NATA 75: An Industry Voice Is More Important Than Ever

December 28, 2015

 

As we launch into our anniversary year, reading the excellent history of the association written by Paul Seidenman and David J. Spanovich (page 18) underscores just how important it is for aviation businesses to have a voice to represent them in the public policy arena. As the article demonstrates, NATA’s birth was directly linked to the future of civil aviation, when the association’s founders had the vision to join together and intervene at a critical juncture, not letting the military in effect—take over—American aviation. In fact, the article is replete with examples, large and small, of how the association’s intervention made a difference in supporting aviation businesses’ contin­ued growth in this vital, and uniquely American, part of our economy.

It is easy to understand the advantages of membership when viewed from a purely business perspective. Many NATA members, for example, take advantage of the association’s industry leading workers’ compensa­tion insurance program or perhaps its Safety 1st training. However, the need for a public policy presence is not something that is always readily apparent nor easily quantified.

Perhaps because of our history, NATA members see that need. In our recent membership survey, advocacy was rated as one of the most important aspects of membership. It is also borne out by the fact that when the call for help goes out to aviation businesses, NATA members respond.

Looking ahead to 2016 we, like our founders, continue to see challenges and opportunities for aviation busi­nesses. On our immediate horizon is the upcoming FAA reauthorization bill. While events in 2015, the leadership crisis that resulted in a new Speaker of the House, Paul Ryan, and the difficul­ties of financing a multi-year surface transportation bill, slowed down the FAA bill in Congress—make no mis­take about it—the airlines still want the keys to the air traffic control system.

In early December, Airlines for America (the trade group representing the major carriers) and the CEOs of the nation’s six major airlines were in Washington, D.C., talking to lawmak­ers about their desire to create an independent, user-fee funded air traffic control organization. Don’t think they are serious? When the world’s largest airline, Delta, announced it was leav­ing the trade group in a disagreement over this and other policies the airlines are pursuing, the remaining members waived the association’s required de­parture notice allowing Delta to leave immediately.

The idea of privatizing air traffic control has been one pursued by others as well, some frustrated by the pace of modernization, others concerned the congressional budget process has bro­ken down to the point where funding for the agency may no longer be able to keep up with the future needs of the system.

While NATA agrees the FAA could certainly stand the injection of more private sector practices, we view the unknowns associated with corporati­zation as simply too great to risk. Can such a proposal be safely implemented in a system many times larger and far more complex than any other in the world? Will its implementation set back the cause of modernization rather than enhance it? And what happens to general aviation, a uniquely American user not really a large factor elsewhere in the world? Will new costs and fees in effect deny your businesses and cus­tomers access to airports and airways necessary to your operating a viable business?

While a huge concern, I don’t want to leave you with the impression this is the sole issue confronting avia­tion businesses. We are still working to unwind a 2012 IRS opinion that concluded that aircraft management fees are “transportation” and therefore management service providers should be assessing the 7.5 percent commer­cial ticket tax on amounts paid for those services. We are also working as part of a broad national coalition to bring certainty to investment policy by making permanent bonus depreciation and Section 179 expensing. Finally, the NATA regulatory team is working across a myriad of issues, before the FAA, the TSA, and Customs, among others, looking to bring common-sense and your real world perspective to the issues under consideration by the exec­utive branch.

Our issues are not always defen­sive. Our committee members were instrumental in developing a positive agenda for the FAA reauthorization bill. In fact one agenda item, requiring the investigative arm of Congress, the Government Accountability Office, to conduct a study of diversions of non-commercial jet fuel tax revenues to the Highway Trust Fund, was just incorporated into the recently enacted surface transportation bill. We are also particularly proud of the ongoing effort by NATA and AAAE members to identify and address the issues that divide and can unite airports and their tenants.

So as Tom Hendricks says, our future is bright and getting brighter by the day. As we move into what could be a watershed year in aviation, stay involved, and stay engaged. In the end, you are aviation businesses best advocates!

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


Speaker Boehner’s Parting Gift

November 2, 2015

No one could have predicted the circumstances under which Congress and the Administration were able to bring about last week’s long-term budget agreements.

The resignation announcement by House Speaker John Boehner immediately cleared the way for a bill funding the government through December 11th.  It also allowed the outgoing Speaker to “clean up the barn” and resolve potentially debilitating issues for incoming Speaker Paul D. Ryan.  In a move worthy of the climactic scene in The Godfather, outgoing Speaker Boehner settled political scores by successfully negotiating a two-year adjustment to federal discretionary spending levels and raising the nation’s debt ceiling through March, 2017.

This is good news for aviation.  As NATA’s President Tom Hendricks observed earlier in the week, the legislation addresses two threats to our industry – the ramifications of defaulting on our nation’s debts and a potential shutdown of the Federal Aviation Administration. Let’s look at the numbers behind the agreement and talk about what happens next.

The Deal

The Bipartisan Budget Act of 2015 amends the discretionary spending caps (the 30% of federal spending directly appropriated by Congress on an annual basis) for fiscal years 2016 and 2017 as seen below:

Discretionary Spending Caps (in billions)
Old Cap FY16 Revised FY16 Old Cap FY17 Revised FY17
Defense $523 $548 $536 $551
Non-defense $493 $518 $503 $518
Total $1,016 $1,066 $1,039 $1,069

One interesting question is whether all parties involved will consider this a two-year spending deal.  After all, the agreement includes virtually no increase in spending between FY2016 and FY2017.  However, veteran appropriators have observed the 2013 Ryan-Murray deal had a similar tight spending level in year two and all parties involved lived within it.As you see, these levels represent increases of $50 billion and $30 billion respectively over the FY16 and FY17 spending levels established in 2011.  Recall that in his February budget request, President Obama proposed a $75 billion discretionary spending increase above the FY2016 caps.

Next Steps

So the chances of a government shutdown have been dramatically reduced but we are not completely out of the woods yet.

Remember, the current continuing resolution (CR) temporarily funds the government by continuing funding levels from the prior year, but it expires on December 11th.  The increases in overall discretionary spending provided in the agreement will allow congressional appropriators the budget ceiling needed to complete work on the FY2016 federal budget –including funding for the FAA.  However one issue still remains, will policy riders, typically in the form of prohibitions against certain types of spending, derail concluding work on the FY2016 budget?

Reports indicate that work on the spending bills has already begun and will likely result in the dreaded “omnibus” appropriation bill where the twelve separate spending bills will be rolled into one mega spending bill.

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


Federal Budgets, Sequesters and the FAA

January 28, 2015

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

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