Government Funding of Airports: A Review of the Financial and Budgetary Concepts of Funding and Operating Airports

Government Funding of Airports: A Review of the Financial and Budgetary Concepts of Funding and Operating Airports

Airports in the United States of America (U.S.A) are powerful engines for economic opportunities in both local communities and the nation. They generate more than $ 1.4 trillion, which is 8% of the Gross Domestic Product (G.D.P) in annual economic activity and employ more than 1.3 million people, which amounts to 7% of the total U.S workforce (Smith, 2018). This growth is attributed to the rise in passenger traffic through airport facilities. A recent survey conducted by Statista (Mazareanu, 2019) on the leading airports in the USA for international air passenger traffic in 2018 revealed that the John F Kennedy airport alone handled over 16 million passengers and was ranked first in Passenger traffic in the U.S.

While passenger traffic through airport facilities continues to increase, the outdated aviation infrastructure cannot keep pace with this overwhelming increase. Therefore, Airports need to modernize their infrastructure to meet current demands. As airports continually work to upgrade their infrastructure to improve the passenger experience and spur more airline competition, it is increasingly difficult to manage airport finances and to maintain the increasing budgets; therefore, airports seek different sources of funding. Generally, there are three alternative sources of airport funding, namely: Federal and state programs, Bond financing, and Private Investments (Sumathi, Abhinaya & T, 2018).

Following this background introduction, this paper will study the government funding of airports through federal grants by the Federal Aviation Administration’s Airport Improvement Program (AIP), and review the financial and budgetary concepts of funding and operating airports. Moreover, the paper will analyze the complex relationship between the private sector and the federal government following the increase in the privatization of large airports over the years.

History of Government Funding of Airports

At the onset of civil aviation, no federal money went into operating civil landing strips; however, the money was spent to map and catalog airfields in the US that were built using private funds. At the time, government’s main financial support to aviation was through the purchase of military aircraft and through repairing military fields constructed during the First World War.

Government funding of airports began during the great depression (Air Line Expansion and Innovation 1927-1941). The federal government began massive funding for civil works in an effort to create jobs. It funded the construction of airports and spent close to $12 million (Champie, 1973) by the spring of 1934 in the construction of new airports.

In 1939, when war broke out in Europe, the US Congress began funding the development of Landing Areas for National Defense. The Civil Aeronautics Administration (CAA) had the duty to construct and repair these landing areas. Many of these landing areas were turned over to cities and sponsors to manage after the war. The CAA extended its duties to include the operation of airport towers after the war. This function became a permanent federal responsibility even after the war.

Following initiatives by the CAA, Congress formulated the Federal Airport Act of 1946 (Federal Airport Act of 1946, 1946). The Act provided that federal grants would cater for half of the costs incurred by airports in various projects, while bonds from local sponsors would cover the rest. This move saw a growing trend in government funding of airports over the years. Today, most funds for airports come from the government.

Government Funding of Airports

It is a general misconception that taxes fund airports, in reality, airports in the USA are funded through federal grants from the Federal Aviation Administration’s Airport Improvement Program (AIP), the Passenger Facility Charge (PFC) and the tenant rents fees, loans from banks, revenue bonds, and general obligation bonds (Tang, 2019).

Among these sources, The AIP is the primary source of federal funding for airports in the US. It was established by the Airport and Airway Improvement Act of 1982 (Dobbs, 2005) and has been amended several times since then. Funds for the AIP are drawn from the Airport and Airways Trust Fund, which derives its funds from fuel tax, and user fees.

Projects that attract AIP funding include improvements related to airport safety, environmental preservation, airfield repairs, runway maintenance, apron pavement maintenance, and taxiways. Generally, airports can get AIP funding for most airfield capital improvements and rehabilitation projects, and in special conditions, for terminals and non-aviation projects. Professional services like planning and designing are also eligible. Such projects must meet Federal environmental and procurement requirements. Moreover, the Federal Aviation Administration (FAA) must determine that the projects are justified based on civil aeronautical demand.

Projects relating to airport operations are not eligible for funding; operational costs such as salaries, supplies, and equipment are also not eligible for AIP funding (Federal Aviation Administration, 2019).

Airports eligible for AIP grants include airports used for public use meaning that they are open to the public and meet the following criteria; publicly owned, or privately owned but designated by FAA as a reliever, or privately owned but having scheduled service and at least 2,500 annual enplanements (Federal Aviation Administration, 2019).

Additionally, to be eligible to the AIP, airports must be registered under the National Plan of Integrated Airport Systems (NPIAS). It identifies public-use airports that are important to public transportation and contribute to the needs of civil aviation, national defence, and the Postal service (Federal Aviation Administration, 2016).

Sample AIP Funding of New York Airports

The table below illustrates US funding initiatives. It provides an overview of AIP funding for projects in various airports in New York.

Source: https://www.artba.org/wp-content/uploads/aip_state_profiles/ARTBA_AIP_NY_report.pdf

AIP Funding In Privatised Airports

Airport privatization is the change in ownership from a public entity to a private one. It minimizes the need for public sector investment, and allows airports to diversify services without government control and intervention (Baker, 2018).

Only 14% of airports globally have some level of privatisation (Baker, 2018) and merely two airports in the US have completed the privatization process under the Airport Investment Partnership Program (AIPP); however, one of the two, Stewart International Airport in New York reverted to public ownership when it was purchased by the Port Authority of New York and New Jersey (Sheri, 2012). Privatized airports in the US may still participate in the AIP but at a lower federal share of 70% (Airport Privatization Pilot Program, 2017).

Conclusion

In sum, the current funding of airports by the US government enables them to acquire appropriate infrastructure, which also improves safety standards and ensures customer satisfaction. Air transport is vital to global trade and relations. Therefore, there is a need to increase federal funding. Consequently, maintaining a robust AIP will allow airports to serve their passengers with safe, secure, and efficient facilities, as well as effectively plan for the future.

References

Champie, E. (1973). The Federal turnaround on aid to airports, 1926-38 (1st ed., p. 5).

Federal Airport Act of 1946 (1946).

Federal Aviation Administration. (2016). National Plan of Integrated Airport Systems. Washington DC.

Sheri, E. (2012). Considering and evaluating airport privatization (1st ed., p. 44). Washington, DC: Transport Research Board.

Smith, C. (2018). Taking America Beyond the Horizon: The Economic Impact of U.S. Commercial Airports in 2017 (p. 8). Washington, DC: Airports Council International.

Sumathi, N., Abhinaya, V., & T, M. (2018). Airport Financial Management. International Journal of Latest Technology in Engineering, Management & Applied Science, VII (IV), 48.

Tang, R. (2019). Financing Airport Improvements (p. 1).

Online Sources

Air Line Expansion and Innovation 1927-1941. Retrieved 5 February 2020, from https://airandspace.si.edu/exhibitions/america-by-air/online/innovation/innovation10.cfm

Airport Privatization Pilot Program. (2017). Retrieved 5 February 2020, from https://www.faa.gov/news/fact_sheets/%20news_story.cfm?newsId=21614

Baker, J. (2018). Airport privatisation: the great debate. Retrieved 6 February 2020, from https://www.airport-technology.com/features/airport-privatisation-great-debate/

Dobbs, D. (2005). Audit of the Management of Land Acquired Under Airport Noise Compatibility Programs. Retrieved 5 February 2020, from https://www.oig.dot.gov/sites/default/files/Final9-30.pdf

Federal Aviation Administration. (2019). Overview: What is AIP? – Airports. Retrieved 6 February 2020, from https://www.faa.gov/airports/aip/overview/#eligible_airports

How the Federal Airport Improvement Program (AIP) Supports Investment in New York Airports. (2017). Retrieved 5 February 2020, from https://www.artba.org/wp-content/uploads/aip_state_profiles/ARTBA_AIP_NY_report.pdf

Mazareanu, E. (2019). Leading U.S. airports for international air passenger traffic in 2018, based on passenger traffic. Retrieved 5 February 2020, from https://www.statista.com/statistics/639826/leading-airports-united-states-for-international-air-passenger-traffic/