This is the first in a series on H.R. 658, The FAA Modernization and Reform Act of 2012, by Stephen Van Beek, LeighFisher Executive Director of Policy and Strategy and a member of the FAA Management Advisory Council.

President Obama has just signed H.R. 658 into law. The 4 year FAA authorization will provide $63 billion between Federal Fiscal Years (FFYs) 2012 and 2015 (in practice, the specific authorization targets will guide policy for the next 3 years as FFY 2012 moneys were appropriated earlier).

For the aviation industry generally and airports in particular, the reauthorization is a relief, as the federal government struggled through 23 temporary extensions of authorization since the last multiyear authorization expired on September 30, 2007. These struggles included an embarrassing shutdown of “nonessential” FAA functions for 2 weeks last year. For the first time in what seems like a very long time, the FAA now has both the authority and the money to operate through the end of the current fiscal year.

While the industry welcomes the temporary stability, the long-term funding of the FAA, including the period between FFY 2013 and FFY 2015, remains uncertain at best. Recognizing the reality of slow Airport and Airway Trust Fund (AATF) revenue collections, congressional authorizers sharply limited future FAA obligations, reducing the Airport Improvement Program (AIP) from $3.515 billion to $3.35 billion for each of the 4 years, and essentially holding Facilities and Equipment (F&E), Operations, and Research funding flat over the entirety of the authorization period.

Notwithstanding these rather severe spending constraints, the evidence is that they will be insufficient and the FAA will continue to face budgetary shortfalls in funding as early as FFY 2013 (next year). Three principal trends underlie this analysis:

1. AATF Revenues: The collection of ticket taxes continues to be much slower than projected just a few years ago. Factors include slower than expected economic growth (fewer people flying), lower airfares (only recently have they increased), and the unbundling of airfares (reducing the taxable base of airline tickets).
2. Pressures on the General Fund: Annual budget deficits of over $1 trillion continue to put pressure on domestic discretionary spending. Over the last 4 years, Congressional appropriators have made up for the slower growth of AATF revenues by providing increasing amounts of taxpayer moneys to pay for FAA obligations. With much of the nondomestic discretionary portion of the budget insulated from large reductions, it is likely that discretionary transportation spending, including surface and air funding, will be subject to reductions.
3. Unrealistic FAA Operations Authorizations: Over the last 12 years, the FAA Operations budget (funding labor and the other noncapital portions of the FAA budget) has grown by over 49%. Yet, congressional authorizers essentially froze the Operations budget over the remaining 3 years of the authorization. Given past trends, this is unrealistic. If Operations were to grow at the average annual rate it grew over the last 12 years, the FAA would need an additional $750 million over the 3 years. Given budgetary realities and past congressional appropriators’ practices, these moneys would likely come out of the FAA capital accounts, including F&E and AIP, irrespective of their authorization levels.

Funding stability is vital to the FAA and airports. For the FAA, such stability enables the agency to plan NextGen and other F&E investments over a multiyear period. For airports, a stable AIP means that airport management knows the level of capital funding (“entitlements”) that will be available for projects over the authorization period. Unfortunately, both programs continue to rely on annual appropriations, which will continue to inhibit multiyear capital planning, the main purpose for which the AATF was created in the first place.

Just as one example, in any one year, should AIP be funded at less than $3.2 billion, airports will face dramatic cuts in their annual entitlements that they receive from the FAA. In this kind of budgetary environment, it is practically impossible for airport managers to rely on those future revenues for important capacity and safety projects.

In 2 weeks, we will review the aviation policy provisions of the FAA bill.