Airport Finance: Preliminary Analysis Indicates Proposed Changes in the Airport Improvement Program May Not Resolve Funding Needs for Smaller Airports
Published: 2007-03-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To address the strain on the aviation system, the Federal Aviation Administration (FAA) has proposed transitioning to the Next Generation Air Transportation System (NextGen). To finance this system and to make its costs to users more equitable, the administration has proposed fundamental changes in the way that FAA is financed. As part of the reauthorization, the administration proposes major changes in the way that grants through the Airport Improvement Program (AIP) are funded and allocated to the 3,400 airports in the national airport system. In response, GAO was asked for an update on current funding levels for airport development and the sufficiency of those levels to meet planned development costs. This testimony comprises capital development estimates made by FAA and Airports Council International (ACI), the chief industry association; analyzes how much airports have received for capital development and whether this is sufficient to meet future planned development; and summarizes the effects of proposed changes in funding for airport development. This testimony is based on ongoing GAO work. Airport funding and planned development data are drawn from the best available sources and have been assessed for their reliability. This testimony does not contain recommendations.
section_title: What GAO Found
paragraphs: ACI's estimate for planned development costs is considerably larger than FAA's, reflecting a broader range of projects included as well as differences in when and how the estimates are made. For 2007 through 2011, FAA estimated annual planned capital development costs at $8.2 billion, while ACI estimated annual costs at $15.6 billion. The estimates differ primarily because FAA's estimate only includes projects that are eligible for AIP grants, while ACI's covers all projects, including $5.8 billion for projects not eligible for federal funding, such as parking garages. From 2001 through 2005, airports received an average of about $13 billion a year for planned capital development. This amount covers all types of projects, including those not eligible for federal grants. The primary source of this funding was bonds, which averaged almost $6.5 billion per year, followed by federal grants and passenger facility charges (PFC), which accounted for $3.6 billion and $2.2 billion, respectively (see figure below). If airports continue to attract this level of funding for planned capital development, this amount would annually fall about $1 billion short of the $14 billion in total planned development costs (the sum of FAA's estimated $8.2 billion in eligible costs and the industry's $5.8 billion in ineligible costs). Larger airports foresee a shortfall of about $600 million annually, while smaller airports foresee a shortfall of $400 million annually. FAA's reauthorization proposal would reduce the size of AIP by $750 million but increase the amount that airports can collect from PFCs. However, the benefit from increased PFCs would accrue mostly to larger airports and may not offset a reduced AIP grants program for smaller airports. The proposal would also change the way that AIP and other FAA programs are funded. The new fuel taxes that FAA has proposed may not provide the revenues for AIP that FAA anticipates.

section_title: Letter
paragraphs: I appreciate the opportunity to testify before you today as you consider  the Federal Aviation Administration’s (FAA) reauthorization proposal  including the Airport Improvement Program (AIP) for fiscal years 2008- 2010.
Once again, the nation’s airports are having to cope with capacity issues.  Air traffic has risen back above pre-September 11 levels, as has the level of  delays. FAA operates one of the safest air transportation systems in the  world, but it is also a system under strain. Already last year, one in four  flights was subject to flight delays. In addition, the system is expected to  absorb a variety of new and differing aircraft in the future, ranging from  the jumbo Airbus A380, which can hold more than 500 passengers, to very  light jets, which carry only a few passengers and could greatly increase the  number of aircraft in the air. Demand for air travel is expected to reach 1  billion passengers by 2015, according to FAA estimates. The consensus of  opinion is that the current aviation system cannot expand to meet this  projected growth. FAA is developing a modernization program for its air  traffic control system called the Next Generation Air Transportation  System (NextGen) to accommodate this growth. To fund this system, FAA  has proposed relying on a cost-based system using airline user fees and  fuel taxes instead of passenger ticket taxes and other excise taxes that are  due to expire at the end of September 2007. In regard to airports, the  administration is proposing $2.75 billion to fund the AIP program—which  is substantially less than the current level—and changing the way that  grants to the 3,400 airports in the national airport system are funded and  allocated under AIP. The administration’s proposal would also allow  commercial airports to impose higher passenger facility charges (PFC) to  pay for capital projects.
In anticipation of this year’s reauthorization of FAA, you asked for an  update on airports’ current funding levels from our previous reports, the  sufficiency of those levels to meet planned development, and how the  administration’s proposed reauthorization will affect airports. For this  update, we are providing preliminary responses to these key questions:    How do FAA and Airports Council International (ACI) estimates of capital  development compare?
How much have airports received for capital development and where is  the money coming from?
If current funding levels continue, will they be sufficient to meet planned  capital development costs for 2007 through 2011?
What are some of the potential effects of changes in how airport  development will be funded as part of the administration’s FAA  reauthorization legislation?
To determine how much planned development would cost over the next 5  years, we obtained planned capital development data from FAA and ACI, a  key industry association. To determine the sources of airport funding, we  obtained capital funding data from FAA, the National Association of State  Aviation Officials (NASAO) and Thomson Financial, a firm that tracks all  municipal bond issues. We obtained funding data from 2001 through 2005  because these were the most recent years for which consistent data were  available and then adjusted the amounts for inflation to 2006 dollars so  that they could be compared to planned development amounts, which are  also expressed in 2006 dollars. We screened the planned development and  funding data for accuracy and compared funding streams across databases  where possible. We did not, however, audit how the databases were  compiled. To compare the estimates between FAA and industry, we  reconciled survey data and identified areas where the largest differences  occur. We reviewed the reliability of these data and concluded that they  were sufficiently reliable for our purposes.
We conducted our work from August 2006 to March 2007 in accordance  with generally accepted government auditing standards. More details  about the scope and the methodology of our work are presented in  appendix II.
ACI’s estimate of planned development costs is considerably larger than  FAA’s, reflecting the broader range of projects included as well as  differences in when and how the estimates are reported. For 2007 through  2011, FAA estimated annual planned capital development costs at $8.2  billion, while ACI estimated annual costs at $15.6 billion, a difference of  $7.4 billion annually. The estimates differ primarily because FAA’s  estimate includes only projects that are eligible for federal airport  improvement grants, while ACI’s includes all projects, including those that  may not be eligible for federal grants. Types of projects not eligible for  federal grants include parking garages and commercial space in terminals.  However, even when comparing only AIP-eligible projects, ACI’s estimate  exceeds FAA’s by $1.6 billion annually because of differences in the  definition, measurement, and timing of projects.
From 2001 through 2005, airports received an average of about $13 billion  a year for planned capital development from a variety of funding sources.  This includes funding for all types of projects, including those not eligible  for AIP grants. The primary source of this funding was municipal bond  proceeds (backed primarily by airport revenues), which averaged almost  $6.5 billion per year, followed by AIP and PFCs which accounted for $3.6  billion and $2.2 billion, respectively. The 67 larger airports, which account  for 90 percent of passengers, rely more heavily on bond financing to fund  their development, while the other approximately 3,300 smaller airports in  the national system are more reliant on federal grants.
The total of FAA and ACI estimates of planned development for 2007  through 2011 exceeds historical funding levels by about $1 billion  annually. The difference between past funding and future development  plans is not the same for larger and smaller airports. The 67 larger airports  averaged $9.4 billion annually in funding, as compared to $10 billion  annually in AIP-eligible and ineligible projects—a difference of $600  million annually. All other airports, including general aviation airports,  averaged $3.6 billion annually in funding, as compared to $4 billion  annually in AIP-eligible and ineligible project, a difference of $400 million  annually.
The administration’s reauthorization proposal would provide more money  to larger airports through an increase in PFCs, but its impact on smaller  airports is uncertain because these airports are more reliant on AIP, whose  funding level is being reduced and whose allocation is being changed. The  proposal would reduce the AIP grants program by $750 million (or more  than 20 percent of its current level) but increase the amount that airports  can collect from PFCs from $4.50 per passenger to $6.00 per passenger,  potentially increasing larger airports’ collections by $1.1 billion. For  smaller airports that collect far less from PFCs, the increase in PFCs may  not compensate for the overall reduction in AIP, especially for general  aviation airports that have no ability to collect PFCs. As a separate issue,  the administration’s reauthorization proposal would also change the way  that AIP and other FAA programs are funded. The new fuel taxes that have  been proposed to fund AIP and other programs may not generate the  amount of revenue that is anticipated and additional sources of revenue  may have to be found.
subsections: section_title: The Size and Scope of FAA and ACI Airport Capital Estimates Differ
paragraphs: ACI’s estimate of planned capital development costs is considerably larger  than FAA’s because it reported a broader base of projects. According to  FAA’s estimate, which includes only projects that are eligible for AIP  grants, the total cost of airport development will be about $41 billion, or  about $8.2 billion per year for 2007 through 2011. (See table 1.) ACI  estimates annual costs of about $78 billion, or about $15.6 billion per year,  for the same period. These estimates differ mainly because ACI’s estimate  includes all future projects that may or may not have an identified funding  source or be eligible for federal funding and also because they are based  on different estimating approaches. Projects that are eligible for AIP  grants include runways, taxiways, and noise mitigation and reduction  efforts; projects that are not eligible for AIP funding include parking  garages, hangars, and expansions of commercial space in terminals.
subsections: section_title: Attempts to Reconcile ACI and FAA Estimates of Planned Development Costs Illustrate Differences
paragraphs: Several factors account for the differences between the FAA and ACI  estimates of future development costs. The biggest difference stems from  ACI’s inclusion of projects that are not eligible for AIP grants, while FAA’s  estimate includes only AIP-eligible projects (see table 2). However, even  when comparing just the AIP-eligible portions of the respective estimates,  ACI’s estimate is 20 percent ($8 billion in total or $1.6 billion annually)  greater. This points to differences in how the two estimates are formed.
One difference is the estimating approach. FAA’s estimates cover projects  for every airport in the national system, while ACI surveyed the 100 largest  airports (mostly large and medium hub airports) and then extrapolated a  total based on cost per enplanement calculations for small, medium, and  large hub airports that did not respond.
Further analysis on a project-by-project level shows variances related to  three other factors:    Definition—FAA data are based on planned project information taken  from airport master plans and state system plans, minus projects that  already have an identified funding source, while ACI includes all projects,  whether funding has been identified or not. For example, ACI’s estimate  for Washington Dulles airport includes $278 million for an automated  people mover, but FAA’s estimate does not because it is being funded by a  PFC approved in 2006.
Measurement—FAA data include only the portion of a project that is  eligible for AIP, while ACI estimates the total value project cost. On a  terminal construction project at Dulles International Airport, ACI  estimated total costs of $1.6 billion for construction; however, only a small  portion is eligible for AIP funding. FAA did not report any amount because  under FAA AIP rules only a small portion ($20 million) was eligible for AIP  funding and the airport had exhausted the AIP funds that could be used for  this type of project.
Timing—The ACI and FAA estimated planned development costs for the  same five year time period, but the estimates were made at different  times—the ACI survey was completed in early 2007, while FAA’s estimate  is based on information collected in early 2006. Further, the ACI estimate  includes projects that FAA does not believe will be commissioned during  the next 5 years. At Fort Lauderdale International Airport, for example,  ACI reported a $700 million runway project but FAA reports less than $200  million for the same project. According to FAA, the remaining costs are  beyond 2011.
FAA and ACI estimates do not consider cost increases such as rising  construction costs. Going forward these costs may increase, especially  construction costs which have jumped 26 percent in 30 major U.S. cities  over the past three years. Industry experts predict that construction costs  will continue to increase project costs. FAA acknowledges that  development estimates may or may not include increase in costs based on  construction uncertainty and that annual costs increases are not captured.
section_title: Airports Have Averaged About $13 Billion Annually in Capital Financing over the Last 5 Years and Use a Variety of Funding Sources
paragraphs: From 2001 to 2005, the 3,364 active airports that make up the national  airport system received an average of about $13 billion per year for  planned capital development from a variety of funding sources. These  funds are used for both AIP-eligible and ineligible projects. The single  largest source of these funds was bond proceeds, backed primarily by  airport revenues, followed by AIP grants, PFCs, and state and local  contributions (see table 3).
The amount and source of funding vary with the size of airports. The  nation’s 67 larger airports, which handled almost 90 percent of the  passenger traffic in 2005, accounted for 72 percent of all funding ($9.4  billion annually), while the 3,297 other smaller commercial and general  aviation airports that make up the rest of the national system accounted  for the other 28 percent ($3.5 billion annually). As shown in figure 1,  airports’ reliance on federal grants is inversely related to their size—- federal grants contributed a little over $1.3 billion annually to larger  airports (14 percent of their total funding) and $2.3 billion annually to  smaller airports (64 percent of their total funding).
section_title: Total Planned Development Exceeds Past Funding Levels by About $1 Billion Annually
paragraphs: Based on past funding levels, airports’ funding is about $1 billion per year  less than estimated planned capital development costs. If the $13 billion  annual average funding continues over the next 5 years and were applied  only to AIP-eligible projects, it would cover all of the projects in FAA’s  estimate. However, much of the funding available to airports is for AIP- ineligible projects that can attract private bond financing. We could not  determine how much of this financing is directed to AIP-eligible versus  ineligible projects. Figure 2 compares the $13 billion average annual  funding airports received from 2001 through 2005 (adjusted for inflation to  2006 dollars) with the $14 billion in annual planned development costs for  2007 through 2011. The $14 billion is the sum of FAA’s estimated AIP- eligible costs of $8.2 billion annually and ACI’s estimated ineligible costs  of $5.8 billion annually. The overall difference of about $1 billion annually  is not an absolute predictor of future funding shortfalls; both funding and  planned development may change in the future.
subsections: section_title: Larger Airports–-Planned Development Costs Exceed Past Funding by About $600 Million Annually
paragraphs: The difference between current funding and planned development costs  for larger airports is about $600 million if both AIP-eligible and ineligible  projects are considered. From 2001 through 2005, larger airports collected  an average of about $9.4 billion a year for capital development, as  compared to over $10 billion in annual planned development costs. Figure  3 shows the comparison of average annual funding versus planned  development costs for larger airports. At $5.7 billion annually, the  ineligible portion of costs is 57 percent of the total planned development  costs.
section_title: Smaller Airports—- Planned Development Costs Exceed Past Funding by About $400 Million Annually
paragraphs: The difference between past funding and planned development costs for  smaller airports is roughly $400 million annually. At smaller airports,  average annual funding from 2001 through 2005 was about $3.6 billion a  year (expressed in 2006 dollars). Annual planned development costs for  smaller airports from 2007 through 2011 is estimated at about $4 billion.  Figure 4 compares average annual funding to planned development costs.  As the figure shows, the portion of smaller airports’ project costs not  eligible for AIP funding is relatively small—about $75 million annually, or  about 2 percent of total planned development costs.
section_title: Financial Health of Airports Has Improved for Larger Airports
paragraphs: The financial health of airports is strong and has generally improved since  September 11, 2001, especially for larger airports. Passenger traffic has  rebounded to 2000 levels and bond ratings have improved. Following  September 11, many airports cut back on their costs and deferred capital  projects. However, credit rating agencies and financial experts now agree  that larger airports are generally financially strong and have ready access  to capital markets. A good indicator of airports’ financial strength is the  number and scale of underlying bond ratings provided by bond rating  agencies. More bonds were rated in 2007 than 2002, and more bonds are  rated at the higher end of the rating scale in 2007, meaning that the rating  agencies consider them less of a risk today. Furthermore, larger airports  tended to have higher ratings than smaller airports.
section_title: Administration’s FAA Reauthorization Proposal Would Increase Funding for Larger Airports, while the Effect on Smaller Airports is Uncertain
paragraphs: The administration’s reauthorization proposal for AIP would increase  funding for larger airports, but its effect on smaller airports is uncertain  because of the overall reduction in AIP and the proposed changes in how  AIP grants are allocated between larger and smaller airports. The 2008  fiscal year budget reduces AIP funding from its past level of $3.5 billion in  fiscal years 2006 and 2007 to $2.75 billion in 2008. The proposal also would  eliminate entitlement, otherwise known as apportionment, grants for  larger airports while increasing the PFC ceiling from $4.50 to $6 per  passenger. While larger airports that account for 90 percent of all  passengers will come out ahead, an increased PFC may not compensate  smaller airports for the overall reduction in AIP, even with the proposed  changes in how AIP is allocated between larger and smaller airports. As a  separate issue, the administration’s reauthorization proposal would  change the way that AIP and other FAA programs are funded and may not  provide enough monies for these programs, even at the reduced levels  proposed by the administration.
subsections: section_title: Administration’s FAA Reauthorization Proposal Would Make Fundamental Changes in AIP
paragraphs: The administration’s 2008 FAA reauthorization proposal would reduce  AIP, change how AIP is allocated, and increase the PFC available to  commercial airports. (Key changes in the proposal’s many elements are  outlined in appendix I.) Unlike previous reauthorization proposals, which  made relatively modest changes in the structure of the AIP program, this  proposal contains some fundamental changes in the funding and structure  of the AIP program. Notably, following the pattern set by the 2000 FAA  reauthorization, which required larger airports to return a certain  percentage of their entitlement funding in exchange for an increase in the  PFC, the administration proposes eliminating entitlement grants for larger  airports altogether and at the same time allowing those airports to charge  a higher PFC.
The reauthorization proposal would eliminate some set-aside programs  and increase the proportion of discretionary grant funds available to FAA  at higher AIP funding levels. Table 4 compares AIP funding allocations  under the current funding formulas to the proposed reauthorization  allocations at both the current $3.5 billion level and at the proposed $2.75  billion level. Another change is to the entitlement formulas—for example,  removing the funding trigger in current law that doubles the amount of  entitlement funds airports receive if the overall AIP funding level is above  $3.2 billion—is intended to make more discretionary funding available.  According to FAA officials, their objective is to increase the amount of  discretionary funding for airports so that higher priority projects can be  funded; however, that is only achieved when total AIP funds are greater  than the $2.75 billion budgeted by the administration. For example, at  $2.75 billion in AIP, the current law would generate $967 million in  discretionary grants versus $866 million under the proposed  reauthorization. This reverses at $3.5 billion in AIP funding, for which the  proposal generates $1.328 billion in discretionary grants versus $845  million under current law.
section_title: Increasing the PFC Would More Than Offset Loss of AIP Entitlements For Larger Airports but Impact on Smaller Airports Is Uncertain
paragraphs: The administration’s proposed reauthorization would allow airports to  increase their PFC to a maximum of $6 and allow airports to use their  collections for any airport projects while forgoing their entitlement funds.  A $6 PFC could generate an additional $1.1 billion for larger airports that  currently have a PFC in place, far exceeding the $247 million in  entitlements that FAA estimates they would forego under this  reauthorization proposal (see table 5). However, the impact on smaller  airports is uncertain because they collect far less in PFCs and are more  reliant on AIP for funding. A change to a $6 PFC would yield an additional  $110 million for small hub airports based on airports that currently have a  PFC in place and $132 million if every one of the small hub airports had a  $6 PFC. It is uncertain whether the proposed allocation of AIP under the  administration’s proposal would shift a greater proportion of funds to  smaller airports to compensate for the overall reduction in AIP. The  reauthorization proposal would also relax project eligibility criteria to  allow airports to use their collections in the same way as they use  internally generated revenue, including off-airport intermodal  transportation projects. The application and review process would also be  streamlined; as a result, FAA would no longer approve collections but  rather ensure compliance with PFC and airport revenue rules.
section_title: Airport Privatization
paragraphs: The administration’s proposal would modify the current pilot program on  private ownership of airports in two key ways. First, the proposed  modifications will expand eligibility beyond the current statutory limit of 5  to 15 airports. Restrictions limiting participation in the pilot program to  specific airport size categories would also be eliminated. Second, the pilot  program would be amended to eliminate the veto power that airlines can  exercise under current law to prevent privatization transactions at  commercial airports. Under current law, the sale of an airport to private  interests may only proceed if a super-majority of the airlines at that airport  approve of the sale or lease. Additionally, the airline veto power to  prevent fee increases higher than inflation rates would be repealed. In  place of these veto powers, the airport sponsor would need to  demonstrate to the Secretary of Transportation that the airlines using that  airport were consulted prior to the transaction proceeding.
Congress established the Airport Privatization Pilot Program in October  1996 to determine if privatization could produce alternative sources of  capital for airport development and provide benefits such as  improvements in customer service. It also hoped to determine if new  investment and capital from the private sector could be attracted through  innovative financial arrangements. Proponents of privatization believe that  the privatization of airports can lead to capacity-increasing investment in  airports through the commitment of private capital, lower operating costs,  and greater efficiency and that privatization can increase customer  satisfaction.
Overall, there has been relatively little interest in the current pilot  program. Six airports have applied for participation in the program and  three of those airports withdrew their applications in 2001. To date,  Stewart International Airport, located in Newburgh, New York, is the only  airport accepted into the pilot program. The airport received this  exemption in March 2005, but is currently being purchased back by a  public owner, the Port Authority of New York and New Jersey. In  September 2006, the City of Chicago submitted a preliminary application  for Chicago Midway International Airport. FAA completed its review of the  Midway preliminary application and determined that it meets the  procedural requirements for participation in the pilot program.  Consequently, the City of Chicago can now proceed to select a private  operator, negotiate an agreement, and submit a final application to FAA  for exemption.
section_title: Proposed Fuel Tax Rates May Not Yield the Revenue Anticipated to Fund AIP
paragraphs: In addition to concerns about the level and allocation of AIP funds,  another concern is that the fuel tax revenues that the administration’s  reauthorization proposal has designated to largely fund AIP after 2009 may  not be as great as anticipated. Currently, AIP and other FAA programs are  principally funded by the Airport and Airway Trust Fund (trust fund),  which receives revenue from passenger ticket taxes and segment taxes,  airline and general aviation fuel taxes, and other taxes. The  administration’s reauthorization proposal would fund air traffic control  through user fees for commercial aircraft and fuel taxes for general  aviation while limiting the sources of revenue for the trust fund and its  uses. Under the proposal, beginning in 2009, the trust fund would continue  but only to fund three programs—AIP, Research, Engineering and  Development (RE&D), and Essential Air Service (EAS)—and would be  funded solely by an equal fuel tax on commercial and general aviation fuel  purchases and an international arrival and departure tax.
FAA officials confirmed for us that in estimating fuel tax revenues they did  not take into account possible reductions in fuel purchases due to the  increase in the tax rates. Although we do not know by how much such  purchases would decline, conventional economic reasoning, supported by  the opinions of industry stakeholders, suggests that some decline would  take place. Therefore, the tax rate should be set taking into consideration  effects on use and the resulting impact on revenue. FAA officials told us  that they believe that these effects would be small because the increased  tax burden is a small share of aircraft operating costs and therefore there  was no need to take its impact into account. Representatives of general  aviation, however, have said that the impact could be more substantial. If  consumption possibly falls short of projections or Congress appropriates  more funds for AIP, RE&D, or EAS than currently proposed, then fuel tax  rates and the international arrival and departure tax would  correspondingly have to be increased or additional funding from another  source, such as the trust fund’s uncommitted balance or the General Fund,  would be needed.
In conclusion, Mr. Chairman, airports have rebounded financially from the  September 2001 terrorist attacks. We expect the demand for air travel to  continue to increase, the system capacity to be stretched, and airports to  increase their demand for capital improvements to relieve congestion and  improve their services. As Congress moves forward with reauthorizing  FAA, it will have to decide on several key issues, including how it wants to  fund and distribute grants under the AIP. While some elements of the  administration’s proposal are to be commended—for example, simplifying  the funding formulas and giving FAA more discretion to fund high priority  projects—other parts of the proposal raise concerns. For example, the  extent to which the administration’s proposed cuts in AIP funding will  affect development at smaller airports is unclear.
section_title: GAO Contacts and Staff Acknowledgements
paragraphs: For further information on this statement, please contact Dr. Gerald  Dillingham at (202) 512-2834 or DillinghamG@gao.gov. Individuals making  key contributions to this testimony were Paul Aussendorf, Jay Cherlow,  Jessica Evans, David Hooper, Nick Nadarski, Edward Laughlin, Minette  Richardson, and Stan Stenersen.
section_title: Appendix I: Key Changes Proposed in AIP
paragraphs: Trust fund for all capital programs are  funded by an airline ticket tax, segment tax,  international departure and arrival taxes,  varying rates of fuel taxes and other taxes.  Funding for AIP is appropriated from the  trust fund.
Trust fund is funded by fuel tax of 13.6  cents/gallon for commercial and general  aviation and a reduced international arrival  and departure tax. Funding for AIP is  appropriated from the Trust Fund. If AIP is  increased, the tax rates would have to be  increased, the trust fund’s uncommitted  balance would have to be drawn down, or  another funding source would have to  found.
Up to 75 percent of entitlements for large  and medium hub airports collecting a PFC  are turned back to the small airport fund.
Entitlements for large and medium hub  airports eliminated by 2010.
If AIP greater than $3.2 billion, primary  airport entitlements are doubled. $3.2 billion trigger for doubling entitlements  is eliminated except for small and nonhub  primary airports.
State apportionment is 20 percent of AIP  (18.5 percent if AIP is less than $3.2  billion).
State apportionment set at greater of 10  percent of AIP or $300 million.
Nonprimary airport entitlement of up to  $150,000.
The nonprimary airport minimum  entitlement of $150,000 per airport is  eliminated and replaced by a tiered system  of entitlements ranging from $400,000 for  large general aviation airports to $100,000  for smaller general aviation airports. The  750 airports that have less than 10  operational and registered based aircraft  are guaranteed nothing.
Reliever and military airport set asides  minimum discretionary funding set at $148  million.
The set-aside for reliever and military  airports is eliminated.
Small airport fund funded by large and  medium hub airport PFC turnbacks of up to  75 percent of PFC collections.
Minimum discretionary funding set at $520  million.
Small airport fund equal to 20 percent of  discretionary funds.
Most types of airfield projects, excluding  interest costs, nonrevenue producing  terminal space and on-airport access  project costs. General aviation airports may  use their entitlement funds for some  revenue producing activities (e.g.,  hangars).
Expanded to include additional revenue  producing aeronautical support facilities  (e.g., self-service fuel pumps) at general  aviation airports.
Government share set at 95 percent for  smaller airports through 2007, and 75  percent for large and medium hub airports  (noise 80 percent).
Eliminates 95 percent government share  except for the very smallest airports. Now  maximum share will be a flexible amount  with a maximum percentage of 90 percent.  Airfield rehabilitation projects lowered to 50  percent maximum at large and medium  hubs.
Maximum rate is $4.50 per passenger.
Maximum rate is $6 per passenger.
All applications subject to FAA review.
Review and approval is streamlined.
PFCs can be used for all AIP eligible  projects, but also interest costs on airport  bonds, terminal gates and related areas,  and noise mitigation can also be used.
Eligibility expanded to include almost any  airport –related project, including off-airport  intermodal projects.
Up to 10 large and medium hub airports  willing to assume the cost of air navigation  facilities are allowed a $7 PFC.
Up to five airports, one of each size, with  strict limit on rates and charges and  requires approval by 65 percent of airlines.
Up to 15 airports of any size, no limit on  rates and charges and no airline veto, but  subject to DOT review and approval.
section_title: Appendix II: Scope and Methodology
paragraphs: To determine how much planned development would cost over the next 5  years, we obtained planned development data from the Federal Aviation  Administration (FAA) and Airports Council International-North America  (ACI). To determine how much airports of various sizes are spending on  capital development and from which sources, we sought data on airports’  capital funding because comprehensive airport spending data are limited  and because, over time, funding and spending should roughly equate. We  obtained capital funding data from the FAA, ACI, the National Association  of State Aviation Officials (NASAO), and Thomson Financial—a firm that  tracks all municipal bonds. We screened each of these databases for their  accuracy to ensure that airports were correctly classified and compared  funding streams across databases where possible. We did not, however,  audit how the databases were compiled or test their overall accuracy,  except in the case of state grant data from the NASAO and some of the  Thomson Financial bond data, which we independently confirmed. We  determined the data to be sufficiently reliable for our purposes. We  subtotaled each funding stream by year and airport category and added  other funding streams to determine the total funding. We met with FAA,  bond rating agencies, bond underwriters, airport financial consultants, and  airport and airline industry associations and discussed the data and our  conclusions to verify their reasonableness and accuracy.
To determine whether current funding is sufficient to meet planned  development for the 5-year period from 2007—2011 for each airport  category and overall, we compared total funding to planned development.  We correlated each funding stream to each airports’ size, as measured by  activity, and among other funding streams to better understand airports’  varying reliance on them and the relationships among sources of finance.  We then discussed our findings with FAA, bond rating agencies, bond  underwriters, airport financial consultants, and airport and airline industry  associations to determine how our findings compared with their  knowledge and experiences.
To determine some of the potential effects from changes to how airport  development is funded under the administration’s proposed FAA  reauthorization legislation, we first analyzed the suggested changes to the  Airport Improvement Program’s (AIP) funding and allocation. In particular  we analyzed the effect of various funding levels on how the program funds  would be allocated. Second, we evaluated the effects of raising the  passenger facility charge (PFC) ceiling, as the administration proposal  suggests, by estimating the potential PFC collections under a $6 PFC on  the basis of 2005 enplanements and collection rates assuming all airports  imposed a $6 PFC. Third, we determined the status of FAA’s pilot program  for airport privatization. Moreover, we discussed the impact of all of the  proposed changes (funding/allocation, $6 PFC, and privatization) with  FAA, bond rating agencies, bond underwriters, airport financial  consultants, and airport and airline industry associations.
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