Comments: U.S. Needs to Quickly Resolve ATC Funding Crises

In a newly published Reason Public Policy Institute Report, authors Vaughn Cordle and Robert Poole, Jr. state that largely because of "dramatic reductions" in average airline fares, the U.S. air traffic control system is faced with a major funding crisis, and the Air Traffic Organization's ability to modernize the system is "seriously threatened."

The immediate cause of this crisis, according to Cordle and Poole, is dramatic reductions in average airline fares, brought about by competition from low-cost carriers (LCCs) over the last five years, which has forced large reductions in most airfares, and therefore, ATO revenue, which is based on a 7.5 percent tax on the price of airline tickets.

As a result, the ATO's projected revenue is many billions less than expected and needed, and given the current airline financial climate, increasing taxes on this beleaguered industry is simply not an option, the report opines.

Cordle and Poole suggest the U.S. "rethink the way we pay for air traffic control," not only because the U.S. is the last remaining developed country to use a ticket tax for this purpose, or because nearly all other countries charge aviation users directly for air traffic services, based on ICAO guidelines, but also because the 1997 Mineta Commission report, which led to the creation of the ATO, strongly recommended that funding for the new ATO be based on user payments for air traffic services.

The Mineta Commission pointed out that in addition to creating a stronger relationship between air-traffic-service customers and providers, direct user payments would constitute a bondable revenue stream which would permit the use of long‑term revenue bonds, rather than annual Congressional appropriations for ATC modernization funding.

This study recommends that Congress make the ATO a self‑supporting unit of the FAA, by authorizing it to charge aviation users directly for its services, and raise money for capital spending by issuing long‑term revenue bonds in the capital markets.  The FAA's safety regulation and miscellaneous other functions would continue to be supported, by general funds, and the airport grants program (AIP) would be supported by a modest tax on airline tickets and cargo waybills.

The authors believe the transition period to bond‑funding of modernization would produce net savings to airlines of hundreds of millions of dollars per year, especially in the early years.  At the same time, modernization would be accelerated, thanks to the ability to raise large amounts up front to finance capital expenditures for which there was a demonstrated business case.  Modernization plans would first have to be approved by a new ATO Board, consisting largely of aviation stakeholders, which would also determine the structure of the new ATC charges.

In a concession to the strong opposition to user fees, by the Aircraft Owners and Pilots Association, the authors recommend that only a small segment of general aviation which makes extensive use of air traffic control services pay use fees under the new system.  Thus the large majority of piston‑powered general aviation would continue to pay the aviation fuel tax, which would help to support the airport grants program.  The Flight Service Station program should be considered as basically a safety function, paid for out of FAA's safety budget, and not be subject to user fees either.

Describing the current situation "a real window of opportunity" for reforming the way we pay for air traffic control, the authors summarize their suggestions in the following way:

• The funding crunch urgently needs addressing, before serious harm occurs from our aging and deteriorating ATC infrastructure.

• The new ATO needs the basic tools the Mineta Commission recommended, especially a dependable, bondable revenue stream that is not constrained by federal budget problems.

• New technology, combined with the impending retirement of more than half the controller workforce, offers a one‑time opportunity to change the way air traffic is managed, permitting a huge increase in capacity without increasing the workforce.

• The ATO will soon have an adequate cost‑accounting system in place, which is a precondition for developing cost‑based charges for its services.

• The current aviation taxes "sunset" in FY 2007, making their replacement an urgent topic for debate this year.

The entire report, "Resolving the Crises in Air Traffic Control Funding," can be found on the Reason Foundation's Public Policy Institute Website by clicking here.   05-09-2005.