Mr. Chairman and members of the Subcommittee, thank you for inviting me to address the issue of so-called “airport deregulation.” In our view the airport community has misappropriated the word “deregulation.” Their confused agenda ultimately comes down to seeking less oversight on how they spend the revenue generated by passengers and other users of the system.
Airports are asking for more flexibility on using federal grant money and less federal “interference”. Said another way, what they want is to be released from the obligations they agreed to when they accepted federal funding. Those obligations, by the way, were crafted to protect the public. That’s not “deregulation” as I understand it.
As Congress knows so well, under our national aviation scheme, the federal government is responsible for air traffic control. Localities have the authority to decide whether and where to build airports, and the airlines determine where and how to provide service based on market demand. This three-way partnership has produced an air transportation system that is safer, more efficient, and more cost-effective than any other in the world.
Airports derive revenue almost entirely from the users of the airport system. (See Chart) We care about how this money is spent because, either directly or indirectly, it comes from our customers, your constituents. This year alone, we and our customers will contribute nearly $19 billion to the aviation system through taxes, airport fees, and Passenger Facility Charges (PFCs). Only a small fraction of airport revenue will come from state and local government general funds.
As you know, the operating costs of an airport are covered entirely through rates and charges paid by airlines and other tenants. Airlines currently pay approximately $7 billion a year in landing fees and rents. Some of this goes to debt service for capital improvements, and the rest goes to pay for day-to-day operations of the airport facilities.
Airports are governmentally controlled public facilities and are subject to rules and policies designed to promote the public good. While airports are not economically regulated, they are subject to financial guidelines due to their status as governmental entities. Like it or not, they are not private-sector enterprises. Public airports are bound by the Commerce Clause of the U.S. Constitution to refrain from placing an undue burden on interstate commerce. They are also constrained from exercising their natural monopoly power.
By accepting federal funds, airports, like any other grantee, are obligated to comply with a specific set of requirements, including financial ones. Congress imposed these obligations on airports to protect the federal investment of the national airport system.
As outlined in my written testimony, we believe the conditions placed on AIP grants, PFCs, and airport rates and charges should be strengthened and improved, not weakened.
Airports maintain that current and projected capital development needs exceed the funds available. Given the uncertain economic outlook and the many competing demands on the Aviation Trust Fund, it is more important than ever that the FAA prioritize and direct funding to those projects that result in meaningful and cost-effective capacity and safety improvements. We simply can't afford to support an airport's “edifice complex” if it comes at the expense of an efficient airport system. None of us can or should support “nice to have” but “marginally useful” projects while critical needs go unmet.
At the same time, it is essential that tax money allocated to airport projects is managed carefully. Some of the rules and conditions controlling airport spending are indeed complex, and could be streamlined, but we must remember their core purpose: to safeguard the investment in our national aviation system for the benefit of all Americans. Airports must remain fiscally responsible to the American public as well as their tenants and local constituents.
Mindful of these considerations, we recommend the following:
- We urge the Subcommittee to take a fresh look at the allocation of AIP funds and consider making a larger percentage of them available as discretionary grants for the most critical safety and capacity projects. As a starting point, we recommend that security projects be removed from the AIP in order to free money for safety and capacity projects. The Aviation Trust Fund should not be used to make up a shortfall in DHS funding.
- We recommend that this Subcommittee direct the FAA to strengthen their oversight of airport spending, and vigorously enforce the prohibition on revenue diversion. Further, it is high time that Congress close the loophole that allows a handful of grandfathered airport operators to continue to siphon off airport revenue to non-aviation purposes.
- We recommend that all airport capital expenditures be justified by a cost-benefit analysis. While FAA has developed such a methodology as part of its selection criteria for some AIP grants, it doesn’t apply to projects funded with PFCs. That situation should be corrected.
In summary, airports are entrusted with spending money generated by the users of the aviation system, and must be held to the highest standards of fiscal responsibility. Instead of loosening the federal controls on these funds, we should safeguard them and maximize their impact by focusing our efforts on projects that are the most critical to the development of a safe and efficient airport system. Thank you.