One detail of the $3.55 trillion budget released yesterday stood out – a cap-and-trade system to pay for a cleaner future – will cost U.S. airlines alone at least $16 billion dollars at a time when it can least afford it. Budget Director White House Budget Director Peter Orszag’s assurances that much of the economic hits in the package won’t come until after the recovery – in 2011 – was small comfort to an industry that has been reducing green house gases steadily over the last two decades and is, even now, working to reduce them further.

As with the Administration’s financial bailout plan and its housing plan, both of which fell with a dull thud on both Capitol Hill and Wall Street for lack of details, the budget was light on facts but was long on philosophy which, thankfully, included NextGen for which it provided $800 million.

Despite the dearth of details, user fees are on the way up if the budget it passed. In addition to an unspecified increase in the transportation security fee in 2012 if the budget is approved, 2011 would usher in $7 billion in user charges to fund about half the FAA budget. Few other details were available but House Transportation and Infrastructure Committee Chair James Oberstar found the announcement troubling enough to issue a statement that previous efforts on aviation user fees have failed because they are opposed by Congress.

Airlines are opposed to the $5 security fee on passengers because they see security costs as being a government function. The fee was adopted in 2002 and has remained at $2.50 one-way and a maximum of $5 which, in fiscal 2008 raised $2 billion. Beginning in 2012 the Aviation Passenger Security Fee will rise because current fees only cover 36 percent of the cost of providing aviation security to passengers and baggage.

Passengers are also facing reauthorization legislation that would hike the passenger facility charge to $7 from the current $4. Airports cited the rising construction costs for the necessity to raise fees in recently testimony. Airlines, citing a disproportionate tax burden on passengers, oppose the fee.

The cap and trade scheme is expected to raise $150 billion over a decade beginning in 2012, when the European trading scheme is set to impact U.S. carriers. However, the funds will not just be used for advancing clean energy, it will be used to fund middle-class tax cuts with any additional revenue returned to “families, communities and a businesses that suffer hardship as the result of higher energy prices.” The cap-and-trade scheme would include an auction without exemptions for any sector of the economy. The targets set in the budget include a 14 percent reduction from 2005 levels by 2020 and an 83 percent drop by 2050.

From the other side of the world comes word that Virgin Blue, citing a $50- to $70 million impact from ETSs will pass along such charges to passengers at $4 Australian a pop, per flight. Virgin Blue made the announcement, in an attempt to head off an emissions trading scheme proposed by Australia’s Rudd government. But, it certainly gives a good indication of what will happen when cap-and-trade schemes are imposed.

President Obama called the budget a blueprint for where he wants to take the country. “This budget is a start toward setting the nation’s transportation system on a sustainable path,” Department of Transportation Secretary Ray LaHood said.

Total budget for Transportation over the next decade would be $681.8 billion which includes the time when the FAA will be working on NextGen, which it wants completed in 2025. For FY 2010 the DOT budget is $70.5 billion. That will be coupled with $48.5 billion from the recovery act, only $3 billion of which goes to aviation – for airport projects. Interestingly, in the out years – through 2014, annual budget allocations for DOT are ratcheted downward to the levels ranging from $64 billion to $66 billion.

The problem is, with what we have in the so-called framework “New Era of Fiscal Responsibility” it is hard to wrap the mind around $800 million in the face of total projected cost of NextGen, estimated at $40 billion – $20 billion for FAA programs and $20 billion for industry expenses including equipage.

Or, we could compare the $800 million with the $4 billion, much of which was targeted at equipage, requested by the industry which failed to get it included in the stimulus package.

Or, better yet, we can compare it with the second paragraph of the Department of Transportation release: “To provide Americans a 21st Century transportation system, the Administration has proposed a five-year, $5 billion high-speed-rail, state-grant program,” said the department. “This funding will build on the $8 billion down payment in the American Recovery and Reinvestment Act of 2009 and marks President Obama’s commitment to provide Americans a practical and environmentally sustainable alternative to flying or driving.”

So, let me get this straight. We could not find stimulus money to help the airline industry employ 77,000 in NextGen development ($4 billion) but we can provide funding for a system that President Obama wants to compete with flying. Related Story Hmmmmmmmmm! Obviously high speed rail is a Congressional pet project but it begs the question where the Congressional aviation gurus are and, as I’ve asked in the past, why aviation can not find traction for its programs on Capitol Hill. Could we be still suffering from a perception that air transportation is for the rich?

Finally, we could think about the $800 million in terms of doing nothing. On average, according to the Air Transport Association, in the twelve-month period ending September 2008, 138 million system delay minutes drove an estimated $10 billion in direct operating costs for scheduled U.S. passenger airlines. The cost of aircraft block (taxi plus airborne) time was $72.13 per minute, 19 percent higher when compared to CY 2007 costs. Fuel costs in particular, increased 41 percent to $39.35 per minute. Crew costs are estimated to have cost $13.08 per minute, followed by maintenance and aircraft ownership ($10.09 and $7.72, respectively) and all other costs ($1.88).

ATA also points out that delayed aircraft also drive the need for extra gates and ground personnel and impose costs on airline customers (including shippers) in the form of lost productivity, wages and goodwill. Assuming $35.70 per hour as the average value of a passenger's time, as recommended by the FAA, adjusted for BLS employment costs, delay costs to air travelers are considerable and estimated the total cost to passengers to be $4.5 billion.

Total costs including airlines ($10 billion) + passenger/shipper time ($4.5 billion) = $14.5 billion. Can someone tell me why these statistics are not getting through to the executive and legislative branches of government? Can someone tell me why it is okay that this much money is wasted at the ultimate cost of American competitiveness…’cuz I just don’t get it. With this in mind, I have to wonder if it is somehow symbolic that the Administration cited four goals – surface, public transit, high-speed rail…and aviation, which was listed dead last and piddly compared to its other goals.

“The budget proposal does provide a broad framework that commits funds for sustainable solutions for surface transportation, explores options to make the nation’s communities more livable through increased funding for public transit, supports development of a high speed rail network across the country and supports the Next Generation Air Transportation System to modernize the air traffic control system.” said the Department of Transportation in its press release on the budget. “The Fiscal 2010 budget supports moving from a ground-based radar surveillance system to a more accurate satellite-based surveillance system, development of more efficient routes through the airspace, and improvements in aviation weather information.”

“We are encouraged that the Administration is committed to a satellite-based surveillance system and more efficient routes,” said Air Transport Association, which is still seeking details along with the rest of the industry.

However, we won’t know the details of the FAA budget or the specifics of what that $800 million is expected to buy in FY2010 until April when the real budget is released, some two months after we normally receive it. How that $800 million fits in with what FAA wants to spend annually, we do not know. All we do know are the details we’ve covered before but which bear constant repetition. This is an industry contributing $1.2 trillion to the economy, indirectly generates over 11 million jobs and represents approximately 5.6 percent of the U.S. Gross Domestic Product (GDP). In addition, U.S. employees in aviation-related fields paid taxes on about $369 billion in payroll.

But I wonder if it really matters in light of a recent statement by Deloitte Tax LLP Partner Terry Kurtenbach, who recently told Aviation Today’s Daily Brief, “If there were plenty of money in the system, we’d already have the NextGen system in place. Some kind of special funding – public or private or a combination of both – is necessary. But to think the FAA is going to pay for upgrades through an annual tax authorization is pretty foolhardy.”

With that statement, Kurtenbach crystallized the problem – too many people are still relying on a failed funding system, which could be interpreted as making the argument of who pays for what a little silly. Related Story

The framework released yesterday – a 142-page document – spends only two pages on aviation. In addition to NextGen, “the Budget provides a $55 million increase over the 2009 level to the DOT to fulfill current program requirements as demand for subsidized commercial air service increases. It criticized the design of the Essential Air Service Program, which advocates want funded at about $125m million, pledging to “work with the Congress to develop a more sustainable program model that will fulfill its commitment while enhancing convenience for travelers and improving cost effectiveness.”

In fact, there was a whole lot of pledging to work with Congress on most facets of the budget. In a sharp departure from previous administrations, the budget also illustrates a keystone of Obama policy – working in collaboration with Congress to develop legislation, including the budget.

“President Obama has laid out a fiscally responsible blueprint for 2010 and the Administration will work closely with the Congress over the next few months to determine the details,” said the release. Let’s just hope, that unlike the last Administration it will follow the philosophy of Congress that would have significantly improved small community air service if it had been followed.

The department also announced a change in accounting practices which muddle the issue even further, it seems. Budget authority for highway, transit, highway safety, and airport improvement programs usually has been defined as mandatory contract authority provided in authorizing legislation. However, the levels of contract authority have been, for the most part, controlled by obligation limitations in appropriations acts. Outlays from the obligation limitations have always been scored as discretionary.

I think the department didn’t understand this move any more than I because all my questions were answered by the language in the press release. But, I’ll grant one thing for my lack of understanding -- the only thing I know about accounting is that I need to hire an accountant!

But here is what the release said: “To more transparently display program resources, the Administration proposes changing the budgetary treatment of transportation programs to show both budget authority and outlays as discretionary. For 2009, the discretionary budget authority top line would be increased by approximately $53 billion, increasing DOT budget authority total from $17 billion under the typical presentation to $70 billion. Similar budget authority adjustments would be made for each outyear. The change would not affect outlays or the deficit or surplus—just more transparently convey to the taxpayer the real costs of supporting the transportation infrastructure our Nation needs.”