $5 million to $10 million in requested AIP 
Discretionary funds. This revised guidance is based on the report 
titled ``Benefit Cost Analysis Threshold Evaluation'' which assessed 
the technical feasibility for raising the threshold to $10 million. A 
discussion of the evaluation and results is included in the PGL to 
inform FAA staff, airport sponsors, consultants and the public about 
the basis for this decision.

C. Discussion of Comments and Responses

    On December 16, 2010, the FAA established a docket and invited 
airport sponsors and other interested parties to comment on the BCA 
requirement cost threshold for AIP grants and LOIs. The docket was open 
for about six weeks and closed on January 31, 2011. As stated above, 
this summary and discussion of comments reflects the major issues 
raised.

Comments From ACI and Mr. Polk

    Both the Airports Council International (ACI) and Mr. Joseph Polk 
of the Memphis-Shelby County Airport Authority expressed support for 
the draft guidance. Mr. Polk cited economic inflation as resulting in 
grants below the $10 million mark being ``relatively small'' for ``most 
commercial airports.'' Mr. Polk also stated that this change ``reduces 
bureaucracy and returns funding applications to a level that worked in 
the mid-90s.'' Similarly, ACI expressed support and stated that the new 
policy will reduce the need for ``potentially costly and time-consuming 
BCAs when limited AIP discretionary funds are involved.'' The FAA 
agrees with these commenters as to the advantages of offsetting cost 
inflation and the resource conservation advantages of this new policy 
for all involved in the grant making process.

Comments From ATA

a. Cost/Benefit Statutory Requirement
    ATA Comments: ATA stated that ``FAA fails to recognize or give 
effect to the statutory requirement that the Secretary of 
Transportation must consider the benefits and costs of projects 
selected for discretionary grants. FAA does not even attempt to 
demonstrate that raising the threshold will not compromise the 
Secretary's ability to do so.''
    FAA Response: The FAA disagrees with the comment. The FAA does not 
require BCAs for all AIP projects, though the benefits and costs of all 
projects are thoroughly considered. The authorizing statute exempts 
certain projects from the BCA process where the underlying value of the 
type of project has already been subject to economic evaluations 
through regulation, advisory circulars, or an amendment process. In 
addition, to be eligible for federal funds AIP projects must comply 
with applicable federal regulations, including 14 CFR part 139, 49 CFR 
part 1542, and related FAA standards and policies. While the FAA relies 
on the BCA results, among other considerations, in making discretionary 
funding decisions for certain capacity projects, the BCA requirement is 
not imposed on all projects and BCA results are not the ultimate 
arbiter in determining grant decisions. Rather, the FAA pursues a 
balanced approach in applying the BCA policy to evaluate more expensive 
projects in order to protect the federal investment. The increase of 
the threshold amount from $5 million to $10 million does not change any 
other provisions related to the Secretary of Transportation's 
consideration of benefit and cost.
    The FAA believes that the balancing of the benefits and costs of 
projects evaluated for analysis under this approach does not compromise 
but rather assists the Secretary in exercising this consideration. It 
is particularly important to note that the revised guidance still 
allows the FAA to require BCAs where the project costs fall below the 
threshold when such review is warranted by specific circumstances in 
consideration of all relevant factors.
b. Setting of the New Threshold Level
    ATA Comments: ATA stated, ``[t]he Notice first points out that a 
construction cost of $5 million in 1997 was equivalent to $9.8 million 
in July 2008, and then asserts that `[t]he $5 million threshold has 
required both FAA and sponsors of non-primary and non-hub airports to 
devote substantial financial and staff resources in preparing and 
evaluating BCAs for relatively small projects with readily apparent 
capacity benefits.' However, the connection between the two statements 
is not supported by either the Notice or the draft [PGL] cited therein, 
and the conclusion that $10 million is the appropriate threshold for 
determining whether a BCA is required is arbitrary.''
    FAA Response: The FAA disagrees with the comment. The FAA's 
decision to raise the BCA threshold to $10

[[Page 65771]]

million in 2011 is based mainly on increases in construction costs from 
1997 to present. When the original BCA threshold of $10 million was 
established in 1994, FAA policy exempted projects undertaken solely or 
principally with the objectives of safety, security, conformance with 
FAA standards, or environmental mitigation. In addition, the FAA 
considered the potential expenses and time needed to assess individual 
capacity projects. At that time, the threshold was based on applying 
the policy to cover a select number of more expensive and higher risk 
projects, and this reasoning still applies. In reevaluating this 
balance, the FAA compared current construction costs with costs from 
1997, when the threshold was lowered to $5 million.
    The FAA was most interested in the value of construction costs, 
especially costs for material such as steel, concrete, and asphalt, 
because those costs have risen faster than the general rate of 
inflation. Since we were unable to locate construction cost data 
specific to airport construction, we relied upon highway and street 
construction data collected by the Bureau of Labor and Statistics 
(BLS). These data were collected through 2010 and have since been 
replaced by the new BONS index, which measures material and supply 
inputs for new nonresidential construction. For more information about 
the BONS Index, see U.S. Department of Labor Bureau of Labor and 
Statistics, PPI Detailed Report Data for July 2010, Vol. 14 No. 7, 6-7 
(2010). These data provide a reasonable approximation of heavy civil 
infrastructure costs in general, and therefore best capture the 
dynamics of construction cost increases.
    Based on the latest BLS data from July 2011, construction costs of 
$5 million in 1997 are equivalent to $9.6 million today. As calculated, 
the costs of construction have risen significantly over the last 13 
years, but there has not been a corresponding increase in the BCA 
threshold. The FAA does note that construction costs that were 
previously at the $5 million level have not fully escalated to the $10 
million level; nevertheless, a threshold increase to $10 million should 
negate the need to revisit the threshold issue again for a number of 
years.
c. Airport Project Construction Costs
    ATA Comments: ATA stated ``While construction costs in general have 
indeed increased since 1997, FAA has not relied on actual costs of 
airport projects funded with AIP discretionary grants during that time 
period, despite the potential benefit of reviewing that data. (FAA 
notes in the PGL that `we were unable to locate construction cost data 
specific to airport construction,' but does not explain why that data 
would not be readily available to the grant-maker.). Instead FAA has 
chosen to rely on highway and street construction data, which indicates 
that a $5 million project would cost about $8.6 million today, a 
decrease from the $9.8 million in 2008 cited in the Notice. As the 
table appended to the PGL illustrates, construction costs, while 
exhibiting an overall upward trend, fluctuate both seasonally and from 
year to year. To suggest, as FAA does by increasing the threshold for 
BCAs from $5 to $10 million, that project construction costs have 
doubled since 1997 is simply not accurate.''
    FAA Response: The FAA agrees with the comment that it has access to 
FAA grant funding data, but these data have limited application since 
they are focused on federal grant program administration requirements. 
The grant data make up only a percentage of the project costs and the 
percentages vary by airport size and project type. The data are not 
meant to provide detailed cost statistics for airport construction 
projects and are not available in a way that allows tracking of the 
unit costs of construction items over time. More importantly, the 
funding amounts are based on general project descriptions, which make 
it difficult to assess changes in costs per work unit. The FAA lacks 
the resources to compile and analyze bid tabulations from the several 
thousand projects funded annually through AIP.
    The FAA currently uses, and will continue to use, the readily 
available construction cost data from the Bureau of Labor and 
Statistics because these cost indices are objective, accepted, and used 
industry wide. In addition, the BLS data allows for a comparison 
between a set of construction unit costs from 1997 to that same set of 
costs in the current time period, data that the FAA does not collect as 
part of the Airport Improvement Program (AIP) grant making process. The 
FAA collects data on total eligible AIP costs, but the level of detail 
is not sufficient to provide a statistical comparison of airport 
construction unit costs between 1997 and 2010. Collection of such 
information by the FAA would require significant resources, would take 
years to compile, and would create a new index of construction costs 
that is duplicative of the data provided by the BLS.
    The FAA notes that the comment is correct that the most recent data 
indicate that construction costs have not fully doubled.\1\ The FAA 
would like to stress, however, that construction costs have risen 
significantly over the last 13 years and there has not been any 
corresponding increase in the BCA threshold. It is important that the 
FAA provides a well-justified threshold level that does not fluctuate 
at short intervals in order for airport sponsors to plan and develop 
projects in an efficient manner. Accordingly, as previously stated, 
although the escalation of costs has not yet reached the $10 million 
level, a threshold increase to $10 million should negate the need to 
revisit the threshold issue again for a number of years.
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    \1\ The most current data (through July 2011) indicate a $5 
million project would cost about $9.6 million today.
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d. Capacity Benefits of Small Projects
    ATA Comments: ATA stated ``Even if the highway construction cost 
index is relevant, and even if one accepts FAA's `rounding up' of the 
numbers to support a threshold of $10 million, it does not follow that 
raising the threshold would merely exempt `relatively small projects 
with readily apparent capacity benefits' at non-primary and non-hub 
primary airports, as the Notice implies. Again, FAA has access to data 
that could support--or refute--this point. How many of the BCAs 
prepared or reviewed by FAA in the past five or ten years fall into 
this category? How many of those projects would come under $10 million 
when adjusted for inflation? Are there any examples of projects in the 
$5-10 million range where the capacity benefits were not ``readily 
apparent''? And even if some capacity benefits are apparent, is it 
always the case that those benefits exceed the $5-10 million cost?''
    FAA response: The FAA disagrees with the comment. The FAA is not 
proposing to exempt ``'relatively small projects with readily apparent 
capacity benefits' at non-primary and non-hub primary airports'' from a 
thorough planning process, including an assessment of project benefits, 
by increasing the threshold to $10 million. Rather, in these instances 
the FAA will rely on the traditional master planning, regional 
metropolitan planning, or statewide planning processes to sufficiently 
study and analyze the capacity benefits of a project instead of 
requiring a separate BCA for such projects.
    In addressing this comment, the FAA reviewed 117 BCAs for capacity 
projects since the year 2000. Of those, only 12 projects had 
construction costs totaling less than $10 million. If the threshold had 
increased to keep up with construction cost inflation, only one of

[[Page 65772]]

the 12 projects with costs under $10 million would have avoided the BCA 
requirement. Based on the data in FAA's National Plan of Integrated 
Airport Systems, retaining the $5 million threshold is likely to create 
an unnecessary resource burden in coming years. In the next five years 
alone there are more than 150 projects with capacity codes and/or 
project descriptions that appear to be capacity-related. Of these, 79 
have total eligible project costs greater than $10 million which 
typically coincide with discretionary requests in excess of $5 million. 
This would likely result in project delays and corresponding increases 
in capital costs. By raising the threshold to $10 million, the number 
of projects that may require a BCA will increase at a significantly 
slower rate. The FAA believes this would preserve a prudent balance 
between analysis and expenditure of AIP funds, particularly since the 
planning process itself requires an assessment of the capacity benefits 
of such projects.
e. Staff and Sponsor Resource Conservation
    ATA Comments: ATA stated, ``FAA cites staff and sponsor resources 
as a motivating factor in raising the threshold, but once again offers 
no evidence to support the conclusion that doing so will conserve these 
resources. It would be helpful to know how many projects FAA expects 
will be newly exempt from the BCA requirement in coming years, based on 
past experience with grant requests. Furthermore, when the threshold 
was lowered from $10 million to $5 million in 1997, it was done in 
conjunction with a shift of the responsibility for preparing a BCA from 
the FAA to the project sponsor. How much of the anticipated savings in 
staff resources will accrue to FAA, and how much to airport sponsors? 
ATA has a direct interest in this, since costs attributable to 
preparing BCAs are considered allowable airport planning costs, and, to 
the extent not covered by an AIP grant, may get passed back to airline 
tenants through inclusion in the rate base.''
    FAA Response: The FAA's main justification in increasing the 
threshold from $5 million to $10 million is to keep pace with the 
impact of inflation on construction costs. Consistent with the original 
BCA policy, in increasing this threshold the FAA seeks to balance 
oversight of expensive, high risk projects with limited time and 
monetary resources. Based on the data presented above there is strong 
evidence to suggest that retaining the existing threshold would 
significantly increase the number of small capacity projects requiring 
formal BCA reviews. This would create additional project costs, 
lengthen the time required to implement a project, and create 
additional and duplicative levels of review by the FAA, airport staff, 
and airport users. Instead, the FAA will rely on existing master 
planning, metropolitan area planning, and statewide system planning to 
adequately address the capacity benefits of such projects. Anticipated 
savings will accrue to sponsors, airline tenants and the FAA, though 
the FAA is not currently able to directly quantify these savings.
g. Full Justification of Projects
    ATA Comments: ATA stated ``ATA recognizes that FAA's constrained 
resources may make the prospect of fewer BCAs to prepare or review 
appealing, but we must point out that in an era of limited funding it 
is all the more important that projects be fully justified in terms of 
benefits relative to costs. While BCAs may not be the only means to do 
this, FAA should ensure that it will not lose sight of this principle 
before it raises the threshold.''
    FAA Response: The FAA agrees with the comment that all projects 
must be fully justified in terms of benefits to the traveling public, 
aviation system users, and neighboring communities. However, not all 
projects that compete for limited AIP discretionary funds are subject 
to the BCA requirement. Instead, the BCA process is one of many tools 
the FAA uses to determine the capacity benefits of potential projects. 
The FAA relies on existing master planning, metropolitan area planning, 
and statewide system planning processes to adequately analyze and 
address the capacity benefits of such projects. As circumstances 
warrant, the FAA also requests BCAs or other economic evaluations be 
done for projects under the threshold.
    Accordingly, after review of the public comments, the FAA has 
determined that the policy proposing to increase the BCA threshold from 
$5 million to $10 million in AIP Discretionary funds should be adopted 
now.

    Issued in Washington, DC, on October 17, 2011.
Benito DeLeon,
Director, Office of Airport Planning and Programming.
[FR Doc. 2011-27364 Filed 10-21-11; 8:45 am]
BILLING CODE 4910-13-P