Airport Capital Funding and the Infrastructure Gap

A. Introduction

U.S. airports balance aging infrastructure, safety compliance, and projected passenger growth through capital planning and investment. The American Society of Civil Engineers (ASCE) 2024 Infrastructure Report Card estimates that airports need approximately $310 billion in infrastructure improvements over the 2024-2033 period, up from the $219 billion estimate in ASCE's 2021 report for the prior decade. Against projected funding of $168 billion from all federal sources, this represents a $142 billion shortfall (per ASCE assessment against available funding sources).

The infrastructure demands are driven by several factors:

• Airport infrastructure has aged, with the FAA National Plan of Integrated Airport Systems (NPIAS) 2023-2027 reports indicating 35-45% of airport pavements are over 30 years old.

• Passenger traffic is projected to grow 58% by 2040, based on ACI-NA's 2025 forecast of 1.4 billion U.S. enplanements.

• Terminal renovation and modernization affect passenger experience (J.D. Power survey), with 80% of travelers reporting satisfaction tied to terminal conditions and security

• Runway, taxiway, and ground infrastructure require maintenance per FAA NPIAS schedule and upgrades

• Environmental compliance and noise mitigation projects

The U.S. aviation infrastructure is supported by five funding sources: the Federal Airport Improvement Program (AIP), supplemental funding from the Infrastructure Investment and Jobs Act, Passenger Facility Charges (PFC) imposed by airports, tax-exempt revenue bonds issued by airports, and state and local grants. Each source has distinct eligibility requirements, funding limits, and strategic implications for airport planning.

B. Federal Funding Sources

B.1 Airport Improvement Program (AIP)

The Airport Improvement Program, funded by the Airport and Airway Trust Fund, provides annual grant funding to U.S. airports. AIP was authorized at approximately $3.5 billion annually for FY2021-2023 and was increased to $4.0 billion annually for FY2025-2028 under the FAA Reauthorization Act of 2024 (P.L. 118-63), with funding distributed through both entitlement apportionments and discretionary grants.

AIP Structure and Distribution

AIP funding flows through two mechanisms: entitlement apportionments and discretionary grants. Entitlement funding is allocated to specific airports based on established criteria, including passenger enplanements and cargo tonnage. Discretionary grants are competitively awarded to projects that meet national priorities.

• Entitlement funding allocates 75% of AIP to a designated pool of airports, with distributions based on passenger enplanements and cargo tonnage per 49 USC 47114.

• Discretionary grants support projects that meet national priorities, allocated through competitive processes.

• The federal share is 90% for airside projects at non-hub primary airports (FAA Order 5100.38D), with the airport sponsor providing 10% local match.

• Large-hub airports (31 large-hub and 32 medium-hub airports, 63 total, per FAA CY 2024 data) receive approximately 60-75% of their capital funding from entitlements after accounting for Passenger Facility Charge (PFC) adjustments.

Eligible Project Categories

AIP funds a range of airport capital projects defined by AIP eligibility:

• Runway construction, rehabilitation, and maintenance

• Taxiway and apron improvements

• Noise mitigation and environmental compliance projects

• Safety equipment and navigational aids

• Terminal building modifications for security and passenger flow

• Baggage handling systems and ground equipment

Small and non-hub airports rely primarily on AIP entitlements for capital funding. Alternative financing sources such as Passenger Facility Charges or tax-exempt revenue bonds are available but require higher passenger volumes or financial capacity to support debt service, which favors larger airports.

B.2 IIJA/BIL Supplemental Programs

The Infrastructure Investment and Jobs Act (IIJA), commonly referred to as the Bipartisan Infrastructure Law (BIL), provided supplemental funding of $19.6 billion for airport infrastructure, the largest such allocation in history. The legislation allocated $19.6 billion specifically for airport capital projects over the 2022-2026 period ($14.5 billion for Airport Infrastructure Grants, $5 billion for the Airport Terminal Program, and $100 million for the Contract Tower Program).

Airport Infrastructure Grants (AIG)

The Airport Infrastructure Grants program is the largest of the IIJA airport programs, with $14.5 billion allocated over five fiscal years (FY2022-2026). This program uses a formula-based allocation methodology to distribute funds to airports based on passenger enplanements, cargo tonnage, and other factors.

• FY2022-2025 allocations: Approximately $11.5 billion awarded, of which the majority has been committed to airport capital projects.

• FY2026 final allocation: $3.0 billion representing the final year of IIJA-funded airport grants.

• Large hub, medium hub, small hub, and non-hub airports receive allocations based on formulas tied to passenger enplanements and cargo tonnage.

• Airports have flexibility in project selection within eligible categories including airside improvements, terminal projects, and ground access infrastructure, per FAA AIG program rules.

Airport Terminal Program (ATP)

The Airport Terminal Program provides $5 billion in competitive grants ($1 billion annually FY2022-2026) for terminal building improvements, specifically addressing passenger experience, safety, and operational efficiency.

• ATP features a competitive process with airports submitting detailed project proposals for review and scoring by FAA.

• Application periods and funding decisions are announced annually through FAA Notices of Funding Opportunity (NOFOs).

• Projects must demonstrate public benefit as defined by FAA ATP program guidelines, including passenger experience improvements and operational efficiency gains.

Contract Tower Program

The IIJA allocated $100 million for the Contract Tower Program through FY2026 ($20 million annually), with funds supporting operational infrastructure at smaller airports with traffic control facilities.

B.3 Passenger Facility Charges (PFC)

Passenger Facility Charges (PFC) allow airports to impose a locally-set fee on each enplaning passenger to fund capital projects. Established by Congress in 1992, the PFC program generates approximately $3.8 billion annually in collections nationwide.

PFC Basics and Revenue Potential

The maximum PFC that airports may impose is $4.50 per enplaning passenger, unchanged since the Wendell H. Ford Aviation Investment and Reform Act of 2000 became effective in 2001. PFC collections nationwide totaled approximately $3.8 billion in FY2024, up from $3.7 billion in FY2023 (FAA PFC Monthly Reports).

• PFC is approved on a project-by-project basis through application to the FAA

• Broader project eligibility than AIP (includes terminal projects and certain non-aeronautical projects)

• Generally has lower debt service requirements, reducing overall financing costs

PFC Usage and Strategic Implications

78% of PFC collections used for debt service (based on 31 large-hub ACFRs, FY2024) on revenue bonds financing terminal and other projects. This usage reflects the attractiveness of PFC-backed bonds to capital markets and the ability of airports to monetize future PFC revenue.

• Large and medium hub airports: Reduced AIP entitlements (originally 75%, reduced to 60% in 2024)

• These airports offset lost AIP with higher PFC-backed bond issuances

• PFC cap unchanged since 2001: The $4.50 cap, set in 2001, remains unchanged. Using BLS CPI-U 2001-2024, the equivalent value would be approximately $8.00 in 2024 dollars. Construction cost inflation (measured by the ENR Construction Cost Index) has risen approximately 130% over the same period, meaning construction costs have outpaced general inflation by 90 percentage points.

B.4 Airport Funding Trends and Reauthorization Discussions

Congress periodically reauthorizes FAA funding through multi-year appropriations. Pending legislation proposes continued AIP support, though as of early 2026, specific long-term reauthorization details remain under discussion. AIP is currently authorized at $4.0 billion annually for FY2025-2028 under P.L. 118-63, up from $3.5 billion in prior years. The IIJA provided temporary supplements of approximately $3.9 billion annually through FY2026. After FY2028, AIP authorization under P.L. 118-63 expires and will require Congressional reauthorization. Without new legislation, both base AIP and any IIJA successor programs face uncertainty, creating a dual funding cliff for airports planning capital programs beyond the current authorization period.

C. Other Funding Sources

C.1 Tax-Exempt Revenue Bonds

Tax-exempt revenue bonds are the primary capital markets tool available to airport operators for financing large capital projects. These bonds are issued by airport authorities and are repaid from airport revenues, rather than being backed by the full faith and credit of the underlying government entity.

Bond Types and Structure

• General Airport Revenue Bonds (GARBs): Backed by all airport operating revenues (airline fees, passenger charges, concessions, parking)

• Special Facility Bonds: Backed by revenues from specific facilities (e.g., airline terminal facilities, rental car facilities)

• PFC-Backed Bonds: Specifically backed by anticipated passenger facility charge collections

Financial Covenants

Bond issues 26 of 31 large-hub GARBs require a net revenue pledge, ensuring that revenues exceed operating expenses and debt service by specified amounts (1.25x debt service coverage ratio, per EMMA official statements, FY2024).

• Ratings are based on passenger growth, airline credit quality, diversification of revenue, and financial performance

• PFC-backed bonds often receive ratings one to two notches higher than general airport bonds

C.2 State and Local Grants

State and local governments in 15 states provide support for airport capital improvements, based on publicly available state appropriations data. Some states have established aviation trust funds specifically for airport infrastructure, while others provide block grants or general fund appropriations.

• State aviation trust funds: Funded by fuel taxes, landing fees, or other aviation-related revenue

• State block grants: General appropriations from state transportation budgets

• Local government support: e.g., at ATL, local support $50M FY2024 (ACFR) to airports owned or operated by local authorities

• Rural airport development programs: 24 states have rural airport programs (FAA State Block Grant data, 2024)

C.3 Airport Operating Revenue

Airports increasingly rely on net income from operations to support capital programs. Operating revenue comes from both aeronautical sources (airline fees, landing fees) and non-aeronautical sources (parking, concessions, rental car commissions, real estate leases).

• Aeronautical revenue is subject to airline negotiations and competitive pressures

• Non-aeronautical revenue: Growing category, including parking fees, concessions, rental car commissions, advertising, and real estate development

• Self-sustainability: Airports receiving federal funds must be as financially self-sustaining as possible per Grant Assurance 24 and FAA Revenue Use Policy (49 USC 47107(b)).

• Revenue diversification: Reduces dependence on any single revenue source and improves financial resilience

D. The Funding Gap

D.1 Scale of the Problem

The gap between airport infrastructure needs and available funding affects capital planning across the U.S. aviation system.

ASCE Assessment

The American Society of Civil Engineers (ASCE) Infrastructure Report Card estimates that $310 billion is needed for airport infrastructure 2024-2033. Against projected funding of $168 billion under continued IIJA support, this represents a $142 billion shortfall. If federal funding reverts to pre-IIJA levels, the gap expands to $162 billion.