Fuel Taxes and a Fair Share: What Should GA Pay for FAA Funding?
October 25, 2013
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  • The debate rages on.

    Should general aviation pay more toward the cost of the nation’s air traffic control system, especially if it would hasten the implementation of the NextGen air traffic control (ATC) system and depoliticize FAA funding? If so, is the current system of fuel and excise taxes the best way to do it.

    Historically, the airline lobby has pressed policymakers to implement higher fees on general aviation (GA), claiming the industry does not pay its fair share. The official policy of GA, as espoused by the NBAA and others, has and continues to be that the current aviation fuel tax system is the fairest and most efficient way to collect GA’s contribution to ATC, even if that tax needs to be increased. The tax on jet-A currently amounts to 21.9 cents per gallon.

    GA lobby groups have fought vociferously against any attempt to impose user fees, such as the $25 segment charge on turbine aircraft unsuccessfully proposed in 2008 to fund ATC modernization. Since then, the rhetoric from the leaders of some GA groups has hardened in the face of what is perceived as an increasing threat on an industry in a fragile economic recovery.

    This summer, NBAA president Ed Bolen, addressing the user fee threat, warned a forum audience at EAA AirVenture: “The ability to tax is the ability to destroy.” In September, the NBAA announced that the House of Representatives General Aviation Caucus had grown to a majority of all members, giving GA added clout in any future user fee fight.

    Aviation fuel taxes currently imposed on GA raise $622 million annually, according to the FAA. The FAA also collects a 7.5-percent excise tax on Part 135 passengers and a 6.25-percent excise tax on airfreight.The FAA currently collects$11.44 billion annually forairline passenger ticket, freight and international departure taxes.

    Approximately 74 percent of the total$15 billionFAA budget, or about$11.18 billion(people and facilities), is used for ATC.The remainder of the FAA budget is used for regulation, safety oversight, research-and-development and compliance activities.

    All fees and taxes due the FAA are deposited in the Aviation and Airways Trust Fund (AATF). Proceeds from the trust are supposed to fund all FAA activities, including the Airports Improvement Program (AIP). However, in recent years, proceeds from the AATF have been insufficient to fund the entire FAA budget, and a historical annual shortfall of $2 to $3 billion has been appropriated by the Congress, which must approve the entire FAA budget, regardless of the funding source. Recent shortfalls largely have been associated with the cost of developing and deploying NextGen ATC technologies.

    GA’s Fair Share

    Given these numbers, does GA pay its fair share of the ATC burden? The Department of Transportation’s Inspector General’s (IG) office attempted to determine that in a 2008 study. (“Use of the National Air Space System,” CR-2008-028) The IG found that GA used approximately 16 percent of all ATC services but contributed only 3 percent of the costs, findings that were roundly criticized by the NBAA and others.

    Specifically, the IG found that “non-carrier” operations accounted for 59 percent of tower operations, 49 percent of terminal radar control (Tracon) operations and 17 percent of en route miles flown. The IG found that non-carrier jet operations accounted for 12 percent of tower services, 13 percent of Tracon services and 11 percent of en route operations. Towers and Tracons account for more than half of all FAA costs. The IG further found that during peak hour periods non-carriers accounted for 20 to 30 percent of all IFR approaches in the New York Tracon, 28 percent in Atlanta and 18 to 23 percent in Cleveland.

    Eliminating all other sources of revenue and using the fuel tax to pay for ATC indiscriminately would level the playing field somewhat, but GA would pay more. According to a statistical sampling performed by the IG, universally applying the fuel tax would result in air carriers paying 96.9 percent of the ATC burden while operating 92.3 percent of the flights, while non-carriers, with 7.7 percent of all flights, would see their share of the burden increase from 1.2 percent to 3.1 percent, or an increase of about 35 cents a gallon in fuel taxes to 57 cents a gallon. That would be mitigated somewhat by undetermined cost savings associated with the elimination of record keeping now required for compliance with passenger and freight excise taxes.

    Canadian System

    Another means of leveling the playing field would be to switch to a Canadian-style system that assesses ATC based on aircraft weight and time in the system. This solution is espoused by several leading aviation analysts, including the Reason Foundation’s Robert Poole. Poole maintains that even with a representative increase in the fuel tax, GA would still be proportionately underfunding the FAA budget because GA fuel tax revenues are used in support of the AIP, and that a large share of that allocation benefits GA-only airports. “Something like a billion dollars a year our of the $3.5 billion annual AIP expenditures are spent on airports that do not have commercial service,” he noted.

    Poole has concluded, after studying the Canadian and European systems, that it would be unreasonable to try to collect a proportional share of the ATC system costs from GA. “Nobody actually does that,” he said. “As a practical matter that isn’t going to happen. Even if we did shift to a higher fuel tax or direct fees and charges like Canada uses, they would not provide full cost recovery, but they would be more, certainly. But it wouldn’t be a ‘blip is a blip’ [on the radar] concept that the airlines were fighting for back in 2007 in the war they waged against business jets.

    The Canadian system uses a terminal charge and an en route charge, and the en route charge is based on miles and gross takeoff weight. Putting weight into the equation scales the system. Piston airplanes like a small Cessna don’t pay any en route or terminal charges at all, just a small annual fee that is less than they would pay in fuel taxes in the United States. Canada and most of the rest of the world understand that you don’t want to put anyone out of business and make flying unaffordable.”

    Direct Fees or Taxes?

    Poole said the debate comes down to whether it is better to have direct fees or taxes. “Any tax legally goes into the federal treasury and the money can be spent only when Congress writes an appropriations bill, or it can be misappropriated. And that is why there is this extended conversation going on in Washington now among the various stakeholder groups in GA and the airlines about fee-for-service structures, where fees are provided directly to the service provider like Nav Canada, and they are not at all part of the government budget or political process. They are not subject to budget cuts. The aviation trust fund [AATF] was supposed to do that, but the system has really broken down.”

    Poole thinks the current methods by which the FAA gathers revenues–passenger taxes, fuel taxes, excise taxes, waybills, trust fund investments and general appropriations–is “overly convoluted.

    However, he did admit that imposing the Nav Canada structure on U.S. GA would increase flight costs as compared to the fuel tax system currently in place. “It’s definitely an increase. It’s not more than double, but it is considerable.”

    Yet if those increased fees were used to fund a more efficient ATC system, Poole maintains that operators would quickly break even, “if you could reduce flying hours by three to five percent thanks to more efficient routing or fewer holds.”