Funds up in the air
Long airport lines and flight delays figure prominently among the potential horrors of the so-called sequester. But if such an outcome persuades the flying public of the folly of relying on the general budget to pay for airport-related services, maybe it isn’t so bad. For we’d have better transportation investments — and more reliable federal supervision — if airline passengers paid the full cost of the government services they use.
Currently, passengers are only paying for part of what it takes to keep them safe. About 70 percent of the Federal Aviation Administrations’s revenues in 2012 came from the Airport and Airway Trust Fund, which is in turn funded by excise taxes that come directly or indirectly out of fliers’ pockets — the 7.5 percent ticket sales tax, the passenger tax of $3.80 per flight segment, and the fuel tax of 4.3 cents per gallon. Meanwhile, the Transportation Security Administration’s proposed $7.6 billion 2013 budget includes $2.5 billion in fees, to be collected from airlines and passengers.
For both agencies, general revenue covers what airlines and passengers don’t. And that’s a mistake.
The argument for federal support is that the nation’s aviation system is a crucial part of the economy. Yet today’s travelers will benefit more from making their travel plans independent of Washington nonsense. Congress could drive away the specter of unending security lines, undoing the sequester-related cuts with a tax increase of just $3 per flight segment. (Since most airport costs are proportional to the number of riders, not ticket prices, it makes particular sense to increase per-ticket fees, rather than taxing ticket sales at a higher rate.)
One reason why airport-related services should be funded with user fees, not general revenue, is basic fairness. Why should ordinary taxpayers, many of whom never get on a plane, have to fund the security-line-heavy lifestyle that many others live? The 2009 National Household Travel Survey shows that 58.5 percent of air trips are taken by people in households that earn over $100,000, whose residents take on average 10 times more air trips annually than people in households with around $50,000 in earnings.
But air travelers themselves would benefit from more user fees, because paying for infrastructure that way will lead to more sensible investments. Many travelers would be happy to pay more for a better experience at Logan Airport, but tolls would never fund bridges to nowhere. A policy of “user pays” pushes towards upgrading busy airports, and away from wasteful highway projects.
But the sequester raises a third problem with folding aviation into the general budget: vulnerability. If Washington is going to have perpetual budget chaos, then this naturally includes aviation spending as well. Those Republicans who want fewer tax dollars going to the FAA and the TSA are right, but that needn’t imply less FAA and TSA spending. If these entities were independently funded, their spending would still be subject to outside scrutiny, but nobody’s vacation or business trip would be jeopardized by a political stalemate.
The sequester threatens to cut most FAA and TSA spending by 8.2 percent, reducing their outlays by about $1 billion and $650 million, respectively. (Somewhat oddly, the sequester also keeps the FAA from spending money that is coming not just from the general budget but also from the aviation trust fund. )
Yet these cuts also hint at a better way to pay for both agencies’ expenses. To offset the sequestration cuts, the FAA would need to increase its revenue from excise taxes by about 10 percent, and the TSA would need a fee increase of 26 percent. A simpler option would be to focus on one particular revenue source. For example, there were about 643 million passengers on flights in 2012 — which means a $3-a-segment fee would cover the shortfalls due to the sequester. Given all the fear-mongering about multi-hour lines, many airline riders would be thrilled about an alternative that costs them only six bucks round-trip.
Such a fee should be only the start of reform for TSA and FAA funding. Fliers don’t need any more subsidies from Congress — nor do they need the uncertainty that comes with those subsidies.
Edward L. Glaeser, a Harvard economist, is director of the Rappaport Institute for Greater Boston.