In this issue:
- Major ATC cost savings needed: GAO
- Taxes are not user fees
- ATC corporation success overseas
- Why TRACONs got out of control
- Flight Service Station outsourcing update
- Quotable quotes
GAO Calls for Major ATC Cost Savings
Although the controllers union and some general aviation groups continue to deny it, the FAA is in a serious budgetary fix. The Government Accountability Office released an important report in June that documents the near-term problem and lays out the kinds of outside-the-box thinking that will be needed to cope with the crisis (“Air Traffic Operations: The Federal Aviation Administration Needs to Address Major Air Traffic Operating Cost Control Challenges,” GAO-05-724).
The report deals only with the “Operations” portion of the Air Traffic Organization’s budget. Drawing on the ATO’s numbers, it projects operating costs and revenues for fiscal years 2006 through 2010, projecting a growing shortfall that totals $4 billion over this period. Two key assumptions are built into this: that ATO staffing remains constant and that revenues are kept within Office of Management & Budget limits during this period (which means no increase in general fund support for ATO, as urged by many aviation groups). I think the latter assumption is realistic, given the overall federal budget deficit, but there could be some wiggle-room there. But the assumption on staffing is a big problem, because, as the report points out, the ATO’s 10-year staffing plan calls for an increase of 1,200 controllers between now and 2010, most of whom would be in training to replace the expected wave of retirements later in the decade. So even if the revenues are slightly understated, the expenses are definitely short of what’s needed.
The way the agency has coped over the past five years is to draw from the Aviation Trust Fund each year more than is added to it from aviation excise taxes. The GAO report graphs this trend, showing that the uncommitted balance will fall to a low of $1.2 billion in FY 2006. But it makes no projections from there to 2010-probably because the numbers are too scary.
The GAO team reviewed what the ATO has proposed so far to get its costs under control in the 2006-2010 period. The planned measures address a mere 12% of the $4 billion shortfall (and by far the largest chunk of those savings come from outsourcing Flight Service Stations, which Congress is threatening to forbid). Since this is clearly inadequate, GAO draws on various expert recommendations from sources like a Coopers & Lybrand study and the 1997 Mineta Commission. A serious cost-control effort would include these kinds of measures:
- Consolidate major ATC facilities The 21 en-route centers could be replaced by six or fewer state-of-the-art centers, located in places where real estate is cheap and costs of living are low. And 150 TRACONs could be replaced by 50 or so modern facilities. Overseas ATC corporations are well along in doing this kind of facility consolidation.
- Consolidate regional offices The Mineta Commission report said that consolidating nine FAA regions into three could save $400 million over five years. Nav Canada closed most of its regional offices and reduced total headcount by 17%.
- Decommission legacy infrastructure This means shutting down numerous obsolete (and costly to maintain) radars and beacons, far more quickly than currently planned. Coopers & Lybrand estimated savings of $150 million per year.
- Expand the contract tower program There are still 71 low-activity towers that are good candidates for adding to this highly successful program that saves nearly $1 million per tower outsourced.
Every one of these actions will be strongly opposed by many members of Congress. But they are essential steps not only toward reducing out-of-control operating costs but also for increasing ATC productivity. There’s no way we can afford to double or triple the capacity of the system without dramatically reducing the unit costs of separating planes safely. Everyone who flies has a stake in getting these kinds of changes enacted—despite the obvious political hurdles.
Taxes vs. User Fees: What’s the Difference?
As the debate over how to fund air traffic control continues, some are calling for shifting the ATC system entirely to a fuel tax-essentially an expanded version of the taxes on avgas and jet fuel now paid by general aviation. The virtues are that fuel consumption bears some relationship to the amount of flight activity, a fuel tax doesn’t cost much to collect, and it gives a big break to smaller planes (a political virtue, at least). If the FAA had only a funding problem, then a higher fuel tax might be worth discussing as a second-best or third-best alternative.
But once you step back and realize that the need for reform goes far beyond funding, the fuel tax’s benefits are quickly outweighed by its many disadvantages. I can no longer count the number of knowledgeable aviation people who’ve talked to me about what they call “feeding the beast.” What they mean is that there is a real danger in giving new spending power to an unreformed FAA that has a long history of pouring modernization money down rat-holes and letting its operating budget spin out of control. When aviation groups cite the mantra “User pay means user say,” this governance reform is what they are talking about. I’ve heard even hard-pressed airline people say that they might be willing to pay somewhat more-but if and only if the money is spent cost-effectively, on improvements that will actually benefit them as ATC customers.
The underlying problem with a tax-any tax-is that its proceeds get deposited in the U.S. Treasury. Even if those dollars are legally pledged for a specific purpose, such as aviation, they only get spent on aviation if they are appropriated by Congress. That means Congress controls the budget and has the ultimate say over which systems get procured, which facilities do (or don’t) get consolidated, etc. All the crucially important changes that GAO, the Mineta Commission, and everybody else who’s studied the ATC system says are needed are highly unlikely to happen as long as Congress controls the purse strings. And those who run the ATC system have to pay attention to the people who provide them with their resources and can say yes or no. So Russ Chew can say over and over that the people and companies who fly planes are the Air Traffic Organization’s “customers.” But unfortunately, the customers he really has to pay attention to are the ones who write the ATO’s checks. And that’s not airlines or private pilots.
The only way to be sure that the system makes decisions that best serve the interests of its real customers is to have them pay the provider (the ATO) directly for the services they use. As the Mineta Commission eloquently explained back in 1997, that creates a customer-provider relationship totally different from what prevails today. To ensure that such a system stays on track, it should have a board of directors made up largely of customers, as we see working very well with Nav Canada .
Yes, user fees have a lot of other advantages, too, as recounted in the policy paper Vaughn Cordle and I released in June (www.reason.org/ps332.pdf). You can issue revenue bonds based on the predictable revenue stream, to fund modernization projects for which there is a genuine business case. You can give customers financial incentives (discounts on fees) to equip their planes with equipment that hastens modernization. You can establish a closer correspondence between amount of payment and services used. None of those are feasible with a fuel tax or other excise tax.
But the real bottom line is financial autonomy for a customer-controlled ATC system. That cannot be achieved with any kind of tax, because taxes necessarily embed the system in the federal budget process. Forty other countries have figured this out and freed their ATC system from this constraint. Our aim for next year should be to make the USA the 41st to do so.
ATC Corporation Success Overseas
Back in February 1993, as part of its year-long (unsuccessful) campaign to have Congress legislate that ATC is “inherently governmental,” the controllers union published a White Paper attacking what it called “air traffic control privatization.” While most of its venom was directed at outsourcing (e.g., the highly successful contract tower program), it also took assorted potshots at three commercialized air navigation service providers (ANSPs) overseas: Airservices Australia , the UK ‘s NATS, and Nav Canada . Na—ve reporters and clueless members of Congress repeated some of those allegations—e.g., that safety had suffered or there were no cost savings—creating considerable confusion.
To attempt to set the record straight, Sens. Stevens, Burns, McCain, and Lott asked the GAO to do a detailed study of the experience of advanced countries with commercialized ANSPs. GAO’s excellent report was released at the end of July, and it’s well worth reading (“Air Traffic Control: Characteristics and Performance of Selected International Air Navigation Service Providers and Lessons Learned from Their Commercialization,” GAO-05-769).
The GAO team made site visits and collected extensive data from five leading ANSPs: Airservices Australia , Germany’s DFS, Nav Canada, Airways Corporation of New Zealand , and the UK ‘s NATS. Three of these are government corporations, Nav Canada is private not-for-profit, and NATS is a public-private partnership with 49% government ownership. GAO concluded that “financial and safety data from each country were sufficiently reliable” to be used for this study.
First, they found that all five ANSPs operate as businesses rather than as government agencies, “making and carrying out their own strategic, operational, and financial decisions. As businesses, all five are self-financing, assessing fees on users . . . and, as necessary, borrowing funds from the capital markets, instead of receiving annual appropriations from the government. Finally, all five are largely monopoly providers . . . and are constrained in the price-setting process by some form of economic review or procedural guidelines.”
Next, GAO addresses several of the key questions about ATC commercialization. On safety, they found that “the safety of air navigation services has remained the same or improved.” On cost-control, they found that “each ANSP has taken steps to control costs” via reducing overhead and consolidating facilities. And on modernization, each has “lowered costs and improved efficiency through modernization-that is, through investments in new technologies and equipment.” Thanks to the lowered costs and increased controller productivity, “some ANSPs have been able to lower the prices they charge the airlines for certain services.” So the GAO report solidly refutes the unsupported allegations made in the union White Paper.
So what’s not to like? The one unsettling finding is that “for general aviation operators, however, commercialization has sometimes meant an increase in fees.” This was immediately seized upon by the Aircraft Owners & Pilots Association, whose press release headline said, “GAO report confirms higher GA fees likely with commercialized ATC.” That such a system would be “a disaster for general aviation” is the “inescapable conclusion” to be drawn from the report, says AOPA.
Baloney. What kinds or amounts of fees would be charged to general aviation is a policy choice, and the same Congress that enacts enabling legislation to commercialize our ATO will be able to insert whatever carve-outs (wise or unwise) for GA that its lobbying clout can deliver. I don’t know about you, but I have a healthy respect for the combined lobbying clout of AOPA, GAMA, NATA, and NBAA. But I also maintain that a customer-focused, high-tech ATC system is the best thing that could happen to GA-or at least it’s far better than the status quo. Because the status quo of funding shortfalls and bungled modernization leads straight to airspace rationing, previewed already at Chicago O’Hare. And GA will clearly lose out to airlines in a rationed system.
Why TRACONS Got Out of Control
In the last two issues, I’ve reported on scandals at the New York and Dallas TRACONs, in both of which cases management control broke down and “the inmates were running the asylum.” The obvious question is whether these cases were aberrations or just the tip of the iceberg. While I don’t have a definitive answer to that, I thought I’d share with you some feedback I received from an FAA veteran about this issue. He writes:
“There are two underlying causes that make the troubles at Dallas possible in almost any FAA facility. The first, concerning the covering-up of operational errors, is that the ATO no longer performs facility evaluations by trained headquarters evaluators (except when exposed by whistle-blowers as in this case). Facility self-evaluation leads to all kinds of mischief by managers who want their facility to look good. Unfortunately, the FAA has never had an objective way of evaluating facility manager performance; hence, if his/her operational error numbers are good and he/she keeps NATCA [the union] happy (with costly MOUs or unnecessary overtime), they are considered excellent managers.
“The second cause of the Dallas troubles is the FAA’s reluctance to take on disciplinary issues as we evidenced at the New York TRACON recently. Again, as in New York , this stems from the bizarre labor/management relationship that exists in ATC. Managers at the facility and headquarters level have been so accustomed to having disciplinary actions overturned by arbitrators, FLRA, or their own superiors that a culture has evolved that disciplinary actions will never be sustained, so why bother.”
I realize that this does not answer the question I posed, but it certainly suggests the potential for more New York and Dallas-type situations to come to light.
Flight Service Station Outsourcing: Decision Time
This month the Senate will take up the transportation appropriations bill that includes the FAA, and will therefore face the question of whether or not to support the FAA’s plan to outsource and modernize the Flight Service Station (FSS) program. As you will recall from Issue No. 28, the House in July approved an amendment from socialist Rep. Bernie Sanders (I, VT) that would forbid FAA from implementing the five-year contract with Lockheed-Martin. That contract would cut the program’s cost by 40% while completely revamping its obsolete technology and procedures. The fact that Lockheed’s plan would consolidate facilities led to pork-barrel support for the amendment (“Don’t close that FSS in my district!”) from 48 Republicans.
Many observers expected a similar amendment would be offered at the appropriations committee level in the Senate, but that did not happen. The committee bill includes full funding for FAA to proceed with the contract. But it still seems likely that an outsourcing-ban amendment will be offered on the floor by those who have carried water for FAA unions in the past. But there are good reasons to believe such an amendment would be defeated.
First, the FAA and Lockheed-Martin are no longer asleep at the switch. They’ve been making the case for the enormous benefits of the outsourcing plan. Second, the largest private pilots’ organization, AOPA, has gone on the offensive in defense of the modernization plan. Third, the two principal taxpayer groups, Americans for Tax Reform and the National Taxpayers Union, have let Senators know that they will be counting votes against outsourcing as anti-taxpayer votes. And most important of all, the White House has promised to veto the appropriations bill if it includes the anti-outsourcing provision passed by the House. That’s a credible threat, since the White House stuck to its guns on a comparable anti-outsourcing effort in 2003 and ultimately prevailed.
This will be a precedent-setting issue for the future of ATC reform. As the GAO report noted above makes clear, one key to serious ATC cost reduction will be consolidation of facilities. If the FAA is forbidden to close down 20-person FSS facilities, it’s inconceivable that they could close down and consolidate much-larger TRACONs and en-route centers. So this is a must-win issue for the longer-term cause.
“The biggest holdback to the number of airplanes that can be in the sky is that air traffic controllers are separating aircraft by hand. Until you can get away from that paradigm, we are at the limits of what you can do.”
-Sally Johnson, NASA Langley, quoted in Technology Review, May 2005
“At the top of the list of needed improvements is a satellite-based air traffic control system. The present system, based on ground-based radars, is antiquated and inefficient. Everyone knows that. It is time to stop studying the problem and take action, and to be certain that the Air Traffic Organization has the power and the resources to strive for efficiency.”
-Jim May, CEO of the Air Transport Association, Managing the Skies, March/April 2005.