Year of Aviation

'Year of Aviation'

With raised expectations, industry looks for long-term funding reform. Here are the basics of the debate

BY John F. Infanger, Editorial Director

March 1999

For better or worse, blame it all on U.S. Rep. Bud Shuster (R-PA). In 1998, the Chairman of the House Committee on Transportation & Infrastructure was successful in spearheading a long-term funding plan for the nation's highway system. At that time, Rep. Shuster stated that he was targeting 1999 as the "year of aviation." The aviation industry and its assorted disparate interests are attempting to hold him to his word.

"I think it's sort of a double-edged sword, because he has raised the expectation of all the aviation interests," states Henry Ogrodzinski, president of the National Association of State Aviation Officials. "You've got all these competing interests which want a slice of the pie one way or another. And I'm afraid that's going to terribly complicate the year of aviation."

The core of Rep. Shuster's legislative initiative calls for putting into place a five-year plan for funding the nation's aviation and airport infrastructure system. Along the way, he would also like to take the Aviation Trust Fund off budget and has suggested that the Federal Aviation Administration should be taken out of the Department of Transportation's purview and made into an independent agency.

However, this all comes at a time when the Airport Improvement Program and FAA funding have only been authorized and appropriated through March 31st - or, one-half year (as of press time). His proposal would fund the system through the end of FY1999 (September), and then begin a new five-year plan.

In the other Congressional body, Sen. John McCain (R-AZ), Chairman of the Commerce, Science, and Transportation Committee, is spearheading an initiative of his own, which most notably calls for a two-year aviation funding plan and making slot-controlled airports more accessible to smaller communities. Sen. McCain's proposal, in reality, includes FY99 in its two-year plan, so its long-term effect only takes the industry through fiscal year 2000. The Senator also opposes taking the Aviation Trust Fund off budget, calling such a move bad government.

The Administration's Proposal
Amid the raised industry expectations and ensuing debate, the Clinton Administration has once again proposed eliminating any general fund contribution to fund the aviation system while also implementing new user fees to fund the nation's air traffic control system. It also calls for $1.6 billion in funding for the Airport Improvement Program - significantly less than the $2 billion many in industry see as the minimum required to maintain the necessary infrastructure. Jack Olcott, president of the National Business Aviation Association, may have summed up the viewpoint of industry and Congressional leaders best when he called the Administration's entry into the debate an "unnecessary distraction."

Adds Olcott, "With Congress poised to make significant progress on issues of critical importance to business aviation and the entire aviation community, it is unfortunate that the Administration has decided to resurrect the ghost of user fees past." He also echoes industry's position when he states that elimination of the general fund contribution to funding the system ignores the public benefit received from a safe, efficient system.

Under the Administration's plan, the air traffic control system would become a performance-based organization (PBO) funded by user fees, with an associated gradual reduction of excise taxes. Non-ATC operations would be funded by excise taxes. Costs for commercial aviation would be charged to users through a cost-accounting system FAA expects to implement in late 1999. General aviation would continue to pay excise taxes but be exempt from the new user fees.

Rep. James Oberstar (D-MN), ranking Democrat on the House Transportation & Infrastructure Committee, says the PBO proposal for ATC would compromise safety. Rep. Shuster reacted with deep concern for removing the general fund contribution , citing the benefit to the general public and military. And Sen. McCain says he is "disappointed that the Administration-proposed AIP level is down $350 million from the amount that Congress appropriated in fiscal year 1999. Although the Administration talks about a commitment to improving the nation's aviation infrastructure, it fails to follow through in its budget request."

Meanwhile, NASAO's Ogrodzinski sums up the position of many when he states, "The most important thing from the states' viewpoint is adequate, sustained funding for airports."

Potential PFC Changes
For airport groups, a long-term funding equation needs to include raising or eliminating the cap of $3 currently set on passenger facility charges (PFCs) permitted for use in infrastructure development at commercial U.S. airports.

Rep. Shuster and the Clinton Administration are willing to raise the cap; Sen. McCain, however, calls for reforming the current tax system before raising PFCs.

Both the American Association of Airport Executives, which represents airport managers, and Airports Council Int'l-North America, which represents major airports, see PFC reform as a critical link to finance reform for the entire airport system.

Explains AAAE president Chip Barclay, "Our view is that the semantics that are appropriate are that we need to repeal the provisions of the FAA act that are limiting the local governments' ability to come up with their own capacity solutions. It's not an issue of lifting the cap a couple of bucks; it's more that you've got the federal government telling local government that they can't solve their own problems even if they have the financial wherewithal to do so.

"I can't think of any other fees in which the federal government steps in and says, 'You're not allowed to charge what your own local government process can come up with as a relationship between cost and need.'

"You need to lift the cap on PFCs and repel that restriction on local control, and tie to that (releasing) higher AIP dollars for smaller airports. The PFC is a solution for the largest airports in the system; smaller airports also have to have their infrastructure needs met. For the airport industry, we want to see something for everyone in the mix."

One of the strongest opponents to lifting the $3 PFC cap is the Air Transport Association, which represents the major air carriers. ACI-NA's Plavin questions the level of commitment behind that opposition.

"There are airlines today, I can tell you, that will say, 'PFCs are good for me and my airline,'" he explains. "They're overwhelmingly (used on) projects the airlines like and favor. There are a couple of airlines that don't like PFCs and, because they (ATA) don't have a consensus, it's just much easier to say no."

Plavin adds that in time the greater issue for the air carriers may become that of the Administration's proposal for new user fees. "They have reason to be concerned that user fees will get piled on top of existing taxes they pay instead of replacing them," says Plavin.

While some in industry also propose other funding mechanisms - revolving state loans for hangar construction is one suggestion - AAAE's Barclay says the focus should be on long-term planning and PFC reform. "The truth is there already is a revolving loan fund out there for airports: It's called Wall Street. If you have the ability to borrow, you can go either to a local bank or to Wall Street and sell bonds. The only thing government very often gets you in a revolving loan fund is a slightly lower interest rate," he says.