The 21st Century Aviation Innovation, Reform, and Reauthorization Act is expected to be considered in the House this week. Reports of its deficit impact reflect a misunderstanding of the plan, and a misreading of its official cost estimate. The reform would spin off the Federal Aviation Administration’s (FAA) air traffic control (ATC) system into a new independent, nonprofit corporation, that would be self-sustaining through user fees. As ATC responsibilities are transferred to the new entity, the FAA’s budget would be reduced by $97.2 billion over ten years. Yet, the takeaway from a cursory review of the Congressional Budget Office’s (CBO) cost estimate is that the legislation would somehow increase the deficit by $21 billion over the next ten years. A closer evaluation reveals that this is yet another instance where CBO has provided Congress with incomplete and misleading information, thus making it more difficult to launch smart reform.
The program is not currently fully-financed. In 2017, outlays from the Airport and Airway Trust Fund will total $15.7 billion, exceeding the $15.1 billion in tax revenues to the Fund. In addition, the FAA received $1 billion in general fund appropriations for ATC modernization.
Under the reform, outlays will not significantly change. CBO assumes that the corporation’s annual funding would remain in line with current estimates. It is expected that the corporation will use its authority to issue bonds to finance increases in modernization investments. The corporation would then adjust its user fees accordingly to service its own debt.
CBO’s cost estimate is incomplete by its own admission. On page 16 of its analysis, CBO notes that it “expects that the overall net budgetary impact of shifting responsibility for air traffic control to the [corporation] would not necessarily increase future deficits by the amounts reflected in this cost estimate if additional legislation consistent with H.R. 2997 [to reduce FAA funding as well as existing excise taxes] was enacted.”
The estimate does not factor in a reduction to excise taxes equivalent to the replacement user fees. As the user fees are assumed to be tacked on top of existing excise taxes, CBO projects a $24.6 billion loss in income taxes and payroll taxes. A more realistic approach to scoring the bill would be to assume a corresponding decrease in the existing passenger ticket fees, which would have a corresponding positive impact on labor and wages. This resulting economic activity would provide a boost to federal tax receipts that would, on net, balance out the deficit impact in CBO’s projection of the corporation’s replacement user fees.
There are also good reasons to question whether it is appropriate to include the new corporation in the federal budget at all. The bill specifically provides that it would be a non-profit, non-federal entity, and that there is absolutely no federal guarantee of debt assumed by the new entity. CBO’s score perpetuates the erroneous premise that providing ATC services is an inherently governmental function. The experiences of other countries who have moved towards privatization have shown that the model works ... and can save taxpayers money.