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20 Guidebook for Managing Small Airports also important that the agreement cite the applicable operating standards, codes, ordinances, or policies of the airport. The airport manager should establish a lease policy allowing for standardization among ten- ants engaged in similar activities. Basic lease conditions should be consistent between like tenants. Additionally, federal sponsor requirements should be made part of the airport lease agreements. These would include language pertaining to nonexclusive rights, use of airport, non-discrimination, and airport commitments to federal or state agencies. Liability and Insurance Airport owners should ensure that the airport is protected with adequate airport liability insur- ance coverage. Airports and their tenants have the same general type and degree of liability expo- sure as the operator of most public premises. Principal areas in which claims may arise include aircraft operations, premises operations, and sale of products (7). Basic types of insurance coverage include Basic Airport Premises Liability--covering losses arising out of liability for activities con- ducted on the airport (purchased by the airport owner); Products Liability/Completed Operation Liability--covering losses arising out of claims related to the sale of products or completed services (purchased by the service operator); and Hangar Keepers Coverage--covering aircraft damage while in the care, custody, or control for storage or safekeeping (purchased by the hangar or aircraft owner). Other types of coverage include liability insurance for airport events or personal and adver- tising injury liability. Airport owners should ensure that satisfactory insurance requirements are contained within the various lease agreements at the airport. Important considerations in the preparation of leases are provisions for indemnification and workers' compensation. It is recommended that airport lease policy with respect to insurance requirements provide that the airport owner is named as additionally insured. Airport managers should review lease insurance requirements periodically with their insur- ance providers, risk managers, and attorneys. Airport Development Funding Funding for airport development comes from five primary sources: federal AIP grants, PFCs, state and local funding, tax-exempt bonds, and airport revenue. Different airports use different combinations of these sources depending on the individual airport's financial situation and the type of project being considered. Small airports depend more on AIP grants than large- or medium-hub airports. The larger airports, whose projects tend to be much more costly, are more likely to finance projects through bonding. Airport development bonds are usually repaid through PFCs or other airport revenues. Grant Programs Development of public airport facilities with minimal revenue-generating opportunities nor- mally depends on grant programs offered by the FAA and state departments of aeronautics. The FAA has determined that these programs are necessary to provide for funds critical to airport devel-

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Airport Finance 21 opment as part of the National Airspace System (NAS). This section will discuss, in general, the background and provisions of these grant programs. A thorough understanding of available state and federal grant programs available to public airport owners will benefit the airport manager. FAA Airport Capital Improvement Plan To meet the present and anticipated needs of civil aviation, the FAA has developed a detailed process for prioritizing eligible projects within the system and a methodology for planning the funding of system projects. FAA Order 5100.39A, Airport Capital Improvement Plan, describes in detail the development of the national Airports Capital Improvement Plan (ACIP). This plan also serves as the basis for the distribution of grant funds under the AIP. The stated purpose of the ACIP is to allow the FAA, by identifying and investing in airport development and capital needs, to ensure to the American public that the national airspace system is a safe, secure, and efficient environment for air travel nationwide. The ACIP employs a matrix of components such as numerical prioritizing equations, ratings, and project codes to assist in the ranking of eligible projects. Other factors also considered in the prioritization process include state and local priorities, impacts on safety, airport growth, and envi- ronmental issues, to mention a few. Through the ACIP process a plan can be developed that assesses the system needs with funding projections, providing a foundation for decisions regarding the AIP. The National Plan of Integrated Airports System (NPIAS) provides Congress, the industry, and the general public with a planning tool that identifies significant airports and their roles, present conditions, and a cost estimate for system developments. The NPIAS is issued every two years. Public-use airports are categorized as commercial service airports, general aviation air- ports, reliever airports, privately owned public-use airports, and other general aviation airports. In general, funding decisions made for the allocation of AIP dollars consider the findings of the NPIAS, comprising primarily commercial service airports, reliever airports, and certain gen- eral aviation airports (www.faa.gov). Additional information on NPIAS and non-NPIAS airports is provided in Chapter 4 of this guidebook. Airport Improvement Program The Airport Improvement Program (AIP) Handbook (FAA Order 5100.38C) includes detailed information on all aspects of the program, including the legislative history. The handbook provides that public-use airports identified in the NPIAS may be eligible for funds for certain projects through the AIP, a federal grant program. Funds obligated for the AIP are drawn from the airport and airway trust funds, which are supported by taxes and fees placed on aviation products such as airline tickets, fuel and cargo, and international departure fees. The AIP is authorized by Congress under general guiding principles discussed in the ACIP and NPIAS, but is generally in support of the development of public-use airports critical to the national transportation system. The highest aviation priority of the United States is the safe and secure operation of the airport and airway sys- tem. The AIP addresses the funding of these needs, maintains airport infrastructure, and increases system capacities. Eligible projects for AIP grants may also include planning, development, or noise compatibility projects associated with public-use airports. For small primary, reliever, and general aviation airports identified in the NPIAS, AIP grant funding currently covers 95% of all eligible project costs. Guidance on eligible airports and projects can be obtained by contacting the local FAA ADO or through a variety of other sources, including the FAA website (www.faa.gov) and FAA Order 5100.38C.

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22 Guidebook for Managing Small Airports Generally, most airport airfield capital improvements or repairs are eligible for AIP grant funding together with most planning, design, and other engineering costs. Examples of eligible projects are Runway/taxiway construction, Land acquisition, Apron construction/rehabilitation, Airport layout plans, and Environmental studies. There are a number of other criteria required of the airport sponsor for the airport to become eligible for AIP project funding. Some of these criteria are sponsor requirements must be met, sufficient local funds must be available, and the project must be depicted on approved airport layout plans. The FAA considers many factors when determining which projects will be funded. The FAA has determined that current demands on the AIP funds exceed the availability of funds. Aviation demand at the airport must justify the projects. The FAA determines distribution of AIP funds based on national priorities. AIP funds are then distributed from a variety of programs, discussed in detail in Chapter 4. Airport managers should be aware of grant programs and work closely with state and FAA representatives in preparing and planning for potential AIP projects. When an airport accepts federal grant participation, the municipality agrees to specific obligations. Airport sponsor obli- gations or assurances are in place for a 20-year period. The conditions set forth in the grant assur- ances involve such things as how the sponsor will operate and maintain the airport, nonexclusive rights, and making the airport available for public use on reasonable terms. Many of these assur- ances should be reflected in airport policy, standards, and lease agreements. FAA Order 5190.6A, Airport Compliance Requirement (1989), provides detailed information about the airport sponsor's responsibility to comply with grant conditions. The FAA is interested in improving the national airspace system and provides grants to airports in exchange for com- mitments designed to ensure that the public interest is served. Airport managers of federally obligated airports must be aware of the responsibilities of the airport sponsor with respect to the compliance requirements. Compliance with Grant Conditions The Airport and Airway Improvements Act of 1982 (49 USC, subtitle VII, as amended) states that grant assurances are required as part of a project application from airport sponsors who are eligible to request federal funds. Upon acceptance of grant money, these assurances are incorporated into and become part of the grant agreement. The airport sponsor is obli- gated to comply with specific assurances, which include the maintenance of compatible land use within the vicinity of the airport. The assurances that apply to planning-related projects are limited compared to other types of projects and have stipulations that are outlined in the grant agreement documents. A complete list of assurances can be found on the FAA web- site (www.faa.gov/airports_airtraffic/airports/aip/grant_assurances/media/airport_sponsor_ assurances.pdf). Specifically, Grant Assurance 21 included in the September 1999 amendment to U.S. 49 USC Section 47107 requires all airports that accept federal money to take appropriate action against incompatible land uses in the immediate vicinity of the airport. Such actions include adopting zoning laws and zoning changes that will increase airport land use compatibility. This grant assurance obligates an airport sponsor to protect the federal investment through the mainte- nance of a safe operating environment.