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Rethinking the FAA budget (Op-Ed)
February 11, 2011
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  • By Robert Poole (Op-Ed)

    February 7, 2011

    The House and Senate are both making the long-overdue reauthorization of the Federal Aviation Administration a high priority. Unfortunately, the bills they are writing seem blissfully ignorant of the fiscal crisis facing the federal government – a climate in which discretionary general fund spending is in for serious cutbacks.

    Like most other federal transportation programs, aviation has traditionally been funded largely by user taxes, including the passenger ticket tax, fuel taxes on private planes, and a variety of other aviation excise taxes. These monies are accounted for in the Aviation Trust Fund, which is the source of capital spending on airports and air traffic control, as well as a large portion of the FAA’s operating budget (roughly corresponding to its air traffic control workforce). Traditionally, aviation user taxes brought in more than 80 percent of the FAA’s budget.

    But the last five year have seen an alarming increase in general fund support of FAA. For FY 2011, bills enacted in the last Congress but never reconciled would have required 37 percent (S 223) or 41 percent (HR 915) of the FAA’s total to come from the general fund. Both houses now seem to be on course to pass very similar bills, from a budgetary standpoint. With our current debt and deficits, making the FAA even more dependent on discretionary general fund spending is not sustainable.

    An alternative path forward was laid out by former FAA Administrator Marion Blakey back in 2007. After detailed analysis by PriceWaterhouseCoopers and GRA, Inc., the FAA parsed its budget into its three major components: the Air Traffic Organization (about 60 percent), airport grants (about 25 percent), and air safety regulation and miscellaneous (15 percent). Ideally, then, users of air traffic control services should pay that 60 percent via user taxes and/or fees, and airport users should pay for the airport grants program. That would leave only about 15 percent from the general fund to pay for FAA’s important aviation safety functions.

    The FAA budget has ballooned in recent years for three reasons: increased payroll costs due to the settlement with air traffic controllers, investment in early phases of the NextGen air traffic control system, and expansion of the airport grants program. The first of these is baked into the contract, and the second is vitally important for the future of aviation. Only the third offers a realistic opportunity for cutbacks – and Congress could do this in a way that does not harm airports.

    The key is to accelerate the ongoing shift from federal airport grants to local self-help. Ever since 1990 when Congress began allowing airports to levy their own per-passenger charge to fund FAA-approved capital improvement projects, airports have taken advantage of the opportunity. Nearly all airports with scheduled passenger service now levy a passenger facility charge (PFC), many of them at the current ceiling of $4.50 per enplaned passenger. PFC revenues in many cases support airport revenue bonds that are financing needed runway and terminal additions.

    Unfortunately, the federal cap of $4.50 has been in place since 2000 and has not been adjusted for the large increase in construction costs during the past decade. The previous House bill would have increased the cap to $7.00, while the Senate bill failed to offer any increase. An increase to $7 or $8 per passenger would allow airports to continue local self-help funding of needed improvements. And because current law requires airports implementing increased PFCs to turn back to the federal government 50 to 75 percent of their airport entitlement grants (money which then gets redistributed to small airports), this would permit a significant scaling back of the Airport Improvement Program (AIP).

    Cutting AIP in half, from $4 billion to $2 billion, would reduce the FAA budget to around $16 billion, down from $18 billion. With the projected aviation user tax revenue of $11 billion, that $16 billion budget would need 31 percent general fund support, as opposed to closer to 40 percent. For a two-year bill, that would be a good start towards eventually getting to the target level of about 15 percent general fund support.

    The passenger facility charge is a great example of devolving a federal function to state and local government. It is just the kind of thing Congress’s new fiscal conservatives should be embracing. The FAA budget debate offers them an early opportunity to do just that.

    Robert Poole is director of transportation at Reason Foundation.

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