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Airport Finance 23 Federal, State, and Local Funding FAA Airport Improvement Program Funding The FAA fiscal year starts on October 1 and ends on September 30. Congress approves the FAA appropriation funding level for each fiscal year. Afterward, the Office of Management and Budget issues the FAA its funding allotments and FAA headquarters works through a formula that considers set-asides--such as entitlement funds for state apportionments and airports, and specified discretionary funding for noise projects--and distributes to each FAA region its allot- ment based on information submitted with the region's ACIP. An airport must be identified within the NPIAS to receive consideration. AIP funding falls into the following areas: 1. Primary airport entitlement funds are available for commercial service airports that have at least 10,000 enplaned passengers per year. The amount is determined by a formula based on AIP authorization law and the number of enplaned passengers. Regardless of the number of passengers boarded, the minimum entitlement of a primary, commercial service airport is $650,000 per year ($1 million per year if total AIP is at least $3.2 billion). An airport can retain the right to receive its entitlement money for three years (four years in the case of smaller airports that are classified as non-hub airports). Entitlement money deferred to a later year is referred to as carryover entitlement. 2. Cargo entitlement funds are available for airports served by aircraft providing air transporta- tion of cargo only with a total landing weight of more than 100 million pounds per year. These airports receive 3.5% of the total AIP funds. A cargo service airport shares in this money in proportion to what the total landed weight of cargo-only aircraft landing at an airport is to the total landed weight of such aircraft at all cargo service airports. 3. Non-primary entitlement (NPE) funds are available to general aviation airports. The amount given to an airport is based on the amount of development that airport has identified within the NPIAS. The maximum amount an airport can get is $150,000 per year. An airport can retain the right to receive its entitlement money for three years. For example, if an airport does not use an annual entitlement of $150,000 for 2005 and 2006, those funds can be added to the 2007 entitlement for a total funding level of $450,000. If an airport chooses not to use the entitlement, it will then be redistributed to projects at other airports. 4. State apportionment funds are available to any general aviation airport or non-primary commercial service airport within a state and included within the NPIAS. General aviation airports receive 20% of the total AIP funds. The first draw on general aviation funding is to identify and allocate funds to those non-primary airports entitled to an NPE allocation. The remaining general aviation balance is then divided among the states and territories. The amount of funds remaining after the general aviation entitlement funds are determined is allocated to the states by a formula that takes into consideration the population and area of each state. General aviation airports seeking AIP money from this allocation usually apply directly to the FAA. Some states require their airports to channel their AIP applica- tions through the state aviation agency. The FAA then decides which airports will get the money. Nine states (Illinois, Michigan, Missouri, New Hampshire, North Carolina, Pennsylvania, Tennessee, Texas, and Wisconsin) participate in the State Block Grant Program. Under this program, the FAA gives the states a block grant and the state decides which airports will receive grants. States that participate in the State Block Grant Program do not receive more funding, but they do get more control over how it is distributed to the airports in their states. The block grant contains a state's NPE allocation and its state apportionment allocation. 5. Discretionary funds are available to any airport identified within the NPIAS. After the entitle- ments and set-asides are funded, the remaining money can be invested at the FAA's discretion.
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24 Guidebook for Managing Small Airports These funds are often referred to as "pure discretionary" AIP money. Seventy-five percent of these discretionary funds must be invested in projects that enhance capacity, safety, or secu- rity or that will reduce noise. The law sets aside 35% of AIP discretionary funds for noise/environmental projects. Under the military airport program (MAP), the FAA selects 15 current or former military airports (including at least one general aviation airport) to share in the set-aside, which is equal to 4% of the discretionary funds. The purpose of the MAP is to increase overall system capacity by pro- moting joint civilianmilitary use of military airports or by converting former military airports to civilian use. Passenger Facility Charges Airports are currently permitted to assess a fee on passengers known as a passenger facility charge. PFCs are collected by the airlines and paid directly to the airport. They are intended to supplement AIP funding by providing more funding for runways, taxiways, terminals, gates, and other airport improvements. Currently no airport may charge a PFC of more than $4.50 per pas- senger, and no passenger has to pay more than $18 in PFCs per round-trip regardless of the num- ber of airports through which a passenger connects. No airport can charge a PFC until the FAA approves it. State Grants Nearly all states provide financial assistance to airports, primarily in the form of grants as matching funds for AIP grants or as separate state grants. Some states have grant programs for items that are generally ineligible for AIP funding, such as hangars, pavement maintenance, and terminal buildings at general aviation airports. States offer a slightly greater share of their grants to smaller airports than does the federal government grant program. To find out what grant pro- grams are available, an airport manager should contact his or her state aviation agency. Local Funding Normally the primary local funding source is the general funds of the governmental body that owns the airport. It is often difficult to receive a large amount of funding from local taxpayers because of the scarcity of revenue and the competition from other governmental services. Because airports are not used by the majority of citizens, it is necessary to make a strong case based on economic development in order to receive funding. Airport Revenue Commercial airports can generate revenue from landing fees and terminal leases (both paid by airlines), concessions (such as parking fees), and other income (such as advertising). General avia- tion airports' primary sources of revenue are normally fuel flowage fees, land leases for hangars, FBO leases, and agricultural leases. It is rare for a small airport to generate enough revenue to offset its operating costs. Thus, very rarely are capital improvement projects funded from airport revenues. Airport Bonds The single largest category of airport funding is bonds. However, the vast majority of airport bonds are issued by large-hub and medium-hub airports. More than 95% of all airport debt issued since 1982 has been in the form of airport revenue bonds, which are secured by an air- port's future revenue. Smaller airports have issued revenue bonds, but this is rare. Far more common are general obligation bonds for airport development, which are backed by the taxing power of a govern- mental unit and thus rate a stronger credit standing and carry lower financing costs. Many times airport improvement projects at small airports are included with other municipal projects in a single general-obligation bond.