Air Traffic Control Reform Newsletter #25

Topics include: user charges for ATC services; the FAA funding crunch; fresh thinking on ATC modernization; and Reason's upcoming ATC funding report.
In this issue:

ATC Charges Back on the Policy Agenda

With the Air Traffic Organization facing an $8.2 billion gap between revenues and spending over the next five years, DOT officials have decided to touch the third rail of ATC funding by reviving the issue of direct user charges. At the FAA Aviation Forecast Conference last month, Secretary Mineta said that the time has come to revisit the funding recommendations of the 1997 National Civil Aviation Review Commission (which he chaired). That report called for shifting from aviation excise taxes to cost-based user charges to fund the performance-based organization that was implemented as the Air Traffic Organization (ATO). Among the many advantages the report cited, the user-fee funding stream would be bondable, facilitating capital investment in modernization. Mineta's call to revisit the issue was echoed in two speeches by FAA Administrator Marion Blakey that week, one at the Forecast Conference and the other at the Wings Club. Blakey correctly pointed out that only a handful of small countries fail to charge directly for ATC services—along with the United States. While not directly calling for user fees, Blakey said "we need a revenue stream based both on our costs and on our actual units of production"—which is a far cry from one based on taxes levied on tickets and fuel.

A positive response has come from Senate Commerce Committee chair Ted Stevens (R, AK), who has been talking since January about developing a bondable funding source to facilitate modernization efforts. He told the Forecast Conference that the expected introduction of large numbers of very light jets (VLJs) would put new strains on ATC capacity, making it all the more necessary to be able to accelerate system expansion. "With the federal budget deficits looming, it seems unlikely we'll see much of a general fund contribution to increase the FAA's budget," he said. Hence, "We have to develop a new approach."

The FAA's welcome next step is an invitation-only "Aviation Trust Fund Forum," to be held April 25-26, with top federal transportation officials, all key aviation groups, and several outside experts invited. It should be a lively and productive two days.

Sad to say, the two largest general aviation groups are thus far staunchly defending the status quo of "fuel tax good, user fees bad." National Business Aviation Association president Ed Bolen "rallied the troops for user-fee war" at an event in Arizona earlier this month (AIN Online, 4-12-05). The basic message seems to be that GA is "paying its share" via the fuel tax, in part because it is a marginal user of the ATC system. While there is something to this argument for piston GA, much of which seldom flies IFR or uses towered airports, it is decidedly not the case for turbine-powered business aviation, which flies in the same air space as airline jets and uses the same ATC resources. FAA figures show that GA (including air taxi) jets and turboprops constitute two-thirds of the U.S. turbine-powered fleet. In other contexts, NBAA proudly points out that business aviation is 20 to 25 percent of en-route traffic, and that NBAA participates in the FAA's Traffic Flow Management System—hardly evidence of being a marginal user!


Is the FAA Funding Crunch Real?

If you don't like the kind of changes that a new ATC funding system may bring about, one approach is to deny that a funding crisis exists. That seems to be the preferred M.O. of NATCA, the air traffic controllers' union. Last month it issued a report, authored by executive vice president Ruth Marlin, called "The Aviation Trust Fund: Revenue Growth at a Time of Shifting Policy" (posted at www.natca.org). It purports to show that despite the sharp decline in revenues over the past four years, things are actually fine, and the revenues will go shooting upward through 2014 (assuming Congress does the right thing and reauthorizes the existing excise taxes in FY 2007).

I urge you to download this report and read it carefully. There is absolutely no discussion of how the upward growth in revenues was "projected." There are several graphs playing around with percentage changes, seeking to disguise the huge growth in the Operations budget thanks to ballooning personnel costs over the past decade. But not a word about the methodology used to generate the revenue projection.

By contrast, in a forthcoming Reason policy study, respected airline financial analyst Vaughn Cordle projects Trust Fund revenue, drawing on the modeling done by his company (AirlineForecasts) of what is actually happening to airline yields (revenue per passenger mile) as the industry goes through a major structural change. Vaughn's projections are even bleaker than those of FAA. And Vaughn and I go on to use that revenue forecast to suggest what may happen to the major components of the FAA budget, under a clearly stated set of assumptions of how Congress may deal with the revenue shortfall. (For this projection, we, too, assume reauthorization of the existing excise taxes, with no increases in their levels.) Our most likely projection is that ATO modernization funds would be decimated.

The Weekly of Business Aviation (April 11, 2005) quoted NBAA's Ed Bolen as quickly jumping on the union bandwagon, citing NATCA's report to question whether "the drumbeat to make fundamental changes" is justified. But denial is not going to solve this problem.


Fresh Thinking on ATC Modernization

I've long since lost track of the number of GAO and Office of Inspector General's reports I've read over the years on problems with ATC modernization. Whether written in 1994 or 2004, they all say pretty much the same dismal things. But I want to call your attention to two reports that break important new ground on this subject.

The first is an empirical study, titled "National Airspace System Capital Investments Have Not Reduced FAA Operating Costs." It was written by OIG consultant Arthur A. Shantz and OIG program director Matthew Hampton, and presented at a March 8th conference of the Transportation Research Forum. They trace the history of ATC modernization, starting with the 1983 NAS Plan, which was supposed to increase ATC facility productivity by a factor of two, based on airspace redesign, user-preferred routings, automated air-ground communications, and reduced aircraft separation. (Sound familiar?) It also sought to physically consolidate TRACONs and Centers. They show how these plans changed over time, with cost-saving and productivity increases going by the boards, but projects and costs proliferating. Overall, they conclude, modernization "has not reduced the cost of providing air traffic control services, nor is it likely to, as currently planned."

In trying to understand how and why this occurred, they point out that "NAS modernization architecture and project designs have been consistently subverted by requirements growth, development delays, cost escalations, and inadequate benefits management. But all these things were symptomatic of the fact that FAA didn't think it needed to reduce operating costs." The enabler of this profligacy was the accumulating uncommitted Trust Fund balances that allowed both operations and modernization spending to boom. There's a lot more meat in this excellent report, but I don't have space to cover any more.

(An abstract is available at www.trforum.org/forum/2005/schedule.php. To get the full paper, you have to pay.)

The other report, just out this week from GAO, is "National Airspace System: Experts' Views on Improving the U.S. Air Traffic Control Modernization Program." (www.gao.gov/new.items/d05333sp.pdf). To help GAO assess what's gone wrong and how things might be changed for the better, the National Academy of Sciences convened a panel of aviation experts last October, as a resource for GAO staff. This report is a summary (without attribution to individuals) of the day's wide-ranging discussion. It focuses on cultural and technical factors that have impeded ATC modernization, budgetary factors that have constrained modernization, and changes that could make a real difference.

While the whole report is full of valuable insights, I will focus on the budgetary aspects, given the current FAA funding crunch. Many panelists identified constraints imposed by the federal budget process itself:

  • Funding capital investments out of annual appropriations means it takes many years to fully implement a new program, which defers benefits for many years and risks the systems becoming obsolete by the time installation is finally complete.

  • Some choices are imposed by Congress based on concerns for jobs in members' districts, rather than what makes the most sense to improve the ATC system.

  • The uncertainty of annual funding is incompatible with sound strategic planning, and tends to focus attention on inputs (a specific piece of hardware) rather than outputs (lower cost or increased capacity).

  • The process fails to set priorities and masks synergies between programs.

Of particular importance is the discussion of the "firewall" that the budget process has imposed between the capital (Facilities and Equipment) and operating (Operations) accounts. This discourages life-cycle cost analysis and leads to investing in technologies that are too expensive to operate. It thereby explains a good part of what the Shanz/Hampton report found to have happened to the whole modernization effort.

One of the signal accomplishments of creating the Air Traffic Organization has been to start breaking down this firewall, linking the operating and capital budgets (at least within the ATO). For the first time, modernization is beginning to be approached in terms by asking whether there is a real business case for the new investment. In other words, modernization is not just about facilities and equipment; it's about changing the way air traffic control operates.

And that is why proposals to address the funding crunch just by "bonding F&E" are misguided. To do that would require creating an "F&E entity" that could issue the bonds—which would mean rebuilding the firewall, undoing the very useful start Russ Chew has made at integrating the operating and capital parts of the organization.

The expert panel did not go this route. Instead, it agreed with the Mineta Commission's approach, which was to replace aviation excise taxes with cost-based user fees. By ignoring the Commission's funding recommendations, Congress "produced an anomaly—that is, an organization charged with becoming performance-based but deprived of the means to transform itself." The ATO needs to become self-supporting, so that it can be extricated from the federal budget process, panelists said.


Reason's ATC Funding Report to Be Released May 4th

I'm pleased to give you advance notice that Reason's new policy study, "Resolving the Crisis in Air Traffic Control Funding," will be officially released at a news conference in the Rayburn House Office Building on Wednesday, May 4th. Co-author Vaughn Cordle and I will give a brief summary of the report, and several other aviation experts will be on hand to add their perspective. The news conference will begin at 2 PM. More details will be provided closer to the event.


ATC Outsourcing Battles Continue

Contract Towers and outsourced Flight Service Stations remain contentious issues, despite the large increase in cost-effectiveness both entail. February saw yet another court ruling in NATCA's never-ending legal challenge to the FAA's Contract Tower program. The federal district court in Ohio issued a summary judgment rejecting the union's contention that ATC services are "inherently governmental" and hence not subject to being contracted out. The judge cited both President Bush's June 2002 Executive Order 13180 on this subject, as well as language in the 2003 FAA reauthorization bill reflecting long-standing congressional support for the program. But as I write this, the court has not yet ruled on the other part of NATCA's challenge: whether the FAA followed the proper cost-comparison procedures in carrying out these control tower outsourcings.

Meanwhile, in March one of the losing bidders in the outsourcing of the Automated Flight Service Stations (AFSS) filed a formal protest against the selection of Lockheed Martin for this contract. As reported here last issue, that 10-year contract is expected to cut the cost of the AFSS program by more than half, while dramatically modernizing its technology. The protest was filed by the team composed of existing AFSS employees and Harris Corp. And wouldn't you know: Socialist Rep. Bernie Sanders (I, VT) has introduced legislation in the House to overturn this outsourcing. Sen. Tim Johnson (D, SD) has introduced a companion bill in the Senate (to protect the 23 jobs at the AFSS in Huron, SD). Politics as usual!

Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy





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