On April 13, 2012, as a result of the February 14, 2012 passage of the Federal Aviation Administration Modernization and Reform Act of 2012 (“FMRA”), the Federal Aviation Administration (“FAA”) proposed modifications to the “grant assurances” incorporated into FAA’s contracts with airports that receive FAA funding for physical improvements and/or noise compatibility purposes. These changes were made in order to ensure the consistency of the grant contracts with the changes arising out of FMRA. The revisions primarily address three categories of actions: (1) permission for “through the fence” operations under specified conditions; (2) exceptions to current restrictions on use of airport revenues; and (3) revision to rules governing use of revenues gained from disposal of airport property subsidized by FAA.
There were two events this past Thursday, May 7, 2009, that may affect H.R. 915, the FAA Reauthorization bill, which is currently pending in the U.S. House of Representatives. First, in the Obama Administration’s budget stated in its budget that starting in 2011, the budget “assumes a scenario where most of the air traffic control system would be paid for by direct charges levied on users of the system. The FAA’s current excise tax system, which generated $12.4 billion in 2008, is largely based on taxes that depend upon the price of customers’ airline tickets, not FAA’s cost for moving flights through the system.“ Then, the House Ways and Means Committee held a hearing on the financial status of the Airport and Airway Trust Fund. At that hearing, Rep. James Oberstar (D.-Minn.), Chairman of the House Committee on Transportation and Infrastructure told Ways and Means that “changes to the current system of excise taxes should be made only if such changes will improve upon [excise taxes’] record of stability, revenue adequacy, and ease of administration.”
Obama Administration Seems to Favor User Taxes
The Obama Administration has been fairly clear about its preference for user taxes to fund the air traffic control system in the United States. The budget framework that the Obama Administration issued in February indicated that it would like to transition some aviation taxes to user fees. Indeed, it was this indication of the Administration’s preference for user fees that caused the Congress to approve another continuing resolution for the FAA instead of passing the 2009 FAA Reauthorization. See, "User Fees Issues Probably Will Force Short-Term Extension of FAA’s Authorization Instead of Full Reauthorization" posted March 16, 2009. While the budget released this past week ruled out user fees for fiscal year 2010, the administration indicated that “the FAA should move toward a model whereby FAA’s funding is related to its costs, the financing burden is distributed more equitably, and funds are used to pay directly for services the users need.” But the Budget stopped short of endorsing user fees. It continued: “the Administration recognizes that there are alternative ways to achieve these objectives. Accordingly, the Administration will work with stakeholders and the Congress to enact legislation that moves toward such a system.”
User fees are not only on the White House’s wish list. The Department of Transportation confirmed that the longer-range reauthorization plan for the FAA will include “cost-based user charges for air traffic services starting in 2011.” Although, DOT added that the specifics “are under development and some time will be needed to implement the charges once approved.” The Congressional Budget Office seemed to support a move away from excise taxes, too, although indirectly. Robert A. Sunshine, Deputy Director, Congressional Budget Office stated that “the current financing system provides limited incentives to air carriers and general aviation flyers to use the system efficiently in congested areas – but structured differently, by linking the taxes paid by users of the system to the cost of providing air traffic control services, the financing system could help to reduce the potential for increasing congestion and delays.”
Strong Support in Congress for Current System
The House Ways and Means Committee took up H.R. 915, the FAA Reauthorization bill of 2009, to consider the financing provisions. H.R. 915 has been approved by the Transportation and Infrastructure Committee, but the financial provisions need to be approved by Ways and Means before it can go to the full House. Rep. Charles Rangel (D.-N.Y.), Chairman of the Ways and Means Committee stated that the Committee intends “to act on this matter so that we can avoid the need for yet another temporary measure.” All of the witnesses stressed the need to move the legislation along. Rep. Oberstar commented that “we are already almost two years behind schedule in reauthorizing these programs. Airport development capital projects and key NextGen programs need the stability that a multi-year authorization bill provides.” FAA programs can be funded by aviation excise taxes, a reasonable General Fund contribution and a modest increase in General Aviation fuel taxes: an increase from 21.8 cents per gallon to 35.9 cents per gallon for noncommercial jet fuel, and an increase from 19.3 cents per gallon to 21.4 cents per gallon for avgas. This increase is identical to legislation reported by Ways and Means in 2007 and was passed by the House on September 20, 2007.
The proposed raises in the fuel taxes and other funding mechanisms were the results of years of negotiating, with industry expressing support for the increases in return for the promise of no user fees. Rep. Jerry Costello (D.- Ill.), Chairman of the Aviation Subcommittee indicated that the proposed increase in fuel taxes has the support of the General Aviation groups over the imposition of a user fee system. It is the support of the General Aviation groups that seems to be issue here. As Rep. Tom Petri (R. – Wis.), Ranking Member on the Aviation Subcommittee told the Ways and Means Committee, he continues to support the structure of the funding recommendations which were developed in a bipartisan fashion, adding that “General Aviation is strong in the United States compared to other countries and unique. Of all the world’s licensed and active aviation pilots, 62 percent reside here in the U.S.”
Result: Excise Taxes, At Least For Now
Since the leadership of both parties on Transportation and Infrastructure Committee support continuation of the excise taxes, it seems unlikely that H.R. 915 will be amended to include user fees, even in 2011. The feeling among all involved is that the FAA reauthorization needs to be accomplished now and now is not the time for a discussion about the viability of user fees over excise fees. However, fiscal year 2011 is another story. Once Capt. Randy Babbitt has been confirmed as FAA Administrator, excise taxes and user fees can be examined a little more closely.