In 1987, the Congress directed FAA to choose three states to participate in a state block grant pilot program. While many states already had existing state airport capital improvement programs and staff in place to fund development and safety projects at small airports, the block grant program transferred the responsibility for administering AIP grants from FAA to the participating states. To select the states, the Congress directed FAA to determine whether a state was capable of administering the program, used satisfactory airport system planning and programming processes, and would agree to comply with federal procedures. Furthermore, FAA’s regulations stipulated that states accepted into the block grant program could not use AIP funds to finance the costs associated with administrating the program unless granted a waiver. Thirty-five states initially expressed interest in participating in the program, 10 states applied, and an FAA review panel recommended that 3 states be selected—Illinois, Missouri, and North Carolina. FAA chose these states, in part, because they were diverse in their organization, staff size, budget, airport systems, and location. After the Congress expanded the program in 1992 to include four additional states, FAA selected Michigan, New Jersey, Texas, and Wisconsin on the basis of the same criteria. States participating in the pilot program receive a block grant consisting of AIP apportionment funds and, if available, AIP discretionary, and set-aside funds for distribution at small airports (see fig. 1). When discretionary and set-aside funds are available for small airports, they are distributed to the participating states for the projects that FAA has approved using its national priority system. According to FAA officials, once the participating states receive their block grant, they can use their AIP funds for eligible projects at any small airport. Airports in nonparticipating states receive their grant funds directly from FAA but often must apply to both their state and FAA for grant approval. The state’s approval is necessary if the state provides airports with grant funds to help “match” their AIP grant. All airports, in both participating and nonparticipating states, must provide a certain percentage of funds to match their AIP grants. Small airports receive, on average, 30 percent of all AIP funds annually, or about $450 million, for safety, preservation, and development projects at airports. The seven states have seen a steady decline in AIP funds in recent years; the average allocation fell from a high of $21.5 million in fiscal year 1992 to a low of $7.4 million in fiscal year 1995 (see fig. 2). The reduction in block grant funding since fiscal year 1992 can be attributed to an overall reduction in appropriated AIP funds and increased competition for discretionary funds, including a reduction in the amount of funding set-aside for nonprimary commercial and reliever airports. State officials told us that under the block grant program, they have successfully assumed most of FAA’s responsibilities for small airports.Most states took on responsibilities in four key areas: Planning: States participate in a number of planning tasks with airport officials. Such tasks include assisting with long-range airport planning, approving changes to airport layout plans to reflect future construction plans, and conducting environmental assessments. Grant administration: States help airports select projects qualifying for AIP funding, award AIP grants, issue grant reimbursements, and provide grant oversight. Safety and security inspections: The seven block grant states conduct safety inspections at small airports and investigate compliance issues and zoning concerns. Project construction: States provide technical assistance during the life of a project, including guiding airport sponsors in soliciting bids for construction, approving AIP construction change orders, and monitoring the progress of the project at preconstruction, interim, and final construction inspections. In 1992, FAA issued a performance review of the first three block grant states in which it concluded that the pilot program was generally working well. Since 1992, FAA has reviewed the implementation of the pilot program in all block grant states and maintains that the program is a success. FAA regional officials told us that some airport officials were initially confused about the delineation of state and federal responsibilities, but this uncertainty has largely disappeared as the states, FAA, and the airport officials have gained experience working with the pilot program. Officials from small airports with whom we spoke in each block grant state saw no major difference between the services delivered by the states and those previously delivered by FAA. The airport officials told us that they typically see state inspectors more frequently than FAA inspectors and believe that the state inspectors have more direct and current knowledge of individual airport’s needs. The states told us that one factor easing their transition to the block grant program was their prior experience with their own airport improvement programs. Each state had previously administered a state-funded grant program that provided grants, planning, and construction assistance to small airports. Furthermore, these states had provided some matching funds to help airports finance their share of AIP grants; therefore, states had been directly involved with many federally administered AIP projects in conjunction with their own efforts to oversee the state’s investment. In addition, four of the seven states required their state aviation agencies to participate in the process for approving, distributing, and overseeing federal funds for airport projects; thus, these states had already assumed an oversight role on behalf of the federal government. According to officials in six of the block grant states, another factor that facilitated their transition to the pilot program was having inspection programs in place when they assumed their new responsibilities. Even before the transition, state inspectors typically had visited the smaller airports more frequently than FAA because the states were already responsible for airport safety inspections and also routinely inspected ongoing airport construction projects. Having enough staff with the requisite expertise was also important to the block grant states’ success. Five of the seven states already had a staff of engineers, planners, grant administrators, and inspectors in place to service and oversee state-funded and AIP projects at small airports. The other two states, Missouri and New Jersey, had smaller state programs with fewer staff and could not initially accommodate the increased workload. Although Missouri state officials sought approval from the state legislature to hire additional staff, their efforts were unsuccessful because the program was a pilot and the legislators viewed its future as uncertain. When New Jersey joined the pilot program, it had a relatively small state grant program and was not providing that same range of services to small airports as FAA had been providing. To overcome their staffing shortfalls, both states petitioned FAA for a waiver allowing them to use some of their block grant funds to help defray the costs of administering the block grant program. In their petitions, both states indicated that they required more staff and training in order to efficiently manage the program. FAA approved the requests, limiting the amount of the block grant funding used for this purpose to $75,000 annually. Participating states and airports in these states have derived important benefits from the state block grant pilot program. First, the program has expedited project approvals because the block grant states may now approve project scope’s and financing which formerly required FAA approval. State officials told us that they can provide approval to airports more efficiently than FAA. The quicker turnaround time has enabled airports to use their contractors more efficiently—saving time and money on projects. The states now have also acquired the authority to review and approve airport layout plans for future projects. In the past, both the states and FAA reviewed such plans and FAA approved them. Second, the state officials told us they were able to reduce the paperwork required to apply for federal projects, using their own forms and applications instead of both their own and FAA’s. This reduction, which simplified both the application and the review processes, created efficiencies for both the airport and state officials. Third, the duplication of airport oversight activities has been reduced or, in many cases, eliminated. In the past, for example, both the states and FAA typically conducted inspections during the life of an airport project, because both had provided funds for it. Now, the state is solely responsible for those inspections. FAA has benefited from the state block grant pilot program because it has been able to shift regional staff resources to deal with other pressing priorities. FAA has thus partially compensated for the effects of attrition and a hiring freeze, which have reduced its airport staff by 12 percent in the affected regions over the past 3 years. The states can now provide oversight for small airports where attrition had, according to some regional officials, already reduced FAA’s coverage. FAA can now assign a greater portion of its remaining staff to emerging priorities at larger airports, such as reviewing passenger facility charges and environmental compliance issues. FAA regional officials told us that they are still available to advise the state officials on airport issues and to review many of the documents prepared by state officials. During the pilot program, FAA’s and the states’ views on the purpose of the state block grant pilot program have differed. FAA viewed the program’s purpose as identifying administrative functions that might be shifted to or shared with the states. FAA also saw the program as a means of (1) giving the states more discretion in selecting and managing projects and (2) testing their ability to improve the delivery of federal funds. In contrast, the states viewed the block grant program as a vehicle for putting funding decisions into the hands of those with firsthand knowledge of the projects competing for funds. FAA’s and the states’ views on the priorities for using AIP funds have also differed. FAA maintains that federal funds should be used to meet the needs of the nation’s airport system. FAA implemented a new system for prioritizing allocations of AIP discretionary funds in 1993. According to the states, however, FAA’s national system does not adequately weigh the needs of small airports or reflect the goals of the individual states. The states in the pilot program expressed a desire for autonomy in allocating AIP funds according to their own priorities rather than those established by FAA. FAA applied its national priority system to all AIP projects competing for discretionary funds, including those submitted from the block-grant states. Furthermore, although the system applied only to requests for discretionary funds, state officials from five block grant states told us that FAA had directed them to allocate their apportionment funds in accordance with the national priority system or risk losing the opportunity to compete for discretionary funds. Before 1993, FAA had allowed the block grant states greater flexibility in setting their own project priorities when distributing apportionment and discretionary funds, and many had used their own priority systems. State officials told us that their priority systems emphasized high-priority safety and capacity-enhancement systems as required by FAA’s system; however, the state systems target the funds to the airports that the states deem most important. These airports are not necessarily the same as those that FAA deems most important. FAA’s and the states’ differences in priorities have led to differences of opinion about how AIP funds should be spent. Under the state block grant law, states selected to participate in the program must have a process in place to ensure that the needs of the national airport system will be addressed when the states decide which projects will receive AIP funds. State officials said that they fulfill this requirement when they use their own priority systems to direct AIP funds to eligible projects at airports included in FAA’s National Plan of Integrated Airport Systems (NPIAS). In FAA’s view, however, according to the Director of FAA’s Office of Airport Planning and Programming, the state block grant program is a tool to develop a national system of airports and the priority system is one method to ensure the development of that system. An attorney from FAA’s Chief Counsel’s Office, Airport Laws Branch, said that FAA had adequate authority to require the block grant states to adhere to the national priority system when distributing grant funds. He added that unless FAA receives other direction from the Congress, it should continue to require the block grant states to abide by its national priority system. State officials expressed concern that using FAA’s national system does not allow them to take advantage of their expertise to direct federal funds to the airport projects that will go the farthest toward achieving the aviation goals established by their states. In their view, a primary purpose of the block grant program is to put decision-making power in the hands of decisionmakers with firsthand knowledge. State officials said they had sufficient information to make sound funding decisions on their own, because they routinely visit and inspect airports, establish local and state aviation goals, and develop state plans and priority systems. Three of the block grant states said that they had applied or would like to apply block-grant funds to projects that, under FAA’s national priority system, probably would not rank high enough to receive funding even though the projects would increase safety or capacity. North Carolina. State officials said that, until very recently, North Carolina has had little need for reliever airports to help reduce congestion at busy commercial service airports. Now, however, this need is acute. As a result, the state has placed high priority on using its block grant funds to build new reliever airports or help general aviation airports evolve into reliever airports. To achieve its goal, North Carolina has requested AIP reliever set-aside funds and also used most of its AIP apportionment funds, (typically used for projects at general aviation airports) for projects at reliever airports. State officials said that had they used FAA’s priority system in allocating these funds, the types of airports and the projects funded would have been different. New Jersey. The state has chosen to save its block-grant funds over the past few years to amass enough money to buy a private general aviation airport. Officials said that most of the state’s remaining general aviation airports are privately owned, and many of the owners are either considering closing or have already closed their airports because of increased costs for property taxes and liability insurance. The state would eventually like to purchase several small airports, preserving them for general aviation access. Under FAA’s criteria, purchasing new general aviation airports is a relatively low priority that probably would not be funded. Missouri. State officials said that in the first years of their program, they provided grants to airports that needed safety-related upgrades but had not previously received AIP funding, either because the airports were too small or the types of projects had not met FAA’s funding criteria. State officials told us that the initial block grant program was scheduled to last for 2 years and they felt compelled to issue as many grants to small airports as possible during that time. Thus, the state awarded more grants to more airports than FAA would have typically funded in a similar period with the same amount of money. We conducted a nationwide survey to determine whether states would be interested in participating in a block grant program. Of the 43 nonparticipating states, 34, or 79 percent, indicated that they would be interested in participating in such a program and appeared capable of doing so. (See app. I for a list of the 34 states interested in participating in the block grant program.) Many states wanted the flexibility to manage airport funds and financial assistance to administer the program. Nearly all of the states expressing interest in the block-grant program already manage state-funded capital improvement programs of their own. Many of the state programs include funding for airport maintenance projects and emphasize aviation safety and education for pilots and the community at large. The majority of the states that expressed an interest in the block grant program appear to have the staff with the types of expertise that would be needed to successfully administer AIP grants for general aviation airports. In response to our survey, over 59 percent of the interested states said they had at least one full-time engineer, grant administrator, planner, and airport inspector. In addition, in 1995, over 71 percent of the interested states reported that they used either contract employees, personnel from other state agencies, or both to augment their own staff’s expertise. Besides having staff with the requisite skills, the states interested in joining the block grant program have already assumed many of the responsibilities taken on by block grant states. Over 90 percent of these states currently perform half or more of the tasks normally performed by FAA. These tasks include assisting airports in land acquisition and sales, assisting airports in identifying improvement projects and eligible projects, and reviewing plans and specifications for specific projects. Many of the interested states would be more inclined to participate in the block grant program if they could use their own methodology for selecting projects. Over three-quarters of the states interested in the block grant program currently have their own systems for prioritizing airport projects. We reviewed several of these systems and found that they include many of the same elements that appear in FAA’s priority system, including high priorities for safety projects. However, in some instances, states prioritize projects that would be ineligible for funding using FAA’s priority system, such as constructing general aviation terminals and hangars. In addition, we found that when assessing an eligible project’s priority for funds, some states consider factors that FAA’s priority system does not, such as whether (1) an airport has the potential to enhance economic development in a community, (2) an airport has an ongoing airfield maintenance program, or (3) a project has local financial, political, or zoning support. Sixty-two percent of the interested states also said they would request additional funding to administer the block grant program. Over half of the interested states said that they hoped to obtain this additional funding from a combination of state and federal funds. Twenty-nine percent of the interested states indicated that FAA would have to provide additional funding. Fifteen percent of the states either planned to obtain additional funding solely from their own state or would not seek additional funds. The pilot program has demonstrated that, with good preparation, states can manage AIP grants to small airports. If the Congress elects to extend or expand the block-grant program before it expires in 1996, many states appear interested in participating, and most seem to have the programs and staff in place to do the job. In our view, the key question now is not whether the states can administer the program, but whose set of priorities should prevail—FAA’s or the states’. Each set of priorities stems from a reasonable position. On the one hand, FAA maintains that federal funds should first be used to meet the needs of a national airport system. On the other hand, the states may prefer to allocate federal funds to local needs, such as encouraging economic development in particular areas or allocating funds to airports that have never ranked high enough to receive competitively awarded grants. FAA has taken the position that unless it receives alternative direction from the Congress, it will continue to require the states to use its national priorities and the states will risk losing discretionary grant funds if they choose otherwise. We make no recommendation as to whether the states should be required to follow FAA’s national priorities or be left free to make their own decisions. However, any policy change may require the Congress to change the current method for allocating AIP funds for small airports, since airports of all sizes compete for AIP discretionary funds. Mr. Chairman, this concludes our prepared statement. We would be happy to respond to any questions you or the Members of the Subcommittee may have. 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Summary: GAO discussed the Federal Aviation Administration's (FAA) state block grant pilot program, which is part of its Airport Improvement Program (AIP). GAO noted that: (1) the 7 states in the pilot program are providing a board range of services to small airports and performing many functions that FAA formerly performed, such as long-range planning assistance, grant administration, safety and security inspections, and technical assistance and oversight; (2) airport officials believe that the only differences between FAA and state services are that state inspectors visit more frequently and are more knowledgeable; (3) the states' success under the pilot program is due to their already established state-financed airport development and inspection programs, experience with planning and oversight functions, and experienced staff; (4) participants and FAA believe that the program has streamlined AIP project approval processes, reduced paperwork requirements, eliminated duplication, and enhanced FAA ability to shift resources to other high-priority tasks; (5) the states would rather use their own project criteria than FAA national criteria because they include more state-level factors, but FAA believes its criteria are more equitable and ensures the development of a national airport system; and (6) 80 percent of nonparticipating states would like to receive block grants and most could successfully administer the grants, but they are concerned about autonomy and the availability of administrative funds under the program.