Statement of Phil Boyer
AOPA Legislative Action
500 E St., SW, Suite 250
Washington, DC 20024
National Civil Aviation Review Commission
The Honorable Norman Mineta, Chairman
Review of Coopers & Lybrand Independent Financial Assessment of the Federal Aviation Administration
May 28, 1997
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. More than half of all pilots nationwide are members of AOPA, making it the world’s largest pilot organization.
Mr. Chairman, I want to thank you for your service on this Commission, as well as for your distinguished service in Congress to the aviation industry. It's extremely unfortunate that the Commission does not include a representative of general aviation as the law requires—we thought someone from this panel would be sitting on your side today—but I hope the Commission will keep our views in mind when it makes its recommendations.
We’re disappointed that we are not represented on the Commission because general aviation represents the largest part of our national air transportation system. For Commissioners who may be unfamiliar with our segment of aviation, let me take a moment to review some numbers. The 181,000 general aviation aircraft—mostly single-engine piston but also multiengine and turbine-powered aircraft—comprise 96 percent of the total U.S. civil aircraft fleet. General aviation aircraft flew 25 million hours and 3.3 billion miles in 1995, most often using the approximately 17,000 landing facilities (92 percent) that are not served by airlines. It also supplies 542,000 jobs nationwide with an annual payroll of $14.5 billion. By contrast, air carrier aircraft operate 7,400 aircraft flying 18 million hours and serving 1,400 airports.
We are not here to ask for special treatment or to opt ourselves out of paying user fees. We would not support user fees even if we were exempted! Our concern is for the aviation system as a whole. Exempting some users does nothing but create two classes of users, those who pay and those who don’t. The exempted would no longer have a voice in the operation of the system. Besides, we have no confidence whatsoever that any exemption “deal” would stick for very long—witness the FAA’s recent imposition of overflight fees on general aviation despite clear legislative language that exempts us. It is simple now to understand that general aviation does not have paying passengers—hence the fuel tax. However, if general aviation were exempted from paying air traffic control fees or mileage fees, how long would it be before we were turned to in the same manner? Our experience with European air traffic control fees would suggests our exemption would be short-lived. In Europe, flights under a certain weight limit using visual flight rules (VFR) were exempt when user fees were established. Now, however, in certain areas the cry is for VFR user fees.
This Commission, like the FAA, is also charged with protecting aviation safety as well as considering FAA funding. Like you, our first mission is the safety of the aviation system. We believe user fees could erode safety as general aviation pilots, and perhaps even commercial airlines would naturally seek ways to control their costs. Already, the FAA’s final interim rule imposing foreign overflight fees has acknowledged that there are safety issues unique to GA that need to be considered when establishing overflight fees.
Let me remind the Commissioners that the creation of the Commission last year was accompanied by meaningful reforms of the FAA designed to make it more effective and cost-efficient. These reforms closely tracked AOPA’s Five-Point plan for FAA reform, which we released in February 1995. The reforms freed the FAA from most federal personnel and acquisition rules, allowing the agency to develop its own flexible rules. Personnel and acquisition reform was intended to 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 Council to give the FAA access to the management expertise of its customers in the aviation community, and rulemaking reforms.
As this Commission deliberates whether or not to change the FAA’s financing system, the Clinton administration has yet to appoint anyone to the Management Advisory Council, or even to appoint a new FAA administrator. Both are long overdue. The administration wasted four months before making its appointments to this Commission. We understand the deadline you are operating under; your job might be easier if you could recapture that lost time. It seems the administration is more interested in seeking new funds than taking advantage of ways to use existing funds wisely. It’s a hallmark of this administration and this debate over user fees.
I. The Department of Transportation's lack of credibility leads to the creation of the Commission
As the Commission begins its important work, we feel it is necessary to first review why Congress created the National Civil Aviation Review Commission. Simply put, Congress created the Commission out of frustration—frustration with the fact that for three years the Department of Transportation has never been completely forthcoming with Congress and the aviation industry as to why it needs, essentially, its own private supply of public money.
Although the Commissioners are well aware by now of the FAA’s so-called $12 billion funding gap, what you may not be aware of is the fact this so-called funding shortfall is arguably the fourth or fifth new justification for why the FAA needs a private supply of public money.
Failure of the corporation proposal...
In May 1994 through early 1995, the administration proposed to create a federal air traffic control corporation. At no point in that period did the administration ever feel there was a funding crisis. In fact, then Secretary of Transportation Peña listed budgetary process concerns, not a funding shortfall, as the number three justification for a corporation, behind the need for personnel and procurement reform. Of course, a corporation would introduce a board of directors representing primarily airline interests and diminishing congressional involvement, but that’s another story.
The Department of Transportation’s justifications in support of a new funding mechanism for the FAA in many ways can be compared to a pillow. Overall, a pillow never changes its size. But when you press down on one part of the pillow, a new section pops up.
One of the leading aviation experts in Congress, Representative Jim Oberstar, captures the essence of the department’s constantly changing rationales in testimony before the House Appropriations Committee in March 1995:
“The Administration’s arguments in support of a corporation are not convincing. The main justification for corporatizing the FAA has been the slowness of FAA’s progress in modernizing the ATC system. When the corporation was first proposed, the delays in modernization were blamed on the requirements of the government procurement process. It soon became apparent this argument was inadequate; if procurement is the problem, the solution is procurement reform, not the destruction of the FAA.
The Administration's most recent argument is that the problem is that the government funding process has not and will not make sufficient funds available to modernize the ATC system.... What of the future? The Administration has pointed to its budget proposal (FY96) which contemplates a freeze on F&E funding for three years, and then a nine percent reduction. The Administration argues that these funding levels will be insufficient to cover the modernization program.
This argument should be rejected as a classic case of bootstrapping. The Administration first proposes inadequate ATC funding and then argues that an ATC corporation will be needed because there will be inadequate funding. I am confident your committee will see through the ploy” [emphasis added].
Only four months later the administration justified all of Mr. Oberstar’s concerns when it announced to the Senate Commerce Committee that the FAA faced a future funding gap of $14 billion.
...Leads to the creation of a funding gap
The $14 billion funding gap estimate arose from the FAA’s claim, made in July 1995, that it would need $59 billion in the following seven years, but it could only expect to receive $45 billion under the budget resolution Congress had adopted for FY96. The only way to make up the funding gap, said the administration, was to impose a system of user fees that would bypass the congressional budget process entirely.
The FAA arrived at its estimate of resources available from Congress in a highly dubious way. The agency simply assumed that the FAA’s share of total transportation funding would remain the same until 2002 and arrived at a level of $45 billion based on an extrapolation from the amounts recommended for Transportation in the FY96 Budget Resolution. This method assumes that if Congress reduces funding for transportation functions as a whole, it would reduce the FAA’s share of that funding by the same rate.
However, a Budget Resolution is nothing more than a blueprint for Congress to create a budget. It is a non-binding statement of intent that includes little in the way of detail. It does not include a specific funding level for the FAA. It need not be signed by the President and does not have the force of law. And it does not apply to future years.
Surely Congress would not allow funding for a government function so vital to our economy and public safety to drop to dangerously low levels! Yet that is the assumption that is at the heart of the administration’s funding gap.
A look at history shows otherwise. If the FAA had tried to predict its funding levels for the 1980s using the same method, it would have amounted to $30.3 billion based on 1981 funding, adjusted for inflation. Yet the actual amount in the 1980s was $38.1 billion—25 percent more than the 1981 level would have predicted. In other words, Congress responded to increases in traffic growth, and the FAA's hunger for modernization funding, by increasing its funding levels relative to the growth of overall discretionary federal spending. And it did so while operating under the Gramm-Rudman-Hollings deficit reduction laws. Shouldn’t we base our assumptions on history rather than speculation?
Six months after announcing its $14 billion gap, with little fanfare the FAA revised the figure downward by 15 percent to $12 billion. And the U.S. General Accounting Office said the figure could be even lower. All the while, though, the FAA held steadfast to its claims that user fees were essential to fund the FAA adequately.
At that point, Congress threw up its hands. It created this Commission and directed an outside audit of the FAA in an effort to find the truth.
II. FAA’s future funding needs overstated; its ability for funding understated
From day one, we were skeptical that this funding gap would withstand serious scrutiny. The Coopers & Lybrand report supports our suspicions. Let us briefly highlight a number of the concerns we have raised over the FAA’s assumptions used to create the so-called funding crisis and compare them with C&L's conclusions.
Review of Coopers & Lybrand study
Our concern: The FAA assumed an average annual growth in the operating budget of 5.9 percent. This is almost 80 percent higher than the rate experienced over the past five years, and it is twice the expected annual rate of inflation. We questioned the credibility of the FAA’s projected rate of growth in the operating budget. This unrealistic assumption appeared to be intended solely to help justify the projected funding crisis.
C&L conclusion: “The impact of these estimates on overall FAA financial requirements depends on how closely linked demand is to staffing standards. Air traffic control operation costs continue to increase faster than demand for FAA air traffic control services. The high likelihood that future FAA workloads are overestimated needs to be among the factors considered when estimating future controller staffing needs.” (Coopers & Lybrand report, page III-9)
Our concern: Controller productivity has remained relatively flat or has decreased over the past few years, and the 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 the 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? What well-run business would make a massive investment in new equipment without first projecting how the deployment of this new technology would affect productivity?
C&L conclusion: “The studies used by FAA are dated and assume no efficiency improvements.... There is no design or attempt to consider improving or significantly changing the observed work processes and activities to achieve savings through productivity or work process change. This is a significant failing, we believe, of the use of the existing staffing standard process at the FAA.” (Coopers & Lybrand report, page VI-17)
Our concern: The credibility of the 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 they become. This is not surprising, but what is significant is that the FAA’s projections for both commercial and general aviation activity are almost always overly optimistic, projecting considerably higher rates of traffic growth than eventually occur.
C&L conclusion: “The FAA has a solid reputation in the aviation community for its forecasting abilities. However, when comparing actual past activity to five year historical projections, the FAA has consistently overestimated future aviation activity. Five year projections are of particular importance in assessing the FAA’s financial requirements as it will take 3-5 years to fully train a new controller. Overestimates in the need for new controllers five years from now will likely lead to significant future expenditures for unnecessary resources. (Coopers & Lybrand report, page III-8)
Our concern: As I mentioned before, the FAA assumed that Congress will reduce funding for transportation functions as a whole, and it would reduce the FAA’s share of that funding by the same rate. Neither is a fair assumption. In our meetings with the FAA, we have challenged them to name one piece of requested safety equipment that was not funded by Congress. In fact, just the opposite has occurred as Congress has ensured that state-of-the-art safety equipment is deployed. At a recent Gore Commission symposium, I asked two fellow panelists, Senator Wendell Ford and Representative Jim Oberstar, both members with long experience in aviation matters, if either felt they had ever under-funded an FAA budget request. Neither could recall such a case and actually indicated they had directed additional funding to high-priority safety items.
C&L conclusion: “[W]e believe the baseline for the gap—the FAA’s share of limited discretionary spending—is conservative since the FAA has already received a higher proportion than its own estimates would provide....” (Coopers & Lybrand report, page V-5)
As you can see, the Coopers & Lybrand report largely repudiates the claim of a funding crisis—or more precisely, it repudiates the administration’s claim that a funding crisis is inevitable without new revenue provided by user fees.
“Evolutionary,” rather than “revolutionary,” modernization
Further inquiry shows that not only are there other solutions to the FAA’s funding needs, but these solutions are readily available to the FAA. The technology needed to modernize the air traffic control system to meet future capacity demands and budget constraints, while enhancing the level of aviation safety, exists today. Most of it has been developed and tested, and the FAA can bring it on-line in time to meet capacity needs with much less money than anyone might expect. This scenario has been developed by The Mitre Corporation, and we think it holds tremendous promise. What is required from the FAA to implement this approach is a fundamental shift in attitude. Instead of pursuing revolution, modernization requires evolution.
The revolutionary approach was tested by the massive National Airspace System, or NAS plan, that attempted to throw massive sums of money at the FAA to totally restructure the ATC system all at once. Operating under the “Big Bang” theory, the FAA sought as much money as it could, all up front, at the inception of the NAS plan in the early 1980s. The NAS plan ultimately failed when it couldn’t support its own weight. The cost overruns are legendary—the initial price tag of $11 billion, already a huge public works project, ballooned to over $40 billion. Technology was obsolete before it was ready to use. FAA employees and contractors built careers on single programs or systems. The microwave landing system is a well-known example of a system that enriched contractors and built FAA careers, despite its near-universal rejection by the industry and expected obsolescence. It took congressional intervention to kill it. As expected, much better, cheaper, and more versatile technology is now coming on-line—the Global Positioning System, or GPS, which uses satellites for precision navigation.
The revolutionary approach requires that virtually every system be scrapped and replaced all at the same time, all while still providing a full level of service with zero tolerance for accidents, 24 hours a day, seven days a week. It amounts to remodeling a house by tearing it down to the foundation first before rebuilding it, while trying to live in it at the same time.
The Mitre Corporation has identified four areas where technology that exists today can produce incremental change sufficient to handle future capacity needs and increase ATC system cost-efficiency, as well as providing substantial savings to the airlines. This course of action takes advantage of the useful parts of the current system instead of scrapping the entire system and starting from scratch, and it would incur dramatically smaller costs than even the original price tag for the NAS plan.
Airport Improvement Program
The Airport Improvement Program also offers an opportunity for significant savings. With perhaps as little as $1 billion annually, coupled with increased reliance by primary airports on passenger facility charges (PFCs) and other financing resources, a refocused AIP program would more efficiently address the financial needs of non-hub commercial service and general aviation airports providing vital community access to the air transportation system. We believe this approach offers the most cost-effective use of shrinking federal funds.
As you know, overall AIP funding levels have declined steadily since 1992. A decline is to be expected in this era of increasing fiscal austerity. During the same period that aggregate AIP grants have declined, however, the proportion of that aid received by the large primary airports increased from less than a third in the 1980s to three-quarters of total AIP funding in 1994—all at a time when larger airports began tapping into the substantial potential of locally imposed passenger facility charges.
Funding of large primary airports at this increasingly higher level is coming at the expense of the smaller non-hub and general aviation airports, which communities depend on as their link to the air transportation system. However, these smaller airports have the least access to other sources of capital. Most primary airports can and do levy passenger facility charges, and PFC revenue accounts for a greater and greater share of primary airport resources. Large airports also can finance capital improvements through bond issues.
For these reasons, we believe the Commission should consider refocusing the priorities of the Airport Improvement Program by allowing large airports to increase the PFC amount they charge and targeting remaining AIP funds to help smaller airports meet their needs.
History and budget requests suggest DOT is not competing successfully for funds
As I said earlier, history suggests that as the FAA’s needs grow, so has its funding. So why does the administration continue to ask Congress for authority to raise aviation taxes through an elaborate scheme of new user taxes? AOPA Legislative Action feels the answer is simple. The leadership of the Department of Transportation has been unable or unwilling to compete for adequate funding.
The administration’s overall FY98 budget proposal to Congress contained an overall increase of almost 10 percent, to $270.7 billion, in domestic discretionary spending. By contrast, the administration’s request for the FAA’s budget for FY98 was actually decreased by $102 million from FY97. We believe this systematic reduction in priority spending is exemplified internally, where, for example, in FY96 the FAA’s F&E request was reduced eight percent and AIP was reduced 11 percent by the Department of Transportation and the Office of Management and Budget. The C&L study (page IV-11) also graphically exemplifies the fact that over the course of this administration, the FAA’s funding requests have been reduced dramatically by DOT and OMB. This is for an agency that performs an essential government service of protecting the lives of the flying public.
We suggest these numbers should lead the Commissioners to one of three conclusions. Either DOT or OMB reduced the FAA’s budget requests for good reason, aviation is not an administration priority, or, as Mr. Oberstar suggested earlier, lower budget requests become a self-fulfilling prophecy in order to justify new tax schemes. No matter what, we believe the FAA’s claim of a funding crisis should be dismissed.
III. Current aviation tax structure is most cost-effective
We believe the Coopers & Lybrand study discredits the administration’s primary reason for creating a system of new user fees to finance the FAA, despite the administration’s claims to the contrary. Unfortunately, we fully expect the administration to continue to advocate this dubious financial scheme using the justification found in this year’s budget submission, which is that user fees will “create a more business-like FAA.”
By what magic are FAA managers suddenly going to become more efficient and businesslike under user fees? The FAA needs to fix its existing problems, which were again clearly documented in the Coopers & Lybrand study. User fees will only make an expensive, inefficient system worse by eliminating any incentive to seek greater productivity or identify areas of potential savings.
The administration’s user fee proposal would end the current oversight of aviation activities by three committees in Congress. The proposed language would amount to simply handing the FAA a blank check for user fees for fiscal years 1999 through 2002. The lesson of the NAS plan is that congressional oversight and control of the taxpayers’ funds provided for the FAA’s use is essential. User fees are an attempt to sidestep congressional oversight rather than satisfying its requirements.
User fees would introduce their own inefficiencies. They would require an enormous new accounting bureaucracy to collect, making them much less efficient than the current aviation excise taxes. The excise taxes have easily financed airport and airway system needs for three decades.
At the request of AOPA Legislative Action, the House treasury appropriations subcommittee requested detailed information from the Internal Revenue Service (IRS) as to the exact costs of administering the current aviation excise tax system. We think the information provided by the IRS is significant and cautionary in terms of establishing a fee-based collection system. As you may know, Internal Revenue Code sections 4261 and 4271 impose the taxes on air transportation. In FY96, less than 24 full time equivalents (employees), costing the Internal Revenue Service approximately $1.7 million, certified collections of aviation transportation taxes. That’s over $5.5 billion raised with $1.7 million!
We think any new funding system that replaces the excise taxes should not exceed this $1.7 million collection cost. However, I can say with confidence that user fees wouldn’t come close. In fact, the FAA says it will require $1 million a year alone to collect the $75 million in fees on foreign aircraft that fly over U.S-controlled territory that it began charging last week. Imagine translating that $75 million to $8 billion or more—the amount needed for a 100-percent user fee-funded system, and you get $160 million in collection costs, which is 100 times the cost of collecting the excise taxes. In Europe, simple user fees based on weight and mileage are charged on en route traffic. Yet even these relatively easy-to-calculate fees can cause six-month delays in billing. The administration contemplates a much more complicated user fee scenario.
Since 1994, Congress and the transportation industry have spent countless hours analyzing and ultimately dismissing a number of dubious DOT-proposed schemes including: the “Unified Transportation Infrastructure Investment Program” (UTIIP), the government-owned “U.S. Air Traffic Services Corporation” (USATS), and now an FAA funded entirely by user fees. It would be interesting to know how many staff hours have been wasted over at the department putting together these proposals. Our national air transportation system would be better served if the FAA would stop wasting its time pursuing questionable new funding methods. Money is not the problem, it’s finding the will to fix the internal management problems that plague the agency.
Fix what we agree on—the delivery system
If there is one thing this Commission can do to ensure that the future funding needs of the FAA are met, it can fix what everyone agrees could stand improvement—the system by which the revenue collected from airway system users is delivered to the agency. The entire aviation community, including the FAA, agreed that personnel and acquisition reform was necessary, and Congress obliged last year. We have another chance to make change through consensus.
Although we disagree with the user fee concept, we were intrigued to read in the President’s budget that a “direct link” is needed between dedicated taxes and the level of funding for the agency operations that affect them. We could not agree more. Congress is currently considering a similar link between taxation and spending for federal highway infrastructure improvements.
AOPA has developed an alternative for handling any changes in FAA funding needs. Our 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,” and the law that created this Commission specifically calls for you to consider it.
The objectives of Linked Financing are as follows:
Under Linked Financing, what aviation users pay in taxes for a given year would depend on what FAA spent the year before. If the FAA’s spending goes up, the taxes collected would be adjusted upward by a corresponding amount the following year, according to a predetermined formula. An upper limit on the tax rates would keep the rates at a reasonable level. In fact, most of the growth in tax revenue would probably result from aviation industry growth, not tax rate increases. But the formula would provide for an adjustment in the tax rates, if necessary.
If FAA spending drops, tax rates would drop automatically the following year to reflect the decrease. This would ensure that users aren’t paying for something they don’t get.
However, appropriations are still constrained by the federal discretionary spending cap. Under the Budget Enforcement Act of 1990, additional revenue doesn’t automatically lead to additional spending. Why? Because overall discretionary spending is capped, regardless of how much money the government takes in.
The purpose of the spending cap is to control the deficit by cutting government spending instead of raising taxes. However, under Linked Financing, aviation users would pay for the increased spending for the FAA—not other taxpayers.
Therefore, the Linked Financing plan establishes an annual trust fund “reserve account” that would be available to the appropriations committees to supplement the resources otherwise available to them within the discretionary cap. This Annual Reserve Account would be outside the discretionary cap, so the discretionary cap would not limit the ability of Congress to spend the funds deposited in the Reserve Account. The amount deposited in the Annual Reserve Account each year would be equal to the annual increase in aviation trust fund revenue, if any.
Linked Financing assures that the taxes that aviation users pay are promptly spent for aviation purposes. And it does this without major changes to the current budget process or the ability of Congress to oversee the FAA’s spending. As an innovative mechanism for using “dedicated” taxes—taxes collected for a specific purpose—Linked Financing could offer a solution for many government programs with tight budgets that are fed by dedicated taxes.
Whether it is Linked Financing or some other change that allows us to have more flexibility within our current system—this is another example of our organization’s willingness to suggest new and innovative ways to address whatever shortfall might exist. We led the struggle for meaningful reforms, including personnel and procurement reform and the Management Advisory Council, which Congress adopted last year. We ask this Commission to work toward a solution to the one major problem where we may at last have found some conceptual agreement between Congress, the administration, and the aviation industry as to the solution. We are confident linking current aviation excise taxes directly to agency spending, in combination with fixing the problems that continue to beset the FAA, may in a few years cause all parties to agree that user fees were not the solution.
Given the challenges facing the federal government as it moves toward a balanced budget, the Commission has an exciting opportunity to make funding for the FAA a model for ensuring funds collected for a specific purpose are actually targeted to the intended use. Obviously we hope you will keep in mind the important role of general aviation in our nation’s air transportation system. But we also hope you will let us work with you throughout your deliberations. As our work on personnel and acquisition reform demonstrates, general aviation pilots have not attempted to avoid their part in providing solutions to the challenges that face the FAA. What we have opposed are administration attempts to impose solutions to, at best, unproved propositions.
As the Commission further deliberates, we hope you will keep in mind Representative Oberstar’s admonition concerning self-fulfilling prophecies. Before considering alternative financing mechanisms, we hope you will not let the administration’s assertion of a funding crisis go unchallenged, and we hope you will challenge the FAA to become the best organization it can be, instead of looking for endless supplies of public money.