Mr. Vice President and distinguished members of the Commission, my name is Tom Chapman, and I am Vice President and Executive Director of AOPA Legislative Action.
AOPA Legislative Action enjoys the financial support of 340,000 dues paying members. Together with our affiliated organization, the Aircraft Owners and Pilots Association, we promote the interests of those who contribute to our economy by taking advantage of general aviation aircraft to fulfill their business and personal transportation needs. There are more than 650,000 general aviation pilots nationwide.
The FAA, Congress, and the aviation community have all spent many years struggling with the airway system modernization effort. In the last two years, both the FAA and Congress have completed several worthwhile initiatives that will move modernization forward.
Last year, Congress adopted our proposal to free the FAA from most federal personnel and procurement rules, allowing the agency to develop its own flexible rules. As a result of this legislation, the FAA is well-positioned to lead the charge in the Administration's "Reinventing Government" effort. We are proud to have played a substantial role in this project. Personnel and procurement reform will save the FAA time and money, and we believe the agency should be able to transform itself into a more efficient and effective agency as a result of these and other common-sense reforms enacted recently when Congress passed the FAA Reauthorization Act of 1996. These reforms include making FAA more autonomous of the Department of Transportation, establishing a Management Advisory Committee to give the FAA access to the management expertise of its customers in the aviation community, significant rulemaking reforms, requiring an independent assessment of FAA's funding needs, and creating a commission to examine financing alternatives.
On another front, an FAA working group has completed version two of the proposed National Airway System Architecture. This roadmap to modernization is intended to take advantage of new technology in a forward-thinking way to finally put the FAA in line with technological possibilities and customer needs - instead of behind them. While we think this version of the system architecture proposal still needs adjustments, such as changes to the technology transition timetables, much of the proposal is sound overall.
With these significant advances in place, the debate concerning airway modernization has shifted from "how to do it" to "how to pay for it." Dictated by the goal of balancing the federal budget, the FAA, Congressional leaders, and the industry have struggled with the financing issue. To the extent funding will be a problem in the future, what is needed are innovative approaches, not drastic solutions.
While many issues are reaching consensus, neither the very controversial idea of user fees nor a reshuffling of the excise tax structure are a part of that emerging consensus. And the so-called user fees which the seven largest U.S. airlines have proposed have absolutely nothing to do with reforming the FAA. Their proposal is about helping the big airlines make more money by penalizing the low cost carriers. The Group of Seven major airlines user fee proposal would deny access to millions of cost sensitive consumers who depend on the reduced air fares charged by the low cost carriers.
The one and only goal of the Group of Seven's tax proposal is to shift their tax burden. They call their proposal a "user fee," but it is really just another tax. They fiddled with the numbers until they got the result they wanted. The high-fare airlines are interested in increasing their profits at the expense of their competitors. That's a perfectly natural impulse, but it hardly amounts to reforming the FAA. Furthermore, it ignores the reality that ours is a huge national system of air transportation which dwarfs that of any other country by serving a wide range of differing users.
Finally, a DOT staff review of the Group of Seven proposal concludes that their plan "would have produced $248 million less revenue for the Trust Fund for CY 1995 than was estimated by the Group of Seven carriers for the 10 percent excise tax approach." In other words, their plan clearly will not generate the additional revenue necessary to address FAA's funding concerns.
In a broader context, let us take a moment to examine how user fees emerged in the reform debate.
In July of last year, the FAA claimed that it would need $59 billion in the following seven years - $12 billion more than the Administration assumed the FAA would receive under the budget resolution Congress adopted last year. The Administration hoped to make up the shortfall by charging user fees for air traffic control and other services.
With further scrutiny, however, FAA's projections reveal many flaws.
First, reliable information available to us indicates that FAA is assuming an average annual growth in the operating budget of 5.9%. This is almost 80% higher than the rate experienced over the past five years, and it is twice the expected annual rate of inflation. We question the credibility of FAA's projected rate of growth in the operating budget. The unrealistic assumptions appear to be intended solely to help justify the projected funding crisis.
We understand further that controller productivity has remained relatively flat or has decreased over the past few years, and that FAA's analysis assumes no new productivity gains between now and 2002. This lack of increased productivity is also reflected in the most recent version of FAA's proposed airway system architecture. If controller productivity is not going to improve in the coming years, what benefit will be derived from the installation of new air traffic control equipment? How will delays be reduced or system efficiency enhanced without increased controller productivity?
The credibility of FAA's projected funding crisis depends heavily on the accuracy of the agency's long-range estimates of growth in air traffic. However, data available to us indicates that the farther out in time the FAA makes its projections, the more inaccurate it is. This is not surprising, but what is significant is that the FAA's projections are almost always overly optimistic, projecting considerably higher rates of traffic growth than eventually occur.
For example, in the category "IFR aircraft handled," FAA historically overestimates by 6.2% when it guesses five years ahead of time. This error goes down to 1.7% in the year before the actual traffic count. So in 1989, FAA projected that 41.9 million IFR aircraft would be handled in 1994. This obviously drove their estimates at that time for staffing requirements in 1994. However, the actual figure for 1994 was 38.8 million IFR aircraft handled, which is eight percent less than the 1989 projection.
The impact of these substantial overestimates are magnified when combined with other overly optimistic growth estimates within FAA's analysis of the funding crisis. This surely accounts for a significant proportion of the projected funding shortfall.
The FAA estimated it could cut its procurement costs by 20 percent under the procurement reforms initiated last year. Based on FY96 numbers, this means that FAA could save $390 million annually in F&E costs, or nearly $2.5 billion dollars by the year 2002! This doesn't include the substantial savings which we assume that personnel reform will also yield.
Finally, the FAA assumes that if Congress reduces funding for transportation functions as a whole, it will reduce FAA's share of that funding by the same rate. That is not a fair assumption. Surely the FAA does not expect Congress to allow funding for a government function so vital to our economy and public safety to drop to dangerously low levels.
All these areas of potential savings and shaky assumptions cast serious doubt on FAA's assertion that it will experience a funding crisis that only user fees can relieve. Even if additional revenue is necessary, user fees would bring with them substantial liabilities. Any system of direct charges to users is sure to require a large and costly bureaucracy to collect, a politicized system for setting the fees, and possible threats to safety because of the unavoidable disincentive raised by imposing user fees.
In August, the excise taxes that supply revenue to the Airport and Airway Trust Fund, which had expired at the beginning of this year, were reinstated in time to stop the FAA's steady and dependable source of revenue from drying up. That was a wise move. The excise taxes have served as a stable and reliable source of funds for decades.
In the meantime, we concede that the FAA could face a funding problem - not a crisis, but a problem. But the revenue collection mechanism, the excise tax, is not the problem. The Airport and Airway Trust Fund until recently was in surplus by several billion dollars year after year. The problem is with the delivery mechanism - the practical and political pressure to balance the budget, and the Congressional rules and procedures that impose limits on spending.
We certainly don't advocate abandoning the effort to balance the budget. But consistent with the goal of a balanced budget, we think there are constructive and honest ways to deal with the problem. Our most promising idea is rooted in the fact that the FAA and the air traffic control system is an essential government function for which users pay the bulk of the expenses. We call our idea "Linked Financing."
In September, Congressman Jim Lightfoot introduced legislation to implement Linked Financing (H.R. 4206). The bill is complex, so I won't go into the details today. But the objectives of Linked Financing are as follows:
A number of aviation and finance experts in and out of government have expressed interest in the concept of Linked Financing, and we are encouraged by the comments we have received. If it works for the FAA, as we believe it would, Linked Financing could offer a bold new way for other government agencies funded by users to maintain adequate levels of funding without disrupting the goal of fiscal responsibility within the federal government as a whole. We would be pleased to visit with the members or staff of this Commission to fully explain our idea.
Last year, it became clear that the vital issue of funding the FAA needed attention in a forum equipped to obtain the necessary information and consider it in a rational way separate from the politically charged and contentious atmosphere that has characterized the debate so far. The already controversial issue of FAA management and financing reform was complicated further by the proposals of some airlines to shift their tax burden to their competitors without any benefit to the FAA.
To deal with this problem, the FAA reauthorization law I mentioned earlier that Congress passed in October established a National Civilian Aviation Review Commission. The Commission will conduct a comprehensive independent review of FAA safety oversight, financial prospects and options, and acquisition policy. The legislation also requires the FAA to contract with the private sector to conduct an independent and objective assessment of FAA's long-term financial requirements. The FAA recently selected Coopers and Lybrand, and the assessment should be underway. The parties responsible for naming members of the Review Commission are considering nominees now and the panel should convene soon.
If managed properly and if Commission membership is truly representative, the National Civilian Aviation Review Commission should serve as a suitable forum to consider our Linked Financing idea and other financing alternatives - including user fees! We also hope the Commission will prove capable of analyzing the incremental cost of the entire general aviation community over and above the costs that would be incurred if the airport and airway system were used solely by the scheduled airlines. This is a key issue, from our perspective.
We urge you, as members of the White House Commission on Aviation Safety and Security, to take action consistent with the goals and purposes of the National Civil Aviation Review Commission and to allow the process Congress put in place for considering financing reform to run its course. It is essential that your work and that of the National Civil Aviation Review Commission together result in a consistent and rational policy direction.
Mr. Vice President and members of the Commission, this concludes my comments. Thank you again for the opportunity to present our views. I will be happy to respond to any questions.
Posted on Friday, December 20, 1996