The Heritage Foundation

Executive Summary #1289es

June 4, 1999

June 4, 1999 | Executive Summary on

Executive Summary: FAA Reauthorization: Time to Chart A Course for Privatizing Airports

Congress is considering legislation to reauthorize the Federal Aviation Administration (FAA). The FAA, an agency of the U.S. Department of Transportation, funds and operates the nation's air traffic control system, enforces federal air safety regulations, provides financial support to U.S. airports, and performs other aviation-related functions. The FAA's authorization expired in 1996, and since then Congress and the President have been trying to work out their differences over the level of funding for the agency.

The main disagreements between the House and the Senate, and between Congress and the President, over reauthorization of the FAA concern how much to spend on aviation programs, how much FAA spending from the aviation trust fund should be supplemented with general revenues, and whether future aviation trust fund spending will be included in federal budget totals and subject to the budget caps agreed upon in the 1997 Balanced Budget Act.

The Aviation Investment and Reform Act (H.R. 1000) sponsored by Representative Bud Shuster (R-PA) proposes that all or more of the revenues flowing into the aviation trust fund be spent by the FAA over the next five years. Although this bill in its original form would have exceeded the fiscal year (FY) 2000 budget caps, it was amended in late May 1999 to conform to this year's caps, but not to those applicable to fiscal years after FY 2000. Alternatively, the Air Transportation Act (S. 82) introduced by Senator John McCain (R-AZ), as well as the President's plan released in January in his FY 2000 budget proposal, would allow the existing trust fund surplus to accumulate and the spending caps to remain applicable.

Although the President has proposed trust fund spending of $1.6 billion on the Aviation Improvement Program (AIP) in FY 2000 and S. 82 proposes spending of $2.8 billion, H.R. 1000 (the House Committee on Transportation and Infrastructure plan) proposes AIP spending of $2.5 billion in FY 2000 and more than $4 billion per year between FY 2001 and FY 2004.

Some Members of Congress object to the buildup of money in the aviation trust fund and contend that all of, if not more than, the revenue now flowing into the trust fund should be spent on airport improvements and other FAA operations. They argue that aviation-related user taxes should be dedicated to aviation and not diverted to other spending programs, deficit reduction, or tax cuts, as has often been the case with other federal trust funds.

Unfortunately, the debate over the mechanism for funding the FAA misses the more critical point: how to improve and reform FAA programs so that they better serve consumers, communities that own the airports, and the economy. For more than a decade, both the media and the government's own watchdogs, such as the U.S. General Accounting Office (GAO) and the Department of Transportation's Office of Inspector General, have reported the failure of the FAA to upgrade its own systems.

The President and Congress also have neglected the obvious opportunities to reform the management and funding of the nation's commercial airports. The privatization of 66 airports around the world in just the past two years demonstrates that large airports can be self-funding, independent of government financial support, and still provide substantial gains to their communities. Despite this record of success, however, some in Congress appear determined to make commercial airports even more dependent on scarce federal dollars by proposing federal airport funding that is more than double that of previous plans.

The airport privatization trend now sweeping the world was pioneered in 1987 by Great Britain when it sold seven airports, including Heathrow and Gatwick, in a public share offering for $2.5 billion. Since then, the new owner, BAA, plc., has invested more the $5 billion in the airports, has financed the construction of a passenger rail line connecting Heathrow to downtown London, and last year paid taxes of $340 million on the profits.

Based on the prices paid by investors for the 66 airports that were sold or leased to private owner/operators over the past two years, many major U.S. airports could be sold for substantially higher prices than Great Britain received for its airports in 1987. These potential sums represent a source of extraordinary untapped wealth for the cities and communities that now own airports. Atlanta's Hartsfield and Chicago's O'Hare airports could be worth as much as $6 billion each, and Los Angeles International and Dallas-Ft. Worth airports might be worth as much as $5 billion each. After repayment of debt and federal grants, the proceeds from the sales could be reinvested in other needed community infrastructure, such as schools, wastewater treatment plants, surface transportation improvements, and other public purposes.

Although several U.S. states and cities have attempted to sell or lease their airports to private owner/operators, the Federal Aviation Administration has been an obstacle to these efforts by interpreting certain sections of the U.S. Code governing the relationship between airports and the federal government in ways that make such transactions impossible.

CONCLUSION

Because the latest extension of the Federal Aviation Administration's authorization is set to expire, it may be too late for Congress to include major FAA reforms in the authorization bills currently under consideration. The two reauthorization bills before Congress differ dramatically in their intent and scope, as well as in the extent to which they would permit fundamental reforms in the future. As a result of these significant differences, S. 82 offers Members of Congress, the President, and state and local officials a better near-term window of opportunity to conduct a comprehensive review of the potential reform options that could allow them to make such reforms operational as early as October 2000.

Dr. Ronald D. Utt is Grover M. Hermann Fellow in Federal Budgetary Affairs at The Heritage Foundation.

About the Author

Ronald D. Utt, Ph.D. Herbert and Joyce Morgan Senior Research Fellow