Generating over $1.1 trillion annually and supporting over ten million jobs, airports play a very important role in the economy of the United States (Zhang & Zhnag, 2018). While passenger traffic continues to grow, the outdated aviation infrastructure is unable to support the overwhelming demand. It is worth noting that during the formative years of the United States, the establishment of airports was not as expensive as it is in the modern day because construction was done in areas where there were vast land tracks. Similarly, air terminals were far from urban centers. However, the realization of the role they play in the economy of the country accompanied by the increased demand has resulted in the development of airports. Besides, the privatization of airports has been on the increase due to government fiscal stress. Regardless of privatization, these airports have to be funded by the federal government. This has created a complex relationship and necessitated both federal and local funding.
Directly or indirectly, all users of airports contribute to their development. Some of the local funding of America’s airports' infrastructure stems from the taxation of aviation fuels. People and parcels that are flown using commercial flights pay fuel levy as part of their tickets to local and federal governments. Using the Passenger Facility Charge (PFC) program, local funds for airport developments are generated. At its core, PFC is a user fee usually charged to any passenger that flies through an airport (Santini, 2018). However, it is worth noting that PFCs can only be raised and used in airports where they have been collected following approval from the Federal Aviation Administration (FAA). At the moment each passenger is charged $4.5 any time they use the airport (Santini, 2018). Regardless of the increased number of people that use the airport, the PFC is insufficient to cater to the ever-increasing infrastructure needs of the airport.
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Another way in which airports are funded is through federal and state tax fuels. For every gallon of piston-powered propeller aircraft and jet fuel, the federal government charges 19.3 and 21.3 cents respectively (Tang, 2019). Taxes from these fuels are channeled to the Airport and Airway Trust Fund (AATF). Established in 1971 by the United States Department of Treasury, AATF funds activities of the airport that range from improvement and repair of infrastructure, mobility, and the modernization of control systems (Tang, 2019). Besides tax fuels, the primary source of revenue for this fund includes airline tickets for domestic and international passengers. The rest of the funds from fuel taxes is involved in programs that seek to protect the environment. It is worth noting that fuel tax differs from one state to the other.
The Airport Improvement Program (AIP) is another mechanism through which the federal government funds airports. Established in 1982 by the Airport and Airway Improvement Act, AIP is administered by the Federal Aviation Administration (Graham, 2017). In addition, AIP is the largest contributor to funds for airport developments in the U.S.
At its core, AIP provides federal grants for both development and funding to airports. Airports legible for these grants range from large commercial airports that are publicly owned to small privately-owned airports that are available for commercial use. Usually, AIP funding is limited to the development and planning related to airport operations such as runways and taxiways (Kaps, Myer, Lanman & Sigler, 2018). Other activities such as facilities that are revenue-producing or operating costs are ineligible for AIP funding. The way in which AIP funds are distributed across various airports in the country reveals that airport infrastructure is a priority for congress as well as objectives of ensuring safety and security in airports, reducing congestion, increasing the capacity that airports can serve, financing small and private community airports, and mitigation of noise as well as environmental impacts.
The distribution system for AIP grants is based on the combination of two formulas; entitlements and discretionary funds. The former is apportioned by a formula that is based on either specific or type of airports. Usually, the primary airports that have at least 10,000 passenger boardings annually receive $7.80 for the first 50,000, $5.20 for the next 50,000, and $2.60 for the next 400,000 (Tang, 2019). Airports with cargo shipments have their formula dependent on the weight of the goods. Particularly, the entitlement formula is the proportion of the individual airport’s landed weight, to the total landed weight at all-cargo service airports. Airports that have less than 10,000 airport passenger boardings annually have their entitlement funds formula dependent on state, territories, and possessions according to the population as well as land jurisdiction except for Alaska. Alaskan airports receive at least twice as much funding from AIP as they did in 1980 (Santini, 2018)
Discretionary funds, on the other hand, on the other hand, include all the money that remains after the entitlements apportionments. Research reveals that discretionary funds for 2018 were approximately 9.4% of the total AIP funds (Tang, 2019). Unlike entitlements, discretion funds have to be approved by the Federal Aviation Administration (FAA). Usually, they are disbursed depending on the priority of the project among other factors. Airports have to apply for discretionary funds for projects in their master plans. However, the approval of discretionary funds is not solely dependent on the approval of the FAA. Three other factors have to be considered in the distribution of discretionary funds; airport noise, military airport programs, and grants for reliever airports. According to AIP, at least 35% of discretionary funds are set aside to mitigate noise and carry out programs for both compatibility and abatement of noise (Tang, 2019). 4% is funded for up to 15 former and current military airports for conversion and dual usage (Tang, 2019). On the other hand, two-thirds of 1% of discretionary funds, are used for funding relief for metropolitans suffering from the delay of flights (Santini, 2018).
AIP has been advantageous in funding airports in that as a grant program, capital projects within the airport’s master plans can be funded without them bearing the financial burden of debt financing (Zhang & Zhang, 2018). However, airports have to have a modest that equates to the federal funds' grants. On the other hand, the limitations of the AIP are that the funds are limited to certain uses only as discussed earlier. Also, all airport recipients are required by federal law to adhere to regulations and grant assurances. For instance, one of the requirements is that the airport must be listed in the National Plan of Integrated Airport Systems. At its core, NPIAS is a publication made by the Secretary of Transportation which highlights the national plan for both use and development of airports, bi-annually (Tang, 2019). An airport cannot be funded by the AIP if it does not appear on the NPIAS list.
In conclusion, the dynamics of financing airports over the years have changed due to the rise in costs, privatization, and the high number of passengers. Due to the importance of airports in facilitating globalization and being a significant source of revenue both the local and federal governments have come up with ways to fund airports. As highlighted, funding is done through the taxes of jet fuels, PFCS, and the AAIF. The AIP is regarded as the biggest contributor to federal grants for airport funding. Usually, AIP funding is dependent on discretionary and entitlement formulas. Although Congress has in place the standard grants given to airports, state and Federal governments should increase their funding of airports to meet the country’s needs and supply in the sector.
References
Graham, A. (2017). The regulation of US airports. In The economic regulation of airports (pp. 63-72). Routledge.
Kaps, R. W., Myer, D. A. N., Lanman, R. T., & Sigler, J. (2018). The Need for Airport Funding. The Collegiate Aviation Review International , 19 (1).
Santini, M. (2018). Fixing Our Aging Infrastructure: How to Pay for Airport Improvements. Hofstra Law Review , 46 (3), 10.
Tang, R. Y. (2019). Financing Airport Improvements. Congressional Research Service , 15.
Zhang, A., & Zhang, Y. (2018). Airline economics and finance. In The Routledge Companion to Air Transport Management (pp. 171-188). Routledge
