Mr. Chairman, my name is Phil Boyer, and I am President 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.
AOPA Legislative Action strongly supports efforts to reinstate the aviation ticket tax and the other excise taxes, including those paid by general aviation, on a multi-year basis. For the past 27 years, these taxes have adequately funded the world's busiest, most complex, and safest aviation system. We are confident the current tax structure can fund the modernization of the air traffic control system and improve the nation's aviation infrastructure even as, over the next five years, we balance the federal budget. The reforms initiated by this Committee, which Congress adopted last year, will allow the agency to immediately stretch its dollar, and the National Civil Aviation Review Commission will soon focus on FAA funding issues beginning with the audit of FAA currently being undertaken by the accounting firm Coopers & Lybrand.
If Congress eventually concludes a new funding mechanism is necessary, alternatives exist beyond the Administration's simplistic user fee proposal - alternatives that, unlike user fees, would not diminish the participation of Congress in aviation safety and capacity matters. For example, AOPA Legislative Action has developed Linked Financing, a proposal which would continue to fund the air transportation system with the excise taxes, meet future funding needs, and preserve the involvement of Congress in the funding allocation process. Taking the Trust Fund off budget is an alternative long advocated by this Committee and its constituency. These and other options merit serious review. However, until a consensus develops on FAA's future funding needs and mechanisms, we urge Congress to reinstate the existing excise taxes and put FAA back on a firm financial footing.
As we all know, the users of the airway system, including the hundreds of thousands of general aviation pilots who pay taxes on fuel, pay for the bulk of the system. The excise taxes that airline passengers and pilots pay is, in the broad sense of the word, a user fee. The system is already user-funded. It has worked just fine for 27 years - including two decades into the era of airline deregulation. We need to put the current system of user charges back into place by reinstating the excise taxes.
The users we are talking about today include the travelers who enjoy the benefits of both a free market in airline travel and the best aviation infrastructure in the world. Members of our association count themselves among those who pay for the system and benefit from it. In fact, looking around this room, I think I may be the only person testifying here today who represents people who actually pay into the system through excise taxes.
Mr. Chairman, the costs to our members of flying in the ATC system do not end with the payment of the excise taxes. We each make a substantial personal investment in modernization by upgrading to new avionics equipment for navigation, communication and surveillance. This represents our direct cost of modernization, and modernization cannot proceed without it.
Management ReformsLast year, thanks to your leadership, Mr. Chairman, Congress adopted several meaningful reforms of the FAA's management environment when it adopted this Committee's approach to reform. First, we were pleased to work with this Committee on proposals to free the FAA from most federal personnel and acquisition rules, allowing the agency to develop its own flexible rules. Personnel and acquisition reform will save the FAA time and money and allow the agency to transform itself into a more efficient and effective agency. Other important reforms include making the 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.
I'd like to thank this Committee for its vital role in bringing these reforms, especially the Management Advisory Committee, to fruition. Although appointment of MAC members is behind schedule, when it is finally up and running it will provide priceless guidance to the FAA. I would also like to thank this Committee for creating the National Civil Aviation Review Commission. Though the spotlight right now is on the Gore Commission, the Review Commission holds the most promise for meaningful financing reform.
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 which will place the FAA in line with technological possibilities and customer needs. While we think this version of the system architecture proposal still needs adjustments, such as changes to the technology transition timetables, overall, much of the proposal is sound.
The Next Step: Financing ReformWith these significant advances in place, the debate concerning airway modernization has shifted from "how to do it" to "how to pay for it." This shift in debate is premature, though. The bureaucratic reforms put into place late last year have only just begun to transform the FAA and allow it to use its resources more wisely. However, 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 risky schemes.
While we were able to reach a consensus last year on many FAA reform issues, neither the very controversial idea of user fees nor a reshuffling of the excise tax structure were a part of that 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, nor helping it meet any perceived funding shortfall. The one and only goal of the Group of Seven's tax proposal is to shift their tax burden. 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.
In fact, a DOT staff review of the Group of Seven proposal concludes that their plan "would have produced $248 million less in revenue for the Trust Fund for FY 1995 than was estimated by the Group of Seven carriers for the 10 percent excise tax approach." In other words, their plan not only fails to generate additional revenue, it would only exacerbate any out year funding problem the FAA may eventually confront.
This discussion of equity demonstrates that it is impossible to accurately distribute the cost the FAA incurs by serving each user or segment of the aviation industry. We are very wary of any attempt to do that. It is well-known that a "Cost Allocation Study" was recently completed for the FAA. The information in this study could certainly be of use in this debate; perhaps this Committee could request access to it. In a broader context, let us take a moment to examine how user fees emerged in the reform debate.
In July of 1995, 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 for FY96. 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, 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. This unrealistic assumption appears to be intended solely to help justify the projected funding crisis.
Further, we have received the Office of Management and Budget passback document sent to the Department of Transportation in response to its budget request. In the passback, OMB estimates significantly lower out-year funding for FAA for the same five year period in which FAA estimates that its funding will reach a crisis level. When the Administration itself is revising the estimates downward, it casts further doubt on the reliability of the FAA's projections.
We also understand 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 38.9 million IFR aircraft handled, which is seven percent below 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 Congress will reduce funding for transportation functions as a whole, and it will reduce FAA's share of that funding by the same rate. Neither is 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. The Administration chooses to ignore the large number of cosponsors of the Committee's "Truth in Budgeting Act," at last count, 123, and this only weeks into the current Congress. This is another indication of congressional support for our vital transportation infrastructure.
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.
Action Needed Now on the Excise TaxesIn 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.
The issue of FAA financing is being discussed in several forums. The White House Commission on Aviation Safety and Security, known as the Gore Commission, will issue recommendations soon. The National Civil Aviation Review Commission will convene this year to consider the financing issue specifically. The Review Commission will use the independent assessment of FAA conducted by Coopers & Lybrand. And, of course, many Members of Congress are considering the issue.
Since a consensus on the financing issue has yet to develop, we recommend that Congress reinstate the excise taxes that provide revenue to the Airport and Airway Trust Fund as soon as possible. The FAA must have a firm financial footing and the full confidence of the flying public. Unless and until a consensus arises on a better way to finance the FAA, the agency should not be denied the stable and reliable source of revenue that has served it well for 27 years.
We, the users of the aviation system, have paid these taxes for many years. We come before you today to ask you to continue to levy these taxes on us for the good of the nation's aviation system. It's not often that taxpayers come to Congress to ask for taxes to be reinstated. We hope this fact alone demonstrates the importance we attach to reinstating the taxes.
Funding AlternativesIn 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. As I mentioned before, the Truth in Budgeting Act is an example of how Congress can commit to full funding of the airport and airway system which is so essential to our nation's economy, security, and flight safety. Another promising idea, one that we have developed, 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," and you may recall that I have mentioned it to the Committee previously.
The idea 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. Many of the ideas contained in Linked Financing were inspired by innovations at the state level, including the transportation tax mechanisms in place in the full Committee's home state of Pennsylvania. 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 have developed an innovative alternative for FAA financing. This is the kind of thinking we need from the entire aviation industry, not just from those with an obvious vested interest in tinkering with the current tax structure solely for their benefit.
We have been happy to work closely with this Committee to achieve groundbreaking changes in the way the FAA operates. The new management environment the FAA now enjoys is a testament to what Congress and a united aviation industry can achieve when we work together. I hope that this Committee will support our efforts to reinstate the aviation excise taxes as soon as possible to put the FAA back on a firm financial footing unless and until a better financing alternative is developed.
Mr. Chairman, this concludes my comments. Thank you again for the opportunity to present our views. I will be happy to respond to any questions.