Federal Budgets, Sequesters and the FAA

One of the things I have noticed since returning to aviation is the use of the term “sequestration,” with its implication that at some point this year or next there could be another mindless, across-the-board cut applied to the FAA budget. The good news is that thanks to the agreement reached in late 2013 between then House and Senate Budget Committee Chairmen Paul Ryan and Patty Murray and President Obama, we know that the application of an across-the-board cut to the FAA budget will not occur this year and is unlikely in future years.

We also know the overall budget numbers that lawmakers will be working from this year absent a change in law. However, that doesn’t make the FAA’s budget picture necessarily brighter. The Administration will release its FY2016 budget proposal next Monday, so now is a good time to review the FAA’s budget and what we should be looking for on budget day.

FAA Spending In Context

To understand the FAA’s budget situation we have to first understand the overall federal spending. The FAA’s annual budget of approximately $16 billion is part of a category of spending known as discretionary spending. In other words, Congress must annually fund discretionary programs through the passage of 12 appropriations bills. However, as we see in the chart below, discretionary spending is a small part of overall government spending.

blogchart1

Mandatory spending programs are determined by eligibility rules rather than the annual appropriations process.  As you saw above, these programs represent the largest portion of annual federal spending. Examples of mandatory spending include Social Security, Medicare, Medicaid, and food stamps.

Breaking discretionary spending down further, we see that over half of all discretionary spending is devoted to national defense. As a result, the FAA competes for resources against a number of other worthy causes for a slice of the federal spending pie that represents only 13% of all government spending.

blogchart2

So the budget fights between Congress and the President of the last four years — fights that have resulted in government shutdowns and across-the-board program cuts — have largely been directed at approximately one-third of annual federal funding.

Worse, as you see below, discretionary spending has been steadily shrinking and will continue to shrink because mandatory spending is the real driver of annual budget deficits and growing debt.

blogchart3

The Congressional Budget Office (CBO) released a report this week noting that while an improved economy and reduced spending has reduced the size of annual budget deficits, they will begin to climb again starting in 2019, driven by the healthcare and other retirement costs of the baby-boom generation.  The CBO also noted that federal debt held by the public will amount to 74 percent of GDP at the end of this fiscal year—more than twice what it was at the end of 2007 and higher than in any year since 1950 and that by 2025 it will rise to nearly 79 percent of GDP.

So what does this all mean? First, feel free to be less than impressed by those who brag about controlling federal spending, as some budgetary wits have nicknamed them the “One-Third Serious Caucus.” To really control government spending you have to, like Willie Sutton, go where the money is – mandatory spending.

In fairness to lawmakers, it is political suicide to reduce the benefits of mandatory spending programs absent the kind of grand budget deal that requires Congressional members from both parties and the President to all hold hands and jump in together.

Sequester Level Spending

A 2011 agreement between Congress and the President to address the seemingly endless disputes about federal spending and the debt limit resulted in the creation of a congressional “Super Committee” to develop a plan to control spending through savings in discretionary and mandatory spending and changes to revenue policy (i.e. taxes). A failure to reach agreement would trigger a “sequester” on the current and future federal discretionary spending levels contained in the agreement. It was thought at the time that the possibility of draconian cuts to both defense and non-defense discretionary spending would motivate lawmakers from both parties to reach agreement.

So of course lawmakers could not reach agreement, and by March of 2013 the sequester was triggered that cut part of the FAA’s funding mid-way through the fiscal year.

The situation reached comical proportions later in 2013 when House floor debate on discretionary spending bills for the following year (FY2014) became impossible as few members wanted to face the consequences to federal programs required by the draconian discretionary spending levels created by the sequester. The Bipartisan Budget Act of 2013, also known as the Ryan-Murray Agreement, created more realistic discretionary funding levels for FY2014 and FY2015 to act as a bridge to the levels sequestration requires for FY’s 2016-2021. Below are the discretionary limits (in billions) to which the Congress and the President must adhere absent a change in law:

blogchart4(2)

Source: OMB, Budget for Fiscal Year 2015, The Budget, Table S-10 and CBO, The Budget and Economic Outlook: 2014 to 2024, February 2014, Box 1-1.

So when you hear someone express concern about “sequester spending levels,” they are referring to the numbers above, not the possibility of across-the- board spending cuts.

The question of whether discretionary spending is sustainable at the sequester levels was discussed at a recent event at the Brookings Institution. Opinions ranged from doable in the short-term to the possibility that, similar to the Ryan-Murray Agreement of 2013, Congress could once again “game the caps.” There was also discussion about whether lawmakers would attempt to stay within the overall discretionary cap but move some portion of non-defense discretionary spending to defense, something that would exacerbate the FAA’s budget challenge.

The FY2016 Budget Proposal and the FAA

The President will submit his budget proposal to Congress on Monday, February 2nd, marking the start of another part of the annual congressional calendar, the development of the FY2016 budget.

As we see above, the Ryan-Murray budget deal of 2013 was a bridge of increased discretionary funding for FY2014 and FY2015 to approach the cap level on discretionary spending for FY2016 (including the FAA’s budget). For next year it is almost the same level as the current year. This would make a major funding increase for the FAA unlikely absent a decision to cut other discretionary spending.

However, the President has choices, he may:

  • Submit a proposal adhering to the caps;
  • Ignore the caps, propose spending increases and let Congress agree or make cuts to his proposals;
  • Propose new user fees and taxes to offset any proposed spending increases.

These choices will not only impact the FAA but also tell us a great deal about how smoothly we can expect the budget process to unfold this year.

Finally, we will also be watching to see if the administration proposal will continue to contain proposals impacting GA in a negative way including user fees, cuts to contract tower funding and changes to the aircraft depreciation schedule.

More next week.

By Bill Deere, Senior Vice President for Government and External Affairs

Visit or return to NATA website: www.nata.aero

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