[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]





    THE FINANCIAL CONDITION OF THE AVIATION TRUST FUND: ARE REFORMS 
                                NEEDED?

=======================================================================

                                (109-16)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                                AVIATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 4, 2005

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure



                                 _____

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                           WASHINGTON : 2006 
21-705 PDF

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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                      DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-    JAMES L. OBERSTAR, Minnesota
Chair                                NICK J. RAHALL, II, West Virginia
SHERWOOD L. BOEHLERT, New York       PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of 
WAYNE T. GILCHREST, Maryland         Columbia
JOHN L. MICA, Florida                JERROLD NADLER, New York
PETER HOEKSTRA, Michigan             CORRINE BROWN, Florida
VERNON J. EHLERS, Michigan           BOB FILNER, California
SPENCER BACHUS, Alabama              EDDIE BERNICE JOHNSON, Texas
STEVEN C. LaTOURETTE, Ohio           GENE TAYLOR, Mississippi
SUE W. KELLY, New York               JUANITA MILLENDER-McDONALD, 
RICHARD H. BAKER, Louisiana          California
ROBERT W. NEY, Ohio                  ELIJAH E. CUMMINGS, Maryland
FRANK A. LoBIONDO, New Jersey        EARL BLUMENAUER, Oregon
JERRY MORAN, Kansas                  ELLEN O. TAUSCHER, California
GARY G. MILLER, California           BILL PASCRELL, Jr., New Jersey
ROBIN HAYES, North Carolina          LEONARD L. BOSWELL, Iowa
ROB SIMMONS, Connecticut             TIM HOLDEN, Pennsylvania
HENRY E. BROWN, Jr., South Carolina  BRIAN BAIRD, Washington
TIMOTHY V. JOHNSON, Illinois         SHELLEY BERKLEY, Nevada
TODD RUSSELL PLATTS, Pennsylvania    JIM MATHESON, Utah
SAM GRAVES, Missouri                 MICHAEL M. HONDA, California
MARK R. KENNEDY, Minnesota           RICK LARSEN, Washington
BILL SHUSTER, Pennsylvania           MICHAEL E. CAPUANO, Massachusetts
JOHN BOOZMAN, Arkansas               ANTHONY D. WEINER, New York
JIM GERLACH, Pennsylvania            JULIA CARSON, Indiana
MARIO DIAZ-BALART, Florida           TIMOTHY H. BISHOP, New York
JON C. PORTER, Nevada                MICHAEL H. MICHAUD, Maine
TOM OSBORNE, Nebraska                LINCOLN DAVIS, Tennessee
KENNY MARCHANT, Texas                BEN CHANDLER, Kentucky
MICHAEL E. SODREL, Indiana           BRIAN HIGGINS, New York
CHARLES W. DENT, Pennsylvania        RUSS CARNAHAN, Missouri
TED POE, Texas                       ALLYSON Y. SCHWARTZ, Pennsylvania
DAVID G. REICHERT, Washington        JOHN T. SALAZAR, Colorado
CONNIE MACK, Florida                 JOHN BARROW, Georgia
JOHN R. `RANDY' KUHL, Jr., New York
LUIS G. FORTUNO, Puerto Rico
LYNN A. WESTMORELAND, Georgia
CHARLES W. BOUSTANY, Jr., Louisiana
JEAN SCHMIDT, Ohio

                                  (ii)



                        SUBCOMMITTEE ON AVIATION

                    JOHN L. MICA, Florida, Chairman

THOMAS E. PETRI, Wisconsin           JERRY F. COSTELLO, Illinois
HOWARD COBLE, North Carolina         LEONARD L. BOSWELL, Iowa
JOHN J. DUNCAN, Jr., Tennessee       PETER A. DeFAZIO, Oregon
VERNON J. EHLERS, Michigan           ELEANOR HOLMES NORTON, District of 
SPENCER BACHUS, Alabama              Columbia
SUE W. KELLY, New York               CORRINE BROWN, Florida
RICHARD H. BAKER, Louisiana          EDDIE BERNICE JOHNSON, Texas
ROBERT W. NEY, Ohio                  JUANITA MILLENDER-McDONALD, 
FRANK A. LoBIONDO, New Jersey        California
JERRY MORAN, Kansas                  ELLEN O. TAUSCHER, California
ROBIN HAYES, North Carolina          BILL PASCRELL, JR., New Jersey
HENRY E. BROWN, Jr., South Carolina  TIM HOLDEN, Pennsylvania
TIMOTHY V. JOHNSON, Illinois         SHELLEY BERKLEY, Nevada
SAM GRAVES, Missouri                 JIM MATHESON, Utah
MARK R. KENNEDY, Minnesota           MICHAEL M. HONDA, California
JOHN BOOZMAN, Arkansas               RICK LARSEN, Washington
JIM GERLACH, Pennsylvania            MICHAEL E. CAPUANO, Massachusetts
MARIO DIAZ-BALART, Florida           ANTHONY D. WEINER, New York
JON C. PORTER, Nevada                BEN CHANDLER, Kentucky
KENNY MARCHANT, Texas                RUSS CARNAHAN, Missouri
CHARLES W. DENT, Pennsylvania        JOHN T. SALAZAR, Colorado
TED POE, Texas                       NICK J. RAHALL II, West Virginia
JOHN R. `RANDY' KUHL, Jr., New       BOB FILNER, California
York, Vice-Chair                     JAMES L. OBERSTAR, Minnesota
LYNN A. WESTMORELAND, Georgia          (Ex Officio)
DON YOUNG, Alaska
  (Ex Officio)

                                 (iii)

                                CONTENTS

                               TESTIMONY

                                                                   Page
 Blakey, Hon. Marian C., Administrator, Federal Aviation 
  Administration.................................................     9
 Bolen, Ed, President and Chief Executive Officer, National 
  Business Aviation Association, Inc.............................    75
 Boyer, Phil, President Aircraft Owners and Pilots Association...    75
 Coyne, James K., President, National Air Transportation 
  Association....................................................    75
 Dillingham, Dr. Gerald, Director, Physical Infrastructure 
  Issues, U.S. Government Accountability Office..................     9
 Faberman, Edward P., Executive Director, Air Carrier Association 
  of America.....................................................    75
 Marlin, Ruth E., Executive Vice President, National Air Traffic 
  Controllers Association........................................    75
 May, James C., President and Chief Executive Officer, Air 
  Transport Association of America, Inc..........................    75
 Mead, Hon. Kenneth M., Inspector General, Unites States 
  Department of Transportation...................................     9
 Plavin, David Z., President, Airports Council International-
  North America, on behalf of Airports Council International-
  North America and American Association of Airport Executives...    75

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Boswell, Hon. Leonard, of Iowa...................................   115
Carnahan, Hon. Russ, of Missouri.................................   126
Costello, Hon. Jerry F., of Illinois.............................   127
Holden, Hon. Tim, of Pennsylvania................................   180
Millender-McDonald, Hon. Juanita, of California..................   276
Oberstar, Hon. James L., of Minnesota............................   279
Porter, Hon. Jon, of Nevada......................................   291

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

 Blakey, Hon. Marian C...........................................    88
 Bolen, Ed.......................................................   104
 Boyer, Phil.....................................................   117
 Coyne, James K..................................................   130
 Dillingham, Dr. Gerald..........................................   140
 Faberman, Edward P..............................................   173
 Marlin, Ruth E..................................................   183
 May, James C....................................................   241
 Mead, Hon. Kenneth M............................................   261
 Plavin, David Z.................................................   284

                       SUBMISSIONS FOR THE RECORD

 Blakey, Hon. Marian C., Administrator, Federal Aviation 
  Administration:................................................

  Response to a question from Rep. Costello......................   100
  Response to a question from Rep. Oberstar......................   102
 Dillingham, Dr. Gerald, Director, Physical Infrastructure 
  Issues, U.S. Government Accountability Office, response to a 
  question from Rep. Oberstar....................................   170
 Mead, Hon. Kenneth M., Inspector General, U.S. Department of 
  Transportation, Audit Report, Contract Towers: Observations on 
  FAA's Study of Expanding the Program, AV-2000-079, Issued April 
  12, 2000.......................................................    32

                         ADDITION TO THE RECORD

  Priddy, Ronald N., President, National Air Carrier Association, 
      statement                                                     292

 
    THE FINANCIAL CONDITION OF THE AVIATION TRUST FUND: ARE REFORMS 
                                NEEDED?

                              ----------                              


                         Wednesday, May 4, 2005

        House of Representatives, Committee on 
            Transportation and Infrastructure, Subcommittee 
            on Aviation, Washington, D.C.
    The committee met, pursuant to call, at 10:06 a.m., in room 
2167, Rayburn House Office Building, Hon. John Mica [chairman 
of the subcommittee] presiding.
    Mr. Mica. I would like to call the House Aviation 
Subcommittee hearing to order. I welcome everyone today. The 
order of business is going to be opening statements by members, 
and then we have two panels of witnesses. The subject of 
today's hearing is the financial condition of the Aviation 
Trust Fund and what reforms are needed. I will begin with my 
comments, and then yield to other members.
    Today's hearing will focus, as I said, on the condition of 
the Aviation Trust Fund, in both the short term and also for 
the long term. We have to ask ourselves some questions. One of 
them is, is our current system of financing our Nation's air 
traffic control system and the Federal Aviation Administration 
broken?
    Trust Fund revenues are down significantly from the levels 
that were projected prior to the terrorist attacks of September 
11, 2001. The 9/11 attacks, combined with weak economic 
conditions and lower airfares, resulted in three consecutive 
years of declining trust fund revenues. It went from $10.5 
billion in fiscal year 2000, to $9.3 billion in fiscal year 
2003.
    Although revenues now appear to be on an upward trend once 
again, the uncommitted cash balance in the Trust Fund has been 
dramatically reduced, from $7.3 billion at the end of fiscal 
year 2001, to only $2.4 billion at the end of 2004.
    This raises the short-term question, given the uncertainty 
surrounding these revenue projections and the possibility that 
revenues will be even less than currently forecast, what if 
anything should be done now to ensure that the uncommitted cash 
balance does not reach zero before the next aviation 
reauthorization bill, which will take effect in fiscal year 
2008?
    There is also a long-term issue of how to best finance our 
aviation system needs for the future. The cost of modernizing 
our system and expanding capacity to meet future travel demand 
we know will be significant. Yet, the Administration's current 
budget proposes to cut funding for aviation capital investments 
and some other critical areas.
    As the Department of Transportation Inspector General Ken 
Mead testified before this Subcommittee last month, the current 
budget level for the FAA capital account is not sustainable. We 
will hear from him again today.
    With the funding level currently proposed by the 
Administration, at the level they are proposing, there is 
little room for the FAA to pay for both current systems and 
simultaneously take on any new initiatives. This is not 
acceptable, I think, for anyone here.
    The Transportation and Infrastructure Committee has long 
worked to ensure that user revenues collected by the 
Transportation Trust Funds are actually made available to be 
invested for the purposes for which they are collected.
    The committee addressed this issue for the Aviation Trust 
Fund most recently in AIR 21 and also in Vision 100, by 
requiring Trust Fund revenues to first be used to fully fund 
the FAA's capital programs before being used to pay any portion 
of the FAA's operating costs.
    Unfortunately, the President's budget has routinely ignored 
this requirement by proposing to cut funding for FAA's capital 
programs below the authorized levels, and use excessive amounts 
from the Trust Fund balance, to pay for FAA operations. 
Clearly, we need some reforms to ensure that aviation capital 
needs are not shortchanged in a budget process that tends to 
defer long-term capital investments in order to meet short-term 
operating needs.
    In preparation for the next reauthorization bill, when our 
current aviation excise taxes must either be extended or 
replaced, Transportation Secretary Mineta and FAA Administrator 
Blakey have called for a dialogue on alternative ways to 
finance our aviation system in the future. Hopefully, we will 
hear some of those comments from the administrators today.
    The FAA believes that certain industry trends, such as 
lower airfares and the use of smaller aircraft, will exacerbate 
the mismatch between its workload and also its projected 
revenue for the future.
    Cost-based user fees are often mentioned as one way to link 
aviation revenues more closely to FAA's costs, and potentially 
to its funding. Cost-based user fees have been recommended for 
the FAA by various Commissions in the past, and most recently 
by the Mineta Commission, I believe, in 1997.
    Last month, the Aviation Subcommittee held a hearing on how 
other countries provide air traffic control services. Many 
countries now rely on user fees for providing air navigation 
service to aircraft. In general, these countries use a formula 
based upon aircraft weight and distance flown, as outlined in 
ICAO standards.
    With the recommendations of the Mineta Commission, and the 
widespread use of user fees in other countries, we probably 
should take some time to review the possibility of converting 
to a user fee system here in the United States. I am sure that 
will be part of our discussion. As part of this process, we 
need to look at who is paying what, and how what they are 
paying matches with the FAA's cost of providing services to 
each user group.
    We also need to raise the question of what is the 
appropriate General Fund contribution to the FAA's budget. How 
much of what FAA does is in the national interest versus for 
the benefit of individual users? What services, if any, do 
policymakers wish to subsidize? These are all important 
questions.
    We also need to look at the idea of bonding, which is seen 
by some as an attractive way to modernize our air traffic 
control system without requiring the user to pay all of the 
investment up front.
    While this may make sense if the FAA had a well-defined 
investment plan that would provide to our aviation system users 
a rate of return sufficient to repay the debt, it is by no 
means the only ``silver bullet'' to solve the problem.
    It will not provide free money. There would likely be no 
budget scoring advantage to this approach, compared to 
traditional appropriations, at least the way we now score it.
    In addition, it would likely cost more to borrow funds in 
the private market than it would for the Treasury to finance 
the investments that are needed directly.
    We need to ask many questions today, and hopefully get 
answers from some of the witnesses we have before us. I commend 
the Department of Transportation and FAA Administrator Blakey 
for helping start this dialogue, and I look forward to hearing 
the views of all segments of the aviation industry who will be 
represented and speak here today. I am pleased now to yield to 
our Ranking Member, Mr. Costello.
    Mr. Costello. Mr. Chairman, thank you, and I want to thank 
you for calling this important hearing today on the financial 
condition of the Aviation Trust Fund. I do have a lengthy 
statement that I will submit for the record, and I do have some 
comments on today's hearing.
    First, there is no disagreement that the Trust Fund's 
uncommitted balance has declined over the past few years. As 
you noted in your opening statement, at the end of fiscal year 
2000, the Trust Fund's uncommitted balance was a little more 
than $7 billion. At the end of fiscal year 2004, the Trust 
Fund's uncommitted balance fell to just under $2.5 billion.
    As Mr. Mead, the Inspector General, will testify here 
today, Trust Fund revenue estimates for the last few years have 
been overly optimistic. For fiscal year 2004, the actual 
receipts plus interest credited to the Trust Fund was 12 
percent less than projected. The shortfall between projected 
revenues and actual revenues has been made up from the Trust 
Funds uncommitted balance.
    A major question before the Subcommittee today is, are the 
FAA's revenue projections reliable? To its credit, the FAA has 
initiated an independent review of its aviation activity and 
revenue forecast system. The downturn in passenger travel after 
September 11th clearly had an impact on the Trust Fund; and 
also changes within the airline industry are affecting Trust 
Fund revenues, as well as the FAA's ability to forecast those 
revenues.
    The growth of low cost carriers and fare reductions by 
legacy carriers have driven passenger ticket tax returns that 
account for about 50 percent of annual trust fund revenue. The 
FAA is predicting that the Trust Fund revenue will increase 
over the next few years. Yet even with this projected increase, 
the FAA believes that revenues would be less than we forecast 
when Vision 100 was enacted in 2003.
    I believe that Dr. Dillingham of the GAO will testify this 
morning that if revenues are 10 percent less than now projected 
under the current law, the Trust Fund's uncommitted balance 
would reach zero by 2007. If traffic is less than expected or 
fares drop, we will need to consider measures to address the 
shortfall, which could include cutting the FAA's programs, 
raising taxes, or obtaining a larger General Fund contribution.
    As to the possibility of cutting the FAA's programs, last 
month we heard from Mr. Mead, the Inspector General. This 
subcommittee heard his testimony, and he clearly indicated that 
we cannot continue to cut the FAA's capital budget and 
transform the national airspace system for the 21st century.
    Regarding the General Fund contribution, I strongly support 
the provisions that Congress enacted in Air 21, particularly 
the guaranteed funding provisions and the Trust Fund in general 
contribution formula. The FAA's programs should be fully funded 
at their authorized levels. If the Trust Fund revenues fall 
short, the General Fund should continue whatever it takes to 
meet the authorized levels.
    Mr. Chairman, as you suggested in your opening statement, 
there are a number of alternative financing ideas that have 
been put on the table. One is the wholesale adoption of cost-
based user fee. While I am open to all ideas, I think the idea 
of switching to a user fee system raises more questions than 
answers.
    Additionally, some have suggested that Congress ought to 
consider alternative financing such as bonding. However, before 
Congress considers bonding authority, I believe the FAA should 
explain precisely what it would purchase with this authority, 
and how the authority will impact the Federal discretionary 
budget.
    Mr. Chairman, these are important issues that we are 
dealing with today for the future of aviation, and I want to 
thank you again for calling this important hearing. I welcome 
our witnesses who will be testifying today, and I look forward 
to hearing their testimony.
    Mr. Mica. I thank the gentleman. Mr. Coble?
    Mr. Coble. Mr. Chairman, I am plagued with an allergy, and 
I think my voice would sound annoying. So I will waive an 
opening statement.
    Mr. Mica. Well, we will go to Ms. Kelly. I think she is in 
fine voice.
    Ms. Kelly. Thank you, Mr. Chairman, and I want to thank all 
the witnesses. The aviation industry contributes $900 billion 
to the United States economy every year. The skies over the 
United States of America are the safest in the world, and I 
think it is crucial that we make the investment necessary to 
modernization and infrastructure improvements, so that the 
rates of returns and the success that we see now continue.
    I am not sure that using the Trust Fund as the chief means 
of funding for operating expenses is the best way to make an 
investment; nor am I convinced that altering the collection of 
fees would not have a profound and detrimental impact on our 
General aviation system.
    In her testimony, Administrator Blakey states that there is 
a need for an open dialogue in regard to the future of the 
Trust Fund. I could not agree more. I am delighted to see that 
statement there.
    It is critical that all aspects of the aviation industry, 
from commercial airlines to General aviation, to the 
controllers who make our skies the safest in the world, have 
their voices heard on how the monies will be collected and how 
they will be spent.
    With two years remaining before the current authorization 
expires, the decision of the Administrator and Secretary Mineta 
to listen to all the voices is a demonstration of sound 
judgment. I hope they do indeed keep an open ear.
    It seems that passenger levels are returning to our pre-9/
11 levels, and the projections are for over one billion 
passengers per year in the near future. So the decisions we 
make in the next couple of years are going to have a 
significant impact on our ability to handle the new strain on 
that system.
    Right now, two thirds of the world's aviation dollars are 
spent right here in America. I would like to keep it that way. 
So I look forward to the testimony of all of our witnesses, and 
to hearing their answers on how we are going to solve today's 
problems, so we do not have them tomorrow.
    Thank you, and I yield back the balance of my time.
    Mr. Mica. I thank the gentlelady. Ms. Tauscher?
    Mr. Tauscher. Thank you, Mr. Chairman, and thank you for 
allowing me to make this brief statement this morning.
    As the Chairman has already described, the Aviation Trust 
Fund faces an unpredictable future. I look forward to today's 
conversation about the current state of the trust fund, and 
what I am sure will be a lively discussion of future reforms.
    While most witnesses will discuss the financial health of 
the Trust Fund and their ideas for ensuring its ability to fund 
aviation needs into the future, I believe it is equally 
important to discuss additional steps that the FAA must take to 
determine cash flow expenditures and priorities for present and 
future capital expenditures.
    Before Congress makes any changes that would alter the 
Aviation Trust Fund funding formula, we must require the FAA to 
continue to thoroughly examine how to control costs and make 
decisions on projects which have been delayed for years.
    For example, for several years, I have questioned the FAA's 
procurement for modernization of terminal air traffic control 
facilities. The cost of the program adopted by the FAA has now, 
according to the DOT, reached over $2 billion, some $900 
million over budget.
    Beyond continuing to update program baselines for this 
project, the FAA must make realistic assessments about its 
commitment to programs with skyrocketing price tags. I believe 
that during his testimony today, the Inspector General will 
speak more to the need of the FAA to continue assessing its 
future requirements, before additional revenue streams are 
explored. I thank him in advance for bringing this important 
issue to the attention of the Subcommittee.
    I would also like to thank Administrator Blakey for her 
willingness to continue to provide me and the Subcommittee with 
thorough answers to our questions and for taking time to be 
with us this morning.
    Mr. Chairman, I thank you for the time and I yield back.
    Mr. Mica. I thank the gentlelady. I now recognize the pilot 
from North Carolina, Mr. Hayes.
    Mr. Hayes. Thank you, Mr. Chairman, and thank you for 
holding the hearing today. It is vitally important that we 
maintain the balance with the system, as Mr. Costello, Ms. 
Kelly, and Ms. Tauscher and others have said. As we look at the 
Trust Fund today, I think it is very important that we do not 
get carried away with the idea of user fees. I do not see 
exactly how that is going to get us anywhere.
    I appreciate all the participants being here today. The 
fuel tax and how that affects General aviation, and their 
ability to pay their fare share into the system seems to be the 
way to go.
    The Energy Bill, with more reasonable costs of energy, with 
cooperation between the airlines, I think we can achieve what 
we do need to achieve and what we all are looking for. Again, I 
applaud the FAA air traffic control system, providing the kind 
of safety, efficiency, and consistency that we all have come to 
know and, hopefully, appreciate.
    I look forward to hearing the panelists today. Again, let 
us make sure it stays fair and balanced. Thank you very much, 
Mr. Chairman, and I yield back.
    Mr. Mica. I thank the gentleman. Ms. Norton?
    Ms. Norton. Thank you very much, Mr. Chairman, for helping 
us, I hope early, to face the dilemma that confronts us with 
the Aviation Trust Fund. When everyone deals with capital costs 
in the Federal sector, from the Federal Government, you have 
got to take yourself out of the real world and into the way we 
do it. The up-front funding of capital costs is done only here 
by the Federal Government.
    I am on another committee, and I have to tell you that 
whereas nobody in the real world would do real estate that way, 
that is the way we do real estate in the District of Columbia. 
You have to authorize and appropriate the entire amount before 
you can put a shovel in the ground.
    I agree that if there is barring from the Treasury to be 
used for capital costs, it obviously comes at a reduced cost. 
But I have to ask, compared to what? I do not know if bonding 
fits. Frankly, I am so distressed at the state of the Aviation 
Trust Fund, that I am open to any and all ideas.
    But one idea is this. Obviously, it seems to me, it is one 
that would have to be off the table, given the pathetic, or 
should I say to be polite about it, terrible state of major 
airlines in our country.
    I am very pleased to see that regional and large airline 
representatives are going to be here to testify, so that we get 
a more vivid picture. But the notion of increasing user fees, 
particularly at this moment in time, would seem to be 
unthinkable.
    It is like what this Congress says it will not do most of 
the time, like increasing taxes. I just do not even see how 
that is a reasonable or practical alternative.
    I do know this. If you were to think of the multiple ways 
in which you define what a great power is, one of the ways 
would be to look at its airline industry. When you see where 
ours is, you recognize that the decline of our airline industry 
has an effect on the economy and on commerce in the United 
States, that a great power simply cannot afford.
    I think that we need some action to clarify this matter in 
what I, Mr. Chairman, am the first to concede is a real 
dilemma. I think we ought to be open to practical action that 
strengthens the airline industry and strengths the Aviation 
Trust Fund. Thank you very much, Mr. Chairman.
    Mr. Mica. I thank the gentlelady. Mr. Poe?
    Mr. Poe. I appreciate you holding this hearing today, and I 
want to thank the witnesses who are appearing.
    The current statutory formula as expressed in the Aviation 
Investment Reform Act for the 21st Century requires that Trust 
Fund revenues first be used to fully fund the FAA's capital 
programs, such as the Airport Improvement Programs, facilities, 
and equipment, at the authorized levels; and also fund research 
and development before being used to fund FAA operations.
    Mr. Chairman, I represent the Greater Houston Area. Houston 
is the fourth largest city in the United States; and our city's 
airport system has undertaken many major infrastructure 
improvements over the last few years at George Bush 
Intercontinental Airport and Hobby Airport, to meet 
dramatically increasing traffic demands. These include large 
capital investments, including new terminals, new runways, and 
other infrastructure improvements.
    Airport improvements alone though cannot meet the projected 
demands placed on the aviation infrastructure unless the pace 
of the air traffic control modernization keeps up and the 
investments in these facilities can be effectively utilized.
    The peak arrival rate at Intercontinental Airport is capped 
at 147 flights per hour, and that level is already being 
reached during peak operational periods. According to forecast, 
the peak arrival rate per hour will rise to 220 by 2020.
    The Houston air traffic system was created in 2001 as a 
vehicle for funding a new Houston TRACON, terminal control 
facility, or FAA facility that controls arriving and departing 
aircraft and traffic in a 50 mile area.
    Both the old facility and the equipment are in dire need of 
replacement in order to meet the increasing demand. The 
facility's age and location make it unreliable, due to the fact 
that it is below sea level and our last hurricane flooded the 
entire system.
    It is also in a non-secure area, because it is close to a 
farm to market road. In addition to the looming congestion 
problem, inadequacies of the current TRACON facility forced the 
FAA to use inefficient sequencing of traffic arriving in and 
departing from Houston airports. Frankly, this has contributed 
significantly to neighborhood noise complaints.
    Monday night, I had a townhall meeting for over 300 people, 
who were complaining about the FAA's inability and lack of 
moving forward with the TRACON facility because of the noise. 
Funding for the construction of a new TRACON facility has been 
approved and appropriated by Congress over the last two fiscal 
years, and the FAA has studied the issue for several years; 
yet, nothing has happened.
    Even the City of Housing has allocated 100 acres of Texas 
land free, at no cost to the Government, for construction of 
this facility. However, the FAA is still not committed to 
beginning construction, and no one knows when this will happen.
    I, as well as many other members on both sides of the aisle 
from the Houston area, believe strongly that this decision must 
be made. Given that the current arrival rates at this airport 
are at the maximum levels during peak periods, another further 
delay in beginning construction will make it impossible for the 
airport system to meet community air service growth needs, as 
well as responding to the growing noise concerns by the 
numerous area residents.
    So briefly, I would like to know what the timetable is for 
the FAA's decision on building the new TRACON for Bush 
Intercontinental Airport. Thank you, Mr. Chairman.
    Mr. Mica. I thank the gentleman. Ms. Boswell?
    Mr. Boswell. Thank you, Mr. Chairman, I appreciate you 
having this very timely meeting. If we think of the precarious 
condition that we find out Nation's airline industry in, this 
is truly an important and timely hearing to examine the 
condition of the Aviation Trust Fund.
    It is important for us to take a moment and determine where 
we have been, where we are, and where we are going with our 
aviation system. I, like many members of this Subcommittee, am 
a strong proponent of our Nation's aviation infrastructure. To 
maintain our first-rate system, adequate resources must be 
available.
    Some have raised concerns about the future and how we can 
maintain FAA operations and capital investments with our 
present funding situation. The shrinking discretionary portion 
of the Federal budget raised great concern about our ability to 
maintain existing FAA operations and capital improvements.
    There has been some discussion, but unfortunately it has 
been minimal, of raising user fees on aviation users, both on 
passenger and General aviation. In my opinion, this would be 
not only unwise, but harmful to our aviation system.
    With our Nation's airlines already hemorrhaging red ink, 
any additional fees would certainly hasten their demise. As a 
strong proponent of General aviation, I am an aircraft owner 
and a pilot myself. I maintain our GA users already pay a fair 
share for the use of the system. I would strongly oppose any 
effort to change the fee structure already in place. Thank you, 
Mr. Chairman.
    Mr. Mica. I thank the gentleman. Do any other members have 
opening statements?
    [No response.]
    Mr. Mica. If not, we will go right to our first panel of 
witnesses. We welcome back some repeat offenders here. We have 
the Honorable Marion Blake, Administrator of FAA; the Honorable 
Kenneth Mead, Inspector General, Department of Transportation; 
and Dr. Gerald Dillingham, with GAO. They have changed it to 
Government Accountability Office. I will never get used to 
that.
    We welcome all three of you back, and we look forward to 
your testimony today. Let us hear first from Administrator 
Blakey; welcome, and you are recognized.

  TESTIMONY OF THE HONORABLE MARIAN C. BLAKEY, ADMINISTRATOR, 
FEDERAL AVIATION ADMINISTRATION; THE HONORABLE KENNETH M. MEAD, 
INSPECTOR GENERAL, UNITED STATES DEPARTMENT OF TRANSPORTATION; 
   DR. GERALD DILLINGHAM, DIRECTOR, PHYSICAL INFRASTRUCTURE 
     ISSUES, UNITED STATES GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Blakey. Thank you, Mr. Chairman, and I must tell you, I 
very much appreciate the opportunity that you and Congressman 
Costello have given us, and the members of the Subcommittee. 
Thank you for the opportunity to be here.
    I am here today because we have a problem with the Aviation 
Trust Fund. As you know, the Trust Fund pays a large share of 
the bills for the FAA to operate the National Airspace System.
    A troubling gap has begun to emerge between the revenue 
that comes in and what it costs to run the FAA. This has driven 
down the Trust Fund's uncommitted balance very sharply.
    The taxes and fees that support the Trust Fund all expire 
in 2007. I would like to commend this Subcommittee for your 
foresight in recognizing the urgency of this matter.
    The time we spend addressing these issue today will pay 
considerable dividends in the future. In fact, unfortunately, 
during the last reauthorization in the mid-1990s, the debate 
lasted nearly two years. The taxes and fees expired, and the 
aviation system lost about $5 billion which, of course, was 
never recovered.
    This time, there is very little cushion. Because of today's 
higher revenue and appropriation levels, the expiration of 
taxes without replacement could be even more costly. So we 
cannot allow it to happen.
    For this reason, last week Secretary Mineta and I convened 
a day and-a-half forum on the Trust Fund. More than 150 leaders 
from Government, industry, and Wall Street gathered to discuss 
the issues and make recommendations.
    I brought along two charts to depict the problem at hand. 
As you can see in chart number one here to my left, today there 
is a significant gap between the revenue coming into the Trust 
Fund and the costs of what it takes to run the system.
    There are three factors to consider. First, the excise 
taxes expire in 2007. Second, airline prices are dropping, and 
that is largely what fuels the Trust Fund. Number three, the 
shape of the industry itself is changing rapidly.
    Despite our forecasts, we cannot be sure what the aviation 
industry will look like in the future, or the revenue it will 
generate. Because of a disconnect between the Trust Fund's 
revenue stream and our costs, the revenue generated for the 
Trust Fund is unlikely to cover the FAA's costs, particularly 
as they grow over time with the volume of traffic increasing in 
the system.
    The second chart over here to my right shows that the 
uncommitted balance in the Trust Fund continues to drop. You 
would have to go all the way back to 1983 to find a lower 
balance in a year when taxing authority did not expire.
    In prior years, relatively higher ticket prices helped keep 
the Trust Fund solvent, enabling the FAA to make investments 
for the future, while operating the world's safest 
transportation system.
    But the chart points to an unfortunate and undeniable 
trend. This is not going to change any time soon. Low cost 
carriers are now the most significant driver of industry 
pricing. Because over half of the Trust Fund receipts come from 
a 7.5 percent excise tax on airline tickets, these lower fares 
decrease Trust Fund revenue without any corresponding reduction 
in FAA workload.
    In addition, the airlines are taking many more deliveries 
of smaller aircraft. By 2008, we forecast that the United 
States regional jet fleet will be four times the size it was in 
2000. Similarly, the United States business jet fleet will be 
approximately 50 percent larger than its 2000 levels. This 
means more aircraft, but decreased revenue per aircraft, using 
the air traffic control system.
    There are also implications for our certification 
activities, as well. To date, there are 16 airlines waiting in 
the queue for certification. That is 16 new carriers, which 
will mean increased duties for our inspectors, who also have to 
oversee all those additional pilots, planes, and crew.
    The increased workload is further compounded by a new 
generation of UAVs and micro-jets, and they are coming at us. 
This increased workload does not factor in the simple and 
direct costs of our safe, but aging, infrastructure, as a 
number of you have noted this morning. Estimated replacement 
costs of all of our assets right now is $32 billion. Of course, 
this does not address the looming need to move to the next 
generation system.
    As this Committee well knows, we have made great strides in 
operating the FAA like a business, and conserving everywhere we 
know to. We have a new financial and cost accounting system, 
and I am very proud of the hard work and the success we have 
had at cutting costs. But I do not think we can get to be where 
we need to be, from the standpoint of this picture.
    We are consolidating HR and accounting. We have increased 
our productivity. We dropped over 1,300 staff in the ATO last 
year alone. We contracted out the network of flight service 
stations, which were costing us approximately $500 million per 
year to operate. Unfortunately, those facilities had become 
very old, and the equipment was outdated. We will save the 
taxpayer $2.2 billion by that.
    But cost cutting alone will not enable us to close the 
existing gap between the revenue stream into the Trust Fund and 
FAA costs. This presents a very unattractive list of options.
    Do we cut services, such as air traffic control, 
certification, inspection? Instead of buying new equipment when 
we need to, do we just retain and try to maintain the aging 
infrastructure?
    Now there are those who would still like to believe that 
the future of the Trust Fund is not in trouble; or at the very 
least, it is not as bad as it seems. They say our revenues will 
increase as passengers make their way through the turnstiles 
more than ever before, and somehow it is all going to be okay.
    But unfortunately, the funding gap is very real. In our 
recent forecast, just as has been noted this morning, our 
forecasts have been too rosey. Given the deficit and other 
issues of national and international concern pulling at the 
General Fund, we cannot plan a greater share of the General 
Fund, a greater slice of that pie, is going solve our problems.
    The reality is that the General Fund is tight, very tight. 
The Administration supports its use for part of the systems 
cost. But it just is not our answer to our long-term needs. We 
have to explore funding options that are in the long-term best 
interests of the aviation industry and the FAA.
    As you are aware, just last December, Secretary Mineta 
launched the plan for America's next generation air 
transportation system; a system that Europe and others are 
already moving out smartly on. It aligns the revenues, 
resources, and plans of seven different Government groups.
    But certainly, no one thinks that the Trust Fund, as it is 
constituted now, can pay to make the capital investments for 
the next generation system. So the fair question remains, how 
can we afford it? The answer, equally plain, is that we cannot 
afford not to.
    In closing, I cannot overstate what has become all too 
clear. The FAA needs a consistent, stable revenue stream, one 
that is fair to all users of the system, and one that is not 
tied to the price of an airline ticket; a revenue stream that 
reflects our actual costs to provide the service.
    Now look, at this point, I am not endorsing new taxes or 
user fees. But we must address the gap that exists between our 
costs and our revenues. It is the only way we will be able to 
operate and maintain the world's safest system with the 
capacity our economy needs. To be ready for tomorrow, we have 
got to start on this today. Thank you for doing so.
    Mr. Mica. Thank you for your testimony. We heard some 
partial bad news, and now we will get the really bad news from 
Mr. Mead; welcome, go right ahead.
    Mr. Mead. I would just say, for Secretary Mineta, 
Administrator Blakey, and this Subcommittee, you are taking an 
important step by starting to address this issue now. It is a 
couple years in advance of the reauthorization. There are very 
contentious issues. It is good to start thinking about them.
    I would like to speak first about the financial shape of 
the FAA. For as long as I have been associated with this issue, 
the big issue has focused on the increasing revenues in the 
Trust Fund, and why are they not being spent? The build up of 
big uncommitted balances was the focus of the debate.
    That is no longer the case. Like the airlines, the FAA now 
faces a significantly changed landscape. Air traffic levels 
continue to show improvement, but expected Trust Fund revenues 
are not materializing.
    FAA in 2001 estimated over $14 billion in 2005, but current 
projections indicate collections of about $11 billion. That is 
$3 billion less than FAA expected.
    A chief reason for this, as has already been pointed out, 
is the 7.5 percent ticket tax yield, especially for business 
fares. A frame of reference, in March of 2000, the average cost 
of a ticket for a 1,000 mile flight was $150. In March of this 
year, the same ticket was about $118. So that is a pretty big 
drop.
    A lot of people think that that is a permanent change. 
FAA's budget, meanwhile, is remaining relatively flat, about 
$14 billion. Within that amount, FAA's operations account, 
which is mostly staff, salaries, and so forth, has seen back-
to-back increases.
    At the same time, the airport account and the capital 
account, have seen reductions of a half billion hit each. As we 
testified last month, the current level of capital funding is 
not sustainable. Why is this? It is because long-delayed ACT 
projects have experienced so much cost growth of nearly $5 
billion over original estimates, that there is little room for 
new initiatives.
    Growth in the operations account, a high salary base, and 
the need to hire additional controllers to replace those that 
are retiring, are also major contributing factors.
    So taken together, those factors explain why most of FAA's 
efforts now focus just on keeping the shop running. That is 
also why there is so much discussion about how to finance air 
traffic management initiatives.
    I would like to speak to controlling costs and determining 
requirements. I see four pre-conditions for determining the 
extent of the financial shortfall and whether additional 
revenue streams are needed.
    First, FAA needs to determine its current cash flow 
requirement for what is already on its plate, and make 
decisions on big modernization programs that have been long 
delayed like STARS.
    Second, FAA needs to determine what the agency can do, in 
addition to what it is already doing, to control costs and curb 
waste and efficiencies. We outlined a number these things 
before the Subcommittee last month, Mr. Chairman. Among them 
was getting a firm control on huge indefinite quantity 
contracts, valued at over $2 billion, and taking proactive 
steps with the new $2 billion program that we have placed to 
replace computer and hardware platforms at en route centers. 
Actually, it is the computer brain that runs high altitude air 
traffic.
    Regarding support contracts, we have got serious concerns 
over exactly how some contractor work is differing from the 
work that FAA employees do, but at much greater cost to the 
Government; sometimes double.
    Third is getting FAA's cost accounting system in place and 
a labor distribution system. That is a must-have for anybody 
that wants to operate like a business. Taxpayers have already 
paid more than $50 million for this, and the system has been 
delayed for years.
    But I am very pleased to report that FAA is making very 
real, significant progress here. This is a very meaningful 
change from the past, and it is a tribute to the commitment of 
Administrator Blakey and her team.
    Fourth is determining the funding requirements for the next 
generation ATC system; what capabilities will be pursued, and 
when they can be brought in line. If more dollars are needed, 
the banker needs to be told how much, when, and for what. FAA 
expects to have this information later this year.
    Let me talk about financial options for a moment. I think 
once the FAA takes these four steps, Congress and the 
Administration will be in a better position to judge exactly 
what the financial requirements are and explore options.
    None of these options are painless. I will speak first to 
the General Fund. Over the past 10 years, the General Fund has 
provided, on average, about 21 percent of FAA's budget. General 
Fund contributions for FAA's budgets have dropped sharply, 
however, from $3.2 billion in 2003, to $1.6 billion estimated 
for 2006. The general fund will represent 11 percent of FAA's 
FY 2006 budget. So that is a pretty big shift.
    Given the competition for Federal funds from other Federal 
programs and the current Federal deficit, it is going to be a 
heavy lift to expect a General Fund increase beyond what has 
historically been provided.
    I do think, though, that the debate on financing would be 
much better informed if the specific level of funding from the 
General Fund was identified for planning purposes.
    Taxes, the ticket and the segment tax combined, make up 
about 70 percent of Trust Fund revenues. As was noted in the 
National Civil Aviation Review Commission Report in 1997, there 
has been controversy about the equity of the current system, 
and whether all users are paying their fair share.
    Even if higher tax rates were a consideration, the airlines 
contend that they cannot pass on any tax increases to the 
flying public. I think Administrator Blakey has pointed out in 
her testimony quite well that the current tax structure really 
does not correlate well with the cost of providing air traffic 
services. And she is right.
    User fees, this is not a new idea, either. Efforts to adopt 
user fees have met with stiff opposition from some quarters in 
the past. Today, we are facing the same debate, but the 
landscape is somewhat different.
    First, FAA is facing a much bleaker revenue forecast. 
Second, they are much closer to having a cost accounting system 
in place than they were the last time this subject came up. But 
the contentious issues of who should pay what, and whether each 
stakeholder is paying their fair share remain unresolved 
issues.
    In bonds and/or borrowing, I think this is a somewhat 
radioactive subject, but I might as well bring it up. Bonding 
and borrowing, this would allow FAA to sell bonds on the 
capital markets. This is not a new idea, either. It too was 
recommended in 1997 by National Civil Aviation Review 
Commission. The idea here is that bonding would give FAA the 
ability to raise large amounts of capital up front, and 
accelerate Air Traffic Modernization programs.
    But granting FAA any type of borrowing authority is going 
to require legislation and consideration of complex budget 
scoring issues, as well as impacts on the Federal deficit.
    There are two basic bonding models. The first does not 
impose any accountability, really, on the person borrowing the 
money. The second one does.
    The first, we call the Amtrak model, because it was a 
proposal based several years ago in connection with Amtrak and 
inner city passenger rail. Under this construct, bonds would be 
sold to the capital markets, with a portion of the bond 
proceeds set aside to repay the principal for 25 years.
    You put it in a bank account or a high interest-bearing 
bank account, and by the time the bond matures, you have enough 
money to pay back the face value. But rather than cash, 
investors would be given a tax credit, to provide the return 
which is guaranteed by the Government. A variant of this model 
is to pay cash and dedicate an existing tax for that purpose.
    A serious problem with this construct, however, is that 
there is little or no incentive for improving accountability. 
The investment is essentially guaranteed. There are no 
incentives for cost control or delivering a project on a budget 
or on time. The idea here ought not to be just simply to give 
FAA more money, but to use funds wisely with a direct link to 
airspace users.
    That brings me to the second construct for bonding. This is 
more akin to what happens in the private sector. Bonds would be 
issued in the public markets. This type of bonding scenario is 
almost a natural element of a financing system based on cost-
based user fees. Because the fees would provide a bondable 
stream of revenues, they could be adjusted up or down.
    There is also a built-in accountability factor here. 
Namely, there would be an oversight board that would set fees, 
not the FAA. This arrangement would provide powerful incentives 
from users to deter the cost growth and schedule slips that 
could be translated into higher fees.
    Finally, there is peak hour pricing. This whole debate 
about FAA financing needs to be joined with the issue of peak 
hour pricing at airports such as La Guardia. It presents 
difficult policy issues.
    First and foremost is whether Congress should allow peak 
hour pricing to begin with. If so, the questions become who 
sets the fees? Who gets the funds? Does the airport get them? 
Does the FAA get them, or does some combination of the two get 
them? What will the funds be used for and what would their 
impact be on service to smaller communities? Thank you, Mr. 
Chairman.
    Mr. Mica. Thank you, and now we will hear from Dr. 
Dillingham with the GAO.
    Mr. Dillingham. Thank you, Mr. Chairman, Mr. Costello, and 
members of the Subcommittee. As most of you know, the Trust 
Fund was established in 1970 to help fund the development of a 
National Airport and Airway System. This graphic shows that the 
revenues for the Trust Fund are derived from a series of taxes 
paid by passengers and airlines.
    The majority of those revenues come from the tax on airline 
tickets and the fee charged for each flight segment. When we 
look at the Trust Fund revenues over time, we see that revenues 
have fluctuated from year to year, but have generally trended 
upward.
    This graphic shows that during 1981 and 1982, the amount of 
revenue coming into the Fund was about $500 million. This was 
lowest amount in the Fund's history, and was due in part to the 
lapsing of the aviation taxes.
    The dip you see on the graph for 1996, again, reflects the 
lapsing of the aviation taxes. In 1999, you can see that the 
revenues flowing into the Trust Fund total about $11 billion, 
which was the largest amount in the Fund's history. After 1999, 
the amount of revenue started to trend downward.
    There are several key factors that contributed to this 
decline in revenues. First was a dramatic drop in passenger 
boardings, that was exacerbated by 9/11 and the SARS outbreak. 
Another significant factor was the increased growth of low-cost 
carriers and fare reductions by the legacy carriers.
    Now I would like to turn to how the Trust Fund revenues 
were expended. In this 2004 example of the Trust Fund 
expenditures, operations accounted for 43 percent. AIP and F&E 
accounted for 29 and 27 percent, respectively.
    This graph, which shows historical trends in Trust Fund 
revenues and expenditures, indicates that the amount of money 
flowing out of the Trust Fund to FAA's major accounts has 
generally increased each year; and that between 2002 and 2004, 
expenditures exceeded revenues.
    This graph shows that the principle reasons for the 
increase in Trust Fund expenditures are the increases in AIP 
grants shown in blue, and the increases in the amount of FAA 
operations that were funded by the Trust Fund that are shown in 
red. AIP has increased from about $1.5 billion, in 1998, to 
$3.5 billion today.
    This graph shows the operations budget over time, with the 
Trust Fund contributions shown in red, and the General Fund 
contributions shown in blue. It shows that from the time the 
Trust Fund was established, it has paid some portion of FAA's 
operations.
    It also shows that in 1972 and in 2000, the Fund provided 
100 percent of the cost of operations, and is expected to cover 
about 63 percent in 2005.
    As a result of the changes in revenues and expenditures, 
this graph shows that the size of the Fund's uncommitted 
balance has started to decrease substantially. It shows that 
the uncommitted balance decreased from $7.3 billion in 2001, to 
$4.8 billion in 2002, and has continued to decrease by about $1 
billion each year since.
    Now I want to focused on the aspects of our work that focus 
on the projected outlook of the Trust Fund from 2006 and 
beyond. We examined the possible outcome of the Trust Fund 
under Vision 100 authorization and the President's 2006 budget 
proposal. Our preliminary findings indicate that the Trust Fund 
will have sufficient revenue to fund authorized spending and 
end each year with an uncommitted balance through 2007.
    This is true both under Vision 100's scenario shown in 
blue, and the President's 2006 budget proposal, which is shown 
in yellow. It is important to note that these Trust Fund 
projections are very much dependent upon achieving forecasted 
traffic levels and air fares.
    As you can see in this next graph, during four out of the 
last five years, FAA has over estimated the revenues going into 
the Trust Fund. During 2003 and 2004, the actual revenues fell 
short of forecasted revenues by almost $1 billion each year.
    To take this circumstance into account, we also conducted a 
sensitivity analysis, wherein we examined the future of the 
Trust Fund under alternative scenarios. For this analysis, we 
assumed five and ten percent less tax revenues going into the 
Fund.
    The preliminary results of that analysis shows that if 
revenues were five percent lower than the projected level, the 
Trust Fund's uncommitted balance would fall to less than $1.5 
billion, under both the President's proposal and Vision 100, in 
2006 and 2007. If revenues were 10 percent lower than the 
projected level, the Fund's uncommitted balance would reach 
zero in 2006, under the President's proposal; and in 2007, 
under Vision 100.
    The question that remains is, how do projected revenues 
beyond 2007, compare with projected costs for development, 
operation, and maintenance of the Nation's ATC system. FAA 
projects a five year cumulative $8.2 billion shortfall for the 
ATO; $5 billion for the operations account; and $3.2 billion 
for the capital account.
    If this is accurate or even close to accurate, it presents 
a tremendous challenge for FAA and the Congress. Congress and 
FAA will have to address not only the revenue side, but also 
the cost sides of the ledger.
    On the revenue side, there are several options being 
discussed, as we discussed this morning, that range from a 
version of the status quo with excise taxes, to some form of 
bonding, to a cost-based user fee system. We are currently 
examining some of these options in our ongoing work for this 
Committee.
    On the cost side, the cost control initiatives that FAA has 
thus far identified do not even begin to close the $8.2 billion 
gap.
    We believe that a critical first step should be the 
development of a strategic business plan for ATC modernization, 
that would also include initiatives that focus on big ticket 
cost savings, such as the greater use of CTI graduates to fill 
the controller ranks, elimination of redundant ground-based NAV 
aids, and facility consolidation.
    Mr. Chairman, in the final analysis, we believe that the 
discussion about how to finance FAA and its operations beyond 
2007 must not only focus on how to provide more money, but also 
on cost control improving the management of its operations. 
Thank you, Mr. Chairman.
    Mr. Mica. Thank you, and I thank all of our witnesses for 
their testimony. We will start with some questions, and I have 
a couple to begin with.
    First of all, Mr. Mead, in reviewing who pays what, as far 
as funds into the Trust Fund and paying for FAA services, I 
think you testified that the General Fund is paid, on average, 
21 percent. I look at that as being fairly consistent.
    When you look at General aviation and commercial aviation, 
and maybe the military or others, what users are paying their 
fare share, in your estimation, and who should be paying more 
or less?
    Mr. Mead. Well, that is a tough question to answer, 
determining if users are paying their fair share. I can tell 
you that commercial aviation accounts for approximately 65 to 
67 percent of flight activity. They are paying a little over 90 
percent of the revenues coming into the Trust Fund, through 
various taxes. There is the ticket tax. There is another one 
called the rural airport tax. There is another one called the 
way-build tax.
    There is also a commercial jet fuel tax, international 
departure/arrivals tax and a frequent flyer tax. When you add 
these taxes up, it is a little over 90 percent.
    Mr. Mica. So commercial aviation is paying a fair share, 
you believe?
    Mr. Mead. I think they are.
    Mr. Mica. So we do not need Mr. May to testify later?
    Mr. Mead. No, I think he can discuss these issues much more 
eloquently than I can.
    Mr. Mica. Okay, let us get into General aviation.
    Mr. Mead. There are a number of issues about General 
aviation. Basically, General aviation and jet fuel is 
generating about 1.92 percent of the Trust Fund Revenues. That 
is on the fuel tax, which yields about $178 million.
    But there are a lot of questions as to whether or not some 
portion of the General aviation business share is actually 
being counted by the IRS as part of other taxes.
    Why is that? Well, for example, with commercial jet fuel 
tax, some of those taxes are actually being paid by users that 
would qualify as General aviation. But in actuality, the 
Internal Revenue Service, the way they count it, does not 
stratify it between the regular commercial airlines and General 
aviation. So there is some question there.
    Secondly, the United States aviation system was basically 
set up for the airlines. It was not set up for the general 
aviators, and the General aviation people state they are 
incremental users of the system.
    Mr. Mica. Well, as to use of the system and cost and 
contribution, you are still saying commercial aviation pays it 
share and more, in your estimation.
    Mr. Mead. Yes.
    Mr. Mica. General aviation probably has many more planes in 
the sky and is paying a smaller share. Is that a general 
conclusion?
    Mr. Mead. Yes, I think that is arithmetically obvious. We 
did an analysis of operations at the en route centers, control 
towers, and of IFR operations. We tried to back out of that, as 
much as we could, the non-business General aviation user.
    What you end up with is, in the en route center, 57 percent 
of operations, were commercial carriers. The commuter air taxis 
were another 21 percent. General aviation, and this would 
mostly be business use, was about 18 percent. The military was 
a smaller figure and has to be handled quite differently.
    When we reviewed control tower operations, about 20 percent 
were air carrier, 27 percent were commuter air taxis, and 42 
percent were General aviation.
    Mr. Mica. When you say air taxi, what is your definition?
    Mr. Mead. Well, commuters air taxis, I meant for hire.
    Mr. Mica. That would also include your business jets?
    Mr. Mead. No, that would not.
    Mr. Mica. All right, I am trying to get some idea on who is 
using the system and who is paying into the system. I have a 
quick question for Administrator Blakey. For costs, one of your 
biggest costs is labor. I think you had an agreement back in 
1998, and I think you expected some costs in 1998 as far as 
labor.
    As the air traffic control force, what has been your actual 
experience and cost to the system, as opposed to what was 
anticipated, based on your original projections?
    Ms. Blakey. The original projection of cost increase of 
that initial contract, over three years, it was expected to 
increase costs by about $200 million. The actual costs were a 
$1.1 billion increase. So it was very significantly under-
estimated, in terms of what the cost of the controller contract 
would be.
    Over time, we have seen controller compensation go up 70 
percent. So there is no question about the fact that it is a 
significant part of the aviation systems operation costs.
    Mr. Mica. I will sort of conclude here because I want other 
members to speak, but I have a number of questions. One of the 
things that we have seen as testimony today is that the current 
core revenue stream is based on basically passenger ticket 
taxes and percentages.
    We have also seen sort of the beginning of a discount 
industry. I predicted that we would see even more discount 
carriers, and probably lower prices. Actually, I think it has 
taken place much more rapidly than I anticipated.
    This is a list that I had the staff print out of European 
discount carriers. This is about eight pages of European 
discount carriers, and I think we are headed probably to see 
commercial passenger service even more on a discounted basis 
than the traditional legacy carriers. I think everybody agrees 
that that is going to also drop our revenues and create more of 
a problem, Ms. Blakey.
    You said, and I took this down, you are ``not endorsing 
taxes or user fees,'' but you said the ``ticket tax does not 
work.''
    Ms. Blakey. The ticket tax is absolutely unrelated to the 
costs of the service. There may have been a time when there was 
a somewhat closer alignment, but it might as well be pegged to 
the price of milk these days.
    As we noted, there is the fall in yield, the fall in ticket 
prices, and the move to a much smaller aircraft. The front page 
of the New York Times this morning was noting that the major 
carriers are moving much more to point to point flying, to 
smaller cities. That all goes to smaller size aircraft, but it 
costs us the same amount to move that aircraft, regardless of 
whether it has got 50 people on board or 200.
    So all of those are the trends, and as I mentioned, we have 
got 16 applicants for airline certification in the queue right 
now. I would suspect a lot of those are low cost carriers who 
want to get into the business.
    Mr. Mica. That is not to mention the micro-jets and other 
increases in air tax-type services.
    Ms. Blakey. The first of the very small micro-jets are 
expected to be certified next year, and the production delivery 
schedules are literally thousands a year.
    Mr. Mica. Well, I will turn to Mr. Mead, quickly, and Mr. 
Dillingham, if you want to comment, and then I need to go to 
other members.
    Mr. Mead. I think it is an important point that, in today's 
environment, you have the legacy carriers and the discount 
carriers. The legacy carriers' fares for the foreseeable 
future, are going to be very competitive and may trend 
downward. There are going to be conversions. If you apply that 
7.5 percent against a lower based ticket price, the arithmetic 
is pretty simple.
    Secondly, there really is not a correlation between a fully 
loaded plane of one type, whose fares are cheaper, and a fully 
loaded plane of the same type. Yet, the costs they impose on 
the air traffic control system are fundamentally the same.
    Mr. Dillingham. Yes, we agree that what we are seeing now 
is that cost and revenue are, in fact, diverging. However, we 
just want to reiterate that with all the discussion about 
bringing in new sources of revenues, that the other side has to 
be looked at, too, and that significant cost savings have to be 
a part of this mix.
    Mr. Mica. Thank you, I have more question, but Mr. Holden 
is waiting.
    Mr. Holden. Thank you, Mr. Chairman, and thank you for 
holding this hearing today. I thank the panel for their 
testimony.
    As you highlighted, we are facing challenges in the near 
future here as we try to balance our cost savings versus cuts 
in services and, of course, maintaining our attention towards 
safety.
    Administrator Blakey, I would just like to follow-up on one 
of the proposals that I had a chance to talk to Mr. Chu about a 
few weeks ago when he testified here, about the proposal to 
close the air traffic towers at 42 airports across the country.
    Mr. Chu told me that it was in the infancy of the study, 
and it was going to be progressing over the next 30 to 45 days. 
I am just curious if you can tell me where that study is at 
right now.
    Ms. Blakey. Certainly. We are doing very careful analysis 
of the specific circumstances of all of those 42 airports.
    I would stress that this is a process that the FAA has 
undertaken for years and years. It is done on an annual basis. 
It is an attempt to keep our costs in line with service. So 
when traffic figures drop in certain towers, it only makes 
sense to not staff those towers during the midnight shift, if 
there is no one flying in, or virtually no one.
    So that is really at the hub of this. We did not do it for 
a number of years. Because we thought that traffic coming back 
after 9/11 would change things, and we wanted to give everyone 
a breather.
    We will get that analysis done, I would suggest to you, 
within the next 30 days. I think his estimate was probably 
about right. We will certainly be consulting with any members 
whose towers are affected.
    Mr. Holden. I appreciate that, Administrator. I believe Mr. 
Chu said that the savings would be about one tenth of one 
percent of the entire budget. So I think he might have used the 
figure of $5 million or $4 million.
    Ms. Blakey. That is probably right. What I would caution 
though about this is that you understand the FAA's 
circumstances are such that to ignore millions of dollars of 
savings is not something we can afford to do. This Committee 
and others are urging us to look everywhere we can for cost 
savings. A number of the suggestions that have been made this 
morning, frankly, would save less than that.
    So it is something that I have to do, to look everywhere we 
can for incremental savings. This review has been something 
that has been standard for the FAA for many, many years.
    Mr. Holden. I understand that and appreciate that, and I 
realize you are going to hear 42 different stories. But I would 
just like to give you one of those 42.
    Harrisburg International Airport is responsible for the 
airspace at two nuclear power plants, Three Mile Island and 
Peach Bottom, as well as being a major diversion airport for 
Philadelphia, Dulles, and Reagan. So I understand and 
appreciate that you will be in consultation with me as it 
progresses. But I know they will take all those factors into 
consideration.
    Ms. Blakey. We will, and I also will point out that when 
towers have their traffic increase, then we also move back to 
staff them. So there is flexibility in this.
    Mr. Holden. Thank you, I yield back, Mr. Chairman.
    Mr. Mica. Mr. Hayes?
    Mr. Hayes. Thank you, Mr. Chairman. I feel like I need to 
clarify just a little bit. Mr. Mead had a good answer and the 
Chairman asked a good question. I think we need to focus on the 
fact that every time the airline cranks up, they use the 
system. That is fine. They should, because that is what they 
are there for.
    There are thousands, I think, of General aviation 
airplanes, who never use any part of the system whatsoever, 
except the air, which is still free. But every time they buy a 
gallon of gas, they do pay into the system. So just to clarify, 
it was a good answer, but we just did not get all the details 
in there.
    Administrator Blakey, again, thanks for your wonderful 
service. Certification offices have recently been informing our 
largest repair station facilities that approvals on projects 
will slow dramatically because of budgetary constraints. This 
has caused great concern among key members of the community. 
They have put millions of dollars into these projects, only to 
find out that approval may take weeks and even months before 
taking place.
    Is the staffing situation at the FAA bringing aircraft 
certification approvals on million dollars projects to a halt, 
or have we got that under control?
    Ms. Blakey. Well, certainly, we do not plan to bring any 
projects that we can foresee, Congressman Hayes, to a halt. The 
question is, how slow is the queue? How long will you have to 
be in the line?
    I think that probably everyone on this Committee would 
agree that when it is a choice between new projects and 
overseeing the ongoing safety of the system, of the carriers of 
the existing facilities, the latteer has to be the first 
priority. We have to maintain safety first then proceed, as new 
facilities and new products want certification. We are doing 
the best we can to cover that.
    I would point out that we are projecting right now that we 
will be down 300 people in our AVS area, which is where 
certification is. I would also point out that a lot of this is 
a result of the unfunded pay increases, and the recision. These 
are things that I realize this Committee is not responsible 
for. But those are the effects it does have. So we are doing 
the best we know how to, to meet those new requests, but they 
are new.
    Mr. Holden. I appreciate that comment. I think it is 
important that what you have also said there is that we have a 
responsibility to make sure that through the Appropriations 
process you have the funds that you need.
    I have one more editorial comment, if I may. You talk about 
thousands of very light jets. If we do not get the insurance 
industry on board, there is not going to be anybody that can 
get insurance fly the darn things. So thank you again, and I 
yield back.
    Mr. Mead. Mr. Chairman, may I follow up on a point that 
Congressman Hayes was inquiring about, the 300 people that Ms. 
Blakey was referring to.
    I think you should be aware that a lot of attention is 
focusing on hiring a significant number of controllers to 
replace those that are going to retire. This is a legitimate 
concern because these retirements are going to occur and FAA 
has planned for this.
    But at the same time, the safety inspection work force is 
going to lose 300 people. The FY 2006 budget does not propose 
to replace these people. Frankly, I have some concerns about 
that.
    Mr. Hayes. That is a good point to keep in front of us. All 
of the members of committee are vitally concerned with safety 
first. We would be more than happy to work on behalf of safety 
as it relates to the overall air space and the FAA. Thank you, 
Mr. Chairman.
    Mr. Mica. Ms. Norton?
    Ms. Norton. Thank you, Mr. Chairman. For this panel, I 
really have a question going to the possible long-term changes 
in the airline industry and how we can confront that at the 
same time as we confront the Trust Fund.
    My question is really based on the correlation your 
testimony has shown between the Trust Fund and economic 
conditions in the airline industry. In fact, if we look at this 
industry over time, we see an industry that is almost cyclical. 
It is a roller coaster industry that is historically based on 
economic conditions in the country. When things got better, 
people began to travel more. Things improved in the industry.
    We recognize there are lots of reasons that people do not 
have to travel as much any more. Among them, of course, are 
vast changes that are like an earthquake under us, because the 
occur every day in technology.
    My question really goes to the extent to which you believe 
what we are seeing in the airline industry is truly structural. 
That is to say, everybody knows that there is downsizing. We 
see every line looking like a discount airline. That certainly 
tells us something.
    Are we seeing structural changes in the airline industry 
today? If so, when will this stabilize? Is this going to 
stabilize soon? I cannot imagine that the industry is going to 
go down to nothing. At some point, when excess carriers are 
weeded out; at some point when you have discounted as much as 
you can discount to be competitive, surely this would stop. 
That may be at some low level that none of us want to 
contemplate it.
    But I want to ask you, are we seeing something structurally 
different from the up and down of the airline industry, and is 
there any sense of long-term projections recognizing, of 
course, how completely unpredictable and untrustful such long-
term projections often are; but given the nature of this 
industry, somebody, it seems to me, must be studying whether 
something very different is happening to this industry, and if 
so, what the nature of that change is.
    Ms. Blakey. Everything we see, from the standpoint of our 
economic work in forecasting, says that there are very 
fundamental changes in the industry, and that it will not go 
back to the good old days.
    Ms. Norton. Well, I know that. The question is, what is it 
going to go back to?
    Ms. Blakey. I think, appropriately, of course, our concern 
is really this dramatic change in the fleet mix and dramatic 
change in traffic, et cetera. But the Inspector General has 
done studies on this.
    Mr. Mead. Thanks, that was nice.
    [Laughter.]
    Mr. Mead. The legacy carriers, including U.S. Air, 
Northwest Airlines, UAL, and Delta, are still trying to get 
their costs down. They are still not turning a profit. It is 
going to be awhile before they get their costs down.
    However as they get their costs though and lower their 
fares, they are going to become very similar in cost structure 
to the discount carriers.
    When that happens, I think there is going to be a powerful 
dynamic unleashed in the industry. The network carriers have 
the power of a network. The low cost carriers do not have as 
many hubs.
    I know a lot of people think that what we are seeing is a 
permanent structural change. But I think once the cost 
structures are more aligned, you may see fares start to creep 
back up again.
    Right now, one of the big phenomenon is the very sharp 
reductions in business fares. We have seen this consistently 
since 2001. But I think there may come a time, four or five 
years from now, when we see the cost structures of the big 
carriers more aligned with those of the low cost carriers. Then 
you will see some changes in the fares. There will be upward 
movement in those fares.
    Ms. Norton. Of course, that would mean other kinds of 
changes, as well, in traditional carriers.
    Mr. Mead. Also, I think you are going to see, as 
Administrator Blakey pointed out, a lot more point-to-point 
service. But hubs are probably here to stay.
    Ms. Norton. Finally, just let me say, I do not know how the 
changes in technology factor into this, and whether business 
travel will continue to be what is has been in the past. But if 
these changes are structural, and what you have just said says 
to me, you know, most airlines are going to be low cost 
airlines, I regard that as a structural change.
    If these changes are structural, then it does seem to me 
that we have to confront the possibility that we will need 
structural changes in the Trust Fund, as well. Thank you very 
much, Mr. Chairman.
    Mr. Mica. Mr. Graves?
    Mr. Graves. Thank you, Mr. Chairman. I want to go back to 
what was pointed out, and Congressman Hayes briefly touched on 
it, on the number of GA aircraft that are out there. This is 
obviously being looked at as the great pot that we are going to 
pull money from to pay for the system, to an extent.
    I keep hearing it in the industry. I hear the rumors talked 
about. I hear the talk of charging any flight service used, 
whether it is weather or whatever the case may be, or even 
takeoffs and landings. I do not know what is being looked at.
    But I do know that we seem to be looking at that area. 
Congressman Hayes pointed out, too, that the vast majority of 
those GA aircraft are not using the system, to be quite honest 
with you. I mean, they are flying underneath the controlled 
airspace when they are going into a congested area. They are 
just doing VFR stuff.
    They are not necessarily filing flight plans. They are not 
checking the weather. They are very low cost users of the air. 
I am curious, do you have any idea what the percentage of GA is 
out there that are using the system; any one of you?
    Ms. Blakey. Congressman Hayes, we have done certainly some 
studies on that. If you are talking about the folks who are 
just flying VFR without using the system, those are not as 
directly tracked as they are, of course, if they are filing 
flight plans and flying IFR, et cetera.
    What I can assure you is this. We are doing a cost 
allocation study. Because we really do believe it is important 
to look very carefully at those things, and look at issues of 
equity across the system.
    So we are going to be analyzing the fleet mix. We are going 
to be analyzing a variety of factors to really understand what 
the costs are that are imposed all up and down the system. Of 
course, GA is comprised of a wide variety of users, as well.
    So the person who uses the system for personal travel, if 
you will, for individual weekend recreation, is very different 
obviously than those that are using it for business purposes 
with very high performance aircraft. So all of that needs to be 
updated and analyzed, and I will assure you, we will do that.
    Mr. Mead. I think the biggest service that could be done in 
response to your question is to take the General aviation 
chunk, which is fairly large, and break it into pieces. There 
are groups who are very casual users of the system. They are 
not doing IFR approaches. They are not using air traffic 
control. Then there are higher end users. I do not think the 
two ought to be lumped together for purposes of analyzing the 
issues you are raising.
    Mr. Graves. But they are being lumped together, 
unfortunately, in talking about, you know, where we can go to 
find some more money and in user fees.
    In fact, it seems to me that if you do start taxing the use 
of flight service, if you start taxing on calling in to get a 
weather report, or takeoffs and landings, that is going to 
create a safety problem, in and of itself. Because a lot of 
those casual pilots are going to forego that weather report, or 
they are going to, if the weather is marginal, a lot of times 
they do not use weather anyway but they will call in if the 
weather is marginal, well, they may forget that. Or even 
practicing their landings, take-offs and landings, if you are 
doing some sort of a user fee on take-offs and landings, well, 
it is cheaper just not to do them. And then you get into a 
safety situation. It would seem that it is completely the wrong 
direction to go.
    I think the perfect user fee is the fuel tax system that we 
have now. If you are flying, you are burning fuel, and you are 
obviously paying into the system. In fact, it can be argued 
that GA is paying, for what they are getting, is paying a lot 
into the system because they are burning fuel. But it disturbs 
me considerably this talk about going to user fees for general 
aviation, because I would say the vast majority of GA out there 
is those folks who are not taxing the system, who are not using 
the system a whole lot. It really concerns me.
    I do have a historical question I want to ask. It seems to 
me when we first came up with the Trust Fund we were trying to 
get GA off the big airports. We wanted to come up with a 
secondary airport system to relieve our airports, I think was 
the actual term. In fact, I remember looking at an article or a 
picture back in the 1970s of I think it was a TWA 747 on hold 
because it seems like it was a twin Barren was landing, and 
that was the problem with the system. So we created this Trust 
Fund to build infrastructure, to improve infrastructure which 
was off of the major hub airports and get GA out of the way.
    We seem to be moving away from what the original intent 
was, which was infrastructure, and obviously moving to a point 
where it is paying more and more of what you all are doing. It 
seems to me like we have got to get back on track on where it 
needs to be and use the Trust Fund for what it was originally 
intended to be used for.
    Ms. Blakey. One thing I think is important to understand, 
Congressman Graves, because I do appreciate the need to make 
certain that there are airports that the general aviation 
community can use, there has been a dramatic increase in AIP 
funding over the last four or five years. When you look at the 
increase in funding, it is very significant, a bit over a 
billion to last year it was $3.5 billion. This year in the 
fiscal year 2006 budget, we are still proposing $3 billion, and 
a very, very significant amount of that goes to small airports. 
So it really is important to understand how much that has 
really changed the landscape from that standpoint.
    The other thing I would say is this. We are certainly very 
sensitive to the issue of safety. And the idea of avoiding 
important safety benefits in the system is something that we 
are going to be very careful about. It is important though to 
note that, just as an example, the figures that I have heard 
AOPA use about the fuel tax, for example, when we were 
discussing the issue of flight service stations, the GA 
community contributes about $60 million in terms of the fuel 
tax. The cost of flight service stations as they have been set 
up to this point was well over $500 million, and they are, of 
course, for the general aviation community. And even as we are 
driving the cost of flight service stations down--as you know, 
of course, we are moving with Lockheed-Martin who going to be 
providing that service at considerably less cost--the two 
simply do not match up. So there are certainly issues here that 
I think we all just need to be aware of.
    But we are going to be looking for the best possible way of 
aligning the cost of the system for everyone in a equitable 
way, in the simplest possible way as well. So that is one 
reason why I do not think we should rush to judgment about user 
fees or excise taxes or any particular structure yet.
    Mr. Mead. You are correct in saying that the original 
design of the Aviation Trust Fund was for air traffic control 
and airport infrastructure. The operations in the original 
design would be handled through the General Fund. This is why 
it is so important for the Committee to get a handle on what 
the assumed level of General Fund contribution should be for 
the next reauthorization period. You are dealing with swings of 
$2 or $3 billion. That is quite a bit of money.
    Mr. Graves. In closing real quick, I am glad you are not 
set, and I would implore you, I think user fees are the wrong 
way to go. We need to work together to figure out a way to do 
this. I would like to get us back on track and moving more 
towards GR for operations, figure out how we can do that, but 
we can come up with something. User fees are not the way to go, 
I do not think. Thank you, Mr. Chairman.
    Mr. Kuhl. Mr. Boswell?
    Mr. Boswell. Thank you, Mr. Chairman. I would like to 
associate myself with the remarks that my colleague, Mr. 
Graves, made. Administrator Blakey, you recommended the FAA 
take some steps to control cost and determine the future 
requirements before they explore new revenues, and I appreciate 
that, including making decisions on necessary ATC modernization 
projects. What progress are you making? Can you give us a 
little update?
    Ms. Blakey. We have been making I think really quite 
remarkable progress in terms of cost-savings. Some of the 
figures that are used about the overruns in cost, when you look 
at those and the facts on the major capital investment 
programs, usually go back to baselines in the 1980s. When you 
look at what we have been doing of late, we are doing a very 
strong job in making sure that our major acquisitions projects 
are coming in on schedule and on budget. Last year more than 80 
percent were within 10 percent, which, considering again how 
much work we had to do on this, is really a very strong track 
record. Major projects like ERAM, for example, which is the 
central system for the Air Traffic Control system, is on time 
and on budget. So I would point those things out.
    There are a number of other cost-savings that we are 
working very hard on in terms of things that we know can help 
control our costs. The very ideas that the General Accounting 
Office has recommended, that Dr. Dillingham has suggested, we 
are moving on all of those. I think it is important to note, 
though, that some of these are very hard to do if you want to 
have significant cost-savings. Facility consolidations mean, 
obviously, that choices are made that sometime can be very 
politically difficult to do. So I would simply call the 
Committee's attention to the fact that this is not all within 
the control of the FAA.
    I would be happy though to enumerate a number of other 
cost-savings, if it would be helpful. I have got a whole sheet 
here.
    Mr. Boswell. You might just cover a couple.
    Ms. Blakey. All right. I would be happy to. Essentially, we 
have made a part of the FAA's business plan and our flight plan 
the requirement that there has to be cost reduction activities 
in every single one of our lines of business. Of course I noted 
the A-76 process, which is saving the taxpayers $2.2 billion in 
terms of the move to have Lockheed-Martin provide the flight 
service station function for us. We are consolidating 
accounting personnel, and implementing a centrally managed cost 
control program that we are putting in place this year for a 
variety of costs that the FAA has from the standpoint of IT and 
administrative costs. We also, of course, have a very strong 
contract tower program, which again is a cost-saving function 
there.
    I could also tick down things such as consolidating our 
regional service units within the ATO, reducing management 
layers from 11 to 6, shifting the control of traffic in terms 
of these midnight shifts where we do not have a cost 
justification for staffing in towers where there really is no 
activity going on, and removing Navaids, nondirectional 
beacons. This is a question of aging infrastructure out there 
that really is not contributing, from a cost-benefit 
standpoint, to the system. So I think that when you begin to 
look at a variety of things like that, there is no question 
about the fact that we will be saving costs, as well as in 
things such as reducing the time it takes to train our 
controllers. That is a part of the plan that we put forward to 
Congress in December. We are very optimistic about making real 
progress with that.
    Mr. Boswell. Thank you very much. I suspect that Mr. Phil 
Boyer will have some information on Mr. Graves' questions that 
were asked earlier about a number of VFR activities going on 
that is not in use in all these things. Thank you, Mr. 
Chairman. I appreciate it.
    Mr. Mica. [Presiding] Mr. Poe?
    Mr. Poe. Thank you, Mr. Chairman. In my opening statement I 
asked a question about the Houston TRACON. Also, just for your 
information, Congressman Culberson and McCall, also in the 
area, the three of us have written a letter asking when this is 
going to be built, at least started. I just want some assurance 
that within the next 30 days or so we get an answer. Okay?
    Ms. Blakey. I will be happy to get back to you with the 
real timetable on that. It is obviously a very important 
facility and we appreciate that.
    Mr. Poe. Okay. The second thing was we have heard a lot of 
comments about money, which is really I guess the root of all 
things, evil and otherwise. Continental is the hub, 
Intercontinental Airport in Houston, and Southwest has a 
tremendous facility at the Hobby Airport on the other side of 
town. Airline consumers are paying 26 percent of a ticket price 
is taxes that goes to different projects, and the airlines are 
paying about 35 percent income tax plus fuel taxes, which is 
understandable why they are in trouble. Of course my concern, 
as everybody's is, is we want to keep them flying. We do not 
want them going broke and then somebody having to bail them 
out, which is usually the taxpayer.
    It is an interesting phenomenon it seems that raising 
ticket prices does not work because the consumer finds a 
different alternative to flying. The best example is 
Continental flies Houston-Dallas, Houston-San Antonio, Houston-
Austin, very close, and it reaches a market price where the 
consumer says I am not going to fly, I will just get in my old 
pickup truck and drive. And then the airline industry hurts 
when the price goes up for those little short hauls. Maybe that 
phenomenon does not work in other businesses, but it does work 
in the airline industry. So raising prices to cover taxes may 
not be the answer.
    So I hope we can find an answer to the problem. We look to 
you to give us some concrete, definite answers to keep our 
airlines flying, safety is important as well. I appreciate your 
being here and I just wanted to make those comments about the 
TRACON and especially our airlines. So, thank you, all of you.
    Mr. Mica. Thank you. Ms. Berkley?
    Ms. Berkley. Thank you very much, Mr. Chairman. I want to 
thank all of your for giving us your testimony. I appreciate it 
very much. It was sobering, to say the least, and I recognize 
the challenges that we have. I am not sure that it is your 
responsibility to come up with the solutions. But perhaps 
together we can come up with a way to keep airline prices down, 
not put all of the rest of our airlines in bankruptcy, and be 
able to provide safety for our flying public.
    Last month, McCarren Airport, which is the airport in the 
Las Vegas area, had its busiest month on record, with 3.9 
million passengers. Local officials, as you know, are moving 
forward with plans to accommodate the growth in the number of 
passengers, increasing the number of gates, and the county is 
also working on its plan to build the Ivan Paugh Airport that 
was passed a couple of sessions ago. It is my hope that the FAA 
will work with Randy Walker and our local officials to meet the 
tremendous needs of Southern Nevada. We just had another mega 
hotel come on line last week with over 3,000 rooms. We have 
9,000 other rooms in some stage of development. For each one of 
those rooms, we are going to have thousands and thousands of 
people pouring into the Las Vegas valley and most of them are 
coming through McCarren Airport. So your help with that, as 
always, is greatly appreciated.
    Ms. Blakey, I really want to thank you for your help in 
moving forward with the new Air Traffic Control tower at 
McCarren, and the improved runway conditions in North Las Vegas 
Airport which were a very serious problem for us. I do have a 
question for you regarding Air Traffic Control operations. I 
was sitting in this very seat and you were sitting there when 
we were discussing privatization and the contracting out of 71 
FAA air traffic control towers. That was a subject of 
considerable debate in the 2003 reauthorization bill. One of 
those towers, North Las Vegas, is in my district. The one year 
moratorium on contracting expired last October. Does the Agency 
have any plans on contracting out the FAA air traffic control 
facilities as part of this cost-saving opportunity?
    Ms. Blakey. There are no current plans in terms of 
converting air traffic control towers currently at this point. 
I think it is fair to say that if the FAA is urged by this 
Committee and everyone else to look for ways to save costs, it 
is important to take into account where we can do so. The fact 
is, of course, when you are looking at comparable facilities, a 
comparable contract tower versus a federally staffed tower 
saves $900,000 a year. So it is worth understanding that. But I 
have no plans at the moment.
    Ms. Berkley. Well thank you for that. But let me ask you a 
question. When we say that it saves $900,000 for the FAA, but 
somehow, someway, someone is going to pay for that service. So 
for the flying public, do they not ultimately get the cost of 
privatizing the air traffic control system passed on to them?
    Ms. Blakey. No, not at all. They get the exact same service 
whether a Federal controller is speaking to the pilot or a 
controller that is hired through a contractor. There is no 
difference, nor is there any difference in the cost.
    Ms. Berkley. How do we pay for that service? Who ultimately 
pays the salaries of the air traffic controllers that are 
working for a private company as opposed to the FAA?
    Ms. Blakey. They are paid through the FAA. In other words, 
the FAA pays.
    Ms. Berkley. Then how do we save $900,000?
    Ms. Blakey. Because, significantly, the salaries are much 
less in a contract facility than they are in a federally-
staffed facility. They also handle staffing differently than we 
do. And most of these, of course, are lower activity towers, 
VFR, et cetera, so in some cases, of course, there are 
differences in complexity as well.
    Ms. Berkley. I would be very concerned if somebody that is 
a professional and can command a certain salary level would be 
so willing to work for a company and get so much less for their 
services. It seems to me that the FAA does a very good job, and 
the Government has a responsibility to provide the flying 
public with assurances that the air traffic controllers in this 
country are the best that they can possibly be. And I feel more 
comfortable myself knowing that the air traffic control system 
is under the FAA and Federal auspices.
    Ms. Blakey. Both are under the FAA. Both are overseen by 
the FAA. Both forms of towers operate to the exact same 
requirements and standards and are audited. Candidly, the 
safety record of the contract towers is certainly as good as 
those of Federal towers. So there is no difference in either 
safety or service at all.
    Ms. Berkley. Well, do not think we need to debate. We could 
debate this in private. But then why do they accept so much 
less pay?
    Ms. Blakey. The salaries are fair salaries that are offered 
by the contractors. They often hire former FAA controllers, 
they hire former military controllers, and they have 
competitive salaries. The FAA salary structure for Federal 
controllers is very high. The average FAA Federal controller 
makes over $150,000 a year with salary and benefits.
    Ms. Berkley. Okay. With all candor, I think they are worth 
every penny of that. And when I am flying every week, I like to 
know that we have got the best possible air traffic controllers 
in those towers. Thank you very much. I appreciate your help in 
Las Vegas more than you will ever know. Thanks a lot.
    Mr. Mica. I thank the gentlelady. Mr. Duncan?
    Mr. Duncan. Thank you, Mr. Chairman, and thank you for 
calling this very important hearing. I am sorry that 
appointments and then a hearing in another subcommittee which 
affected a plant employing several hundred people in my 
district has caused me to have to be in and out of this. And I 
have got to speak at a luncheon at noon, so, unfortunately, I 
am not going to be able to stay for all of the next panel.
    I guess I only what to ask this or say this. We have heard 
a lot of testimony here this morning and we will hear some more 
from the next panel about the problem. But what we need is more 
testimony about the solution. Administrator Blakey, I did hear 
your testimony and you mentioned that meeting that you called 
with was it 150 leaders from the industry and all the parties 
affected. I am wondering, was that more of just calling 
attention to the problems, or do you feel like there were some 
good recommendations out of that? Do you that you need to 
continue that, to get all these parties together and discuss 
all these things to see is there a middle ground here, is there 
a compromise solution between those who want higher user fees 
and those who do not want them, or those who are opposed to 
higher fuel taxes? It looks like we have got to do something.
    Ms. Blakey. Congressman Duncan, I will tell you, we have 
had very good feedback from that forum on the Trust Fund 
because it was genuinely arranged to give the entire 
stakeholder community an opportunity to talk together and 
explore options. We had a number of panelists come in who 
talked about different systems, both within the U.S. 
Government. For example, the Food and Drug Administration, and 
TVA were there, as well as experts from abroad, talking about 
the way they have set their systems up and the pros and cons. 
But we also discussed options that were independent of other 
models.
    I think what I sense coming out of that is we should 
certainly not rush to a solution here. It is very complex and 
complicated, and I think there are things we simply do not know 
right now that are important to analyze. But I do believe that 
there is a growing awareness that our costs and revenues need 
to be better aligned. For a system that will go into place 
instead of taxes and fees, whatever it may be--the last one was 
in place for ten years--with that prospect in front of us, it 
is very important at this point that we look at something that 
will create the right incentives both for the FAA to control 
its costs, as well as for the user community to take account of 
what the services cost.
    There is a real difference between want and need. I think 
we do need to have, therefore, a better alignment between the 
cost of the service and the revenue coming in. Plus, I think 
there is a genuine consensus out there that it is very 
important that the revenues address the kind of capital 
investment that the next generation system will require. The 
answer to bringing down our costs is a system that can handle 
three times the traffic with a much greater degree of 
technology involvement, so that you bring the unit costs down 
which lower the costs for all of the users. Certainly, that is 
something that I think the airline community, in particular, 
would support. So how to get there, that piece we do not know 
yet.
    Mr. Duncan. Well I know it is going to be very difficult to 
get there. But I also do not think there is anybody that has 
looked into this at all that has to hear much more about what 
the problem is. We just need to get down to the recommendations 
and the solutions that hopefully will be as fair as possible to 
the largest number. Thank you very much.
    Mr. Mica. Thank you. Ms. Millender-McDonald?
    Ms. Millender-McDonald. Thank you, Mr. Chairman and Ranking 
Member, for such a really informative hearing. I would like to 
ask unanimous consent that I put my full statement in the 
record.
    Mr. Mica. Without objection, so ordered.
    Ms. Millender-McDonald. Thank you, Mr. Chairman.
    Ms. Blakey, getting back to the question that Ms. Berkley 
asked of you with reference to the considerable debate last 
year on the reauthorization, 2003. One of those towers of the 
71 that FAA is contemplating it seems contracting out or 
privatization, I suppose, is that of my Long Beach Airport. 
Long Beach is the 30th busiest airport in the Nation. Again, I 
am not sure that I understood your answer to the question that 
she raised, and that was, do you have any plans on contracting 
out of the FAA air traffic control facilities?
    Ms. Blakey. I would actually point out that list of 71 is 
not my list. This is a list that the Inspector General, who is 
sitting right next to me, developed. So the specifics on the 
towers that are on that list and why, I would refer to him at 
this point.
    It should tell you something that I honestly cannot even 
tell you about the specifics on Long Beach right now. It has 
been that long since I have looked at that list. So I would 
repeat what I said to her, which is that we have no current 
plans to convert those towers.
    Ms. Millender-McDonald. In other words, the 71 towers that 
are on the list was really initiated by the Inspector General.
    Inspector General, how did you come about with that list?
    Mr. Mead. Your airport is not on the list and that list is 
not ours--it was a list that FAA put together in the late 
1990's. We anchored our studym which was done at the request of 
Congress, on FAA's list.
    Ms. Millender-McDonald. It is not?
    Mr. Mead. It is not among the 71.
    Ms. Millender-McDonald. Well thank God for that.
    Mr. Mead. The list of 71 is a list of VFR towers that are 
currently staffed by FAA controllers and is comparable in 
levels of activity to those airports that are staffed by 
contract controllers, that are under contract with FAA to 
provide air traffic control services. But Long Beach is not in 
the 71.
    Ms. Millender-McDonald. I heard just a couple of months ago 
that there were some towers that were going to be closed down 
late at night into early morning. Is that a report that is 
accurate? And if so, why are we doing that when many of us are 
flying two and three times a week in the air and we do not wish 
to see any towers being closed down during a certain period? 
Was that a fair report?
    Ms. Blakey. Earlier this winter, a list of I believe it was 
42, if I am recalling correctly, 41 or 42 towers was put out by 
the news media as ones that the FAA is looking at because the 
fact is that, between roughly midnight and 5:00 a.m., they have 
very little traffic. This is a routine analysis that the FAA 
has done for many years on an annual basis. When traffic falls 
to so low at night that the Maytag repairman would look busy, 
it only makes sense to consider whether or not you need to have 
personnel from midnight to 5:00 a.m. in the tower. It does not 
mean that the airport does not have service. What it means is 
that the control of aircraft coming in passes to the nearby 
TRACON. So there is no reduction in service when that happens.
    It is a routine analysis. It is one that is going on right 
now. We discussed a bit earlier today the fact that it is hard 
to be absolutely predictive about how long it will take, but we 
are doing the analysis on a case by case basis at each one of 
those airports to see if there are mitigating factors in terms 
of National Guard activity or certain other kinds of things 
that might call for us to continue to keep personnel on that 
limited shift. Otherwise, the tower is open and things remain 
the same. But this is an analysis, as I say, we do routinely 
year-in and year-out. We stopped doing it from 9/11 on because 
we knew traffic had dropped so much during that very unusual 
time that we let a few years go by before we did it again 
because we wanted to give all these airports a chance for the 
traffic to come back.
    Ms. Millender-McDonald. Thank you so much. Ms. Blakey, in 
your testimony you stated that over the past four years the 
FAA's revenue projection has been overly optimistic due to the 
events of September 11 and structural changes in the airline 
industry. Have your forecasting methodologies been 
appropriately adjusted to account for these issues, because 
there are some aviation groups that believe until FAA can 
accurately predict or project its cost-to-needs there cannot be 
reforms made to a system that may or may not be in trouble
    Ms. Blakey. I am glad you asked that, because forecasting 
is something that is certainly critical and yet is extremely 
hard to do. As you look at any of the forecasts that are being 
done by Wall Street, the major corporate entities who have huge 
interests in this, getting that right is something that is 
extremely hard. And I will tell you, you are quite right that 
the FAA's forecasting models have been too rosy. The revenue 
has not come in as we had projected. In some cases it has been 
off as much as 11 percent a year. So we are doing an analysis 
right now and bringing in outside consulting help to help us 
develop a better forecasting model, a way of projecting those 
revenues.
    The FAA's costs, of course, also are ones that you have to 
adjust on the basis of forecasted traffic. So we are trying to 
get that right as well as. We are doing everything we know to 
do to bring down our costs, such as the things we just talked 
about, about reducing staffing where you do not have traffic on 
a midnight shift, to try to do everything we can to get our 
costs as low as possible.
    Ms. Millender-McDonald. Thank you so very much. Mr. 
Inspector General, I would like to see your revised list of 71 
airports. Will you please send that to my office?
    Mr. Mead. Yes. Let me clarify for the record. I misspoke. 
Long Beach is on the list of 71.
    Ms. Millender-McDonald. Aha.
    Mr. Mead. I misspoke. We felt, after our analysis, that the 
airport was not sufficiently comparable to the contract tower 
airports to be considered for contracting out.
    Ms. Millender-McDonald. Are you saying Long Beach is not 
comparable to the other airports?
    Mr. Mead. It is a very busy place, as you pointed out.
    Ms. Millender-McDonald. It is busy, yes.
    Mr. Mead. There are about 31 in the country that are quite 
comparable and that airport is not one of them. That is what I 
should have said. It is in the list of 71, but we do not feel 
it is sufficiently comparable.
    Ms. Millender-McDonald. And comparable is defined as what?
    Mr. Mead. Well, by level of activity. There is a lot of 
activity at that airport.
    Ms. Millender-McDonald. There is a lot of activity, sir. 
Can you provide for me your report on that and the methodology 
by which these airports were placed on the list?
    Mr. Mead. I will be glad to.
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    Ms. Millender-McDonald. Thank you. I guess that is it, Mr. 
Chairman. Thank you.
    Mr. Mica. Mr. Ehlers?
    Mr. Ehlers. No questions.
    Mr. Mica. Mr. Ehlers yields to me for just a second. Let me 
just continue with you, Mr. Mead, on this question of the 
airports and contract tower airports. Were there not two 
studies conducted, one back in 2000 or pre-2000, of looking at 
those contract towers?
    Mr. Mead. Yes, we have.
    Mr. Mica. And some folks were not satisfied with the 
results that showed that it would cost less money and actually 
they performed just as safe, if not safer? That was the first 
finding.
    Mr. Mead. That is correct.
    Mr. Mica. And so we asked for another review. Is that 
correct?
    Mr. Mead. Yes.
    Mr. Mica. Were the findings similar or dissimilar?
    Mr. Mead. They were very similar except that the cost 
savings had increased from the prior report.
    Mr. Mica. So we would have had safer operations on that 
review. And not all of the 71 are in included in that category. 
But again, you made a determination on a smaller number that 
would save money and be as safe, if not safer, with that 
configuration.
    Mr. Mead. I would say as safe.
    Mr. Mica. Would you make certain that the Member's inquiry 
get copies of that report.
    Ms. Blakey, you are here singing the blues about money. Why 
have you not taken action--and we had an agreement before the 
last election on those towers. Why have you not taken an action 
to institute the changes and get those contract towers underway 
and save money and make them safer? You will really like that 
question.
    Ms. Blakey. As we all recall, this was a matter of some 
controversy for the last reauthorization.
    Mr. Mica. But we had a letter that was only good through 
the last election. Again, I know where you can save some money. 
I hope you take another look at that.
    Ms. Blakey. I will take it under advisement.
    Mr. Mica. Thank you for yielding, Mr. Ehlers. Did you want 
your time back?
    Mr. Ehlers. Reclaiming my time very briefly. I would just 
want to reassure my good friend and colleague, Ms. Millender-
McDonald, about the airports being closed from midnight to 5:00 
a.m. I represent Grand Rapids, Michigan. It has a busy airport, 
approximately 2 million passengers a year, which puts it in a 
sizeable category, and that airport is closed--I am sorry, not 
the airport, the tower is closed during the night and it is 
operated out of Chicago TRACON. We have had no incidents, no 
particular complaints. I, myself, have flown in there with 
another pilot at that hour and it is handled just as if they 
were right there in the tower. And so, it is a safe procedure. 
With that, I yield back.
    Ms. Millender-McDonald. It gives me great comfort.
    Mr. Mica. At great risk, I recognize Mr. DeFazio. Welcome, 
sir.
    Mr. DeFazio. Thank you, Mr. Chairman. I have been here for 
a while. I guess we have got to back up to kind of the 
beginning here. I would just like to ask each of the three 
panelists, is 21 percent precisely or even in any sort of 
calculated way the amount of operating costs of the system that 
should be paid by the General Fund? How do we apportion that? 
Why is it 21 percent? It used to be a lot more. Anybody have an 
idea? Have we ever done a cost-benefit analysis on what is the 
cost of controlling the national airspace, what is the benefit 
to people who do not fly but who get packages or mail that is 
flown, what is the cost of all the network to the business 
community. Have we ever looked at it in that way and said, gee, 
what would be a fair amount to be paid out of the General Fund, 
since the original idea was the General Fund would pay most 
everything?
    Ms. Blakey. There have been a number of studies along those 
lines and I think it is fair to say that they vary somewhat. 
But they all point to the fact that while there is benefit, 
without question, to our economy and to the general taxpayer, 
that is usually calculated differently. For example, NCARC, the 
study commission that, before becoming Secretary Mineta, 
Congressman Mineta chaired back in 1997, suggested a figure of 
about 30 percent of the cost of the aviation system should be 
borne out of the General Fund. And that accounted for things 
such as you are suggesting, along with public use aircraft and 
military aircraft. But I would point out, at that point, they 
were also taking into account security, because at that point 
that was covered under the FAA. Now, obviously, security is a 
different set of costs and it is handled differently. But it 
was 30 percent at that point. That is one study on this.
    Mr. DeFazio. Yes, pre-9/11. A lot of parameters have 
changed since then. Okay. Thank you.
    Anybody else have an idea? Mr. Mead?
    Mr. Mead. Yes. The 20 percent that I quoted in the 
testimony, or 21 percent, is simply an arithmetic average of 
what has happened over the past decade. In some years, such as 
the last year of the last Administration, they did not tap the 
General Fund. But the contribution was about $3 billion in 
2002-2003, and now it is around 11 percent, which would be a 
very low percentage.
    Ms. Blakey is correct that the Mineta Commission in 1997 
did posit a figure.
    Mr. DeFazio. She said 30 percent. We will go with that for 
now. But my point is, it seems like kind of a departure point 
for this discussion about Trust Fund depletion, because that, 
in part, depends upon how much burden the General Fund is 
carrying, how quickly the Trust Fund will deplete, in addition 
to the other factors that have been mentioned. It seems to me 
that is something the Committee needs to visit and we need to 
have some significant discussion of, what is a proper 
commitment, not just under the pressures of the annual budget 
process, what are we going to be able to squeeze out, but what 
is a proper contribution from the General Fund, whether we made 
it an entitlement or something else. So that is one thing.
    The second thing is acquisitions. Ms. Blakey, a lot of this 
certainly predates you. But I have been known to say that the 
only agency of the Federal Government worse at acquisition than 
the Pentagon is the FAA. I appreciate some of the earlier 
questions and your testimony saying you think you are beginning 
to get a handle on the en route system and other parts of this. 
But that has been just a huge cost contributor. And if we went 
back to the beginning of the discussion when I came in, which 
is, well, gee, should we have a way to borrow money so we could 
capitalize things up front? If we had capitalized what was 
originally proposed for air traffic control, we would have a 
lot of junk on our hands that did not work right that we would 
have spent a whole lot more money for. It was not just your 
typical Pentagon procurement where you have something that 
might work and you drag it out, we had something that did not 
work and we had to cancel the contract, start another system, 
et cetera.
    So I would really hope that, again, before we look at long-
term commitment, substantial borrowing and funding, that we 
have a really good handle on the acquisitions process, which I 
am not totally confident we have because I hear ongoing 
problems. Anybody want to comment on that? Mr. Mead?
    Mr. Mead. Yes. I think that point is well taken. I would 
say, one, there have been a number of these big acquisitions 
where, frankly, the cost increases had not been communicated to 
the Congress or the aviation community. I give credit to 
Administrator Blakey and her team for recognizing that the cost 
of these acquisitions were much more than people were being led 
to believe.
    Number two, there are a lot of programs that are still 
hanging fire. For example, STARS is one that has gone up about 
194 percent in cost and has been delayed for years. The WAAS 
system has gone up to 274 percent and has been delayed by 12 
years. So I do think there is additional work that may be done. 
Also in my statement I refer to support contracts.
    Mr. DeFazio. I was going to ask a question about that. I 
wish you would expand on that because I thought that was a very 
interesting point on Page 6, where you say, over $2 billion for 
100 contractors. How does government work differ from contract 
work done by employees at substantially higher costs to the 
Government? Because everyone thinks contracting out saves 
money. You give a specific example. Actually, I have heard from 
a number of people that a lot of contracting out actually does 
not save money but it does at least include profits. So someone 
makes money. Could you expand on that?
    Mr. Mead. Yes. We are very concerned about these contracts 
because they are not handled in a centralized way by FAA. It 
seems like a very large number of people can tap these 
contracts and just order work to be done. We have found 
examples where they have multiple contractors who charge 
multiple and different rates for the same services. We have 
found situations where one day a person is an FAA employee 
getting paid $109,000 a year, and the next day the employee is 
sitting in the same place, doing the same work as a contractor 
and the contractor is getting $206,000. This seems to be an 
example of poor cost control. I think FAA needs to get a handle 
on these contracts, handle them centrally, and perform a cost 
analysis before they contract out under them.
    Mr. DeFazio. I will ask Ms. Blakey in a moment for a 
response, and that would be my last, Mr. Chairman. But just on 
that, in addition to the $206,000 cost for the former $109,000 
employee, I assume that we have not fully funded benefits and 
retirement. So we would have an ongoing cost for benefits and 
retirement for that employee who is now working for a private 
contractor at twice the cost of a full-time Federal employee. 
Is that correct? So maybe it would be more than $209,000 if you 
apportion those costs.
    Mr. Mead. Well, that would be so. I do not think that 
example we are using is an isolated example either.
    Mr. DeFazio. Ms. Blakey, could you just briefly respond to 
that?
    Ms. Blakey. I certainly would agree with the Inspector 
General that this is an area that is important for us to drill 
down on. We are doing that and we are analyzing specifically 
the contracts that he is referencing here.
    I would point this out. The FAA since 1993 has dropped its 
total workforce by 16 percent. There was a tremendous amount of 
pressure both from this Congress and elsewhere to drop the 
full-time Federal employees, and that was done. That was 
accompanied, however, by the expansion of these kinds of 
service delivery contracts, where you are able to use the 
expertise of engineers, of people with tremendous experience on 
an as needed basis. It is certainly the case that when you use 
them on a spot basis, they cost more than that same salaried 
individual internally, but you do not have the overall carrying 
costs of them year-in and year-out if you are able to use them 
judiciously. That is the theory behind this, and certainly that 
has been the trend in the FAA, as I say, for more than decade.
    Mr. DeFazio. But again, if you look at the fact that now, 
if that is a former FAA employee, you are having to budget for 
their ongoing benefits and retirement costs and the new 
contract which costs more. I have heard this in other agencies; 
it is not unique to you. And I think you are pointing out this 
was a stupid measure adopted by Congress and the 
Administration, which is let us use FTE limits as opposed to 
looking at how we can do things more efficiently. Just putting 
words in your mouth, and you certainly did not say that, for 
your minders who are listening. You were very good at defending 
the Administration here. Thank you, Mr. Chairman.
    Mr. Mica. I thank the gentleman. Further questions? Mr. 
Costello?
    Mr. Costello. Mr. Chairman, thank you. I apologize, I had 
to duck out to go offer an amendment at a markup. My first 
question was just covered by my friend from Oregon, the former 
Ranking Member. I am glad that you had both Mr. Mead and the 
Administrator elaborate on the record.
    In your testimony earlier, Administrator Blakey, you said 
that you need a consistent and reliable revenue stream. I do 
not think anyone would argue with that. But Mr. Mead, you have 
said in your written testimony that before we take action on 
this revenue stream and any action to change the current system 
as far as revenue is concerned, the FAA needs to take steps to 
control costs and determine future requirements before new 
revenue streams are explored. It seems to me that you are 
suggesting that the FAA needs to get their act together as far 
as developing plans for the air traffic control modernization 
and other things before the Congress takes action as far as new 
revenue streams. I want to give you a chance to elaborate on 
that.
    Mr. Mead. Yes is the answer. I think FAA is doing a lot. 
The FAA today is very meaningfully engaged in cost control. I 
do not want to paint the picture that the glass as even 
approaching half empty. But I laid out four preconditions in 
our testimony and I think FAA can do those successfully in the 
next couple of years. It is almost like putting a cart before 
the horse in a way to talk about borrowing, adjusting taxes, or 
transitioning to user fees, or whatever, before FAA knows what 
its requirements are. But at the same time, I think it is very 
healthy to begin the debate now about what the implications are 
for these different alternatives.
    Mr. Costello. I think everyone agrees, including the FAA, 
that the FAA has over-estimated revenue into the Trust Fund. I 
wonder, Mr. Mead, if you have found the FAA has now taken 
action to correct that so that they will have better 
projections in the future? Obviously, the Chairman and I 
mentioned a number of factors as to why the Trust Fund revenue 
is down--9/11, the legacy air carriers reducing their prices to 
compete with the new entries in the low-cost air carriers. But 
I wonder, are you seeing progress? Do we expect in the future 
that the FAA will be able to give us better projections than 
they have in the past?
    Mr. Mead. I think they are working on it, as Administrator 
Blakey outlined. I would say that they are a lot better in 
forecasting with some precision the level of aircraft activity, 
but they are not as good in forecasting the level of estimated 
revenue.
    Ms. Blakey. That would assume we know the future business 
models of the airlines as well as we know the nature of air 
taxis and all of these new systems coming on board. I wish we 
had a crystal ball. Part of this is an art, not a science.
    Mr. Costello. Let me follow up with you, Administrator 
Blakey. I think the Inspector General has pointed out that you 
have, in particular, made some progress in that regard and some 
other issues as well. But you make the point in your prepared 
statement that the Aviation Trust Fund is directly tied to the 
fortune of the aviation industry. Would that not be the same 
case with user fees? Would that not be directly tied to the 
fortune of the aviation industry just as the system is 
currently today?
    Ms. Blakey. Certainly there should be a strong correlation 
between the services that are required and the fortune of the 
industry. If aviation activity dropped, presumably the costs 
would then drop, although it takes us a bit of time to adjust 
an air traffic system down. But if we assume that there is 
going to be increased activity, which almost every forecast I 
have seen says there will be, it is just the shape of that 
activity that is difficult to know, and to see that you need to 
bring the cost of the service in line with the revenues coming. 
Any business would run that way.
    We are trying our best to run the FAA like a business. And 
I think it is really important to note that when you do that, 
the user community, the customer base, has to take into account 
what the services cost. That gives a much stronger set of 
incentives to help us control our costs and be accountable for 
what is really necessary and important in the system. It puts a 
direct link there where there is no link right now. And so we 
have a customer base, if you will, that does not have to take 
into account in any way what the costs of the requirements are. 
Again, you do not run a business that. And I think we can do a 
lot better job of aligning those things because it provides 
incentives for us to control our costs that are not there now.
    Mr. Costello. I see my time is up. But let me ask a final 
question. I am looking at a publication here that I am hoping 
is wrong. It suggests actually that the FAA intends to dissolve 
the Trust Fund at the end of the current authorization in 2007. 
I am assuming that is incorrect, but I would like for you on 
the record to comment.
    Ms. Blakey. There is a frightening thought. No. In fact, 
what I would say simply is this, following up on the discussion 
with the Inspector General, we feel great urgency because we 
believe that a viable, healthy Trust Fund is important. Those 
taxes and fees expire undeniably in September of 2007. And what 
we do believe is that it is certainly important for us to be 
able to project our costs, to have the kind of accuracy that 
our new cost accounting systems allow, and project the capital 
expenditures that the next generation system will require. But 
that is not, in my estimation, a rationale for us not to move 
forward very aggressively in this debate about what to put in 
place in terms of the new system, because we have no choice. If 
this follows the authorizations it has in the past, it will be 
for 10 years. And I must tell you, with the kinds of 
investments we are talking about, others around the world are 
not stopping. The Europeans, in particular, are moving ahead 
with capital investments and a next generation system, and that 
if we do not, it will leave us in the dust.
    Mr. Costello. Do I take that that the answer is, no, that 
you have not made a decision to dissolve the Trust Fund and 
move to something else?
    Ms. Blakey. That is correct.
    Mr. Costello. Very good. Thank you. Thank you, Mr. 
Chairman.
    Mr. Mica. Other members have questions for this panel? I 
have just a couple of things for the record. Nobody likes to 
cut and slash and save money more than me. We have eliminated 
some 1,400 positions, Mr. Chew testified recently, in FAA. One 
of the things that concerns me, as I am getting complaints 
about certification falling behind, Ms. Blakey, is where are 
we--I have got a meeting that I have asked Mr. Costello to 
participate with me in tomorrow--where are we on the question 
of adequately staffing our certification?
    Ms. Blakey. We are concerned about this as well. We have a 
very strong commitment to trying to bring new products to 
market and to try to provide all the benefits that that does 
economically. But the harsh reality is that we expect this year 
we will be down 300 people in our safety oversight. The first 
priority has to be for the operational safety of the existing 
system. And unfortunately, the queue for those who want to 
bring new products to market, that line is getting longer.
    Mr. Mica. Well, we are going to have to do something. With 
the meeting that we have tomorrow with Mr. Sabatini, we are 
going to have to find some solution. This Subcommittee is going 
to have to act. Because it begins affecting our economic base. 
We are losing market share in aviation manufacturing. If we 
cannot provide certification services to manufacturers of 
equipment, it makes us noncompetitive; you become an unreliable 
vendor, and that is the quickest way you lose markets. So we 
are going to need a good analysis of what it will take, where 
we need to put the bucks, and how we can get us to a 
competitive status. So that is one question.
    Dr. Dillingham, you talked about the CTI graduates, about 
saving money. I know we now pay people to go to school to 
become an air traffic controller, we pay them a salary while 
they are going to school. We contract all this out. We have a 
big operation in Oklahoma City. People who go to school end up 
going through Oklahoma City in a repetitive manner. Did I hear 
you say we could save some money? Because we are here looking 
at how we can make this thing work.
    Mr. Dillingham. Yes. The idea of allowing appropriate CTI 
graduates to go straight to on the job training is a way to 
save a significant amount of money, maybe not in the scope of 
$12 billion, but when you are talking about a few million 
dollars every year or more depending on how frequently that 
situation is used, it will be a part of the savings that can be 
obtained.
    Mr. Mica. Actually, the new controllers will be earning 
less money, will start at a lower compensation. We have a core, 
in fact, our vast majority of air traffic controllers are 
older. Somebody handed me this earnings of various Federal 
employees. After Associate Justices of the United States, the 
top 100 FAA controllers earn an average $199,000 each. So entry 
level beginning would be a lot less and we are going to have a 
lot more folks to replace. So the more folks we replace, we 
would actually be saving money in salaries. The guys get pretty 
expensive when they hang around, do they not?
    Mr. Dillingham. Yes, sir.
    Mr. Costello. Mr. Chairman, I wonder if you might yield.
    Mr. Mica. I am always willing to yield.
    Mr. Costello. Let me just say, and I know that you have a 
passion for attempting to save money whenever we can, as I do, 
but I think that when we are talking about the lives of the 
travelling public that safety has to be the number one issue. I 
am not disagreeing with everything you said, but I am saying 
that if we really wanted to save a lot of money, we could 
contract out the whole system and maybe--I was just in Shanghai 
a couple of months ago and I am sure we could get air traffic 
controllers from China for a dollar an hour. But the fact is 
that we have a responsibility to the travelling public that 
when they get on an aircraft that the FAA has done everything 
they possibly can to make certain that we have the best trained 
and the best, most efficient air traffic controllers and other 
people in the system handling their safety. We talk a lot about 
saving money, and I am as interested as you are in saving 
money, but the number one issue the public needs to understand 
is that we are trying to protect their safety.
    Mr. Mica. I thank the gentleman. Reclaiming my time. I 
would agree with you 100 percent. I do not think anyone on this 
side has advocated hiring chinese air traffic controllers at 
$25 a month. But I think we can look at some efficiencies and 
economies, some that have been highlighted by the incredible 
Inspector General on several occasions, and also GAO, Mr. 
Dillingham, have given us some good suggestions. And I know 
implementation is difficult. Ms. Blakey has her hands full and 
then some.
    Let me yield now, if I may, to Mr. Oberstar.
    Mr. Oberstar. Thank you, Mr. Chairman. And thanks to our 
panel for being very long-suffering. You have spent a long time 
at the witness table. That is the way it used to be around this 
Committee, we spent a long time in hearings where we plumbed 
the issues in depth, and it is important to do that.
    Just a parenthetical comment on air traffic controller 
training. We were doing very, very well with the Twin Cities 
school that cost less per student compared to the Oklahoma City 
facility, had a greater success rate, greater retention rate, 
in the 90 percent range, but was cut out of the supplemental 
funding by the Appropriations Committee. Nothing to do with FAA 
or the Administration budget, just the Chairman of that 
Appropriations Subcommittee happened to be from Oklahoma at the 
time and felt that under the budget limitations it was better 
to shift those dollars into Oklahoma City instead of saving 
dollars and training more controllers, and better, at the Twin 
Cities facility. Nothing I did not say on the House floor, by 
the way, at the time of the appropriations.
    Well, we are, in a sense, where we have been for the last 
20 years, talking about the viability of the Aviation Trust 
Fund financing mechanism of a variable cost of air traffic 
control, what percentage of operations cost should come out of 
the Trust Fund and how much out of General Revenues. It is hard 
to pick an area that we have not already plumbed at one time or 
another in hearings over the last 20 years. There is, however, 
I think a qualitative change, not just a quantitative, but a 
qualitative change in the nature of funding of the Aviation 
Trust Fund and that is due to the consequences in aviation 
subsequent to September 11. Aviation changed dramatically--huge 
new costs were saddled on the system, travellers have changed 
the way they schedule their travel, how much they are willing 
to pay for their travel, and there has been an additional 
factor, which is the access through the Internet to fare 
selection by travellers who in some instances are able to find 
a lower fare on the Internet than airlines are offering on 
their own internal CRS. That has an affect on the revenue going 
into the Aviation Trust Fund.
    Let me start with my pet peeve, which is that the AIP fund 
was raided to the tune of $1.059 billion for security in the 
aftermath of September 11. And PFCs paid out by airports were 
raided to the tune of $316 million to pay for security 
installations that should have come out of General Revenues. I 
think the General Revenue fund of the United States, defense 
appropriations, or whatever ought to reimburse aviation for the 
costs incurred to install newer, more costly security 
facilities at airports which aviation has diverted from 
capacity requirements that now are beginning to choke our 
airports again. I do not ask you for a comment on that, I know 
for Administrator Blakey, she has probably got a gag order to 
talk about anything like that. I know this from long experience 
that you are not going to comment on that, and I do not ask you 
to. That is something that should be done in all rightness and 
fairness.
    What we have seen on the operations cost of things is an 
increase in the amount that has come out of the Aviation Trust 
Fund. There was a slight decline, but it went in fiscal year 
2001 to nearly 83 percent coming out of the Trust Fund, it was 
a high of 92 percent, GAO has it somewhat higher in an estimate 
prepared by GAO; in 2003, it was 76 percent; in 2004, it was 78 
percent, this year it is estimated at 79 percent. We used to 
have a figure of about 10 to 15 percent of that cost was to be 
paid by DoD for services provided by the air traffic control 
system for service to military aviation. Somewhat down because 
there is less military aviation. But it really raises the 
question, what is the threshold at which the Aviation Trust 
Fund should support operations which are of general benefit to 
the public compared to the General Fund that ought to cover 
such costs? Mr. Mead?
    Mr. Mead. Well, I think the best guide, as we were 
referring to this earlier, is the Mineta Commission report from 
1997. The report discussed went into General Fund issue in 
considerable detail because they realized that the fluctuations 
in the contributions that are made by the General Fund had a 
big bearing on what you have to set the taxes at. Historically, 
over the last 10 years, it has been about 20 percent. I do not 
know what the magic formula is. But I think as a practical 
matter, it is probably a pretty heavy lift in the deficit 
environment that we are in to expect more than that. This year, 
though, the General Fund projection for 2006 is 11 percent, 
which is half of what the historical average has been over the 
past decade. So for my purposes, I guess I would take the 
average, say it is about 20 or 21 percent, try to work on a 
more scientific, deliberative way of divining what the General 
contribution ought to be. But I think you need one. If you are 
going to go down to 11 percent and hold that constant for the 
period of the next reauthorization, you really are talking 
about a pretty significant tax problem.
    Mr. Oberstar. Yes. Now Ms. Blakey, from a policy 
standpoint, aviation represents 9 percent of our Gross Domestic 
Product, from a policy standpoint, do you not think that the 
General Fund ought to bear a significantly greater proportion 
of cost of operating the system than it does today? And what 
debate is there, if there is any, within the Administration or 
in your discussions with OMB on this subject?
    Ms. Blakey. The discussions with OMB in terms of the Trust 
Fund really have not really engaged yet. Again, we are really 
trying to listen to the stakeholder community to explore 
options and really to look at this carefully and thoroughly 
before trying to go to specific proposals.
    I can say this. That in looking at this historically, I do 
not think there is any question about this Administration's 
commitment to the fact that aviation provides a sizeable 
benefit to the overall economy, no question about it, and the 
President's budget has supported that consistently. So at this 
stage of the game, it is all a question of "calculating" the 
how much, because there also are other industries who 
contribute enormously to the economy as well where you have 
these same debates going on. At this stage of the game, I think 
what we can do is look at historically what other studies have 
said about what the public benefit is and try to derive good 
information from that. For example, I mentioned the fact that 
the NCARC study said roughly their view was about 30 percent of 
the overall FAA operating costs should be borne by the General 
Fund. But that did include security. When you drill down, the 
latest cost allocation study in 1995 that talked about the 
issues of military, public use aircraft, benefits to the public 
such as safety oversight, certification, and those kinds of 
costs all lumping in, it actually came down to more like 15 
percent. So there are wide variances there and I would just 
simply say we will do our best to study that.
    Mr. Oberstar. I think it is important for the 
Administration, for certainly the OMB folks who drive these 
numbers, to think more substantively about the effect of 
aviation on our economy and what contribution the General 
Revenues of the Government ought to give back to aviation for 
the economic multiplier effect that it creates within our 
economy. Twenty-five years ago, that was 50 percent; that is, 
General Revenue paid 50 percent of those costs. And I plead 
guilty to ratcheting it up to 75 percent when we negotiated an 
agreement to eliminate the trigger that Congress had enacted, 
that if you do not appropriate the full amount authorized for 
AIP, then you cannot spend above fifty cents on the dollar for 
operating costs of the air traffic control system. In order to 
release money held back in the Trust Fund and to move ahead 
with a high authorization level and the PFC, we eliminated the 
trigger, ratcheted the contribution from General Fund up to 75 
percent. But that has been a moving target ever since. We need 
to get some clarity on that.
    One of the issues I think that airlines may reference in 
their testimony, I have not read it yet, is the fuel tax, the 
4.3 cent fuel tax, and that this should be restored to the 
airlines. That generates roughly $530 million a year, for last 
year it was $534.3 million. What affect would there be on the 
Aviation Trust Fund if the 4.3 cents were repealed and returned 
to the airlines?
    Ms. Blakey. Well, as I am looking at the overall allocation 
of fees that came into the Trust Fund in 2004, the commercial 
fuel tax contributed approximately 6 percent of the overall 
Trust Fund.
    Mr. Oberstar. Is there a multiplier effect that would 
follow if that 4.3 cents were repealed, or is it just a loss of 
$534 million that we are not likely to make up anywhere else?
    Mr. Mead. No, it would not be made up anywhere else. I do 
not see how it would be. You already have a problem with the 
revenue being optimistically forecasted and not materializing. 
If you knock out 6 percent more a year, the airlines probably 
would like that, but that 6 percent is going to have to be made 
up somewhere. You can hit up the General Fund perhaps.
    Mr. Oberstar. The ticket tax is a percentage of value, 
unlike the fuel tax at the pump for surface transportation. The 
advantage of that is in a rising economy you generate more 
revenues. The idea of that Trust Fund percentage tax in 1970-
72, when it was established and in 1972 adjusted, was that a 
rising economy will provide more revenue to meet the needs of 
airport infrastructure. It was originally intended to be a fund 
for the hard side--the runway, taxiway, and the parking apron 
side of aviation. Then it was expanded to cover the F&E 
account. Then further expanded to cover operations. What would 
happen to operations of the FAA if we said all those revenues 
just go into the hard side of aviation?
    Mr. Mead. If that happened, FAA would have to come up with 
another $6 billion. The General Fund, if it picks up what the 
President's budget is estimating, would pick up $1.6 billion. 
When your salaries and operations costs are exceeding well over 
half your budget, and your budget is $14 billion, it would 
definitely increase the amount that you could apply to capital 
and to airports. In other words, the half a billion hits that 
those accounts have taken would be restored and then some. You 
would be spending more on F&E and AIP.
    Mr. Oberstar. And where would you get that $6 billion to 
spend on F&E and on operations?
    Mr. Mead. Well, you would have to hit up the General Fund, 
which would be general income tax dollars.
    Mr. Oberstar. Do you think that is a possibility, Ms. 
Blakey?
    Ms. Blakey. I can only look at it historically and tell you 
I certainly would not make that projection. I do not see 
anything in either the history of the use of the General Fund 
and the Aviation Trust Fund, over the course of 15 years, I 
might point out, as well as the current climate of Federal 
budget deficits that says the General Fund is a place that you 
can go for additional funding. And if you should eliminate the 
Trust Fund for operational costs, just this year alone you 
would be cutting out 63 percent of our operating budget. I 
would conjecture it would be almost impossible to run the 
system. I cannot imagine what a system would look like if we 
were operating on that kind budget.
    Mr. Oberstar. From both of you a very candid, honest 
answer. I am sure Dr. Dillingham would concur. GAO has reviewed 
this for many years. What I am getting at is the range of 
options is extremely limited.
    Mr. Mead. That is right.
    Mr. Oberstar. If you shifted from the ticket tax as a 
percentage of the value of the ticket to a fee--now we have 
been that road before in 1990 and 1991, revisited later in 
1994-95. At that time, I characterized the ATC user fee as a 
cash register in the sky--you pass a certain point, ching, it 
goes up, you get a charge, pass another, ching, it goes up 
again. But is that the option for us, to ensure an increase in 
revenue is to tie all of the services to aviation to a precise 
formulaic fee-based system, that is, a charge imposed 
equivalent to the value of the service for which the charge is 
imposed? That is OMB's definition of a fee. Dr. Dillingham, 
what do you think about this?
    Mr. Dillingham. Mr. Oberstar, the questions that you are 
raising about the options, and the winners and losers 
associated with them is part of the work that we currently have 
underway for this Committee.
    Mr. Oberstar. I did not like the fee idea eight or ten 
years ago and I do not like it much better today. But if we are 
going to assure the investments we need to make in the 
continuing modernization of the air traffic control system, 
then we have to think very creatively about means of financing 
it in addition to all the work of each of you, Ms. Blakey at 
FAA, General Mead, Dr. Dillingham, on showing aviation, the 
Congress, appropriations committees, how to control and contain 
costs. But there is a point at which you still have to make 
those investments.
    Mr. Mead. Mr. Oberstar, we do have a problem here. There is 
going to be a serious mismatch between the revenues and the 
costs. There is a serious debate about how much the General 
Fund should be contributing. We cannot live with this swing of 
somewhere between 9 percent and 30 percent. You cannot make 
forecasts that way. But one thing I think would be useful. FAA 
has made a lot of progress since the last time you and I went 
around this axle on user fees. The Mineta Commission came out 
with its report and, you recall, it recommended cost-based user 
fees. Then everybody said, well, they cannot do that because 
they do not have a cost accounting system.
    Mr. Oberstar. Right.
    Mr. Mead. A number of years went by, and $58 million later 
they almost have one. I give tribute to Administrator Blakey 
for that. A cost accounting system does two things. One, it 
tells you where you are spending your money and for what. The 
other thing it ought to be able to do is tell you is the cost 
that is being imposed by the various users on the system. Maybe 
in the months ahead, FAA could provide you that information 
plus the methodology for arriving at it. It would form a basis 
for discussion as to what would happen if you went down a user 
fee path, what would happen if you went down a tax path, what 
if you want to structure taxes so they roughly correlate with 
the consumption of use by the various users in the aviation 
community.
    Mr. Oberstar. Well there are eight sources of revenue now 
for the Aviation Trust Fund and they are apparently inadequate 
in a declining fashion to support the needs of the system, even 
though use is rebounding and you would think that benefits also 
would be. The initial concept of a fee or tax would be tied to 
the increasing value of the system is no longer a valid concept 
and we have to rethink it. That is part of the work charged to 
GAO, and we look forward to that coming report.
    Mr. Chairman, this is just the beginning and the 
continuation of an extensive dialogue that we have to have in a 
very constructive way about this most important treasure to our 
national economy, of all of transportation and in all the 
world. I keep saying this, a billion people travelled by air 
last year, two-thirds of them travelled in the U.S. airspace. 
No wonder every carrier in the world wants to get into our 
airspace. This is the most important airspace in the world and 
the most complex. The Southern California TRACON handles more 
operations than all of Europe combined. That is a huge 
responsibility. Just think of that as we go forward. Thank you 
very much.
    Mr. Mica. I thank you. I have about forty more minutes of 
questions for each of you.
    [Laughter.]
    Mr. Mica. But I am going to let this panel go. We may have 
some additional questions we will submit and ask you to respond 
in writing for the record. Thank each of you for your 
testimony. We look forward to working with you as we address 
the challenge of funding our Trust Fund and funding the 
aviation system and FAA. So thank you again for being with us. 
We will excuse you at this time.
    I now call our second panel. The second panel consists of 
Mr. David Plavin, he is president of the Airports Council 
International-North America, and appearing on behalf of 
American Association of Airport Executives; Mr. James May, 
president and CEO of Air Transport Association; Mr. Edward 
Faberman, executive director of the Air Carrier Association of 
America; Ms. Ruth Marlin, executive vice president of National 
Air Traffic Controllers Association; Mr. James Coyne, president 
of the National Air Transportation Association; Mr. Phil Boyer, 
president of the Aircraft Owners and Pilots Association; and 
last but not least, Mr. Ed Bolen, president and CEO of the 
National Business Aviation Association.
    I think all of you have been before the Subcommittee 
before. We are going to limit you to five minutes apiece. You 
will see the signal to stop on the timer. If you have lengthy 
statements or additional information you would like to have 
entered as part of the record, just request so through the 
Chair.
    With those introductions, let me recognize first David 
Plavin, president of the Airports Council International-North 
America. Welcome, sir, and you are recognized.

   TESTIMONY OF DAVID Z. PLAVIN, PRESIDENT, AIRPORTS COUNCIL 
INTERNATIONAL-NORTH AMERICA, APPEARING ON BEHALF OF ACI-NA AND 
   AMERICAN ASSOCIATION OF AIRPORT EXECUTIVES; JAMES C. MAY, 
     PRESIDENT AND CHIEF EXECUTIVE OFFICER, AIR TRANSPORT 
  ASSOCIATION OF AMERICA, INC.; EDWARD P. FABERMAN, EXECUTIVE 
 DIRECTOR, AIR CARRIER ASSOCIATION OF AMERICA; RUTH E. MARLIN, 
  EXECUTIVE VICE PRESIDENT, NATIONAL AIR TRAFFIC CONTROLLERS 
     ASSOCIATION; JAMES K. COYNE, PRESIDENT, NATIONAL AIR 
  TRANSPORTATION ASSOCIATION; PHIL BOYER, PRESIDENT AIRCRAFT 
 OWNERS AND PILOTS ASSOCIATION; ED BOLEN, PRESIDENT AND CHIEF 
EXECUTIVE OFFICER, NATIONAL BUSINESS AVIATION ASSOCIATION, INC.

    Mr. Plavin. Thank you, Mr. Chairman. I am here today on 
behalf of ACI and AAAE and we have got a written statement that 
I propose to submit for the record.
    Mr. Mica. Without objection, your entire statement will be 
made part of the record. Please proceed.
    Mr. Plavin. There is a lot of stuff in there. Thank you for 
having gone through most of it already today, so I will not 
bore you with repeating it. I did want to raise a couple of 
points that I thought would be useful to highlight, however.
    It is obvious that everybody agrees that the Trust Fund is 
broken and that we need more money than the Trust Fund is now 
providing or that the combination of the Trust Fund and the 
General Fund are providing. Let me focus on airports, if I may, 
for obvious reasons. I am not really exactly sure why but the 
Administration seems to contend that $3 billion, which is a 
$500 million reduction, is adequate. They seem to point to the 
idea that there has been a reduction in their calculation of 
the National Plan for Integrated Airport Systems, the well-
known NPIAS. ACI does a lot of work on projecting capital needs 
for airports, and (a) we do not think that the NPIAS is nearly 
adequately reflecting the amount of AIP-eligible funding, never 
mind the issues relating to things that are not AIP-eligible. 
Our view is that it is at least 25 percent understated. But the 
fact is that even if you accept the $39.5 billion that the FAA 
projects, that still leaves you a dramatic gap, as always, 
between the acknowledged needs and the Federal funding level.
    I am not persuaded, for example, that we have really 
adequately addressed the various issues. Everybody seems to 
agree we need more money. But at the same time, we are able to 
say there cannot be any more General Fund contribution, ticket 
taxes are bad, user fees, even if they are tied to real cost 
and even though actually our system is entirely reliant on user 
fees, are bad. It sort of reminds me of an old Monty Python 
routine where they sit together as the town council and decide 
to levy a tax on all foreigners living abroad. It strikes me 
that this is really what we are faced with. And ultimately, it 
is a political decision, in the best sense of that word, and we 
would be prepared to work with you to try to get to that 
political decision.
    First, we, I would argue, should maintain the balance 
between the Trust Fund revenue and General Fund contributions. 
Unfortunately, we have depleted the Trust Fund over a long 
period of time, as Mr. Oberstar and Mr. Duncan pointed out, to 
strengthen the air traffic operations, but at the expense of 
its original purpose, which was to make capital investment in 
the system.
    We believe that we need to reevaluate the roles of 
Government and industry, to eliminate outdated regulations both 
for air traffic control and for airport operations. We think 
those raise the cost of doing business, particularly in 
planning and building new capacity. We believe that permitting 
the establishment of a responsive operating framework can 
unleash innovation and save resources. And I think we need to 
think creatively about a broader range of options.
    We should allow airports to voluntarily change their 
participation in the AIP program, for example, in exchange for 
additional financing and management flexibility. That would 
allow airports to operate in a more business-like fashion and 
to work with the FAA to provide some of the things that will be 
needed in order to make the system function properly.
    We believe that in the short term there is some creative 
financing alternatives that are available that come closer to 
meeting the demonstrated investment needs while allowing the 
many partners in the aviation system, Government and private, 
to work out the long term fix. And we are ready to play our 
part in that solution.
    Additionally, we believe that Congress should consider 
unfettering local authority for raising and using airport 
funding to promote better local and national solutions and 
potentially free resources for airports and the FAA's capital 
account that rely on AIP, and for airports, particularly 
smaller ones, that rely on AIP as their sole or near sole 
source of capital development funding.
    We have got a number of other ideas. We have outlined them 
in our testimony and we would love to discuss them with you, 
including changes in the rules that govern airport bonds, which 
are the source of the vast majority of the overall capital 
development resources that airports use.
    Finally, we believe that there is the need to look at the 
way users pay for the system. We have had a user funded system, 
we have always had a user funded system. We believe that if 
user funds can be more appropriately identified with the costs 
and the needs of the system, that could be a very positive way 
for the system to respond to the growing demands that everybody 
says are out there. Thank you, Mr. Chairman.
    Mr. Mica. Thank you. We will hear now from Mr. May, 
president and CEO of Air Transport Association. Welcome. You 
are recognized.
    Mr. May. Thank you, Mr. Chairman. You know, I was struck in 
preparing for today's hearing by how long we have been 
considering serious reform of the Airport and Airway Trust Fund 
and with it addressing associated FAA and air traffic 
management issues.
    ATA has been on this issue since at least 1984. We had the 
Balyle's Commission in the 1990s, the Reinventing Government-
USA Air Traffic Service proposal in the mid-1990s, Secretary 
Mineta's NCARC in 1997, and on and on. And the same message 
came through in each--we need to run air traffic service more 
like a business with a clear understanding of cost, we need to 
provide predictable funding with consistent with service 
demands, we need to provide the management tools and clear 
authority to get the job done, and we need accountability for 
performance. Lot of discussion. Lot of agreement. But little 
change. And that is not to say we have not made progress. AIR-
21 led to the ATO. Russ Chew and his ATO team have been making 
some very real progress, and it has been talked about today. 
The very fact that they are going to be able to do a real 
honest to goodness cost analysis system is going to add by a 
factor of 1000 to this debate.
    But I am a firm believer in the critical mass theory of 
Government. I guess that is a polite way of saying that things 
have to get really fouled up before we get serious about fixing 
them. And when it comes to Trust Fund reauthorization and the 
associated issues, I honestly think critical mass is at hand. 
For reasons I will not belabor here, the commercial passenger 
industry is on its back. And even the successful carriers are 
suffering. The Trust Fund revenues per aircraft are down, 
reflecting what the public is willing to pay to fly. Air 
traffic operations are climbing and with them delays, 
reflecting not simply the commercial industry's use of regional 
jets, but also the substantial influx of business aviation. The 
air traffic organization is confronting by the need for multi-
billion dollar wholesale replacement, replacement of its aging 
and often outmoded infrastructure. Airport funding is totally 
out of sync with system demand. And now we are looking out to 
2017 and asking this Congress how best to redesign the funding 
and operation of the critical infrastructure, because getting 
it right is essential to aviation, a cornerstone of the 
Nation's economy. To me, that is critical mass.
    So what is it we want? We have talked about the problems. 
What are our suggestions? We want an air traffic organization 
that is run like a business, to understand its costs and to 
have the imperative to spend smart to improve efficiency. We 
want the necessary infrastructure reform to allow consolidation 
that will drive this efficiency while continuing to improve 
safety performance. We want an air traffic control system 
capable of adapting to the same market forces that impact its 
customers.
    How do we get there? Here are some principles to guide our 
decisions.
    First, we must assure a dynamic funding stream reflecting 
system use through an equitable, transparent, proportional, 
cost-based mechanism where users pay for the service they 
consume. I know there is a lot of talk today about user fees. 
But let us be honest, this system has been funded with user 
fees since its inception. They may be called ticket taxes or 
segment fees or something else, but it is a user fee. 
Commercial aviation can no longer be expected to fund over 90 
percent of a system cost while it is only roughly 60 percent a 
system user.
    Second, I think you need to empower the ATO to make 
decisions regarding system consolidation, cost controls, 
productivity gains, with the understanding that business 
decision-makers must be held accountable. The debate over 
privatized towers and closing down systems overnight just on 
this Committee is emblematic of the kinds of political input 
that exists to those decisions, and you have got to give ATO 
the power and authority to make them, make them stick, and go 
forward, or otherwise we are forever lost.
    Third, we need to eliminate funding and earmarks for FAA 
legacy programs which do not have an identifiable funding 
stream from the users benefitting from these programs.
    Fourth, we need to distinguished between FAA and ATO 
programs, that includes airport infrastructure funding, which 
are provided for public policy purposes. Those should be funded 
in great part through a General Fund contribution. In contrast, 
services which are consumed by system users in the aviation 
business should be supported by those users.
    Fifth, we need to think creatively about the best types of 
management structure for the ATO in order to enhance its 
management opportunities and consider, with appropriate 
safeguards, alternative funding mechanisms, including bonding, 
for long term investments.
    Our bottom line is this. We can no longer expect to take 
billions of dollars out of the commercial airline industry to 
subsidize other system users or to support tangentially related 
public policies.
    Mr. Chairman, we have the critical mass for change, and I 
hope this Committee will help us provide the leadership to make 
it happen. Thank you.
    Mr. Mica. Thank you. We will now recognize Mr. Edward 
Faberman, executive director of the Air Carrier Association of 
America. Welcome, and you are recognized.
    Mr. Faberman. Thank you. Mr. Chairman, I ask that my full 
comments be made part of the record.
    Mr. Mica. Without objection, so ordered.
    Mr. Faberman. Thank you. Chairman Mica, Ranking Member 
Costello, Congressman Oberstar, it is a pleasure to appear 
before you today to discuss an issue that is critical to the 
economic growth of communities throughout this country and the 
expansion of airline service. That issue is the funding of the 
Airport and Airway Trust Fund. This issue is essential for job 
and economic growth in communities throughout the country. 
Therefore, it is important that we do not discourage passengers 
from traveling.
    Secretary Mineta recently said, ``Demand for low fare 
service is strong and growing stronger. We think that the 
changes underway now are the kind of market-based, cost 
competition that the architects of deregulation thought would 
happen 25 years ago.'' It is important that this continue. 
American travelers throughout this country want more service 
options.
    It is important that all who place demand on the FAA pay 
their fair share of the cost they create for the FAA, and that 
we identify where that demand is coming from. As we consider 
changes to the funding mechanism for the FAA, we must also 
emphasize that other costs for the airline industry continue to 
increase. For example, security. In addition to security fees, 
carriers are routinely, almost on a weekly basis, asked to pay 
for construction to add new security equipment at airports, to 
add new staffing, and to do other things, including pay costs 
for delayed or cancelled flights because of security problems. 
Many of those things were supposed to have been paid for by 
TSA. A lot of airports in this country are collecting lower 
fees, lower PFCs, for example, because of fewer people 
traveling through those airports. Therefore, in many cases, our 
rentals and other airport charges are increasing. The air 
traffic control system is facing additional delays and 
congestion. These costs are also adding up.
    A number of these problems are caused by an increase in the 
number of flights, even though many of those aircraft have 
fewer people on them than they have in the past. One of the 
comments we have heard frequently, and we have heard it today, 
is that due to lower fares the Government is not receiving the 
amount of fees and taxes as collected in the past. I would say 
that airlines try to charge fares that are reasonable, try to 
charge fares that bring in the most for them and the 
communities they serve. It has been an historical issue. 
However, I will also say that with lower fares, more people are 
traveling. And in many cases, we would rather have people fly 
four or five times a month than only fly once a month. We also 
note that in this economy, if you increase your fares by even 5 
to 10 percent, a large percentage of people may not fly.
    To allow entry and to assure the future health and growth 
of the air traffic control system, we recommend that future FAA 
and ATC funding be based on a number of principles:
    One, the FAA needs to continue to take steps to reduce 
costs. We are convinced that under the leadership of 
Administrator Blakey those issues are being looked at closely. 
But they need to happen and they need to continue to happen.
    Due to the enormous impact that commercial air service has 
on the Nation's economy, the General Fund must continue to help 
fund the ATC system. We believe that percentage should increase 
above where it has been in the last few years, and we think 
there are good reasons for that to happen.
    Again, all operators must pay for the system based upon the 
cost they impose on the system. We note that we hopefully, I 
will use the word hopefully, will see general aviation even 
return to National Airport. However, we believe that if they 
are landing at National Airport right before one of our planes, 
then they should contribute the same amount of money that our 
planes are contributing.
    Finally, we think the FAA also needs to look carefully at 
causes of significant delays in the system. And if those delays 
are caused by major rescheduling, major additions in traffic, 
then this has to be reviewed and those who have caused those 
problems should also contribute more to the system.
    We need to move forward with this review but we must be 
very careful not to block competitive opportunities. I thank 
you again for focusing on issues that impact true airline 
competition. We agree that this is only a first step and we are 
prepared to continuously work with you. The founders of 
deregulation would not have it any other way. Thank you.
    Mr. Mica. Thank you. We will now hear from Ruth Marlin, 
executive vice president with the National Air Traffic 
Controllers Association. Welcome, and you are recognized.
    Ms. Marlin. Thank you. I have also submitted a written 
statement for the record.
    Mr. Mica. The entire statement will be made part of the 
record. Please proceed.
    Ms. Marlin. Good afternoon Chairman Mica, Congressman 
Costello, and members of the Subcommittee. I want to thank you 
for this opportunity to appear before you today to discuss the 
financial condition of the Aviation Trust Fund. This is a very 
important issue for the future of aviation in this country.
    I am Ruth Marlin, the executive vice president of the 
National Air Traffic Controllers Association, and I represent 
nearly 20,000 FAA employees across 19 different professions.
    For 30 years the Airport and Airway Trust Fund has been 
used to fund capital improvements in aviation, investing in 
airports, air traffic control facilities and equipment, and 
research and development. This funding structure has served our 
Nation well and it has continued to grow with the demands 
placed on the system.
    It is an accepted fact that while the Trust Fund revenue 
experienced a temporary period of decline from 2000 through 
2003, that those revenues rebounded in 2004. And even the most 
pessimistic indicators point to continued growth in Trust Fund 
revenues. However, that has not stopped opponents of the 
current structure from attempting to manufacture a crisis.
    Revenues are closely tied to the volume of air travel. They 
are passenger-driven. The FAA predicts a record 718 million 
people will travel this year and that number is expected to 
grow to one billion by 2015. Under the current structure of the 
Trust Fund, even if average air fares were only $100, the 
increase in the number of travelers alone would account for an 
additional $3 billion a year in Trust Fund revenue.
    Critics of our system are quick to mention yield, seat 
miles, user fees, unit of production, all of these as possible 
revenue indicators. But NATCA believes that a critical safety 
function like air traffic control is better served by not 
attempting to obfuscate the funding discussion with corporate 
market choices. While more aircraft flying with more empty 
seats may cause yield to go down, we are not talking about leg 
room here. We are talking about funding our national aviation 
infrastructure and operating air traffic control, an essential 
safety function.
    Ironically, the last time the Trust Fund was due for 
reauthorization the debate focused on addressing the increasing 
Trust Fund surpluses. For decades the Trust Fund surplus has 
been an issue of considerable controversy, leading to 
legislation increasing expenditures. Now, a few short years 
later, some Government and industry officials suggest that 
reducing the surplus is no longer desirable. Additionally, it 
is being used as evidence for their allegation that the fund is 
structurally deficient.
    NATCA maintains that the Aviation Trust Fund surpluses have 
provided a valuable source of stability, allowing our national 
aviation investment to continue through the periods of brief 
revenue decline. And we made sure that program cuts were not 
made today that would curb tomorrow's economic growth. There 
have been dramatic fluctuations in the use of the Trust Fund to 
fund normal operations costs, and I think this morning's panel 
talked to that a great deal.
    But NATCA is not asserting that more money is needed to 
fund the FAA or the operations budget. We understand the 
strains on the Federal budget. However, while we do not think 
that large increases from the General Fund are needed, we also 
do not believe that major cuts are appropriate. For four of the 
eight years since the Trust Fund taxes were reauthorized the 
General Fund contribution exceeded $3 billion. It is equally 
clear that in years where the contribution was lower it was a 
result of the FAA's poor forecast for Trust Fund revenue, not a 
desire from Congress to cut essential investment in aviation.
    Fortunately, the structure of our funding mechanisms has 
allowed Congress to adjust the balance between Trust Fund and 
General Fund as circumstances dictate. Recognizing the 
significant national interest in maintaining and operating our 
air traffic control system, NATCA believes that Congress has 
acted appropriately in this regard. Oddly enough, the opponents 
of the current funding system cite eliminating the role of 
Congress as a reason to change to user fees. NATCA disagrees. 
We are talking about the safety of hundreds of millions of 
passengers every year, we are talking about the mobility of our 
nation, and an infrastructure that is a powerful economic 
engine. NATCA believes that the people we elect to represent us 
play a vital role in those decisions.
    Another common argument from Trust Fund opponents is the 
need to replace many of our air traffic control facilities. My 
members work in those facilities and yes, many are in need of 
repair and replacement, and many projects are funded and 
ongoing. In the last five years, the FAA has replaced more than 
thirty air traffic control towers and terminal radar approach 
control facilities. That is an average of one every two months. 
Yet, to hear the rhetoric today, you would think that it is an 
insurmountable task, that opening a new air traffic control 
facility is incredibly difficult. Nothing could be further from 
the truth. In fact, I would argue that in the United States we 
have more experience opening new air traffic control facilities 
just in the last five years than our competitors have in their 
entire history.
    Do we have facilities in need of replacement? Yes. Many 
centers are over 40 years old, just like the building we are in 
today. But like this building, our old air traffic control 
facilities are chock full of new computers, new equipment, and 
new technology that has allowed the workforce to do their job 
safely, efficiently, and more productively.
    In closing, NATCA believes we should not underestimate the 
strength of the current FAA funding system and we should not 
tamper with it lightly. That Trust Fund is a stable source of 
revenue. We should keep it that way by rejecting radical 
changes based on a manufactured crisis. Thank you.
    Mr. Mica. Thank you for your testimony. We will now hear 
from Jim Coyne, president of the National Air Transportation 
Association. Welcome. You are recognized.
    Mr. Coyne. Thank you very much. Mr. Chairman, Congressman 
Costello, it is a pleasure for me to represent the National Air 
Transportation Association before this panel. Our association 
represents commercial businesses across the whole spectrum of 
aviation in thousands of airports across the country. We 
represent both the traveling passengers, air charter, flight 
students, maintenance companies, FBOs, many other companies 
that work at local airports and commercial airline airports as 
well. If I may, I would like to have my official statement 
submitted for the record.
    Mr. Mica. Without objection, the entire statement will be a 
part of the record.
    Mr. Coyne. A lot of hard work went into that. Much of it is 
repetitive of what has been said today, so I would like to 
really respond to a few of the issues that are directly related 
to the membership of the National Air Transportation 
Association.
    First, I would like to sort of give a perspective about why 
I think we are in the mess that we are in today. As a former 
Member of Congress, I understand how hard it was for Congress 
several years ago to develop the funding strategies for the 
Aviation Trust Fund. And what we have developed over the years 
is a multiple level of revenue streams into the Trust Fund.
    People talk about a predictable level, but really, no one 
can predict any of the various factors or parameters by which 
taxes are assessed. So to be secure, relatively secure, the 
Aviation Trust Fund relies upon different formats to collect 
its taxes. Of course, one format is the General Revenue Fund, 
another one is the ticket tax which is essentially an ad 
valorem tax, a function of the dollar value of the 
transportation provided, for airports we have funding through 
PFCs, a per capita tax, and we have a fuel tax. I would submit 
to you that the fuel tax is probably one of the most 
foresightful tax formats for funding the Aviation Trust Fund 
because it is the only format which is based upon essentially 
the weight of the airplane and the distance flown--the heavier 
the airplane, the further it flies, the more fuel is used. 
Therefore, we at NATA believe very strongly that the fuel tax 
is a very valid component and should always be a valid 
component of the Aviation Trust Fund funding scheme.
    But here before us today is a new proposal essentially by 
some proponents to add a per-flight tax. All these other taxes 
might arguably be called user fees. But this new user fee, if 
you will, is so tremendously different because it is a per-
flight tax. I want to give you some indication of the impact 
that would have on our side of commercial aviation.
    We are the commercial aviation segment which does not fly 
two schedules. We are the commercial aviation segment which 
flies to more than 5,000 airports across the country, not just 
400 or 500 hundred as the airlines do. We are the commercial 
aviation segment which is on-demand, which flies in unusual 
circumstances with emergency situations, and especially in 
unpredictable routes and situations. Now for the airlines to 
propose a fixed user fee per-flight tax, it is easy for them. 
There are only a few dozen airlines, they will only get a few 
dozen bills, they know their schedules, they know where they 
are going to be flying. It is an easy thing for them to rely 
upon that tax. But for the charter industry, 2,800 different 
companies, flying over 1.5 million flights a year to 5,000 
airports, most of the time we do not even know we are going to 
fly tomorrow because our passenger has not called us, and so 
our billing oftentimes is made several weeks after the flight. 
We would like to try to get it wrapped up as quickly as 
possible.
    If the example of Europe and these other countries is to be 
expected, the typical user fee assessment over there for 
general aviation may not arrive until three or four months 
after the flight, and many, many of the times, I am told as 
much 10 or 20 percent of time, the bill is wrong. I submit to 
you that the Federal Government is not capable of producing 
millions and millions of accurate bills a year to the commuter 
or charter airline industry. They may think they can do it. But 
they have never done it. Anywhere in Government ever have we 
seen an example of the Federal Government sending out millions 
of accurate bills. And our industry is going to pay the price.
    Now we happen to believe that there is a much simpler 
solution, which is to continue to have the fuel tax and the 
ticket tax in the format that it is now. I want to mention very 
quickly about the ticket tax. The real mess that we are in 
today is because we have seen about a 20 or 25 percent 
reduction in the average ticket price in the airlines. That has 
caused the average passenger payment to fall from about $12, in 
terms of the 7.5 percent ticket tax, to about $9. So we have 
lost about $3 per passenger times 600 million passengers. That 
is a lot of money. That same flight though, that 1,000 mile 
flight that we were talking about earlier today, when 
Congressman Hayes takes that flight he pays today with the fuel 
tax not $9, or not even $12 like it used to be for the 
airlines, he pays $60 for that same 1,000 flight in terms of 
the fuel tax. Furthermore, a charter operator when he flies 
that same flight is paying 7.5 percent of a much higher fee. 
The typical charter aircraft flying that same 1,000 flight will 
pay $450 to carry that same one passenger. So clearly, just 
because the airlines have seen their tax revenues fall, ours 
have been going up in the same environment. We have been paying 
more money over the last four or five years as the activity and 
the ticket prices in the charter industry has grown.
    So we are not part of the problem. We like to think, 
however, that the fuel tax will continue to be part of the 
solution. Thank you.
    Mr. Mica. Thank you for your testimony. We will now hear 
from Mr. Phil Boyer, president of the Aircraft Owners and 
Pilots Association. Welcome, and you are recognized.
    Mr. Boyer. Good afternoon, Chairman Mica, Congressman 
Costello, and also the dedicated staff here. Like today's 
hearing which reminds me of a marathon, we are starting at 
least for me the third marathon discussion of this whole debate 
about how we fund the agency. And as we start this, I want you 
to know that we have been participants in all of the forums, 
all of the hearings, and will continue to be alongside the 
airlines and the other people represented at this table.
    You have heard some testimony today and I am not going to 
try to get into the dollars and the numbers like our IG or like 
the GAO. But I would like to indicate that the Administration 
itself, the OMB this year has said that over the coming years, 
because we have had a dip in the Trust Fund, as you have heard, 
it will increase by the year 2010 by 53 percent. Now let us 
remember that this is a revenue and expense equation. So I 
would claim, as one of our panelist said earlier on the first 
panel, it ``might not be as bad as painted.'' And just to cut 
to the bottom line of the written testimony that we hope will 
go into the record, Mr. Chairman, we look at this increase, our 
tried and true Trust Fund which has had its ups and downs, the 
General Fund contribution which I think needs to be looked at, 
both remain the biggest and the strongest way to fund our 
infrastructure.
    Who do I represent? A little different than most at the 
table here. It is 400,000 members. Jim has members, and Ed has 
members, but our members are the people who fly these planes 
own them, the general aviation, the personal aircraft, and they 
are the ones that do not pass on to a customer, to a passenger 
in an airline, or to a business. They pay this out of their own 
pocket. The one thing they have told us is how they do not want 
this system funded. We do a lot of research. In 2005, knowing 
this debate was coming, we went to our membership and 96 
percent oppose the use of user fees in any form to fund the 
system. Do not forget these also are your constituents. They 
are people who were here earlier today talking to this very 
subject on the panel. And why do they oppose? Well the great 
lead in, Congressman Oberstar talked about the cash register, 
Jim talked about how in the world are we going to ever charge 
for this.
    [Video presentation.]
    Mr. Boyer. And once again coming from this owner's pocket 
$71 for a short under 50 nautical mile flight, based on some 
rates that were projected by the Reason Foundation in 1996 when 
we were at the second running of this long marathon.
    You know, we have looked at saving money. Here is just a 
few places where we have rung the cash register on the positive 
side, and the Administrator spoke to these. Working with 
general aviation, the largest user of this service, we did not 
come to you and say stop what may be going on. But we said, you 
know, there may be a better way to do this more economically. 
It is $2.2 billion over 10 years. How about decommissioning 
little used approaches, $8 million over 10 years. Or some of 
the tower operations overnight that are now just being looked 
at, $5 million over the next year.
    A letter was sent to our members, your constituents, to 
educate them on the meetings and the things that we have gone 
to concerning FAA funding. We sent that actually just last 
month. And a quote from the letter is, we wanted to let them 
know it is too early to tell which way you are going, against 
or for a user fee system, but to indicate if you believe so, 
the debate develops, that this is not an option for GA. Let me 
just take you around the horn a bit.
    A full committee chair from Alaska, as you can see, ``If 
such a system were implemented, many private pilots would be 
tempted,'' and you heard it earlier, ``to cut their expenses by 
'opting out' of the NAS.'' Or in Congressman Oberstar's 
district, ``I am forced on occasion to make payments on the 
privatized system in Canada.'' because they are near the border 
there, ``I am not impressed at all. Our people and our system 
are really hard to beat.'' Or looking, Chairman Mica, at your 
own district, ``Flying my aircraft extensively in the conduct 
of my medical practice and national eye research protocols, in 
addition to managing numerous property investments, I ask you 
to please exert all efforts to oppose user fees and instead 
support excise taxes as the way to fund our system.'' 
Congressman Costello, Illinois is not exempt from members who 
feel this same way. Once again, ``I am encouraging you to not 
establish a user fee-based system to fund our system.'' And 
obviously, our own member and pilot, and we hear from him quite 
often in Congressman Hayes' area, and other members of the 
Committee, we got an equal number of letters in this way.
    To sum it up. Fund the Trust Fund by excise taxes, not 
fees. At least 25 percent of the FAA costs should be supported 
by the general tax revenue. The General Fund, people did not 
tell, has been as high as 59 percent. There were several years 
it was 48-49 percent. One year only it was zero percent. 
General aviation is an incremental user of our air traffic 
system but we are committed to keeping the costs of our 
exclusive services very low. Thank you very much.
    Mr. Mica. Thank you. We will hear from our last, patient 
witness, Mr. Ed Bolen, president and CEO of the National 
Business Aviation Association. Welcome. You are recognized.
    Mr. Bolen. Thank you, Mr. Chairman. First of all, let me 
ask that my written statement be made a part of the record.
    Mr. Mica. Without objection, your entire statement will be.
    Mr. Bolen. Thank you. This is the first time I have had the 
opportunity to testify before this Subcommittee in my new 
capacity with the National Business Aviation Association.
    Business aviation represents over 10,000 companies in the 
United States that utilize GA aircraft to help them compete in 
the global marketplace. Approximately 85 percent of the 
companies are small and medium size. Piston-twins and 
turboprops make up the majority of the business aviation fleet. 
Business aviation tends to fly above or below the scheduled 
airline service between 30,000 and 40,000 feet. We also use 
different airports. Business aviation operations total about 
3.5 percent at the Nation's 20 largest airports.
    There has been a lot of talk today about how general 
aviation pays. So let me be very clear about it. General 
aviation, all of its segments, pay 4.3 cents per gallon tax 
which was originally created in the early 1990s for deficit 
reduction purposes and later made a part of the Airport and 
Airways Trust Fund. We also pay 0.1 cents per gallon for 
leaking underground storage tanks. Those are true of all 
segments of air transportation including all segments of 
general aviation. The operators under Part 91 pay a 15 cents 
per gallon tax on AvGas and a 17.5 cents per gallon tax on jet 
fuel. Fractional operators pay a 7.5 percent tax on their 
hourly charge, a $3.20 departure fee, and a $14.10 
international departure fee. Charters also pay the 7.5 percent, 
the $3.20 departure fee, and the $14.10 international departure 
fee.
    As I said before, and echoing the statements, the fuel tax 
is at the foundation of the general aviation taxes. We in this 
community support it strongly as the right way for us to pay 
our share. In terms of how much general aviation pays, when you 
look at the various segments of general aviation, the piston, 
the turbine under Part 91, the fractional operators, the Part 
135 charter operations, we believe that the total amount paid 
into the Trust Fund from the general aviation community is in 
excess of $600 million.
    Another question that has come up today not only is how GA 
pays or how much GA pays, but how much should GA pay. It has 
been said that general aviation represents 30 percent of the 
IFR traffic but pays a much smaller portion of the Airport and 
Airways Trust Fund revenues. GA does in fact represent 30 
percent of the IFR traffic and we have looked at this according 
to tail numbers. Turboprops represent 7.2 percent of total IFR 
traffic; the pistons represent 11.2 percent of IFR traffic; and 
the turbojets represent 12.5 percent of the IFR traffic. Again, 
that is across all segments of general aviation including the 
fractionals and the charter operations.
    Mr. Chairman, the point that I want to make here, and I 
want to be very clear about this, economists will tell you the 
percentage of the traffic one creates does not equate to the 
amount of cost imposed on the system. This is something that 
any economist will tell you. Instead, you have to look at the 
drivers of the cost of the system to understand the true cost 
imposed. If you look at some place like the Chicago area, the 
number of radars there, the number of controllers there, the 
TRACONS, those are not driven because of general aviation 
traffic. Those are driven because of the commercial airlines 
with their peak demands, sometimes operating each airline at 50 
and 60 operations per 15 minute interval. We know that is true 
just looking at Washington Reagan National Airport where 
general aviation has been completely banned from the airport 
for the last three years and the costs associated with that 
airport have not gone down. In fact, when the GAO testified 
back in 1996, they issued a report that made it very clear that 
it was the peak demands of the commercial airlines that were 
the drivers of the cost of the system.
    When you actually get to the cost imposed on the system by 
general aviation, I think that is an open question. But looking 
back at the FAA, the last time they did a cost allocation study 
in 1997, they suggested that GA should be responsible for 
somewhere in the 5 or 6 percent of total revenues.
    I want to finish where a lot of people have done so today, 
and that is offer some guiding principles for us to keep in 
mind as we go through what my friend Phil Boyer described as 
this marathon.
    The first is, do no harm. As Congressman Oberstar and 
Congresswoman Sue Kelly talked about earlier, the U.S. has the 
largest, the most complex, the most sophisticated, and the 
safest air transportation system anywhere in the world. We need 
to be very cautious before we throw out a system that has 
worked very well for over 35 years. We want to ensure a strong 
General Fund contribution, as almost everybody has testified 
today. We want to control the FAA's costs. We want to clearly 
identify the technologies needed for modernization. And, as the 
Mineta Commission recommended in 1997, we want to keep the 
general aviation fuel taxes as the mechanism through which 
general aviation pays. Thank you.
    Mr. Mica. Thank you. And I thank each of our witnesses for 
your testimony today.
    Let me yield to Mr. Costello.
    Mr. Costello. Thank you, Mr. Chairman. Mr. Chairman, as you 
no doubt have heard the bells, we have four or five votes on 
the floor. I really do not have any pressing questions. I think 
all of the witnesses made their points very clear. I would ask 
unanimous consent to keep the record open for a two week period 
in order for us to submit questions.
    Mr. Mica. Without objection, so ordered.
    Mr. Costello. And I thank all of the witnesses for being 
here today and for your testimony. Thank you.
    Mr. Mica. I also want to thank the witnesses. You represent 
a great cross-section of American aviation. Certainly, we do 
have a challenge on how we address the funding of our whole 
system. We have a Trust Fund that has some very serious 
financial problems if we continue without looking at additional 
means of revenue. You all represent key elements of a great 
system and we are going to rely on you to help us. This is sort 
of the kick-off of a very significant debate, discussion, on 
hopefully positive solutions to resolve the situation we find 
ourselves in.
    We may submit some questions. But I want to thank you for 
your patience in waiting, and thank each of you for your very 
worthwhile testimony today.
    There being no further business before the Aviation 
Subcommittee, this hearing is adjourned.
    [Whereupon, at 1:33 p.m., the subcommittee was adjourned.]
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