FAA Fee Plan to Spark Fight

The air traffic system and other infrastructure badly need cash for much-needed updates. Will a battle over fees and taxes stall the improvements?

By Martha Lynn Craver, Associate Editor, The Kiplinger Letter

March 20, 2006

With the skies growing ever more crowded, a huge congressional battle is shaping up over who should pay to help upgrade the nation's aging, overtaxed and underfinanced infrastructure that keeps air traffic flowing and safe.

The Federal Aviation Administration (FAA) will soon ask to scrap the current ticket tax, to be replaced by per-aircraft user fees. That would mean business jets and perhaps other private aircraft would end up paying substantially more than they do now. Congress will have to decide whether to go along with the proposal late next year when it has to reauthorize the FAA.

The FAA pays for most of its operations out of the Aviation Trust Fund, which relies on revenue from various taxes, including a fuel tax and a passenger ticket tax. Because ticket prices have been falling in recent years, the trust fund's uncommitted balance has been shrinking—declining by half in the past three years alone.

But the number of aircraft the FAA has to help take off, land and avoid smashing into one another is growing exponentially. By 2010, the regional commercial services that generally make short hops will be four times the sizes they were in 2000, and the business jet fleet will be about 65% larger. The FAA warns that its infrastructure—everything from runways to the air traffic control system—is so outdated and its services so strained that the nation's airways could severely clog if improvements are not undertaken in the next couple of years. The agency is also responsible for certifying pilots and airlines and inspecting planes—and it is constantly behind.

The most ambitious improvement the FAA is seeking is a satellite-based air traffic control system that will cost tens of billions of dollars but is crucial to accommodating the continuing surge in air travel. Such a system would allow planes to fly more closely together so more could be in the sky at the same time.

Backers of a user-fee system say a per-aircraft charge would both spread the costs more fairly and guarantee the reliable stream of revenue needed to finance such an ambitious modernization program. The large commercial carriers support the user-fee concept, since it would shift more of the cost of the air traffic control system to business and personal jets—and fairly so, they argue. In 2004, business jets accounted for 14% of takeoffs and landings, but paid only about 3% into the Aviation Trust Fund.

The Air Transport Association of America Inc. (ATA), the airlines' main trade group, has launched a major campaign, Smart Skies, to promote the idea of user fees. "Our country's economy depends on aviation, and without some change in the status quo, the system will not be equipped to meet future demand," says James C. May, president and CEO of ATA.

The business aviation community is dead set against such a shift and argues that user fees are costly and require a large bureaucracy to administer. Besides, commercial airlines are responsible for the cost of the system since they mostly fly in and out of popular airports at peak times, say business aviation interests. The business jet industry says that a massive ticket-tax increase or establishment of user fees can be avoided by paying for the modernization program with general budget revenues, which would allow the trust fund to finance just the usual operating costs. But in a time of soaring deficits, that also would make the money vulnerable in annual budget fights.