Air Traffic Control Reform Newsletter #26

Topics include: FAA forum on ATC funding crunch; Reason's new ATC funding report; the Aviation Trust Fund; GAO's report on commercialized ATC providers overseas; and Congressman Mica's hearing on the FAA funding crunch.
In this issue:

FAA Trust Fund Forum Highlights Funding Crunch

The FAA is facing a double whammy. With more than three-quarters of its budget coming from aviation user taxes, two structural changes have cut seriously into its revenue base. First, the shift from mainline jets to smaller regional aircraft (meaning the same number of passengers are carried by more planes) is significantly increasing ATC workload. At the same time, greatly increased competition from low-cost carriers (LCCs) has driven down air fares, which means the ticket tax (7.5% of the ticket price) is producing far less revenue than forecast. Over the next five years, the FAA's Air Traffic Organization projects a gap of $8.2 billion between likely revenues and business-as-usual budgets.

To address this funding crunch, the FAA devoted April 25-26 to an invitation-only aviation workshop at the Crystal City Marriott. DOT Secretary Norm Mineta challenged participants to think outside the box, looking into all available options. To their great credit, FAA Administrator Marion Blakey and ATO chief Russ Chew were hands-on participants for the entire day and a half of lively discussion, as U.S. and overseas experts set forth analyses and ideas on how to better fund and manage ATC for the 21st century.

Since the media were not invited, so as to facilitate open discussion rather than speechifying, I will not report on any of the details. But it's important to note what Blakey told Aviation Daily (April 26), excerpts of which I�m quoting here. The challenge is to "design and implement a cost-based financial system that treats all users of the system fairly," she said. The underlying principles are that "a stable, cost-based revenue stream can . . . ensure funding for long-term capital needs" and that "tying fees to the cost of providing services will serve to protect both the FAA and its customers."

In the closing session, Blakey led a discussion of possible next steps, suggesting that the agency welcomes continued inputs and would likely put out several possible models for discussion later this year. With serious participation by GAO, OMB, the Inspector General, all the principal trade groups, and a number of U.S. and overseas experts, the session was a welcome start for what will be an intensive period of debate and discussion, leading up to the next FAA reauthorization in 2007, when current aviation taxes expire.


Reason Study Proposes ATC Funding Solution

One week after the FAA's funding forum, the Reason Foundation released our new policy study, "Resolving the Crisis in Air Traffic Control Funding," by Vaughn Cordle and me (www.reason.org/ps332.pdf). Vaughn is a well-respected airline financial analyst, and his assessment of the changes taking place in that industry results in a projection of Trust Fund revenue even more pessimistic than FAA's. We translate this into possible budget numbers, and the bottom line is that with a business-as-usual approach to personnel costs and airport grants, the real pain will be felt in a decimated ATC capital investment program (i.e., modernization to produce the much-needed next-generation air traffic system, with double or more the capacity of today's system).

Our proposed solution is to make the Air Traffic Organization a self-funded entity, with ATC fees and charges paid directly to the ATO, thereby creating both a bondable revenue stream and a direct customer-provider relationship. And to ensure that the money is spent wisely, we call for giving the ATO a real board of directors, with the power to hire and fire top management, make policy, set the annual budget, and decide on the capital investment program. The board would be made up of aviation stakeholders representing all segments of aviation. None of this is brand new; nearly all was recommended in 1997 by the National Civil Aviation Review Commission, otherwise known as the Mineta Commission, after its distinguished chairman. Congress eventually implemented the part that created the ATO, but has thus far not given it the two key tools it needs to become truly performance-based: its own, bondable revenue stream and a real board of directors.

The Reason proposal makes only two significant changes in what that Commission recommended. To make the ATO truly accountable to its customers, the board members would be nominated by the various aviation groups, rather than being appointed by the President. And because of the large increase in turbine-powered aircraft already under way and projected over the next 20 years, we propose that the user-fee system apply to all turbine-powered planes, not just airline aircraft. (Piston-powered general aviation, which is not a heavy user of ATC services, by contrast, would continue paying a fuel tax to help fund the airport grants program.)

The report takes on a host of possible concerns about ATC fees, and discusses the crucial importance of reforming the ATC system's governance along with its funding. We released it May 4th at a well-attended news conference in the Rayburn House Office Building , shortly after the conclusion of Aviation Subcommittee Chairman Mica's hearing on the FAA funding crunch. It's getting good coverage in the trade press, and I have a guest editorial in this week's issue of Aviation Week (link here).


Is the Trust Fund Only for Infrastructure?

As the debate over the funding crunch heats up, I keep hearing (from those who've been around aviation a long time) that if only the Trust Fund were used solely for its original purpose (of funding aviation infrastructure), there would be more than enough money to modernize the system. This claim is being made by some airline people, a congressional staffer I've known for many years, and by the controllers' union, when they argue that there is not a funding crisis, just a policy decision to not spend as much general fund money as needed to support the bloated Operations budget.

This is not a new issue. It turns out the GAO's Office of General Counsel was asked this question in late 1998 by Rep. Frank Wolf (R, VA), who then chaired the transportation appropriations subcommittee. In a letter dated Feb. 12, 1999 (file B-281779), General Counsel Robert P. Murphy provided a legal analysis and legislative history of the Aviation Trust Fund, from its creation in 1970 through the recent past. The legal analysis concludes that the Trust Fund "was not created solely to finance aviation infrastructure," and that "The term 'infrastructure' does not appear in the statute or in the legislative history." In their review of subsequent amendments to the law, "we found that Congress has continuously authorized the trust fund to finance non-infrastructure expenses such as research and development costs." Moreover, "Congress has also authorized the trust fund to finance FAA operation and maintenance costs."

So it's pretty clear that although some in aviation wanted the Trust Fund to be solely for infrastructure (what would today be just the Airport Improvement Program and the Facilities & Equipment account), that's not what the law has ever said, or how Congress has ever acted. To argue that aviation excise taxes (which supply the Trust Fund) should be used only for AIP and F&E implies an enormous increase in general fund support for FAA. Using the FY2004 budget as an example, AIP and F&E total $6.3 billion. If the rest of FAA's $13.9 billion budget had come from the general fund, that would have required $7.6 billion in general fund support, instead of the actual $3 billion. With today's government-wide push for deficit reduction, the idea of a 150% increase in general-fund support for FAA is a pipedream.


GAO on Lessons from ATC Overseas

The Government Accountability Office has produced an excellent interim report on the performance of commercialized ATC providers overseas. It's called "Air Traffic Control: Preliminary Observations on Commercialized Air Navigation Service Providers" (www.gao.gov/new.items/d05542t.pdf). As part of an ongoing project on the subject, the GAO team visited and obtained data on five commercialized providers—in Australia, Canada, Germany, New Zealand, and the U.K. GAO found that since they were commercialized, all five have maintained safety, controlled costs, and improved efficiency. All five have invested in new technologies that reduced costs by increasing the productivity of controllers and reducing delays. And, "such measures have generally resulted in lower fees for major carriers."

This was not music to the ears of NATCA, the controllers' union. The day the House Aviation Subcommittee held a hearing on the subject (April 20th), at which the CEOs of Nav Canada and Deutsche Flugsicherung testified, along with GAO's Gerald Dillingham, the union ran a full-page ad in The Hill claiming that overseas ATC providers are so small compared with FAA that there is nothing to be learned from their success.

That bit of irrelevancy might have gone unnoticed, but for the unfortunate appearance at the hearing of a completely misleading comparison chart, unveiled by Democratic staff (but prepared, alas, by the FAA). It showed FAA with 159 million annual operations versus 4.3 million for Nav Canada (the next largest). It was a grotesque example of an apples vs. oranges comparison. The 159 million number combines IFR, VFR, and other numbers, whereas the numbers for the five overseas providers were for IFR only. FAA's actual IFR number is 18 million, making Nav Canada 1/6 the size of FAA, not 1/40.

And if that weren't enough, the next week NATCA released a purportedly objective review of ATC funding overseas, including brief and nominally factual descriptions of eight commercialized overseas providers. In several cases, graphs are provided showing ATC rates over time, which generally show an upward trend. No adjustment is made for inflation rates over the same time period, but when inflation is figured in for Airservices Australia, DFS, and Nav Canada, the trend for each is downward over time.

NATCA considers that they won the day at the "foreigners hearing," and in terms of the impressions created for Subcommittee members who showed up, I'm afraid they are right. But you will get a completely different picture from reading the excellent GAO report.


Mica Hearing Highlights Funding Challenge

As I noted above, House Aviation Subcommittee chairman John Mica (R, FL) held a hearing on the FAA funding crunch the same day (May 4) as Reason�s report was released. Administrator Blakey and Inspector General Ken Mead made strong statements about the seriousness of the situation and the need for fundamental reform. Regarding the possibility of switching to user fees, Mead noted that two factors are different today from when the subject has been discussed in the past. First, FAA is in a much weaker financial position today, and second, it now has a cost accounting system on which a fee system could be based.

In the second panel, the positions were pretty much predictable. Both the ATA and the Air Carrier Association supported a shift to a cost-based funding system, while the GA people all urged that GA continue to just pay fuel taxes. Ruth Marlin of NATCA claimed that this was a "manufactured crisis," a position echoed by Phil Boyer of AOPA (and on previous recent occasions by Ed Bolen of NBAA).

But what really stuck in my craw was Boyer's deceptive use of previous Reason Foundation work. Way back in 1993 we published an ATC study which drew on several cost allocation studies to show what it costs FAA for each service provided by a Flight Service Station to GA flights—and suggested that as a possible fee schedule. After feedback from GA people (including Boyer) that charging private pilots for weather briefings would lead some to forego this obvious safety measure, we made a decision that charging for that kind of transaction would be bad policy—and doing so was specifically disavowed in our subsequent ATC studies in 1996, 2001, and 2005. But what does Boyer do at the hearing? He shows a cute 7-minute video of a single-engine pilot being charged (the cash register rings!) each time he contacts ATC, with the charges adding up to $71. And it claims this is what Reason Foundation is advocating. (You can find this malicious little video on the AOPA website.)

This is especially dismaying once you realize that I spent about 10 minutes in a friendly chat with Phil at the FAA Trust Fund workshop April 25th, telling him that our new study recommends keeping the fuel tax instead of any ATC fees for piston GA planes like the bulk of his members fly. And I emailed him an advance copy of the study. But that didn't make any difference when it came time to put on a show on May 4th.


News Notes

Commercialization Rolls On. CANSO, the global membership organization of commercialized air navigation services providers, has two more full members, as reported in the latest issue of CANSO News (www.canso.org). The two newest ones, DHMI of Turkey and Jersey Airport of the Channel Islands, bring total CANSO full members up to 40.

RVSM Expands in Asia. CANSO also reports that reduced vertical separation minima (RVSM) has been implemented in the South Caucasus, including Azerbaijan, Armenia, Georgia, and the Rostov Flight Information Region of Russia over the Black Sea. CANSO member UkSATSE of Ukraine provided training assistance for controllers from the South Caucasus region.


Quotable

"The aviation community will have to come together to talk about how the system can remain vibrant and growing, what it will cost for the level of capacity and safety we will need, who will pay, and how they will pay. The financial picture has to be dealt with."

—Peter Challan, Vice President for Transition, ATO (Aviation Daily, Jan. 28, 2005).

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





;