Passenger air travel is at an all-time high. A key question for Congress is whether current levels of spending will be sufficient under existing federal policies to enable commercial service airports to make appropriate and timely infrastructure investments to meet future demand. This report contains a comprehensive review of the role of the federal government in airport infrastructure funding and financing.

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U.S. Airport Infrastructure Funding and Financing

Issues and Policy Options Pursuant to Section 122 of the 2018 Federal Aviation Administration Reauthorization Act

by Benjamin M. Miller, Debra Knopman, Liisa Ecola, Brian Phillips, Moon Kim, Nathaniel Edenfield, Daniel Schwam, Diogo Prosdocimi

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Research Questions

  1. Can current airport infrastructure meet the demand for passenger air travel, now and in the future?
  2. What financial tools and resources are available for airports?
  3. How much debt is held by airports, and what effect does that debt have on future construction and capacity needs?
  4. How are passengers and ticket prices affected by capacity constraints at airports?
  5. How can airports fund the infrastructure development they need while minimizing the effect on passengers and ticket prices?

Passenger air travel in the United States is at an all-time high and is expected to continue growing for most airports of all sizes. Commercial service airports, which are publicly owned airports that serve at least 2,500 passenger boardings (enplanements) per year and that receive scheduled passenger service, handle 99.9 percent of enplanements in the United States. These airports provide the physical infrastructure — runways, terminals, gates, and other facilities — used by commercial airlines, travelers, and other air service providers.

Section 122 of the 2018 Federal Aviation Administration (FAA) Reauthorization Act directed the FAA to contract with an independent research organization to address 21 questions related to infrastructure funding and financing at commercial service airports. To provide the context for addressing Congress's questions, the authors of this report provide a comprehensive review of the role of the federal government in airport infrastructure funding and financing. The authors also recommend a portfolio of changes in current federal policies related to airport infrastructure funding and highlight the need for further study of issues that may merit policy changes.

Consistent with Section 122, RAND conducted this work independently and submitted this report directly to Congress and the Secretary of Transportation in January 2020.

Key Findings

  • Running an airport like a business is complicated by a patchwork system of federally authorized funding mechanisms that have accreted over the past 50 years. Investing in airport infrastructure is a more complex and time-consuming process than simply tallying up whether sufficient dollars are available.
  • All commercial service airports face the same broad industry trends, such as growing demand for air travel and increasing plane sizes. However, some airports appear better positioned financially to manage future growth than others. The prospect of growth in demand is closely tied to local economic conditions, which can inject uncertainty into airports' financial plans.
  • Airside infrastructure is in good repair. However, the growth in the number of enplanements has led to more-crowded terminals at some airports, and many aging control towers and other air traffic control facilities require rehabilitation and upgrading.
  • Airports will need to make significant investments in the coming years to sustain existing capacity and services and to accommodate growth in enplanements and commercial operations. The larger commercial service airports are likely to find ways to make the investments they deem to be critical, but increased access to higher revenue streams in the near term would enable these airports to complete approved priority projects sooner and at lower borrowing costs.
  • Smaller airports by definition have a smaller user base that offers fewer opportunities for raising revenue. These airports are therefore more reliant on federal grants than larger airports for paying the high fixed costs related to runways, taxiways, aprons, safety, and security.

Recommendations

  • Congress has several options regarding changes to the passenger facility charge program, which is a federally authorized user fee paid by passengers at the time of ticket purchase and remitted to the airport at which the passenger boards. The authors recommend that Congress increase, but not remove, the cap on passenger facility charges and index the cap to inflation; the cap restricts airports' charges on passengers for their use of airport infrastructure.
  • The authors recommend changes in the allocation and spending of Airport Improvement Program funds to increase their effectiveness and efficiency. Specifically, Congress should remove the automatic doubling of Airport Improvement Program primary entitlements and should remove entitlements for nonprimary airports.
  • The authors recommend reducing the uncommitted balance of the Airport and Airway Trust Fund, if forecast growth continues to materialize, and fixing inequities in the Airport and Airway Trust Fund's tax structure. Congress should take advantage of the existing uncommitted balance by establishing and maintaining a "rainy day" fund to ensure that funding levels can remain stable over time.
  • The authors recommend that Congress increase enforcement of existing revenue diversion policies and phase out existing exceptions to the prohibition on revenue diversion, which is the practice of airport sponsors spending aviation-related revenue on nonaviation purposes.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Historical Context and Trends in Air Travel

  • Chapter Three

    The Business of Airports

  • Chapter Four

    Status of and Trends in Airport Funding and Expenses

  • Chapter Five

    Federal Role in Airport Infrastructure Funding: Airport Improvement Program

  • Chapter Six

    Federal Role in Airport Infrastructure Funding: Passenger Facility Charge Program

  • Chapter Seven

    Role of Bond Markets in Airport Infrastructure Funding

  • Chapter Eight

    Assessing Future Demand and Capacity Constraints

  • Chapter Nine

    Key Findings and Recommendations

Research conducted by

The research described in this report was prepared for the U.S. Congress and the Secretary of Transportation and conducted by the Community Health and Environmental Policy Program within RAND Social and Economic Well-Being.

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