A. Recommendations

B. Background

The Commission was encouraged by its enacting legislation to consider airport infrastructure needs for airports of all sizes, and to provide recommendations on funding alternatives for airport capacity development. To assist the Commission in this effort, the Federal Aviation Reauthorization Act of 1996 requested that the General Accounting Office (GAO-Airport Development Needs, April 1997) and an independent entity (Coopers & Lybrand LLP-Independent Financial Assessment, February 1997) provide independent assessments of future airport development capital needs. The Commission reviewed and considered these studies and notes that both entities reviewed previous airport capital requirement studies, which contained different underlying assumptions and hence conclusions as to the total estimated needs over the next five years.

The Commission agrees with GAO and Coopers & Lybrand that there are several key reasons for the differing assessments of airport capital requirements: incompatibility and purpose of collected data, availability of data, and the underlying premise of the data collection process. There are also significant differences in terms of time periods, AIP eligibility, and data sources. In its report, Coopers & Lybrand estimated that the average annual capital requirements total for 1997-2002 will be $7-8 billion per year in constant 1997 dollars. In its report, GAO created four separate models to create an estimated range of $1.4 billion to $10.1 billion per year from 1997-2001. While not resulting in a single agreed upon estimate of needs, the Commission notes that these reports all confirm that airport needs are significant and are expected to increase due to emerging new requirements and forecast growth in airport operations. Current airport revenue sources have not provided the funding to meet the needs identified in the Coopers & Lybrand and GAO reports.

Funding Source 1990 1991 1992 1993 1994 1995 1996
Airport Revenue Bonds 54.600 $3.200 $4.800 $1.600 $3.000 $3.200 $4.000
AIP $1.425 $1.800 $1.900 $1.800 $1.690 $1.450 $1.450
State/Local Grants $0.500 $0.500 $0.500 $0.500 $0.500 $0.500 $0.500
PFC's N/A N/A $0.085 $0.485 $0.849 $1.046 $1.113
Total $6.525 $5.500 $7.285 $4.485 $6.039 $6.196 $7.063

Figure 8.
Sources of Airport Capital Financing*
(in $ billions)

* Does not include General Obligation bonds or airport operating revenue.

The Commission examined the FAA's AIP requirement level of $1.7 billion, an estimate derived from historic appropriation levels and budget constraints. While the FAA states that at this level, it is able to fund most safety, security, rehabilitation, standards and capacity projects, the Commission does not agree. At such a level of annual funding the FAA has not provided single-year AIP grants for all high priority capacity projects and noise mitigation projects that were ready for construction. The FAA acknowledges that at less than a $2 billion level it cannot satisfy all requests for worthy noise mitigation projects and multiyear letters of intent (LOI) that have been requested for capacity projects important to the national system of airports.

The Commission believes that a $2 billion annual AIP should serve as the minimal Federal investment level in airport infrastructure, and that this amount should be made available on a reliable and predictable basis. Funding at the $2 billion level would accomplish the following:

More AIP funding will result in more system capacity being developed. With higher AIP, substantial progress can be made at meeting these needs. For large airports, further commitments in the form of Letters of Intent (LOI -- a multi-year commitment or promise by the FAA to fund a large project at a particular airport) could be made. These commitments are typically for projects that will have a significant system-wide impact. There are over $2 billion in pending LOI applications. With a higher AIP funding level, a more significant improvement in overall airport capacity could be achieved.

The Commission notes that this $2 billion AIP level is less than the current authorized level for AIP in existing law. This recommendation is based on the requirement to balance capital spending, of federally collected taxes and fees between air traffic control and airport needs, and the recognition that airport capital funding has a second federally-authorized revenue source in PFCS.

In addition to considering needs assessments, the Commission also examined actual airport capital spending from all known sources of airport capital financing: airport revenue bonds, AIP, State and local grants, and Passenger Facility Charges (PFCS) (but not including other potential revenue sources more difficult to quantify, such as that portion of an airport's operating budget which may finance small capital projects). In examining these revenue sources, the Commission makes the following observations and conclusions:

Between 1992 and 1996, the AIP program has been reduced from $1.9 billion to $1.45 billion, a 23% drop-off. This has tremendously eroded the effectiveness of this program to meet airport infrastructure requirements. Looked at another way, the proportion of the FAA's budget that goes for airports has declined precipitously. The following chart illustrates the relative decline in the airport program compared to the rest of the FAA's activities and programs. Aside from fiscal impact on airport development, this is a very strong policy statement about priorities. It is one that the Commission strongly opposes and believes should be reversed.

Figure 9

Figure 9.
AIP as Percent of FAA

C. Other Recommendations and Findings

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