The American aviation system is currently in trouble from Trump’s administration budgetary cuts proposals. The proposal aims to cut funding to major sectors of the economy including health, even as it proposes privatization of national air traffic control system (McGee, 2017). The budgetary cuts spell doom for public works projects, particularly aviation in relation to airport infrastructure improvement, maintenance, upkeeps and expansion. Of concern here, is the funding for airport activities. Although airline infrastructure has a complex network of funding sources, Trump administration’s proposed budgetary cuts put a dark cloud over the airport infrastructure. What, therefore are the current sources of airport infrastructure funding, and how can airports survive and continue their operations in the face of the proposed budgetary cuts?
America’s aviation system has grown over the years to become one of largest in the world. In 2015 alone, the aviation system served about 900 million international and domestic passengers, a feat not yet achieved by any other country in the world (Sargent, 2016). FAA (Federal Aviation Authority) expects the number of passengers to grow significantly projecting the number to reach 1.2 billion in 2036 (Sargent, 2016). The expected growth goes hand in hand with expected growth in funding for improvement of airport infrastructure across the country. Since 1970, the federal government has been funding airport improvement across the U.S. through the Airports Improvement Program (AIP).
AIP was an answer to the promotion of development of the airports system in the U.S. the program came into being through the Federal Airport Act of 1946, which established the Federal-Aid Airport Program as part of the federal government’s grants-in-aid program. In 1970, the federal government developed a more comprehensive program that came into force following president assent of the Airports and Airway Development Act (Sargent, 2016). The new Act gave leeway for federal government grants to airports for planning and development activities. The source of the grants included passenger tickets taxes as well as other aviation-related activities.
AIP, the current grant program came into force in 1982 through the Airport and Airway Improvement Act, with amendments passed five years later through the Airport and Airway Safety and Capacity Expansion Act (AASCE) of 1987 (Sargent, 2016). The Act (AASCE) expanded funding to include air cargo activity. Through AIP, airports received grants for infrastructural development, planning, expansion, noise compatibility planning, and noise reduction programs.
AIP is just one of airports’ sources of funding, FAA through its National Plan of Integrated Airports Systems (NPIAS) designated 3,340 out of the total 5,136 airports used by the public as significant to the country. With this designation, the airports’ sponsors, who are either state or local governments or public entities have several tools for they can use to fund airport improvements and expansions. Aside from AIP’s grants, airport operation cash flows, passenger facility charges (PFC), commercial debts, third-party capital investment, and state and local funding all provide lucrative sources of funding to airports (Sargent, 2016). Of course, the federal government remains involved in the funding mechanisms through Congress appropriation of grants administered by FAA following statutory requirements and agency policies. Congress additionally authorizes PFC by airports in addition to capping them for each passenger trip, even as FAA regulates and supervises PFC revenue use. Moreover, the federal government exempts municipal bonds interest from taxes as a way of encouraging private entity and institutional investment in airport infrastructure.
Recently, however, the American Society of Civil Engineers (ASCE) in their 2017 report card gave U.S. infrastructure D+ (McGee, 2017). The Society estimated that the nation will need thereabouts of $4.590 trillion to bring the nation’s infrastructure (including airports) to safe functioning level. The news spells doom for airports, especially in the face of proposed budgetary cuts by the federal government towards the improvement, operations, and expansions of the facilities. Budgetary cuts and the current funding regime are especially a problem for airports given not only the intrusive federal bureaucracy especially in handling revenues collected from PFC, but also in impeding free market paradigms that infuse innovative business practices and additional sources of funding for the airports.
AIP’s funding regime as it is, is unfair to major airports, curtailing their ability to expand and improve their operations and infrastructure. According to Sargent (2016), AIP siphons funds from airports serving most travelers (naturally requiring more funding) and allocates them to those that serve the fewest. The result of the current funding regime is market distortion and misallocation of resources, given that the large airports contribute a larger portion of revenue through PFC. FAA’s enplanement indicates that the 30 large hub airport and 30 medium hubs account for 72.5% and 15.4% commercial enplanements, yet only receive 18% and 9% of AIP funding respectively as of 2015 (Sargent, 2016). Giving 73% of funding to smaller airports yet they contribute little in enplanement is a huge slap in the large and medium hubs’ faces as they need more funding to carter for their huge traffic.
Similarly, airport rules do little to encourage competition among air carriers, which would consecutively benefit travelers or entice carriers to build new terminals and invest in airport improvements and expansions. Given that airlines have gates at airports, current funding regime does not encourage them to invest in gate expansion, which would be used by their competitors (Sargent, 2016). For this reason, most carriers work only on maximizing their market share at their reserved gates, a fact that locks out new entrants.
The solution to improving and expanding airport infrastructure lies in several steps that the federal government can undertake. Repealing the Anti-Head Act, for instance, would allow airports to charge customers for services provided, essentially doing away with the need for federal funding (McGee, 2017; Sargent, 2016). On the same note, it is important to reform Grant Assurances, which restrict airport operations as requirement for receipt of federal funding. The restrictions on airport operations are usually detrimental to innovation, thus the need to allow them to expire, giving more freedom to how airports operate.
Privatization of Air Traffic Organization (ATO) currently funded by tax payers is yet another road towards improved airport operations. By privatizing ATO, repealing ban on local charges, and reducing aviation taxes, airports can get new sources of funding eliminating the need for AIP grants (Sargent, 2016). Budgetary cuts are bound to affect AIP funding to airports, which would mean a continued plummeting in the state of airports from their current “third world” state (McGee, 2017). Ending federal funding, allowing market forces to take their course will go a long way in improving efficiency in the airports. At the same time, such a move will have a way of eliminating cross-subsidies that exist between small and large airports, allowing large airports and airlines to save and offer better services to their customers.
McGee, B. (2017). Everyone wants better airports, but who pays? USA Today. Retrieved from https://www.usatoday.com/story/travel/columnist/mcgee/2017/03/29/airports/99744116/.
McWhirter, C. (2017, Mar 09). U.S. infrastructure gets ‘D+’ grade from civil engineers; getting roads, bridges and other structures to a safe, functioning level would cost $4.59 trillion over the next decade, American Society of Civil Engineers says. Wall Street Journal (Online) Retrieved from https://search.proquest.com/docview/1875392691?accountid=1611.
Sargent, M. (2016). End of the Runway: Rethinking the Airport Improvement Program and the Federal Role in Airport Funding. The Heritage Foundation. Retrieved from https://www.heritage.org/transportation/report/end-the-runway-rethinking-the-airport-improvement-program-and-the-federal.