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.