Airport Infrastructure Funding
America’s airports are powerful engines for economic opportunity in local communities, generating more than $1.4 trillion in annual economic activity and supporting nearly 11.5 million jobs. While passenger traffic through airport facilities continues to grow a record pace, our outdated aviation infrastructure cannot keep pace with this overwhelming demand.
As airports continually work to modernize their infrastructure to improve the passenger experience and spur more airline competition, airports face unprecedented challenges in securing much needed financing.
It is common misconception that airports are funded with taxpayer dollars. In reality, infrastructure projects at airports in the United States are funded through three key mechanisms: federal grants through the FAA’s Airport Improvement Program (AIP), the Passenger Facility Charge (PFC) local user fee, and tenant rents and fees.
Although nearly all U.S. airports are owned by state or local governments, airports are required by the federal government to be as self-sustaining as possible, and thus receive little or no direct taxpayer support. This means that airports must operate like businesses – funding their operations from their revenue, and responsibly planning funding for major improvement projects – which can often be very expensive.
Modernizing the PFC and a maintaining a robust AIP would allow airports to do what they do best: serve their passengers with safe, secure, and efficient facilities, as well as effectively plan for the future. Ultimately, the airport is in the best position to determine what its future holds in terms of competition, traffic, and capacity. Updating airport-funding options will give airports and their communities control over how to best address their individual needs.
Without any major update to funding options for airports in the last 20 years airports have all but exhausted the financial resources available to them. Absent the funding necessary for improvements and modernization of facilities airports have delayed projects, thus increasing the cost and prolonging construction times. Airports are struggling to update the nation’s aging airport system and are at risk of falling behind without funding relief through PFCs and AIP.
Passenger Facility Charge
With more than $115 billion in infrastructure needs in the next five years, airports across the United States face unprecedented infrastructure challenges. The logjam that exists in keeping vital infrastructure projects moving is directly tied to the user fee that has languished unchanged for almost 20 years. In fact, airport infrastructure costs have increased more than 32 percent over the last two years. Without action by Congress, costs will continue to sky rocket and America’s airports will be left behind.
Congress can help airports meet their $115 billion in infrastructure needs by adjusting the outdated federal cap on the locally set Passenger Facility Charge (PFC) user fee. The PFC is a local user fee that is required by law to be used to fund FAA-approved airport improvement projects. Created by Congress in 1992, the PFC user fee was designed as a tool to spur infrastructure investment that would create competition among the airlines. Through more efficient and modern facilities, airports would be able to reduce operating costs and attract new service options.
Modernizing the cap is key to restoring the PFC’s lost purchasing power and providing airports with the ability to set their own levels based on locally determined needs to ensure the continued safety, security, and improvement of their facilities, all while providing passengers with more air service options and lower airfares.
Airport Improvement Program
The FAA projects strong growth in commercial and general aviation over the next decade. This additional demand will limit the ability of airports to serve passengers unless they are able to expand capacity. The number of passengers using the aviation system is expected to increase from 700 million passengers today to 1 billion in another 10 to 15 years. Airports need to respond to these potential capacity strains.
One of the principle sources of funding airport improvements in the United States is Airport Improvement Program (AIP) grants from the FAA. Projects eligible for AIP grants include improvements related to enhancing airport safety, capacity, security and environmental protection at individual public-use airports.
While AIP and Passenger Facility Charges (PFC) are separate programs to fund airport modernization, the two are complimentary for the needs of airports. By and large, AIP grants are used on the airfield to rehabilitate or construct new runways and taxiways, improve airfield safety, or enhance security around the airport. AIP grants are not generally used for terminal projects, which account for 60 percent of total airport infrastructure needs.
Commercial airports are economic engines to cities nationwide, generating an economic output of $1.1 trillion annually, supporting 10 million U.S. jobs, and serving nearly one billion passengers annually by the end of the decade. Our nation’s commercial airports need $115 billion in expansion and renovation over a five-year period to keep pace with increased passenger traffic, security upgrades, and cargo distribution demands. Without access to cost-efficient financing many airports will be unable to undertake these needed improvements—and the anticipated job creation and economic activity from these activities will not be realized.
Airports often use bonds – a debt instrument similar to a home mortgage – to construct and renovate terminals, parking garages, maintenance facilities and other airport services. Over the past decade, about 60 percent of bonds issued to finance airport capital projects were issued as Private Activity Bonds, a special type of municipal bond that is issued to finance a facility that serves a public purpose for the benefit of a private user like an airline.
Commercial airports are unique entities that fulfill important public and private functions and generate economic activity that is unparalleled in the cities and communities they serve. To continue to meet their unique responsibilities, airports must preserve access to the most cost-efficient financing offered in the marketplace. Tax-exempt municipal bonds—in the form of private activity bonds used for airport construction and renovation—are the most cost-efficient form of infrastructure financing available today.