NATCA, Modernization... And User Fees On The Agenda
Editor's Note: On Wednesday, FAA
Administrator Marion Blakey went before the Senate Commerce,
Science And Transportation Committee, Subcommittee on Aviation to
talk about the agency's FY2007 budget, as well as the viability of
the Airport And Airway Trust Fund. The health of that fund will be
at the heart of any proposed funding strategies -- which may
include user fees for general aviation pilots -- that will be
presented by the FAA at a later date. Blakey's appearance before
the subcommittee Wednesday was, in a sense, the meeting to discuss
that meeting.
From Blakey's testimony, however -- which ANN presents in
full and unedited below -- it is not difficult to discern which way
Blakey is leaning in that discussion:
"We also believe that a cost-based revenue structure would
provide incentives to our customers to use limited resources
efficiently..." Blakey said. "...We believe that the revenue
stream that currently funds the FAA is not tied to the cost of the
services and that there is a need for funding reform. FAA’s
workload continues to increase. The current system, largely based
on the ticket tax, provides no nexus between the actual workload of
controlling flights and providing other services and how they are
paid for. It is time for change."
The following is the complete text of Blakey's (right)
comments:
Chairman Burns, Senator Rockefeller, Members of the
Subcommittee:
I welcome the
opportunity to be here today, along with my colleagues from the
Inspector General’s Office and the Government Accountability
Office (GAO), to discuss the state of the Federal Aviation
Administration’s (FAA) financial health, specifically our
budget for fiscal year 2007 and the condition of the Airport and
Airway Trust Fund (AATF or Trust Fund). The financial health of the
aviation trust fund is closely linked to the stability of the
aviation industry. I understand that today’s hearing will lay
the foundation for a hearing in several weeks where future funding
options for the FAA will be addressed in detail. I look forward to
returning and discussing the specifics of the
Administration’s proposal.
First let me briefly express appreciation for the dialogue that
has begun with our stakeholder community. Over the past year, under
Secretary Mineta’s leadership, we have conducted a broad
outreach to the aviation community to explore funding options that
would be in the long-term best interest of the traveling public,
the aviation industry and the FAA. We held a public forum last
April and have conducted numerous group and individual briefings
with our stakeholders. To inform the dialogue we published detailed
industry activity data as well as a set of principles which we
thought should underlie and guide the discussion. In my view the
thoughtful comments we have received have greatly informed our
decision making. We at the FAA have listened intently and have
benefited from a wide range of expert views.
As I’ve often stated over the past year during our
outreach, our belief in the need for funding reform for the FAA is
not fundamentally about generating more money for the FAA. It is
about creating a more rational, equitable and stable system that
provides appropriate incentives to users and to the FAA to operate
more efficiently and facilitates modernization of the aviation
system on an assured and predictable basis.
Fiscal Year 2007 Budget Proposal
I would like to address the FAA’s budget in the near term.
As you know, the FAA operates 24 hours a day, 7 days a week, 365
days a year. We run a multi-billion dollar air traffic control
system that in FY 2005 served 739 million passengers and over 39
billion cargo revenue ton miles of freight. We operate and maintain
a system comprised of more than 70,000 facilities and pieces of
equipment. There are FAA-operated or contract towers at 500
airports, and we are also responsible for inspection and
certification of about 220,000 aircraft and 610,000 pilots. We have
some 43,000 dedicated government employees working to serve the
traveling public and the businesses that depend on the air
transportation system.
When Congress mandated the FAA to realign our operations and
manage more like a business, we rose to the challenge. The
FAA’s efforts over the past three years have paid real
dividends, not just to the flying public but to the taxpayer as
well. By implementing improved management tools, including better
cost-accounting systems and instituting a pay-for-performance
program, we have been able to make better use of our resources. The
tangible results are reflected in our FY 2007 budget request of
$13.7 billion. The request upholds our commitments to increase the
safety, capacity, and efficiency of the national aviation
system.
The FY 2007 budget provides $8.4 billion for our Operations
account and reflects the rising labor costs and challenges the FAA
faces. This year, we completed the largest A-76 competition in
government and will see the first installment of cost savings --
$66 million -- in FY 2007. This contract not only saves money; it
also commits the vendor to modernize and improve the flight
services we provide to general aviation pilots. The agency’s
emphasis on bottom-line results has not been easy. The FAA has
slashed costs where possible and slowed the rate of growth of our
labor costs through productivity improvements. We also continue to
apply effective management and financial principles to our labor
negotiations. The simple fact of the matter is that we cannot and
will not sign a contract that the taxpayer cannot afford. Since
1998, the first year of the current NATCA contract, the increasing
imbalance in compensation between NATCA and the rest of the agency
has cost the taxpayer $1.8 billion. Neither the FAA nor the
taxpayer can afford a repeat performance. As a result, future labor
agreements will be fair, affordable and protect management’s
rights. We have been negotiating with NATCA for more than eight
months, and I am hopeful that we will be able to reach a voluntary
agreement, particularly now that both sides have been working with
the help of a federal mediator during the last few weeks. Both
sides recently agreed to a short extension of the mediation, and I
anticipate this will come to closure shortly, hopefully by a
voluntary deal.
Long-term affordable pay structures are only a part of the
equation. In addition, we are taking steps to achieve savings of 10
percent by FY 2010 in controller staff costs through productivity
improvements. We achieved the first 3 percent of this goal in FY
2005 and, overall we avoided approximately $23 million in costs
last year. This fiscal year and in FY 2007, we project a minimum of
a 2 percent productivity improvement each year.
We expect a continuous wave of controller retirements over the
next 10 years, as 72 percent of our air traffic controllers become
eligible to retire. Bringing aboard new controllers is a complex
process and it takes several years to train a controller. Our
budget request supports our hiring needs for both air traffic
controllers and safety inspectors.
For Facilities and Equipment (F&E), we are requesting $2.5
billion to improve and modernize the airspace system. We are also
scrutinizing our capital investments; revisiting business cases and
weeding out programs whose benefits no longer justify the costs;
and we are increasing our emphasis on programs that will save the
agency money.
We are making similar inroads with equipment. In FY 2005, we
removed 177 navigation aids from service, which saved the taxpayer
about $2.7 million. This year, we plan to remove 100 more, followed
by another 100 in 2007. We are taking steps to save wherever
possible. In fact, our five-year strategic plan, the FAA Flight
Plan, sets cost savings and productivity improvement goals for all
organizations in the agency.
Our resources and
activities are closely linked with the dynamic industry we oversee
and serve. The pace and depth of change in aviation is
unparalleled. Business models evolve as rapidly as the technology
changes: markets once dominated by wide body aircraft are now
giving way to smaller jets. Entrepreneurs now are marketing
microjets, which may one day become the “personal taxi”
of the sky. Fractional ownership is making it easier for businesses
to own and operate aircraft.
Even with the financial shake-up in the airline industry, all
major forecasts project that the demand for air travel will
outstrip existing capacity. After a very slight decline in
projected operations at airports with FAA or contract towers, we
forecast an average annual growth of two percent and forecast a
three percent annual growth for en route operations (from
2005-2017). Air travel now exceeds pre-September 11 levels and
remains on track to carry more than 1 billion passengers by FY
2015.
The future portends a wide range of aircraft with divergent
infrastructure, air traffic management, regulatory, and procedural
requirements. We must be prepared to support a system that includes
the A380 and the microjet (and everything in between). We must be
able to support airlines, large and small, national and regional.
Recognizing that aviation represents about nine percent of the
America’s Gross Domestic Product, we must provide this
infrastructure in time to keep the U.S. economy growing while
controlling the costs of that system.
Safety
Safety remains our number one priority and our number one
success story, with the trends in both commercial and general
aviation showing consistent improvement. The safety record we have
achieved for air carriers is a remarkable accomplishment, which our
entire workforce—inspectors, engineers, technicians, and
controllers—shares with the broad aviation community. Over
the past four years, 3 billion people have traveled safely in the
air transportation system -- that’s ten times the population
of the U.S.
The FY 2007 budget reflects the agency’s steadfast
commitment to safety. Out of a total request of $13.7 billion,
about 70 percent, or $9.6 billion, will contribute to our efforts
to improve our already historic safety record. This includes
further progress in reducing commercial and general aviation
fatality accidents, the numbers of runway incursions, and HAZMAT
incidents. Our overarching goal is to measure and achieve the
lowest possible accident rate, while constantly improving
safety.
Grants-in-Aid to Airports
In today’s challenging budget environment, we have been
forced to take a long hard look at our funding requirements. Our FY
2007 budget request for Grants-in-Aid to Airports is $2.75 billion
which is lower than recent authorized and enacted levels.
Nevertheless, under our proposed budget, FAA will be able to
support all high priority safety, capacity, security and
environmental projects. There will be adequate funds to meet all
current and anticipated Letter of Intent (LOI) commitments, which
relate to high priority, multi-year projects within the national
system. The President’s Budget includes support of major
capacity projects such as the Chicago O’Hare redesign, new
runway at Washington Dulles International Airport and major
projects at Atlanta-Hartsfield International. We will also be able
to fund projects to meet the FAA’s Flight Plan goal for
improving runway safety areas (RSAs), help airports meet their Part
1542 security requirements, and continue work on phased
projects.
Technology for the Future
We are laying the foundation for our future with a commitment to
increasing the system’s capacity to accommodate the air
transportation system’s predicted growth. We will meet these
future needs by harvesting new technologies that will support the
Integrated National Plan for the Next Generation Air Transportation
System (NGATS). This Plan, submitted to Congress in December 2004,
brings together six cabinet-level groups in the Joint Planning and
Development Office (JPDO) to eliminate duplication and wasted
resources. The Plan is a roadmap that will leverage federal funds
and allow us to provide the national aviation system that can
handle the safety, capacity and security needs of the future.
For the FAA, the Plan has already been integrated into our
budget. Our 2007 budget begins to build this new infrastructure by,
for example, supporting two promising technologies: Automatic
Dependent Surveillance – Broadcast (ADS-B) and System Wide
Information Management (SWIM). The capabilities of ADS-B are
already proven in the field. ADS-B provides: (1) automatic
broadcast of aircraft position, altitude, velocity, and other data;
(2) enhanced “visibility” of aircraft and vehicle
traffic for pilots and air traffic controllers; and (3) use of
Global Positioning Systems, allowing us to reduce our reliance on
ground-based infrastructure. SWIM makes advanced information
distribution and sharing capabilities possible. Every year, FAA
builds applications for air traffic management systems that require
unique interfaces between the new application and existing systems.
SWIM will replace those unique interfaces with a reusable interface
and provides many operational benefits.
The above overview of our FY 2007 budget is how we propose to
meet the challenges over the near term for the FAA, and also
provide for the long-term with our Integrated National Plan for
NGATS. At the same time, we are also planning for the next
reauthorization of our programs and how those programs will be
funded. Critical to that endeavor is an examination of the status
and outlook of the Airport and Airway Trust Fund and what that
means for the FAA’s long term financial picture.
The Airport and Airway Trust Fund
The Airport and Airway Trust Fund was created in 1970 to provide
a dedicated source of funding for the aviation system. Before there
was a Trust Fund, a 5% tax on passenger airline tickets, a general
aviation fuel tax, and a tire and tube tax were deposited in the
General Fund. Today Trust Fund revenues are generated by a
combination of taxes that were last authorized in 1997: a domestic
passenger ticket tax of 7.5% of the price of a ticket, a domestic
flight segment tax of $3.30 per segment per passenger, an
international departure/arrival tax of $14.50 per international
passenger, an Alaska/Hawaii departure tax of $7.30 per passenger
traveling between these states and the continental U.S., a 6.25%
waybill tax on domestic cargo and mail, a general aviation (GA) jet
fuel tax of 21.8 cents per gallon, a GA aviation gasoline tax of
19.3 cents per gallon, and a commercial fuel tax of 4.3 cents per
gallon. The domestic segment tax, international departure/arrival
tax, and Alaska/Hawaii tax rates are indexed to the Consumer Price
Index and have increased each year for the last four years, but the
airline ticket tax is a fixed percentage of the ticket price, so it
is dependent on changes in airline ticket prices rather than
general inflation. These taxes and fees are scheduled to expire in
September 2007, which also coincides with the end of the current
authorization for FAA programs under Vision 100.
Each year, the FAA is
funded by annual appropriations drawn both from the aviation Trust
Fund and from the General Fund. There has been a long history of
funding a portion of the FAA’s operating costs out of the
General Fund due to recognition that aviation provides benefits to
the non-traveling public and to our economy as a whole. However,
the ratio of General Fund versus aviation Trust Fund financing has
varied over the years. The General Fund share of total FAA
appropriations has been as high as 59 percent (in FY 1984) and as
low as zero (in FY 2000). The trend, however, is not in question.
On average over the last 15 years, the portion of operating costs
coming from the General Fund has declined steadily. In FY 2005,
about 20 percent of the FAA’s total budget came from the
General Fund and 80 percent from the Trust Fund; this year
it’s 18 percent and 82 percent, respectively.
In recent years, appropriations from the Trust Fund have been
funded not only from the annual revenue going into the fund and
interest posted to the Trust Fund, but also from drawing down the
AATF’s balance, which was over $7 billion as recently as
2001. A gap exists when you compare the revenue going into the
Trust Fund with the level of our costs, and this gap is quickly
eroding the Trust Fund. Since the start of FY02, the uncommitted
balance1 of the Trust Fund has declined by more than $5.4 billion,
or an average of 28% per year. When there is no relationship
between the level of revenue being raised to the costs being funded
from the Trust Fund, factors such as fluctuating ticket prices that
do not raise enough revenue, volatile demand so there are fewer
passengers paying for travel, and fundamental changes in the
airline industry such as the decreasing size of aircraft being used
for commercial transport, lead to a revenue shortfall that has been
funded by drawing down the Trust Fund balance. With the increasing
pressures on the budget to fund military and national security
needs, the Trust Fund remains a critical necessity in closing the
funding gap. Last year (FY05), the uncommitted balance at the end
of the fiscal year was $1.9 billion and, this fiscal year, the
President’s budget projects that it will dip to approximately
$1.7 billion at the end of the fiscal year.
The FY2006 projected level of the uncommitted balance is
sobering because it leaves only a small “cushion” in
the Trust Fund balance. In addition, our ability to rely on an
increased General Fund contribution to bridge any gap is in
question due to competing budget pressures as well as the effort to
reduce the federal deficit.
As we look to the future, we see a complicated air traffic
control system and workload. As noted above, scheduled commercial
passenger demand, which dipped severely in the wake of 9/11,
exceeded pre-9/11 levels last year reaching a record 739 million
passengers, up from 690 million in FY 2004. We expect that domestic
passenger totals will continue to grow at approximately three
percent per year with the international sector growing five percent
per year.
Low-cost carriers and regional carriers (using smaller jets) are
continuing to redefine the market. Revenue passenger miles (RPM)
for the regional carriers are expected to grow almost seven percent
per year, and we forecast annual RPM growth of almost eight percent
for low-cost carriers. We forecast that regional carriers will
increase their share of the U.S. domestic market from 22 percent
last year to more than 25 percent by 2017. In FY 2005, commercial
activity at 23 of our 35 major airports exceeded FY 2000 (peak)
activity levels. Las Vegas (37%); Ft. Lauderdale (33%); Salt Lake
City (30%); and Minneapolis (30%) experienced the greatest
increases in operations.
It is of course very good news for the aviation industry that
demand is back, but it is back in different ways than before. While
low fares are good news for the passenger, they spell trouble for
the Trust Fund with its heavy reliance on the ticket tax as its
primary source of revenue. Approximately 50% of the Trust Fund
revenue currently comes from the 7.5% tax on domestic airline
tickets.
Industry changes also have implications for the FAA’s
workload. The airlines are trying to control costs by using
increasing numbers of smaller aircraft. This trend adds to the
workload of air traffic controllers without increasing tax revenue
commensurately. Regional jets normally carry fewer passengers than
the larger airliners, so the movement toward smaller passenger
aircraft contributes to the decline in the Trust Fund revenue per
flight. If an airline carries a given number of passengers (paying
the same fares) on two regional jets instead of one larger jet,
ticket tax revenue does not change, but controller workload
approximately doubles. Our latest forecasts indicate that the
growth in the number of smaller aircraft is expected to continue,
driving down the average number of seats of a domestic aircraft
through 2011. Plainly, our revenue is not tied to the cost of the
service, which means that there is no nexus between actual workload
and how it’s paid for.
Increased air traffic operations are not the only source of
increased workload for the FAA. In recent years the industry has
also seen more new entrant carriers. While this is good news for
competition, it also has workload implications for our agency.
Right now, there are 10 applications in the queue awaiting review
and certification by our safety staff, and each of these new
operators will bring additional pilots and crew into the system.
Also, with regard to our airport grant program, Vision 100’s
increase in funding for the Airport Improvement Program (AIP)
coupled with a new entitlement formula apportionment for
non-primary airports increased our workload in processing grant
applications by fifty percent.
Knowing what is happening with Trust Fund revenues and how the
changes in the aviation industry affect our workload is only part
of the equation. We know we must also continually work very hard to
control our costs—to make changes and become more efficient,
more business like. We are changing the agency’s structure
with a major shift to a performance-based organization, and, as I
noted above in discussing our budget proposal, making tough choices
with our funding. We have implemented a cost accounting system in
the ATO that provides our managers and executives with the
information they need to identify and eliminate wasteful spending,
hold or reduce operating costs, and better link financial
performance to mission objectives. That cost accounting system is
being extended throughout the FAA this year to help us better
assess and control our costs.
I’ve already mentioned our cost savings measures by the
ATO, our challenges with our labor negotiations and with future
controller hiring. We are also faced with an aging and
deteriorating inventory of facilities and equipment. The average
condition of the FAA’s 21 en route air traffic control
centers is poor and getting worse each year. As this Committee well
knows, modernization of the air traffic control system is critical
if the agency is to keep up with what aviation brings tomorrow. The
price tag for these facilities and equipment alone is $2 billion
per year in capital funds just to maintain current services.
In addition to
maintaining the current infrastructure, the JPDO is planning for
the emergence of the next generation of the air transportation
system out to 2025, charting the course for satellite based
navigation, handling new aircraft classes, on-demand services, and
the increasing growth in air traffic. However, the move to a
modern, efficient and technology-driven aviation system is going to
require sustained, multi-year investments. We will need to invest
resources in order to make the transition to a new system that will
significantly reduce operating costs and better serve our customers
in the long run.
What I have outlined above—the condition of the aviation
Trust Fund in the context of the growth in demand and industry
restructuring, and the fact that FAA’s future funding
requirements will significantly outpace revenue from aviation
taxes—clearly highlights a couple of issues. During the most
recent reauthorization cycle for the current aviation excise taxes
(1996-1997), Congress allowed the authority for those taxes to
expire twice, which resulted in a $5 billion loss in revenue to the
Trust Fund. We cannot afford to let that happen again. Two, the FAA
needs a stable source of funding that is based both on our costs
and the services we provide so that we can meet our mission in an
extremely dynamic business environment. Airline ticket prices are
not related to any real measure of productivity for the FAA.
Regardless of how many operations we run through the national
airspace system or how quickly we can certify new aircraft products
and technologies, or how we continue to drive down the already low
accident rate, the primary source of Trust Fund receipts is linked
to the price of a ticket. That approach will not sustain us into
the future.
Tying funding to the cost of providing service protects both FAA
and the customers who use FAA services by not subjecting our
ability to provide a certain level of service to unrelated factors
like ticket prices. A stable, cost-based revenue stream can also
ensure funding for long-term capital needs. We also believe that a
cost-based revenue structure would provide incentives to our
customers to use limited resources efficiently and to the FAA to
operate efficiently, as stakeholder involvement can help us ensure
that we are concentrating on services that the customer wants and
is willing to pay for.
Conclusion
We believe that the
revenue stream that currently funds the FAA is not tied to the cost
of the services and that there is a need for funding reform.
FAA’s workload continues to increase. The current system,
largely based on the ticket tax, provides no nexus between the
actual workload of controlling flights and providing other services
and how they are paid for. It is time for change.
Mr. Chairman, ten years after the NCARC recommendations, we are
tackling probably the hardest part of reform: how the aviation
transportation system will be financed in the next decade and
beyond. Our proposal for funding reform for the FAA is now under
review within the Administration. As I noted at the outset, it is
the product of extensive public outreach, analysis, and a lot of
creative thinking. It will propose a cost-based funding structure
which will ensure that our costs and revenues are aligned and that
our stakeholders are treated equitably. The details will come soon
in the form of a legislative proposal, which I hope will be the
basis for ongoing dialogue with this Committee and others in
Congress, our colleagues in the aviation community, and the
public.
I look forward to the debate and expect that the discussions
will be frank, open and spirited. We have an opportunity in the
near future for positive change, to correct the faults of the
current system that threaten our ability to meet future demand.
Change is always unsettling and difficult and requires patience and
hard work, but to be ready for tomorrow we must begin today. It is
the only way that we will be able to continue to operate and
maintain the world’s safest system with the capacity our
economy needs.
That concludes my testimony. I would be happy to answer any
questions you may have.