On February 5, 2007, President Bush released his 2008 fiscal year budget. Fears of how the budget would affect aviation came to fruition with a proposed budget cut of $1 billion off of the present funding level of $14.3 billion. A week later, the government declared that they’d be looking for a closer matching of costs to benefits; additionally, they recommended increases in the fuel tax and the implementation of several user fees. To make matters worse, if the budget goes through as presented, general aviation will be at war with commercial aviation about who and how much each side will have to pay for the right and privilege to fly. And the clock is tickling—funding for the FAA expires on September 30, 2007.
At stake is the cost to run a branch of the government, the FAA, which has approximately 14,500 air traffic controllers watching over almost 3,400 airports in 316 ATC facilities throughout the United States. As a side note, our ATC force is beginning to age. By the year 2015, approximately 75% of the controllers will be eligible for retirement. This creates a demand for 11,500 new hires over the next 10 years, which equates to an average of 1,150 new jobs per year. If a career as an air traffic controller is in your blood, now is a good time to submit your employment application.
The proposed 2008 federal budget has the potential to stymie general aviation with expenses and fees in much the same way the issue of product liability affected aviation in the 1980s and 1990s. If you remember, aircraft manufacturers pretty much ceased to produce single-engine aircraft because of the exorbitant product liability insurance costs that were tacked on to the cost of producing an airplane. So, we went through a period of several years when we were flying around in airplanes that were beginning to age, and there were no replacement airplanes on the production line.
Presently, the FAA gets funding from two sources: excise taxes from aviation taxpayers and a general fund that’s supported by all taxpayers. President Bush is expecting the users of aviation services to pay for the cost of those services. But just who are the users of aviation services? We’d all agree that pilots are users. Commercial passengers are users. But what about the economic impact to a community in the form of businesses and jobs that are generated by the aviation industry? If you remove pilots from the equation, then you’ll rapidly remove aviation from the community.
The FAA projections of this budget indicate that piston-engine pilots will see a tax increase of $100 million, or a 344% increase. Turbine aircraft are projected to see a tax increase of $868 million, or a 333% increase.
Fuel taxes are being targeted as an additional source of funds. Under the proposal, the current tax of 19 or 22 cents per gallon would be raised to more than 70 cents per gallon. This doesn’t sound like much—only 50 cents a gallon—until you start computing the gallons consumed on an hourly basis. Keep in mind that the average GA flight is between one and two hours. Then you have to get back home. Businesses will reflect this extra cost of doing business in the price of their products. To me, this sounds like the inflation that the government says it wants to keep in check.
But what about nonbusiness pilots who fly for pleasure. Many of these pilots may be wealthy, by someone’s standard, but there are other pilots with “normal” levels of income who spend their disposable income on flying. That $100 hamburger is going to cost a whole lot more. These pilots are the heart and soul of general aviation. They’re the pilots who generate an economic impact to their community by using aviation goods and services provided by local aviation businesses.
The proposed 2008 budget doesn’t stop with just increasing the fuel taxes. When you cross into Class B airspace, what’s the first thing that happens? You link up with a controller. Under the proposed budget, a user fee for this service will be charged to the pilot. How it will be charged and how it will be collected is anybody’s guess at this moment. And that’s a problem with the proposed budget. Nobody has given us an answer as to who will determine fees on certain services and how those fees will be collected.
User fees could be charged to the pilot when the FAA issues a private-pilot certificate. Registering your aircraft with the FAA would also be a service for which the FAA could charge a user fee. Preflight services and landing fees are other targeted areas that would likely be provided for a charge.
When you look at how much other countries charge pilots for these services, U.S. pilots have had a nice deal. Some countries even charge for the administration of the private written exam. But I’m not sure how long this advantage will last.
These are all fees that could potentially meet the goal of revenue neutrality for the budget, along with the excise taxes charged to passengers flying on commercial airlines. I once set up a 19-day business trip. During those 19 days, I went from Orlando to New York to Brussels to Madrid to Singapore to Sydney to San Francisco and back home to Orlando. The cost of the flight itself was just under $10,000. The excise taxes were another $350 or 3.5%. Who’s paying this excise tax? Is it the airlines or is it me? The bottom line is it’s me. I wrote the check. All the airline did was collect the tax and remit my money to the government. Who knows how much my excise tax will increase if the proposed budget passes. These numbers aren’t known at this time.
This is where the airlines take exception with GA pilots. The airlines are trying to hold passenger ticket prices as low as possible to maintain a competitive advantage. In their view, an increase in passenger excise taxes gives the appearance of an increase in the cost of a passenger ticket. But in reality, I have paid the excise tax even though it’s included in the cost of my ticket. The airline is only a collection agency for the excise tax. The airlines argue that they pay more than their share of the costs while receiving less than their proportionate share of the FAA services.
I think this 2008 budget is putting us on the verge of privatizing the FAA. If this happens, then who knows what the fees would be and what services will be charged. This has the potential to remove congressional oversight of the FAA. Whatever the user fees are and on what services they’ll be applied is to be determined by a “board.” With all of the lobbying that has been done by the airlines over the past year, I suspect that the airlines will be able to get several representatives on this “board.” Take the pie that’s composed of general and commercial aviation; if one side wins, then the other side must loose.
General aviation has its hands full with the budget battle with Congress. If the budget stays on course, general aviation may also have its hands full with a battle with the airlines that could last through 2017. If airlines are able to gain control of this board, then without congressional oversight, this board will be able to set fees and charges according to what they think is in everybody’s best interest.
Congress is saying that they need additional sources of revenue of the Next Generation Air Transportation System. This new system is needed to handle the growing demand for airspace. But as you read the transcripts, there are conflicting opinions on what those financial needs are. Some agencies are saying that the existing funding methods will be adequate, while others argue that there’s a shortfall of resources.
There are a lot of members in Congress who support the proposed budget. There’s also a lot of support in Congress for general aviation. Supporters of the proposed budget are holding to the premise of “pay for the service consumed.” If you use a service, then you should pay for it. The FAA shouldn’t be subsidized by the general-public taxpayer. If the general public takes a flight, then they should pay for their proportionate share of the expense in the fees and excise taxes. But again, who will determine these costs and how will they be allocated? That is a major concern for which I haven’t seen an answer.
Other members in Congress argue that all of America benefits from aviation, and if the costs exceed the revenue, then the general public should pay the difference. These members look at the economic benefit that the aviation industry generates. All companies have to operate at a profit to stay in business. Opponents of the proposed budget fear that the airlines will seek to divert their proportionate share of the expenses over to general aviation. We all know about airlines that have come and gone while trying to compete and remain profitable.
If you have an opinion regarding the 2008 proposed budget, I encourage you to contact your congressman/congresswoman or your senator. There will be a lot of debate over the budget during the next couple of months, but September 30, 2007, is the drop date. Otherwise, I’m afraid that none of us will be in the air without the services of the FAA.
O. H. “Harry” Daniels, Jr., is a CPA, PFS and a CFP licensee. He’s a partner with Duggan, Joiner & Company, Certified Public Accountants. Harry has held his private-pilot license since 1991. E-mail him at OHD@DJCoCPA.COM.