This report was produced by the Congressional Research Service, a branch of the Library of Congress providing nonpartisan research reports to members of the House and Senate.

IB10026

Airport Improvement Program

Robert S. Kirk
Resources, Science, and Industry Division

February 26, 2001


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)
Congressional Issues
The PFC Cap
Budgetary Treatment of the Aviation Trust Fund
Airport Capital Needs Debate
Noise Mitigation
Place Naming
Legislation in the 106th Congress
FOR ADDITIONAL READING


SUMMARY

The Airport Improvement Program (AIP) has provided 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 including runways, taxiways, aprons, noise abatement, land purchase, and safety, emergency or snow removal equipment. Funds obligated for the AIP are drawn from the Airport and Airway Trust Fund, which is supported by user fees and fuel taxes.

On April 5, 2000 President Clinton signed the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (FAIR21; P.L. 106-181). Two years in the making, this $40 billion multi-year Federal Aviation Administration(FAA) reauthorization bill included AIP authorizations of $3.2 billion for FY2001, $3.3 billion for FY2002, and $3.4 billion for FY2003. The Act also increased the Passenger Facility Charge (PFC) ceiling to $4.50 per boarding passenger.

Raising the ceiling on the PFC had been one of the most contentious policy issues related to AIP and airport development. The PFC is essentially a local tax on each boarding passenger that is levied by an airport with federal approval. The ceiling had been set at $3 since 1990. Airports had supported eliminating or raising the ceiling. Airlines had argued for no change.

The House version of the reauthorization bill (H.R. 1000) would have taken the Aviation Trust Fund off-budget to encourage the spending of trust fund revenues and unexpended balances for aviation purposes. The off-budget proposal never emerged from conference. Some members in both houses, including many appropriations and budget committee members, believed that the changes would hamper their ability to fund other transportation programs and their flexibility in meeting the goals of the budget process. Instead of taking the trust fund off-budget, FAIR21 includes "point of order" provisions that, if utilized, could assure that all trust fund receipts and interest are spent annually and increases the likelihood that AIP will be fully funded at the authorized level.

In 1996, airports had estimated their airport development spending needs at $10 billion per year from all sources (the airlines estimated the need at only $4 billion). If one accepts the $10 billion figure, the AIP and PFC programs will be providing roughly half of all airport development needs.

Noise mitigation spending is closely linked to airport capacity policy because airport noise levels are a major factor in local resistance to airport improvement projects. FAIR21 increased the set aside for noise mitigation from 31% to 34% of AIP discretionary funds.

For FY2001, the President's budget proposed $1.95 billion for AIP, more than a billion dollars below the FAIR21 authorization. The House and Senate-passed FY2001 appropriations bills (H.R. 4475), as well as the enacted bill (P.L. 106-346) bill provide $3.2 billion, the fully authorized level, for AIP. This is a nearly 70% increase over FY2000 funding. After passage of H.R. 4475, the FY2001 Consolidated Appropriations Act (P. L. 106-554) provided for a rescission of 0.22%. AIP discretionary funds will be reduced by roughly $7 million.


MOST RECENT DEVELOPMENTS

On October 23, 2000, President Clinton signed the Department of Transportation (DOT) and related agencies appropriations bill, 2001 (H.R. 4475; H.Rept 106-940; P.L. 106-346). The $3.2 billion provided for AIP is a nearly 70% increase above the FY2000 enacted funding. The FY2001 Act is in conformance with the recently passed Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (FAIR21; P.L. 106-181) which reauthorized the Federal Aviation Administration through FY2003. Following passage of the DOT appropriations bill, the FY2001 Consolidated Appropriations Act (P.L. 106-554) provided for a government-wide rescission of 0.22% on a pro rata basis. This will reduce AIP's FY2001 funding by roughly $7 million.


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, and safety, emergency or snow removal 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 a PFC.

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, the impact of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (FAIR21, P.L. 106-181), funding distribution, the types of projects the program funds, and AIP and PFC policy issues.


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 recent 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).


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). Tax sources include:

For FY1999 the Aviation Trust Fund received $11.12 billion from these sources and from interest earned on the unexpended balance in the fund, which is held as government securities. The Aviation Trust Fund supports four categories of spending on aviation. The FY1999 Trust Fund appropriation levels for these categories are as follows:

Since these appropriations totaled roughly $7.76 billion, while Trust Fund total income was roughly $11.12 billion, it is clear Aviation Trust Fund's unexpended balance grew in FY1999. The start of year balance for FY2000 was $12.44 billion (see, Budget of the U.S. Government: FY2001; Appendix. pp. 752-753).

The scenario of an unexpended trust fund balance (somewhat inaccurately referred to by some as a surplus), that grows substantially larger each year, ended with the FY2000 budget. For FY2000, the FAA's budget was funded entirely from the trust fund, with no contribution from Treasury general fund revenues. The trust fund estimates for FY2000, in the President's FY2001 budget, indicate that trust fund revenues and interest will together roughly equal expenditures in FY2000. For FY2001 the Administration's budget again proposed that the entire FAA budget be funded form the Trust Fund. However, because the expected trust fund income, for FY2001 is $10.6 billion while the Administration's budget request for FAA is $11.2 billion, to fund FAA at the requested level roughly $600 million would have to come sources other than the current year's revenues. The Administration's FY2001 budget proposed "service based" charges to be phased in, beginning in FY2001, that over time would have gradually replace the current user fees. Congress rejected a similar proposal last year and has again essentially ignored the proposal this year.

FAIR21 could have a substantial impact on the aviation trust fund's unexpended balances. Annual trust fund income alone will not sustain the level of funding called for by FAIR21. For example, in FY2001, FAIR21 authorizes $12.7 billion for FAA. However trust fund revenues and interest are projected to be only $10.6 billion. To fully fund FAA at the authorized level the $2.1 billion difference could be dealt with by: providing funding from the general fund; cutting from the unprotected budget accounts, O&M and FE&D; drawing down unexpended trust fund balances; or a combination of the three.

The FY2001 appropriations Act (P.L. 106-346) provides for an FAA budget of $12.588 billion, with $2.13 billion to be provided from general fund of the U.S. Treasury. The general fund share is large enough that the aviation trust fund's unexpended balance should not have to be significantly drawn down to fund FAA for FY2001.


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. 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. In accordance with this legislation, the DOT directed a reduction in the AIP's FY2000 funding of $54.362 million. 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.


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 O&M or RE &D budgets if AIP and the 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.

However, FAIR21 does not 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. The way FAIR21 is written, the doubling of the formula amounts for primary airport entitlements only takes place if the total amount made available for AIP during the fiscal year is $3.2 billion or more. The FY2001 Omnibus Appropriations Act (P.L. 106-54), however, included a provision (Section 1125) negated the $3.2 billion requirement for FY2001.

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 75% of their AIP formula funds. This will make more AIP funding available to the smaller airports.

If the estimate that $10 billion per year is needed for airport capital projects is accepted as valid, then the combination of FAIR21's higher AIP funding and higher PFC ceiling mean that these two federal programs could be providing roughly half of all funding needs for airport capital development.


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 (see, Airport Improvement Program Reauthorization Legislation in the 106th Congress. CRS Report RL30096 for more detail on the legislative changes).

As mentioned earlier, for the years FY2001-FY2003, many of the FAIR21 formulas and criteria for allocation are contingent on AIP being funded at or above the $3.2 billion level annually. If AIP, despite the so-called FAIR21 guarantees, had been funded below this level some of the formula allocations might not have been doubled. Some argued that this would have been the case under the Senate-passed version of H.R. 4475 which allowed for $120 million of AIP contract authority to be used for operations purposes. The Senate provision, however, was dropped in conference. The FY2001 Consolidated Appropriations Act (P.L. 106-554) included a rescission that dropped the funding level for AIP $7 million dollars below the $3.2 billion trigger level. However, Section 1125 of the act also directed that the FAIR21 formula changes be applied for FY2001 regardless of the overall AIP funding level.


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.

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:

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:

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 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. 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.

Minimum Discretionary Fund. For some projects, especially long-term ones, the FAA issues a letter of intent (LOI) that sets forth a commitment to a schedule of federal payments over a number of years. Most of these LOIs draw from the discretionary fund. This situation raised concerns that so much of the discretionary fund would be needed to fulfill allocations and discretionary fund set-asides that, under low AIP funding levels, not enough would be left to fulfill the government's outstanding LOIs. The law requires that $148 million plus the amount equal to payments needed to cover LOIs issued before January 1, 1996 (a total of roughly $300 million) be the minimum credited to the fund. If less remains, then all formula grants (excepting the Alaska supplemental) and discretionary set-asides are reduced by the percentage necessary to ensure that the minimum requirement remains available for discretionary grants. Prior to April 1, 1999, discretionary funds also had a ceiling (roughly $300 million). However, the ceiling was eliminated by the Interim Federal Aviation Administration Act of 1999 (S. 643), which was signed by the President on March 31, 1999. Funding levels for FY1999 and FY2000 were high enough that the adjustment mechanism has not been activated. The funding levels projected in FAIR21 are also far above the levels that would trigger an adjustment.

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:

The airports themselves must raise the remaining share fromother 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). However, depending on how the airport size categories are grouped, both large airport interests and smaller airport interests can make plausible arguments for an increased relative share of the available funds. Although, using FY1996 figures, the large hub primary airports got the highest percentage (23.9%) of the total funds awarded, the smaller of the primary airports -- the primary nonhub airports and the small hub airports -- also received substantial percentages of the AIP awards (17.5% and 15.2% respectively). If one counts only the large and medium hub airports as "major" airports and all the others as "small" airports, one could argue that only 40.7% of grant awards went to major airports. On the other hand, general aviation advocates could point out that primary airports as a group were awarded 73% of AIP grants. 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. 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. 1988. 52 p.)

FAIR21 will raise the percentage share for smaller airports. This is because large and medium hub airports will be foregoing 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.

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 increases 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 early 1999, over 300 commercial service airports had 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 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.


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 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.

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?


Budgetary Treatment of the Aviation Trust Fund

Of the three FAA principal reauthorization proposals, only the House version of AIR21 included provisions that would have altered the budgetary treatment of the Aviation Trust Fund. These provisions were intended to assure that all aviation trust fund revenues would be consistently expended for aviation purposes. In its initial version, reported out of committee on March 11, 1999, AIR21 both took the Aviation Trust fund off budget and created discretionary spending guarantees or "fire walls," similar to that were created for the Highway Trust Fund by the Transportation Equity Act for the 21st Century (P.L. 105-178) (TEA21). These provisions guaranteed the spending of the all the aviation revenues that flow into the aviation account and also mandated that the Treasury fund 30% of the guaranteed FAA funding levels set forth in the Bill from general tax revenues. From FY1982, when the AIP was enacted to FY1999, the percentage of the FAA budget drawn each year from general fund revenues has varied substantially from year to year, from as low as 16% to as high as 59%. In FY2000, for the first time in the history of the Trust Fund, the entire FAA budget was funded by the trust fund and the Administration proposed to do the same in FY2001.

On May 27, 1999, AIR21, was amended in a second full committee mark up. The newly reported bill kept provisions to take the trust fund off budget but eliminated the "firewall provisions" and in place of a guaranteed 30% general fund share, the amended bill, capped the general fund share at the 1998 level ($3.351 billion). Even the somewhat reduced funding levels in AIR21, as amended in committee, are dependent on the off budget provisions being in the enacted legislation. The formula changes in the bill were, in part, adjustments needed to deal with the allocations at the higher funding levels that the bill would authorize. These trust fund changes faced resistance from Members in both Houses and also from many appropriations and budget committee members, who felt that the changes could hamper their ability to fund other transportation programs and would constrain their flexibility in meeting the goals of the budget process.

None of these proposals survived conference. Instead FAIR21, as enacted, 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 Airport and Airway Trust Fund Issues in the 106th Congress, by John W. Fischer. CRS Report RS20177)

An ongoing issue will be the strength of FAIR21's spending "guarantees" and point-of-order enforcement provisions. For example, points-of-order can be waived. Although most observers believe that AIP will be fully funded, it is likely that sometime during the life of the FAIR21 reauthorization the point-of-order enforcement provisions will be tested.


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 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. An 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.). (See, U.S. GAO. Airport Development Needs: Estimating Future Costs. GAO/RCED-97-99. April 1997. 38 p. and also, National Civil Aviation Review Commission. Airport Development Needs and Financing Options. Washington, 1997. 16 p.)


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.

The FAA estimates that annual AIP noise mitigation needs are in the $200 million to $225 million range. However, in FY1996 AIP noise mitigation funding was $182 million and in FY1997 it fell to $143.5 million. For FY1999 and FY2000 noise mitigation funding again exceeded $200 million. 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. For FY2001, the house report (H.Rept. 106-181) place names 105 airports; the Senate report place names 183 (S.Rept. 106-309).

The enacted FY2001 conference agreement (H.Rept. 106-940) place named 158 airports and also specified dollar amounts to be awarded. The language is also more directive. The report directs FAA to "provide not less than the following funding levels, out of available discretionary resources." At issue is the appropriate scope of place naming and the impact it has on FAA's grant application process.


Legislation in the 106th Congress

P.L. 106-181, H.R. 1000 (Shuster)

The Aviation Investment and Reform Act for the 21st Century (H.R. 1000), also referred to as AIR21, was reported to the House on May 27, 1999. The bill provided for a 5-year reauthorization of the FAA and includes Airport Improvement Program (AIP) authorizations ranging from $2.475 billion for FY2000 to $4.35 billion for FY2004. It also allowed for doubling the ceiling on Passenger Facility Charges under certain conditions. House passed H.R. 1000 June 15, 1999. Senate passed H.R. 1000 (amended with the text of S. 82) October 5, 1999. After changing the name of the bill to the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (FAIR21), conferees voted out an agreement on March 7, 2000. The bill was then quickly passed by the Senate and House and signed into law on April 5, 2000. The enacted bill calls for AIP authorizations of $2.475 billion for FY2000, $3.2 billion for FY2001, $3.3 billion for FY2002, and $3.4 billion for FY2003. FAIR21 also increased the PFC ceiling by 50% to $4.50.

P.L. 106-346; H.R. 4475 (Wolf)

Department of Transportation and Related Agencies Appropriations Act, 2001. This bill passed in the House on May 19, 2000, and the Senate on June 15, 2000. Both the House and Senate versions provide $3.2 billion for AIP during FY2001. The President signed the bill into law on October 23, 2000.

S. 82 (McCain)

The Air Transportation Improvement Act (S. 82), the Senate's multi-year FAA reauthorization bill, was reported to the Senate on February 11, 1999. Similar to legislation considered by the Senate last year, it included AIP authorization levels of $2.41 billion for FY1999, $2.475 billion for FY2000 and $2.41 billion annually for FY2001 and FY2002. (See H.R. 1000 above)

S. 545 (Hollings, by request)

In early February the FAA released its 5-year FAA reauthorization proposal. The proposal would have authorized AIP spending at $1.6 billion for each fiscal year during FY2000 through FY2004. The proposal also included an increase in the ceiling on PFCs to $5. This bill was introduced at the request of the Clinton Administration.


FOR ADDITIONAL READING

CRS Report RL30096. Airport Improvement Program Reauthorization Legislation in the 106th Congress, by Robert S. Kirk.

CRS Report RS20177. Airport and Airway Trust Fund Issues in the 106th Congress, by John W. Fischer.

CRS Report 98-579. Airport Finance: a Brief Overview, by Robert S. Kirk.

CRS Report RL30050 (pdf). Aviation: Direct Federal Spending, 1918-1998, by John W. Fischer and Robert S. Kirk.

CRS Report RL30508. Appropriations for FY2001: Department of Transportation and Related Agencies, coordinated by Robert S. Kirk.

CRS Report RS20734 (pdf). Aviation Delays, by J. Glen Moore.

CRS Report 97-657. Aviation Taxes and the Airport and Airway Trust Fund, by John W. Fischer.

CRS Report RS20521. Transportation Fuel Taxes: Impacts of a Repeal or Moratorium, by John W. Fischer and Benard A. Gelb.

CRS Issue Brief IB10032. Transportation Issues in the 106th Congress, by the CRS Transportation team.

CRS Report 98-63. Transportation Trust Funds: Budgetary Treatment, by John W. Fischer.