David has done a good job at explaining the challenges the FAA will face if the House funding levels are agreed to in a final version of the FAA legislation. Greg, in recognizing the fact that the PFC is a federally authorized local charge and not a tax, also makes a good case for eliminating the PFC ceiling and returning control to airports.

In fact, if all of the airport-related provisions of the bill are considered, the House and Senate versions represent a huge disappointment and a great challenge to our nation’s airports; together they could usher in a new era of airport ownership and management.

The legislation’s effects are compounded by the Administration’s FY2012 FAA budget recommendations for a 30% reduction in AIP and the elimination of AIP for large and medium-hub airports. Together with the House and Senate FAA bills failing to raise the PFC ceiling, airports are being given few options other than attempting to raise fees on air carriers according to their local use and lease agreements. An important reminder: PFCs were put in place more than 20 years ago to provide airports with an independent source of capital.

These changes and recommendations represent an historic reversal as the Airport and Airway Trust Fund was principally designed to help fund the FAA’s Facility and Equipment Account, AIP, some research, and a portion of the FAA Operations account. Today, in effect, the Congress and Administration are attempting to “turn the Trust Fund on its head” and fund the FAA programs first and AIP last. This change should be made at least with an appreciation for its likely consequences.

What the 20+ year reversal and the cumulative effect of these changes could mean is that large and medium hub airports will be removed from future opportunities to receive federal capital funding (including letters of intent to fund future runways that are a priority under the National Airspace System). In that sense, Chicago could represent one of the last multiyear FAA airport grants. That means airports will not be able to meet their capacity challenges of the future and/or airports will seek new business models.

Today much of FAA regulation comes through grant assurances. With the removal of grants (leaving only assurances!), these changes in policy would encourage many airports to opt-out of the federal program entirely and seek new models to operate their facilities. These options could include (1) applying for the Airport Privatization Pilot Program or APPP (required if airport revenue would be diverted) and (2) seeking to privatize entirely outside of the federal program (if no airport revenue will be diverted). While some FAA attorneys and others may claim that airports’ consent to assurances in the past somehow will continue to bind them in the future, this argument would become less tenable each succeeding fiscal year and would eventually collapse under its own weight.

While the House’s approach is ill-advised, at least its bill provides a possible alternative. It expands the number of airports able to apply to APPP to 10, up from today’s 5; removes restrictions on hub size; and provides more flexibility for the current air carrier consent requirement. Undoubtedly, if AIP is cut and large and medium hubs do not have the reasonable prospect of receiving federal grants in the future and the PFC ceiling is not raised, we are likely to witness a wave of airport privatizations in the U.S. If a House-Senate conference is appointed on the bill and legislators remain obdurate about providing airports with funding options, conferees would be well advised to remove the restrictions on the APPP entirely.

The key question left to decide as the House considers its’ FAA reauthorization bill is whether or not Congress is willing to get the federal government out of the business of interfering with local communities and their airports.

We are in the midst of an on-going national debate over ways to reduce pressure on the federal budget, while at the same time in serious discussions on how to build and maintain our infrastructure. Yet both FAA reauthorization bills ignore the fact that Congress has not raised the cap on the Passenger Facility Charge user fee since 2000, and the $2 billion it raises a year is dedicated to paying for already completed projects or those currently underway. The PFC is a local fee, paid by passengers who use the airport. The money raised is plowed back into the system to make critical safety and security improvements at the local airport, thereby not only addressing our infrastructure needs, but also creating local jobs.

As I noted in a recent letter to Senators Mark Warner (D-Va.) and Saxby Chambliss (R-Ga.), who are leading the effort in the Senate on the recommendations of the National Commission on Fiscal Responsibility and Reforms, if Congress would lift the ceiling on the PFC, thereby allowing airports to work with their local community to set the PFC at a figure that ensures they are able to meet their outstanding infrastructure needs as well as to plan for future needs, airports’ need for federal assistance, particularly for those classified as large or medium hubs could lessen significantly.

The PFC user fee does exactly what Senator Bill Bradley, Secretary Tom Ridge and Comptroller David Walker, co-chairs of the Leadership Initiative on Transportation Solvency, suggested must be done in their recent op-ed; it makes “every dollar contributed…count.” The PFC is set locally and used exclusively for local airport projects. It is not filtered through Washington and it pays no bureaucrat’s salary or benefits. It is exactly the type of locally-focused, self-funded mechanism that typically earns raves from both fiscal conservatives and their progressive counterparts. It’s also a job creation machine that puts every program dollar into airport infrastructure and capital improvements, again without a penny going to Washington bureaucrats.

If Congress truly expects airports to continue to meet the numerous federally mandated safety, security and infrastructure projects while looking for ways to reduce the deficit, Congress needs to life the cap on the local PFC user fee so that every airport is able, based on its individual needs, to generate local, non-federal resources.

The FAA Reauthorization bill which soon will go to the House floor would significantly reduce the funding FAA now receives for its two major capital programs, Facilities and Equipment (F&E) and Airport Improvement (AIP), and for its Operations and Maintenance account (O&M) which covers staff expenses.

In funding these programs for FY 2011 to FY2014, the House bill follows the general House Republican position of freezing agency budgets at their level of funding for FY 2008. This would reduce FAA’s annual funding for the three programs by about $1 billion below the levels at which they are now funded (the FY 2010 level), a reduction of about 6%.

A cut back of 6% in budget will require FAA to cut expenditures by considerably more than 6%. When there is a cutback in the level of staffing for a federal agency, the savings in salary expenditures will be accompanied by requirements for severance pay and other termination costs that may exceed the savings. When the government cancels or delays contracts, such as F&E contracts to procure air traffic control equipment, there are likely to be substantial penalties that the government must pay to contractors. At hearings held by the Aviation Subcommittee on February 8 and 9, there was strong testimony from FAA and stakeholder groups that a cut back in funding to FY 2008 levels would require cutbacks and cancellations of critical capital improvement programs and the furlough of significant numbers of safety-related employees.

The claim that FAA funding needs to be cut back is of recent origin. The bills passed by the House in 2009 (by a vote of 277-136), and by the Senate in 2010 (by a vote of 93-0) would have increased FAA funding, and there was no substantial opposition to the funding provided by these bills.

There are sound reasons to exempt FAA from across-the-board budget cuts, and to limit any cuts in FAA to specific instances of unnecessary or excessive spending.

First, the FAA capital programs are funded by taxes paid by users of the airports and the air traffic control system; primarily the taxes on airline passengers, cargo, and general aviation fuel. These taxes produce sufficient revenues to support increases in the capital programs, such as those found in the bill the House passed in 2009.

In addition FAA’s programs provide important benefits to the economy, and any savings realized from cutting funds will be more than offset by the loss to the economy from cutbacks in programs. Specifically, FAA spending for improvement of airports creates and sustains jobs in construction, which is suffering very high rates of unemployment. The FAA’s Next Gen program, converting the air traffic control system to satellite-based navigation, will permit aircraft to move more efficiently, saving fuel and reducing congestion and delays. With the continuing growth in the number of airline operations over time, we need Next Gen and expanded airport capacity to give us the first-class aviation system on which our economy depends.

We should also be concerned about required cut backs in FAA staffing which could mean fewer safety inspectors and fewer professionals to work on the new safety regulations required by the Safety bill passed last year and this year’s reauthorization. The cutbacks will also delay certification of new products to enhance safety

The House bill is not the final word, and after it passes the House it will have to be reconciled with the Senate-passed bill that provides for an increase in funding. The Senate specifically rejected an amendment by Senator Paul to reduce funding to FY 2008 levels. A compromise may limit the damage from the one-size fits-all approach (reductions to 2008 levels) of the House bill.