How Public Airports Get Their Funding: Federal Grants?

Public airports are powerful drivers of economic growth, generating over $1 trillion in economic activity and supporting millions of jobs. Despite common misconceptions, US airports are not funded by taxpayer dollars but are required to be self-sustaining. Funding for public airports comes from a variety of sources, including federal grants, state and local funding, user fees, and tenant rents and fees. Federal grants, such as the Airport Improvement Program (AIP), provide grants to public agencies and private owners for planning and developing public-use airports. State governments may also provide funding through transportation programs and aviation trusts, while local funding is typically provided through tax revenue and usage fees. User fees, such as the Passenger Facility Charge (PFC), are also a key source of funding for infrastructure projects at airports.

Federal grants, state and local funding sources

Federal, state, and local funding sources are crucial for the development and maintenance of public airports in the United States. Here is an overview of the funding landscape:

Federal Grants:

The Federal Aviation Administration (FAA) plays a significant role in providing grants for airport improvement and modernization through its Airport Improvement Program (AIP). AIP grants are available to public agencies and, in some cases, private owners or entities for planning and developing public-use airports included in the National Plan of Integrated Airport Systems (NPIAS). AIP funding is authorized by Congress and is used for projects related to enhancing airport safety, capacity, security, and environmental protection. While AIP grants are a vital source of funding, they may not cover all aspects of airport infrastructure needs, especially terminal projects.

State Funding:

State governments also contribute to airport funding, primarily through their transportation programs and aviation funds from departments of transportation and aviation. State funding varies across the country and is typically distributed by specific organizations. State grants can be used for projects that AIP grants may not cover and can be essential for airports not included in the FAA's NPIAS. Similar to AIP grants, state funding often comes with conditions that recipients must meet to protect the state's investment and maintain safe and efficient airport operations.

Local Funding:

Local funding for airports is generally provided through tax revenue and usage fees collected by the airport sponsor or operator. Ideally, airports should generate sufficient revenue to cover operating costs and build reserves for capital projects. However, smaller airports often rely on their sponsor's general fund to cover operating costs and capital expenditures not eligible for FAA or state funding. Airports that are part of port/airport/special districts may have additional funding sources, such as taxes, fees, and revenues generated from airport activities and other assets.

Passenger Facility Charges (PFCs):

PFCs are local user fees collected by airports with scheduled passenger services. They are charged per passenger and are used to fund FAA-approved airport improvement projects. PFCs provide airports with flexibility in addressing their specific needs and can be used for projects that AIP grants may not cover.

Bonds:

Airports also have access to tax-exempt municipal bonds, such as General Obligation (GO) bonds and General Airport Revenue Bonds (GARBs), to finance capital improvements. These bonds are backed by the full faith and credit of the public and are repaid through various tax revenues.

While military airports receive funding from the U.S. Department of Defense, public airports in the U.S. primarily rely on a combination of federal grants, state and local funding sources, PFCs, and bonds to finance their operations and infrastructure projects.

AIP funding for capital improvement projects

The Airport Improvement Program (AIP) provides grants to public agencies and, in some cases, to private owners and entities for the planning and development of public-use airports that are included in the NPIAS. AIP grants are used for airfield rehabilitation or the construction of runways, taxiways, airport signage, lighting, and markings. They are also used to improve airfield safety and enhance security around the airport.

AIP grants are not generally used for terminal projects, which account for 60% of total airport infrastructure needs. However, funding may be used for rehabilitation projects and, in some specific situations, for terminals, hangars, and non-aviation development. AIP funding may also be used to address environmental priorities such as greenhouse gas and pollution reduction, energy-efficient design, fiscally responsible land use, and projects increasing climate resilience.

The AIP provides more than $3.35 billion annually to more than 3,300 eligible airports. Over 50% of AIP funding must go to small hub and non-hub airports and airports eligible for non-primary entitlements, which are more likely to be rural. Federal cost-sharing for AIP grants ranges from 70% to 95%.

Passenger Facility Charge (PFC) user fee

The Passenger Facility Charge (PFC) is a local user fee that is added to airline tickets and paid by almost all airline travellers in the US. The PFC was created by Congress in 1992 as a tool to encourage infrastructure investment and create competition among airlines. Airports use the revenue generated from PFCs to fund projects aimed at enhancing safety, security, or capacity, reducing noise, and increasing air carrier competition. These projects must be approved by the Federal Aviation Administration (FAA).

PFCs are collected only at airports owned by public agencies with scheduled passenger service. The fee is charged per passenger and is currently capped at $4.50 per flight segment, with a maximum of two PFCs on a one-way trip and four PFCs on a round trip, totalling $18. Airlines collect PFCs on behalf of the airports at the point of sale for tickets.

The PFC program was established by the Aviation Safety and Capacity Expansion Act of 1990, which was signed into law on November 5, 1990. The legislation authorised the Secretary of Transportation to grant public agencies controlling commercial service airports the power to impose a local fee of $1, $2, or $3 per enplaned passenger. Beginning on June 1, 1992, commercial airports controlled by public agencies started collecting PFCs, initially set at $3 per passenger, per leg.

In 2001, with the passage of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century, Congress raised the PFC cap to $4.50 per ticket or $18 per round trip. This increase recognised the need for airports to keep up with the growing demands of passenger traffic and ensure safe, secure, and efficient facilities.

While the PFC has not been updated in the last 20 years, airport infrastructure costs have surged, and airports are facing challenges in securing the necessary financing for improvements and modernisation. As a result, projects have been delayed, leading to increased costs and prolonged construction times. To address these challenges, some stakeholders have advocated for an increase in the PFC cap to provide airports with more financial flexibility and ensure they can continue to serve their passengers effectively.

Military airports and bases funding

Military airports and bases receive funding from the US Department of Defense. The Federal Aviation Administration (FAA) also plays a role in funding military airports and bases through the Military Airport Program (MAP). The MAP is a grant set-aside from the Airport Improvement Program (AIP).

Through the MAP, the FAA awards grants to the civil sponsors of military airfields for the development of aviation facilities for the public. The program also assists new sponsors in converting former military airfields to public use, adding system capacity, and reducing congestion at existing airports. In addition, the MAP provides financial assistance to civilian sponsors who are converting, or have already converted, military airfields to civilian or joint military/civilian use.

MAP grants can be used for projects not typically funded by the AIP, such as building or rehabilitating surface parking lots, fuel farms, hangars, utility systems, access roads, and cargo buildings. Each fiscal year, the FAA may designate up to 15 joint-use or former military airports to participate in the MAP, with three of these being general aviation (GA) airports and the remaining 12 being commercial service or reliever airports.

While military airports receive funding from the Department of Defense, civilian airports also have various funding sources. These include federal grants through the AIP, Passenger Facility Charge (PFC) local user fees, and tenant rents and fees. Despite being owned by state or local governments, civilian airports are required to be as self-sustaining as possible, resulting in little to no direct taxpayer support.

Funding for planning and development

State governments may also provide funding for aviation as part of their transportation programs. This funding varies across the country and is typically distributed by departments of transportation or aviation. State governments may also provide funding for economic development, depending on the type of project. They often fund aviation trusts through fees and taxes levied on aircraft owners and airport users, including fuel flowage fees.

Local funding is provided through tax revenue and usage fees collected by the airport sponsor or operator. Airports that are part of port/airport/special districts and authorities are funded by taxes and fees levied by the entity, as well as revenues generated by airport activities and other assets. Local funding may be used to cover capital costs for projects not eligible for FAA or state funding or to make up part of the local match for grants.

Additionally, airports may use tax-exempt bonds or General Obligation (GO) bonds to finance capital improvements. GO bonds are backed by the full faith and credit of the public and can be repaid through local general tax revenues. Airports can also secure funding through tenant rents and fees, as well as through the Passenger Facility Charge (PFC), a local user fee collected from commercial passenger service activity.

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