[The following is excerpted from An Assessment of Innovative Financing Options for the Airport Improvement Program, Federal Aviation Administration, March 1996.]
AIRPORT FINANCE UNDER CURRENT POLICY
Airport finance today is marked by a prominent Federal role and an even more significant role of debt finance. The Federal role is exerted in two ways, (1) AIP [Airport Improvement Program] formula and discretionary grants funded by user taxes on airline tickets, aircraft fuel, freight waybills and international departures, and (2) an exemption from Federal tax on interest income for holders of airport bonds (a "tax expenditure" funded by the general taxpayer). In addition, the Passenger Facility Charge program (PFC), administered by the FAA, generates local funds to finance airport improvements.
Between 1985 and 1995, the AIP financed 14 percent of all capital spending at large commercial airports, 28 percent at medium-sized commercial airports and 41 percent at small airports (small commercial airports as well as reliever and general aviation facilities).
Although airport capital investment today is funded by a combination of airport cash reserves, debt capital raised in the municipal bond, commercial loans, and grants from state and Federal governments, it is the sale of tax-exempt bonds and the provision of Federal grants through the AIP program that finance the lion's share of major capital projects.
THE FEDERAL ROLE IN AIRPORT FINANCE
Financed since 1970 by user taxes on domestic airline tickets, aircraft fuel, freight waybills, and international departures, the Federal government funded $11.2 billion in formula and discretionary grants over the period 1985 to 1993 (Table 2.1). Distributed through the AIP, just over 65 percent of the funds were allocated to primary commercial airports while 13.1 percent ($1.46 billion) were used in capital projects at reliever airports. As shown in Table 2.1, more than half the AIP spending over the period 1985 to 1993 was used for "airside" development, including runway, taxiway and apron infrastructure; 19 percent went to noise-related projects [Web-Editor's Note: the table shows 10.8, not 19 %]; and the remainder helped pay for safety, security, terminals and other buildings, roadways and planning activities.
TABLE 2.1 AIP Allocations by Program Category for Fiscal Years 1985 to 1993 and Type of Project. __________________________________________________ Allocation (in billions) __________________________________________________ Primary airports Large $3.58 (32.1 %) Medium $2.36 (21.2 %) Small $1.38 (12.3 %) Other commercial service airports $0.52 (4.7 %) Reliever airports $1.46 (13.1 %) General aviation airports $1.85 (16.5 %) Total $11.15 (100.0 %) __________________________________________________ Type of Project (percent) __________________________________________________ Landing areas, construction of runways 22.1 Landing areas, construction of taxiways 16.4 Landing areas, construction of aprons 13.9 Land, other than for noise control 8.1 Land for noise control 7.3 Safety and security 6.4 Lighting, navigation aids, and weather equipment 5.6 Roadways 5.3 Building, terminals 4.1 Noise control, other than land acquisition 3.5 Miscellaneous 2.5 Planning 1.9 State pilot block grant program 1.7 Building, other 1.2 Total 100.0% ___________________________________________________ Source: FAA, Twelfth Annual Report of Accomplishments Under the Airport Improvement Program, FY 1993.