Budget Commission Report is Now Available – Recommends Aviation Cuts

The President’s Budget Commission has posted a draft proposal for a better American fiscal health. The proposal includes a list of $200 billion in illustrative savings, with discussions about each element. Two of the proposals would affect aviation directly.

Proposal Number 31: Eliminate grants to large and medium-sized hub airports. The Federal Aviation Administration (FAA) provides grants to airports to expand runways, improve safety and security, and make other capital investments as part of the Airport Improvement Program (AIP). Federal grants to airports merely substitute for funds that large and medium-sized airports would otherwise raise from private sources such as investments and passenger fees. However, smaller airports have more difficulty raising such funds. This option would limit AIP grants to small-sized airports only, trimming about a third of the program’s budget. This would save about $1.2 billion in 2015. The Federal Aviation Administration (FAA) provides grants to airports to expand runways, improve safety and security, and make other capital investments as part of the Airport Improvement Program.

Airport improvements are currently funded from the Airport and Airway Trust Fund. The Airport and Airway Trust Fund is supported from revenues from several aviation-user fees (taxes on such items as aircraft tickets and aviation fuel). Generally speaking, such user fees are thought-of as a ‘contract’ between the payers and the government, in which taxes paid by those who use the infrastructure are used for the benefit of the infrastructure. Thus, the real impact of this proposal would be to divert user fees from their intended use to the general fund (imposing a general fund tax on a small sector of the population – the aviation community).

The second proposal suggests increasing aviation fees and using them for the general fund.

Proposal Number 35: Require airports to fund a larger portion of the cost of aviation security. The Aviation and Transportation Security Act of 2001 was enacted following the attacks of September 11th, 2001. As a means of increasing security, the Act makes the federal government, rather than airlines or airports, responsible for screening passengers, carry-on luggage and checked baggage. To help pay for the increased security, the law authorizes airlines to charge passengers $2.50, capped at $5 for a one-way trip, each time they board a plane. By increasing fees, the airlines would be less subsidized toward airport security – a basic cost of airline transportation, in line with labor and fuel costs. This option would increase collections by $1.9 billion by 2015 and more than $9 billion over five years.

As with the AIP proposal, the effect of this proposal would be to divert user fees from their intended use to the general fund.

From a theoretical standpoint, these proposal represent bad policy. Is bad policy necessary in order to balance the federal budget? Two important questions are (1) can the aviation industry survive these changes and (2) if the aviation industry goes under the fiscal knife, then would the United States be willing to make the other tough cuts necessary in order to turn our federal budget around?

The Commission’s Report and illustrative cuts are worth reviewing by all Americans.

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