Issue Brief |
Background
In February 1998, President Clinton released his budget request for Fiscal Year 1999 (which begins Oct. 1, 1998). The Administration proposed user fees and a tax increase on the entire aviation community.
The Clinton Administration wants to maintain the current excise tax system in FY99. But after that, they propose to phase out the taxes, including avgas, and replace them with user fees. The phase-in would lead to a 100% user fee-funded system by 2003. The wording from the President’s budget proposal:
"Beginning in 2000, the excise taxes that are levied on domestic air passenger tickets and flight segments, international departures and arrivals, domestic air cargo, and aviation fuels are proposed to be phased out over a five year period, and replaced with more efficient, cost based user fees charged for FAA services. As part of a continuing effort to create a more business-like FAA, the Administration will propose legislation by which the FAA would be entirely funded by cost based user fees by 2003." (emphasis added)
In recognition of the many benefits aviation provides to all taxpayers and the government’s own use of the system, the rest of the FAA’s spending currently comes from the General Fund fed by regular tax money. According to the President’s budget, the additional $6 billion in user fees would go to a "Transportation Fund for America" with no other explanation. FAA Administrator Jane Garvey has acknowledged that these additional fees are intended to replace the General Fund contribution.
In December 1997, the National Civil Aviation Review Commission (NCARC) called for replacing the current aviation excise tax system with cost-based user charges and restructuring FAA operations into a "performance based organization (PBO)."
AOPA Legislative Action Position
AOPA Legislative Action opposes either the imposition of a user fee-based financing scheme for FAA or any increase in the amount of revenue the aviation community now pays the federal government.
Both the NCARC and Administration are proposing radical and expensive changes to the FAA despite the lack of a cost accounting system within FAA or a firm estimate of the full costs of modernization. Alternative management structures, such as the proposed PBO, do not make FAA more efficient, it would simply add two new layers of bureaucracy to FAA decision-making. Modernization costs are likely to be far lower than originally projected and it will take several years of data collection from an accurate cost accounting system before FAA can even begin to assess its own cost structure.
The FAA already has the means to efficiency and flexibility at its disposal. Congress freed the FAA from the personnel and procurement rules that govern most other federal agencies as part of the FAA Reauthorization Act of 1996 (P.L. 104-264). That law also established a Management Advisory Council for FAA to take advantage of private sector aviation management expertise. The same law created the NCARC, yet while the Clinton Administration promptly appointed members to the NCARC, no one has been nominated to the MAC two years after President Clinton signed the bill into law. The Administration should implement existing reforms before asking for new ones.
The FAA has enjoyed a stable, reliable source of revenue for three decades. A total of about 70% of funding for the Federal Aviation Administration and Airport Improvement Program (AIP) grants to airports comes from excise taxes paid by general aviation pilots on aviation fuel, by airline passengers on tickets, and by shippers on air cargo. These funds are collected in the Airport and Airway Trust Fund for use only for aviation purposes. The Office of Management and Budget estimates that the trust fund will generate an $8 billion surplus by the end of FY99.
The aviation excise taxes lapsed in 1996 and again in 1997. On August 5, 1997, President Clinton signed into law the "Taxpayer Relief Act." This legislation reinstated the aviation excise taxes — including a ten-year reauthorization of the taxes general aviation pilots pay on fuel with no increase. The Act reaffirmed the faith of Congress in the aviation excise taxes as the suitable mechanism for funding aviation programs.
Since the Administration first claimed in 1995 that the FAA needed new revenue in the form of user fees, Congress has provided adequate funding for the agency — and has increased FAA’s appropriation to record levels each fiscal year.
User Fee Liabilities
FAA’s financial situation does not justify a new source of revenue. However, even if FAA needs more revenue now or in the future, AOPA believes the current aviation excise tax structure is efficient and cost effective. On the other hand, user fees have many liabilities which make them unworkable:
The severe liabilities of a user fee-funded FAA cause AOPA Legislative Action to oppose user fees even if general aviation were exempt from paying them.
Current Status
The House passed the Transportation Appropriations bill (H.R. 4328), which includes funding for the FAA, on July 29. It provides $9.5 billion for FAA and aviation programs. The Senate passed its version (S. 2307) on July 24 with $9.9 billion for aviation. The Senate bill includes a provision which states that no funds can be used by the FAA to plan, finalize, or implement any regulation that would promulgate new aviation user fees not specifically authorized by law after the date of enactment. The House bill contains a similar provision. It "assumes the collection of no additional user fees in FY99 that were not Congressionally authorized for collection during FY98 and includes a provision prohibiting funds in this Act from being used to plan or promulgate any regulation to institute any new user fee not specifically authorized by law after the date of enactment of this Act."
The House passed an FAA reauthorization bill (H.R. 4057) on August 4; the Senate has yet to act on the reauthorization bill the Senate Commerce Committee adopted on July 14 (S. 2279). The leadership of the House Transportation & Infrastructure Committee has declared 1999 the "Year of Aviation" and will seek a budget treatment that will free billions of dollars in aviation tax money which currently sits unspent in the Airport and Airway Trust Fund.