Session 6 Airport Finance 101 Funding Sources for Airports

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1 Session 6 Airport Finance 101 Funding Sources for Airports 31 st Annual AAAE Basics of Airport Law Workshop and 2015 Legal Update November 1-3, 2015 Desk Reference Chapters 2, 19, 22 Frank J. San Martin Manager, Airports Financial Assistance Division Eric T. Smith Kaplan Kirsch & Rockwell

2 Airport Funding Sources Airport Revenue Bonds State & local government contributions Airport Improvement Program (AIP) Grants Passenger Facility Charges 2

3 Airport Revenue Operational Costs + Debt Service Capital Projects Airfield Improvement & Maintenance Terminal Projects Parking CONRACs Transportation Systems (automated people movers) 3

4 Airport Revenue Airline Rates & Charges Landing fees, terminal rent On-airport, Non-aeronautical Revenue Concessions, rental car fees Nontraditional non-aeronautical revenue generation Office buildings, hotels, and... 4

5 Airport Revenue Large & Medium Hub Airports Higher cash flow Significant PFC revenue More self-sufficient Small & GA Airports Cash flow challenged Funding for major capital improvements difficult without grants 5

6 Airport Bonds Bonds General Airport Revenue Bonds Special Facility Bonds Local Government Bonds Local Agency Bonds Tax Issues Rating Agencies 6

7 Bonds The role of the airport attorney The importance in partnering with finance personnel Limitation of liability Bond Counsel Special Bond Counsel 7

8 Airport Improvement Program & Passenger Facility Charges 8

9 Airport Improvement Program (AIP) and Passenger Facility Charge (PFC) Program Presented by: Frank J. San Martin Manager, Airports Financial Assistance Division TO: AAAE Basics of Airport Law Workshop DATE: November 2, 2015

10 AIP Statute Defines: 1. Who can get a grant Eligible Sponsorship 2. What types of projects get funded General rules for AIP grants 3. What is required for a grant project - Pre-Grant Requirements Checklist Procurement Rules Grant Post-Grant Assurances 4. How to allocate AIP funds 10

11 Basic Grant Requirements Eligible Sponsorship State/local government or Indian tribes owning airports Private owners of designated relievers or airports with more than 2,500 enplanements State/local government not owning airports for planning and noise mitigation (Federal government may never be sponsor) 11

12 Basic Grant Requirements General Rules for AIP Generally Eligible 1. Safety and Standards - Runway Safety Areas - Runway Protection Zones - ARFF Vehicles, Snow Plows 2. Airfield/Airport Security - Access Controls - Perimeter Fences 3. Airport Planning - Master Plans, Airport Layout Plans - System Planning 12

13 Basic Grant Requirements General Rules for AIP Generally Eligible 4. Airport Development - Add Capacity (new taxiways, runways) - Rehabilitation of Airfield Pavements 5. Environmental Mitigation - Wetland Replacement - Noise Proofing Residences, Schools, Hospitals 6. Public Use Facilities - Terminal Buildings/Access Roads 7. Things that communicate with pilots - Instrument Landing Systems - Runway and Taxiway Lighting 13

14 Basic Grant Requirements General Rules for AIP Generally Not Eligible 8. Things that make money at larger airports (Revenue Producing Facilities) - Rental Car Facilities - Concessions in Terminals 9. Things that Add to Aesthetics - Decorative Landscaping - Artwork 10. Things that Communicate with Air Traffic - ATC Tower Equipment - Radars 14

15 Basic Grant Requirements Generally Not Eligible General Rules for AIP 11. Other Federal Agency Facilities - TSA Security Screening Equipment/Offices - Customs Facilities Minor construction to build the exterior walls, ceiling, and to bring utilities to the area may be eligible. 12. Day-to-Day Operational and Maintenance Costs - Ops Vehicles - Employee Training - Routine Maintenance except for airfield pavement maintenance for nonhub and nonprimary airports. 15

16 Basic Grant Requirements Pre-Grant Requirements Checklist Airport in National Plan of Integrated Airport Systems Appropriate airport sponsorship Airport has Airport layout plan, local and area planning Capacity Projects > $10 million discretionary must have Benefit-cost Local share - with state, private contributions Environmental finding and good land title Project meets aviation standards justified based on established aeronautical demand 16

17 Basic Grant Requirements Grant Procurement Rules Full and Open Competition Most costs must be incurred after a grant has been issued Must follow required federal provisions Brooks Act for professional services DBE Veterans Preference 17

18 Basic Grant Requirements Grant Design must use FAA-approved plans and specifications Davis-Bacon Act for construction wages Must follow published FAA requirements Project Inspection Record Keeping Financial Grants management 18

19 Basic Grant Requirements Post-Grant Requirements Grant Assurances Grant Assurances - Contractual agreement with Federal Government Defines operating requirements for the airport Available for public use on reasonable conditions and without unjust discrimination Air carriers with similar airport use will be subject to substantially similar charges No exclusive rights for aeronautical services Airport operated and maintained properly Compatible Land Use 19

20 Statute-driven AIP Allocation Rules Entitlement - Primary Entitlement - Cargo - State Apportionment/ - Nonprimary Entitlement - Alaska Supplemental Approximately 2/3 of AIP Discretionary Approximately 1/3 of AIP 40% is for specific set-asides - Noise - Reliever Military Airport Program Remaining 60% is for other discretionary projects 20

21 AIP Allocation Rules ENTITLEMENTS Primary Airports Apportionment formula-driven based upon # of passengers State Apportionment and Non-Primary Entitlements 20% of AIP Non-Primary Entitlements - Based on planned development, $150,000/year maximum State Apportionment - Remainder of 20% allotted to states and NPE 21

22 AIP Allocation Rules ENTITLEMENTS Small Airport Fund % of Recycled Entitlements from Large/Medium Airports who collect a PFC 1/7 - Small Hubs 4/7 - Nonhub, commercial service airports 2/7 - General aviation and reliever airports Cargo Entitlement Stipulated 3.5% of AIP Alaska Supplemental Stipulated dollar amount, based on size of AIP program, approximately $21 million in FY

23 AIP Allocation Rules DISCRETIONARY SET-ASIDES Noise 35% of discretionary funds Military Airports Program 4% of discretionary funds Reliever 2/3 of 1% discretionary funds 23

24 AIP Allocation Rules DISCRETIONARY Capacity/Safety/Security/Noise 75% of remaining discretionary funds Includes 3/4 of 12.5% recycled entitlement Other Discretionary 25% of remaining discretionary funds Includes 1/4 of 12.5% recycled entitlement 24

25 AIP Allocation Rules IMPACT OF PROGRAM SIZE Funding rules change when AIP is greater than $3.2 Billion Rule changes went into effect in FY2000 Includes doubled entitlements, nonprimary entitlements Other increases in entitlement and discretionary funds 25

Receiving Grants in FY2015 361 Primary: 30 Large Hub 30 Medium Hub 70 Small Hub 231 Non Hub 1,362 Non Primary: 81 Commercial Svc

26 AIP Investment AIP HISTORICAL FUNDING Majority of Funding goes to smaller airports Large/Medium = approx. 25% Small/Other = approx. 75% (FY2015) Large Airports (Large and Medium Hubs) Grant Funds Awarded Displayed by Airport Size Small Airports 1,723 Airports Receiving Grants in FY Primary: 30 Large Hub 30 Medium Hub 70 Small Hub 231 Non Hub 1,362 Non Primary: 81 Commercial Svc 1,281 General Aviation & Reliever Airport System Planning Large Airports (Large and Medium Hubs) Small Airports Airport System Planning 26

27 AIP Today FY2015 closed September 30 th $3.35 Billion authorized and appropriated for FY In FY15 we issued and obligated 1,765 grants and obligated 100% of the funds available for grants down to 68 cents. Of the grants obligated, projects funded included: Runway - obligated $1.09 billion on runway projects Safety - obligated $149 million on Runway Safety Area (RSA) projects Noise - obligated $127 million Security obligated $50 million Other capacity projects to include new and expanded apron, improve terminal and taxiway obligated $1 billion 27

28 AIP Today AIP presently operating under the Airport and Airway Extension Act of 2015 (the Extension) through March 31, 2016, and the Continuing Resolution (the Appropriation) through December 11,

29 OVERVIEW OF THE PFC PROGRAM The PFC program is a Federally-regulated, locallymanaged program that was authorized by law in The revenue source for the PFC program is a charge collected by air carriers from air carrier passengers. The charge can be $1, $2, $3, $4, to a maximum of $4.50. Most airports charge $3 or $4.50. A passenger can be charged a maximum of two PFCs on a one-way itinerary and four PFCs on a roundtrip itinerary. Participation in the PFC program is limited to public agencies that own and control a commercial service airport and is not mandatory. 29

30 OVERVIEW OF THE PFC PROGRAM Airlines must be consulted but have no right to approve or veto collection or use of PFCs. FAA approves individual projects for PFC funding and total amount of PFCs the airport may collect. Streamlined process for non-hub airports, individual project approval not required. Despite Federal approval, PFCs are considered local funds. Therefore, AIP requirements and assurances do not apply. 30

31 OVERVIEW OF THE PFC PROGRAM PFC eligibility generally follows AIP eligibility except: PFCs may be used as local share for AIP projects Slight difference for noise projects Part 150 approval not needed Additional eligibility for terminal projects gates and related areas can be revenue generating Can pay for debt service costs Can pay for PFC administrative costs 31

32 PFCs for Noise Mitigation Projects Public agencies can use PFC funds for noise mitigation projects even if they are not in a Part 150 plan. The projects must meet the criteria for approval under Part 150 but they don t have to have been in a Part 150. Public agencies must supply a local planning document and noise exposure map similar to a Part

33 PFCs for Terminal Projects Broader eligibility than AIP Discretionary grants. Eligible components generally include: All public areas Ticketing Hold rooms Baggage areas Overall structure, prorated to reflect public use Ineligible components generally include: Exclusively leased space (e.g., airline offices, clubs, dedicated non-public baggage handling areas) For Large- and Medium-hub airports: Airside needs must be met first before seeking to put PFCs above $3.00 into the terminal and landside. 33

34 RELATIONSHIP OF PFC AND AIRPORT FUNDING PFCs complement AIP. Smaller airports often use PFCs to finance local matching requirements. Larger airports use PFCs to finance terminal and airport access projects that receive little AIP funding. 34

35 What have PFCs been approved to fund? NEW DENVER, 3% INTEREST, 33% AIRSIDE, 18% ACCESS, 7% LANDSIDE, 36% NOISE, 4% 35

36 AIP and PFC Programs QUESTIONS? COMMENTS? 36

Airport. Improvement Program (AIP) Overview. Federal Aviation Administration. Texas Aviation Conference Ben Guttery, Texas ADO April 2017

Airport. Improvement Program (AIP) Overview. Federal Aviation Administration. Texas Aviation Conference Ben Guttery, Texas ADO April 2017 Airport Improvement Program (AIP) Overview Texas Aviation Conference Ben Guttery, Texas ADO April 2017 Objectives Status of AIP Legislative Authority History and Summary of AIP AIP funding formulas 2 AIP