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Plan of Finance and Financial Feasibility 55 Federal Grants: Congestion Mitigation and Air Quality Improvement Program The Congestion Mitigation and Air Quality Improvement Program (CMAQ) is a program within SAFETEA-LU that focuses on reducing tailpipe emissions of ozone and carbon monox- ide. Jointly administered by FHWA and FTA, funding is available to metropolitan areas that do not comply with federal air quality standards (non-attainment areas) or previously did not com- ply but do so today (maintenance areas). Priority for CMAQ funds are given to diesel engine retrofits and other effective emission-reduction and congestion-management activities. CMAQ opportunities should be considered for possible funding of the transportation link between an off-site terminal and the airport. Information on nonattainment and maintenance areas can be found at www.epa.gov/oar/oaqps/greenbk/ancl.html. The inter-agency coordination recommended previously is especially important if CMAQ funds are to be obtained. While CMAQ funds are administered by FHWA and FTA and these agencies make the final determination of eligibility, the actual project selection is made by either the state or local MPO, according to the state and/or local planning process. CMAQ funds may be used for capital needs such as to establish new or expand existing trans- portation projects. CMAQ also makes limited and temporary operating assistance available to new transit services and intermodal facilities. Transit facilities must be associated with new or enhanced mass transit services to be eligible. Activities such as fringe parking are eligible if they are explicitly aimed at reducing single-occupancy-vehicle travel and the associated emissions. Fringe parking is used by cities to reduce downtown congestion by building spaces on the "fringe" or edge of downtown and then using mass transit to move travelers within the down- town area. As such, a multimodal transportation center that provided airport access would be a candidate for CMAQ funding. Local Funding Sources Passenger Facility Charges In 1990, Congress enacted legislation to provide airports with an additional source of local funding for capital projects, subject to FAA approval, in the form of PFCs. The Aviation Safety and Capacity Expansion Act of 1990 required the U.S. DOT to issue regulations under which a public agency may be authorized to impose a PFC of $1.00, $2.00, or $3.00 per enplaned passen- ger at commercial airports it controls. Under this act, eligible airport-related projects are those that preserve or enhance safety, capacity, or security of the national air transportation system; reduce noise from an airport that is part of the system; or furnish opportunities for enhanced competition between or among air carriers. The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21) included authorization for a public agency to charge a PFC at the $4.00 and $4.50 levels if the projects meet specific eligibility requirements. One such requirement, which applies only to large- and medium-hub airports, is that a project must make a "significant contribution" to improving air safety and security, increasing competition, reducing congestion, or reducing noise (in comparison to the "adequate justification" requirement for projects at a lower level). For operators of large- and medium-hub airports that are approved to collect a $4.00 or $4.50 PFC, passenger entitlement grants are reduced by 75% (rather than the 50% associated with lower PFC levels). Currently, more than $2.2 billion in PFC revenues are collected by airport operators. PFC rev- enues are (1) used on a "pay-as-you-go" basis, where PFC collections and interest earnings are

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56 Planning for Offsite Airport Terminals spent directly on capital projects and/or (2) leveraged, that is, used to pay debt service on bonds or to repay other forms of debt. Sponsors must follow FAA regulations when allocating PFC revenue to project costs. All PFC projects must meet the AIP criteria presented above. Additionally, there are separate PFC eligi- bility requirements that must be met. A project like an offsite terminal is something that the FAA encourages PFC applicants to develop in coordination with appropriate local and regional trans- portation agencies in order to ensure that all possible sources of funding are explored prior to assessing air travelers a fee for ground transportation projects. The specific eligibility require- ments for an airport to use PFCs for an offsite terminal project include Project lead: The airport sponsor must be the final authority on a project that may involve other local agencies. This requirement ensures that the imposition of a PFC is not regulated by an agency other than the airport. PFC eligibility: The project must meet one of the PFC program objectives. The objectives are Preserving or enhancing the safety, capacity, or security of the national air transportation system; Reducing noise or mitigating noise impacts resulting from an airport that is part of such system; or Furnishing opportunities for enhanced competition between or among air carriers. The eligibility of an offsite terminal could possibly be established by citing projected improve- ments in the capacity of the national air transportation system. An offsite terminal might also be justified through the capacity enhancements it provides for the airport. For example, a space-constrained airport may realize gains in capacity and efficiency if a certain amount of baggage screening and sorting is moved to the offsite terminal. In addition, the reduction in low-occupancy vehicles on-airport due to use of the offsite terminal will improve traffic flows on terminal roadways and curb areas, potentially alleviating the need for roadway and curb expansion. Significant contribution for $4.50 PFC at large or medium hubs: The project must demon- strate that it makes a significant contribution to Improving air safety and security; Increasing competition among carriers; Reducing current or anticipated congestion; or Reducing the impact of aviation noise on people living near the airport. Terminal space con- straints are also likely to be contributing factors to this justification--for example, moving functions to an offsite terminal may provide the space necessary to build extra gates that could be used by an airline new to the airport. While this test looks similar to that listed above, it is more stringent and there can be greater variations in how FAA offices apply the criteria. Reducing congestion is the usual route that airports attempt in order to meet the significant contribution test. In determining whether an airport would meet the test, FAA considers the following questions: Does the project support or is it a part of a capacity project to which the FAA has allocated federal resources or that would qualify for such resources? Is the project included in an AIP Letter of Intent or does it satisfy the FAA's benefit-cost criteria for large AIP discretionary investments? Has the project been identified as an important item in an FAA Airport Capacity Enhance- ment Plan? or Does the project alleviate an important constraint on airport growth or service? Adequate justification: The program must be adequately justified. Showing reduced tra- vel times directly for potential passengers and showing the reduced travel times for those using congested roadways relative to the cost of the project are two strategies for justifying a project.

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Plan of Finance and Financial Feasibility 57 Airside needs test (for $4.50 PFC): The airport must show that it has made adequate provi- sions for financing the airside needs of the airport (including runways, taxiways, aprons, and gates). The FAA typically reviews planning and inspection documents to determine the airside needs, comparing them with the airport's capital plan. AIP funding test (for $4.50 PFC): The test requires that the FAA make a finding that the proj- ect cannot be paid for from AIP funds reasonably expected to be made available for the airport. The House version (HR 2881) of the FAA reauthorization bill pending before Congress (as of December 2007) has a provision, Section 114, "Intermodal Ground Access Project Pilot Pro- gram," that would provide additional eligibility for ground access projects at up to five airports. Unlike current law that restricts the use of PFC revenues to projects that serve airport traffic exclusively, airports would be able to use a pro-rated share of PFC revenues based on the over- all share of airport traffic served by the access project. For example, if an airport station was part of a larger transit system with 70% of riders being through-passengers and 30% airport traffic, 30% of the facility or infrastructure's capital costs that are on-airport would be PFC eligible. Airport Bonds and Airport Revenue Airport operators are major and regular participants in the municipal bond markets. At medium- and large-hub airports, airport revenue bond proceeds constitute the most signifi- cant source of funding, accounting for 58% of total funding for airport capital projects. (6) Major investor services use rating systems to grade bonds according to investment quality to inform potential investors about the creditworthiness of specific types of bonds at specific airports. The three major credit rating agencies--Moody's Investors Service, Fitch Ratings, and Standard & Poor's--have concluded that, on the whole, the airport system has performed well. It would be likely that the financing plan for an offsite terminal would involve some form of bonds issuance. Airport Bonds Airport revenue and PFC revenues are the most common sources used to back airport bonds. Five basic types of bonds are issued to fund airport capital improvements, including General obligation bonds supported by the overall tax base of the issuing entity (the airport sponsor); General airport revenue bonds (GARBs) secured by the revenues of the airport and other rev- enues as may be defined in the bond indenture; Bonds backed either solely by PFC revenues or by PFC revenues and airport revenues gener- ated by rentals, fees, and charges; Special facility bonds backed solely by revenues from a facility constructed with proceeds of those bonds; and Other debt instruments. Airport Revenue Especially at larger airports, the majority of capital projects use airport revenue as their source of funding. This revenue is generated by the use of airport facilities (e.g., runways, terminals, parking lots, concessions) and by airlines, passengers, and others using the airport. The use of all airport revenue is governed by sponsor assurances that accompany the receipt of federal grant money (AIP) by the airport.(7) The set of rules for the use of revenue is quite similar to those enumerated above for AIP grants and PFC revenues. The FAA has approved the use of airport rev- enue for airport stations and the connections between the airport and the nearest mass transit line provided that they are located entirely on airport property and are designed for the exclusive use of airport passengers.