Airports have been battered by steep revenue declines after the COVID-19 pandemic caused a drastic drop in air travel, but financial help is on the way. Airports around the country should soon receive their share of $10 billion in Federal Aviation Administration (FAA) grants provided in the Coronavirus, Aid, Relief and Economic Security (CARES) Act.
The FAA released guidance for airport administrators, but questions still linger and issues have gone unaddressed. While some of these answers require more information from the federal agencies, there are 10 burning questions we can answer now.
1. How is this money distributed to airport sponsors?
These funds are available only to sponsors as defined in Section 47102 of title 49, United States Code (U.S.C.); that is, airport sponsors meeting statutory and policy requirements under this section, as well as those identified in the FAA’s current National Plan of Integrated Airports System (NPIAS).
The funds are coming directly from the U.S. Treasury’s General Fund to prevent, prepare for, and respond to the impacts of the COVID-19 public health emergency. The FAA’s Office of Airports will administer these grant funds to airport sponsors. The FAA has published a map showing airports that are receiving the funds and the allocations made to them.
The $10 billion in funding is divided into four main categories:
- At least $500 million is available to increase the federal share to 100% for grants awarded under the fiscal year 2020 appropriations cycle for FY20 Airport Improvement Program (AIP) and FY20 Supplemental Discretionary grants. The federal share for FY 2018 and 2019 Supplemental Discretionary grants won’t increase.
- At least $7.4 billion is allocated to commercial service airports, allocated based on enplanements, debt service, and unrestricted reserve ratios.
- Up to $2 billion will go to large, medium, and small hub airports, allocated based on AIP primary entitlement formulas.
- At least $100 million will go to general aviation airports, allocated based on categories published in the current NPIAS.
For airport grants, after the Secretary of Transportation announces awards under the CARES Act, each airport sponsor must submit a grant application to access those funds. However, sponsors don’t need to apply for the increased federal share of FY20 AIP or FY 2020 Supplemental Discretionary grants. The FAA will use the Office of Management and Budget (OMB) SF-424, Application for Federal Assistance, and provide a simplified grant agreement shortly after it receives an application. This simplified agreement includes the requirements under the CARES Act and makes funds immediately available for expenses, other than airport development, including payroll, debt service, utility expenses, service contracts, and supplies.
2. Great, I have the money. Now, what can I use it for?
The same rules govern the use of CARES Act funds that govern the use of all airport revenues. An airport owner/sponsor may use these funds for any purpose for which airport revenues may be lawfully used. CARES Act grant recipients should follow the FAA’s Policy and Procedures Concerning the Use of Airport Revenues (“Revenue Use Policy”), 64 Federal Register 7696 (64 FR 7696), as amended by 78 Federal Register 55330 (78 FR 55330). The policies and procedures are available for review here. The Revenue Use Policy document defines permitted and prohibited uses of airport revenue. In addition to the detailed guidance in the Revenue Use Policy, the CARES Act makes clear that the funds may not be used for any purpose unrelated to the airport.
3. Is this going to be enough support?
Given the current state of the economy, Congress has turned to working on the next comprehensive economic relief package, which is being referred to as CARES 2.0. To meet aggressive congressional deadlines for request submissions, a new airport industry request is being made with three potential components: $13 billion in additional emergency assistance, a gap financing program for airports, and a touchless journey through security.
4. Can we use funding received for one airport to support another airport under our control?
If you are a sponsor who controls multiple airports the FAA has stated in its CARES Act FAQ, an airport sponsor may use funds at any airport under its control.
5. Do we have to include the funds received on the SEFA reports?
Any funding received under the Assistance Listing 20.106, Airport Improvement program will be reported on the SEFA. It is still unclear whether all of the CARES funding will be reported on the Schedule of Expenditures of Federal Awards (SEFA) . However, we recommend that you consider the underlying principles of Uniform Guidance and the terms and conditions of the FAA while administering the funds. We do expect further guidance from the federal government in upcoming months to clarify SEFA considerations.
6. How will the CARES Act funds impact my covenant calculations?
The additional funds appropriated by the CARES Act were largely intended to help airport sponsors meet their debt service and bond obligations. By one industry estimate, airports have nearly $100 billion in collective debt, with $7 billion in bond principal and interest payments due in 2020. While the bulk of the $10 billion appropriated for airport sponsors can be used to make bond principal and interest payments if necessary, airport sponsors may be faced with difficult decisions about how to prioritize needs while under financial stress. Airport sponsors should carefully review their bond documents to ensure the methods of calculating the airports’ rate covenant under the current circumstances are appropriate.
7. Do the funds get reported as operating or nonoperating on the financial statements?
Current generally accepted accounting principles suggests that entities should establish a policy that defines operating revenues for enterprise funds and use it consistently. Normally, operating classification on the statement of revenues, expenses, and changes in net position will typically follow the classification of operating activities in the statement of cash flows. Additionally, nonoperating revenues would generally include grants, among other things. The AICPA State and Local Governments audit guide includes certain accounting guidance that has been cleared by GASB as Category B authoritative guidance. One such excerpt from this guide (Paragraph 6.81) indicates nonoperating revenues would generally include, among other things, grants “that may be used, at the recipient’s discretion, for either operating purposes or capital outlay.” That being said, while there seems to be a compelling argument that most of the CARES Act funding for airports may be operating, each entity will need to review the applicable accounting guidance, consider their own circumstances, and make their determination based on their professional judgment.
8. What are the requirements to meet to receive and keep the funds?
Through Dec. 31, 2020, the airport sponsor must continue to employ at least 90% of the number of individuals employed (after adjusting for retirements or voluntary employee separations) as of March 27, 2020. The Secretary of Transportation may waive this workforce retention requirement if they determine that the sponsor is experiencing economic hardship as a direct result of the requirement, or that the requirement reduces aviation safety or security. The workforce retention requirement doesn’t apply to nonhub or nonprimary airports.
Airport sponsors must certify compliance with the CARES Act employment requirements at the time of grant execution and report employment totals quarterly on June 30, Sept. 30, and Dec. 31, 2020. That report and certification should include the number of full-time equivalent employees working at the airport as of March 27, 2020, as the baseline comparison.
9. Will this have an impact on airline and concession agreements?
Airport concession contracts, including rental cars, parking, and retail, usually contain a minimum annual guarantee (MAG). Given the sharp reduction in revenue that these concession vendors are now facing, they may not be able to meet their MAGs. As a result, the collectability of this revenue may need to be reviewed and an allowance for estimated uncollectable amounts may need to be recorded. If the airport sponsor determines that it’s in its best interest to defer the MAG, the revenue should still be recorded in the period earned, and the receivable should be considered for treatment as noncurrent depending on the new repayment terms. The disclosure of guaranteed minimum future lease payments will also be impacted for any changes in the MAG in the concession contracts.
10. Are there any other benefits airports can take advantage of?
One of the components of the CARES Act provides the opportunity for employers to defer payment of the 6.2% FICA portion of the employer’s portion of employment taxes, effective immediately through Dec. 31, 2020. The repayment will occur over time, with 50% of the deferral being due by Dec. 31, 3021, and the remaining due by Dec. 31, 2022. Find more information in a tax alert comparing COVID-19 employer tax incentives, issued by our National Tax Office.
Additionally, airports required to pay sick leave wages or family leave wages under Section 7001(e)(4) and 7003(e)(4) of the Families First Coronavirus Response Act are relieved of paying the employer’s 6.2% portion of FICA taxes associated with those wages. However, there is no relief of the obligation to withhold and remit the corresponding employee share.
Until a few weeks ago, your organization has likely been focused on implementing several new GASB standards, including GASB Statement No. 84, Fiduciary Activities. With the announcement by the GASB of a delay in the required implementation of these new standards, your organization will need to decide how to respond. If you’re far enough along in the implementation process, you may want to move forward with adopting these standards. Other organizations that haven’t yet addressed some of these pending standards may want to take advantage of the implementation delays. Notably, the GASB has deferred the implementation date of GASB Statement No. 87, Leases by a full 18 months, resulting in June 30, 2022 year-ends to be the first to implement the significant new leasing standard.
The compliance and accounting questions related to the COVID-19 outbreak and the related new funding streams are significant. We’re here to help! If you have questions.
