RAA Convention 2006: RAA hurries to wait for word on FAA’s funding proposal

 - September 19, 2006, 12:01 PM

Like most segments of the aviation industry, regional airlines have cast their collective eyes on topic number one of late–how to finance the FAA. Although Congress might not move forward with specific legislation related to FAA funding until next year, both the House and Senate will hold hearings on the subject throughout the year.

At the core of the debate stands the Airport and Airways Trust Fund, which in Fiscal Year 2006 provides 82 percent of the money the FAA needs to operate. Currently, that fund gets financed with aviation excise taxes, which includes the 7.5-percent passenger ticket tax.

In the past, Congress has appropriated amounts roughly equal to estimated excise tax receipts. But the DOT’s inspector general found those estimates to be low, resulting in a significant decrease in the trust fund’s uncommitted cash balance.

With the current aviation excise tax authorization set to expire next year, the FAA is developing a proposal for cost-based user fees. The arguments behind such a change center on the premise that cost-based user fees could provide efficiency incentives for both the FAA and its users and that they might enable Congress to circumvent discretionary spending caps to create a steady funding stream for the FAA.

Other proposals include giving the FAA authority to float bonds to fund ATC modernization without requiring users to pay for those investments up front. Under such a plan, the FAA would enjoy borrowing authority to fund modernization, while user-fee revenues pay the principal and interest.

“The FAA initially had promised that this [funding plan] would be out early this year, and then it switched to spring,” said Faye Malarkey, RAA v-p for legislative affairs. “I don’t know when we’re going to see it. I know OMB [the White House Office of Management and Budget] has been hanging on to it, and so the FAA cannot really move forward until it gets the go-ahead from OMB.”

The Air Transport Association argues that airlines pay for 94 percent of the system but use only about 69 percent of its services, while business aviation pays for 4 percent but uses 15 percent. It also noted that less than 20 percent of the annual appropriations from the trust fund have gone to expand capacity or improve efficiency of the air traffic system.

From Malarkey’s viewpoint, the debate has as much to do with politics and power as concern over the needs of the air transportation system.

“The biggest [issue] from my perspective…is that appropriators don’t want to give up their jurisdiction over this issue,” she said. “And I haven’t heard anyone on Capitol Hill say that (a) they’re dying to change the funding system or (b) that they’re dying to impose greater taxes on general aviation.”

The Hill veteran said that the aviation industry really won’t know details until next year, when the ticket taxes actually expire and legislators feel a greater sense of urgency.

“I think any time you mess with the funding formula, you are going to see a multi-year process–not just a multi-year authorization–but it will take a few years to actually get it done,” she suggested. “The FAA really hasn’t given anybody anything with which to work, so we are playing a bit of a waiting game.”

The RAA remains committed to assisting the FAA in its modernization and cost-reduction efforts, but it continues to urge Congress and the Bush Administration to carefully evaluate the effects of any proposed fee system on regional airlines and on small- and medium-size communities. User fees that fail to take aircraft weight or community size into account could significantly increase regional airline costs, it warns.

The association also remains concerned about the Essential Air Service (EAS) program, for which Congress appropriated only $110 million in FY2006. The most recent FAA reauthorization (Vision 100–Century of Aviation Reauthorization Act) granted the EAS program $127 million annually.

One of the bill’s provisions allowed the DOT to make real-time rate adjustments when costs increased by more than 10 percent for a period of at least two months, something the RAA has advocated for years. “Unfortunately, the language that we got allowed DOT to make real-time rate adjustments in the case of carriers having unexpected cost increases, but this wasn’t mandated,” Malarkey explained. “So DOT said, ‘First of all we don’t have the money and second of all no one said we had to. ’”

Over the past several years, Bush budget requests have proposed severe cuts to EAS. One modification proposed by the DOT would require communities to come up with a local share.

Many carriers have based equipment decisions on EAS agreements and would suffer irrecoverable financial losses if the program loses funding, argues the RAA. Likewise, a loss or cut in EAS service would strike a death blow to small communities that depend on reliable air service as an economic driver, it maintains.

In FY2006, attempts to provide $15 million in additional funding to the EAS program to offset cost increases did not survive a conference committee, despite passage and strong support in the Senate.

“We want to try to tighten up that language so that DOT actually has to act on it,” said Malarkey. “And it should be retroactive because we’ve seen carriers suffer enormous cost increases.”

Malarkey said the RAA is also alarmed about a recent Transportation Security Administration (TSA) reorganization bill that allows the TSA to increase the passenger security segment fees from $2.50 to $4 per one-way trip, with an expiration date of 2012.

And while the bill further stipulates an elimination of the infrastructure fee that carriers currently pay, it allows airport operators to levy a special $1 security charge on originating passengers to pay for a specific security program such as in-line checked baggage screening. Malarkey said regional airlines oppose all of this, even though the language includes a sunset provision and suspends infrastructure fees.

“With something that generates revenue and something that takes revenue away,” said Malarkey, “usually the part that takes revenue away gets removed, and the part that generates revenue remains. So I think the fear is we would end up with this security segment fee of $4 per one-way trip [as well as] the infrastructure fee.”