Federal, State and Local Funding Sources for Airports

The theory behind NPIAS is that the national airport system is stronger if airports across the country are well-maintained and have adequate facilities to accommodate demand and interstate commerce. AIP funding is authorized and appropriated through Congressional action. An overview of AIP funding can be found in the FAA’s AIP Handbook which is Order 5100.38D. In the Order, specific information about the types of available funding is found in Chapter 4.

PFCs are collected only at airports owned by public agencies with scheduled passenger service. They are a per-person fee collected by an airport for passengers who enplane (or board) their flight at that airport. In instances where the passenger connects through another airport before arriving at their final destination, PFCs are split between the first two airports that the passenger flies through. Airports beyond the origin and first connection do not receive revenue from the PFCs from a ticket nor do destination airports. Airlines collect PFCs on behalf of the airports at the point of sale for tickets. Airports may use PFCs for certain categories of projects as set forth in federal law. Airlines cannot prohibit or block the use of PFCs, but can have the opportunity to review PFC expenditures and to protest PFC allocation. PFCs can be used to fund projects not eligible for AIP funds provided that the projects are eligible for PFC funds. Airports may also use PFCs to make up the local match portion of AIP grants. Airports submit a PFC application to the FAA which outlines the amount of the PFC to be collected per ticket, how long the collection period will be for the particular application, and what the PFC funds will be used for. Once approved by the FAA, the Airport can begin collecting PFCs. PFC collection authority is tied to a specific application, meaning that such authority lapses if airports do not have an approved PFC application.

State government funding varies greatly across the county depending on how state grants are funded, and what organization distributes the funds. Common entities for aviation funds are departments of transportation and aviation. Airports might also be eligible for economic development funds depending on the type of project being pursued. State governments typically fund aviation trusts through fees and taxes levied on aircraft owners and airport users in the state. This can include revenue generated from fuel flowage fees. Like PFCs, state grants can sometimes be used to fund projects that are not eligible for AIP funding, and can be likewise used to make up part or all of the local match for an AIP grant. State grants are sometimes the sole source of capital funding for airports that are not part of the FAA’s NPIAS. Similar to AIP grants, state funding typically comes with “assurances” about what airport sponsors must do as a condition of the receipt of funds. These assurances are intended to protect the state’s infrastructure investment and maintain safe and efficient airport access for users. State funding is generally competitive as there are more projects than there are funds available. States prioritize projects using a variety of metrics. Common prioritization metrics include cost-benefit ratios, need and justification, geographic location, and potential of a project to receive other types of funding (projects with a high likelihood of FAA funding may be given lower priority or a smaller grant).

Local funding will vary depending on how the airport is owned and operated. However, local funding is generally provided through tax revenue and usage fees collected by the sponsor or airport operator. Ideally, airports generate sufficient revenue to cover operating costs and build a cash reserve for capital projects; however, this is not always possible. Smaller airports that are sponsored by cities, counties, and states typically do not generate enough revenue to cover their costs and, as a result, receive some or all of their operating budget from the sponsor’s general fund. Similarly, local funding may be used to cover capital costs for projects not eligible for or unlikely to receive FAA and state funding, or to make up part of the local match for state and FAA grants. Airports that use their sponsor’s general fund often compete with other departments (e.g. schools, emergency services, and public works) for funding. This makes it important for airport managers to convey the airport’s economic benefit, role in emergency and disaster response, and place in the national transportation system to sponsor decision makers. (See Telling the Story in the Media Kit). Airports that are part of port/airport/special districts and authorities (hereafter, “entities”) are funded by taxes and fees levied by the entity, and revenues produced by airport activities and other assets (e.g. marine terminals, rail yards, real estate). Such organizations are typically authorized by an act of state legislature, and may not exist in all states. Entities with more than one airport (i.e. one commercial service airport and one or more GA airports) are able to use revenues from one airport to subsidize another. Reasons for doing this vary. Commercial service airports have significantly more revenue-generating opportunities than do GA airports because of the comparative volume of people and goods that pass through the commercial service airports. GA airports often cater to smaller, slower aircraft, helping reduce congestion and delay at the commercial service airport. This improves the commercial service airport’s level of service, helping it grow revenue to support the entity’s system of airports. When entities operate a system of airports, it can define the roles of each so that the system as a whole is financially healthy and share revenues amongst system airports for capital and operating costs.

GO Bonds General Obligation – or GO – bonds may be issued to finance airport capital improvements. GO bonds are backed by the full faith and credit of the public-at-large residing within the jurisdiction(s) through general tax authority of the city, county, or state that owns and operates the airport. Specifically, local general tax revenues such as sales, income, or property taxes may be pledged as a source of repayment for GO bonds, although the airport operator may actually pay debt service from airport sources, or, in rarer instances, general local taxes may directly pay debt service on proceeds used to fund airport projects. Airport use of GO bonds is discussed specifically in ACRP Synthesis 1 Innovative Finance and Alternative Sources of Revenue for Airports. General Airport Revenue Bonds (or GARBs) are bonds that are secured by the revenues of the airport and other revenues as defined in the bond indenture.