Airports, FBOs and Users Role in Fostering Airport Health

March 29, 2018

Airports and their tenants provide essential services to keep general aviation healthy, sustainable and successful, as well as support the economic viability of local communities. In a recent Airport Business/AviationPros.com article, NATA Board Member Curt Castagna discussed pathways to maintain the sustainability of airports and to encourage stakeholders, including users, to collaborate on achieving a robust airport that supports both economic development and public access to aviation.

Is Your Airport Healthy?

BY CURT CASTAGNA, President and CEO of Aeroplex/Aerolease Group
Originally posted by Airport Business/AviationPros.com ON DEC 26, 2017

For managers of general aviation airports across the nation, the definition of sustainability is as diverse as the stakeholders whom they serve. However, most contend that maintaining both economic viability and social responsibility are vital to maintaining a healthy airport.

The Airport Cooperative Research Program (ACRP), which is funded by the Federal Aviation Administration (FAA) and undertakes research in a variety of aviation subject areas, defines airport sustainability as practices that ensure:

  • Protection of the environment, including conservation of natural resources
  • Social progress that recognizes the needs of all stakeholders
  • Maintenance of high and stable levels of economic growth and employment

There is no simple formula for achieving airport sustainability, as each facility has a unique operating environment, business structure, governance and market. In addition, airport management face diverse challenges in relation to meeting user needs in the areas of maintenance, modernization, budgeting, security, grant assurances, and local political and community initiatives.

This discussion is designed to encourage visionary thinking from airport, business and community leaders, as well as airport users, on how to collaboratively achieve a robust airport that supports both economic development and public access to aviation.

Navigating the Path to Self-Sufficiency

When it comes to maintaining the economic health of an airport, it is crucial to understand its unique operating environment. In broad terms, general aviation airports must comply with a host of federal regulations and requirements, while navigating local market forces and economic and environmental pressures.

General aviation airports traditionally generate revenue from lease rates, fees and charges collected from tenants and users who provide a broad range of aeronautical services to the aviation community including: aircraft sales and acquisitions, fuel, aircraft ground support, passenger and crew services, aircraft parking and storage, on-demand air charter, aircraft rental, flight training, aircraft maintenance and overhaul facilities, parts sales, and business aircraft and fractional ownership fleet management.

Development at general aviation airports often takes the shape of public-private partnerships, modeling the discussions currently underway at the nation’s commercial service airports. For example, an airport sponsor enters into a type of public-private partnership with a fixed based operator (FBO) that provides airport users with a wide range of aeronautical services. In return, the airport sponsor receives a fee for the land and the community receives the economic benefit, with minimal risk for the business enterprise that is created. An increased number of airports are also entering into agreements with private companies that provide renewable energy sources, such as solar panel installations, that can diversify revenue streams, significantly reduce energy costs and benefit the environment.

A third revenue stream at airports comes from specialty companies that serve aviation-related segments of the economy. Corporate and general aviation services are augmented by a diverse array of mixed-use facilities, including business parks and industrial centers, which make airports a powerful economic engine.

Finally, public-use airports benefit from grants provided by the FAA for vital infrastructure projects. Eligibility for these Airport Improvement (AIP) funds is specifically based on the airport’s ability to maintain a level and competitive playing field for leaseholders engaged in aeronautical activities. To maintain its grant assurances, airport sponsors are responsible for ensuring that its tenants provide services at prices that are fair, reasonable and non-discriminatory.

Competition, Not Regulation, Creates Healthy Airports

At some general aviation airports, as well as commercial airports with general aviation facilities, corporate aviation accounts for a disproportionate share of revenue generated compared to smaller general aviation aircraft. How then, do airports achieve economic sustainability while maintaining a healthy mix of jet, propeller and helicopter operations?

A proper mix of operations and aircraft cannot be achieved through increased federal regulation or market manipulation. Rather, airports must aggressively work to implement policies that maintain balance among the needs of diverse airport users, while extending the benefits of aviation to the local community.

This includes using a competitive selection process to attract tenants that make significant capital investment and offer quality services at reasonable prices. Airport sponsors must also establish fair and equitable lease rates and charges appropriate to the local market, as well as address mixed land use in their long-term master and business plans. When airport operators view their tenants as true business partners, they achieve mutual success and advance the airport’s mission to achieve both economic and social sustainability.

Case Study – The Airport Sponsor/Tenant Relationship

Currently, the Aircraft Owners and Pilots Association is calling for the FAA to regulate the price of aeronautical services provided by FBOs, such as fuel and ramp fees, to achieve unfettered airport access. While this suggests that private pilots would receive the lowest costs available, it actually constrains the airport’s ability to serve the aviation community and achieve its goals.

The investments made by aviation and FBO facilities not only serve local pilots, but are gateways to economic investment in the community. As leases come up for renewal, an increased number of airports are requiring FBOs to make significant capital investments which revert back to the sponsor at the end of the ground lease. Each airport and each market is different. Thus, based on local and regional knowledge, FBOs construct pricing that enables them to provide quality service at a reasonable rate of return.

The economics of airport business place great importance on master lease terms and available revenue streams to create viable airports. While FBOs frequently comply with guaranteed service levels and facilities dictated by airport minimum standards, their business model does not guarantee income. Sparing airports the risks of an open and volatile market, they provide a steady revenue stream in the form of rent. Ultimately, the rates and charges collected by the airport sponsor are reinvested to help create a healthier airport.

In circumstances where pilots feel they do not have access to the best prices for fuel and other FBO services, the situation is best mitigated locally through the airport sponsor, which is obligated by federal law to ensure access on fair and reasonable terms. This does not equate to the lowest prices, but does require FBOs to offer equal rates to similarly-situated pilots. If the situation is not resolved, a last resort is the formal FAA Part 13 or 16 complaint process.

Clearly, this does not remove responsibility for the fair and equal treatment of pilots and other airport users from the realm of the airport sponsor. Rather, airports are held accountable for supporting policies and programs that best serve the diverse needs of the entire aviation community.

At Van Nuys Airport, for instance, progress on a 30-acre development project dedicated to propeller aircraft is climbing full speed ahead. This site, still under construction, provides hangars, tie-downs and office facilities for up to 270 propeller aircraft and related businesses. It also features a self-serve fueling station for private pilots. By relocating approximately 85 portable hangars from other leaseholds, this facility enabled other development projects to move forward and generate substantial economic impact.

Practices to Achieve Economic Sustainability

Creating an environment where airport businesses can thrive provides benefits to airport sponsors, users and operators, while creating high-skilled, high-paying jobs in the community. A business-friendly environment also attracts public-private partnerships to the airport, including those that advance green technology and neighborhood compatibility.

The following are a few practices that can help propel an airport toward economic health and, in so doing, promote policies that are both responsive to business and responsible to the community:

  • Develop and enforce airport minimum standards that promote the highest levels of safety, security and service for all airport users.
  • Ensure the airport has a current business/redevelopment plan and schedule of rates and charges that reflect its overall vision and mission.
  • Consider a transparent RFP process to solicit business proposals for real estate that is designated for both aeronautical and FAA approved non-aeronautical uses.
  • Review and maintain compliance with all airport grant assurances and regulatory measures established by federal, state and local government agencies with jurisdiction over the airport and its users.
  • Think globally, but work locally with airport users and operators, public officials and prominent business, civic and community organizations to form an airport business support team.

Finally, aviation industry leaders and policymakers should take advantage of organizations throughout the world, such as ACRP, that contribute guidance and research on subjects of importance to airports. Many of their findings derive from the day-to-day challenges faced by airport managers and can lead to innovative solutions.

Curt Castagna, president and CEO of Aeroplex/Aerolease Group, is a member of the Los Angeles County Airport Commission, president of the Van Nuys and Long Beach Airport Associations, and a board member of the National Air Transportation Association. A certified private and instrument-rated pilot, he has instructed courses in aviation administration at Cal State Los Angeles for over two decades.


NATA Members Help Shape Debates in 2017, Build Strong Foundation for 2018

January 4, 2018

By Bill Deere, Executive Vice President of Government and External Affairs

This time last year, I warned that 2017 could be a wild one for the aviation business community. That turned out be a vast understatement. From proposals to corporatize air traffic control to price regulation of FBOs, this past year has been a constant challenge to the association and its members. As we head into the new year, challenges will remain but we are also hopeful that the work begun this year may result in significant progress in 2018.

No doubt the biggest debate in aviation in 2017 was the airline industry proposal to privatize the nation’s air traffic control system, an idea that was embraced by both the Trump Administration and the Chairman of the House Transportation Committee, Representative Bill Shuster (R-PA). Ultimately, the proposal was incorporated into the House version of the FAA reauthorization, H.R. 2997, the 21st Century AIRR Act. Following committee approval, it looked like the legislation was headed to the floor of the House of Representatives for a vote.

That is where the proposal met with the collective resistance of NATA and the rest of the general aviation community. NATA’s hundreds of Hill meetings, combined with the grassroots support of our members and countless others, were enough to introduce uncertainty in the House Republican leadership as to whether the corporatization proposal would survive a House floor vote. For that reason, the current FAA authorization was extended until March 30, 2018.

Significantly, the Senate FAA legislation contains no corporatization proposal. NATA members who participated in our annual Congressional Fly-In were the last general aviation group to visit the Senate before the bill was drafted and your direct advocacy efforts in opposition to corporatization benefited the entire general aviation community.

For 2018, you can expect the ATC corporatization battle to be fought one more time. At this writing, Congress is focused elsewhere, tax legislation, year-end spending bills, and immigration to name just a few issues. But as the calendar turns, and the next FAA authorization deadline approaches, you can expect our deep-pocketed opponents to make one more attempt to wrest control of the air traffic control system and turn it over to the airlines. We ask you to stand ready and be prepared to weigh in with your elected representatives. You are the aviation business community’s best voice.

While we expected the ATC corporatization battle, in 2017 we unexpectedly found ourselves in a debate with a national pilot organization that suggested to the FAA that FBOs are akin to public utilities and should be regulated along similar lines. This was a moment where our members were critical to our efforts to shape the debate. Thanks to the help of member companies, FBOs and Part 135 companies alike, we developed a report on the state of the FBO industry. The report, which is available on the front page of our website, is a comprehensive look at the industry and the many factors that impact the pricing of FBO services.

I am pleased that as 2017 progressed, more and more industry leaders turned to our report as the foundation for debate. It has also been gratifying to see the thoughtful approaches that have been taken to the issue by other groups, including the Experimental Aircraft Association, which featured an excellent article on the subject in its May edition of Sport Aviation.

So where do we go from here? As you will see in the article on our annual leadership conference (page 51), your association met the issue head-on with a panel that included pilots, FBOs, airports and fuelers. A dialogue started there that I hope will continue into 2018.

Finally, I don’t want to leave you with the idea that all we do at NATA is try and beat back bad ideas. We take seriously our responsibility to advance a positive, member-driven industry agenda. There are proposals in Congress and before the agencies across a range of issues, including taxes, addressing illegal charter, air carrier training and others that we hope to see implemented in 2018.

As we reflect on 2017 and look ahead to 2018, one thing is clearer than ever. We are in it together. To advance big ideas or defeat major threats, is a job that requires all of us to be engaged.

Republished from the 2017 Q4 Aviation Business Journal.


More Fixing of Things That Aren’t Broken

October 3, 2017

By Bill Deere, Executive Vice President of Government and External Affairs

The campaign to economically regulate FBO pricing took its latest step recently, when a national pilot organization filed informal complaints against aviation businesses at three airports. It is certainly reasonable for an association that represents pilots to act as a consumer ombudsman, just as NATA does on behalf of aviation businesses.

However, I very much agree with NATA’s President Marty Hiller who, pointing to the big picture noted, “This action is disappointing, coming at a time when the general aviation community is confronting a serious effort to privatize our nation’s air traffic control system. General aviation (GA) as we know it in this nation is under a real threat. We need to stand united right now and not be concerned with distractions like this.” Think Marty is exaggerating? I was on a recent call where the same national pilot organization was telling pilot groups from around the country the debate on ATC privatization has reached a point where the next seven days are critical to the future of GA in this nation.

To be clear, neither NATA nor its membership is afraid of a debate on FBO pricing. In fact, I am proud that NATA insists that viewpoints on controversial issues be aired directly with our members. On November 8th, NATA members will hear directly from AOPA General Counsel Ken Mead, who has agreed to join us at the 2017 Aviation Business Roundtable, to discuss pricing on a panel that will also include FBOs, airports and fuelers. I have assured Ken that no flak jacket is required.

The issue of FBO pricing is not new, and the pressure aviation businesses often face for more improvements and additional private investment can ignore the reality that these costs are ultimately paid for by the users. However, what is new, is the increasing lack of collaboration to address these issues. Historically, industry groups work in partnership on issues on behalf of their memberships, and in this case aircraft owners, aviation businesses and airports should be sitting down to address concerns and develop solutions, not looking for government regulation. This campaign to economically regulate FBOs began in secrecy, and ignores the fact the Department of Justice reviews FBO consolidations and requires adjustments if necessary to assure adequate competition continues. It seems reasonable that if a pilot organization felt its members were threatened at these locations, that their historic mission would have brought aircraft owners, aviation businesses and airports together, not pitted them against each other.

The commitment of the industry to work together on an unleaded avgas replacement exemplifies the potential of collaborative relationships. This effort provides users, businesses and airports opportunities to review incentives for alternative fuels as they hopefully become more readily available in the next several years.

While NATA does not take a position on pricing at individual FBOs, the association is providing important industry perspective, supplying both the FAA and local decisionmakers context as to the factors that go into FBO pricing. As you may recall, earlier this year NATA presented a state of the aviation business sector overview to the FAA. The overview, developed with the assistance of FBO and air charter members, discusses the costs of operating airport businesses and the many variables
that go into determining its pricing structure—including capital invested, lease duration, fuel volume, personnel expenses, hours of operation, and traffic types.

Press coverage of the informal complaints has been balanced and, most important, not accepting as axiomatic the assertion that FBO pricing is “egregious.” Especially gratifying to NATA are the comments that follow the related news stories. This would be a natural place for pilots to “pile on.” And while some do, there are also thoughtful comments from
writers who understand that FBO pricing is more complex than its glib portrayal in what is essentially an association’s membership renewal campaign. Some of the best discussion centers around the role of airports and the impact on FBO economics of a local airport or community’s desire for highend facilities, ways to most easily address security concerns or their own investment challenges. Federal requirements and local conditions can be managed together, and the industry has traditionally united to seek the necessary balance.

The FBO services market is and remains a very competitive industry. As the filings demonstrate, pilots, flight departments, charter companies, and fractional operators make a choice every day of what airports to fly into and which provider meets their requirements. Pilots have more technology than ever to create options to assist them in deciding where to land, purchase fuel, and remain overnight based on cost, convenience, reputation and services a fixed base operation provides. Currently, in the case of Jet A fuel there are no less than 26 providers of contract fuel (a method of payment offered by fuel suppliers and other transaction entities), most if not all posting weekly prices at most FBOs across the country. There are numerous websites that offer the piston and turbine pilots prices, with flight planning and other services, including FltPlan.com, AirNav, and RocketRoute.

Those within the aviation industry fully understand that FBOs compete vigorously with each other on price, service, and quality of facilities. Often, an FBO’s primary competitor is not a competing operation on the same airport but rather another airport in close proximity, or the airport where the plane came from or its final destination.

Pilots, take some of the self-congratulatory back patting of organizations with a grain of salt. The reporting has a tendency to peter out when the news turns inconvenient. For example, taking credit for a second FBO at Jackson Hole has stopped. Why? Because the airport authority may buy out the existing operation in favor of a city-run FBO. How about prices at John Wayne Airport now that an incumbent FBO was turned out? Looks like the total user price for fuel, handling fees and rents are still about the same. Economic regulation of FBOs is no different than trying to privatize air traffic control, another example of trying to fix something that isn’t broken. (Visit www.nata.aero to read NATA’s state of the aviation business sector overview.)

Republished from the 2017 Q3 Aviation Business Journal.


Airlines…..Unplugged

April 1, 2016

I had the opportunity last week to attend the U.S. Chamber’s annual Aviation Summit. “Aviation” in the title is really a misnomer. Despite the fact the Chamber has member companies with corporate flight departments, and even a wide array of other aviation businesses, make no mistake about it — this was an airline conference. The summit’s lack of balance was startling; this was a vehicle for airlines to get their message out and other viewpoints need not apply. Comfortable in what was clearly an enabling setting, airline executives felt empowered to say what they really think.

The leaders of the so-called low cost carriers were in lockstep about the dangers posed by four airlines with 80-percent domestic market share. Through their dialogue, they invited us to peak behind the curtain for a look at the impact of global joint ventures, noting for example three mega-alliances controlling 87 percent of the transatlantic market. They called upon the Department of Transportation to revisit these anti-trust waivers and immunized joint ventures…..and in the next breath they called upon Congress to adopt the Shuster proposal to create an airline dominated air traffic control corporation.

This is a demonstration of the old political adage, “where you are is where you sit.” Market concentration, it appears, is dangerous….unless of course you are part of it. This inability to either see or understand other perspectives is disappointing from people who are seemingly aware of the dangers created by market concentration. Even if we all saw creating an air traffic control corporation as a good idea, which we don’t, why would aviation businesses willingly sign up for a proposal that leaves their future costs to be determined by airlines?

However, the low cost carriers were just the warmup act, next came the airline association and a representative CEO from the big carriers. These speeches were carefully orchestrated and honed to two messages. First, congressional policymakers who offer pro-consumer proposals related to airline seats or pricing of various airline fees are intent on nothing less than re-regulating the airline industry. The airlines’ view of consumer legislation was best summarized by the head of their trade association who told the crowd, “Members of Congress, with all due respect, if you want to run an airline, buy some planes, hire some employees and sell some tickets.” Well, to paraphrase Ricky Bobby, he did say, “with all due respect.”

The wrath of these airline leaders was especially reserved for those who dare oppose their plan to create an air traffic control corporation. Those in opposition to the corporation are nothing more than “entrenched interests fighting to maintain their advantage.” Their response to the bipartisan work of Senate Commerce Committee Chairman John Thune and Ranking Member Bill Nelson that did not include a proposal to corporatize air traffic control, “The Senate took the easy way out.”

Worse are the half-statements that come along with addresses of these sort. For example, we were told airlines believe in a user fee-funded corporation so much they are willing to write their own checks to the corporation for the air traffic services they use. How altruistic. Except of course the real cost will be borne by the customer and the corporation proposal neatly removes accountability for those costs from a consumer’s direct scrutiny — let alone the costs the airlines will attempt to shift to general aviation. Other whoppers rehashed in front of a largely adoring crowd included the suggestion that air traffic controllers are using 1950’s technology, or that 60 countries currently operating corporatized systems are in some way more efficient or safer than ours.

Airlines also tried to dispel the notion they don’t want to run the corporation by noting the composition of the air traffic control board was changed late in the House committee process with the addition of two more seats for general aviation, bringing GA to the same number of seats as the airlines. While no doubt equal in number, it’s arguable those seats are not equal in weight. The corporation CEO, who also holds a board vote, will undoubtedly feel the pressure of the four votes that represent the overwhelming amount of corporation funding. In addition, this is not a proposal that is yet set in stone.   Neatly forgotten by these airline leaders during the conference, their complaint to Congress that the original proposal already lacked a sufficient number of airline stakeholders, particularly given the representation from general aviation — stakeholders that in their view pay next to nothing. We should not expect the airlines to give up on their attempts to “perfect” the board’s composition.

I report all this to remind you that despite some press reports, the airline industry is not giving up. Between now and July 15th (when the current FAA reauthorization again expires) we must be vigilant and engaged with our elected lawmakers if we are to withstand the imposition of the airline worldview on consumers and general aviation.

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


The FAA Budget Request For FY2016

February 5, 2015

On Monday, the Administration submitted to Congress a $4 trillion budget proposal for FY2016 that includes $15.84 billion for the FAA. In context with the President’s other discretionary spending proposals, the increases in funding for FAA operations, modernization and research will be difficult to sustain through the budget process unless Congress and the President reach a new agreement on overall discretionary spending levels.

FY2016 FAA Budget Request

FY2015        Proposed FY2016 (% change from FY15)

Ops                 $9.74b          $9.915b (+2%)

F&E                $2.6b             $2.855b (+10%)

RE&D             $157m          $166m (+6%)

AIP                  $3.35b          $2.9b (-13%)*

Total               $15.847        $15.836

*Proposal assumes increase in the Passenger Facility Charge (PFC) from $4.50 to $8.00 and focusing remaining funds on smaller commercial and GA airports.

Highlights:

Operations – $9.915b (+2%)

  • 85 additional FTEs requested for additional flight standards safety inspectors and aircraft certification engineers.

Facilities & Equipment – $2.86b (+10%)

  • $845m for NextGen capital investments.

RE&D – $166m (+6%)

  • Maintains $6m in funding for alternative GA fuels.
  • Largest proposed increases are in the Flightdeck/Maintenance/System Integration Human Factors program ($3.9m) and weather program ($3.4m).

Airport Improvement Program – $2.9b (-13%)

  • While an overall reduction, the Administration believes that limiting the use of AIP to smaller commercial service and GA airports would represent an increase in available funds in those categories.
  • The GAO estimates increasing the Passenger Facility Charge from $4.50 to $8.00 will generate approximately $2.4b in additional funding to the larger airports.

User Fees

  • The Administration has finally dropped a proposal to derive part of its budget from a $100 per flight surcharge on general aviation flights.

Tax

Trends in FAA spending

Because of the proposed shift in AIP spending, it is not a straightforward exercise to assess the proposed FAA budget increase in the context of other domestic discretionary spending proposals. However, the proposed increases for operations, F&E and RE&D are 3.5% above current levels. This is in contrast to the Administration’s total proposed domestic discretionary funding increase of 7%.

While the additional proposed spending for FY2016 in F&E and RE&D are welcome, it does not appear those increases will be sustained in the long-term. The Administration’s out-year projections of FAA funding average approximately 2% growth through 2025 (see charts below). AIP would be sustained at the $2.9b level until FY2020 when it is projected to rise to $3.35b per year through FY2025. The proposed 10% increase in F&E funding for FY2016 actually increases out-year funding for modernization by $200m annually above the levels the agency reported to Congress just last summer in its capital development proposal.

chart1

chart2

Budget Outlook

So now we know. Last week in our scene setter we discussed the FAA budget proposal for FY2016 in context of its place within overall discretionary spending. We noted that discretionary spending is an increasingly smaller part of the federal budget and capped in statute by the Budget Control Act to allow for a less than one percent increase in spending next year. We also noted that in response to this situation the President has three choices:

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

The President’s budget proposal essentially uses elements of choices #2 &#3. His overall discretionary spending numbers are 7% above the caps and the overall proposed budget would still deficit spend by $474 billion.

Discretionary Spending Caps (in billions)
Enacted FY15 Current Law FY16 President FY 16
 (proposed)
Defense $521 $523 $561
Non-defense $492 $493 $530
Total $1,013 $1,016 $1,091

The ball is now in Congress’ court. It can live within the discretionary caps, which limit overall funding increases to less than one percent, and develop appropriations bills that are essentially flat. This would be difficult for many agencies to absorb. For example, given increased annual costs in categories such as FAA operations, a flat budget will essentially represent a cut to other parts of the FAA budget.

However, the President’s offer of increased defense discretionary spending may be intriguing to many congressional Republicans and could serve as the basis for a compromise similar to the Ryan-Murray agreement in 2013 when the discretionary caps were adjusted using various budgetary slight-of-hands to offset the increased funding.

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

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


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

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


Congress Expected to Adjourn This Week

December 8, 2014

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

The lame duck session of congress is expected to adjourn this week after addressing several must-pass items of interest to aviation.

Late today, the House Appropriations Committee is expected to unveil a “cromnibus,” legislation to fund the government for the rest of the year.  The legislation will combine a short-term funding extension for the Department of Homeland Security and funding for the balance of the fiscal year for other government operations including the FAA.  Any major funding increases are expected to fall on the international side, addressing the Ebola outbreak, operations in Syria and Iraq, and assistance to Ukraine and the Baltic states.  The House is expected to consider the legislation Wednesday, leaving the Senate one day to consider the legislation in advance of the expiration of the government’s current funding bill.

Also this week, the Senate is expected to consider a one year extension of approximately 50 tax provisions that expired at the end of 2013, including bonus depreciation and section 179 expensing.  Last week, the House passed a one year extension after House-Senate negotiations over longer-term extensions for certain provisions including bonus depreciation and section 179 expensing stalled in the face of a possible presidential veto threat.  Late last week, the office of Senate Majority Leader Reid reached out to leading members of the coalition in support of bonus depreciation, including NATA, to refute a news story that suggested the Senate might not have time to pass the House tax extenders bill before adjourning.

Finally, Senate Majority Leader Reid and Minority Leader McConnell must still agree on a final package of nominations for floor action before adjournment.  Among those nominees awaiting floor action is Christopher Hart to serve as Chairman of the NTSB.  Hart’s nomination cleared the Senate Commerce Committee in July but has yet to be acted on.

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