Order Code IB10026
Issue Brief for Congress
Received through the CRS Web
Airport Improvement
Program
Updated March 4, 2003
Robert S. Kirk
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Founding Legislation
Airport and Airway Development and Revenue Acts of 1970 (P.L. 91-258)
Airport and Airway Improvement Act of 1982 (P.L. 97-248)
Airport Improvement Program (AIP)
The Airport and Airway Trust Fund
AIP Funding
The Impact of FAIR21 on AIP
AIP Funding Distribution
Formula and Discretionary Funds
The Federal Share of AIP Matching Funds
Distribution of AIP Grants by Airport Size
Passenger Facility Charges (PFCs)
AIP Funding of Airport Security
Congressional Issues
The PFC Cap
Budgetary Treatment of the Aviation Trust Fund
Airport Capital Needs Debate
Noise Mitigation
Place Naming
Aviation Security Legislation and AIP
LEGISLATION
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Airport Improvement Program
SUMMARY
The Airport Improvement Program (AIP)
tax on each boarding passenger that is levied
(49 U.S.C. Chapter 471) has provided federal
by an airport with federal approval. The
grants for airport development and planning
ceiling had been set at $3 since 1990. During
since the passage of the Airport and Airway
the reauthorization airports had supported
Improvement Act of 1982 (P.L. 97-248). AIP
eliminating or raising the ceiling while airlines
funding is usually spent on projects that sup-
had argued for no change.
port aircraft operations including runways,
taxiways, aprons, noise abatement, land pur-
FAIR21 includes “point of order” provi-
chase, and safety, emergency or snow removal
sions that were designed to assure that all trust
equipment. Funds obligated for the AIP are
fund receipts and interest are spent annually
drawn from the Airport and Airway Trust
and increased the likelihood that AIP will be
Fund, which is supported by user fees and fuel
fully funded at the authorized level. To date,
taxes.
excepting across-the-board recissions, this has
been the case: AIP has received the fully
The September 11, 2001 terrorist attacks
authorized amounts of $3.2 billion, $3.3
on New York and Washington led to passage
billion, and $3.4 billion for FY2001, FY2002,
of the Aviation and Transportation Security
and FY2003 respectively.
Act (ATSA) (P.L. 107-71). ATSA broadened
the range of security activities and projects
Noise mitigation spending is closely
that are eligible for AIP grants.
linked to airport capacity policy because
airport noise levels are a major factor in local
On April 5, 2000 President Clinton
resistance to airport improvement projects.
signed the Wendell H. Ford Aviation Invest-
FAIR21 increased the set aside for noise
ment and Reform Act for the 21st Century
mitigation from 31% to 34% of AIP discre-
(FAIR21; P.L. 106-181). Two years in the
tionary funds.
making, this $40 billion multi-year Federal
Aviation Administration(FAA) reauthorizat-
As reauthorization of AIP approaches
ion bill included AIP authorizations of $3.2
some issues including, noise mitigation, the
billion for FY2001, $3.3 billion for FY2002,
appropriate range of AIP and PFC projects,
and $3.4 billion for FY2003. The Act also
and the scope of airport development needs,
increased the Passenger Facility Charge (PFC)
are reemerging. Along with these issues are
ceiling to $4.50 per boarding passenger.
newer issues such as the impact of the use of
AIP funds for security purposes on the
Raising the ceiling on the PFC had been
funding for AIP’s more traditional uses.
one of the most contentious policy issues
related to AIP. The PFC is essentially a local
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MOST RECENT DEVELOPMENTS
The September 11, 2001 hijacking of four airliners from three airports and the enormous
loss of life from their use as weapons has had an impact on the Airport Improvement
Program (AIP). In the aftermath of the attack, many airports are seeking to use AIP funds
for airport security improvements. Congress responded to the attacks by passing the
Aviation and Transportation Security Act of 2001 (ATSA)(P.L. 107-38). ATSA includes
provisions that broaden AIP eligibility to cover airport security costs incurred because of
FAA mandated security changes imposed in response to the September 11 attacks.
On February 20, 2003, President Bush signed H.J.Res. 2, the Consolidated
Appropriations Resolution (P.L. 108-7). The Act included $3.4 billion less an across-the-
board rescission of 0.65% (roughly $20 million). President Bush’s FY2004 budget proposal
would hold the AIP budget steady at $3.4 billion.

BACKGROUND AND ANALYSIS
The Airport Improvement Program (AIP) provides federal grants to airports for airport
development and planning. AIP funding is usually limited to improvements related to
aircraft operations, typically for planning and construction of projects such as; runways,
taxiways, aprons, noise abatement, land purchase, as well as security, safety, or emergency
equipment. Commercial revenue producing portions of terminals (such as shop concessions
or commercial maintenance hangars), automobile parking garages, and off-airport road
construction are examples of improvements that generally are not eligible for AIP funding.
AIP money cannot be used for airport operational expenses or bond repayments.
The AIP is one of five major sources of airport capital development funding. The other
sources are tax-exempt bonds, passenger facility charges (PFCs), state and local grants, and
airport operating revenue. Different airports use different combinations of these sources
depending on the individual airport’s financial situation and the type of project being
considered. Small airports are more likely to be dependent on AIP grants than large- or
medium-sized airports. The larger airports are also much more likely to participate in the
tax-exempt bond market or finance capital development projects with the proceeds generated
from PFCs.
The PFC is a local tax imposed, with federal approval, by an airport on each boarding
passenger. PFC funds can be used for a somewhat broader range of projects than AIP grants
and are more likely to be used for “ground side” projects such as passenger terminal and
ground access improvements. PFCs can also be used for bond repayments.
This issue brief discusses the Airport Improvement Program and its complement, the
Passenger Facility Charge (PFC). After a brief history of federal support for airport
construction and improvement, the report describes AIP funding, its source of revenues,
funding distribution, the types of projects the program funds, AIP and PFC policy issues, and
the allowable use of AIP funds for airport security purposes.
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Founding Legislation
Prior to World War II the federal government limited its role in aviation to maintaining
the airway system, viewing airports as a local responsibility. Some federal monies were
spent on airports during the 1930s (about $150 million) but only as part of federal work relief
activities. The national defense need for a strong system of airports during World War II led
to the first major federal support for airport construction. After the war, the Federal Airport
Act of 1946 (P.L. 79-377) continued federal aid under the Federal Aid to Airports Program,
although at lower levels than during the war years. In the 1960s substantial funding also went
to upgrade and extend runways for use by commercial jets. Congestion, both in the air and
on the ground at U.S. airports, was seen as evidence by some that past federal support for
airports had not been sufficient to maintain adequate airport capacity.
Airport and Airway Development and Revenue Acts of 1970 (P.L.
91-258)

Congress responded to the congestion problems and capacity concerns at airports by
passing two Acts. The first, the Airport and Airway Development Act, dealt with the
spending side of federal aid to airports. It established the forerunner program of the AIP, the
Airport Development Aid Program (ADAP), and set forth the program’s grant criteria,
distribution guidelines, and first five years’ authorization. The second Act, the Airport and
Airway Revenue Act of 1970, dealt with the revenue side of airport development. This Act
established the Airport and Airway Trust Fund (also known as the Aviation Trust Fund).
Revenues from levies on aviation users and fuel were dedicated to the fund.
Airport and Airway Improvement Act of 1982 (P.L. 97-248)
This Act created the current AIP. Although the AIP maintained the ADAP’s approach
of using grants-in-aid to support an integrated national system of airports, it did make some
significant changes in the operation of the program. The program differences included
altering the funding distribution among the different categories of airports, extending aid
eligibility to privately owned general aviation airports, increasing the federal share of eligible
project costs, and earmarking a portion of total funding for noise abatement and compatibility
planning.
Airport Improvement Program (AIP)
The structure of AIP funds distribution reflects the national priorities and objectives of
assuring airport safety and security, stimulating capacity, reducing congestion, helping fund
noise and environmental mitigation costs, and financing small state and community airports.
This section first discusses the source of the money used to pay for AIP grants, the
Aviation Trust Fund. It then sets forth the overall impact on AIP of the passage of FAIR21,
which reauthorized FAA through FY2003. Next, it explains the AIP’s system of project
grant distribution. The section then describes AIP funding in terms of what types of projects
the grants are spent on and examines grant distribution by airport size. Finally, it discusses
the Passenger Facility Charge (PFC).
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The Airport and Airway Trust Fund
The money that goes into the Aviation Trust Fund comes from a variety of aviation user
fees and fuel taxes. These tax revenues are authorized through September 30, 2007, by the
Taxpayer Relief Act of 1997 (P.L. 105-34). Revenue sources include:
! 7.5% ticket tax;
! $3.00 flight segment tax;
! 6.25% tax on cargo waybills;
! 4.3 cents per gallon on commercial aviation fuel;
! 19.3 cents per gallon on general aviation gasoline;
! 21.8 cents per gallon on general aviation jet fuel;
! $13.40 international arrival tax;
! $13.40 international departure tax;
! 7.5% tax on second party sales of airline award miles (normally “frequent
flyer” awards);
! 7.5% ticket tax at rural airports.
Over much of the life of the trust fund, these revenues plus interest on the trust fund’s
unexpended balances brought more revenue into the fund than was being paid out. This has
led to the growth in the end-of-year unexpended balance in the trust fund. There are
outstanding commitments against these unexpended balances, so not all of the unexpended
balance would actually be available in any given year. Nonetheless, these unexpended
balances (somewhat inaccurately referred to by some as a surplus) have been large enough
relative to the FAA budget to make their existence controversial.
The scenario of an unexpended trust fund balance, that grows substantially larger each
year, ended in FY2001. Most observers believe the drop in demand for air travel that began
during 2001, due to the recessionary economy and potential passengers’ fear of flying
following the September 11 attacks, significantly constrained the revenues available from
the trust fund. The end of year balance for the trust fund dropped from a high of $14.5
billion for FY2001 to $12.6 billion for FY2002. Estimated balances for FY2003 and
FY2004 are $12.3 billion and $10.6 billion, respectively. (For more, see CRS Report
RS21321. Aviation Taxes and Fees: Major Issues, by John W. Fischer)
AIP Funding
AIP spending since FY1982 is illustrated in Figure 1. From FY1982 to FY1992 annual
spending (obligations) increased from $412.5 million to $1,954.5 million. From FY1982 to
FY1992 the obligation limits increased every year except for FY1986, when it dipped by
$28.6 million below the FY1985 level. For FY1993-FY1997 spending was reduced as part
of overall deficit reduction. AIP spending declined in FY1993 and FY1994 before leveling
off at about the $1.5 billion level during FY1995-FY1997.
Obligations for FY1998 rose to $1.7 billion. The FY1999 omnibus appropriations act
(P.L. 105-277) provided obligational authority for $1.95 billion. However, the money was
released intermittently as a series of partial year authorizations were passed. On October 1,
1999, with the beginning of the new fiscal year 2000, the AIP went into abeyance, causing
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the suspension of AIP grant distribution. The enactment of FAIR21 allowed the FY2000
AIP funds to be distributed.
For FY2000 appropriations, the enacted appropriations legislation (P.L. 106-69) again
provided for $1.95 billion. However, the Consolidated Appropriations Act for FY2000 ( P.L.
106-113), called for an across-the-board cut of 0.38% from all discretionary budget authority
and obligation limitations. Another $45 million is to be obligated to pay for the
administration of the AIP. This allowed FAA to obligate just over $1.85 billion for airport
grants in FY2000.
For FY2001, the DOT Appropriations Act funded AIP at the authorized level of $3.2
billion. This was an increase of nearly 70% over the FY2000 enacted funding. The
Administration had proposed $1.95 billion for AIP. Following passage of the FY2001 DOT
appropriations bill, the FY2001 Consolidated Appropriations Act (P.L. 106-554) provided
for a government-wide rescission that reduced the amount available for AIP by roughly $7
million.
Figure 1. AIP Authorization and Obligations, FY1982-FY2003
(Millions of $)
In the aftermath of the September 11 terrorist attacks on New York and Washington,
$175 million in FY2001 supplemental appropriations (available until expended), included
in the Department of Defense Appropriations Act (H.R. 3338; H.Rept. 107-350), were made
available for AIP to help reimburse airports for the costs of post-September 11 security
mandates imposed by law or DOT. The FY2002 DOT Appropriations Act (P.L. 107-87)
provided for the fully authorized funding of $3.3 billion for AIP. In addition, the FY2002
Emergency Supplemental Appropriations Act (P.L. 107-206) includes a provision for $150
million for emergency grants, contingent on a request by the Administration for their use, to
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airports to offset the costs of FAA security mandates. The Bush Administration, however,
has announced that it will not utilize any of the contingent emergency funds provided for in
P.L. 107-206.
On February 4, 2002, President Bush submitted his FY2003 budget to Congress. The
budget requested the fully authorized $3.4 billion for AIP. Of this amount, the President
requests that $83 million be provided for the Essential Air Service Program (EAS). On July
26, 2002, the Senate Committee on Appropriations recommended $3.4 billion (S. 2808;
S.Rept. 107-224), as did the House Committee on Appropriations on October 7, 2002 (H.R.
5559; H.Rept. 107-722). Both of these bills rejected the use of AIP funds for EAS. The
FY2003 Consolidated Appropriations Resolution (P.L. 108-7) provided for the fully
authorized $3.4 billion less the 0.65% across-the-board rescission (roughly $20 million).
(For more see CRS Report RS31308, Appropriations for FY2003: Department of
Transportation and Related Agencies
, coordinated by David Randall Peterman and John
Frittelli).
The Impact of FAIR21 on AIP
The enactment of FAIR21, was the culmination of two years of legislative effort to pass
a multi-year FAA reauthorization bill. The length of the effort was a reflection of the
difficult issues faced. Major issues that had to be resolved included the budgetary treatment
of the aviation trust fund, raising the ceiling on the passenger facility charge (PFC), and the
amounts to be spent and their distribution.
Provisions to take the aviation trust fund off-budget or erect budgetary “firewalls” to
assure that all trust fund revenues and interest would be spent each year for aviation purposes
never emerged from the conference committee. Instead, the enacted legislation includes a
so-called “guarantee” that all of each year’s receipts and interest credited to the trust fund
will be made available annually for aviation purposes. The guarantee is enforced by changes
made in House and Senate point-of-order rules. One rule makes it out-of-order to consider
legislation that does not spend all trust fund revenues for aviation purposes. The second rule
makes it out-of-order to consider legislation for funding FAA’s Operations and Maintenance
(O&M) or Research, Engineering and Development (RE &D) budgets if AIP and the
Facilities and Equipment (F&E) budgets are funded below authorized levels. Although these
provisions are not airtight, they do increase the likelihood that the budget resources made
available for AIP for FY2001-FY2003 will equal the levels authorized in FAIR21 and, thus
far, this has been the case.
FAIR21 does not, however, make any major changes in the structure or functioning of
AIP. The big difference is the amount of money made available for airport development
projects. From a funding level of approximately $1.9 billion for FY2000, AIP’s
authorization increases funding by nearly 70% to $3.2 billion for FY2001, then to $3.3
billion for FY2002, and to $3.4 billion for FY2003. Within the context of these increases,
the formula funding and minimums for primary airports are doubled starting in FY2001. The
state apportionment for general aviation airports is increased form 18.5% to 20%. The noise
set-aside is increased from 31% to 34% of discretionary funding and a reliever airport
discretionary set-aside of 0.66% is established.
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FAIR21 also increases the PFC maximum to $4.50 per boarding passenger. In return
for imposing a PFC above the $3 level, large and medium hub airports would give back, or
“forgo,” 75% of their AIP formula funds. This will make more AIP funding available to the
smaller airports.
AIP Funding Distribution
The distribution system for AIP grants is complex. It is based on a combination of
formula grants (also referred to as apportionments) and discretionary funds. Each year
formula grants are apportioned automatically to specific airports or types of airports
including primary airports, cargo service airports, general aviation airports, and Alaska
airports. The discussion below incorporates changes to AIP enacted in FAIR21.
Formula and Discretionary Funds.
Formula Funds. Sometimes referred to as apportionments, these funds are
apportioned by formula or percentage (see, 16th Annual Report of the AIP: FY1997.
Washington, FAA, 1998: pp. 12-15). Formula funds may generally be used for any eligible
airport or planning project. Formula funds are divided into four categories, primary airports,
cargo service airports, general aviation airports, and Alaska supplemental funds. Each
category distributes AIP funds by a different formula. Most airports have up to three years
to use their apportionments. Non-hub commercial service airports (the smallest of the
primary airports) have up to four years.
Primary Airports. The apportionment for primary airports is based on the number of
passenger boardings made at the airport during the prior calendar year. Beginning in
FY2001, the amount apportioned for each fiscal year is equal to double the amount that
would be received according to the following formulas:
! $7.80 for each of the first 50,000 passenger boardings;
! $5.20 for each of the next 50,000 passenger boardings;
! $2.60 for each of the next 400,000 passenger boardings;
! $0.65 for each of the next 500,000 passenger boardings; and
! $0.50 for each passenger boarding in excess of 1 million.
The minimum formula allocation is $1 million. The maximum is $26 million. New
airports receive the minimum for their first fiscal year of operation.
Cargo Service Airports. 3% of AIP funds are apportioned to cargo service airports.
The allocation formula is the proportion of the individual airport’s landed weight to the total
landed weight at all cargo service airports.
General Aviation Airports. Beginning in FY2001, 20% of AIP funds are to be
apportioned for use at general aviation and reliever airports. From this share, all airports,
excluding all non-reliever primary airports, receive the lessor of:

! $150,000; or
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! one fifth of the estimated 5-year costs published in the most recent National
Plan of Integrated Airport Systems (NPIAS) to a maximum of $200,000 per
year.
Any remaining funds would be distributed based on state-based population and area
formulas.
Alaska Supplemental Funds. Funds are apportioned to Alaska to assure that Alaskan
airports receive at least as much as they did under the ADAP in 1980. FAIR21 doubles the
Alaska Supplemental.
Forgone Apportionments. Large and medium hub airports that collect a passenger
facility charge of $3 or less have their AIP apportionments reduced by an amount equal to
50% of their projected PFC revenue for the fiscal year until they have forgone (sometimes
referred to as a “give back”) 50% of their AIP formula grants. In the case of a fee above the
$3 level the percentage forgone is 75%. The implementation of the reduction is not imposed
until the first fiscal year following the calendar year in which the PFC is first imposed.
A special small airport fund gets 87.5% of these forgone funds. The discretionary fund
gets the remaining 12.5%.
Discretionary Funding. The discretionary fund (49 U.S.C. sec. 47115-47117)
includes the money not distributed under the apportioned entitlements as well as, the forgone
PFC revenues that were not deposited into the Small Airport Fund. Discretionary grants are
approved by the FAA based on project priority and other selection criteria, including
congressional directives in appropriations legislation. Despite its name, the discretionary
fund is subject to three set-asides and certain other spending criteria. The three set-asides
are:
Airport Noise Set-Aside. At least 34% of discretionary grants are set-aside for noise
compatibility planning and for carrying out noise abatement and compatibility programs.
Military Airport Program (MAP). At least 4% of discretionary funds are set-aside for
conversion and dual use of current and former military airports. 15 airports may participate.
Grants for Reliever Airports. There is a discretionary set-aside of 2/3 of 1% for
reliever airports in metropolitan areas suffering from flight delays.
The Secretary of Transportation is also directed to see that 75% of the grants made from
the discretionary fund are used to preserve and enhance capacity, safety and security at
primary and reliever airports, and also to carry out airport noise compatibility planning and
programs at these airports.
Subject to these limitations, the three set-asides, or priority directives from the
appropriation committees (referred to by some as “place naming”), the Secretary, through the
FAA, has discretion in the distribution of grants from the remainder of the discretionary fund.
The Federal Share of AIP Matching Funds. For AIP development projects, the
federal government share differs depending on the type of airport. The federal share, whether
funded by formula or discretionary grants, is as follows:
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! 75% for large and medium hub airports (80% for noise compatibility
projects);
! 90% for other airports; and
! 90% for integrated airport system planning grants;
! “not more than” 90% for airport projects in states participating in the state
block grant program;
! 40% for projects funded from the discretionary fund at airports receiving
exemptions under section 47134, the pilot program for private ownership of
airports;
! 100% for FY2002 costs of security related activities required by the
Secretary of DOT after the terrorist attacks of September 11, 2001.
The airports themselves must raise the remaining share from other sources. Unlike
federal aid to highways, AIP grants generally go directly to airports rather than through the
states.
This federal share regime means that smaller airports do not pay as high a percentage
of AIP project costs as large and medium airports do. These are fixed percentages with the
above mentioned exception of the state block grant states.
Distribution of AIP Grants by Airport Size. The appropriateness of the
distribution of grants among airports of different size has, at times, been a source of debate
(for airport definitions see CRS Report RL30096, p. 11). It is important to keep in mind that
although smaller airports’ individual grants are much smaller than the grants going to large
and medium hub airports, the smaller airports are much more dependent on AIP to meet their
capital needs. Based on 1996 data, a GAO report (GAO/RCED-98-71) found that about 10%
of large and medium airports’ capital funding comes from AIP, contrasting with just over
50% for airports smaller than medium hub. (For graphic presentations of airport funding
sources, see U.S. General Accounting Office (GAO). Airport Financing: Funding Sources
for Airport Development,
GAO/RCED-98-71. 1998. 52 p.) A recent GAO report (GAO-02-
283) found, for the years FY1996 through FY1999, grants to small airports (small hub and
smaller) grew 56% while grants to large and medium hub airports grew only 24%, indicating
that AIP was becoming increasingly important to small airports.
FAIR21 continueed this trend and raised the percentage share for smaller airports. This
is because large and medium hub airports now forego 75% of their AIP formula funds in
return for the ability to impose PFCs at the $4.50 level.
Passenger Facility Charges (PFCs)
During the late 1960s a number of airports began collecting a local “head tax” (the
precursor of the PFC) on each paying passenger boarding an aircraft. There was severe
criticism of the passenger charges, by both airlines and passengers. The complaints included:
administrative problems for the airlines in collecting the charge; passenger inconvenience;
and, especially, the diversion of head tax revenue for off-airport projects and projects not
aviation related. In 1973, the Airport Development Acceleration Act banned the imposition
of state and local passenger charges.
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In 1990 expected tight budgets, resulting from the federal deficit, led to a
reconsideration of head taxes. Concerns that the Aviation Trust Fund and other existing
sources of funds for Airport development would be insufficient to meet national airport
needs led to the legislation that developed the passenger facility charge (PFC). The PFC was
seen as being complementary to AIP funding. The Aviation Safety and Capacity Expansion
Act of 1990 (P.L. 101-508) allowed the Secretary of Transportation to authorize public
agencies that control commercial airports to impose a passenger facility fee of $1 or $2 or
$3 on each paying passenger boarding an aircraft at the airports. The money was to be used
to finance eligible airport-related projects and, unlike AIP funds, could be used to make
payments for debt service or indebtedness incurred to carry out the projects. There was a $3
cap on each airport’s PFC and there was a $12 limit on the total PFCs that a passenger could
be charged per round-trip. Although the FAA oversees the PFC program, the agency does
not impose the fee. The PFC is a state, local, or port authority fee, not a federally imposed
tax. Because of the complementary relationship between AIP and PFCs, PFC legislation is
generally folded into the AIP provisions of FAA reauthorization legislation. The legislative
origin of the PFC itself is Title IX of the Omnibus Budget Reconciliation Act of 1990 (P.L.
101-508).
FAIR21 increased the PFC ceiling to $4.50. To impose a PFC over the $3 level an
airport has to show that the funded projects will make significant improvements in air safety,
increase competition, reduce congestion or noise impacts on communities and that these
projects could not be funded using of AIP funds. Large and medium hub airports imposing
PFCs above the $3 level forego 75% of their AIP formula funds. Beginning in FY2001,
PFCs at large and medium hub airports may not be approved unless they have submitted a
written competition plan to the FAA. The competition plans are to include information such
as, the availability of gates, leasing arrangements, gate-use requirements, patterns of air
service, controls over air- and ground-side capacity, intentions to build gates that could be
used as common facilities, and airfare levels compared to other large airports.
PFCs are a significant source of capital improvement revenue for large, medium, small
hub, and non-hub commercial airports. The PFC percentage of airport development funding
in FY1996 by airport size is as follows: large hub, 19.9%; medium hub, 14%; small hub,
16.9%; nonhub commercial, 9.7%; and other commercial service, 0.5%. Under the AIP the
corresponding percentages are: large hub, 9.7%; medium hub, 12%; small hub, 42%; non-
hub commercial, 71%; and other commercial service, 76%. (These percentages were
extrapolated from charts [FY1996 figures] in, GAO, Funding Sources for Airport
Development,
pp. 44-48.) As of November 1, 2002, 308 airports were collecting PFCs and
332 had received PFC approval. A substantial portion of PFC revenues are used to make
interest payments on bonds.
Airports have used PFC revenues for a broad range of purposes. Unlike AIP grants, of
which almost three-quarters have gone to airside projects (runways, taxiways, aprons, and
safety related projects) PFC revenues have been distributed more equally between airside and
landside projects. The PFC statutory language lends itself to a broader interpretation of
“capacity enhancing” and the implementing regulations are less constraining than those for
AIP funds. Also the airlines, who historically have preferred funding be dedicated to airside
projects, only have to be notified and provided with an opportunity for consultation about
PFC funding requests and are therefore somewhat less involved in the PFC project planning
and decision-making process than with AIP projects. The difference in the pattern of project
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types may also be influenced by the difference in project spending patterns between the
larger airports, that collect most of the PFC revenue and have more substantial landside
infrastructure, versus the smaller airports that are much more dependent on AIP funding.
The Aviation and Transportation Security Act (P.L. 107-38) requires that FAA expedite
the processing and approval of PFC requests for security projects and for reimbursement of
costs of DOT security mandates.
AIP Funding of Airport Security
The September 11 attack increased interest in what kinds of security spending could
qualify for AIP funding and some confusion as to how airport security projects rate against
other priorities in the program. In the aftermath of September 11, FAA advised its field
offices that the policies that restricted AIP funding were being temporally lifted. FAA could
now approve discretionary funding for security projects and airports could use their formula
funds for equipment and facilities of any security project approved by the Civil Aviation
Security Field Office. The projects could include security activities for the protection of
persons, baggage, and cargo at an airport as well as security activities on board aircraft
parked at an airport. Personnel, training, and uniform costs, as well as maintenance and
operational costs remained ineligible due to statutory limitations. Security projects, along
with safety projects, are considered the highest priority projects.
On November 19, 2001, President Bush signed the Aviation and Transportation Security
Act (ATSA) (P.L. 107-71). Section 119 of the act expands AIP eligibility for FY2002 to
cover any “additional security related activity required by law or by the Secretary after
September 11, 2001, and before October 1, 2002.” For non-primary airports located in the
confines of enhanced class B airspace, funds apportioned in FY2002 and FY2003 can be
used to fund any activity, including operational activities, if the activity was carried out when
any restriction in the Notice to Airmen FDC1/0618 was in effect. Also eligible, in FY2002,
are payments for debt service on indebtedness incurred by an airport sponsor or at a privately
owned or operated airport passenger terminal financed by indebtedness incurred by the
sponsor if the Secretary of DOT determines that such payments are necessary to prevent a
default on the indebtedness. The federal share for these purposes is 100%.
As mentioned earlier, H.R. 3338 included supplemental appropriations of $175 million,
available until expended, for AIP security grants. In addition, the FY2002 Emergency
Supplemental Appropriations Act (P.L. 107-206) includes a provision for $150 million for
emergency grants, contingent on a request by the Administration for their use, to airports to
offset the costs of FAA security mandates. The Bush Administration, however, has
announced that it will not utilize any of the contingent emergency funds in P.L. 107-206.
Congressional Issues
The safe operation of airports is, by statute, the highest aviation priority. Other
priorities include minimizing noise impacts, increasing capacity to the maximum feasible
extent, and encouraging efficient service to state and local communities. AIP legislation also
links increasing capacity to increasing efficiency and safety. The issues discussed below are
not only issues that rose to prominence during the recent reauthorization debate but also
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issues that will retain significance during the oversight years leading up the next
reauthorization cycle.
The PFC Cap
The cap on the Passenger Facility Charge (PFC) is one of the most contentious policy
issues related to the AIP . PFCs have been extremely popular with airports because they
allow for a broader range of improvement projects than AIP, and also because PFCs give
airports more freedom from airline involvement in the project decision-making process.
Airports also argue that PFCs are pro-competitive in allowing airports to build gates and
facilities that can encourage new entrant carriers without incumbent airline approval
(although some would deny that this has been done). The airlines argue that the PFC is just
another tax on air travelers and is anti-consumer because it raises travel costs. Airlines also
argue that airports are using PFCs to fund projects of marginal value instead of projects that
offer meaningful safety or capacity enhancements. As mentioned before, FAIR21 raised the
PFC cap to $4.50. The agreement also increased to 75% the portion of AIP formula funds
that large and medium airports must give up, if they impose a PFC at the $4 or $4.50 level,
and also required these airports to submit competition plans to the FAA. As of November
1, 2002, 158 airports were approved to collect PFCs at the $4.50 level.
Ongoing post-FAIR21 oversight issues will most likely focus on questions concerning
the pattern of spending of the higher PFC revenues. Will the increase in the PFC cap lead
to airport development projects that can be seen as being pro-competitive by encouraging
new entrant carriers? Despite the requirement that projects funded by PFCs at the new
ceiling increase competition among carriers, will the pattern of PFC spending, over time,
benefit dominant carriers’ facilities?
Because the PFC cap was raised to $4.50 under FAIR21, it is unlikely that the PFC cap
will be increased substantially during the upcoming FAA reauthorization unless it happens
in the form of an inflation adjustment or is scheduled for the out years of the new authorizing
legislation. Any increase will probably be vehemently opposed by the air carriers who feel
that aviation taxes and fees have grown over the years to the point where their total cost is
constraining the market for air travel.
Budgetary Treatment of the Aviation Trust Fund
FAIR21 includes language that makes it “out of order” in the House of Senate to
consider legislation that does not use all aviation trust fund receipts and interest annually.
A second capital priority “point of order” provision makes it out of order to consider
legislation for any fiscal year through FY2003 for RE&D or O&M if the sum of the
obligation limitation for AIP and the appropriation for F&E are below their authorized levels.
(See CRS Report RS20177, Airport and Airway Trust Fund Issues in the 106th Congress, by
John W. Fischer.)
Following the passage of FAIR21 an ongoing issue was the strength of the Act’s
spending “guarantees” and point-of-order enforcement provisions. For example, points-of-
order can be waived. There were, however, no serious challenges to the point-of-order
enforcement provisions. The inclusion of similar provisions could be a reauthorization issue.
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Another issue is the impact of the aviation industry recession on trust fund revenues
under the fund’s existing tax and user fee structure. In addition, supplemental appropriations
have drawn from the trust fund and are contributing to the decline in the trust fund’s
unexpended balances. The end-of-year balance of the trust fund has fallen from its FY2001
peak of $14.5 billion and is expected to fall to $10.6 billion in FY2004. The less robust
condition of the trust fund could have funding implications in the upcoming FAA
reauthorization.
Airport Capital Needs Debate
The federal government’s interest in the needs debate is broader than just dealing with
capacity constrained airports. It also deals with implementing federal safety, security, and
noise policies. The needs estimates produced by airport and airline interests reflect their
business perspectives. Congress has both national interests and local concerns to consider
when making decisions on the federal role in airport finance.
During the 1996 reauthorization debate the airlines, the airports, and the FAA all
projected widely differing long-term airport financial needs. At the low end, the airline
estimate (prepared by the Air Transport Association of America) was that $4 billion would
be needed each year, while the airport estimate (prepared by the Airports Council
International-North America and the American Association of Airport Executives) was $10
billion. The FAA estimated the yearly need at $6.5 billion. During 1996 an estimated $7
billion was raised from all sources for airport capital development. Some advocates for the
$10 billion spending level argue that there is a spending gap of approximately $3 billion per
year. Others argue that the size of the gap is exaggerated by the inclusion of all proposed
projects in the $10 billion need figure. Assuming the accuracy of the $10 billion dollar need
level, the increase in AIP funding in FAIR21 increases the AIP share of overall airport
development needs funding from below 20% to about 30%. Together, the AIP and PFC
programs could now provide nearly 50% of needs.
Record delays and cancellations during the summers of 1999 and 2000 has led to
increased calls for airport capacity improvements, especially for new runway construction.
A congressional oversight issue will be whether the increased AIP spending under FAIR21
at the major congested airports will increase capacity on the air-side (e.g. new runways,
aprons, taxiways, etc.) at congested airports.
A related issue is whether the decline in demand for air passenger air transportation,
that coincided with the economic recession that began in 2001 and was exacerbated by the
impact of the September 11 terrorist attacks, will lead to a delay in capacity enhancing airport
projects. Also, will congestion in the security lines lead to a redirection of AIP spending
toward security needs at airport terminals.
In a more recent examination of airport capital needs the FAA estimated that just over
$9 billion per year would be needed to meet the costs of projects that would be eligible for
AIP grants. Airports Council International estimated that just under $15 billion per year
would be needed for projects that may or may not be AIP eligible. (See, U.S. GAO. Airport
Development Needs.
GAO/RCED-97-99. April 1997, and Airport Finance: Past Funding
Levels May Not Be Sufficient to Cover Airports’ Planned Capital Development.
GAO-03-
497t February 25, 2003)
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Noise Mitigation
During the reauthorization debate the immediate issue for Congress was what level to
set the noise set-aside in AIP reauthorization legislation. In the longer-term the issue is
maintaining noise abatement spending at levels that assure that noise abatement projects
reflect their status as high AIP priority. Noise policy is linked to airport capacity policy
because airport noise levels are a major factor in local resistance to airport expansion or
improvement projects.
AIP discretionary funds are the primary source of noise mitigation projects. AIP formula
funds, PFCs, or bond funding are less often used for noise mitigation projects. Small
commercial and general aviation airports generally do not have alternative sources of funding
for noise mitigation.
FAIR21 raised the discretionary set-aside from 31% to 34%. This will push noise
mitigation spending above $300 million for FY2001-FY2003. Even given this increase, the
adequacy of AIP funding for noise mitigation will remain an issue. The coming increase in
the number of airport improvement and construction projects may well increase the incidence
of noise-based opposition to airport expansion and improvement, and lead to pressure for
even more noise mitigation spending. AIP funds other than the discretionary set-aside can
also be used for noise mitigation projects.
Place Naming
Historically, Congress has not earmarked AIP funds in the manner typical to transit
appropriations where specific projects have specific dollar amounts designated in the
language of the appropriations bills. Instead of earmarking, AIP funds are subject to “place
naming.” Under place naming the appropriations committees direct FAA to give priority
consideration to discretionary grant applications at airports named in the appropriations bill
report language. Prior to FY2001, the dollar amount for each named airport was generally
not specified. In FY2000 the number of airports named in the report language of the House,
Senate, and conference agreement increased significantly. The enacted FY2001 conference
agreement (H.Rept. 106-940) place named 158 airports and also specified dollar amounts
to be awarded. The language was also more directive. The report directs FAA to “provide
not less than the following funding levels, out of available discretionary resources.” The
FY2002 appropriations bill conference report (H.Rept. 107-308), place named 101 airports,
set the dollar amounts, and directed FAA to provide “not less than” the listed totals. The
FY2003 Consolidated Appropriations Resolution (P.L. 108-7) place named 164 airports. At
issue is the appropriate scope of place naming and the impact it has on FAA’s grant
application process.
Aviation Security Legislation and AIP
With the passage of ATSA the congressional issues are ones of oversight. Will the
elevation of security activities as high priorities (including in some cases operations costs)
lead to a substantial shift of AIP resources away from its traditionally emphasized air-side
capacity projects toward more spending on land-side security-related terminal
improvements? Will this redirection of funds lead to delays and cancellations of planned air-
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side capacity projects and increase the likelihood of an airport capacity crisis in the future?
The findings of a recently released General Accounting Office (GAO) report (GAO-03-27)
indicate that this may be the case. The report found that 17% of the $3.3 billion in AIP
appropriations for FY2002 are being awarded for security projects. The average for AIP
through FY 2001 was less than 2%. The $561 million awarded for security purposes for
FY2002 was an 800% increase over the $57 million awarded for FY2001. GAO also found
that there were reductions in AIP funding awarded for nonsecurity projects for FY2002 from
the award levels of FY2001.
LEGISLATION
P.L. 106-181, H.R. 1000 (Shuster)
The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (H.R.
1000), also referred to as AIR21 or FAIR21, was enacted on April 5, 2000.
P.L. 107-38 (Young)
The Aviation and Transportation Security Act (ATSA) broadened the eligibility of
security projects and activities for AIP funding.
P.L. 108-7, H.J.Res. 2
The FY2003 Consolidated Appropriations Resolution. The bill recommends $3.4
billion for AIP for FY2003. Signed into law February 20, 2003.
H.R. 5559; H.Rept. 107-722 (Rogers)
The Department of Transportation and Related Agencies Appropriations Bill, FY2003.
The bill recommends $3.4 billion for AIP for FY2003.
FOR ADDITIONAL READING
CRS Report 98-579. Airport Finance: A Brief Overview.
CRS Issue Brief IB10032. Transportation Issues in the 108th Congress.
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