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US Federal Aviation Administration summer shutdown to cost USD1 billion

3-Aug-2011

The US Congress has gone to its summer recess without resolving the partisan dispute over the US Federal Aviation Administration funding reauthorisation bill. Congress is now not due to sit until early September, meaning an ideological squabble could cost the FAA more than USD1 billion in lost tax revenue. The effect on the US economy will be an order of magnitude greater.

The decision to go into recess without renewing the FAA’s funding authorisation is an extraordinary step, particularly given the language coming from both Democrats and Republicans surrounding the recent compromise agreement to raise the US debt ceiling. The White House described that deal as a “victory for bipartisan compromise, for the economy and for the American people” and a “win for the economy and budget discipline”.

US President Barak Obama has labelled the partial shutdown of the FAA due to a congressional stalemate as "another Washington-inflicted wound on America" and appealed to members of Congress to approve the funding reauthorisation. The inaction on the FAA is testament to congressional hypocrisy after months of statements on job creation and economic action.

Democrats and Republicans have come to an apparently insurmountable divide over provisions between the House and Senate versions of FAA’s temporary funding extension. There is disagreement on less than a dozen of the 250 provisions in the bill and last-minute efforts to revise existing provisions to make them more palatable and introduce a "clean" bill have both fallen apart.

The US Transportation Secretary, Ray LaHood, has met with Senate and House members to try to come up with a compromise, to little effect. Mr LaHood said the situation was so dire that the Senate should pass the House version even though it contained cuts to the Essential Air Service (EAS) programme.

The industry remains shocked that the resolution failed to pass but this has happened before.

The last time Congress failed to fund the FAA was in 1997 when the the impasse went on for 21 days, but this one is likely to go on for far longer. The FAA has been lodged in a state of fiscal uncertainty for four years. Without permanent, long-term funding, it has been unable to make as much progress on several long-term major projects as it desires.

Permanent funding for the FAA fell apart in Sep-2007 and Congress has been unable to agree on a new multi-year bill, mostly due to disagreements on exactly how the agency will be funded in the future. Since then, there have been 20 temporary extensions to the FAA’s funding authority, all passed with little or no controversy. Seventeen of the extensions were passed while the Obama Administration had majority control of both the House of Representatives and the Senate.

The dispute over the latest reauthorisation is split between the two halves of Congress. The Democrat-majority Senate has rejected provisions introduced by the Republican-majority House regarding airport subsidies.

The upshot is that the FAA is unable to access the Airport and Airway Trust Fund provide roughly USD2.5 billion for airport projects from the, one of its major funding mechanisms. Airlines also lost their authority collect ticket Federal excise charges and ticket taxes on behalf of the FAA, which provides the majority of the trust fund's revenue. The result is that the trust is losing nearly USD30 million per day.

Termination of congressional funding authority prompted the FAA to undergo a partial shutdown on midnight on 22-Jul-2011. While flights and other critical areas are unaffected, the administration has been forced to furlough 4,000 workers, mostly in oversight, research and administrative roles. Without FAA management, 240 airport and air traffic management construction and development programmes – including key NextGen research – have been put on hold. USD2.5 billion in construction grants have been halted, putting at least 75,000 American construction workers out of a job, according to an analysis by George Washington University.

 The human cost in lost wages is compounded by the increased cost of the time lost in construction and continued payments for equipment.

The sticking point is that the House bill contains provisions to end USD16.5 million in Essential Air Service Programme subsidies for airline operations to rural airports, many of which are within 90 miles of a major airport. Introduced into the bill by the Republican Transportation and Infrastructure Committee Chairman John Mica and Aviation Subcommittee Chairman Tom Petri, some of the cuts are at airports in the constituencies of senior Democratic party members.

Both sides have proposed reductions to the EAS, but disagree on just how to do it and where the cuts should come.

There is also a larger ideological point at play, which has come under heavy debate over the past week. Democrats have argued that the EAS cuts are an attempt to put pressure on them to agree to roll-back changes to labour regulations, which would make it easier for airline and railroad workers to unionize.

Republicans want to reverse a National Mediation Board's decision to change the way union elections among airline and rail workers are decided, returning to the system that included non-voters as “no” votes. The new system allows a simple majority of those voting to force unionisation.

As an example of reducing US federal spending, shutting down the FAA over these subsidies is an exercise in political dysfunction of the highest order. USD16.5 million in funding is less that 0.2% of the FAA’s FY2011 federal budgetary request of USD9.7 billion and just 0.1% of the FAA’s total overall budget of USD16.5 billion. The figure is around 1% of the estimated USD1.5 billion that the FAA will lose in uncollected taxes and duties if the shutdown continues until Congress sits again.

A final attempt to settle the dispute was made on Monday, introduced by Republican and Democrat sponsors. It proposed USD71 million in EAS cuts, but fell apart when a Senate Republican announced he would use parliamentary procedures to tie up the Senate and prevent a vote.

Both sides have agreed that the shutdown is a “tragedy”, but it appears that they are unwilling to set aside political point scoring to pass the reauthorisation, and doing more harm than good in the process. Calls to pass a temporary extension without any of the policy issues, made by all both political parties and from those affected by the shutdown, have fallen deaf ears. Congress truly appears to be the opposite of progress in this case. 


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