Next Generation Air Transportation System Financing Reform Act of 2007

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Lorin Griffith
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1 Next Generation Air Transportation System Financing Reform Act of 2007 Funding Proposal An ACC Summary of Key Provisions in the USDOT s FAA Reauthorization Proposal Overall, the change in the aviation financing system would take effect at the start of FY 2009 to give FAA time to establish interim user fees and implement a billing/collection system. The current excise tax would be extended through FY Also, the FAA proposes a new Governance Board (titled the Air Transportation System Oversight Board) to provide advice and recommendations to the FAA administrator on establishment of the fees. The Board is comprised of user representatives and public interest members appointed by the Administrator. (Note that the current Federal aviation tax and revenue system includes 1) a 7.5% passenger ticket tax that accounts for 48% of revenue; 2) a passenger flight segment tax that accounts for 18% of revenue; 3) international arrival/departure tax that accounts for 18% of revenue; 4) a fuel tax that accounts for 9% of revenue; and other sources.) For Air Traffic Control Services - three funding mechanisms are proposed: o Turbine commercial flights: pay through a new user fee Fees based on data derived from FAA s cost accounting and cost allocation systems including operation, maintenance, and overhead expenses; facilities and equipment used; and the projected costs for the period during which the services are provided. FAA can take into account other considerations in setting the fee, including airplane weight and time/day of operation at 30 of the most congested airports. The Essential Air Service program would be funded by this user fee, derived from the Aviation Trust Fund. This fee would account for 3/4ths of the new Air Traffic Organization s (ATO) budget. Includes establishment of a reserve fund to avoid shortfalls. o GA and Piston-powered flights: pay their share of air traffic control services through fuel taxes and a possible terminal user fee when they arrive or depart from a limited number of large hub airports Airport Consultants Council Page 1

2 The aviation fuel tax rate would be 70.0 cents per gallon it applies to all piston operations (commercial and GA) cents per gallon of this tax would finance GA s share of the air traffic control system and 13.6 cents/gallon of the tax would comprise GA s contribution to the AIP. (The current gasoline tax is 19.3 cents per gallon and jet fuel tax for non commercial aviation is 21.8 cents per gallon). The commercial fuel tax increases from 4.3 cents per gallon to 13.6 cents. GA s exemption from the user fee outlined above ceases if the income from the fuel tax does not pay for GA s cost of using the air traffic control system. The taxes and fees would be indexed to inflation. Just over 10% of ATO s budget would come from the fuel tax. o Costs for use of the airspace by Public Users and Others would derive from the Treasury s General Fund. For Funding Aviation Safety - a modest user fee is proposed to pay for the costs of 25 activities in the area of certification and regulation; a vast majority will be derived from the General Fund. o The proposal sets the fee for 12 specific services. o Approximately 10% of FAA s Aviation Safety budget would derive from the user fee. Activities Funded from the General Fund The DOT proposal caps the maximum authorization funding that can be derived from the Treasury s General Fund at the following levels: $2.6 billion in FY 2008; $2.5 billion in FY 2009; and $2.5 billion in General Fund expenditures are to be used for: o Air traffic costs for public users o Flight service stations o Low activity towers o Safety regulation and oversight o Commercial space transportation o Safety portion of Research, Engineering & Development AIP Reforms Overall, DOT states that their proposal addresses needs by empowering local airports with strong local revenue sources and strategically targeting federal dollars to airports where they will have most impact. Proposed AIP Funding Levels: o FY $2.75 billion o FY $2.9 billion o FY $3.05 billion Changes to AIP Funding Structure: Airport Consultants Council Page 2

3 o Overall, FAA proposes funding AIP through taxes which are primarily built on existing collection mechanisms. Specifically, FAA proposes funding AIP through a series of simplified excise taxes including: A flat, universal fuel 13.6 cents per gallon tax for domestic commercial and all GA flights. This tax would be combined with the proposed GA ATO fuel taxes for GA users; and A $6.39 passenger head tax for international commercial passenger flights (a decrease from the current $14.50). o The tax levels would be indexed to inflation. o These taxes would be deposited into the Airport and Airway Trust Fund (like the ATO taxes) and be subject to annual Congressional appropriation. o These taxes would be the funding sources for all of the Essential Air Service (EAS) program and most of RE&D. The taxes would cover the FAA s proposed reauthorization level for AIP, (EAS), and the Trust Fund s portion of RE&D. Changes to AIP Entitlements/Apportionments/Set-Asides: o The DOT proposes to phase out passenger entitlements for medium and large hub airports after FY 2009, while preserving discretionary funding for these airports. Passenger entitlements would be reduced by 50% from current levels in FY 2008 and FY o The proposal retains the higher passenger entitlements for the remaining smaller airports, at all levels of AIP, protecting these entitlements from cuts if AIP fall below $3.2 billion. o The minimum discretionary fund level is increased from $148 million to $520 million, giving FAA more authority to target AIP investments where needed. o Reforms to the GA Entitlement Program: Establishes a separate state apportionment fund with spending levels at 10% of AIP, providing a minimum funding level of $300 million. Eliminates the existing $150,000 individual non-primary airport entitlements with a tiered system of entitlements: The largest non-primary and reliever airports (more than 100 operational registered aircraft) would receive $400,000; Airports with based aircraft would receive $200,000; Airports with 10 to 49 based aircraft could receive up to $100,000; Airports with less than 10 based aircraft would receive no annual guaranteed funding (although these airports would be eligible for state apportionment dollars) Airport Consultants Council Page 3

4 o The proposal eliminates the Military Airport Program and Reliever airport setaside and funds these needs through regular discretionary funds. o No change is made to the cargo apportionment. o The set-aside (about $5 million/year) for reliever airports is eliminated since these airports will be receiving more entitlements under the DOT proposal and can compete for more discretionary dollars. o A new small airport set-aside is created and would replace the existing small airport fund for projects at small-hub, non-hub, non-primary commercial service, reliever or general aviation airports. It would be tied to 20% of discretionary AIP funds, and replace funds lost due to the elimination of passenger entitlements. This would also preserve FAA s ability to give non-primary airports discretionary grants. AIP Reforms: The FAA is proposing several amendments to AIP: o Definitions: Several definitions are changed or added, including adding firefighting and rescue equipment and mobile fuel truck containment systems as an airport development activity, and the addition of revenue producing aeronautical support facilities so that non-primary airports may use their entitlements to build or rehabilitate new facilities that can help generate revenue. o Grant Assurances: Two changes are made. First, a limited exception to a current requirement would be allowed to permit an airport owner to use AIP entitlement funds to move or replace a facility when the need to relocate or replace it was beyond the owner s control (such as new design standards that render the facility a safety hazard). Second, language is added to clarify provisions dealing with the disposition of proceeds from the sale of land that an airport acquired for a noise compatibility purpose but is no longer needed. The change allows the Secretary to permit other uses of the government s share of the proceeds, giving priority, in descending order, to the following: Reinvestment in another noise compatibility project at the airport; Reinvestment in another environmentally related project; Reinvestment in another otherwise eligible AIP project; Transfer to another public airport for a noise compatibility project; and Payment to the Trust Fund. o Government Share of Project Costs: A number of changes are made to the FAA s matching share of AIP projects: Current law allows the Federal share to either be a set percentage of a project s cost or a maximum percentage of a project s cost (i.e. the government may fund up to a percentage). The DOT proposes to eliminate the first option altogether. Airport Consultants Council Page 4

5 PFC Reforms The Federal maximum share for pavement and rehabilitation projects for runways, taxiways and aprons at large and medium airports would be reduced from a 75% to 50% share, but other projects at these airports would retain the 75% share. A new provision provides up to a 95% Federal share of project costs at non-primary airports that would no longer receive minimum entitlement funds. o Allowable AIP Project Costs: No major changes are made regarding the eligibility of AIP project funding. FAA moves the description of terminal development allowed under AIP to a new section. A new section is added relating to the relocation of airport-owned facilities due to design standards beyond the sponsor s control (similar to the provision in grant assurances). o Environmental Set-Aside: The DOT substantially broadens the uses of what is commonly referred to as the noise set-aside to include water quality mitigation projects that are approved as part of a ROD and for carrying out projects authorized as part of a new environmental research pilot program (that will be proposed as part of a separate bill concerning FAA programs). The set-aside apportionment would be changed from the current 35% of the AIP discretionary funds to 8% of all AIP apportioned funds, which should provide more stable funding. o The pilot program for the purchase of airport development rights, established in Vision 100, has been sunsetted. o Grant authorization to states and local governments to support land use compatibility planning and projects has been extended. The current Passenger Facility Charge program was established by Congress in 1990 and currently has a congressionally-established cap of $4.50 per enplanement. The FAA proposes numerous changes to the program. The maximum PFC rate would be increased from $4.50 to $6.00. Airports approved for a newly proposed terminal navigation aid pilot program would be able to charge a maximum PFC of $7.00. PFC eligibility would be expanded to include any capital cost than an airport could pay for with airport revenue. This includes most airport capital development projects in nonexclusive areas, including revenue producing facilities. Statutory PFC provisions are amended to make it easier to use PFCs to help finance intermodal ground access projects, including privately owned projects that are available for public use and otherwise eligible. Eligibility would also extend to in-line baggage screening installation. Airport Consultants Council Page 5

6 The PFC application, approval and amendment process would be streamlined, allowing local authorities to tap available revenue sources and determine appropriate use of the funds. Specifically, a three-tier system application/approval process is proposed: o Old projects: Airports would be required to submit an annual status report on PFCs that includes information on how the PFCs were used in the previous year and how an airport intends to use PFCs in the coming year. If all projects proposed for collection in the coming year had been approved under the old system or were subject to second or third tier procedures before submission on a prior annual status report, no further action would be required. o New projects: If an airport is proposing a PFC for a new project (not previously approved or subject to 2 nd or 3 rd tier during a prior year) the airport must provide a local notice and comment period for carriers operating at the airport and a local public notice and comment period before filing its PFC status report. o New intermodal ground access projects: This type of project is defined as a public or privately owned rail project that is a component of, or connects to, a general transit system. DOT would have to provide approval before an airport uses PFC revenue on the project. Program Reforms/Changes The DOT proposes to replace the existing Operations and Facilities and Equipment (F&E) accounts with a new Air Traffic Organization (ATO) account and a new Safety and Operations account. o The Air Traffic Organization account provides funds for the operation, maintenance, communications, and logistical support of the air traffic control system, including the deployment of communications, navigation, surveillance and related equipment and technology. It is funded from three sources: the Trust Fund, user fees, and the General Fund. o The Safety and Operations Account would cover aviation safety and efficiency, specifically supporting the Office of Aviation Safety to ensure the safe operation of airlines and certification of new aviation products. It is funded from the Trust Fund; user fees (both the air traffic and the registration and certification funds); and the General Fund. Other Provisions Environmental o Environmental Streamlining: DOT proposes several reforms: Amends the State Block Grant program to codify that participating states have responsibility and authority to comply with NEPA and other environmental requirements for projects within the purview of the program. The FAA would remain responsible for completing the Federal environmental review process for actions outside the State Block Grant program; Airport Consultants Council Page 6

7 Provides an additional $5 million per year to the Airport Cooperative Research Program for R&D related to the airport environment; o Environmental Set-Asides: The noise set-aside is substantially broadened for other uses and the apportionment formula is changed so that the environmental set-aside receives 8% of overall AIP apportioned funds (see above under AIP). o Staffing: A provision is included to broaden the authority of FAA to enter into reimbursable agreements to fund additional FAA staff and/or contract support by including voluntary agreements with airports that request FAA support to conduct special environmental studies that have research and development aspects for ongoing environmental reviews, along with similar studies resulting from approved Part 150 program measures. o Environmental Mitigation Pilot Program: The proposal includes a new pilot program that would allow FAA to fund six projects at public use airports that have promising environmental research concepts proven in the laboratory into actual demonstration at airports. o Flight Procedure Assessments: The proposal makes AIP funding eligible to encourage implementation of environmentally-friendly aircraft flight procedures. Research o The proposal authorizes $128 million for research in FY 2008; $144 million in FY 2009; and $144 million in FY The funding is derived from the General Fund or the Airport and Airways Trust Fund. o $15 million per year is authorized for the Airport Cooperative Research Program (ACRP) a $5 million increase per year over current levels. $5 million per year shall be dedicated to airport environmental research. o Directs the FAA to enter into a cooperative agreement with the Partnership for AiR Transportation Noise and Emissions Reduction (PARTNER) Center for Excellence to form a research consortium for development, maturing and certification for continuous lower energy, emissions and noise (CLEEN) engine and airframe technology. Privatization o Expands the existing pilot program on private ownership of airports from 5 to 15 airports. Restrictions on participation by airport category (i.e. hub, GA) would be eliminated. o The veto power of airlines to prevent privatization is eliminated. The Secretary can grant an exemption from the current super-majority (65% of airports) approval if the airport sponsor showed it consulted with the airlines using the airport. At non-primary airports, the exemption would continue to be based on consultation with at least 65 percent of the based-aircraft owners. o The proposal eliminates the effective airline veto power to prevent fee increases higher than inflation rates. Congestion Charges - DOT proposes two provisions that authorize the use of marketbased mechanisms, or auctions or congestion pricing, to control congestion and delays at capacity-constrained airports. One provision gives FAA statutory authority to use Airport Consultants Council Page 7

8 market-based mechanisms at New York s LaGuardia Airport. The second establishes a 15 airport pilot program to allow the participating airports to set the fees charged to aircraft operators. The proposal allows the Secretary to adopt market-based congestion management programs at the most severely congested airports. Essential Air Service Several changes are proposed for EAS. o The DOT proposal would limit eligibility for the subsidy to communities: 1) that are currently being subsidized under EAS; 2) that are more than 70 driving miles from the nearest large- or medium-hub airport; and 3) at which the subsidy per passenger does not exceed $200 if the community is less than 210 driving miles from the nearest large- or medium-hub airport. o The EAS program would be funded through a mandatory appropriation of $50 million each year from the Trust Fund; o Alaskan communities are exempt. Realignment and Consolidation of Aviation Facilities and Services DOT proposes a process to help FAA realign and consolidate it services and facilities, with the support of a new five-member Realignment and Consolidation of Aviation Facilities and Services Commission, the President and Congress. NextGen Overall, DOT proposes a new management strategy for NextGen, primarily by decentralizing the current system into a series of networks, similar to the telecommunications sector, allowing competitive forces and private sector innovation to drive modernization of the system. The new model consists of three main categories of services: o Decentralized non-federal services that are provided by multiple, competing nonfederal entities, with the FAA responsible for licensing, regulation, and certification. Examples would include contract towers and weather services; o Centralized non-federal services that are provided by a single, competitively selected, non-federal entity, with FAA awarding the license and responsible for regulation and certification. Examples of these services include ADS-B and a recent flight service station contract; o FAA-responsible services such as national defense. The services would be placed into the categories by DOT, in consultation with JPDO, the new oversight Board, and stakeholders. In this approach, the system would gradually evolve so that FAA becomes primarily a regulatory and safety oversight agency rather than a service provider, while private sector, states, regional consortia, and local airport authorities assume the roles of service provisions for many functions. Six provisions in the proposal outline the new management support: o Broad language clarifying FAA s general leasing and licensing authority; o A pilot program for airports to take responsibility for maintaining, operating and replacing certain terminal navigation aids and weather equipment (Sec. 318); Airport Consultants Council Page 8

9 o A pilot program for accelerating deployment of ADS-B by states or regions taking responsibility for ownership and maintenance of ground-based equipment for the program; o Deregulation of airports and reform of entitlement programs to target federal investments to the airports with the greatest capital needs; o Facilitation of the transition to NextGen satellite-based approaches, such as those using WAAS technology, through dedicated funding after FY 2008; and o Certification of third parties to develop WAAS and other approach procedures. Prepared By: TJ Schulz Vice President, ACC Airport Consultants Council Page 9

SENATE PASSES FAA REAUTHORIZATION BILL

SENATE PASSES FAA REAUTHORIZATION BILL February 17, 2011 What s at Issue The U.S. Senate has passed S.223, the FAA Air Transportation Modernization and Safety Improvement Act. Why It s Important The legislation