Financing Federal Aviation Programs

May 13, 2009

Last weekCBO's Deputy Director Robert Sunshinetestified about the financing of the federal governments aviation programs (basicallyoperations of theFederal Aviation Administration) before the House Ways and Means Committee.Reauthorization of the aviation programs raises a number of significant policy questions:

  • How much do we need to spend on those activities, especially to ensure that we have a safe, efficient, and effective air traffic control system?
  • How much of those costs should be borne directly by users of the system, and how much by the general public?
  • Of those costs borne by users, how should they be allocated among different types of users---or among users at differing times or differing places?

How much to spend. Before the current economic downturn, congestion and delays in the U.S. had risen to record levels. According to the FAA, in 2007 and 2008 about of all commercial flights in this country arrived at their destination at least 15 minutes after the scheduled time. In 2007, about 680 million passengers boarded nearly 10 million domestic revenue flights. Thats 26 percent more flights than in the year 2000, for about 14 percent more passengers. Both of those figures have declined somewhat from their peak, but demand for travel is likely to increase again when the economy starts to recover, hopefully later this year.

The system is clearly under stress, and implementing the next generation air traffic control system will require a significant investment of resources by both the government and the private sector over many years. CBO has not done any analysis regarding the potential costs of that system, but it seems likely that at least several hundred million dollars a year will be needed for that purpose.

Who should bear those costs? Most of the benefits of federal aviation programs accrue to users of the aviation system---though the general public also benefits from the use of the system by the military and other government agencies, and from the flow of commerce that the system facilitates. Historically, a combination of general taxpayers and users of the system have paid for its costs---the users through a set of aviation taxes that flow through the Airport and Airway Trust Fund. Economists generally believe that a good way to foster efficient use of any system is to charge users for the cost they impose on that system. In recent years, receipts to the trustfund have covered more than 3/4 of the cost of the government's aviation programs.

How should costs be allocated? It is important to determine not only how much users should pay, but also how to apportion those costs among the various users. Almost 70% of the trust fund revenues come from the passenger taxes. Another 20% comes from the international arrival and departure tax. Fuel and cargo taxes account for the rest. Its not clear, however, that this system of taxes encourages efficient use of the system.

Most of the taxes are linked closely to the number of passengers and the fares they pay---not to the number of aircraft operations. But the cost of the air traffic control system and the amount of congestion in the system is driven largely by the number, timing, and location of aircraft operations. For example, over the past several years, the number of aircraft departures has grown much more rapidly than the number of passengers---because air carriers have tended to substitute higher frequency service with smaller aircraft for less frequent service with larger aircraft.

Finding a way to allocate costs that accurately reflects the impact that various kinds of users have on the aviation system is a real analytical and political challenge, but a better alignment of taxes with costs could help reduce congestion and delays.