Financing Airport Improvements - R43327

Rachel Y. Tang
Analyst in Transportation and Industry

Robert S. Kirk
Specialist in Transportation Policy

There are five major sources of airport capital development funding: the federal Airport Improvement Program (AIP); local passenger facility charges (PFCs) imposed pursuant to federal law; tax-exempt bonds; state and local grants; and airport operating revenue from tenant lease and other revenue generating activities such as landing fees. Federal involvement is most consequential in AIP, PFCs, and tax-exempt financing.

The Airport Improvement Program (AIP) has been providing 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 such as runways, taxiways, aprons, noise abatement, land purchase, and safety or emergency equipment. The funds obligated for the AIP are drawn from the airport and airway trust fund, which is supported by a variety of user fees and fuel taxes. Different airports use different combinations of these sources depending on the individual airport’s financial situation and the type of project being considered. Although smaller airports’ individual grants are of much smaller dollar amounts than the grants going to large and medium hub airports, the smaller airports are much more dependent on AIP to meet their capital needs. This is particularly the case for non-commercial airports, which received more than 30% of AIP grants distributed in FY2012. Larger airports are much more likely to issue tax-exempt bonds or finance capital projects with the proceeds of PFCs.

The FAA Modernization and Reform Act of 2012 (P.L. 112-95) provided annual AIP funding of $3.35 billion for four years from FY2012 to FY2015. That act left the basic structure of AIP unchanged, but included a provision permitting small airports reclassified as medium hubs due to increased passenger volumes to retain eligibility for up to a 90% federal share for a two-year transition period. It allowed certain economically distressed communities receiving subsidized air service to be eligible for up to a 95% federal share of project costs and expanded the number of airports that could participate in the airport privatization pilot program from 5 to 10. Only minor modifications were made in the PFC program.

Congress is likely to consider airport improvement issues in the context of reauthorization of the Federal Aviation Administration in 2015. The issues it may face include the following:

• Should airport development funding be increased or decreased?

• Should the $4.50 ceiling on PFCs be eliminated, raised, or kept as it is?

• Could the AIP be restructured to address congestion at the busiest U.S. airports, or should a large share of AIP resources continue to go to non-commercial airports that lack other sources of funding?

• Should Congress set tighter limits on the purposes for which AIP and PFC funds may be spent?

This report provides an overview of airport improvement financing, with emphasis on AIP and the related passenger facility charges. It also discusses some ongoing airport issues that are likely to be included in a future FAA reauthorization debate.
 

Date of Report: December 4, 2013
Number of Pages: 33
Order Number: R43327
Price: $29.95

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Federal Public Transportation Program: An Overview - R42706

William J. Mallett
Specialist in Transportation Policy

Federal assistance to public transportation is provided primarily through the public transportation program administered by the Department of Transportation’s Federal Transit Administration (FTA). The federal public transportation program is authorized through FY2014 as part of the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141). Signed into law in July 2012, MAP-21 made significant modifications to the public transportation program, effective October 1, 2012. This report provides an introduction to the program as modified by MAP-21.

Major federal involvement in public transportation dates to the Urban Mass Transportation Act of 1964 (P.L. 88-365). Prior to the mid-1960s there was very little public funding of public transportation. With much lower ridership than existed at the end of World War II and mounting debts, however, many private transit companies were reorganized as public entities. Federal funding was initially used to recapitalize transit systems. Today, the focus of the federal program is still on the capital side, but the program has evolved to support operational expenses in some circumstances, as well as safety oversight, planning, and research.

Date of Report: December 2, 2013
Number of Pages: 11
Order Number: R42706
Price: $29.95


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Infrastructure Banks and Debt Finance to Support Surface Transportation Investment - R43308

William J. Mallett
Specialist in Transportation Policy

Steven Maguire
Section Research Manager

Investment in surface transportation infrastructure is funded mainly with current receipts from taxes, tolls, and fares, but it is financed by public-sector borrowing and, in some cases, private borrowing and private equity investment. This report discusses current federal programs that support the use of debt finance and private investment to build and rebuild highways and public transportation. It also considers legislative options intended to encourage greater infrastructure financing in the future.

The federal government’s largest source of support for surface transportation infrastructure is the highway trust fund (HTF), which is funded principally by taxes on gasoline and diesel fuel. Funds from the HTF are distributed to state governments and local transit agencies for projects meeting federal standards. State governments, local governments, and transit agencies must also contribute their own resources because grants from the HTF do not meet states’ entire surface transportation capital needs. The federal government supports additional infrastructure spending by providing a tax exclusion for owners of municipal bonds, or “munis,” issued by state and local governments. The federal government also supports project finance through loan programs, such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, which can help leverage private investment via public-private partnerships (P3s), and through federally authorized state infrastructure banks (SIBs).

All of these financing mechanisms impact the federal budget, although none are as costly as federal grant funding. With less federal support, financing places a greater burden on state and local governments to identify revenue sources to repay loans or to provide a return to private investors. In many cases, nonfederal revenue to finance a project is provided by a highway or bridge toll, but it could be a pledge of future sales tax or real estate tax revenue.

There are many legislative options that Congress might consider in modifying the federal role in surface transportation financing. This report considers five:

1.      Creation of a new type of tax credit bond, such as the American Fast Forward Bonds. 

2.      More funding for the TIFIA program, which already has received enough applications to almost exhaust the budget authority made available for FY2013 and FY2014. 

3.      Greater encouragement for P3s, including creation of a federal office that could provide technical advice and consulting services and help develop the P3 market. 

4.      Creation of a national infrastructure bank (I-bank), an independent federal agency with financing and project expertise that would provide low-cost longterm loans on flexible terms. 

5.      Enhancement of SIBs that already exist in many states, possibly with dedicated federal funding.

Date of Report: November 18, 2013
Number of Pages: 26
Order Number: R43308
Price: $29.95


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