Policy Study

Resolving the Crisis in Air Traffic Control Funding

Executive Summary

The air traffic control system is faced with a major funding crisis, which puts at risk ambitious plans to double or triple the system’s capacity over the next 20 years. Just over a year after the start-up of the reorganized Air Traffic Organization (ATO), its ability to modernize the system is seriously threatened.

The immediate cause of this crisis is dramatic reductions in average airline fares, brought about by the lowcost- carrier (LCC) revolution of the past five years. Intensified competition from LCCs has forced large reductions in most airfares. But since the major funding source for the ATO is a 7.5 percent tax on the price of airline tickets, the ATO’s projected revenue over the next 5, 10, and 20 years is many billions less than expected and needed. And in the current airline financial climate, increasing taxes on this beleaguered industry is simply not an option.

Therefore, it is time to rethink the way we pay for air traffic control. It turns out the United States is the last remaining developed country to use a ticket tax for this purpose. Nearly all other countries follow the guidelines of the International Civil Aviation Organization (to which the United States is a signatory) and charge aviation users directly for air traffic services. Indeed, the 1997 Mineta Commission report, which led to the creation of the ATO, strongly recommended that funding for the new ATO be based on payments for air traffic services, paid directly by aviation users to the ATO. The Mineta Commission pointed out that in addition to creating a stronger customer/provider relationship, such direct user payments would constitute a bondable revenue stream. That would permit funding air traffic control modernization by issuing long-term revenue bonds, rather than via annual appropriations.

This study recommends that Congress make the ATO a self-supporting unit of the FAA, by authorizing it to charge aviation users directly for its services. The ATO would also be authorized to raise money for capital spending (modernization) by issuing long-term revenue bonds in the capital markets. The FAA’s safety regulation and miscellaneous other functions would still be supported, as they are now, by $2 billion per year of general fund monies. And the airport grants program (AIP) would be supported by a modest tax on airline tickets and cargo waybills (in the vicinity of 1 percent).

The transition period to bond-funding of modernization would produce net savings to airlines of hundreds of millions of dollars per year, especially in the early years. At the same time, modernization would be accelerated, thanks to the ability to raise large amounts up front to finance capital expenditures for which there was a demonstrated business case. Modernization plans would first have to be approved by a new ATO Board, consisting largely of aviation stakeholders. This Board would also determine the structure of the new charges for air traffic control services.

We recommend that only that small segment of general aviation which makes extensive use of air traffic control services-jets and turboprops-pay fees under the new system and be represented on the stakeholder board. The large majority of piston-powered general aviation would continue to pay the aviation fuel tax, which would help to support the airport grants program. And we consider the Flight Service Station program used by general aviation to be basically a safety function, which should be paid for out of FAA’s safety budget; in no cases should there be user fees for those services.

There is a real window of opportunity for reforming the way we pay for air traffic control:

  • The funding crunch urgently needs addressing, before serious harm occurs thanks to the aging and deteriorating ATC infrastructure.
  • The new ATO needs the basic tools the Mineta Commission recommended, especially a dependable, bondable revenue stream that is not constrained by federal budget problems.
  • New technology, combined with the impending retirement of more than half the controller workforce, offers a one-time opportunity to change the way air traffic is managed, permitting a huge increase in capacity without increasing the workforce.
  • The ATO will soon have in place the cost-accounting system, which is a precondition for developing cost-based charges for its services.
  • The current aviation taxes sunset in FY 2007, making their replacement an urgent topic for debate this year.

We are proposing a dramatic change, but it’s no less dramatic than the change Congress authorized 20 years ago for the Washington, D.C. airports. Like the ATO, Dulles and National airports were then part of the FAA’s appropriated budget. They were unable to modernize, and they were not directly responsive to what their customers wanted. Congress had the wisdom in 1986 to permit those two airports to become selffunding entities, outside the federal budget structure (though still owned by the federal government). Thanks to developing their own bondable revenue base, the airports embarked on dramatic modernization programs to better serve their customers. No one today would go back to the old model for these airports.

What Congress did for the Washington, D.C. airports in 1986 it can and should do for the Air Traffic Organization in 2005 or 2006.