RD32 - Program and Funding Review of Virginia Airports

Executive Summary:
*This report was replaced in its entirety by the Department of Aviation on January 18, 2017.

In a provision of the budget for Fiscal Year 2016, the General Assembly required a review of the program and funding that the Department of Aviation (DOAV) provides to the Commonwealth's public use airports. The requirement is limited to the DOAV program that is funded by the Transportation Trust Fund - the Commonwealth Airport Fund (CAF). This program provides funding for planning and engineering projects that focus on airport facility development - not operational costs. Projects supported by these funds may include land acquisition, airside facility design and construction, and terminal building design and construction. This report is prepared in response to that requirement. It reviews the amount of funds allocated by DOAV to those airports for the period 2011 through 2015.

The public use airports that receive these funds are divided into three classifications. Category one is "air carrier" airports -- those that receive commercial air service. Virginia is home to nine such airports.(*1) Airports that are used by general aviation (GA) are classified either as "reliever" airports (specifically-designated GA airports that provide access to areas served by commercial service where GA activity might cause congestion in the surrounding airspace or on the airfield) or other GA airports. Category two includes the eight reliever airports in the Commonwealth. The 49 other GA airports providing service to the regions and localities are included in category three. In total, Virginia has 66 public use airports.

In accordance with the Code of Virginia (Section 58.1-638), funds are provided to airports on either an "entitlement'' or "discretionary" basis. Air carrier airports can receive both "entitlement" and discretionary funds. The annual entitlement fund allocations are based on the number of passenger boardings ("enplanements") at each airport as a percentage of all air carrier airport enplanements within the Commonwealth. The amount of entitlement money that an airport may receive ranges from a minimum of $50,000 to a maximum $2 million annually. Entitlement funds can be spent on capital, facility and equipment and maintenance projects and certain projects that have been determined to be eligible only for the expenditure of state entitlement funds. Reliever and GA airports are only eligible for discretionary funds. Discretionary funds are allocated based on the formula set forth in the Code of Virginia and the project evaluation model approved by the Virginia Aviation Board (VAB). There are two discretionary funding programs: Air Carrier/Reliever Discretionary Program and General Aviation Discretionary Program. Air carrier airports can receive discretionary funds only after having fully obligated their entitlement funds.

From 2011 through 2015, the VAB allocated a total of $108 million to its public use airports under its CAF program. The funds are administered and used via DOAV's Airport Capital Program. As shown in Table ES-1 (see page iv of the report), the VAB distributed $58.7 million in entitlement funds to air carrier airports between 2011 and 2015 (54 percent of the total). The VAB allocated $49.6 million in discretionary funds during the same period, with $32.7 million going to air carrier and reliever airports (30 percent of the total) and the remaining $16.9 million being allocated to GA airports (16 percent of the total). This report's appendices provide detailed breakdowns on the amount of funds DOAV allocated to each of those airports annually and cumulatively between 2011 and 2015.

Of the total $108.2 million, the majority were allocated to air carrier airports. As shown in Table ES-2 (see page iv of the report), the VAB provided $83.2 million (77% of the total) to the air carrier airports. (This figure stems from those airports' $58.7 million in entitlement funds plus $24.5 million in discretionary grants.) The Commonwealth's eight reliever received $8.2 million in discretionary funds and the 49 other GA airports received $16.9 million in discretionary funds.

The VAB sets policies through the Airport Program Manual to guide the funding programs and to promote and develop safe aviation practices and operations in Virginia. The Virginia Airport Operators Council (VAOC) and DOAV periodically review the Airport Program Manual and suggest changes as necessary. The VAB has determined that capital funding should be expended on specified elements of airport planning and development projects. It is VAB policy to allocate funding for airport improvements in order to:

• meet regulatory and policy obligations
• maximize benefits to the public
• improve access to airports

Examples of how airports have used these funds include runway extensions to increase safety and allow larger aircraft to operate at an airfield, construction and renovations to passenger terminals, upgrades to airport fuel systems, and obstruction removal to enhance the safety area near airports. These projects may be multi-year in nature. Terminal and runway projects, for example, are major efforts requiring complex environmental approvals, design efforts, and construction programs.

For many such projects, most of the funding is provided by the U.S. Federal Aviation Administration (FAA). Over the period 2011-2015, the FAA's Airports Improvement Program (AIP) provided over $270 million to Virginia's airports to fund projects that broadly enhanced the airports' safety, improved their infrastructure, and enhanced their security. These projects require matching financial contributions from non-federal (i.e., state and/or local) sources. Depending on the nature of the project, DOAV funds can provide either 80 percent of the non-federal share of a federally funded project or 80 percent of a state and local only funded project. In effect, the contributions from the Commonwealth leveraged the FAA's funding. The CAF grants are effectively leveraging approximately $11.25 in federal funding for every $1 that Virginia contributes toward FAA-funded projects. With some projects, it is highly likely that, were it not for the CAF grants, airports would not undertake those projects, as it would be beyond the ability of the locality to generate the required non-federal financial match. The Commonwealth's contributions to project funding also helps restrain costs that might otherwise be passed on to airport users. This helps airports attract or retain service by commercial airlines.

The CAF amount of funds available for allocation to airports remained relatively constant from 2011-2015, at approximately $20 million. In constant dollars, the amount available for allocation in 2015 ($20.1 million) is actually less than the $19.7 million available in 2011.

Not every dollar available may actually be allocated in a given year. There is some normal amount of funds that will remain unallocated because all requested grant amounts for proposed projects will not equal the exact amount of available funding. In addition, airports may return unused funds. Airports may also return an entire grant if a project does not move forward. If that happens near the end of the fiscal year, the VAB may not be able to award the funds to another airport for a different project in that same year. As a result, some funds may roll over to the next year as shown in Table ES-3 (see page v of the report).

For the FAA to achieve its mission to provide the world's safest, most efficient aerospace system, the agency and its state and local partners must plan and develop a safe and efficient national airport system. This means that airport infrastructure must be maintained in a state of good repair, rehabilitated, and kept up to standards. Airports must also be developed and improved to accommodate growth in travel, including more passengers, cargo, and activity and larger aircraft.

Over the long term, DOAV and the Commonwealth's airports recognize that developing all of the public use airports to reach desired performance objectives(*2) will require funding that far exceeds what can be reasonably expected to be available in the short term. The current Virginia Air Transportation System Plan Update noted that in the immediate 5-year planning period, annual system needs are $345 million while the total projected annual funding available from the Commonwealth and the FAA will average about $75 million. This suggests a funding gap of approximately $270 million. These figures exclude considerations of the funding needs of the two MWAA airports.

It is not accurate to conclude that there are significant gaps on a year-to-year basis between the amount of funds that airports requested from DOAV and the amount of funds allocated. Airports are to develop Capital Improvement Plans (CIPs) that outline improvements planned at the airport over the next six years. Annually, airports can submit requests for grants to fund the projects identified in their CIPs. DOAV then evaluates those project requests and makes recommendations to the VAB for funding. However, airports do not always provide copies of their CIPs to DOAV, nor do they always request funds for a project that they might have listed in their CIP. Similarly, an airport may not receive discretionary grants for certain projects if the FAA has indicated that AIP funds would not be available for that budget year. As a result, the data needed to provide a reliable estimate of "funding gaps" do not exist. Based on the information submitted by airports to the DOAV, actual airport requests for project funding have closely matched the resources that are available from the DOAV and the FAA. However, at any one point in time, the requests for funding from one category of airport may exceed the amount of funds available for allocation to those airports. This may prevent the VAB from providing grants to support some projects that would otherwise be funded.

Some other states allocate funds to support capital projects at their public use airports using some form of system similar to that used in Virginia. The experiences of six other states - four of which participate in the FAA's State Block Grant Program - revealed that they all use some variation of the method applied by DOAV, and that none differed in a way that warranted any change from DOAV's practices. In general, each state's system for allocating funds relies heavily on criteria established by the FAA. Those criteria support the safety and enhanced capacity of the national airport system. States differ in the extent to which they take into account the contribution of a project to the airport system's total economic impact on the state or to other state and local considerations. In addition, some states do not assist their largest commercial service airports with funds, unlike Virginia which provides an annual entitlement to the Metropolitan Washington Airports Authority (MWAA). Data from those states and the FAA in fact indicate that Virginia is particularly effective at obtaining federal funds. In 2015, Virginia's GA airports obtained more funds from the FAA on a per-airport basis than any of the other states reviewed.

Under the Code of Virginia (section 58.1-638), MWAA is annually provided with a maximum of $2 million. Because of this statutory requirement, DOAV treats these funds as an annual entitlement. For the period 2011 through 2015, DOAV allocated $2 million to MWAA annually for a total of $10 million. Under the Code of Virginia, MWAA is not eligible for discretionary funding. Washington Dulles International Airport is the principal international gateway for the Commonwealth. In October 2016, it averaged 63 daily international departures to 42 destinations, with nearly 13,000 daily outbound seats. These entitlement funds make an important, albeit relatively small, contribution to Washington Dulles' capital program. In its 2016 budget, the MWAA Board approved a three-year capital construction program at Dulles of $142 million, which will provide for various airfield, utility systems and roadway projects.

This review resulted in a number of ideas from Virginia Airport Operators Council (VAOC) members and airport stakeholders that DOAV and the VAB may want to consider as a means to incrementally improve its system for allocating funds to public use airports. These ideas include reviewing the adequacy of the current level of entitlement allocations among air carrier airports, differences among airports in seeking discretionary funds, and the overall fairness of the allocation of funds not only among categories of airports, but among individual airports. Depending on the results of a DOAV and VAB review of these ideas, recommendations could be made to the General Assembly if Code adjustments are warranted and/or modifications could be made to the Airport Program Manual by the VAB if appropriate.
(*1) The airports are Charlottesville Albemarle Airport, Lynchburg Regional Airport, Newport News-Williamsburg International Airport, Norfolk International Airport, Richmond International Airport, Roanoke-Blacksburg Regional Airport, Shenandoah Valley Regional Airport, and the two airports overseen by the Metropolitan Washington Airports Authority- Ronald Reagan Washington National Airport and Washington Dulles International Airport. Under the Code of Virginia, only Washington Dulles International Airport is eligible to receive funds from the Commonwealth - Ronald Reagan Washington National Airport is not.
(*2) The Virginia Air Transportation System Plan Update-doav.virglnia.gov- explains in detail how the performance objectives are established. In general, the objectives are defined in terms of each airport's role in Virginia's and the nation's aviation system (e.g., one that receives commercial service or one that is important for supporting regional economies by connecting communities to statewide and Interstate markets). The objectives take into account a large number of factors, including the expected or forecasted activity levels at the airport in the coming years.

Objectives provide directives ranging from runway lengths to hangar needs to suggested runway approaches. Not all airports necessarily need the same type of facilities and equipment. For example, the smallest GA airports do not need runways capable of handling (large, heavy) commercial aircraft.