July 9, 1999 | Backgrounder on Federal Budget
On June 15, 1999, the House passed H.R. 1000 (the Aviation Investment Reform Act for the 21st Century, or AIR 21), to reauthorize the Federal Aviation Administration (FAA) through fiscal year (FY) 2004 and to increase significantly federal spending in support of commercial aviation.1 To make room for this additional spending in a federal budget in which total spending is tightly limited by congressionally approved "caps," Title IX of AIR 21 would move all spending and revenues of the Airport and Airway Trust Fund "off budget." As a result of this proposed change, federal aviation spending would be exempt from all congressional budget control mechanisms and would receive a level of protection now provided only to Social Security. Spending control mechanisms that no longer would be applicable to aviation spending if the aviation trust fund were moved off budget include budget caps established by the Balanced Budget Act (BBA) of 1997, pay-as-you-go rules, annual congressional oversight and review, and other statutory budget limitations.
Although the House passed AIR 21 by a veto-proof majority, it is not at all certain that the Senate is prepared to accept aviation spending plans of this magnitude or a change in the budgetary treatment of trust fund spending. Indeed, now under consideration in the Senate is a significantly different proposal to reauthorize the FAA: S. 82, introduced by Senator John McCain (R-AZ), which would authorize much less spending than H.R. 1000, and make no change in aviation's on-budget status. Because the FAA's current authorization expires this August, considerable pressure will be placed on the Senate to match the level of spending, and the special off-budget privilege, passed by the House.
Advocates of the proposal to move aviation spending off budget argue that this special privilege would protect the tax revenues generated by the airline industry and airline passengers from being diverted to non-aviation spending, tax relief, or debt reduction. And because none of the existing congressional spending limitation efforts and mechanisms apply to off-budget spending, this privilege also would allow Congress to raise future aviation spending substantially above levels that would be permitted for such other, unprotected programs as national security, health care, and law enforcement. If ultimately adopted by Congress and signed into law, such a change would be a major setback in Congress's long struggle to control spending, reduce taxes, and balance the budget. It also would be fiscally irresponsible because it would make sound federal financial decisions more difficult, weaken congressional oversight, create a misleading federal budget, and violate the spirit of the BBA. Specifically:
Sound public finance
decisions would become more difficult.
Moving aviation spending off budget would erase any remaining notion of fiscal discipline within Congress. Not only would it remove aviation spending from any measures of budget control, but it would have the further effect of creating opportunities to spend more in other programs. Placing aviation spending off budget without a corresponding decrease in the discretionary spending caps in effect would bust the caps enacted in 1997 by creating a "gap in the cap." This gap, amounting to $25.2 billion between 2001 and 2004, would likely be filled with increased spending from a variety of other programs seeking relief from the discipline imposed by the caps. If the caps were adjusted downward to reflect the off-budget move, then an even smaller share of the federal budget (now down to just 34 percent of all federal spending) would have to shoulder the burden of meeting the budgetary targets required by the BBA. Such vital, but unprotected programs as Coast Guard drug interdiction, national defense, the Centers for Disease Control, and many others could become subject to cuts, while federal spending on behalf of commercial airlines and recreational pilots would be increased and protected from congressional oversight.
Off-budget gimmicks or "firewalls" reduce management and oversight of the FAA by taking trust fund spending out of the budget process. That's a bad idea--we should not place the FAA and the trust fund on permanent autopilot.2
When the [transportation] trust funds were created, Congress did not create them as automatic spending trust funds. It chose to retain annual oversight and control of spending from those funds in the appropriations committees.3
With aviation spending moved off budget, and escalating levels of funding set for the next five years, both Congress and the President would lose what little leverage they have to induce the notoriously troubled FAA to strive for higher standards of performance. Providing such protection to a government department that this year again earned the GAO's "high-risk" designation--a distinction it shares with the Internal Revenue Service and the Department of Housing and Urban Development--would be irresponsible.4
Off-budget protection would diminish
opportunity for reform.
Once a program is moved off budget, and no longer is subject to annual budget review or periodic authorization, Congress has fewer scheduled opportunities to review it and, therefore, fewer opportunities to effect needed reforms. The federal government's involvement with commercial aviation has changed little since 1971, when the aviation trust fund was created as the primary funding vehicle for FAA programs. But since the 1971 FAA overhaul, there have been many changes in the world of commercial aviation; most of these changes--except for President Jimmy Carter's airline deregulation in 1978--have taken place abroad. These include the privatization of more than 60 airports in the past two years, the denationalization of many former government-owned airlines, and the privatization/corporatization of air traffic control systems, notably in Canada (1997) and in 16 other countries in recent years. By locking up funding for five years and placing such funding off budget, as H.R. 1000 would do, neither Congress nor the President would have much in the way of opportunity to impose reform, and the status quo would prevail until at least 2005.
The federal budget would be even more
misleading than it is today.
Removing aviation funding from the budget would understate the size of the federal government. In FY 1998, off-budget spending amounted to over $316 billion. More important, when other non-discretionary (labeled as "mandatory") spending is taken into account, over 66 percent, or $1.1 trillion, of the $1.7 trillion in federal outlays are essentially untouchable for Congress during the annual budget process. Programs not lucky enough to warrant designation as "off budget" or "mandatory," including national defense, education, and other discretionary line items, bear the brunt of any budget cuts needed to fulfill deficit/surplus targets, repay the national debt, or meet emerging priorities and emergencies.
Supporters of other programs would seek
At present, only Social Security has received "off-budget" protection in recognition of the importance of the program for the well-being of many retirees and the firm, contractual relationship between the taxes paid in and the benefits received. No such significance or relationship applies to the FAA's spending programs, whose chief beneficiaries are the for-profit airlines, recreational pilots, and weekend hobbyists. All reflect a segment of society with the financial means to bear the risk of future budget restraint and the impact such uncertainty might have on the programs that assist them. Nonetheless, if aviation spending programs were placed off budget, other programs of potentially greater significance to the well-being of the country or to vulnerable constituencies, such as Medicare and national security, would be likely to demand the same protection--and could receive it. As a consequence, what remains "on budget" soon would amount to a minor share of federal spending, and much of the rest--now afforded off-budget status--would be beyond control, oversight, and reform by either the President or Congress.
The spirit of the Balanced Budget Act
would be destroyed.
The BBA was created to keep runaway spending in check, and to date has served as an important source of discipline in slowing the growth of discretionary spending. Although it has not always been honored, and many tricks and gimmicks have been suggested or utilized to sneak extra spending past its controls, the spirit of the BBA has survived and has been more effective than previous congressional budget reforms. AIR 21 could very well end this successful effort. Although not a new ploy, off-budget accounting for the Airport and Airway Trust Fund would exempt billions of dollars from budgetary restraints at the expense of other programs.5 By taking the aviation trust fund off budget, Congress would risk setting a dangerous precedent. By undermining the sense of shared sacrifice that has helped many congressional committees to make tough decisions, advocates of other programs could become inclined to resist cuts and seek the same or similar privileges and protections.
Although the House voted overwhelmingly to pass AIR 21 (H.R. 1000) and to move aviation trust fund spending off budget, the bill's prospects in the Senate are uncertain, particularly when considering the Senate's record of firm opposition to the sort of budgetary gimmicks included in AIR 21. At present, the Senate's version of legislation to reauthorize the FAA (S. 82) proposes to spend substantially less than AIR 21, and also to leave the trust fund on budget and subject to existing spending limits and caps. As such, S. 82 offers Congress a fiscally responsible choice compared with the irresponsible excess of AIR 21.
Dr. Ronald D. Utt, is Grover M. Hermann Fellow in Federal Budgetary Affairs, and Gregg Van Helmond is a former Research Assistant, in The Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
4. U.S. General Accounting Office, High Risk Series: An Update, GAO/HR-99-1, January 1999; "The Department of Transportation's 10 Top Priority Management Issues," Statement of Kenneth M. Mead, Inspector General, U.S. Department of Transportation, before the Subcommittee on Transportation, Committee of Appropriations, U.S. Senate, 106th Cong., 1st Sess., February 25, 1999.