This is the accessible text file for GAO report number GAO-07-617T 
entitled 'Airport Finance: Preliminary Analysis Indicates Proposed 
Changes in the Airport Improvement Program May Not Resolve Funding 
Needs for Smaller Airports' which was released on March 28, 2007. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Testimony: 

Before the Subcommittee on Aviation, Committee on Transportation and 
Infrastructure, House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EDT: 

Wednesday, March 28, 2007: 

Airport Finance: 

Preliminary Analysis Indicates Proposed Changes in the Airport 
Improvement Program May Not Resolve Funding Needs for Smaller Airports: 

Statement of Gerald L. Dillingham, Ph.D: 
Director, Physical Infrastructure: 

GAO-07-617T: 

GAO Highlights: 

Highlights of GAO-07-617T, a testimony to Before the Subcommittee on 
Aviation, House Committee on Transportation and Infrastructure 

Why GAO Did This Study: 

To address the strain on the aviation system, the Federal Aviation 
Administration (FAA) has proposed transitioning to the Next Generation 
Air Transportation System (NextGen). To finance this system and to make 
its costs to users more equitable, the administration has proposed 
fundamental changes in the way that FAA is financed. 

As part of the reauthorization, the administration proposes major 
changes in the way that grants through the Airport Improvement Program 
(AIP) are funded and allocated to the 3,400 airports in the national 
airport system. In response, GAO was asked for an update on current 
funding levels for airport development and the sufficiency of those 
levels to meet planned development costs. This testimony comprises 
capital development estimates made by FAA and Airports Council 
International (ACI), the chief industry association; analyzes how much 
airports have received for capital development and whether this is 
sufficient to meet future planned development; and summarizes the 
effects of proposed changes in funding for airport development. 

This testimony is based on ongoing GAO work. Airport funding and 
planned development data are drawn from the best available sources and 
have been assessed for their reliability. 

This testimony does not contain recommendations. 

What GAO Found: 

ACI’s estimate for planned development costs is considerably larger 
than FAA’s, reflecting a broader range of projects included as well as 
differences in when and how the estimates are made. For 2007 through 
2011, FAA estimated annual planned capital development costs at $8.2 
billion, while ACI estimated annual costs at $15.6 billion. The 
estimates differ primarily because FAA’s estimate only includes 
projects that are eligible for AIP grants, while ACI’s covers all 
projects, including $5.8 billion for projects not eligible for federal 
funding, such as parking garages. 

From 2001 through 2005, airports received an average of about $13 
billion a year for planned capital development. This amount covers all 
types of projects, including those not eligible for federal grants. The 
primary source of this funding was bonds, which averaged almost $6.5 
billion per year, followed by federal grants and passenger facility 
charges (PFC), which accounted for $3.6 billion and $2.2 billion, 
respectively (see figure below). If airports continue to attract this 
level of funding for planned capital development, this amount would 
annually fall about $1 billion short of the $14 billion in total 
planned development costs (the sum of FAA’s estimated $8.2 billion in 
eligible costs and the industry’s $5.8 billion in ineligible costs). 
Larger airports foresee a shortfall of about $600 million annually, 
while smaller airports foresee a shortfall of $400 million annually. 

FAA’s reauthorization proposal would reduce the size of AIP by $750 
million but increase the amount that airports can collect from PFCs. 
However, the benefit from increased PFCs would accrue mostly to larger 
airports and may not offset a reduced AIP grants program for smaller 
airports. The proposal would also change the way that AIP and other FAA 
programs are funded. The new fuel taxes that FAA has proposed may not 
provide the revenues for AIP that FAA anticipates. 

Figure: Comparison of Historical Airport Funding to Future Development 
Costs: 

[See PDF for Image] 

Source: GAO analysis of FAA, ACI, Thomson Financial, and state grant 
data. 

[End of figure] 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-617T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Gerald L. Dillingham at 
(202) 512-2834 or DillinghamG@gao.gov. 

[End of figure] 

Mr. Chairman and Members of the Subcommittee: 

I appreciate the opportunity to testify before you today as you 
consider the Federal Aviation Administration's (FAA) reauthorization 
proposal including the Airport Improvement Program (AIP) for fiscal 
years 2008-2010.[Footnote 1] 

Once again, the nation's airports are having to cope with capacity 
issues. Air traffic has risen back above pre-September 11 levels, as 
has the level of delays. FAA operates one of the safest air 
transportation systems in the world, but it is also a system under 
strain. Already last year, one in four flights was subject to flight 
delays. In addition, the system is expected to absorb a variety of new 
and differing aircraft in the future, ranging from the jumbo Airbus 
A380, which can hold more than 500 passengers, to very light jets, 
which carry only a few passengers and could greatly increase the number 
of aircraft in the air. Demand for air travel is expected to reach 1 
billion passengers by 2015, according to FAA estimates. The consensus 
of opinion is that the current aviation system cannot expand to meet 
this projected growth. FAA is developing a modernization program for 
its air traffic control system called the Next Generation Air 
Transportation System (NextGen) to accommodate this growth. To fund 
this system, FAA has proposed relying on a cost-based system using 
airline user fees and fuel taxes instead of passenger ticket taxes and 
other excise taxes that are due to expire at the end of September 2007. 
In regard to airports, the administration is proposing $2.75 billion to 
fund the AIP program--which is substantially less than the current 
level--and changing the way that grants to the 3,400 airports in the 
national airport system are funded and allocated under AIP. The 
administration's proposal would also allow commercial airports to 
impose higher passenger facility charges (PFC) to pay for capital 
projects.[Footnote 2] 

In anticipation of this year's reauthorization of FAA, you asked for an 
update on airports' current funding levels from our previous 
reports,[Footnote 3] the sufficiency of those levels to meet planned 
development, and how the administration's proposed reauthorization will 
affect airports. For this update, we are providing preliminary 
responses to these key questions: 

* How do FAA and Airports Council International (ACI) estimates of 
capital development compare? 

* How much have airports received for capital development and where is 
the money coming from? 

* If current funding levels continue, will they be sufficient to meet 
planned capital development costs for 2007 through 2011? 

* What are some of the potential effects of changes in how airport 
development will be funded as part of the administration's FAA 
reauthorization legislation? 

To determine how much planned development would cost over the next 5 
years, we obtained planned capital development data from FAA and ACI, a 
key industry association. To determine the sources of airport funding, 
we obtained capital funding data from FAA, the National Association of 
State Aviation Officials (NASAO) and Thomson Financial, a firm that 
tracks all municipal bond issues. We obtained funding data from 2001 
through 2005 because these were the most recent years for which 
consistent data were available and then adjusted the amounts for 
inflation to 2006 dollars so that they could be compared to planned 
development amounts, which are also expressed in 2006 dollars. We 
screened the planned development and funding data for accuracy and 
compared funding streams across databases where possible. We did not, 
however, audit how the databases were compiled. To compare the 
estimates between FAA and industry, we reconciled survey data and 
identified areas where the largest differences occur. We reviewed the 
reliability of these data and concluded that they were sufficiently 
reliable for our purposes. 

We conducted our work from August 2006 to March 2007 in accordance with 
generally accepted government auditing standards. More details about 
the scope and the methodology of our work are presented in appendix II. 

In summary: 

* CI's estimate of planned development costs is considerably larger 
than FAA's, reflecting the broader range of projects included as well 
as differences in when and how the estimates are reported. For 2007 
through 2011, FAA estimated annual planned capital development costs at 
$8.2 billion, while ACI estimated annual costs at $15.6 billion, a 
difference of $7.4 billion annually. The estimates differ primarily 
because FAA's estimate includes only projects that are eligible for 
federal airport improvement grants, while ACI's includes all projects, 
including those that may not be eligible for federal grants. Types of 
projects not eligible for federal grants include parking garages and 
commercial space in terminals. However, even when comparing only AIP- 
eligible projects, ACI's estimate exceeds FAA's by $1.6 billion 
annually because of differences in the definition, measurement, and 
timing of projects. 

* From 2001 through 2005, airports received an average of about $13 
billion a year for planned capital development from a variety of 
funding sources. This includes funding for all types of projects, 
including those not eligible for AIP grants. The primary source of this 
funding was municipal bond proceeds (backed primarily by airport 
revenues), which averaged almost $6.5 billion per year, followed by AIP 
and PFCs which accounted for $3.6 billion and $2.2 billion, 
respectively. The 67 larger airports, which account for 90 percent of 
passengers, rely more heavily on bond financing to fund their 
development, while the other approximately 3,300 smaller airports in 
the national system are more reliant on federal grants.[Footnote 4] 

* The total of FAA and ACI estimates of planned development for 2007 
through 2011 exceeds historical funding levels by about $1 billion 
annually. The difference between past funding and future development 
plans is not the same for larger and smaller airports. The 67 larger 
airports averaged $9.4 billion annually in funding, as compared to $10 
billion annually in AIP-eligible and ineligible projects--a difference 
of $600 million annually. All other airports, including general 
aviation airports, averaged $3.6 billion annually in funding, as 
compared to $4 billion annually in AIP-eligible and ineligible project, 
a difference of $400 million annually. 

* The administration's reauthorization proposal would provide more 
money to larger airports through an increase in PFCs, but its impact on 
smaller airports is uncertain because these airports are more reliant 
on AIP, whose funding level is being reduced and whose allocation is 
being changed. The proposal would reduce the AIP grants program by $750 
million (or more than 20 percent of its current level) but increase the 
amount that airports can collect from PFCs from $4.50 per passenger to 
$6.00 per passenger, potentially increasing larger airports' 
collections by $1.1 billion. For smaller airports that collect far less 
from PFCs, the increase in PFCs may not compensate for the overall 
reduction in AIP, especially for general aviation airports that have no 
ability to collect PFCs. As a separate issue, the administration's 
reauthorization proposal would also change the way that AIP and other 
FAA programs are funded. The new fuel taxes that have been proposed to 
fund AIP and other programs may not generate the amount of revenue that 
is anticipated and additional sources of revenue may have to be found. 

The Size and Scope of FAA and ACI Airport Capital Estimates Differ: 

ACI's estimate of planned capital development costs is considerably 
larger than FAA's because it reported a broader base of projects. 
According to FAA's estimate, which includes only projects that are 
eligible for AIP grants, the total cost of airport development will be 
about $41 billion, or about $8.2 billion per year for 2007 through 
2011. (See table 1.) ACI estimates annual costs of about $78 billion, 
or about $15.6 billion per year, for the same period. These estimates 
differ mainly because ACI's estimate includes all future projects that 
may or may not have an identified funding source or be eligible for 
federal funding and also because they are based on different estimating 
approaches. Projects that are eligible for AIP grants include runways, 
taxiways, and noise mitigation and reduction efforts; projects that are 
not eligible for AIP funding include parking garages, hangars, and 
expansions of commercial space in terminals. 

Table 1: Average Annual Planned Development Costs Estimated by FAA and 
ACI, by Airport Type, 2007-2011: 

Dollars in millions. 

Larger Airports. 

Airport Type: Large hub; 
Number of Airports: 30; 
Estimated average annual costs: FAA: $3,414; 
Estimated average annual costs: ACI: $8,280. 

Airport Type: Medium hub; 
Number of Airports: 37; 
Estimated average annual costs: FAA: 933; 
Estimated average annual costs: ACI: 3,066. 

Airport Type: Subtotal; 
Number of Airports: 67; 
Estimated average annual costs: FAA: 4,347; 
Estimated average annual costs: ACI: 11,346. 

Smaller airports. 

Airport Type: Small hub; 
Number of Airports: 72; 
Estimated average annual costs: FAA: 629; 
Estimated average annual costs: ACI: 1,146. 

Airport Type: Non hub; 
Number of Airports: 243; 
Estimated average annual costs: FAA: 840; 
Estimated average annual costs: ACI: 840[A]. 

Airport Type: Other commercial service; 
Number of Airports: 135; 
Estimated average annual costs: FAA: 146; 
Estimated average annual costs: ACI: 146[A]. 

Airport Type: Reliever; 
Number of Airports: 274; 
Estimated average annual costs: FAA: 579; 
Estimated average annual costs: ACI: 579[A]. 

Airport Type: General aviation; 
Number of Airports: 2574; 
Estimated average annual costs: FAA: 1,528; 
Estimated average annual costs: ACI: 1,528[A]. 

Airport Type: New airports; 
Number of Airports: 67; 
Estimated average annual costs: FAA: 111; 
Estimated average annual costs: ACI: -. 

Airport Type: Subtotal; 
Number of Airports: 3,365; 
Estimated average annual costs: FAA: 3,833; 
Estimated average annual costs: ACI: 4,239. 

Airport Type: Total; 
Number of Airports: 3,432; 
Estimated average annual costs: FAA: $8,180; 
Estimated average annual costs: ACI: $15,585. 

Source: GAO analysis of FAA and ACI data: 

[A] ACI's estimate for these categories of airports is drawn directly 
from FAA's estimate. 

[End of table] 

Attempts to Reconcile ACI and FAA Estimates of Planned Development 
Costs Illustrate Differences: 

Several factors account for the differences between the FAA and ACI 
estimates of future development costs. The biggest difference stems 
from ACI's inclusion of projects that are not eligible for AIP grants, 
while FAA's estimate includes only AIP-eligible projects (see table 2). 
However, even when comparing just the AIP-eligible portions of the 
respective estimates, ACI's estimate is 20 percent ($8 billion in total 
or $1.6 billion annually) greater. This points to differences in how 
the two estimates are formed. 

Table 2: Comparison of ACI and FAA Estimates of Planned Development for 
2007-2011 (Dollars in billions): 

Source: ACI total estimate; 
Total: $78; For all airports surveyed: $51; 
For large hubs surveyed: $36; 
For medium hubs surveyed: $11.3; 
For small hubs surveyed: $2.0. 

Source: Less: AIP-ineligible or unknown; 
Total: 29; 
For all airports surveyed: 23; 
For large hubs surveyed: 15.2; 
For medium hubs surveyed: 6.6; For small hubs surveyed: .8. 

Source: ACI AIP-eligible portion; 
Total: 49; For all airports surveyed: 28[A]; 
For large hubs surveyed: 21.2; 
For medium hubs surveyed: 4.6; 
For small hubs surveyed: 1.2. 

Source: FAA Estimate of AIP-eligible; 
Total: 41; For all airports surveyed: 21; 
For large hubs surveyed: 15.7; 
For medium hubs surveyed: 3.4; 
For small hubs surveyed: 1.3. 

Source: Difference; 
Total: $8; 
For all airports surveyed: $7; 
For large hubs surveyed: $5.5; 
For medium hubs surveyed: $1.2; 
For small hubs surveyed: $.6. 

Source: GAO analysis of FAA and ACI data. 

[A] Total for large, medium, and small hub airports does not equal all 
airports surveyed because ACI also surveyed a few GA and nonhub 
airports. 

[End of table] 

One difference is the estimating approach. FAA's estimates cover 
projects for every airport in the national system, while ACI surveyed 
the 100 largest airports (mostly large and medium hub airports) and 
then extrapolated a total based on cost per enplanement calculations 
for small, medium, and large hub airports that did not respond. 

Further analysis on a project-by-project level shows variances related 
to three other factors: 

* Definition--FAA data are based on planned project information taken 
from airport master plans and state system plans, minus projects that 
already have an identified funding source, while ACI includes all 
projects, whether funding has been identified or not. For example, 
ACI's estimate for Washington Dulles airport includes $278 million for 
an automated people mover, but FAA's estimate does not because it is 
being funded by a PFC approved in 2006. 

* Measurement--FAA data include only the portion of a project that is 
eligible for AIP, while ACI estimates the total value project cost. On 
a terminal construction project at Dulles International Airport, ACI 
estimated total costs of $1.6 billion for construction; however, only a 
small portion is eligible for AIP funding. FAA did not report any 
amount because under FAA AIP rules only a small portion ($20 million) 
was eligible for AIP funding and the airport had exhausted the AIP 
funds that could be used for this type of project. 

* Timing--The ACI and FAA estimated planned development costs for the 
same five year time period, but the estimates were made at different 
times--the ACI survey was completed in early 2007, while FAA's estimate 
is based on information collected in early 2006. Further, the ACI 
estimate includes projects that FAA does not believe will be 
commissioned during the next 5 years. At Fort Lauderdale International 
Airport, for example, ACI reported a $700 million runway project but 
FAA reports less than $200 million for the same project. According to 
FAA, the remaining costs are beyond 2011. 

FAA and ACI estimates do not consider cost increases such as rising 
construction costs. Going forward these costs may increase, especially 
construction costs which have jumped 26 percent in 30 major U.S. cities 
over the past three years. Industry experts predict that construction 
costs will continue to increase project costs. FAA acknowledges that 
development estimates may or may not include increase in costs based on 
construction uncertainty and that annual costs increases are not 
captured. 

Airports Have Averaged About $13 Billion Annually in Capital Financing 
over the Last 5 Years and Use a Variety of Funding Sources: 

From 2001 to 2005, the 3,364 active airports that make up the national 
airport system received an average of about $13 billion per year for 
planned capital development from a variety of funding sources. These 
funds are used for both AIP-eligible and ineligible projects. The 
single largest source of these funds was bond proceeds, backed 
primarily by airport revenues, followed by AIP grants, PFCs, and state 
and local contributions (see table 3). 

Table 3: Sources of Airport Funding, 2001-2005: 

2006 Dollars in billions. 

Funding Source: Airport bonds; 
2001-2005 average annual funding: $6.5[A]; 
Percent of total: 50; 
Source of funds: State and local governments or airport authorities 
issue tax-exempt debt. 

Funding Source: AIP grants; 
2001-2005 average annual funding: 3.6[B]; 
Percent of total: 29; 
Source of funds: The Congress makes funds available from the Airport 
and Airway Trust Fund, which receives revenue from various aviation-
related taxes. 

Funding Source: Passenger facility charges; 
2001-2005 average annual funding: 2.2[C]; 
Percent of total: 17; 
Source of funds: Funds come from passenger fees of up to $4.50 per trip 
segment at commercial airports. 

Funding Source: State and local contributions; 
2001-2005 average annual funding: .7; 
Percent of total: 4; 
Source of funds: Funds include state and local grants, loans, and 
matching funds for AIP grants. 

Funding Source: Total; 
2001-2005 average annual funding: $13; 
Percent of total: 100; 
Source of funds: [Empty]. 

Source: GAO analysis of FAA, Thomson Financial, and state grant data: 

Note: Totals may not add because of rounding. 

[A] Net of refinancing. 

[B] AIP totaled on a fiscal year basis. 

[C] Some airports use their PFCs to finance bond issues, as much as 30 
percent of PFC collections by some estimates. As a result, the total 
amount of funds available to airports may be overstated by as much as 
$660 million (30 percent of $2.2 billion). 

[End of table] 

The amount and source of funding vary with the size of airports. The 
nation's 67 larger airports, which handled almost 90 percent of the 
passenger traffic in 2005, accounted for 72 percent of all funding 
($9.4 billion annually), while the 3,297 other smaller commercial and 
general aviation airports that make up the rest of the national system 
accounted for the other 28 percent ($3.5 billion annually).[Footnote 5] 
As shown in figure 1, airports' reliance on federal grants is inversely 
related to their size---federal grants contributed a little over $1.3 
billion annually to larger airports (14 percent of their total funding) 
and $2.3 billion annually to smaller airports (64 percent of their 
total funding). 

Figure 1: Funding Sources by Size of Airport, 2001-2005: 

[See PDF for image] 

Source: GAO analysis of FAA, ACI, Thomson Financial, and state grant 
data. 

Note: Totals may not add up due to rounding: 

[End of figure] 

Total Planned Development Exceeds Past Funding Levels by About $1 
Billion Annually: 

Based on past funding levels, airports' funding is about $1 billion per 
year less than estimated planned capital development costs. If the $13 
billion annual average funding continues over the next 5 years and were 
applied only to AIP-eligible projects, it would cover all of the 
projects in FAA's estimate. However, much of the funding available to 
airports is for AIP-ineligible projects that can attract private bond 
financing. We could not determine how much of this financing is 
directed to AIP-eligible versus ineligible projects. Figure 2 compares 
the $13 billion average annual funding airports received from 2001 
through 2005 (adjusted for inflation to 2006 dollars) with the $14 
billion in annual planned development costs for 2007 through 2011. The 
$14 billion is the sum of FAA's estimated AIP-eligible costs of $8.2 
billion annually and ACI's estimated ineligible costs of $5.8 billion 
annually. The overall difference of about $1 billion annually is not an 
absolute predictor of future funding shortfalls; both funding and 
planned development may change in the future. 

Figure 2: Comparison of Historical Airport Funding to Future 
Development Costs: 

[See PDF for image] 

Source: GAO analysis of FAA, ACI, Thomson Financial, and state grant 
data. 

Note: Totals may not add up due to rounding: 

[End of figure] 

Larger Airports--Planned Development Costs Exceed Past Funding by About 
$600 Million Annually: 

The difference between current funding and planned development costs 
for larger airports is about $600 million if both AIP-eligible and 
ineligible projects are considered. From 2001 through 2005, larger 
airports collected an average of about $9.4 billion a year for capital 
development, as compared to over $10 billion in annual planned 
development costs. Figure 3 shows the comparison of average annual 
funding versus planned development costs for larger airports. At $5.7 
billion annually, the ineligible portion of costs is 57 percent of the 
total planned development costs. 

Figure 3: Comparison of Larger Airports' Historical Funding to Future 
Development Costs: 

[See PDF for image] 

Source: GAO analysis of FAA, ACI, Thomson Financial, and state grant 
data. 

Note: Totals may not add up due to rounding: 

[End of figure] 

Smaller Airports---Planned Development Costs Exceed Past Funding by 
About $400 Million Annually: 

The difference between past funding and planned development costs for 
smaller airports is roughly $400 million annually. At smaller airports, 
average annual funding from 2001 through 2005 was about $3.6 billion a 
year (expressed in 2006 dollars). Annual planned development costs for 
smaller airports from 2007 through 2011 is estimated at about $4 
billion. Figure 4 compares average annual funding to planned 
development costs. As the figure shows, the portion of smaller 
airports' project costs not eligible for AIP funding is relatively 
small--about $75 million annually, or about 2 percent of total planned 
development costs. 

Figure 4: Comparison of Smaller Airports' Historical Funding to Future 
Development Costs: 

[See PDF for image] 

Source: GAO analysis of FAA, ACI, Thomson Financial, and state grant 
data. 

Note: Totals may not add up due to rounding: 

[End of figure] 

Financial Health of Airports Has Improved for Larger Airports: 

The financial health of airports is strong and has generally improved 
since September 11, 2001, especially for larger airports. Passenger 
traffic has rebounded to 2000 levels and bond ratings have improved. 
Following September 11, many airports cut back on their costs and 
deferred capital projects. However, credit rating agencies and 
financial experts now agree that larger airports are generally 
financially strong and have ready access to capital markets. A good 
indicator of airports' financial strength is the number and scale of 
underlying bond ratings provided by bond rating agencies. More bonds 
were rated in 2007 than 2002, and more bonds are rated at the higher 
end of the rating scale in 2007, meaning that the rating agencies 
consider them less of a risk today. Furthermore, larger airports tended 
to have higher ratings than smaller airports. 

Administration's FAA Reauthorization Proposal Would Increase Funding 
for Larger Airports, while the Effect on Smaller Airports is Uncertain: 

The administration's reauthorization proposal for AIP would increase 
funding for larger airports, but its effect on smaller airports is 
uncertain because of the overall reduction in AIP and the proposed 
changes in how AIP grants are allocated between larger and smaller 
airports. The 2008 fiscal year budget reduces AIP funding from its past 
level of $3.5 billion in fiscal years 2006 and 2007 to $2.75 billion in 
2008. The proposal also would eliminate entitlement, otherwise known as 
apportionment, grants for larger airports while increasing the PFC 
ceiling from $4.50 to $6 per passenger.[Footnote 6] While larger 
airports that account for 90 percent of all passengers will come out 
ahead, an increased PFC may not compensate smaller airports for the 
overall reduction in AIP, even with the proposed changes in how AIP is 
allocated between larger and smaller airports. As a separate issue, the 
administration's reauthorization proposal would change the way that AIP 
and other FAA programs are funded and may not provide enough monies for 
these programs, even at the reduced levels proposed by the 
administration. 

Administration's FAA Reauthorization Proposal Would Make Fundamental 
Changes in AIP: 

The administration's 2008 FAA reauthorization proposal would reduce 
AIP, change how AIP is allocated, and increase the PFC available to 
commercial airports. (Key changes in the proposal's many elements are 
outlined in appendix I.) Unlike previous reauthorization proposals, 
which made relatively modest changes in the structure of the AIP 
program, this proposal contains some fundamental changes in the funding 
and structure of the AIP program. Notably, following the pattern set by 
the 2000 FAA reauthorization,[Footnote 7] which required larger 
airports to return a certain percentage of their entitlement funding in 
exchange for an increase in the PFC, the administration proposes 
eliminating entitlement grants for larger airports altogether and at 
the same time allowing those airports to charge a higher PFC. 

The reauthorization proposal would eliminate some set-aside programs 
and increase the proportion of discretionary grant funds available to 
FAA at higher AIP funding levels. Table 4 compares AIP funding 
allocations under the current funding formulas to the proposed 
reauthorization allocations at both the current $3.5 billion level and 
at the proposed $2.75 billion level. Another change is to the 
entitlement formulas--for example, removing the funding trigger in 
current law that doubles the amount of entitlement funds airports 
receive if the overall AIP funding level is above $3.2 billion--is 
intended to make more discretionary funding available. According to FAA 
officials, their objective is to increase the amount of discretionary 
funding for airports so that higher priority projects can be funded; 
however, that is only achieved when total AIP funds are greater than 
the $2.75 billion budgeted by the administration. For example, at $2.75 
billion in AIP, the current law would generate $967 million in 
discretionary grants versus $866 million under the proposed 
reauthorization. This reverses at $3.5 billion in AIP funding, for 
which the proposal generates $1.328 billion in discretionary grants 
versus $845 million under current law. 

Table 4: Estimated Distribution of AIP Funds at $2.75 and $3.5 Billion 
Funding Levels under Current and Proposed Authorization Formulas: 

Dollars in millions. 

AIP funding (after administrative and other costs); 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: $2,636; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: $2,636; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: $3,386; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: $3,386. 

Primary airports. 

Entitlements: Large; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 92; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 81; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: $184; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: $92. 

Entitlements: Medium; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 56; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 49; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 111; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 56. 

Entitlements: Small; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 131; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 230; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 262; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 262. 

Entitlements: Nonhub; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 154; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 269; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 307; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 307. 

Subtotal primary airports; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 433; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 629; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 864; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 717. 

Entitlements: Cargo; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 92; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 81; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 118; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 118. 

Entitlements: Alaska supplemental; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 11; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 19; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 21; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 21. 

Entitlements: Nonprimary entitlements; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 0; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 309; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 385; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 431. 

Entitlements: State apportionment; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 488; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 300; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 292; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 339. 

Entitlements: Carryover entitlements; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 432; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 432; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 432; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 432. 

Subtotal entitlements; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 1,455; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 1,769; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 2,113; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 2,058. 

Small airport fund. 

Nonhub commercial service; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 123; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: [Empty]; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 245; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: [Empty]. 

Nonprimary airports; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 61; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: [Empty]; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 122; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: [Empty]. 

Small hub; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 31; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: [Empty]; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 61; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: [Empty]. 

Subtotal entitlements and nondiscretionary; AIP allocations under 
current law compared to proposed reauthorization: Current law: $2.75 
Billion: 1,669; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 1,769; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 2,541; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 2,058. 

Discretionary. 

Noise set-aside; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 338; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 211; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 296; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 271. 

Reliever set-aside; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 0; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: [Empty]; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 6; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: [Empty]. 

Military Airports (MAP) set-aside; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 39; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: [Empty]; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 34; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: [Empty]. 

Subtotal disc set-asides; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 377; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 211; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 336; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 271. 

Small airport discretionary fund; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: [Empty]; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 136; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: [Empty]; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 266. 

Capacity, safety, security, noise; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 442; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 389; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 382; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 594. 

Remaining discretionary; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 147; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 130; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 127; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 198. 

Subtotal discretionary; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: 967; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: 866; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: 845; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: 1,328. 

Total AIP available for grants; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $2.75 Billion: $2,636; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $2.75 Billion: $2,636; 
AIP allocations under current law compared to proposed reauthorization: 
Current law: $3.5 Billion: $3,386; 
AIP allocations under current law compared to proposed reauthorization: 
FY2008 as proposed: $3.5 Billion: $3,386. 

Source: FAA: 

[End of table] 

Increasing the PFC Would More Than Offset Loss of AIP Entitlements For 
Larger Airports but Impact on Smaller Airports Is Uncertain: 

The administration's proposed reauthorization would allow airports to 
increase their PFC to a maximum of $6 and allow airports to use their 
collections for any airport projects while forgoing their entitlement 
funds. A $6 PFC could generate an additional $1.1 billion for larger 
airports that currently have a PFC in place, far exceeding the $247 
million in entitlements that FAA estimates they would forego under this 
reauthorization proposal (see table 5).[Footnote 8] However, the impact 
on smaller airports is uncertain because they collect far less in PFCs 
and are more reliant on AIP for funding. A change to a $6 PFC would 
yield an additional $110 million for small hub airports based on 
airports that currently have a PFC in place and $132 million if every 
one of the small hub airports had a $6 PFC. It is uncertain whether the 
proposed allocation of AIP under the administration's proposal would 
shift a greater proportion of funds to smaller airports to compensate 
for the overall reduction in AIP. The reauthorization proposal would 
also relax project eligibility criteria to allow airports to use their 
collections in the same way as they use internally generated revenue, 
including off-airport intermodal transportation projects. The 
application and review process would also be streamlined; as a result, 
FAA would no longer approve collections but rather ensure compliance 
with PFC and airport revenue rules. 

Table 5: Projected PFC Collections with a $6 PFC: 

Dollars in Billions. 

Large hub; 
2005 Collections: $1.769; 
2005 Collections if $6 PFC: Current incidence of PFCs: $2.594; 
2005 Collections if $6 PFC: Increase over 2005 collections: $.825; 
2005 Collections if $6 PFC: If all airports had a $6 PFC: $2.695; 
2005 Collections if $6 PFC: Increase over 2005 collections: $.925. 

Medium hub; 
2005 Collections: .442; 
2005 Collections if $6 PFC: Current incidence of PFCs: .725; 
2005 Collections if $6 PFC: Increase over 2005 collections: .283; 
2005 Collections if $6 PFC: If all airports had a $6 PFC: .781; 
2005 Collections if $6 PFC: Increase over 2005 collections: .339. 

Subtotal; 
2005 Collections: 2.211; 
2005 Collections if $6 PFC: Current incidence of PFCs: 3.319; 
2005 Collections if $6 PFC: Increase over 2005 collections: 1.108; 
2005 Collections if $6 PFC: If all airports had a $6 PFC: 3.476; 
2005 Collections if $6 PFC: Increase over 2005 collections: 1.265. 

Small hub; 
2005 Collections: .170; 
2005 Collections if $6 PFC: Current incidence of PFCs: .281; 
2005 Collections if $6 PFC: Increase over 2005 collections: .110; 
2005 Collections if $6 PFC: If all airports had a $6 PFC: .302; 
2005 Collections if $6 PFC: Increase over 2005 collections: .132. 

Total; 
2005 Collections: $2.381; 
2005 Collections if $6 PFC: Current incidence of PFCs: $3.599; 
2005 Collections if $6 PFC: Increase over 2005 collections: $1.218; 
2005 Collections if $6 PFC: If all airports had a $6 PFC: $3.778; 
2005 Collections if $6 PFC: Increase over 2005 collections: $1.397. 

Source: GAO analysis of FAA data: 

[End of table] 

Airport Privatization: 

The administration's proposal would modify the current pilot program on 
private ownership of airports in two key ways. First, the proposed 
modifications will expand eligibility beyond the current statutory 
limit of 5 to 15 airports. Restrictions limiting participation in the 
pilot program to specific airport size categories would also be 
eliminated. Second, the pilot program would be amended to eliminate the 
veto power that airlines can exercise under current law to prevent 
privatization transactions at commercial airports. Under current law, 
the sale of an airport to private interests may only proceed if a super-
majority of the airlines at that airport approve of the sale or 
lease.[Footnote 9] Additionally, the airline veto power to prevent fee 
increases higher than inflation rates would be repealed. In place of 
these veto powers, the airport sponsor would need to demonstrate to the 
Secretary of Transportation that the airlines using that airport were 
consulted prior to the transaction proceeding.[Footnote 10] 

Congress established the Airport Privatization Pilot Program in October 
1996 to determine if privatization could produce alternative sources of 
capital for airport development and provide benefits such as 
improvements in customer service. It also hoped to determine if new 
investment and capital from the private sector could be attracted 
through innovative financial arrangements. Proponents of privatization 
believe that the privatization of airports can lead to capacity- 
increasing investment in airports through the commitment of private 
capital, lower operating costs, and greater efficiency and that 
privatization can increase customer satisfaction. 

Overall, there has been relatively little interest in the current pilot 
program. Six airports have applied for participation in the program and 
three of those airports withdrew their applications in 2001. To date, 
Stewart International Airport, located in Newburgh, New York, is the 
only airport accepted into the pilot program. The airport received this 
exemption in March 2005, but is currently being purchased back by a 
public owner, the Port Authority of New York and New Jersey. In 
September 2006, the City of Chicago submitted a preliminary application 
for Chicago Midway International Airport. FAA completed its review of 
the Midway preliminary application and determined that it meets the 
procedural requirements for participation in the pilot program. 
Consequently, the City of Chicago can now proceed to select a private 
operator, negotiate an agreement, and submit a final application to FAA 
for exemption. 

Proposed Fuel Tax Rates May Not Yield the Revenue Anticipated to Fund 
AIP: 

In addition to concerns about the level and allocation of AIP funds, 
another concern is that the fuel tax revenues that the administration's 
reauthorization proposal has designated to largely fund AIP after 2009 
may not be as great as anticipated. Currently, AIP and other FAA 
programs are principally funded by the Airport and Airway Trust Fund 
(trust fund), which receives revenue from passenger ticket taxes and 
segment taxes, airline and general aviation fuel taxes, and other 
taxes. The administration's reauthorization proposal would fund air 
traffic control through user fees for commercial aircraft and fuel 
taxes for general aviation while limiting the sources of revenue for 
the trust fund and its uses. Under the proposal, beginning in 2009, the 
trust fund would continue but only to fund three programs--AIP, 
Research, Engineering and Development (RE&D), and Essential Air Service 
(EAS)--and would be funded solely by an equal fuel tax on commercial 
and general aviation fuel purchases and an international arrival and 
departure tax. 

FAA officials confirmed for us that in estimating fuel tax revenues 
they did not take into account possible reductions in fuel purchases 
due to the increase in the tax rates. Although we do not know by how 
much such purchases would decline, conventional economic reasoning, 
supported by the opinions of industry stakeholders, suggests that some 
decline would take place. Therefore, the tax rate should be set taking 
into consideration effects on use and the resulting impact on revenue. 
FAA officials told us that they believe that these effects would be 
small because the increased tax burden is a small share of aircraft 
operating costs and therefore there was no need to take its impact into 
account. Representatives of general aviation, however, have said that 
the impact could be more substantial. If consumption possibly falls 
short of projections or Congress appropriates more funds for AIP, RE&D, 
or EAS than currently proposed, then fuel tax rates and the 
international arrival and departure tax would correspondingly have to 
be increased or additional funding from another source, such as the 
trust fund's uncommitted balance or the General Fund, would be needed. 

In conclusion, Mr. Chairman, airports have rebounded financially from 
the September 2001 terrorist attacks. We expect the demand for air 
travel to continue to increase, the system capacity to be stretched, 
and airports to increase their demand for capital improvements to 
relieve congestion and improve their services. As Congress moves 
forward with reauthorizing FAA, it will have to decide on several key 
issues, including how it wants to fund and distribute grants under the 
AIP. While some elements of the administration's proposal are to be 
commended--for example, simplifying the funding formulas and giving FAA 
more discretion to fund high priority projects--other parts of the 
proposal raise concerns. For example, the extent to which the 
administration's proposed cuts in AIP funding will affect development 
at smaller airports is unclear. 

GAO Contacts and Staff Acknowledgements: 

For further information on this statement, please contact Dr. Gerald 
Dillingham at (202) 512-2834 or DillinghamG@gao.gov. Individuals making 
key contributions to this testimony were Paul Aussendorf, Jay Cherlow, 
Jessica Evans, David Hooper, Nick Nadarski, Edward Laughlin, Minette 
Richardson, and Stan Stenersen. 

[End of section] 

Appendix I: Key Changes Proposed in AIP: 

Feature: Funding; 
Current authorization for AIP: Trust fund for all capital programs are 
funded by an airline ticket tax, segment tax, international departure 
and arrival taxes, varying rates of fuel taxes and other taxes. Funding 
for AIP is appropriated from the trust fund; 
Proposed AIP reauthorization: Trust fund is funded by fuel tax of 13.6 
cents/gallon for commercial and general aviation and a reduced 
international arrival and departure tax. Funding for AIP is 
appropriated from the Trust Fund. If AIP is increased, the tax rates 
would have to be increased, the trust fund's uncommitted balance would 
have to be drawn down, or another funding source would have to found. 

Feature: Entitlements; 
Current authorization for AIP: Up to 75 percent of entitlements for 
large and medium hub airports collecting a PFC are turned back to the 
small airport fund; 
Proposed AIP reauthorization: Entitlements for large and medium hub 
airports eliminated by 2010. 

Feature: Entitlements; 
Current authorization for AIP: If AIP greater than $3.2 billion, 
primary airport entitlements are doubled; 
Proposed AIP reauthorization: $3.2 billion trigger for doubling 
entitlements is eliminated except for small and nonhub primary 
airports. 

Feature: Entitlements; 
Current authorization for AIP: State apportionment is 20 percent of AIP 
(18.5 percent if AIP is less than $3.2 billion); 
Proposed AIP reauthorization: State apportionment set at greater of 10 
percent of AIP or $300 million. 

Feature: Entitlements; 
Current authorization for AIP: Nonprimary airport entitlement of up to 
$150,000; 
Proposed AIP reauthorization: The nonprimary airport minimum 
entitlement of $150,000 per airport is eliminated and replaced by a 
tiered system of entitlements ranging from $400,000 for large general 
aviation airports to $100,000 for smaller general aviation airports. 
The 750 airports that have less than 10 operational and registered 
based aircraft are guaranteed nothing. 

Feature: Discretionary; 
Current authorization for AIP: Reliever and military airport set asides 
minimum discretionary funding set at $148 million; 
Proposed AIP reauthorization: The set-aside for reliever and military 
airports is eliminated. 

Feature: Discretionary; 
Current authorization for AIP: Small airport fund funded by large and 
medium hub airport PFC turnbacks of up to 75 percent of PFC 
collections; 
Proposed AIP reauthorization:  Minimum discretionary funding set at 
$520 million. 
Small airport fund equal to 20 percent of discretionary funds. 

Feature: Project eligibility; 
Current authorization for AIP: Most types of airfield projects, 
excluding interest costs, nonrevenue producing terminal space and on-
airport access project costs. General aviation airports may use their 
entitlement funds for some revenue producing activities (e.g., 
hangars); 
Proposed AIP reauthorization: Expanded to include additional revenue 
producing aeronautical support facilities (e.g., self-service fuel 
pumps) at general aviation airports. 

Feature: Local government share of project cost (local match); 
Current authorization for AIP: Government share set at 95 percent for 
smaller airports through 2007, and 75 percent for large and medium hub 
airports (noise 80 percent); 
Proposed AIP reauthorization: Eliminates 95 percent government share 
except for the very smallest airports. Now maximum share will be a 
flexible amount with a maximum percentage of 90 percent. Airfield 
rehabilitation projects lowered to 50 percent maximum at large and 
medium hubs. 

Feature: PFCs; 
Current authorization for AIP: Maximum rate is $4.50 per passenger; 
Proposed AIP reauthorization: Maximum rate is $6 per passenger. 

Feature: PFCs; 
Current authorization for AIP: All applications subject to FAA review; 
Proposed AIP reauthorization: Review and approval is streamlined. 

Feature: PFCs; 
Current authorization for AIP: PFCs can be used for all AIP eligible 
projects, but also interest costs on airport bonds, terminal gates and 
related areas, and noise mitigation can also be used; 
Proposed AIP reauthorization: Eligibility expanded to include almost 
any airport -related project, including off-airport intermodal 
projects. 
Up to 10 large and medium hub airports willing to assume the cost of 
air navigation facilities are allowed a $7 PFC. 

Feature: Privatization; 
Current authorization for AIP: Up to five airports, one of each size, 
with strict limit on rates and charges and requires approval by 65 
percent of airlines; 
Proposed AIP reauthorization: Up to 15 airports of any size, no limit 
on rates and charges and no airline veto, but subject to DOT review and 
approval. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix II: Scope and Methodology: 

To determine how much planned development would cost over the next 5 
years, we obtained planned development data from the Federal Aviation 
Administration (FAA) and Airports Council International-North America 
(ACI). To determine how much airports of various sizes are spending on 
capital development and from which sources, we sought data on airports' 
capital funding because comprehensive airport spending data are limited 
and because, over time, funding and spending should roughly equate. We 
obtained capital funding data from the FAA, ACI, the National 
Association of State Aviation Officials (NASAO), and Thomson Financial-
-a firm that tracks all municipal bonds. We screened each of these 
databases for their accuracy to ensure that airports were correctly 
classified and compared funding streams across databases where 
possible. We did not, however, audit how the databases were compiled or 
test their overall accuracy, except in the case of state grant data 
from the NASAO and some of the Thomson Financial bond data, which we 
independently confirmed. We determined the data to be sufficiently 
reliable for our purposes. We subtotaled each funding stream by year 
and airport category and added other funding streams to determine the 
total funding. We met with FAA, bond rating agencies, bond 
underwriters, airport financial consultants, and airport and airline 
industry associations and discussed the data and our conclusions to 
verify their reasonableness and accuracy. 

To determine whether current funding is sufficient to meet planned 
development for the 5-year period from 2007--2011 for each airport 
category and overall, we compared total funding to planned development. 
We correlated each funding stream to each airports' size, as measured 
by activity, and among other funding streams to better understand 
airports' varying reliance on them and the relationships among sources 
of finance. We then discussed our findings with FAA, bond rating 
agencies, bond underwriters, airport financial consultants, and airport 
and airline industry associations to determine how our findings 
compared with their knowledge and experiences. 

To determine some of the potential effects from changes to how airport 
development is funded under the administration's proposed FAA 
reauthorization legislation, we first analyzed the suggested changes to 
the Airport Improvement Program's (AIP) funding and allocation. In 
particular we analyzed the effect of various funding levels on how the 
program funds would be allocated. Second, we evaluated the effects of 
raising the passenger facility charge (PFC) ceiling, as the 
administration proposal suggests, by estimating the potential PFC 
collections under a $6 PFC on the basis of 2005 enplanements and 
collection rates assuming all airports imposed a $6 PFC. Third, we 
determined the status of FAA's pilot program for airport privatization. 
Moreover, we discussed the impact of all of the proposed changes 
(funding/allocation, $6 PFC, and privatization) with FAA, bond rating 
agencies, bond underwriters, airport financial consultants, and airport 
and airline industry associations. 

[End of section] 

(540133): 

FOOTNOTES 

[1] The FAA administers federal funds for airport capital improvements 
through grants awarded from the Airport and Airway Trust Fund under the 
AIP. 

[2] The PFC Program allows the collection of PFC fees up to $4.50 for 
every enplaned passenger at commercial airports controlled by public 
agencies. Airports use these fees to fund FAA-approved projects that 
enhance safety, security, or capacity; reduce noise; or increase air 
carrier competition. 

[3] In 2003 and 1998, GAO reported on airport financing. See Airport 
Finance: Past Funding Levels May Not Be Sufficient to Meet Airports' 
Planned Capital Development, GAO-03-497T (Washington D.C.: Feb. 25, 
2003) and Airport Financing: Funding Sources for Airport Development, 
GAO/RCED-98-71 (Washington D.C.: Mar. 12, 1998). 

[4] We will follow conventions established in GAO's prior report on 
airport finance in differentiating between larger (large and medium hub 
airports) and smaller (all other categories of commercial and general 
aviation airports). See Airport Finance: Past Funding Levels May Not Be 
Sufficient to Meet Airports' Planned Capital Development, GAO-03-497T 
(Washington D.C.: Feb. 25, 2003). 

[5] As noted in Table 3, the total amount of funds may be somewhat 
overstated because as much as 30 percent of PFCs are used to finance 
bond issues. This would particularly affect the total for larger 
airports, which collect most of the PFCs. 

[6] AIP grants generally consist of two types--(1) entitlement funds 
that are apportioned to airports or states by formula each year based 
on the number of airport passengers or state population and (2) 
discretionary funds that FAA approves based on a project's priority. 

[7] The Wendell H. Ford Aviation Investment and Reform Act for the 21st 
Century, Pub. L. No. 106-81 (Apr. 5, 2000). 

[8] This calculation assumes that the increased PFC would not affect 
passenger demand for air travel. GAO has previously calculated that a 
PFC increase could reduce passenger demand. See Passenger Facility 
Charges: Program Implementation and the Potential Effects of Proposed 
Changes, GAO/RCED-99-138 (Washington D.C.: May 19, 1999). 

[9] The law defines super-majority as at least 65 percent of the 
scheduled air carriers at a primary airport. 

[10] At non-primary airports, the exemption would continue to be based 
on consultation with at least 65% of the based-aircraft owners. 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts 
newly released reports, testimony, and correspondence on its Web site. 
To have GAO e-mail you a list of newly posted products every afternoon, 
go to www.gao.gov and select "Subscribe to Updates." 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office 441 G Street NW, Room LM 
Washington, D.C. 20548: 

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202) 
512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S. 
Government Accountability Office, 441 G Street NW, Room 7125 
Washington, D.C. 20548: 

Public Affairs: 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, D.C. 20548: