"Funding the Second Century of Aviation"
Marion C. Blakey, Washington, D.C.
February 14, 2007

Reauthorization Press Briefing

Thank you. Today is indeed a big day for the Department of Transportation, the Federal Aviation Administration, the taxpayer, and most importantly, for the traveling public. We have a unique opportunity before us, one that is indeed historic, to transform how we fund America's air transportation system.

Ten years ago, Congress cut the red tape from the FAA's personnel and acquisition rules, and ordered the establishment of a performance-based air traffic organization. Having succeeded in those endeavors, it's time to bring the FAA's financing system in to the 21st century as well.

But speaking on behalf of everyone who flies, this is first and foremost, about benefits to the passenger. The bill that's moving forward reduces congestion. It alleviates delays. It's going to cut travel time. It provides tax relief. It's green. And make no mistake, it delivers the technology to make all of this happen. As a frequent flyer myself, that list does it for me.

Now, let's get to the nuts and bolts.

The legislation that the Administration is sending to Congress today will serve as the foundation on which we will build the Next Generation Air Transportation System. Everyone in the aviation community has a huge interest in making sure we get this right, and that it's done on time.

When the Trust Fund was conceived more than 35 years ago, it didn't contemplate the move by the majors toward smaller planes, the advent of very light jets and air taxi service, the drop in the price of an airline ticket, nor technology like satellite-based operations.

Many of these changes weren't anticipated even 10 years ago when we last worked with Congress on a financing bill. But that's where we are. The Trust Fund's uncommitted balance now sits at $1.8 billion, the lowest in a decade.

If the FAA's funding continues at its current pace, that number's going to stay roughly constant in the years ahead. Roughly speaking, $1.8 billion is only enough to keep aviation's lights on for about two months. So it's absolutely critical that Congress act on our reform bill before the current taxes expire on September 30.

Our proposal will allow us to continue to operate more efficiently through a stable, reliable funding stream that enables us to handle the oncoming rush of the second century of aviation.

We're looking a billion passengers square in the face by 2015, and two to three times current traffic levels by 2025, so we've got to prepare now.

There's no time to waste. A stable funding stream puts our NextGen transformation plan in high gear. Anything less will risk long lines, endless delays and stranded passengers like we've never seen.

This legislation is balanced and fair, yet ambitious at its core. Let me start on the topic everyone's been obsessed with for months. Commercial users will pay their fair share of air traffic costs through user fees.

Based on the cost allocation we're releasing today, we know that commercial users and their passengers pay over 95 percent of the Trust Fund's taxes but account for only about 73 percent of the costs of the air traffic system. We also know that there are growing levels of high-end general aviation activity that impose similar costs on the FAA in the en route, high-altitude environment.

We've listened carefully to our stakeholders over the last 18 months. That's why the Administration is proposing a hybrid funding mechanism that respects not only the concerns of the people flying the planes, but the taxpayer flying in them as well.

Turbine commercial flights will pay user fees. General aviation and all piston-powered flights will pay fuel taxes. The general fund will finance the costs of services provided to the public users and programs that are uniquely in the public's interest such as air ambulances, safety regulation, air traffic costs driven by the military and flight service stations.

And in eliminating the ticket tax, we will deliver savings to the passenger as well.

Another key component of our proposed financing system is new borrowing authority of up to $5 billion, available starting in 2013, that will enable us to fund NextGen-related capital projects.

Any capital-intensive business uses debt financing to pay for major upgrades, and the FAA will now have the ability, if needed, to access Treasury bonds that will help accelerate the transition to a NextGen system and deliver its benefits to travelers more quickly.

To make absolutely sure that the public interest continues to be represented, we're creating a new governance board, the Air Transportation System Advisory Board. There will be seats for all major segments of the user community and representatives from the general public as well.

We'll look to the board for recommendations on major capital infrastructure decisions that will take us to the NextGen system. The board also will provide advice and recommendations on the creation and adoption of user fees, including any changes we propose to make on an annual basis.

We'll be updating our cost allocation study regularly to calibrate fees and taxes and tie them directly to the use of the system. Once again, let me emphasize that our goal is to make sure that the cost are allocated fairly.

Let me turn to airports for a moment. As you know, the Airport Improvement Program and passenger facility charges have long been the backbone of America's ability to keep our airports up to snuff.

But capital needs are up. Even with the majority of airports rebounding successfully from 9/11, small airports still continue to rely heavily on AIP. In the post-9/11 environment, we know that there's a distinct need for airports to be less reliant on carriers for income.

They've got to develop independent sources of revenue. There's a need for airports to have more flexibility to use these funds in a way that can enhance their ability to meet new requirements and increase self-sufficiency.

Further, the grant formulas in place now are outdated. The formulas need to reflect current requirements and future trends. Our proposal will advance formula changes that will simplify and better target Federal funds. And they'll increase local flexibility as well.

Under our proposal, we continue to fund the airport improvement program through taxes, a flat, universal fuel tax will apply to all domestic commercial and general aviation flights. It also includes a modified version of the current head tax on all international passengers. These taxes will generate receipts to cover AIP, essential air service and the trust fund's portion of research, engineering and development.

PFCs have long been a key source of revenue for major airports. Under our proposal, the cap on passenger facility charges will therefore be increased from $4.50 per ticket to six dollars.

This increase will bring in an estimated $1.2 billion per year in additional funds to commercial airports for capital development projects. We can also expand PFC eligibility to cover all airport capital projects as long as they are competitive. We will streamline the PFC application and review process. This gives airport authorities flexibility and cuts red tape. Wall Street tells us this is essential in today's challenging financial environment.

Local authorities will be able to tap available revenue sources more readily and take full advantage of the money.

We also are requesting authority to use market-based mechanisms like auctions or congestion pricing to control congestion and delay at LaGuardia. As you know, our core policy is to expand capacity to meet demand wherever possible. At some airports, like LaGuardia, physical expansion isn't an option. This provision would be consistent with FAA's proposal to replace the high-density rule that expired in January while letting the market ensure that we're making the most of that very popular resource.

The bill also contains initiatives to protect the environment. For example, it recommends a research consortium to develop more environmentally friendly engines and airframes. The NextGen system will be safer, cleaner, and more efficient and America will be better for it.

In closing, this financing reform bill will give us the flexibility and funding necessary to transform the system. It's fair all across the board, because the users will pay the costs they impose. It's based on input we received from our stakeholders and several boards or commissions that have repeatedly called for substantial reform to our financing system over the years.

This bill increases our accountability to the users of the system, whether you're an airline captain, a bizjet owner, a recreational pilot or a passenger just trying to get home for the holidays.

Let me emphasize that this is not a time to focus solely on numbers. There's too much at stake. This is an historic opportunity for financial reform. An argument that's solely about who's going to pick up the tab misses the point.

We need to address who pays what based on a fair allocation of costs, but we must also look at the broader picture. The fact of the matter is that the national airspace system is reaching critical mass. Capacity-wise, we're already tight, having reached all-time highs in delays in 2006.

If we don't put the transition to the NextGen system on track with a stable, reliable funding stream, we're all going to suffer. Now that our proposal is out and on the street, we look forward to an active debate.