There has been a fundamental shift industry efforts to fund modernization in the past year, especially in the face of Administration initiatives. It did not go unnoticed that the entire $13 billion in high-speed rail funding comes from the general fund at a time when aviation spending has dropped from 85% from the general fund to about 16%. So it should come as no surprise that aviation interest groups are moving to gain their fair share in their efforts to redefined aviation infrastructure needs as a national priority.

“I wouldn’t rely on the aviation trust fund for NextGen,” Air Transport Association President James May told the Subcommittee on Aviation Operations, Safety, and Security yesterday, echoing statements made by consultants for a long time. Related Story “It is imperative that Congress, working with the administration to find another way; a national infrastructure bank, greater contributions from the general fund, tax credits, bonding, or reprogramming stimulus money. We are absolutely convinced it won’t happen through the trust fund.

“If you are going to spend $13 billion on rail which is a long-term project, why not spend $6 billion on aviation and get immediate benefits which include the elimination of $41 billion in the cost of delays to airlines and passengers,” he continued. “An additional $6-7 billion over the next few years would jump start this process and get us NextGen in 2013 or 2014 rather than 2025. That will have a transformational impact on the economy. There is no room in the system to fund it. We contribute 90% of the money and, of course, we want better equity in those contributions but there are so many battles we have to take on we recommend to the committee to look for alternative ways to fund it. There are lots of challenges to the trust fund to meet going forward and I’d like to see the funding coming from elsewhere.

“First among these creative financing concepts is to give the FAA bonding authority,” he said in written testimony. “The benefit of bonding authority is that it would give the FAA a known and reliable funding stream without facing the vagaries of the annual appropriations process. In addition, FAA would be able to leverage this funding stream to enhance the capital available for NextGen. Another concept is to make NextGen eligible for funding from a National Infrastructure Bank, as proposed by Congress and the president. Creating an independent national infrastructure bank with the power to issue the equivalent of municipal bonds would be instrumental in providing NextGen with a known, reliable funding source and would hasten NextGen’s full deployment.”

However, the industry is facing significant headwinds given the Administration’s budget blue print calling for new user fees to fund both FAA and infrastructure needs. While the new fees language was put in as a placeholder against the development of its own reauthorization proposal once FAA Administrator Nominee Randy Babbitt gets on board, it took the industry by surprise because it had finally come to an agreement that rolling out NextGen is too critically important to fall once again to the internecine warfare on who should pay what into the trust fund.

After years of wrangling, the industry is finally speaking with one voice, agreeing with the House bill 915, which retains the current funding mechanism with higher taxes. The move comes at a time when the Aviation Trust Fund – like the Social Security and Medicare trust funds – are in crisis facing falling revenues and rising commitments in the future. The uncommitted balance in the aviation trust fund is declining having dropped from $7.3 billion at the end of fiscal 2001 to $1.4 billion at the end of fiscal 2008 with Congressional Budget Office (CBO) estimates the balance could drop to $752 million this year.

HR 915 would reauthorize the FAA at $70 billion over the next four years if it is actually passed this year, something that has not been done for two years. After approval by the House Transportation and Infrastructure Committee in March, it has been awaiting action by the House Ways and Means Committee which has yet to begin the mark up of the financing provisions.

T&I Committee Chair James Oberstar and Aviation Subcommittee Chair Jerry Costello, saying general aviation taxes have not been raised in 15 years, favor raising the general aviation jet fuel tax from 21.8 cents to 35.9 cents per gallon and an hike in the avgas tax from 19.3 cents to 24.1 cents, rates approved by Ways and Means last year.

The Senate has yet to write is reauthorization package but hopes to get it done and passed in Congress this year. That was the purpose of yesterday’s Senate Aviation Subcommittee hearing at which the industry’s new and evolving position became clearer than it has been.

Testifying at the Senate Aviation Subcommittee’s reauthorization hearing, the usual suspects all pitched their ideas to a panel that wants to write the right kind of reauthorization legislation. The American Association of Airport Executives Chip Barcley advocated raising the passenger facilities charge to $7.50 to regain the construction purchasing power lost since 2000 when the $4.50 PFC was imposed. It also suggested indexing the charge to inflation so that the purchasing power would not be lost again.

Barclay noted that airports are being hit on two fronts because overall PFC revenue is declining while the value of PFCs has fallen due to construction cost inflation. Airports collected about $2.7 billion from PFCs in calendar year 2008 - down from more than $2.8 billion the previous year, he said. In addition, construction costs have risen by more than 53 percent since Congress raised the PFC cap to $4.50 in 2000.

“Due to construction cost inflation, a $3.00 PFC is worth approximately $1.53 today, and $4.50 PFC is worth about $2.51,” Barclay noted. “Unless corrective action is taken, the value of PFCs will erode even more by 2012 when a $3.00 PFC is expected to be worth only $1.38 and a $4.50 PFC is expected to be worth only $2.26.”

But ATA opposed that saying airports could leverage unrestricted assets to fund airport projects. “I don’t think commercial aviation should be the ATM of the aviation industry,” he said. “The Airline/Customer Special Tax Burden is $18 billion per year at a time when we know airports have unrestricted assets on the books of $27 billion. So it should come as no surprise that we are not in favor of increase.

“It is time to alter the traditional approach to funding FAA operations and infrastructure development from the Airport and Airway Trust Fund and passenger facility charges (PFCs),” said May. “In particular, the trust fund is at risk. Given the recent decline in airline operations and the potential for additional cuts in 2009, near-term revenue into the trust fund will decline significantly. It is unclear when growth will return in light of current economic terms – it could be 2010 or even later.

Increasing general fund contributions makes sense in light of something most in Washington have forgotten, according to May. “It bears repeating here that U.S. commercial aviation ultimately drives more than $1 trillion per year in U.S. economic activity and more than 10 million U.S. jobs.”

He advocated funding airport projects at non-commercial public-use airports, as well rather than through the trust fund contributions to the Airport Improvement Program. “Roughly $1 billion of trust fund revenues are allocated through AIP annually to public-use airports that do not receive any commercial service,” he said “But the users of those airports contribute very little to the trust fund. Thus, commercial aviation is unfairly subsidizing development projects at these airports and the effect is to drain the trust fund of badly needed revenues that could be used to pay for ATC services, the development of NextGen and critical infrastructure projects at key commercial airports. ATA does not oppose development at noncommercial public use airports. Just like FAA safety regulation and enforcement, however, these projects are ‘public good’ activities and should not be funded out of the trust fund. Instead, General Fund revenues should be [which] would help repair the health of the trust fund.”

Aerospace Industries Association President Marion Blakey noted that the European Union was well ahead of the U.S. with its SESAR program, having invested billions. “Up to this point we have been the gold standard and we risk losing that if we don’t move ahead smartly,” she said.

Subcommittee Chair Byron Dorgan, who wants to act on oil speculation, commended ATA for its efforts to stem oil speculation, noting that moves in the financial markets drove the per barrel price up to $60 on Tuesday, making him concerned that speculation was beginning to creep back in.

Legislators expressed frustration over delays with Senator John Thune wanting to see a passenger bill of rights hammered into the reauthorization legislation as it has in the House version.

However, panelists noted that recommendations to mitigate delays developed by industry task forces have yet to be deployed, adding the reason was the Bush Administration’s adherence to selling slots at the New York airports meant these recommendations were rejected in favor of a political philosophy. The statements came as the Department of Transportation formally abolished the slot auction proposal, a move hailed by the industry.



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