Financing Airport Improvements

Summary

There are five major sources of airport capital development funding: the federal Airport Improvement Program (AIP); local passenger facility charges (PFCs) imposed pursuant to federal law; tax-exempt bonds; state and local grants; and airport operating revenue from tenant lease and other revenue-generating activities such as landing fees. Federal involvement is most consequential in AIP, PFCs, and tax-exempt financing.

The AIP has been providing federal grants for airport development and planning since the passage of the Airport and Airway Improvement Act of 1982 (P.L. 97-248). AIP funding is usually spent on projects that support aircraft operations such as runways, taxiways, aprons, noise abatement, land purchase, and safety or emergency equipment. The funds obligated for AIP are drawn from the airport and airway trust fund, which is supported by a variety of user fees and fuel taxes. Different airports use different combinations of these sources depending on the individual airport’s financial situation and the type of project being considered. Although smaller airports’ individual grants are of much smaller dollar amounts than the grants going to large and medium hub airports, the smaller airports are much more dependent on AIP to meet their capital needs. This is particularly the case for non-commercial airports, which received about 30% of AIP grants distributed in FY2015. Larger airports are much more likely to issue tax-exempt bonds or finance capital projects with the proceeds of PFCs.

The FAA Modernization and Reform Act of 2012 (P.L. 112-95) provided annual AIP funding of $3.35 billion for four years from FY2012 to FY2015. That act left the basic structure of AIP unchanged, but included a provision permitting small airports reclassified as medium hubs due to increased passenger volumes to retain eligibility for up to a 90% federal share for a two-year transition period. It allowed certain economically distressed communities receiving subsidized air service to be eligible for up to a 95% federal share of project costs and expanded the number of airports that could participate in the Airport Privatization Pilot Program from five to 10. Only minor modifications were made in the PFC program.

The Airport and Airway Extension Act of 2015 (P.L. 114-55) provided a six-month extension of the 2012 reauthorization act. Another extension, the Airport and Airway Extension Act of 2016 (H.R. 4721), was passed in March 2016 to further extend the authorization of FAA programs through July 15, 2016, as Congress works on a long-term aviation bill.

The airport improvement issues Congress may face in the context of FAA reauthorization include the following:

Should airport development funding be increased or decreased?

Should the $4.50 ceiling on PFCs be eliminated, raised, or kept as it is?

Could AIP be restructured to address congestion at the busiest U.S. airports, or should a large share of AIP resources continue to go to non-commercial airports that lack other sources of funding?

Should Congress set tighter limits on the purposes for which AIP and PFC funds may be spent?

This report provides an overview of airport improvement financing, with emphasis on AIP and the related passenger facility charges. It also discusses some ongoing airport issues that are likely to be included in a future FAA reauthorization debate.