Devil in the Details

By Bill Deere

The challenge of writing political columns for quarterly journals like ours is the risk they will be overtaken by events before the ink is even dry. That should certainly be the case with a new Administration and Congress; but as we approach the 50-day mark, to date, there has been a lot of heat but not a lot of light. Let’s look at a few of the issues confronting the new Administration and Congress that pose potential risks and rewards for the aviation business community. The common theme in all of them—the devil is in the details.

Tax Reform—The United States has the highest corporate tax rate in the developed world. As a result, tax reform holds tremendous potential for our membership, particularly its central tenants, lowering the overall corporate tax rate and allowing companies to immediately deduct the cost of new investments. A tax reform bill would also serve as the vehicle for finally putting to rest the 2012 IRS Chief Counsel opinion applying the federal excise tax to aircraft management services. The trick is crafting comprehensive tax reform in a way that creates economic stimulus without exploding the size of the national debt. A centerpiece of one House proposal is offsetting some of the costs of tax reform through a “border adjustment tax,” a proposal requiring companies to pay income taxes to the U.S. on the value of their imports. Conversely, under the proposal, companies would no longer be required to pay income taxes to the U.S. on their income from exports. The adjustment tax potentially impacts our nation’s aviation industry and any move in this direction will need to be carefully crafted to ensure one of the jewels of American exports is maintained.

Infrastructure Funding—One of the Trump Administration’s campaign promises was to leverage public-private partnerships and private investments through tax incentives, to spur $1 trillion in infrastructure investment over ten years. As you read in Marty’s column, the airport sector alone has tremendous infrastructure needs if they are to keep pace with projected passenger growth and groundside needs created by the efficiencies resulting from the Federal Aviation Administration’s (FAA) NextGen modernization program. The President has returned to the need for infrastructure investment several times since his inauguration, mentioning it most recently at his appearance before a joint session of Congress. But we continue to lack the details of his plan. At a February White House meeting with airline and airport leaders, President Trump did not signal his support for increasing the Airport Passenger Facility Charge—indicating he opposed tax increases, while telling airport executives they would nonetheless love his plan. Even the recently released “budget blueprint” contains no more detail, though it states the President has tapped a group of “infrastructure experts” to evaluate investment options.

Similar to tax reform, there are fundamental questions associated with this campaign proposal. While tax incentives are good, private investment requires a return on investment. Would there be support for a seemingly massive increase in the number of the nation’s toll roads and bridges? Of particular importance to our members is the difficulty in securing a return on infrastructure investment in rural areas. It will be challenging and begs the question as to whether infrastructure improvements from such a proposal will be spread evenly throughout the country.

Air Traffic Control Reform—Proponents of separating the nation’s air traffic control operation from its safety function no longer use terms like ATC “privatization,” or “corporatization,” but rather “modernization.” As if disguising the intention somehow makes it more palatable to general aviation and rural America, the big losers under such a proposal. In a February meeting with leaders in the airport and airline industry, the President asked why modernization had been allowed to proceed to its current state. One airline CEO unintentionally let slip the real airline agenda replying, “We’re not in control.” Lately, the airlines have added that allowing the FAA’s safety and air traffic operations to communicate is akin to mingling “church and state.” That sounds disturbing, unless of course you realize that important, constant communication between the FAA’s safety offices and ATC operation has resulted in the world’s safest, busiest, and most complex system.

Consequently, we were disturbed when the President included language in his March 16th budget blueprint suggesting a “multi-year reauthorization proposal to shift the air traffic control function of the Federal Aviation Administration to an independent, non-governmental organization.”

Like others in general aviation, NATA wants to work with the new Administration and Congress toward a more efficient FAA. The contract tower program demonstrates improvements can occur within the agency’s current structure. Separating air traffic control from the FAA simply poses too many leaps of faith for aviation business. The risks include: losing the momentum resulting from the current deployment of NextGen technology; building walls between the FAA’s safety functions and air traffic potentially undermining the system’s safety integrity; and, allowing airlines to establish the costs to operate in the system for aviation businesses like our air charter community, potentially forcing general aviation out of the important airports and airways that our customers need.

We hope in the coming days the Administration will move away from confrontation with general aviation and instead pursue the path of national dialogue and consensus that Transportation Secretary Chao called for during her confirmation hearing.

Finally, recall a President’s budget proposal is just that—a proposal. Or as Senator Bill Nelson (D-FL) observed, “The President proposes, the Congress disposes.” Fortunately, joining Senator Nelson are other important voices in this debate. The bipartisan leadership of the Senate Appropriations Committee wrote the Senate Commerce Committee opposing the development of legislation separating air traffic control from the FAA. These senior senators praised the results of NextGen initiatives noting that “the progress already being made to synchronize investment from government and industry related to safety, equipage, training operational changes and overall integration would be lost.” Senate Appropriators also disputed the notion that the current budget process cannot keep up with air traffic control funding needs—pointing out that, since 2008, Congress has funded air traffic functions at 99% of the requested amount.

The debate is no longer academic. There will be a heated policy battle in Congress over this proposal so we ask you to stand ready. Your voice at critical points in the upcoming debate may very well be the key to future of general aviation in this country.

Republished from the 2017 Q1 Aviation Business Journal.

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