[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
AIRPORT FINANCING AND DEVELOPMENT
=======================================================================
(113-75)
HEARING
BEFORE THE
SUBCOMMITTEE ON
AVIATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JUNE 18, 2014
__________
Printed for the use of the
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BILL SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska NICK J. RAHALL, II, West Virginia
THOMAS E. PETRI, Wisconsin PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina ELEANOR HOLMES NORTON, District of
JOHN J. DUNCAN, Jr., Tennessee, Columbia
Vice Chair JERROLD NADLER, New York
JOHN L. MICA, Florida CORRINE BROWN, Florida
FRANK A. LoBIONDO, New Jersey EDDIE BERNICE JOHNSON, Texas
GARY G. MILLER, California ELIJAH E. CUMMINGS, Maryland
SAM GRAVES, Missouri RICK LARSEN, Washington
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
CANDICE S. MILLER, Michigan TIMOTHY H. BISHOP, New York
DUNCAN HUNTER, California MICHAEL H. MICHAUD, Maine
ERIC A. ``RICK'' CRAWFORD, Arkansas GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania DANIEL LIPINSKI, Illinois
BLAKE FARENTHOLD, Texas TIMOTHY J. WALZ, Minnesota
LARRY BUCSHON, Indiana STEVE COHEN, Tennessee
BOB GIBBS, Ohio ALBIO SIRES, New Jersey
PATRICK MEEHAN, Pennsylvania DONNA F. EDWARDS, Maryland
RICHARD L. HANNA, New York JOHN GARAMENDI, California
DANIEL WEBSTER, Florida ANDREE CARSON, Indiana
STEVE SOUTHERLAND, II, Florida JANICE HAHN, California
JEFF DENHAM, California RICHARD M. NOLAN, Minnesota
REID J. RIBBLE, Wisconsin ANN KIRKPATRICK, Arizona
THOMAS MASSIE, Kentucky DINA TITUS, Nevada
STEVE DAINES, Montana SEAN PATRICK MALONEY, New York
TOM RICE, South Carolina ELIZABETH H. ESTY, Connecticut
MARKWAYNE MULLIN, Oklahoma LOIS FRANKEL, Florida
ROGER WILLIAMS, Texas CHERI BUSTOS, Illinois
MARK MEADOWS, North Carolina
SCOTT PERRY, Pennsylvania
RODNEY DAVIS, Illinois
MARK SANFORD, South Carolina
DAVID W. JOLLY, Florida
------
Subcommittee on Aviation
FRANK A. LoBIONDO, New Jersey, Chairman
THOMAS E. PETRI, Wisconsin RICK LARSEN, Washington
HOWARD COBLE, North Carolina PETER A. DeFAZIO, Oregon
JOHN J. DUNCAN, Jr., Tennessee EDDIE BERNICE JOHNSON, Texas
SAM GRAVES, Missouri MICHAEL E. CAPUANO, Massachusetts
BLAKE FARENTHOLD, Texas DANIEL LIPINSKI, Illinois
LARRY BUCSHON, Indiana STEVE COHEN, Tennessee
PATRICK MEEHAN, Pennsylvania ANDREE CARSON, Indiana
RICHARD L. HANNA, New York RICHARD M. NOLAN, Minnesota
DANIEL WEBSTER, Florida DINA TITUS, Nevada
JEFF DENHAM, California SEAN PATRICK MALONEY, New York
REID J. RIBBLE, Wisconsin CHERI BUSTOS, Illinois
THOMAS MASSIE, Kentucky CORRINE BROWN, Florida
STEVE DAINES, Montana ELIZABETH H. ESTY, Connecticut
ROGER WILLIAMS, Texas NICK J. RAHALL, II, West Virginia
MARK MEADOWS, North Carolina (Ex Officio)
RODNEY DAVIS, Illinois, Vice Chair
BILL SHUSTER, Pennsylvania (Ex
Officio)
CONTENTS
Page
Summary of Subject Matter........................................ iv
TESTIMONY
Panel 1
Benito De Leon, Deputy Associate Administrator for Airports, U.S.
Federal Aviation Administration................................ 5
Gerald L. Dillingham, Ph.D., Director, Physical Infrastructure
Issues, U.S. Government Accountability Office.................. 5
Panel 2
Mark Baker, president and CEO, Aircraft Owners and Pilots
Association.................................................... 26
Todd Hauptli, president and CEO, American Association of Airport
Executives..................................................... 26
Sharon Pinkerton, senior vice president, legislative and
regulatory policy, Airlines for America........................ 26
Mark Reis, chair, Airports Council International--North America,
and managing director, Seattle-Tacoma International Airport.... 26
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Benito De Leon................................................... 49
Gerald L. Dillingham, Ph.D....................................... 58
Mark Baker....................................................... 85
Todd Hauptli..................................................... 91
Sharon Pinkerton................................................. 101
Mark Reis........................................................ 107
SUBMISSION FOR THE RECORD
Ed Bolen, president and CEO, National Business Aviation
Association, written statement................................. 117
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AIRPORT FINANCING AND DEVELOPMENT
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WEDNESDAY, JUNE 18, 2014
House of Representatives,
Subcommittee on Aviation,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to call, at 10:04 a.m., in
Room 2167, Rayburn House Office Building, Hon. Frank A.
LoBiondo (Chairman of the subcommittee) presiding.
Mr. LoBiondo. Good morning. The subcommittee will come to
order.
I would like to thank everyone for being here.
Today we look forward to hearing from the Federal Aviation
Administration, the Government Accountability Office, and
industry stakeholders on the current and future state of
airport financing and development.
Airports serve as an important foundation--not just
important, but critical, foundation of our Nation's
infrastructure. They enable millions of passengers to travel
throughout the United States and to destinations all over the
world.
Airports are also a tremendous economic driver for many
communities across the United States where airports and their
air operators help connect large and small communities.
Airports support over 10 million jobs with annual payrolls
of over $360 billion. They produce annual output of $1.2
trillion to our economy. Airports play an important role to
stimulate local economies.
They connect our region to the Nation's transportation
grid, helping to bring additional visitors and tourism dollars
to the region.
Federal programs, including the FAA's Airport Improvement
Program, provide funding to help enhance airport capacity,
security, efficiency and safety.
Just 2 weeks ago Atlantic City International Airport,
which, if you didn't know, is in my district, was able to
receive nearly $1.7 million in AIP grants to help operations
and dependability.
This is just one of many examples in a long-established
history of South Jersey airports and stakeholders working
together with the FAA to continue the standard of excellence.
Looking ahead, the FAA forecasts long-term aviation growth,
including additional traffic, which may require the need for
increasing system capacity. In fact, I don't see how it can not
have the need to increase system capacity.
This forecast calls for U.S. carrier passenger growth over
the next 20 years to average 2.2 percent per year and more than
1 billion passengers being transported in the U.S. system.
Just this past May we saw evidence to support the FAA's
forecast as the majority of U.S. air carriers expanded their
flying capacities in order to accommodate the increased demand
of air traffic.
Given these projections, industry, FAA and Congress will
need to work together and look to see what innovative
approaches are out there to maintain our Nation's airports'
ability to continue providing safe and efficient service.
This type of innovation is already taking place at the
FAA's William J. Hughes Technical Center in my district.
Research is being conducted in collaboration with industry and
academia to ensure that the needs of our current and future air
transportation systems are being met.
The FAA Tech Center also operates the National Airport Test
Facility on its campus. This is a state-of-the-art, full-scale
pavement research facility which, among many other things,
provides the FAA with engineered solutions for pavement designs
that improve safety at airports.
The subcommittee is very interested in hearing from the
witnesses their perspectives on the funding mechanisms that
exist to finance and develop airports and how Federal programs
are being utilized, what could be improved, and what challenges
lie ahead.
We are also very interested in hearing how industry
stakeholders from airports to air carriers have found creative
ways to retain or increase their ability to provide air
service.
As we turn towards reauthorization in the next FAA bill, we
hope to continue this dialogue on airport financing. It is
important that we hear from all stakeholders and receive your
input to learn what ideas work and do not work in the real
world.
I look forward to hearing from our witnesses today and
thank them for joining us.
Before I recognize Mr. Larsen for his comments, I ask
unanimous consent that all Members have 5 legislative days to
revise and extend their remarks and include extraneous material
for the record of this hearing. Without objection, so ordered.
Without objection, now I turn to Mr. Larsen for your
opening remarks.
Mr. Larsen. Thank you, Chairman LoBiondo, for calling
today's hearing regarding airport financing and development.
In 2013, the U.S. saw over 730 million passengers travel
through its airports. And, by 2027, the FAA forecasts the
number of annual domestic and international air passengers in
the U.S. will reach 1 billion passengers, a 24-percent increase
in domestic enplanements and a 41-percent increase in
international enplanements within that increase.
Forecasts of increasing air travel may seem encouraging for
the economy, but without adequate investment, passengers may
experience more congestion and delays and our country may lose
economic opportunities.
In a recent study, the U.S. Travel Association found that 1
in 5 of the Nation's major airports currently experience
Thanksgiving-type levels of congestion at least once a week.
Unless airports add capacity, 24 of the Nation's top 30
airports will reach these levels of congestion within the next
5 years.
There are real dollar figures associated with economic
losses that will occur if our airports cannot accommodate this
increased future travel.
One study by the Eno Center for Transportation estimates
that, in 2016 alone, the U.S. economy would lose out on over $6
billion in travel spending because of capacity constraints at
just two airports and, by 2034, the center estimates this
figure would reach $48 billion annually.
So the bottom line is that we can't have a big-league
economy if we have Little League infrastructure. Our Nation's
airports are critical economic drivers and gateways that
connect travelers all over the globe to the U.S. They also
connect our communities to each other across the Nation.
So we need to continue to invest in our infrastructure to
remain economically competitive. At the same time, we need to
make sure that we do not either overtax or overburden the
aviation industry and passengers, as well as make sure that we
don't put unbearable debt demands on the airports themselves.
Congress has long recognized a Federal role with respect to
investing in aviation infrastructure. Two important ways the
Federal Government supports the development of airports include
the AIP--Airport Improvement Program--as well as passenger
facility charges, or PFCs.
The FAA estimates there are $42.5 billion in AIP-eligible
airport capital projects needing investments over the next 5
years, about $8\1/2\ billion annually. And a leading industry
airport association estimates a capital need at about $71.3
billion over the next 5 years, or about $14.3 billion annually,
in other words, a lot of money.
The FAA Modernization Reform Act of 2012 authorized annual
AIP funds for $3.35 billion annually through 2015. However,
even with airports' ability to raise revenue through PFCs,
there is a significant gap between the available funding and
the investment needed for these critical safety and capacity
projects.
So as we prepare to authorize the FAA next year, this
hearing is an opportunity for us to explore these issues facing
our airports.
This includes examining the current needs of airports, how
the industry is financing capital development with its limited
resources, and the Federal Government's role to ensure adequate
investment. This is no small task.
There are more than 19,000 airports in the U.S., and nearly
3,400 of those airports are designated by the FAA as part of
the National Plan of Integrated Airport Systems, making them
eligible for Federal funds. They range from large hubs with
commercial service to small GA airports.
We have one of the greatest aviation systems in the world.
Whether large or small, airports across the country have a
documented economic impact on their communities as well as the
ability to connect people, goods and services.
In my home State of Washington, constituents rely on
airports of all sizes. In my hometown of Arlington, general
aviation at the Arlington Municipal Airport is hugely important
and the annual fly-in there brings in people from all across
the country.
Bellingham International Airport in northwest Washington is
developing as a commercial airport and has seen double-digit
growth in recent years, requiring further investments in
terminal and operation infrastructure.
And my constituents rely on Seattle-Tacoma International
Airport, one of the major hubs in our country's aviation
system. And I am pleased that Mark Reis from Sea-Tac is with us
today.
Each of these airports plays a different, yet important,
role in serving the local community and the national aviation
network. As this committee considers airport funding, we need
to encourage investment in airports, large and small.
Mr. Chairman, as we recently discussed at our hearing
regarding small community air service, maintaining a national
air transportation system will require a sustained Federal
commitment.
I look forward to hearing from our witnesses today about
the status of our airport infrastructure and ideas for
continued investment now and in the future.
And, finally, Mr. Chairman, I want to take a moment before
I finish to recognize a key staff member of this subcommittee
who will soon be leaving us. This will be the last hearing that
we will have the wise counsel of Giles Giovinazzi.
Giles has been a great resource for myself and for my
staff, and we will be losing a great deal of institutional
knowledge as well.
I want to thank Giles for his many years of admirable
service to this committee and wish him and his family well as
they move on to new opportunities, thankfully, on the west
coast. Thanks, Giles.
[Applause.]
Thank you, Mr. Chairman.
Mr. LoBiondo. We thank Mr. Larsen. And we, too, would like
to thank Giles for his years of service and his strong approach
to solving problems. We wish all the best in California for you
and your family.
I would now like to recognize the chairman of the full
committee, Chairman Shuster, for opening remarks.
Mr. Shuster. Thank you very much, Chairman LoBiondo.
And let me start off by thanking Giles for all of his hard
work. And although he works on the other side of the aisle, he
has been somebody that I have talked to and learned from over
the years. He really is an expert on the subject. California
DOT is going to benefit by his wisdom and his hard work.
So we wish you well.
I had a discussion with him the other day. It sounds like
we are going to see him back here in Washington occasionally--
or more than occasionally.
Our door is always open to you, Giles, and best wishes to
you as you move on.
Again, I want to thank Chairman LoBiondo for holding this
hearing today to discuss the current and future funding and the
status of airport financing and their development.
I think everybody in the room knows the importance that
airports play in our aviation system and our airline system.
Not only are they the gateways to our skies, but they provide a
critical role in emergency and disaster responses.
And there also are economic drivers in the communities that
they are in. That is something we need to again make sure we
pay close attention to.
As the chairman and the ranking member have so ably talked
about the future and the forecast, we are going to see more
passengers. We are going to see more cargo moving through these
airports.
And in this current budget situation, we are all finding
out how to do more with less. However, we need to ensure that
we are making the investments in the airports and maintaining
the current system to accommodate that future growth.
I think everybody is aware that the FAA authorization
expires September of 2015. We have already begun to lay the
groundwork at hearings like this and others that the ranking
member and the chairman have held, making sure that we fully
understand the situation.
Chairman LoBiondo, myself, and Congressman Graves have held
already a number of listening sessions with stakeholders to
find out where they are, what their thoughts are and ways we
can improve.
I think we have an opportunity that doesn't come along
often that we are going to be able to do something significant
to improve the FAA, to reform the FAA, to change the way they
do business, so that we can all benefit by efficiencies that
NextGen gives us.
I look at the wall up there with all those chairmen and I
think every single one of them talked about NextGen at one
point when they were chairmen.
That goes back over 20 years ago, maybe even 30 years, we
have been talking about it, and the time has come that we need
to try to figure something out to get this done.
We are very interested in hearing all the stakeholders,
getting their views, and I see a couple out there that have
already had listening sessions with us. And we invite you to
share your thoughts and concerns as we move forward to the next
FAA reauthorization.
So, again, thank you, Mr. Chairman, for holding this
hearing. I yield back.
Mr. LoBiondo. Thank you, Chairman Shuster.
We now will welcome our witnesses. On the first panel, we
have Mr. Ben De Leon, Deputy Associate Administrator for
Airports at the Federal Aviation Administration; and a very
frequent and welcome witness, Dr. Gerald Dillingham, Director
of Physical Infrastructure Issues for the U.S. Government
Accountability Office.
Mr. De Leon, you are recognized for your statement.
TESTIMONY OF BENITO DE LEON, DEPUTY ASSOCIATE ADMINISTRATOR FOR
AIRPORTS, U.S. FEDERAL AVIATION ADMINISTRATION; AND GERALD L.
DILLINGHAM, PH.D., DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES,
U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. De Leon. Chairman LoBiondo, Chairman Shuster, Ranking
Member Larsen, members of the subcommittee, thank you for the
opportunity to discuss the Federal Aviation Administration's
role in developing our Nation's airport infrastructure.
The FAA is committed to a safe and efficient national
system of airports. Our national airport planning efforts in
the administration of the Airport Improvement Program, commonly
referred to as the AIP program, are targeted toward addressing
the system's most pressing needs.
AIP investments will facilitate improvements in the core
areas of safety, capacity, delay reduction, security and
environmental sustainability. The AIP program supports a
national system of airports that includes airports of all sizes
located across the country.
This system is the backbone of the aviation system that is
important to the success of the U.S. economy. Because demand
for the AIP grant funds consistently exceeds availability,
effective focusing these investments is critical to maintaining
an adequate national system of airports.
To achieve that success in our airport planning
investments, we collaborate with the full range of
stakeholders; we carefully consider reports and recommendations
from GAO and other organizations; and, we consistently review
system performance to measure success and identify areas for
improvement.
An area that we have identified to be in need of
improvement is the ability to focus AIP resources on smaller
commercial and general aviation airports. AIP grants are just
one of several sources that airports use to fund capital
investment. Other sources include passenger facility charges,
commonly referred to as PFCs, bonds, and airport revenues. The
availability of funding sources varies with the type of airport
and level of activity.
For larger commercial service airports with a significant
number of passengers, PFC revenues are a more flexible capital
funding source. Airports with strong passenger volumes can
generally issue bonds backed by future PFC revenues.
As a result, larger airports are generally less reliant on
AIP grants, while smaller airports may be much more heavily
reliant on AIP funding. Yet, many of those small airports are
also very important to the overall system either for access or
to relieve pressure on larger commercial service airports.
Without them, the larger commercial service airports will need
to accommodate more aircraft, which can reduce capacity and
increase delays. The users of large airports depend on some of
these smaller airports for overall system capacity and
efficiency. Focusing AIP resources on smaller commercial and
general aviation airports is a prudent and necessary investment
to help the entire system.
The FAA reviews all requests for AIP funding with a careful
focus on aeronautical need. The FAA's top priority is safety,
and we have made runway safety a focus. AIP grants are funding
runway safety area improvements, or RSAs, that provide an extra
margin of safety on a runway should an aircraft overrun,
undershoot, or stray from the runway.
Maintaining facilities, including runways, taxiways, and
equipment, in a state of good repair is critical to the safety
of the airport system. We are constantly working with airport
operators to preserve existing infrastructure.
In the last 15 years, 16 new AIP-supported runways were
completed at many of the busiest commercial service airports in
the United States.
These projects and others decreased average delay per
operation at these airports by about 5 minutes. This might
sound minor, but because the delays propagate throughout the
system, that degree of improvement is significant.
In closing, investment in our national airport
infrastructure is crucial in maintaining the safest, most
efficient air transportation system in the world. The AIP
program is a vital capital funding source that works
effectively with other funding sources to support the Nation's
airport infrastructure.
Thank you again for providing me with the opportunity to be
here today, and I will be happy to answer any questions at this
time.
Mr. LoBiondo. We thank you very much.
Now we will turn to Dr. Dillingham. I will now recognize
you for your statement.
Dr. Dillingham. Thank you, Mr. Chairman, Chairman Shuster,
Ranking Member Larsen, members of the subcommittee.
Since 2007, there has been a significant change in the
aviation industry. At many airports, aviation activity has
declined and has become concentrated at larger airports.
Given the potential effect of these changes on airport
infrastructure demands and finances, my statement this morning
focuses on two key questions surrounding airport development:
First, what are the estimated future costs of airports planned
development? Second, what are the types and amounts of funding
available to finance that development?
Regarding the future cost of airport development, the
latest estimates from FAA and the Airports Council
International--North America, or ACI-NA, both show a decline in
the cost of airport planned development.
This decline is attributable to several factors, including
airports choosing to defer projects due to reductions in
aviation activities, which can be linked to the recent
recession, airline consolidation, and higher fuel costs.
FAA's most recent estimate of airport development costs for
projects which are eligible for Federal funding is $8.5 billion
annually. This estimate was approximately $2 billion per year
or 18 percent less than FAA's previous estimate for the 2011
through 2015 timeframe.
In addition, ACI-NA estimated another $4.6 billion for
planned development that are not eligible for Federal funding.
Therefore, in combining the latest available FAA and ACI-NA
estimates, the total estimated annual cost of planned
development is about $13.1 billion.
We plan to report on the updated estimates when they become
available this fall for this committee.
Turning to our second question regarding the types and
amounts of funds available to support airport development,
overall, federally authorized support for airports,
specifically AIP funding and PFCs, has declined in recent years
while nonaviation or landside revenue sources have grown.
Specifically, annual appropriations for AIP decreased from
about $3.5 billion for fiscal year 2011 to about $3.35 billion
in fiscal years 2012 through 2014.
In addition, while the current House and Senate
appropriations bill keeps the amount of AIP funding at or above
current levels, the President's 2015 budget calls for a
reduction in AIP appropriations to $2.9 billion.
With regard to PFCs, since PFCs were first approved in
1990, they have expanded to include 388 airports. However,
collections are very concentrated, with almost 90 percent of
all PFCs going to large and medium hubs.
Total PFC collections also declined along with passenger
traffic during the last recession, but since have rebounded to
$2.8 billion in 2013. The Federal cap of $4.50 for PFC has not
increased since 2000.
As a result, many airports' future PFC collections are
already committed to pay off debts for past development
projects, leaving little room for funding new development. The
President's 2015 budget has called for increasing the PFC cap
to $8 while eliminating AIP for larger airports.
In response to declining Federal support for airport
development, airports have sought to increase their nonaviation
revenues. By focusing on other business activities to generate
revenues, some airports have become involved in an increasing
range of unique developments on airport properties.
For example, some airport operators generate revenues
through temporary leases of airport property for uses as
diverse as solar farms, oil extraction, cattle grazing and golf
courses.
In addition, public-private partnerships involving airports
and developers are being used to finance airport development
projects, such as the planned terminal construction at
LaGuardia Airport in New York.
However, these options are not available to all airports.
Many airports, especially those located in smaller communities,
could not survive without Federal support. These airports
provide a vital link to the Nation's aviation system for those
communities.
Mr. Chairman, as the committee begins its deliberations for
the 2015 FAA reauthorization and the appropriate Federal
support for airport developments, it will have some critical
questions and information needs.
These include whether declining Federal support could
negatively effect the national system of airports and the
communities they serve, whether greater private investment
could be encouraged at airports, and if an increase in the PFC
cap is warranted.
We are currently assessing these issues for this committee
and expect to report our findings out later this year.
Thank you, Mr. Chairman.
Mr. LoBiondo. Doctor, we thank you very much.
We will now go to some questions.
For you, Mr. De Leon, with the talk about the AIP grants,
and last year the FAA issued about $3.2 billion, can you walk
us through the collaborative process to approve or deny an AIP
grant application to get the money to the airports. How does
that work?
Mr. De Leon. Yes, sir. We like to pride ourselves in being
collaborative with our airport sponsors. We work really closely
with them.
We start in the neighborhood of 3 to 4 years in advance of
issuing a grant during the planning stage. We work with airport
sponsors to identify their critical needs today and in the
future and, hopefully, lay the groundwork for future grants.
So, we start early and work with the sponsor in a
transparent process. We follow the sponsor through the
environmental process for that particular project. When we get
to the actual construction, designing and building the project,
we work closely with the sponsor to identify a funding plan
that works for the FAA and the sponsor and that also meets
their timeline.
Generally speaking, we collaborate with sponsors early on a
lot of projects so that we don't end up denying projects. We
work closely with them. It is a matter of timing on when we
issue the grants to them, and we try to keep that collaboration
open.
Mr. LoBiondo. And you respond to AIP grant applications.
Correct?
Mr. De Leon. That is correct.
Mr. LoBiondo. So you don't initiate the project? You review
the projects that are presented for the grants by the airports?
Mr. De Leon. Well, we don't initiate the actual grant
application process. But before an application is received, we
have already been working with them on identifying the projects
that they need to meet their critical needs. So, we have
already had a number of discussions before the application
comes in.
Mr. LoBiondo. But that is when the airport comes to you and
starts talking about what the needs may be and you start
working through with the preliminary discussions?
Mr. De Leon. Yes, sir. Correct.
Mr. LoBiondo. Last year, also for you, Mr. De Leon,
airports spent roughly $2.8 billion on PFC projects and the FAA
issued, again, $3.2 billion in AIP grants.
Can you please help us understand the fundamental
difference between AIP and passenger facility charge dollars
and what they can be used for.
Mr. De Leon. Well, generally, PFC dollars follow the same
eligibility as AIP project-wise, except PFC has----
Mr. LoBiondo. Can you pull your mic closer to you.
Mr. De Leon. I'm sorry.
Except PFC can be used for gates and boarding areas. So
there are a lot of similarities. But, what we are seeing is
that a lot of the larger airports that implement PFCs usually
use PFCs on landside-type projects and then AIP funding is used
on the airside projects. It is sort of a balance between the
two.
Mr. LoBiondo. Dr. Dillingham, could you tell us, in your
view, what would be the impact on AIP entitlement and
discretionary funding if the President's budget request of $2.9
billion for AIP were enacted.
Dr. Dillingham. Yes, sir. According to the existing
statutes, if the AIP appropriations is less than $3.2 billion,
it significantly reduces the entitlement funds that are
available; and, therefore, it would have a more devastating
effect on small airports, since they rely more heavily on AIP
than do the larger airports. It is about formulas, sir.
Mr. LoBiondo. OK. And we understand that the GAO is
currently conducting a study that will include an analysis of
potential impact of raising the passenger facility charge.
Can you tell us what issues are included in that study,
when the study will be completed. And how do you think the
findings of that study will be helpful to the committee?
Dr. Dillingham. Yes, sir. We do have a study of PFCs
underway for this committee. We are intending to look at
various scenarios of the impact of raising the PFC. All
airports may not decide to impose the full PFC that the
Congress will grant.
I think probably one of the most important concerns is the
impact on traffic. We have in the past looked at the impact of
imposing the $3 security fee a couple of years ago.
And what we found was that there was a loss of passenger
traffic--about 1 percent loss of passenger traffic. Over a 3-
year period, that was about 26 million passengers.
As you know, Mr. Chairman, there is a certain amount of
price elasticity for anything that we buy. I mean, if it gets
to a certain price, then we will choose not to purchase it.
Now, clearly, this may not impact certain kinds of
passengers like business travelers who need to go, but it may
impact the recreational traveler where you get just to that
edge and they can't pay another $35 or $36 or $100.
So we are trying to develop those scenarios so that we can
provide them to this committee as they make their deliberations
for the 2015 reauthorization.
Mr. LoBiondo. Thank you very much.
Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman.
Mr. De Leon, the President's request proposes to decrease
AIP grants by about $450 million. It also proposes to increase
the PFC cap.
Do you have an estimate of how much additional funding for
infrastructure projects that would generate, the net that it
would generate?
Mr. De Leon. With an increase of $8, we estimate that it
would add roughly about $2.5 billion extra above what the
primary airports could use for airport development.
Mr. Larsen. If the cap was increased to $8 and airports
took advantage of that and large airports as well gave up AIP
grants as proposed, would the FAA have any role in ensuring
that airports would first invest in safety capacity, enhancing
competition, as opposed to investing in revenue-producing
projects?
Mr. De Leon. Our thinking is that, even if the large
airports move out of the program and return some of their
entitlement dollars, that they will still have access to some
discretionary dollars, particularly if we have some national
safety initiatives that we want to impress on the system
itself. For instance, the Runway Safety Initiative is underway
right now. It is important to implement that across the
country.
So, in cases where we have a special initiative, a safety
initiative in particular, we would probably allow them access
to some discretionary funds.
Mr. Larsen. I hope the airports can address that a little
bit as well when they are up here.
Since 2005, there have been three mergers involving six
major legacy carriers in the U.S. Has FAA itself done any--or
have any view of how industry consolidation has affected
capital needs of airports throughout the system?
Mr. De Leon. We have not done a formal analysis. We have
seen consolidation come about. There are a lot of dynamics in
the aviation system right now with consolidation, up-gauging,
down-gauging. We are not sure how the actual dust is going to
settle on some of the hubs, whether they will continue to
operate or not. So, it is more or less kind of wait and see. We
are looking at things internally, but nothing formal until
things shake out on the airline side.
Mr. Larsen. Yeah.
Dr. Dillingham, can you answer that question? Have you
looked at that question?
Dr. Dillingham. Yes, sir. We haven't focused specifically
on that. But as part of our general monitoring of what goes on
in the aviation industry, there are a couple of things that
seem obvious to us.
One is that some of the--well, I agree with Mr. De Leon
that you can't totally separate out the effect of
consolidation, but you can look at certain elements of
consolidation, like the decision to dehub an airport as part of
consolidation.
You would see less activity at that airport. Activity is
what takes a toll on infrastructure. You will also see, when
there are things like dehubbing or consolidation, where certain
airports are no longer as active as they used to be.
You will see a case where, again, airports will either
decide not to invest in infrastructure or delay that
infrastructure, again, related to aviation activity.
Mr. Larsen. OK. Also, Dr. Dillingham, has GAO concluded
that, at current AIP funding levels, if they continue as they
are, would they be sufficient to meet planned capital
development costs for the next 5 years?
Dr. Dillingham. Mr. Larsen, I think it was said earlier
that there is a continuous gap between planned development and
available funds, and we don't expect that that will change.
We will know better when both FAA and ACI-NA come out with
their new estimates and we are able to complete that work that
we are also doing for this committee for the 2015
reauthorization.
But, you know, the bottom line is there is likely to be a
gap. And we are careful to say planned development as opposed
to needed development, because there is a difference there.
Mr. Larsen. I like to say demand is infinite. Need you can
define.
Finally, Dr. Dillingham, this question of PFC and the cap
versus AIP versus the general capacity of airports to finance
development, has GAO at all looked at the ability of airports
to finance capital improvements through debt?
And, if you have, have you looked at the difference
between, say, a public airport like a Sea-Tac, which is a Port
Authority airport, versus a privately run airport? Have you
looked at that kind of issue at all?
Dr. Dillingham. Generally, what we found is that airports,
especially large airports, are very stable and easily obtain
capital funding from the private sector in terms of bonding.
But that is where about, I think, 50 percent of airport funding
derives from.
A much smaller proportion of public funding through bonds
is available to small airports. We see it as about 15 percent
for small airports.
And part of the work that we are doing now is looking at
the status and financial status of airports--we are hearing
from the bond rating agencies on Wall Street that airports have
excellent bond ratings.
So that should continue into the future, especially as
passenger traffic increases, as was mentioned earlier.
Mr. Larsen. Thank you.
Thank you, Mr. Chairman.
Mr. LoBiondo. Mr. Shuster.
Mr. Shuster. Thank you, Mr. Chairman.
Mr. De Leon, I think you said it was $3.35 billion in AIP
funds. Is that the number total?
Mr. De Leon. Yes.
Mr. Shuster. What's the breakdown between the entitlement--
what's been on the entitlement and what's been discretionary?
What is the formula? And what----
Mr. De Leon. Generally, the breakdown is, of the $3.3
billion, about two-thirds of it is classified as entitlement
dollars. About one-third is discretionary.
Mr. Shuster. And looking at the challenges that the FAA
faces in administering those AIP funds--and I have traveled
around the country and I have talked to the airlines, I have
talked to the airport. And sometimes they are not always on the
same page as to what investments should be made in the airport.
When you are giving these grants out, do the airlines weigh
in on what you give to an airport? Do they deem that they are
the customer?
Or even the GA community that uses some of these airports
significantly, they may have differences of opinion. Do they
have a voice in the discretionary?
Mr. De Leon. I would like to say yes, but it is not always
the case. We like to have the airports coordinate the projects
with the tenants and the community because we find that if they
do that and they collaborate, the projects are easier to
administer. But, that collaboration doesn't happen consistently
across the country.
Mr. Shuster. And what are the biggest challenges you face
on AIP grants?
Mr. De Leon. I think one of the biggest challenges we have
is that there are some safety initiatives that we really want
to undertake, and they are good size safety initiatives.
We want to be able to use the discretionary funds towards
safety, because safety is number one for the FAA. We have a lot
of things going on in the safety umbrella.
We have taken care of the capacity. So the capacity is
pretty good for right now, but it is not going to stay that way
forever.
Mr. Shuster. Mr. Dillingham, it is good to see you back
here again. You are a regular visitor. We appreciate it.
Dr. Dillingham. Thank you, Mr. Chairman.
Mr. Shuster. You talked about the security fee increase and
the price elasticity of it and 26 million less customers. And
we see that, in the airline industry now, the demand appears to
be up on seats. Their prices are inching up, which we
understand that's the way it works, supply and demand.
As we see that increase--and I know there is talk--the
President proposed, I think, $8. The airports have proposed
$8.50, a 3.50, $4 increase.
Have you done an analysis on improving climate in the
airline industry and prices going up there, as well as putting
higher fees on--do you have any analysis on what kind of
downturn that is going to have on passengers?
Dr. Dillingham. Mr. Chairman, those questions that you ask
are part of our current work that we are doing for you and the
subcommittee. We expect that we will be able to report that out
to you by the end of the year.
Mr. Shuster. Well, I thank you for that and look forward to
seeing that.
And I know we have got to figure out how--airports need
money. Everybody in the country has clamored for more money
when it comes to especially infrastructure and transportation.
If you increase PFCs, what kind of benefit do you see for
the airports? And, again, the proposal is they raise the PFCs
and they eliminate AIP funds. Is that correct?
Dr. Dillingham. Yes, sir.
Mr. Shuster. And what kind of benefit do you project? Is
that something you are looking at, also?
Dr. Dillingham. Yes. It is already established that, if the
airports get a raise in PFCs, it would allow them to undertake
more infrastructure projects.
And, also, the other side of it is that, if they impose
that full PFC, then moneys are turned back to the FAA and that
money becomes part of discretionary and, also, available to
smaller airports.
So it is sort of a two-way street that goes there, keeping
in mind that, again, on those margins, the passenger traffic
could be affected.
And if the passenger traffic is affected, less tickets are
sold, less money goes into the trust fund. So it is sort of a
complex sort of merry-go-round that happens there.
Mr. Shuster. And, of course, one of my big concerns, coming
from a rural area, is small airports and even medium-size
airports.
The Pittsburgh airport, for example, had a significant
reduction in flights to it. They fortunately, though, are one
of those airports that they found natural gas on the airport.
So they have finally--instead of trying to fight the FAA
wanting to spend the money in downtown Pittsburgh, they finally
realized that the money has to stay on site, which I am very
happy that has happened in Pittsburgh.
You mentioned other airports, golf courses and various
other developmental projects to help them gain revenue. Do you
consider that into the formula in the discretionary and the
grants you give in the AIP funds, is that factored in anywhere
or is that not considered?
Mr. De Leon. I would like to say that it is probably
considered at some point in time. But, when we issue the
grants, we are talking about their matching funds, the ability
for them to put the money upfront.
A lot of times, it is not a question if they can't meet the
matching funds. Rather, it is more of whether the project is
eligible and ready to go and move forward.
So we don't really get too deep in the nonaeronautical
side.
Mr. Shuster. So I guess my real question is: They are not
penalized?
Mr. De Leon. No.
Mr. Shuster. The Pittsburgh airport is not going to be
penalized for the great fortune they had by finding natural
gas?
Mr. De Leon. No, sir.
Mr. Shuster. OK. I thank you.
And I yield back.
Mr. LoBiondo. Thank you.
Mr. DeFazio.
Mr. DeFazio. Thank you, Mr. Chairman.
Dr. Dillingham, I know your current report is specifically
on airport funding, but I want to delve back a little bit into
some past work you have done.
I was the Democratic author many years ago of PFCs--because
I saw inequities where, for instance, people from Vancouver are
using the Portland airport and don't even pay taxes in the
State of Oregon--I thought it was an inequitable way to deal
with these issues.
The initial concern was abuses, off-airport uses and other
abuses of PFCs. And I think, in the past, you have actually
looked at those issues, what the authorized uses are and
whether there has been any deviation from those.
Can you update us on that? Are PFCs being used well within
the existing authority in the law and usefully?
Dr. Dillingham. Mr. DeFazio, to our knowledge, PFCs are, in
fact, being used for their intended purposes and, in fact, are
achieving what the objectives of the legislation were.
FAA is pretty tough on revenue diversion and it is one of
their priorities to ensure that those kinds of things don't
happen or are minimized.
Mr. DeFazio. And we have documented the need for the
current state of our aviation infrastructure--I mean, it is not
as bad as surface, but we certainly have unmet needs. And you
have gone through those numbers.
What are the--I just can't think. We have AIP, and
currently we are spending less than the annual income to AIP;
are we not? I mean, we see a growing balance in the trust fund?
Dr. Dillingham. Yes. We do see a growing balance in the
trust fund. In fact, the balance in the trust fund now--I think
FAA is projecting in 2013 or 2014 that the uncommitted balance
will be $4 billion plus.
Mr. DeFazio. And is that because they need an operating
cashflow reserve for commitments that are made or does that
balance far exceed those needs?
Dr. Dillingham. I am probably not in the best position to
answer that. Maybe Mr. De Leon can answer.
Mr. DeFazio. Mr. De Leon, can you answer that question?
Mr. De Leon. I checked with the budget office this morning.
We asked the same question about the trust fund balance. What
we were told is that there is a current balance of roughly $13
billion in the trust fund and there is roughly between $4
billion and $5 billion that is uncommitted in the trust fund
right now.
Mr. DeFazio. And is--you know, with highways we have a
number. You can't drop below that number and meet obligations
on an ongoing basis because have you a cashflow issue.
Do you know what that number is? It wouldn't be $4 billion.
It would probably be substantially lower than that?
Mr. De Leon. I do not know, sir. I will take an IOU on
that.
Mr. DeFazio. OK. That would be a useful thing to know.
So we've got AIP. We've got PFCs. We've got rents. We've
got the entrepreneurial activities. And now we have some
privatization.
I can only see one of--I guess two of those potentially--I
don't know. Private investors need a return. So I am not sure
that that will go there. Entrepreneurial is, I guess, the only
one.
But rents, PFCs and/or the financing of AIPs, should we
raise the tax--all of those will be reflected in ticket prices,
ultimately. Correct?
Dr. Dillingham. Yes, sir.
Mr. DeFazio. So I guess, then--for those who don't want to
raise PFCs, I guess they would say the only place airports can
go would be entrepreneurial activities that wouldn't bring back
a burden?
Because the privatization that--you have got to have even
more return there because they need a return on their
investment. So that maybe even puts a higher burden on
potential charges towards passengers.
Dr. Dillingham. Yes, sir. Nonaeronautical revenues are
going to be the least burdensome to the taxpayer.
Mr. DeFazio. Right.
But how limited are those? I mean, I assume not all
airports have that option. And even the airports that do have
that option, how much of the unmet need do you think that can
cover?
Dr. Dillingham. You are correct that all airports don't
have that option.
The last numbers we have--I think 2012, 45 percent of
airport revenues were attributable to nonaeronautical revenues
including the biggies of parking and ground transport.
That is still going to leave a gap compared to termed
planned development needs.
Mr. DeFazio. And if you would, say, substantially raise the
car rental fees or you substantially raise the parking fees,
that also has some sort of a detrimental impact on consumers
planning a flight because they look at what the whole thing is
going to cost them?
Dr. Dillingham. Yes, sir.
Mr. DeFazio. OK. So there is no easy way out of this?
Dr. Dillingham. Exactly.
Mr. DeFazio. OK.
Thank you, Mr. Chairman.
Mr. LoBiondo. Mr. Meehan.
Mr. Meehan. Thank you, Mr. Chairman.
And I thank the experts here for their testimony on this
issue.
One point I am just trying to understand is when you are
doing your projections--and these are important because they
look at the long-term implications.
So I listened to Dr. Dillingham's testimony today about the
impact that the economy is having on travel and, therefore,
reduction in utilization. Maybe it is smaller airports. I
really am not completely clear.
But then I look at the FAA's projection, and you are saying
that airport is going to grow at 2.2 percent. Travel is growing
at 2.2 percent a year.
How do you reconcile the differences in that? And where,
really, is airport travel going to be over the course of the
next 5 years?
Mr. De Leon, do you know?
Mr. De Leon. From the AIP program perspective, yes, we have
the forecasts out there that we use as one factor for
evaluating how we fund projects. But, we also actually work
with a sponsor and we actually look at who is using the airport
today, and what type of aircraft are using the airport today.
A lot of airport sponsors have commitments from other
people that: If you had a certain runway length or a taxiway,
for example, we would come in and do business at your airport.
That is factored into the analysis to determine AIP funding,
more so than long-range forecasts.
Mr. Meehan. One of the issues--and I am more interested in
pursuing this further, but have a limited time.
The issue that is of significant importance to me,
representing an area in the Northeast in which there is a fair
amount of congestion, what role does congestion play in the
impact on costs associated with airports?
I am trying to find the right balance in which we are
looking at improvements in things like NextGen. And there is
concerns about where we are in form of the implementation of
NextGen.
But, you know, do we have technologies that are going to
impact the need for airport expansion or how do we measure
appropriately what the right amount of airport expansion is to
deal with congestion?
Mr. De Leon. From an FAA standpoint, when we look at
capacity, delays at airports, or a metropolitan area where you
look at airport development on the ground, in order to maximize
the development of, for example, a new runway, or a major
runway extension, coupling that with NextGen technology would
make the return on that investment even better.
What we are working on as we go forward, is trying to
incorporate NextGen technology into our development.
Mr. Meehan. So even though you may be expanding the--or
improving the efficiency and, therefore, the on-time arrival
and, therefore, reduction in costs, there is still a critical
role to be played by expanding the amount of asphalt, so to
speak, to create more landing base?
Mr. De Leon. I would say that right now, as we look at the
capacity across the Nation, we are probably fine for the first
decade, but there are some places that we understand are
chronically delayed. I am not sure what the answer is in those
locations.
You can probably guess where they are. The New York area is
a very difficult place to figure out what to do on that.
Mr. Meehan. How do we figure that out? Because it is
critical. I mean, these are things that I am struggling with
because I am trying to find out the right balance to be able to
ascribe who is responsible for what.
We want to promote on-time delivery because there is a
point in which--the testimony here today is lost opportunity. I
mean, we have people who do not get a chance to take trips
because of congestion and other kinds of things. This is the
testimony I am reading.
How do you find out where the right balance is between, you
know, investment--well, the right balance that will help us
deal with the congestion?
Mr. De Leon. Well, I like to say that it starts, at least
from the FAA standpoint, during the planning process. Working
really closely with the airport sponsor to get the information
upfront, and working with all of the stakeholders to finding
out what the issues are, and trying to address the issues, are
the best places to start. This is part of the planning process.
As you go into the environmental process, it gets a little
tighter because you must address the purpose and need and
balance, and the environmental impacts. But, if you do your
proper planning upfront, and get all the information upfront,
that really helps the process in the long run.
Dr. Dillingham. Mr. Meehan, if I could.
Mr. Meehan. Yes, Dr. Dillingham.
Dr. Dillingham. There are several initiatives on the way. I
just want to relate back to your point about NextGen.
Although NextGen has been going on for 10 years, we are now
beginning to see NextGen being put in place, a suite of NextGen
technologies, like in the Houston Metroplex.
And so that is going to make going and coming out of that
metropolitan area much smoother, much more environmentally
friendly.
At the same time, the question you raised earlier with
regard to sort of what else is NextGen going to do, well, we
have said a number of times before this committee that NextGen
is not going to be enough, that it is going to address some of
our problems, but as our passenger traffic increases, we are
going to need to lay some more concrete.
And FAA currently has a study underway that identifies--I
think it is the third iteration of a study that identifies
where that congestion is going to be and where the concrete
needs to be laid.
So there are a number of avenues coming together to address
the issues that you presented.
Mr. Meehan. When do you expect that report to be concluded?
I am asking Dr. Dillingham.
Dr. Dillingham. Well, he can tell you when the FACT report
is going to be concluded. I just know they are doing it.
Mr. Meehan. When?
Mr. De Leon. Yes, sir. The report is scheduled to be
concluded by the end of summer, or beginning of fall.
Mr. Meehan. OK. Thank you.
Mr. Chairman, I yield back.
Mr. LoBiondo. Mr. Capuano.
Mr. Capuano. Thank you, Mr. Chairman.
Thank you, gentlemen.
We are faced with another situation. People want more money
than we have. Gee, how unusual. Never heard that before. And I
am told that airports have plenty of money.
But am I wrong to think, Mr. De Leon, that all the major
airports, all the medium-size airports, are basically publicly
owned and financed? Is that a correct assumption?
Mr. De Leon. All of the large major airports are publicly
owned. Yes.
Mr. Capuano. Which means the taxpayer is on the hook if an
airport has a financial problem. May not be a Federal taxpayer,
but they are my taxpayers, too. It may be State or local or
regional, but it is a taxpayer.
Mr. De Leon. Well, the large hub airports have other
funding mechanisms they can tap into.
Mr. Capuano. I understand that.
But those bonds and everything--if everything goes bad, who
is on the hook if Logan Airport goes bankrupt? Massachusetts
taxpayers.
Mr. De Leon. That is correct.
Mr. Capuano. That is right.
If their bond rating goes up because they overextend
themselves and something goes bad, who is on the hook?
Mr. De Leon. The owner.
Mr. Capuano. Taxpayers. My constituents, my taxpayers. Now,
I am not against that. I am a liberal. I don't mind taxing
people for things they want.
But I want to be clear that airports are not some private
entity. They are taxpayers who gather together to do something.
Private financing. I have heard some comment on that. We
just went to LaGuardia on a P3 field hearing at which they told
us, yes, they are going to use private financing for one reason
and one reason only. Because they have to do the work, in their
estimation, and they can't get the money anyplace else.
So private financing is not some panacea. Private financing
is the result of not having enough money. And, yet, today I
hear there is a $4 billion surplus.
Now, based on my math, on the surface transportation, which
has to be somewhat relevant, approximately each billion dollars
makes 30,000 jobs. We are talking 120,000 jobs are going unhad
in this country today because we have uncommitted money that
has been paid by taxpayers.
I come from a different universe. That strikes me as
insane. Get that money to work. Put people to work. Address
some of these issues so we can have an honest and legitimate
discussion about where the money should come in the future.
Mr. Dillingham, has GAO ever done a study on bang for the
buck relative to PFCs and AIPs?
Dr. Dillingham. What we have done is we have looked at what
PFCs have been used for, how those uses coincide with the
statute. I am not sure----
Mr. Capuano. Well, the reason I ask is because there are a
fair number of airports around the country that, especially the
last couple of years, with contractions--we now have pretty
large investments in airports that are now underutilized.
If the argument is that the expansion of airports is
important to our economy, shouldn't we be spending money where
the economy is best enhanced, either through passengers or
delay reductions or other such items that do have a direct
impact on the economy, as opposed to letting taxpayer dollars
be used to--oh, I don't know--maybe put another clothing store
in a mall?
By the way, have either if you gentlemen ever bought a suit
at an airport?
Dr. Dillingham. I can't afford them, Congressman.
Mr. Capuano. Very good answer.
Yet, taxpayer dollars--some of these dollars, on occasion,
are used to support the expansion of airport malls. That
strikes me as very bad prioritization.
Now, if an airport wants to create a mall, let them do it
with their own money. Never, never--``never'' for those of you
who don't speak English--never allow taxpayer dollars that are
meant to address safety and efficiency be used to sell a suit.
Now, I have to buy suits, too. I have never bought one in
an airport. It just strikes me that our priority is wrong.
We are having this discussion prematurely. We have money in
the bank not being used to do the things we need to do. We are
not sure what the priority should be. Yet, there is extra
demand. Well, demand for what? To have another glorious
terminal?
I have never once in my entire political life had somebody
call and say ``I didn't like the terminal.'' I get lots of
calls saying delays, cancellation. I get lots of calls, costs,
extra fees. I have never had anybody say ``Oh, the terminal
wasn't pretty.''
Prioritization, gentlemen. Use the money more wisely than
we have, then come back to us and talk to us about increasing
costs and fees to taxpayers, and the public.
Thank you, Mr. Chairman.
Mr. LoBiondo. Mr. Farenthold.
Mr. Farenthold. Thank you very much, Mr. Chairman.
I will say to the gentleman from Massachusetts, you
probably haven't flown out of terminal A here at Reagan
National Airport lately because that one is ugly.
But I do want to address a couple of questions to our
witnesses. There has been a lot of talk about the PFC. What are
some alternatives that are available to airports for funding?
We have heard public-private partnerships, we have heard direct
tax subsidies, both from the State, Federal, and local
government. Are we missing anything in there?
I will ask both gentlemen. We will start with Mr. De Leon.
Mr. De Leon. No, I think you have probably covered it.
Privatization is one of the things we are looking at right now.
It hasn't taken off in the States, as you know, but we have an
approved application in San Juan, Puerto Rico. It is pretty
interesting. It looks like it is very promising.
Other than that, I think you have covered all of the other
avenues that I can think of.
Mr. Farenthold. Mr. Dillingham, are we missing anything
there?
Dr. Dillingham. No, I think you did--I think you covered
it. If you included nonaeronautical revenues, land-side
revenues that have been increasing at about 4 percent a year
over the last few years, so to the point that they are now
representing about 45 percent of airport revenues.
Mr. Farenthold. Now, do these shopping malls actually make
money and pay for themselves?
Dr. Dillingham. I don't really know. I would assume that
there is a little bit of both in terms of some make money, some
don't. There is also the notion of, you know, street-level
pricing, where in some cases, airports, you know, what you pay
in the airport is supposed to be, you know----
Mr. Farenthold. All right. I understand that is a
contractual provision in some airports----
Dr. Dillingham. Right.
Mr. Farenthold [continuing]. That you have to be
competitive in the pricing.
Dr. Dillingham. Right.
Mr. Farenthold. And I will on behalf of my chief of staff
who left his belt at TSA was very thankful he could purchase a
belt at the Houston airport when he got there and realized he
left his belt in Washington.
Let's talk a little bit about PFCs. We have heard a lot of
reference to them as taxes, but they sound to me more like a
user fee. If airports are directly subsidized by the cities or
the Federal Government, the nonflying public is paying for
that, which I guess is OK because they receive the benefits of
the economic activity that the airports generate, but don't you
think that PFCs might be more accurately described as a user
fee than a tax, Mr. De Leon?
Mr. De Leon. I have no comment on that.
Mr. Farenthold. All right, Mr. Dillingham, did you have any
thoughts on that?
Dr. Dillingham. Well, the point that you raised,
Congressman, is a point that has been raised time and time
again, and gets to be one of these, you know, you say tomato, I
say tomahto kind of thing, and it depends on who is talking
whether it is a user fee or a tax.
Mr. Farenthold. All right, well, I appreciate you all being
here.
And I yield back the remainder of my time.
Mr. LoBiondo. Mr. Maloney.
Mr. Maloney. I have no questions at this time, sir.
Mr. LoBiondo. Mr. Carson.
Mr. Carson. Thank you, Mr. Chairman.
Mr. Dillingham, Dr. Dillingham, thank you and welcome back.
Please tell us, sir, more about what your study uncovered about
alternative methods for collecting the passenger facility
charges without really including these charges in the ticket
price. Practically, what would you recommend we consider?
Dr. Dillingham. Thank you, Mr. Carson. We completed that
study for this committee basically, responding to the question
that you posed about alternative ways to collect that PFC. We
did not find any other ways at this point that was more
efficient for collecting PFCs. We looked at things like
smartphone apps, kiosks. All of those kinds of things had an
impact on the convenience of the passenger.
So, you know, the current system was the most efficient one
that we have seen. We are now looking at it again, since we
finished that last study, are there ways in which that fee
could be collected that is different than what we looked at
before in addition to those other questions regarding PFCs in
terms of, you know, what are the various scenarios that
Congress should have in mind as they think about this for 2015.
Mr. Carson. Secondly, and more generally speaking, in the
great Hoosier State of Indiana, our airport directors recently
briefed our delegation on their consensus about the need for
Congress to raise the cap on passenger facility charges.
Now, they are being as creative as possible to finance the
critical infrastructure projects needed across the State, but
it is simply not enough.
First, what do you all think is possible, even realistic
for that matter, for our local airports to make infrastructure
improvements without raising their PFCs?
And secondly, if you agree that PFCs need to be raised, how
should that be done and what do you recommend in this context?
Dr. Dillingham. Well, I can just speak just a little bit
about Indianapolis. Indianapolis is one of the poster-card
airports for nonaeronautical revenues in terms of the unique
sorts of things that they are doing.
Indianapolis, along with Denver, is one of those airports
that are starting to develop solar farms to provide energy as
well as sell that energy along the way. So to that extent, I
mean, that is one other avenue that, you know, Indianapolis is
a leading actor in.
Mr. Carson. All right. Thank you, Dr. Dillingham.
Thank you, Mr. Chairman, I yield back.
Mr. LoBiondo. Mr. Webster.
Mr. Webster. Thank you, Mr. Chairman.
Mr. De Leon, are airports eligible for TIFIA loans?
Mr. De Leon. No, that is a separate funding program
administered by the Department of Transportation.
Mr. Webster. So is that by policy or by statute that they
would keep them from being eligible?
Mr. De Leon. I would say it is statute, but I will check on
that and get back to you.
Mr. Webster. Dr. Dillingham, you had mentioned that NextGen
potentially would exasperate the fact of a lack of facilities
at particular air sites, airports because, I assume, that more
efficiently and maybe even more frequently planes could land
and yet there might not be a terminal to accommodate them,
which would call for, I assume, more infrastructure as you put
it, concrete at that location.
Is there any study that you have done on the return on
investment of every dollar, let's say, is spent at an airport;
is there some sort of factor like 7:1, 6:1, or anything like
that?
Dr. Dillingham. Congressman, we have not done any studies
like that, but I am familiar with many metropolitan areas where
airports are located. They have conducted those studies to talk
about the economic impact of their airport and aviation to the
community, and you know, and we can provide, you know,
references to those if you would like, but we have not done any
studies like that directly.
Mr. Webster. Well, it was asked earlier, I believe,
something about, you know, where do we get the bang for the
buck, and where are the priorities? I think it would behoove us
to know if this would be the very best investment of our
infrastructure dollars maybe here. I don't know that it is, and
maybe no one does, but it certainly would be nice to know.
Dr. Dillingham. Yes, sir.
Mr. Webster. Yield back.
Mr. LoBiondo. Mr. Davis--Mr. Williams.
Mr. Williams. Thank you, Mr. Chairman.
I am from Texas. We have got a lot of airports there, and
we appreciate you all being here today.
My first question would be to you, Dr. Dillingham. You said
that airports are seeking great--more private sector
partnerships. I am a big private-sector guy. I believe in the
private sector, everything from construction to ownership of
terminals. We talked about that. What are the implications in
Federal funding for an airport with various levels of
privatization, such as long-term leases and public-private
partnerships?
I guess my question would be, will Federal funding still be
needed or required if we really get engaged with the private
sector and let the private sector move us forward on this?
Dr. Dillingham. I guess the best answer is, it depends.
Depending on the arrangements, the privatization type
arrangement, long-term lease or full sale, those airports will
still be eligible for certain Federal funds.
The airport that was mentioned, the only airport that has
been privatized to date is in San Juan, and, you know, as a
result of that, that airport has been upgraded.
Mr. Williams. So the more private-sector involvement would
decrease the need for Federal funding?
Dr. Dillingham. I think so.
Mr. Williams. That is a good thing.
Dr. Dillingham. Yeah, that is a good thing.
Mr. Williams. OK, thank you for that.
Mr. De Leon, my question would be, I am glad that we got $4
billion in cash. As a small business owner that is important,
cashflow is important. But my question to you with would be,
and we talked about this, but the current funding stream, is it
enough now to sustain all of the demands we are looking forward
for? I mean, is it----
Mr. De Leon. If you look at our NPIAS, National Plan of
Integrated Airport Systems report, it implies that we are not
meeting all of the demand out there. There is more demand than
we have funding for. But, as Mr. Dillingham mentioned, we are
looking at what is really needed today and that is how we
approach demand with our airport sponsors. We try and work with
them on what is really needed today and not just plan.
We manage demand the best we can, but there is more demand
than there is funding available.
Mr. Williams. We talked a lot about available funding, but
as a business person, you know, you can generate cash through
more business, or I guess you can raise prices which sometimes
is not the best thing, or you can cut expenses.
So I guess my question to you would be, you know, since
September of 2008, small business owners have really had to cut
back. They have had to cut back on a lot of things to create
their own cashflow and continue to do business. What are you
all doing to cut expenses and pass that on to the consumer?
Mr. De Leon. So within the FAA, what are we doing to cut
the expenses? In my organization, to maximize the use of the
AIP dollars as much as we can, we work with airport sponsors to
possibly phase out projects over a longer time, which is not
always good, but not a bad way to proceed because you have a
limited amount of money.
Our organization is not streamlining people, retiring
people, if that is what you are leading to. We work with the
AIP program as best as we can to maximize the return on it.
Mr. Williams. But are there costs you can cut that would
turn into cashflow and turn into giving people more service and
better service? Every business has a surplus of whether it be
people, or costs. I mean, every business needs to be able to
cut costs and that was my question. I mean----
Mr. De Leon. I don't think I could answer the question in
terms of cutting costs. We are trying to improve efficiencies
on what we have.
Mr. Williams. OK.
Mr. De Leon. As a business you try to maximize your
efficiency as best as you can. We are looking at ways to become
more efficient in the way we administer the program.
Mr. Williams. OK, thank you very much.
I yield back.
Mr. LoBiondo. Mr. Davis.
Mr. Davis. Thank you, Mr. Chairman, and thank you, Dr.
Dillingham, and Administrator De Leon for being here today.
I just have one question for both of you. The American
Association of Airport Executives is represented on the next
panel and in their testimony, they cite a study that says in
the next 5 years, 24 of the top 30 airports will experience
Thanksgiving-like passenger levels at least 1 day a week, and
as a passenger who travels during the holidays, I know that can
be daunting.
Can both of you address this statistic and then what is
being done now and what more could be done to prepare for such
passenger levels at those airports?
Dr. Dillingham. Mr. Davis, I can't refute or support the
AAAE's numbers, however, you know, over time the delay factor
for airports has declined. It used to be one in every four
flights was delayed. FAA has made significant improvements on
that.
Going forward, I think we are all relying on the
implementation of NextGen and the procedures that are
associated with it, both on the ground, and the technology
associated with GPS. I think that's where our hope is at this
point, and, what we are talking about today in terms of having
the appropriate infrastructure to handle that predicted
increase in traffic is also an element going forward that
hopefully will address those issues that AAAE has raised.
Mr. Davis. OK. Administrator De Leon.
Mr. De Leon. As Dr. Dillingham mentioned, we are completing
the future airport capacity task force study known as FACT3. It
is going to come out in later summer, or early fall. When you
look at that report there is not going to be any surprises. It
is going to look forward at operations at the airports for 2020
and 2030.
It considers all of the improvement that is in the pipeline
for these airports, and also considers NextGen technology that
will be on board at that point in time. When you look at it,
you will see that for the first decade, the hub system overall
is in fine condition.
When you look at 2030, there are many unknowns because of
all of the things that are happening in the aviation industry
right now, so we can't predict with certainty what is going to
happen in 2030. As we move to 2030, our thought is that we are
going to approach that cautiously in the planning process and
keep an eye on the system going forward.
Mr. Davis. All right, well thank you both for your time
today.
I yield back Mr. Chairman.
Mr. LoBiondo. Mr. Duncan.
Mr. Duncan. Well, thank you very much, Mr. Chairman.
Dr. Dillingham and Mr. Capuano mentioned that he and I and
several others met yesterday with some of the top people from
Wall Street, and they said that they were finding more interest
and receiving many more phone calls about public-private
partnerships in regard to infrastructure than ever before, in
fact, they were surprised by the amount. Do you think that--and
many other--most other developed or developing countries have
been going more in that direction than we have.
Do you think that we will be seeing much more of that? We
met after the meeting with the Wall Street people. We met with
the LaGuardia officials yesterday afternoon and they told us
some of what they were doing. Do you see more of that in the
future and then secondly, in a related part of that, why do you
think there was so little interest to the privatization pilot
program that we had in the 1996 law? You mentioned the San Juan
Airport, and you said that that has been very successful, but
it has not gone beyond that. Now, why do you think that is? I
guess two questions there really.
Dr. Dillingham. Thank you Mr. Duncan.
Yes, I would predict that we would see more private-sector
involvement in infrastructure development. In the LaGuardia
case, as was said earlier, it was the most efficient and easy
way to get the job done in terms of waiting on the availability
of Federal funds, or other funds.
The privatization program, FAA's airport privatization
program has been available for more than a decade. It had a
space for 10 airports of different sizes to participate in the
program. There have been 10 applicants over that time period,
and they have withdrawn those applications to the point that we
only have the San Juan example.
Part of the problem that we are seeing, again, this is
another study that is ongoing for this committee. But part of
the problem that we are seeing is that privatization of
airports is a really complicated process in the United States,
as opposed to in other countries where you don't have as many
stakeholders that you need to deal with.
When we asked Wall Street about privatization, they said
they are competing interests among all of the stakeholders. The
airlines need something, the airport need something, the
private investor needs something. So you know, it has just been
a difficult slog.
All of that is a really complicated issue that has made it
very difficult, but you know, again, we are trying to look to
see what are those barriers? What are those barriers that
prevent this from working, and bring that back to this
committee so that if necessary the committee can make whatever
adjustments in the statute that they think are appropriate to
increase the possibility of having privatization.
Mr. Duncan. All right, well thank you.
Of course you already have--maybe part of it is that you
already have so many private businesses operating at the
airports in the commercial real estate business and fixed-base
operators and so forth. But thank you very much.
Thank you Mr. Chairman.
Mr. LoBiondo. Mr. Ribble.
Mr. Ribble. Thank you, Mr. Chairman.
One of the thing that we need more than anything is
accuracy and in the projections and in the data so that we can
actually evaluate how we are going to go ahead and either
modify or provide current financing.
Dr. Dillingham, in your written testimony I am quoting from
page 5, you say: ``In addition, according to the most recent
FAA forecast air traffic demand is projected to increase 2.7
percent per year from 2014 through 2034. Funding for both AIP
and PFCs is linked to passenger activity. In this way, Congress
aims to direct funds to where it is needed most.''
Have you done any analysis to determine whether the
projections from, or the forecast from FAA are accurate?
Dr. Dillingham. We have looked at some of FAA's forecasts
in various arenas and as you know, the further out you go with
the forecast, the less reliable it becomes.
So in the case of FAA's forecast for infrastructure needs,
the fact that they do it over a 5-year period with a relook
every other year, makes it a lot more--as accurate as you can
be under the circumstances and, you know, if there are no, you
know, unforeseen circumstances, like we don't have another
recession, we don't have another SARS epidemic or something
like that, you know, we are pretty confident at least a year or
two out in terms of FAA's forecast and with the revisions, you
know, it is probably as good as can be expected under the
circumstances.
Mr. Ribble. Well, Mr. De Leon, let me give you some data.
In 2001, FAA forecasted U.S. airlines would carry 1 billion
passengers by 2012. In 2008 the agency pushed that milestone to
2016, in 2010, it was postponed to 2023, and finally this year
it was postponed to 2027.
What methods do you use in your forecast and is there a
problem in the methodology? If the forecasts are that far off,
are they still a useful measurement for the Congress to use?
Mr. De Leon. I am sorry, I will have to get back to you on
the methods of forecasting. That is not in my area, but I will
get back to you on the methods used----
Mr. Ribble. Thank you. I would appreciate that, thank you.
With that then, not really knowing how you are going about
that, it is not particularly helpful at this time, but I can
tell you that we can't make decisions when the data is so far
off.
Actual passengers in 2012, by the way, were 730 million so
the FAA missed that projection by roughly one-third. It creates
a real problem for us and so the data that is being provided is
really critical for us to make the right decisions.
So, Mr. Chairman I yield back.
Mr. LoBiondo. OK, any further questions for this panel?
Dr. Dillingham, Mr. De Leon, we thank you very much and the
first panel is excused.
We will now take just like a 30-second recess for the
second panel to get in place.
Dr. Dillingham. Thank you, Mr. Chairman.
[Recess.]
Mr. LoBiondo. Everybody ready? OK, we will reconvene.
I would like to welcome our second panel. The second panel
includes Mr. Mark Baker, president and CEO of Aircraft Owners
and Pilots Association; Mr. Todd Hauptli, president and CEO of
American Association of Airport Executives; Ms. Sharon
Pinkerton, senior vice president of legislative and regulatory
policy for Airlines for America; AND Mr. Mark Reis, chairman of
the board of directors of Airports Council International--North
America, and managing director for Seattle-Tacoma International
Airport.
So we welcome you, and Mr. Baker, we are waiting for your
statement.
TESTIMONY OF MARK BAKER, PRESIDENT AND CEO, AIRCRAFT OWNERS AND
PILOTS ASSOCIATION; TODD HAUPTLI, PRESIDENT AND CEO, AMERICAN
ASSOCIATION OF AIRPORT EXECUTIVES; SHARON PINKERTON, SENIOR
VICE PRESIDENT, LEGISLATIVE AND REGULATORY POLICY, AIRLINES FOR
AMERICA; AND MARK REIS, CHAIR, AIRPORTS COUNCIL INTERNATIONAL--
NORTH AMERICA, AND MANAGING DIRECTOR, SEATTLE-TACOMA
INTERNATIONAL AIRPORT
Mr. Baker. Thank you leadership and the Members. I
represent the Aircraft Owners and Pilots Association, and as an
experienced aviator who has had the opportunity to land in over
50 States in this beautiful country, I also represent a
business background in making decisions about things that go on
in and around aviation communities.
AOPA has over 350,000 members nationwide, is a nonprofit,
individual membership organization. AOPA's mission is to
effectively represent the interests of its members as aircraft
owners and pilots concerning the economy, safety, utility and
the popularity of flight of general aviation aircraft. As
pilots flying in the United States, we are fortunate to have
access to the safest and most efficient air transportation
system in the world. The aviation network of over 5,200 public-
use airports complemented by more than 13,000 privately owned
landing facilities is a unique national resource. General
aviation is a significant economic engine that contributes $150
billion to the annual gross domestic product and approximately
1.2 million jobs in communities nationwide. Each year 170
million passengers fly using personal aviation, the equivalent
of one of the Nation's largest airlines, almost 20 percent of
all airborne passengers.
In addition to directly creating jobs, the general aviation
airports attract businesses to the communities where they are
located, delivering economic benefits far outside the airport
boundaries. They may serve as a reliever airport in congested
metropolitan areas offering aircraft, including airliners, a
safe place to land in the event of an emergency.
America's airports are the true backbone of aviation, and
without a robust network, aviation cannot continue to grow. It
is important to note that all of the new technologies and
capabilities under discussion with NextGen will be
underutilized unless pilots have a place to take off and land.
America's GA airports foster air transportation and link many
communities to our aviation system in many ways that cannot be
achieved by the reliance on a few hundred primary airports. Of
the 3,300 airports included in FAA's National Plan of
Integrated Airport Systems--NPIAS--only 499 support scheduled,
commercial air service.
For many other aviation needs, Americans rely on the other
2,563 public-use landing sites to link America's vast rural
expanses to the larger world.
GA airports support a wide range of other vital activities
including agriculture, law enforcement, emergency medical
transportation, firefighting, pipeline patrol, environmental
monitoring, package delivery, wildlife management, and tourism.
The broad range of humanitarian and charitable activities
also rely on general aviation airports. Small general aviation
airports are frequently used to deliver humanitarian aid
following natural disasters such as hurricanes or earthquakes.
In addition, general aviation aircraft operating from small
airports are routinely used by charities to connect wounded
veterans to their families, bring patients specialized medical
care, and perform dozens of other humanitarian and charitable
services.
Airports are critical to the aviation transportation
system, similar to the on-and-off ramps of our Federal highway
system. Congress has wisely recognized that a Federal aviation
network is only possible by using tax revenues from various
parts of the system for financial support. To illustrate how
similar this is to other modes, if Federal highways had been
built in only those States that have contributed since 1956,
the interstate and U.S. highway system would only exist in 15
States. Drivers in those States have in essence ``subsidized''
Federal-aid highway construction in the other 35 States and the
District of Columbia.
AOPA strongly supports the financing approach of using the
time-tested systems of passenger transportation and aviation
fuel taxes in combination with the general fund tax revenues to
support the FAA and the aviation system.
Funding for the Airport Improvement Program--AIP--comes
from the FAA's Airport and Airway Trust Fund, which receives
revenues from a series of excise taxes paid by users of the
National Airspace System, including taxes on aviation fuels.
The trust fund was designed to finance investments in the
airport and airway system, and to the extent funds were
available, cover the operating costs of the airway systems as
well.
However, no general fund revenues are appropriated to
support AIP. The Airport Improvement Program provides grants to
public agencies, and in some cases, to private airport owners
for the planning and development of public-use airports that
are included in the NPIAS, which is developed by the FAA and
submitted to Congress every 2 years. The AIP grants for
planning, development, or noise compatibility projects may go
to these federally identified public use airports including
heliports and seaplane bases. For small primary, reliever, and
general aviation airports, the grant covers 90 percent of
eligible costs.
Projects eligible for AIP grants include improvements that
enhance the airport safety, capacity, and security, or meet
environmental needs.
Without the assistance of Federal funding, many small
airports could not perform the necessary maintenance projects
to ensure runway safety, provide airport lighting, or offer
essential services like hangars and tie-downs.
The FAA's most recent NPIAS report to Congress indicates
that America's airport infrastructure needs are significant.
Over the 5 years from 2013 to 2017, FAA estimates that airports
will require $42.5 billion to meet all AIP-eligible
infrastructure demands; significantly more than the authorized
level in the AIP funding for that period. Despite the growing
need, AIP funding remained at annual levels of roughly $3.5
billion since fiscal year 2005, until it took a slight drop to
$3.35 billion. Based on these numbers, it is clear that the
need and the annual funding levels are out of balance, and all
the while projects continue to manifest.
In conclusion, general aviation airports play a vital role
in the life of this Nation. The need for infrastructure,
security, environmental improvements, and safety are important
and continues to grow. On behalf of more than 350,000 members
of AOPA, we appreciate your leadership in addressing the
funding concerns of general aviation so our national
transportation system can continue to serve the economic,
social, and humanitarian needs of this Nation. Thanks for the
opportunity to contribute.
Mr. LoBiondo. Thank you.
Mr. Hauptli.
Mr. Hauptli. Mr. Chairman, thank you for the opportunity to
be here today. It is always good to be back before the
committee.
I have two fundamental points I would like to make this
morning. One: Airports need more resources. As frequent
travellers, you all know that the airports are teaming with
people in the terminals and on the tarmacs. There are
facilities that need upgrade and upkeep. Many of these
facilities designed and constructed at the dawn of the jet age.
Do any of us in this room really believe there will be less
traffic in the future than there is today in an already
constrained environment? I think not. Near-term Band-Aid
approaches aren't going to serve the long-term needs of the
passengers, our communities, or future generations, and we have
neglected infrastructure investments across all modes of
transportation for too long. Good enough for now isn't good
enough. My members have an obligation to plan for tomorrow.
Point two: The passenger facility charge is the best
mechanism to deliver this additional resource in today's
current budget environment. In the absence of increased Federal
funding, the best way to close down this airport infrastructure
development gap is to increase the passenger facility charge,
to give the airports the self-help they need to get the job
done. The Federal cap on local PFCs was last increased in the
year 2000, 14 years ago and to the Members on this side of the
dais, I would say in light of tomorrow's vote, I would observe
that in light of tomorrow's vote for the majority leader and
the majority whip positions, the last time Congress increased
the passenger facility charge it was under the watchful eye of
Dick Armey as majority leader leader and Tom DeLay as majority
leader whip, two conservative Republican Members who understood
the difference between a tax and a user fee, like all of this
committee does intuitively, and Mr. Farenthold mentioned that
earlier this morning.
In the intervening 14 years, the purchasing power of the
PFC has diminished dramatically from $4.50, to less than $2.50.
We are asking this committee to increase the passenger facility
charge to $8.50 with periodic indexing for inflation. That will
simply restore the purchasing power of the PFC that has been
lost over the years, and remember, PFCs are locally imposed,
locally justified, locally collected, and locally spent in
their communities to meet the pressing needs for future growth.
Now, we recognize that an increase in the passenger
facility charge is opposed by our colleagues in the airlines,
who contend that infrastructure needs are being met and that an
extra $4 in fees would significantly decrease demand for air
travel. Well, just this morning in the newspaper I saw that in
the last month alone, airline fares increased 6 percent, the
single largest increase in the past 15 years and if you looked
at May 2013 to May 2014, fares have increased by 5 percent.
Now, under the airline logic, where they say that for every
dollar, or for every 1-percent increase in fares there is a
greater than 1-percent decrease in demand for air travel, if
that were to be true, clearly we should see a greater than 5-
percent decrease in air traffic as a result of the past year.
However, traffic hasn't gone down. Demand hasn't gone down. It
has gone up and so it is time to lay to rest this elasticity of
demand argument as it relates to the passenger facility charge
and we haven't even mentioned of course the issue of bag fees
and a $25 or $30 bag fee and its impact on travel.
Mr. Chairman, there is clearly a difference of opinion
between airports and our airline partners on the status of
airport financing in the path forward. I believe that
difference can best be explained by the fact that the airlines
view the world in a 90-day increment. What is the next
financial statement for their shareholder report.
Airports have an obligation to look to the future. It takes
2 years and 3 years and 5 years and sometimes 10 years and
longer to build major infrastructure projects in this country.
An airport has to look out for the long-term interest of its
community. The tension between these two positions, between the
airports and the airlines is understandable, but we need you as
policymakers to recognize the difference between these two
viewpoints, and make decisions that are in the long-term, best
interest of the country.
Again, two simple points: One, we need more resources. And
two, the passenger facility charge is the best mechanism to
deliver those additional resources. Thank you.
Mr. LoBiondo. Thank you.
Ms. Pinkerton.
Ms. Pinkerton. Thank you, Mr. Chairman, and Mr. Ranking
Member, I appreciate the opportunity to be here today to
discuss the state of airport financing.
From A4A members' perspective there are three overarching
considerations in evaluating airport infrastructure and
financing needs. First, airlines need infrastructure. We more
than any other stakeholder must have sufficient resources to be
able to meet the needs of our customers efficiently and
effectively. We work in close collaboration with airports large
and small in order to make sure that necessary capital projects
are funded.
Second, U.S. airports enjoy consistent and reliable access
to ample and an enviable variety of financial resources to pay
for airport projects. There is no current or foreseeable crisis
in airport funding, in sharp contrast to the issues you are
dealing with the Highway Trust Fund today.
And third, funding policy should be driven by airport
development needs. This demand focused approach has repeatedly
demonstrated projects can be paid for within existing financing
means. There is simply no empirical justification to raise
airport-related taxes, especially when revenue from other
resources is so abundant.
The U.S. airline industry in collaboration with our airport
partners has been supporting investing in billions of dollars
of airport infrastructure. These investments have accelerated
in the past few years and are made possible by our improving
finances in places such as JFK, Miami, San Diego, Houston, and
other areas.
A financially healthily airline industry also translates
into an especially healthy airport trust fund which has enjoyed
record-high revenues from commercial sources. We had a record-
high $12.7 billion in revenue in 2013 and the highest
uncommitted balance in over 13 years. That is $5 billion at the
end of 2013 and it is projected to be $6 billion in 2014.
Airline airport collaboration has worked well. U.S.
airlines enthusiastically support necessary airport improvement
projects. In fact, we are in the midst of massive
infrastructure investments across the country as seen in some
of the slides above. This has occurred in close collaboration
with airports and has yielded results we can all be proud of.
Since 2008 the largest 29 airports alone have started or
completed $52 billion worth of capital projects. That is new
runways, new international passenger facilities, and new or
substantially renovated terminals at both large and small
airports.
Let's talk about how airports are doing. In 2013 airports
collected nearly $24 billion in revenues. A record-high level,
part of that is the PFC, $2.8 billion. Part of that is the AIP
program, $3.35 billion. That is especially helpful for smaller
GA airports, and then U.S. airports actually have $10 billion
on hand in cash in investments. All of these numbers point to a
financially strong airport community. Standard & Poor's gives
every single airport it evaluates investment grade credit
ratings. Airports and airlines have been able to take advantage
of those credit ratings to secure affordable funding for
demand-driven financially justified projects that increase
capacity and efficiency.
Let's talk about air travel for a moment. The current
number of operations today is still lower than what we had in
2007 and the FAA projects that we won't be back to those 2007
level of operations until 2033. So while airport projects will
continue to be necessary, the airport system in the United
States does not have to build to accommodate rapid or
unmanageable growth. Improvement projects can be paid for with
existing revenue streams with no need to pursue an increase in
the PFC.
Bonds remain the primary source of funding for airport
capital projects. Historically, and even today where 50 percent
of all projects are funded through bond funding. Airports enjoy
access to bond financing at very good rates because of their
good investment credit ratings. No U.S. airport to our
knowledge, has been unable to secure bond funding for an
airport improvement project.
Another reason not to increase the PFC is that U.S.
airlines and their customers already pay over $19 billion in
taxes and fees, soon to be $20 billion once the TSA fee goes
into effect next month. We are already taxed at a rate higher
than alcohol and cigarettes, products that are taxed to
discourage their use. We have heard every dollar in the PFC
means $700 million cost to the passenger. Raising the PFC cap
hurts demand, hurts traveling tourism, and negatively impacts
small community service. While it is intuitive that raising the
cost of something results in less of it, the GAO has also found
in 2012 that increasing ticket taxes in the price by 1 percent
results in 1 percent--greater than 1 percent fewer tickets
being sold.
In conclusion, today we have a win/win formula, that
provides for needed infrastructure, funding, and consists of
close collaboration with airports, disciplined demand-driven
development of infrastructure projects, continued reliance on
tried and true funding sources, and avoiding punishing the
traveling public with additional taxes. We need to stick with
that formula.
Thank you.
Mr. Ribble [presiding]. Thank you.
And Mr. Reis, you can go ahead with your testimony.
Mr. Reis. Thank you, Mr. Chairman and Ranking Member Larsen
and members of the subcommittee. Thank you for inviting me to
participate in today's hearing.
The airport community appreciates the opportunity to
explain the state of airports and our challenging capital
needs. The significance that both ACI-NA and AAAE are
representing here today are two organizations are unified in
our efforts on the upcoming FAA reauthorization particularly
when it comes to airport financing. So I am very pleased to
have the opportunity to speak today with our partner Todd
Hauptli.
I am the managing director of the Seattle-Tacoma
International Airport, and I am here today in my capacity as
chairman of Airports Council International--North America. In
addition to my testimony today please accept my written
statement which offers a fuller overview of the complexities of
airport finance, the sources and uses of airport revenues, and
the financial challenges airports face today.
As has been established, airports are hubs for economic
growth within local communities across our Nation, U.S.
airports, though, lack the ability to raise the revenues
necessary to meet our industry's current and future challenges.
The Federal component of our funding model which relies most
heavily on the underfunded Airport Improvement Program, and the
undervalued passenger facility charge user fee is antiquated
complicated, tightly regulated, and not sustainable as we plan
for the future.
In the United States, the average airport facility is more
than 40 years old, it is growing increasingly difficult for us
to balance maintenance costs and expansion plans with limited
financing options. We have identified more than $71 billion in
capital improvements for security, safety, rehabilitation and
facilitation needs that are essential over the next 5 years.
Examples include a $95 million runway safety area at Oakland,
and a $100 million runway reconstruction project at Sea-Tac.
The limited AIP and PFC funding capacity available is only
a fraction of our overall need. Especially with so much of
future airport revenues including the PFC user fee already
pledged to existing debt service. The challenge for Congress,
the airports and our airline partners will be to find a so luck
that addresses the need in a practical and a sustainable way.
We believe that restoring the purchasing power of the PFC user
fee to $8.50, and indexing it to inflation is the best solution
but it is not the only possible solution to this challenge.
Congress could increase AIP funding to go meet the urgent
infrastructure needs of America's airports, but that would
require at least a doubling of the annual AIP appropriation. So
while increasing AIP is certainly an option in theory, we
understand the congressional focus on decreasing Federal
spending and its lack of interest in increasing Federal
aviation taxes makes this option unrealistic.
The U.S. aviation industry faces a global challenge. U.S.
airports need to stay competitive. Airports in Canada, in
partnership with their airline customers have implemented
passenger user charges known as the airport improvement fees
otherwise called AIF, in order to fund needed airport
construction and improvements. But unlike the PFC, these fees
are not capped by the Canadian Federal Government. The AIF at
some Canadian airports is as high as $30 per passenger. While
this is another alternative, we believe the PFC can be updated
for a fraction of the Canadian AIF by restoring its purchasing
power and periodically adjusting it for inflation.
Which brings us back to what I indicated previously to the
best alternative. By restoring the spending power of the PFC
user fee, this Congress can craft a solution that will allow us
to meet the critical infrastructure of Americans airports and
do it cost effectively for airports, airlines, and our
passengers. Updating the PFC user fee also increases local
control and puts decisions into the hands of local authorities
who are best able to determine the level of user fee which is
appropriate for their community. By raising the cap of the PFC,
this Congress can ensure that our airports continue to be
engines of economic growth in their respective communities and
across the country.
This subcommittee will have a significant impact next year
on the future of airport financing. The airport community
remains committed to working alongside you and other aviation
shareholders to develop a sustainable means to satisfy the
demands of 21st-century traveling public.
I look forward to your questions.
Mr. Ribble. Well, thank you all for your testimony.
By the way, my name is Reid Ribble. I represent Wisconsin's
Eighth Congressional District. So it has Appleton and Green
Bay, Wisconsin.
Thanks for your testimony.
Mr. Baker, I am going to start with you if I could. Could
you give us an idea of the cost of general aviation to the
pilots? What types of fees are they paying, and what is the
work that goes into being a general aviation pilot and the
costs related to that?
Mr. Baker. First, the cost of acquiring a pilot's license
would be where most people start. We graduated about 22,000
pilots last year. Some will head off into commercial aviation.
Some are just training for recreation or business aviation. We
think about the basic license of a private pilot today running
anywhere from $7,000 to $10,000 just to get your first primary
license. If you are advancing all the way up into a commercial
pilot's license, you can expect to pay between $80,000 and
$100,000 to gain that education and experience today. So it is
very expensive.
And the fees associated with flying today are fuel taxes,
which we think are a very efficient way, by the way, to pay
into the system. The more you fly, the more you pay, and this
is the best model for general aviation.
But there are other fees and taxes that are starting to
creep into the system. In many cases there are landing fees,
service fees, and a host of other costs associated with using a
facility at a general aviation airport.
In many cases, we have a choice to avoid those additional
expenses and go to smaller airports which don't charge those
fees, and I think you are starting to see a population of
pilots that move in that direction.
Finally other costs for services, such as getting your
weather and getting your mapping, are required purchases for
most pilots. Whether one uses either a service online, or buys
physical maps and charts, currently it can be $1,000 or more a
year.
Mr. Ribble. Thank you very much.
Mr. Hauptli----
Mr. Hauptli. Yes, sir.
Mr. Ribble. Look at the PFC cap, you advocate raising the
cap to $8.50, and then indexing it. How is that cap actually
assessed? Let's say someone like me flies from Green Bay,
Wisconsin, to Chicago, and then from Chicago to Houston.
You have got a takeoff in Green Bay, a landing in Chicago,
a takeoff in Chicago, landing in Houston; and then return,
takeoff in Houston, landing in Chicago, takeoff in Chicago,
landing in Green Bay. How many times is that fee assessed?
Mr. Hauptli. Not more than twice in each direction.
Mr. Ribble. OK, so not more than twice in each direction--
--
Mr. Hauptli. That is correct.
Mr. Ribble. Or twice in each direction?
Mr. Hauptli. Yeah, it would depending on whether or not the
airport had a PFC imposed at that airport.
Mr. Ribble. OK, in this case, O'Hare and Houston
International, and Austin Straubel in Green Bay.
Mr. Hauptli. In the case that you cited, now that Houston,
in fact, has a PFC in place which it did not for many years,
there would be a PFC imposed in Green Bay for taking off there,
and then again in Chicago----
Mr. Ribble. OK.
Mr. Hauptli [continuing]. On the way. And then on the way
back it would be in Houston and then again in Chicago.
Mr. Ribble. In Chicago. All right, thank you. Do you have
an opinion, or would you agree that there is elasticity of
price in the marketplace? Do you make decisions of purchasing
based on price?
Mr. Hauptli. Yes, in a conceptual way I agree there is an
elasticity argument to be made, conceptually.
Mr. Ribble. OK.
Mr. Hauptli. And if I may----
Mr. Ribble. Yeah, Please do.
Mr. Hauptli [continuing]. And I am glad that the chairman
is back because he raised this issue earlier this morning.
Mr. Ribble. We are all glad that the chairman is back.
Mr. Hauptli. He asked about elasticity of demand and the
airlines contend that for every 1-percent increase in fare
prices, there is a greater than 1-percent decrease in demand
for air travel. However, in the past year from May of 2013 to
May of 2014, airline fares increased 5 percent.
Now, you would expect based on this elasticity of demand
argument that they put forward, that there would be at least a
5-percent reduction in demand for air travel. However, what we
have seen over the past year is an increase, not a decrease,
but an increase in air travel, so that elasticity of demand
argument doesn't work very well, at least in that example.
Mr. Ribble. Ms. Pinkerton, how do you answer that?
Ms. Pinkerton. I'm happy to answer that. Thank you.
First of all, it is not the airlines that argue about price
elasticity. It is every economist that studied the topic that
acknowledges that there is, definitely, when you increase the
cost of something, people buy less of it. So it is interesting
what Todd is discussing about airfares going up.
First of all, it is important to remember, since 2000, in
real terms, airfares have actually dropped 10 percent. That is
when adjusted for inflation. So in the big picture airfares are
affordable and they are a real value. Yes, airfares have gone
up in 2013, 5 percent. That is a good thing. It is a good thing
because when carriers are able to recognize revenues from a
route, what do they do with that revenue? They plow it back
into the route. So they may increase service, which I know all
of you are interested in increasing service to your community.
They may upgauge the plane, et cetera.
In terms of the elasticity of demand, our fares have gone
up a bit. The demand has probably not gone up as much as it
would have. In other words, there is still an impact, yes.
There may be increasing demand, but it is not going up as much
as it would have, had there not been increased costs.
The important thing to remember here though is, the
difference between an increase in an airfare, and an increase
in a PFC. So the PFC is a mandatory and systemwide increase in
the cost. The airfare, on the other hand, is a flexible tool
when the economy softens, or fuel goes over the roof, airfares
can be pulled back down, and they often are pulled back down.
But when you increase the PFC, I can guarantee you it will
never go back down.
Mr. Ribble. I am going to, one last question for you, Ms.
Pinkerton, and then I'm going to turn it over to the ranking
member. But the majority of PFC applications by airports are
submitted to the FAA without airline objections. Can you
explain why airlines are generally supportive of specific
projects, but are opposed to raising the cap?
Ms. Pinkerton. Sure I can. I think what I have tried to lay
out in my testimony, is that what we see is airports have a
toolbox of tools for funding airport infrastructure. And there
is an abundance of resources right now. By the end of 2014,
there is going to be $6 billion of uncommitted trust fund
balance. So PFCs were created as one tool in the toolbox and as
I said, and I showed the $52 billion with the projects that we
have supported over the past 5 years, we do support
infrastructure projects. We need those projects, and we work
collaboratively with airport partners on PFC projects.
So while we do work collaboratively with them, what we are
seeing is that going forward because of the resource situation
that we are in right now with a $6 billion uncommitted balance,
with all-time record revenues from commercial carriers and
their passengers, all-time record revenues for nonairline
revenues, there is really no point in increasing the PFC. You
would simply be punishing the passenger who is already paying
$19 billion, soon to be $20 billion while there is an abundance
of resources available to fund needed projects.
Mr. Ribble. All right, thank you.
With that I yield to the ranking member, Mr. Larsen.
Mr. Larsen. Mr. Reis, thanks for making the trip. I
understand you have to leave about 1 o'clock.
Mr. Reis. Well, 1:30 is probably good.
Mr. Larsen. Oh, OK, great. Maybe it is me that has to leave
at is 1 o'clock. I forget.
Can you help us understand a little bit about this question
of bonding capacity, how it is used, and clearly, it has to be
financed. It is not just you have got bonds and you are given
the free money and you never have to pay anything back. You
have to have a source of revenue to pay that back, presumably
PFCs are included in that package of sources of revenue.
But if you are limited at $4.50, or if an airport like
McCarran as you rolled out in your written testimony, and said
they pretty much maxed out their ability to use PFCs to finance
anything more. They have to go to other sources. What other
sources are there and kind of where do those burdens fall?
Mr. Reis. Thank you. Just like most everything else, life
is complicated and there is not a single answer, and of course,
what is true and possible at Sea-Tac Airport, which is one of
the fastest growing airports in the country where we have
airlines very interested in coming to Seattle and increasing
their activity at Seattle, is not going to be true at a smaller
airport which has lost air service in another part of the
country and does not have access to necessarily all of the same
tools.
So I will talk about it from Sea-Tac's point of view and
then elaborate a little bit about other airports. So you are
absolutely right, Mr. Larsen, that the acquisition of funds
from a bond issue is just a first step in a way to fund a
construction program. It doesn't have anything to do with the
ability to pay it back. So for us to borrow the money, we have
to convince the bankers and the rating agencies that we have a
long-term stable source of cash to pay back that money.
It is going to come from essentially one of three places.
We can put the debt service for the bond repayment into the
airline rate base, which of course will drive up airline costs
at the airport. We can utilize nonairline net income to the
degree we are able to generate that, and we can use PFCs to pay
debt service and we, of course, could also use PFCs to pay for
a project on a pay-as-you-go basis, but the most efficient way
to use PFCs is to use it to pay debt service.
Mr. Larsen. So nonairline net income would be parking fees,
concession fees----
Mr. Reis. Exactly.
Mr. Larsen [continuing]. The $10 that I pay for a coffee
there versus the $5 I pay outside of the airport.
Mr. Reis. I think we have had this conversation before. At
Sea-Tac Airport, unlike some airports, we do have a street
pricing point of view. So you are going to pay the same price
at Sea-Tac inside the airport.
But the net income after you pay the operating expenses for
any of those things like concessions and parking, et cetera, is
one of sources, and it presumably is included in the number
that Ms. Pinkerton noted, the $24 billion. Well at Sea-Tac, for
example, we have 36 competitors for our parking operation. We
are making more than 10 percent less in parking now than we did
prior to the last recession as a result of the competition.
So all of these numbers don't just go up, and of course,
the airlines don't want us to put increased debt service in
their rate base because that causes their costs to up.
Mr. Larsen. And just to clarify, that the rate base--so you
have PFCs, which you hear a lot about, but you have flexibility
to negotiate with airlines on other fees, landing fees, and
what else?
Mr. Reis. Exactly. Landing fees, terminal rents of various
sorts.
And each airport has a different relationship legally,
contractually, from an agreement point of view, with airlines.
So the ability of an airline or airlines to approve or to veto
an investment is different, depending on the airport.
So coming back to the PFCs, we have a $2\1/2\ billion
capital program scheduled for the next 10 years. We anticipate
having to borrow well above $1.5 billion of that $2.5 billion.
At the moment our PFCs are almost completely maxed out, meaning
fully allocated to existing debt service.
So when Ms. Pinkerton says that we have lots--``abundant,''
I think, is the word--of funding sources, I would--even at an
airport that is growing, that is in a very vibrant city where a
lot of airlines want to fly, I would dispute that we have
abundant sources.
We are seeing slow growth in nonairline revenue. We are
maxed out in terms of dedication of our PFCs to existing debt
service, and we will see the airline fees have to go up
dramatically to pay for some of this capital program.
Mr. Larsen. I am going to have to go into detail at a
different time, not in this hearing.
But a recent announcement about the international arrival
facility, Sea-Tac and, presumably, Delta are partnering on
financing that?
Mr. Reis. Well, Sea-Tac will be financing it completely.
Delta is very supportive of it because it is important to their
growth as an international gateway in Seattle. But that is one
of the major projects of this $2\1/2\ billion program.
What is also quite interesting is neither Delta nor Alaska
Airlines are particularly excited about growing the PFC. That
said, we have about a $450 million terminal or concourse
redevelopment project ahead of us that will be fully occupied
by Alaska Airlines.
We have an international arrivals facility, about a $350
million project, that Delta will certainly be just one of many
airlines using it, but it will have more flights there than any
of the other airlines.
They are arguing over how we allocate the limited PFCs that
we have available to the payment of those two projects. So they
don't like the PFC, in general, but they like it when it will
allow them to decrease their terminal rent.
Because that is, in fact, the real benefit to the airlines,
is we do not include the cost of debt service in a rate base if
it is paid for by the PFC. If it is not paid for by the PFC, we
then charge the airlines for that debt service.
Mr. Larsen. Another set of questions for Ms. Pinkerton.
And I am not asking this to be snarky. It might sound like
it--because I am never snarky--because it has to do with bag
fees--baggage fees, which is a huge source of revenue--a
relative source of revenue for airlines, generally----
Ms. Pinkerton. Six percent.
Mr. Larsen [continuing]. And this issue of elasticity.
So is there a price elasticity to bag fees? Have the
airlines found that?
Ms. Pinkerton. So I certainly understand the question on
bag fees, but let me just start with this.
Mr. Larsen. Start with the answer to my question.
Ms. Pinkerton. OK. Bag fees--when we fly, we have an option
about checking bags.
Mr. Larsen. Right.
Ms. Pinkerton. You don't have an option about whether or
not to use an airport.
Mr. Larsen. Right.
Ms. Pinkerton. So the unbundling----
Mr. Larsen. I am getting to the question about dedicating
that revenue and where that revenue goes.
Ms. Pinkerton. Right.
Mr. Larsen. But have you found fewer bags, as a result of
bag fees, going on airplanes are being checked? I have seen the
overhead bins. If there is price----
Ms. Pinkerton. There was a change initially, but now it has
actually evened out.
Mr. Larsen. Leveled out?
Ms. Pinkerton. Yes.
Mr. Larsen. So the next question I have is: With that
revenue or any other revenue from airlines, does all that go
into airline operations, airplane purchases, or is there--given
this question about P3 financing and so on, do airlines look at
that as a source of revenue to help then on the development
side of infrastructure of airports?
Ms. Pinkerton. It is a great question.
Mr. Larsen. See, I told you I was getting to a nice place.
Ms. Pinkerton. Yes.
And so what you have seen since 2010, since airlines have
started to make small margins, you have seen us plowing that
money back into planes.
So we have got 255 planes that are going to be delivered in
2014. That is good for customers. Half of those are Boeing
planes.
Most importantly, we are starting to hire people. During
the last decade, when we lost $60 billion, we laid off a third
of our employees. That was traumatic for all of us. But since
2010, we have started to build back up our employee base.
In the last nine quarters, we have consecutively every
quarter added seats. So that is exactly the kind of thing we
are doing. We are investing back in CAPEX, is what we call it,
$12 billion a year in capital expenditures.
So that is for planes, for WiFi, in-flight entertainment,
again, our employees, training, baggage systems. We have
invested, Delta, Alaska. We have invested in baggage systems
and, as a result, we have a much lower mishandled bag rate
today than we ever did before.
Mr. Larsen. You see what I am getting at in terms of trying
to figure out what are the sources or ideas out there regarding
investment----
Ms. Pinkerton. Absolutely. And I think that the $52 billion
that we have shown that we have invested over the last 5 years
demonstrates that, when we are able to make small margins, we
reinvest it back in airport infrastructure.
Mr. Ribble [presiding]. Mr. Meehan.
Mr. Meehan. Thank you, Mr. Chairman.
Mr. Reis, I am particularly interested in your experiences
in Washington because, obviously, in busy airports, we are
looking for ways to support the growth, but, also, to make sure
that the resources that are coming in are going to where they
are most needed.
Explain to me the percentages, so to speak, when you talk
about these other fees that are out there, parking, terminal
rents, landing fees, concessions, rental cars. I mean, there is
a whole series of other kinds of things.
And I always get concerned--maybe it is the cynic in me--
when I see these sort of big municipal airports. There is a lot
of fat in there. There is a lot of jobs and other kinds of
things, not performing jobs, but people that are on--how do you
take parking fees and assure that it is, you know, an efficient
price?
I pay a lot to park. You know, people are paying $25, $30 a
day to park. Concessions. My colleague from Massachusetts was
concerned about, you know, a lot of money going in to build
stores that you don't see much traffic in. How are they
supported?
So where are the decisions made to assure that the dollars
that are being raised are actually being put back in where it
needs to be, which is a significant cost to airline, you know,
infrastructure improvement?
Mr. Reis. Well, thank you for the question. It is a very
appropriate one.
Let me first reinforce perhaps a little bit more clearly
than what was stated in the previous panel. We, as airports,
are not able to use any AIP or PFC money to build any
nonairline revenue-producing facilities. So no AIP or PFC money
is ever used for facilities at a terminal in which a retail or
a dining facility will go. It is just prohibited.
Mr. Meehan. Well, how is that funded, then?
Mr. Reis. It is funded through nonairline revenue.
Mr. Meehan. What is nonairline revenue? And how do we know
that the moneys aren't getting diverted into that kind of a
thing when we need that money to go into the ability to put
down more concrete?
Mr. Reis. You are absolutely right.
Congress has been very clear on the subject. The FAA is
quite clear on the subject.
We go through an annual audit, not just a financial audit,
but a complex comprehensive audit that is done for any airport
that collects a PFC or an AIP.
Those are the kinds of questions that are asked to make
sure that no money is diverted from an aeronautical use to a
nonaeronautical use.
So our garage, fully funded from different nonaeronautical
purposes, the debt service on that has to be paid back from
nonaeronautical services.
When we build a new facility--I mentioned the
reconstruction of this concourse--or of our north satellite
concourse--we will have to demonstrate to the bond community
and to the FAA what percentage of that reinvestment will be for
aeronautical purposes, and we have to be very careful to not
use any money that is associated with the airlines paying us
back by contract or Federal money or PFC or the----
Mr. Meehan. So the bottom line is I can look at an audit to
determine whether there is efficiency with regard to those
things?
Mr. Reis. Absolutely.
Mr. Meehan. Thank you.
Ms. Pinkerton, I also serve on Homeland Security. And I
know you are going to be getting a pretty hefty fee coming up,
almost a billion dollars in new increases because of the pay
for TSA. I think it has gone from 250 to 650.
If you include that, you know, the security tax and other
Federal taxes and fees that are currently paid, how much of the
fees go to Uncle Sam as opposed to the airport?
Ms. Pinkerton. Well, there is $3 billion in PFCs that go to
the airport and then, of course, the $3.35 billion in AIP that
goes to the airports as well. So that is $6 billion out of the
$20 billion.
With the TSA fee increase, passengers and carriers will be
paying $20 billion in taxes--special aviation taxes every year.
And so $14 billion goes to Uncle Sam and $6 billion goes to----
Mr. Meehan. Is this going to have an increase? Do you think
it is going to have an impact on flight utilization demand
because of these increases?
Ms. Pinkerton. Yeah. I mean, as we discussed before, GAO,
every other economist that has studied the issue acknowledges
that, when you increase the price of something, you get less of
it. There is no doubt about that.
Mr. Meehan. My time has expired.
Mr. Chairman, thank you. I yield back.
Mr. Ribble. Mr. DeFazio.
Mr. DeFazio. Thank you, Mr. Chairman.
Mr. Chairman, I found the discussion of elasticity
enlightening, having been an economics major in college until
one day I woke up and realized it wasn't a science.
And, you know, I would say that the discussion of
elasticity sort of leads us there. I just have to follow up a
little bit. I am sorry.
But, Ms. Pinkerton, you mentioned average fares are down.
Does that calculation include--I think the time you quoted was
when 88 percent of the passenger costs were fares. Now it is 71
percent are fares. Does that average include the baggage fees?
Ms. Pinkerton. Yes, it does. Because if I hadn't included
them, fares would be down 15 percent. Including them, they are
down 10 percent.
Mr. DeFazio. Yes. But, of course, remember, it is an
average fare and it is not evenly distributed. Some regions
and/or airports have seen increases. Others where there is more
competition have seen decreases.
Ms. Pinkerton. True.
Mr. DeFazio. Now, I am trying--you know, again, as the
author of the PFC, I am not for indiscriminate raising of fees.
And as you know, since I am sponsoring the transparency
bill with the chairman, I went on that because I was upset that
one of the last budget deals just threw an additional nominal
cost that is supposedly going to security onto passengers.
So I believe in having that full disclosure on both sides
of the ledger, both with the airlines and with the Government
fees.
But I think here that--on PFCs, someone raised the point
that, for the most part, airlines have not objected to the
specific imposition of PFCs for many projects. Is that is
correct----
Ms. Pinkerton. Yes.
Mr. DeFazio [continuing]. For the most part?
So, essentially, there are projects that are good that
utilize PFCs. We had Dr. Dillingham say they haven't been
abused, which was why the first iteration went away and why we
rebirthed them with a whole different set of restrictions that
have been, I think, pretty good.
But hearing from Mr. Reis, wouldn't you agree that, at some
point, an airport, which has used PFCs with support of the
airlines to do meritorious things that improve the customer
experience in the airline operations, may have bumped against
the ceiling, may not have other options, and maybe you need
some flexibility to go a little higher in those cases with the
PFC?
Ms. Pinkerton. Well, I don't think you were here for my
testimony. But we indeed support airport projects. Sea-Tac, we
were very supportive of the international runway, the
international facility.
What we are arguing, Congressman DeFazio, is, yes, we have
supported these PFC projects, but there is abundant funding
available, whether it is AIP or bonding, in particular----
Mr. DeFazio. I read your testimony and I caught some of
that, if I could just interrupt. But he also pointed out the
limitations of that, and we don't----
Ms. Pinkerton. But he is moving forward with the projects.
Mr. DeFazio [continuing]. Live in the world of abundant
theory, which I know is a theory out there: If we all think
positive thoughts, it will happen. But----
Ms. Pinkerton. But he is moving forward with his projects.
Mr. DeFazio. Right.
Ms. Pinkerton. They are moving forward. Nothing has been--
--
Mr. DeFazio. But there may be cases.
What I am getting at is the objection of the airlines to an
increase in the PFC because you think it will be
indiscriminately applied once it becomes available across the
industry; and, therefore, virtually everybody is going to raise
their fee and they are going to do discretionary things that
they could have done with other money, or they wouldn't have
done given their limits, that don't benefit passengers and
operations. Is that the concern?
Ms. Pinkerton. No. The objection is that passengers are
already paying too much and there is----
Mr. DeFazio. But ``too much'' is the whole experience----
Ms. Pinkerton [continuing]. $6 billion in a slush fund
available.
Mr. DeFazio [continuing]. The whole ball of wax.
Ms. Pinkerton. So you have other ways of doing it. The PFC
is not the sole source.
Mr. DeFazio. But if there are cases where there isn't
another way to do it and we need to discuss----
Ms. Pinkerton. But there are----
Mr. DeFazio. Now, Ms. Pinkerton, please, you know the
procedures here. And I am being very nice to you. So you have
got to not be quite so argumentative.
We are talking about total costs, total burden, on the
consumers. And if we add a dollar for baggage, that is a buck
more. If we add a dollar for PFC, it is a buck more.
I could argue that, if I added a dollar for PFC that got me
out of some incredibly congested, problematic security area in
some airport, my passenger experience is much more enhanced
than paying an extra dollar--well, I don't pay it because of my
frequent flyer status, and I never check bags except twice a
year, maybe, but people who have to pay the extra dollar.
So, you know, it is coming out of their pocket one way or
another. The same elasticity is going to apply because it is
the total cost.
So, I guess what I am trying to get at here: Is there a way
of just taking the existing PFC with restrictions and saying,
``OK. Anybody can go up this much,'' or saying, ``Well, maybe
we could add an increment'' or, ``Maybe we could index it for
inflation'' and they could add at least that increment?
Is there something you could agree to that might be
beneficial to operations and passengers that might otherwise
not happen without that flexibility or do you just think there
is always going to be another way to pay for these things?
Ms. Pinkerton. There has always been another way.
Mr. DeFazio. OK. Forget that.
Ms. Pinkerton. All projects are being funded.
Mr. DeFazio. Mr. Hauptli, would you respond to that.
Mr. Hauptli. Yes. Mr. DeFazio, we disagree on that.
Mr. DeFazio. OK. Well, good. But could you expand briefly.
Mr. Hauptli. You used the example of a $1 here or a $1
there. Would that it would only be that much. In the case of a
bag fee, the total experience, $25----
Mr. DeFazio. No. I just meant increases. I was talking
about increases.
Mr. Hauptli. All right. So, no, I think we have--as Mr.
Reis pointed out, there are limitations in our ability to do
what we need to do. There is an infrastructure investment gap
that exists today that is incontrovertible.
And I think it is highly unlikely--as much as this
committee would like to authorize funding levels at
dramatically increased levels from where we are today, that
seems very unlikely, given the budget environment we are in.
So I believe and I think airports across the country
believe that the best way of providing the necessary
infrastructure investment is the self-help of allowing airports
to impose a higher fee locally.
Mr. DeFazio. Mr. Chair, if I could. I know I am over time.
I just want to say--and, again, I used it briefly at the
beginning. There is another issue which is an equity issue. It
first came up where I live in Springfield, Oregon.
Eugene, Oregon, was going to build a new airport and they
were going to bond it and all the taxpayers in Eugene were
going to pay for it. And I said, ``Well, I use the airport more
than anybody in Eugene. That is not fair.'' That was part of
the genesis.
And the other was an interstate issue, which is Portland
airport serves Vancouver, Washington, and those people don't
pay any taxes in the State of Oregon and I felt it was fair to
be able to put some of the costs on them.
I think everyone agreed the program has worked. I think we
disagree over whether there are other options and whether it is
adequate for the future and whether there are ways we could
massage it. And I would love to continue that discussion in a
more productive way than we can here.
Thank you, Mr. Chairman.
Mr. Ribble. Thank you. Chairman Shuster.
Mr. Shuster. Thank you, Mr. Ribble. And thank the panel for
being here.
Sorry, I have been in and out, so I didn't hear much of
what you said; but certainly if I ask a question or repeat
myself, I hope you will bear with me.
I think this issue is obviously a tough issue. We have got,
you know, airports got to keep doing things to make sure they
are staying fresh and the customers are coming and are going to
take care of them. You have got an airline industry that is
just now starting to make profits for the first time in years;
and when you look at the last 30 years, I think it is fair to
say you haven't made any money and that is difficult.
So when I started with my opening statement before I asked
a question, doing something different at the FAA, trying to
figure out how we can get an airline industry, and I think they
have finally, someone argued they have downsized too far. I
think they have right-sized; and I think we are going to see an
industry that is profitable, and you know, when you look around
at the transportation industry, what the railroads have done
over the years, and it is different; but it is still, there is
a profitable industry that is paying for its own
infrastructure, not relying on the Federal Government. I don't
know that that is ever going to be possible, but it is reducing
relying on the Government for paying for its infrastructure
which I think should be the goal.
When we again talk about PFCs, Mr. Reis, if you were to
increase your PFCs, what kind of projects are you going to be
able to move forward with? I know you are doing some projects
now. What will you be able to move forward with, what types of
things?
Mr. Reis. Well, we have a $2 billion and a $2.5 billion
program. We anticipate having to borrow $1.5 billion to $2
billion of that $2.5 billion. So we have got reconstruction of
two 45-year-old concourses that have effectively not been
touched in most of that period of time. We have a new
international arrivals facility, reconstruction of one of our
three runways that will be a $100 million project. You don't
think about little things like vertical circulation.
Mr. Shuster. What was that?
Mr. Reis. Vertical circulation. It is a fancy word for
elevators and escalators. We have about 60 escalators. Many of
them are 50 years old. So as an airport expands, the airport
was last completely redone in 1973, at which point there were 5
million passengers and an anticipation of 25 million
passengers. We are now at 35 million. So we have got everything
from infrastructure no one will ever see, electrical systems,
all the way through brand new international arrivals facility
and sort of everything in between.
Mr. Shuster. Let me ask you the converse of that. What
aren't you doing because you don't have the funding?
Mr. Reis. This is a plan, and the question is how do we
fund it. Now, we are very lucky, unlike many of our colleagues,
both large airports and especially small airports, in that our
airline agreement, the contract we have with our airline
partners, does not provide the airlines a veto over our
decisions. Many of my colleagues do not have that luxury.
So when you talk about the PFC as a funding mechanism, in
many ways what we are really talking about is control. Will the
local governing body, because they have adequate PFC resources,
be able to make the decisions for what is good for their
community and their airport, or will the airlines be able to
veto the desires of the local community.
The PFC, because it is locally imposed, locally decided
upon, provides local governing bodies whether it be a city
council or an authority board like ours, the ability to make
those decisions. If it is, the PFC is inadequate, and the only
option is to have the airlines pay for those costs, pay that
debt service, then in many instances, the airlines have the
ability to say, no, community, we don't agree with your
priorities, you can't make that investment. That happened to us
recently on a cargo project. The airlines voted it down. Now,
luckily all we had to do is wait 6 months and do it; but in
many communities they would not be able to do it because the
airlines vetoed it.
So in many ways a PFC increase, so that it stays up with
inflation, is a way to let local communities make decisions
about what is good for their airport as opposed to letting the
airlines dictate it.
Mr. Shuster. Mr. Hauptli, on that question, the broader
airport association, what projects aren't getting done. It
sounds like Sea-Tac is doing a lot. Can you talk about other
places in the country that we are not seeing it happen?
Mr. Hauptli. Sure. Just let me just circle back very
quickly to a point that you just made a couple of moments ago
about the reliance on Federal funding. What we are asking for
is exactly that. We are asking to be less reliant on the
Federal Government. We are asking for the self help to let us
get out of the Federal Government controlling these decisions.
That is the beauty of the passenger facility charge. In a
constrained Federal budget environment that we are in today,
this allows for the needed infrastructure investment without
the reliance on Federal funding.
On the issue that you raise, Mr. Chairman, an example would
be in the city of Chicago, where up to a point the city of
Chicago and the airlines have negotiated what they mutually
agree is necessary to be built for that airport. However, there
remains other parts of that modernization program that the
airlines don't agree need to be funded and the city of Chicago
has baked into their financing plans an increase in the
passenger facility charge in order to complete that project.
Again, a difference of opinion about what the need is, what
the scope is, how far into the future you should look, a
legitimate disagreement of opinion, but an example where the
community is looking out further out into the future than the
carriers that are currently operating at that facility are
looking.
Mr. Shuster. Right. What about places like Pittsburgh and
Kansas City, and I guess Cleveland now has been what they call
dehubbed?
Mr. Hauptli. I don't have examples for you, from those, Mr.
Chairman.
Mr. Shuster. Ms. Pinkerton, it appears from the forecasting
we are going to have lots more people, and we are also going to
have a lot more people in this country. In the next 20 years we
are going to have over close to 400 million people. If we
continue to see that kind of additional funds building
infrastructure, where do they come from? What are your thoughts
on that?
Ms. Pinkerton. So, first of all, I think what you have
heard from me is violent agreement, that airlines and airports
need to work together on needed infrastructure, and we have
demonstrated that we are willing to do that and we will
continue to do that. The disagreement comes in how we do that;
and the case I am making is that there are record revenues in
PFCs; there are AIP fundings; there is record airline rents,
and there is record private funding. There is a $6 billion
uncommitted balance in the aviation trust fund, something very
different than what you are facing in the Highway Trust Fund.
And so we are not arguing that things don't need to be
built. They do, and we agree with that. We just don't think you
need to tax passengers to build those projects. We think bond
funding is available. All of the projects that Mr. Reis talked
about, they are going forward. They are moving forward.
Mr. Shuster. And when they are bond funded or financed,
airlines are paying that in the rent factor?
Ms. Pinkerton. Exactly. We have made a policy decision. We
would rather pay for it in our rents and fees than seeing
passengers taxed, especially when there is a $6 billion
uncommitted balance in the trust fund.
Mr. Shuster. Right. And then finally, Mr. Baker, I
understand this is your first time before the committee.
Welcome. I know you are ably staffed back there. Your team, you
have got a good team that know a thing or two about this
committee.
Mr. Ribble asked a question, and you may have answered and
I may have missed it, of the various different costs for the
general aviation community. Really the cost I am looking for is
what do you pay to land or take off, whatever they pay? I know
it is different in other places, but can you give me a sense of
what a general aviation operator is paying in taking off and
landing fees.
Mr. Baker. It is all over the map. This past weekend, I was
in Ocean City, Maryland, and it was $40 to land my little
airplane there, and another $40 to park it overnight for that
facility, for one-time use. It is a great facility. It is well
used. It is a great way to see the Jersey shore.
I have travelled through your great State and used reliever
airports around Pittsburgh a number of times; and certainly
Appleton and other places are great airports you can use. It is
up to the discretion of each individual airport. In some cases
you really don't know until you get there how much they are
going to charge you for their service fee. Some cases are
waived, if you buy fuel. In other cases there is an overnight
fee for parking your aircraft outside.
For the most part, they are reasonable and you have the
choice once you have gained that knowledge if you want to use
that airport or a different airport that may have a lower cost.
And we see the fuel tax as a primary way we pay our part of our
deal.
Mr. Shuster. What do they range? You said they are all over
the map. What are they from $20 to, I mean, a place like
Teterboro, would you pay a high fee to have to land there?
Mr. Baker. Oh, yeah. As an example, if you go into Boston,
you will pay $300 to $400 to land at Logan. If you go into
Appleton, it is free at the moment. So it is all over the map.
Mr. Shuster. OK. All right. Again, I appreciate you being
here today. I appreciate all of you being here today, and
hopefully you are all going to go to Tarkio, which is the
center of the world for GA, in July. I think you are going to
be there, Mr. Baker. I encourage everyone to check it out. I
have to say that commercial for Mr. Graves. It is his air show,
or not his air show, but he is very involved in it.
Again, I appreciate all of you being here, and again I
think we have had all of you, Mr. Reis and I know Mr. Hauptli;
and, Sharon, somebody from your organization has been to one of
our listening sessions and I don't know if we have had the GA.
No, we are going to do the GA community listening session out
in Tarkio.
But it is important that we figure a way forward. I know
these issues, funding is always a struggle, but making sure
that we have an airline industry, an aviation industry, that is
strong and viable because I think from all corners of the globe
we are under attack, whether it is the mideastern air carriers
or the manufacturers who are producing parts and aircraft for
the GA community, if we don't have an FAA that functions more
efficiently than it does today, we are going to slowly start to
see our number one status in the world deteriorate; and that is
something that I think all Americans should pay attention to
and not let happen.
So again, I appreciate you all being here today. I
appreciate the exchange of information, ideas, and opinions,
and we look forward to continuing working with you. Thank you.
Mr. Meadows [presiding]. And the Chair thanks the chairman
of the full committee for his insightful questions and really
in illuminating that. The Chair would recognize itself for a
couple of very brief questions.
Mr. Reis, AIP funding has been talked about today. Are
there different restrictions on that funding based on the size
of the airport?
Mr. Reis. Mr. Chairman, I am not sure there are
differentiations between size, although I will not claim to be
an expert on that field. For small airports, very small
airports, GA airports get a certain dollar amount every year as
an entitlement, unlike larger airports which get it as a
percentage of the total amount available. There is a fixed
amount, and they can use it with a great deal of discretion at
the very small end.
But once you get into the commercial service airport,
certainly small, medium and large, I think we all have to live
by the same rules. The key thing is really competition for the
discretionary dollars. The FAA does a very good job of looking
at the amount of money that is available on a discretionary
basis and saying what is going to make the greatest
contribution to the objectives that Congress might have put
into statute or that the FAA has put into their own guidance;
and the projects, no matter which airport it is, that are going
to make the greatest contribution to the benefit of the overall
system are going to end up competing better than another
project that might be technically qualified but may not make as
great a contribution to the system.
Mr. Meadows. But wouldn't that inherently disadvantage
smaller, more rural airports, because if you do that then based
on traffic flow and everything else, all the Federal dollars
will go to the major cities, and it will continue to do that.
Is there not a better way to give greater flexibility to
smaller rural, and I just happen to represent a small rural
airport is why I would ask?
Mr. Reis. Right. Well, in round numbers, and again I am not
a real expert on this really complex system; but of the $3.3
billion program, about $3.1 billion is actually made available
to airports or some other stuff that is done off the top and of
the $3.1 billion or so, somewhere in the $3 to $700 million
range is discretionary money. The rest of it is allocated on an
apportionment or an entitlement basis, and so an airport is
going to get a certain amount of money based on their size. But
you are absolutely right.
In terms of the discretionary amount, whatever that might
be in any given year, a large airport has a much better chance
of making the case that its project is making a contribution to
the overall system for that discretionary amount than a smaller
airport would.
That is one of the reasons why we as large airports who can
take the greatest advantage of a PFC increase because we have a
lot of enplanements and thus more PFCs, recognize that we have
to see in the future that the AIP really needs to be preserved
for the smaller airports and that if a PFC is adequately sized,
I think you will find that most if not all very large airports
are going to recognize that a decrease in AIP for large
airports is part of the benefit to the overall system.
Mr. Meadows. I will go ahead and yield to Mr. Larsen so he
can do a followup question.
Mr. Larsen. Different issue actually. I am trying to
understand, Ms. Pinkerton, your comments about the unobligated
balance in the trust fund of $6 billion or so.
Much like other unobligated balances in accounts in the
Federal Government, administrations current and past use those
to mask the size of the actual deficit not allowing the full
spend-down of those dollars. For instance, we had a problem
with the Harbor Maintenance Trust Fund recently, and we fixed
that through the WRDA bill, Water Resources Development Act
that says we are going to start spending down unobligated
balances because there are limits on doing that, limited by
what we have actually authorized.
So I am curious about this unobligated balance in the trust
fund, is it not limited by what we have actually authorized to
be spent, and therefore it is not really yet accessible to be
spent down?
Ms. Pinkerton. No. I believe the reason we have seen an
increase in the balance is in the last reauthorization bill,
you did change the way the money is spent out; so I suppose in
a way the answer is yes.
The money is spent based partially on a forecast of what is
going to come in versus what does come in. So I think what has
happened is we have had, again, record amounts of money coming
in that weren't anticipated, and thus the balance is built up.
Mr. Larsen. And therefore not able to be spent out as a
result?
Ms. Pinkerton. Right.
Mr. Larsen. So we would have to?
Ms. Pinkerton. Change that.
Mr. Larsen. Change that in order for those dollars to be
accessible?
Ms. Pinkerton. The formula, correct.
Mr. Larsen. It is not a matter of saying it is sitting
there; why aren't airports using it? The answer is they can't?
Ms. Pinkerton. Correct. It is a policy decision written in
the bill.
Mr. Reis. I just want to make sure that we recognize that
this is the Airport and Airway Trust Fund. It is not all
designed for AIP. The Congress is facing a very large bill for
NextGen, and the F and E, the facilities and equipment budget,
comes out of that as well. So I would not imagine that it is
all going to be available to airports.
Mr. Larsen. Right. Right. Sure. I got it. Thank you.
Mr. Meadows. Thank you. One followup question, Mr. Reis,
when you talked in April at a hearing, you talked about small
and rural communities and the cost per enplanement and talked
about the relationship, I guess, between the cost per
enplanement and air service and different financing options.
How would those financing options actually lower an
airport's cost of enplanement? And that is a followup to your
April testimony.
Mr. Reis. Right. Well, for small airports, they have many
fewer options to finance than large airports do.
Mr. Meadows. So it really wouldn't lower the cost?
Mr. Reis. I don't know that an increased PFC for an airport
that does not have very many enplanements is not going to
generate a lot of money.
Mr. Meadows. So the financing option is for the bigger
airports.
Mr. Reis. I think that is correct. A smaller airport has
got very few options.
Mr. Meadows. If there are no further questions, I want to
thank the witnesses for your testimony, the Members obviously
for their participation; and this subcommittee stands
adjourned.
[Whereupon, at 12:40 p.m., the subcommittee was adjourned.]
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