the end of the trust fund era? strategic choices for u.s. airports and policymakers

PRESENTATION

The End of the Trust Fund Era? The End of the Trust Fund Era? Strategic Choices for U.S. Airports and PolicymakersStrategic Choices for U.S. Airports and Policymakers

AAAE/LeighFisher Airport Privatization in a Global Market! Is It time for the U.S.?

Stephen Van Beek, Ph.DChief of Policy & Strategy, LeighFisherMarch 28, 2011

2 The End of the Trust Fund Era?Strategic Choices for U.S. Airports and PolicymakersJC

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Choices and a New Industry Strategic Agenda

Agenda:

The Four Pillars of the “AATF and PFC Era”

Changes and Threats to the Era and to Airports

Airports’ Position Today in the Aviation System

The Choices for a New Strategic Agenda

Discussion

Message: As airport leaders fight the battles over issues such as the AIP, PFCs, bonds and NextGen, they need to achieve a consensus around a new industry strategic agenda, one that serves their interests and strikes a new balance among the FAA, airlines and their communities.


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Glossary of Presentation Terms

AATF: Airport and Airway Trust FundAIP: Airport Improvement ProgramAPPP: Airport Privatization Pilot ProgramCBO: Congressional Budget OfficeDC: Deficit CommissionFAAC: Future of Aviation Advisory CommitteeF&E: FAA Facilities and EquipmentGAO: Government Accountability OfficeMAC: FAA Management Advisory CouncilPFC: Passenger Facility ChargePOTUS: President Obama and his AdministrationUSCong: U.S. Congress (House and/or Senate)


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The Four Airport Pillars of Trust Fund and PFC Era

1. Airport and Airway Trust Fund: provides multiyear capital for aviation system infrastructure such as F&E and AIP. Helped fuel predictable growth in aviation infrastructure; with user money, kept reliance on taxpayers to a minimum.

2. AIP: Together with F&E, AIP capital program has status of contract authority and prioritization of AATF revenues. Federal funding support and leadership critical for airport and ATC investments.

3. PFCs: Source of local capital independent of use and lease agreements, key instrument to promote competition and capacity. Vital tool to build airport infrastructure and leverage capital.

4. Tax-Exempt Debt: Instruments such as governmental bonds, private activity bonds and Build America Bonds promote capital investment by state and local governments. Provided cost of capital advantage to public airports. Deterred privatization.

These four have been critical enablers of airport and aviation growth


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Changes and Threats to the Era and Airports

Assumption/Issue Consequences Source

1. AATF: lack of revenues to support FAA and industry agendas

(1) Less support for capital programs such as F&E, NextGen and AIP: (2) reduced future growth

Industry financials, airline and anti-tax group opposition (POTUS, USCong)

2. AIP: real decline in support, proposals to cut AIP by up to 30%

(1) No post-2011 LOIs and entitlements; (2) cuts funding and regulatory link

Lack of support of trust funds due to deficit (DC, CBO, POTUS, USCong)

3. PFCs: inability to raise $4.50 ceiling, loss of value

(1) Fewer capital options; (2) loss of airport independence

Anti-”tax” campaign (USCong, airlines)

4. Tax-Exempt Debt: attacks on bonds as encouraging debt

Raise the cost of capital, eliminating advantage of public airports

Long-term debt and budget deficits (DC, some in USCong)

Each of the airport funding pillars faces erosion and attacks


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Airports’ Position Today in the Aviation System

1. Diminished trust-fund based, federal capital resources 2. Increased reliance on taxpayer dollars to fund FAA priorities

at a time of significant downward pressure on federal spending

3. Reduced PFCs; lack of local independent capital4. Continued Federal economic regulations limit airport

management options (e.g., optimizing use of infrastructure and promoting air service)

5. Strengthened airlines enhanced by consolidation, global airline alliances and reduced competition

6. Unfunded NextGen, creating risk that National Airspace System will not accommodate future demand for air travel

The End of the Trust Fund and PFC Era Endangers Airport Priorities

Without significant policy and industry change, airports face a constrained future and an inability to meet community goals.


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The Choices for a New Strategic Agenda: 1. Status Quo Plus

1. Increase dollars to AATF, strengthen firewalls protecting user resources

2. Fight for higher FAA authorization and annual appropriations dedicated to airports

3. Obtain increase in the PFC ceiling and/or de-federalize the PFC4. Seek continued tax-exempt status for airport debt, including

“AMT-tax holiday” and Build America Bonds program.5. As recommended by the FAAC, carefully cost-allocate industry

(user) and taxpayer (nonuser) shares of funding and address inequities through legislation.

6. Institute FAA capital budget and/or devise method for reliable multiyear taxpayer contribution

Advantages: keeps airport AIP-PFC coalition intact, promotes idea that aviation and airport systems provide public benefits.

Disadvantages: politically unrealistic, does not differentiate between needs of larger and smaller airports

Closest to airport industry agenda today, but a political lift


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The Choices for a New Strategic Agenda: 2. Mixed Public/Private System

1. Reform and prioritize AATF and taxpayer investments to FAA Operations, FAA capital equipment and smaller airports. Retain grant obligations

2. Eliminate AIP grants for larger airports and shift to a more light- handed economic regulatory structure without most grant obligations

3. Push for an increase in the PFC ceiling to $7.004. Expand APPP consistent with USCong (T&I) proposal

(i.e., eliminate air carrier consent requirement and expand to 10 the number of airports permitted to apply without regard to hub-size)

5. Target tax-exempt debt to public airports

Advantages: recognizes the different challenges of larger and smaller airports; makes federal regulation commensurate with funding; not a dramatic departure from today’s system

Disadvantages: tough to get political agreement on the liberalizing components for larger airports; potentially frays airport coalition

A Logical Follow-on to POTUS and USCong Proposals


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The Choices for a New Strategic Agenda: 3. Shift to Global Model of a De-federalized Airport Program

1. Use the AATF to fund FAA expenses only2. Eliminate AIP and the grant obligations regulating airports3. Repeal the anti-head tax and the need for PFCs4. Curtail tax-exempt debt for airports5. Devise a new airport privatization program that includes standard

concession guidelines for state and local governments and devises a standard policy for federal recovery of previous past capital grants and gifts of federal land

6. Shift to light-handed regulation and limit federal involvement to arbitrating airline-airport disputes

Advantages: uses the market to depoliticize aviation and government decision-making

Disadvantages: severely challenges the public parts of the system, including small community air service and smaller airports

Rely on the private sector and the market to provide services


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Questions and Comments:

Stephen D. Van BeekChief of Policy and Strategy

LeighFisher, [email protected]

(703) 796-6220

the end of the trust fund era? strategic choices for u.s. airports and policymakers

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