Say No to Highway and Student Loan Bills

"Liberty is an opportunity for doing good, but this is only so when it is also an opportunity for doing wrong" — F.A. Hayek

While everyone was waiting breathlessly to see whether the Supreme Court would strike down Obama’s egregious power grab in the healthcare sector, a bipartisan group of congressmen and senators are working to grow government in several other sectors of the economy. We must not be complacent.

In our battle to shrink the size of the federal government, there have been a number of issues on the agenda over the past few months. Two of those issues are the extension of subsidized Stafford student loans and the Senate surface transportation leviathan. Now, thanks to a deal cut between Harry Reid and Mitch McConnell, they will converge as one package to be voted on before the end of the week. Both items are set to expire June 30, and will be extended without any serious reforms unless House Republicans act. And no, despite promises to the contrary, the Keystone pipeline is not part of the deal.

All too often, Congress focuses exclusively on the cost of a bill to the government instead of the cost to the free market. Ultimately, they fail to deal with either problem in a prudent manner. This is quite evident in the case of the student loan deal.

In 2007, the Pelosi-Congress reduced interest rates on government-subsidized Stafford loans from 6.8% to 3.4%. Like every stimulus measure during that era, it was supposed to be temporary. Now there is a bipartisan deal to ostensibly make it permanent (they say it’s only for 1 year, but we’ve seen that rodeo before). They only care about the $6 billion annual cost to the government, but fail to focus on the more fundamental problem – the fact that government subsidies will continue to fuel the education bubble, engendering a further need for larger subsidies. Hence, the circuitous cycle of government intervention and inflation will continue unabated.

Instead of debating how to pay for more subsidized loans, Republicans should articulate the case for phasing out this unlimited subsidization of higher education. Since the Department of Education was created, the cost of college tuition has increased over 439% adjusted for inflation! The rate of increase is almost exactly commensurate with the rate of growth of DOE subsidization.

Moreover, there are serious concerns about the source of the offsetting revenue that will be used to pay for the loans. One provision allows corporations to put less money into company pensions that are backed by the taxpayer-funded Pension Benefit Guaranty Corporation (PBGC). This would increase net profits for corporations, and by extension, generate $9.5 billion more in taxes to Uncle Sam. This measure could expose taxpayers to future bailouts of the PBGC when it becomes clear that the pension plans are underfunded. [Read more on this at the Heritage Foundation].

What is even more cynical about this extension is that, despite the deceitful rhetoric to the contrary, the impending increase in loan rates would not affect any current borrower. It would only apply to those taking out new loans this year. Furthermore, it would only save borrowers $7 a month, even though the macroeconomic cost (taxpayers and free market) would be enormous. Conservatives cannot support continued government intervention in higher education to benefit Big Education cronies at the expense of the rest of us.

The next red flag is the 1,500-page 2-year Senate Highway Bill (MAP 21, S. 1813) that will be combined with the student loan extension. Based on the details of the tentative agreement, the offsetting revenues from the pension provision will be used to fund the $14 billion deficit in the highway trust fund as well. As we’ve noted on numerous occasions, there is no reason why the federal government should be diverting 20% of the gas tax revenue to mass transit and other wasteful projects. And, of course, the 2-year deficit will be offset over 10 years. In fact, that’s just one reason why we should devolve transportation spending back to the states, especially since the completion of the interstate highway system.

Here are some other problems with the Senate highway bill that will possibly apply to the final conference deal. We must ensure that these provisions are not in the final product:

· General Fund Transfer: Just hours before the Senate bill was brought to a floor vote on March 14, Barbara Boxer slipped in a manager’s amendment that contained a provision (section 40313) authorizing a $5 billion general fund transfer to the highway trust fund.

· Nanny-State Enhancement Mandates: James Inhofe, the Republican architect of Boxer’s transportation bill, promised Republicans that the bill offered flexibility to the states for spending their infrastructure dollars, exempting them from the 10% “enhancement” mandates. Well, the manager’s amendment appears to have vitiated that agreement.

· Other Top-Down Mandates and Anti-Free-Market Policies: There are sundry provisions that impose eco-fascism, establish anti-growth “made in America” mandates, discourage private sector investments in infrastructure, and offer giveaways to Big Labor.

· Truck Mandates: The bill would require the installation of electronic on-board recorders (EOBRs) on every single commercial motor vehicles in the country, including short-haul trucks. This will be very costly to the trucking industry and will, in turn, raise the cost of transporting vital goods.

Now it appears that the Keystone Pipeline – the one aspect of the bill that Republican negotiators promised to keep – will not be included in the final conference report, H.R. 4348. They agreed to jettison the Keystone provision in favor of an option for states to opt out of the mandatory funding for bike lanes and beautification projects. They are also buying into the Obama/Keynesian notion that the highway bill is a jobs bill, which as I have stated on numerous occasion is pure poppycock.

Bipartisan negotiators are boasting that their deal will kill two birds with one stone. Well, for conservatives, we indeed have an opportunity to kill two big-government birds with one vote. Vote no on the Senate highway bill and student loan extension! Transportation spending should go back to the states, while student loan bubble spending should go back to Mars.

Federal surface transportation policy is at a fateful crossroads. Since the completion of the Interstate System, the federal program has lost its focus and its sense of purpose. And the users pay/users-benefit funding mechanism which built that system (dedicated fuel taxes) has gradually been transformed into a public works tax for Congress to spend on its own—rather than highway users’—priorities. Most proposals to reformulate the federal transportation program would further break faith with highway customers. While appearing to advocate simplification and program consolidation, they would add costly new non-highway programs, increasing highway use taxes but diverting much of the proceeds to still more non-highway programs, from passenger trains to energy subsidies to federalized land-use planning. Yet it is thanks to these very trends that American taxpayers no longer have trust in the Highway Trust Fund. Instead of welcoming an expanded federal program, most oppose increases in fuel taxes as unlikely to improve their own transportation situations.

The federal program needs to be rethought. The federal transportation program is notoriously politicized, failing to make the best use of existing funds and failing to focus on the most important national transportation goals. Every serious study in recent years has concluded that America is under-investing in highway infrastructure; indeed, we are not even investing enough to maintain its current mediocre performance and condition, let alone enough to produce major improvements. But rather than simply putting larger sums of money into a seriously flawed process, the better course is to rethink and refocus the federal role, in order to spend more on core federal purposes and less on peripheral concerns. Some reauthorizations have brought big changes to the federal transportation program. This one should as well, not by moving further away from a user-fee funded system designed to improve mobility, but by moving back toward it.

While the federal government may have an interest in a wide range of transportation issues and concerns, direct federal involvement is both unwise and inappropriate in many of these areas. The facilitation of inter-state travel and commerce and international trade are clearly federal responsibilities, so a larger emphasis on inter-state and international transportation should be at the core of a rethought federal role. The Interstate Highway System was laid out more than 60 years ago, and begun 50 years ago. Increasing portions of it are reaching the end of their design life and need complete reconstruction. Most urban Interstates need major additions to eliminate bottlenecks and reduce congestion, and as the lifeblood of goods movement, many inter-city Interstates need more lanes to handle projected growth in truck traffic. A major federal effort to rebuild and modernize the Interstate system for the 21st century (Interstate 2.0) would give new focus to the federal highway program. It offers the opportunity to restore the original user-fee nature of highway user taxes. Ever since the ISTEA legislation of 1991, each federal reauthorization has expanded the eligible uses of federal highway user taxes to an ever larger array of non-highway programs. Indeed, this diversion ultimately goes back to the 1970 PL 91-605, which first permitted Highway Trust Fund monies to be used for transit facilities, undercutting the users-pay/users-benefit principle. Subsequent reauthorizations steadily increased non-highway uses, such that today urban transit, bikeways, scenic trails, “enhancements,” and numerous other programs consume about one-quarter of all current federal highway user tax revenues. PL 91-605 started the original concept of the 1956 Interstate Highway Act down the slippery slope towards mass transit, buses, and high-speed rail where the user does not pay.

Congress could dramatically increase funding to reduce the very large backlog of cost-effective highway projects via two changes: (1) shifting non-highway programs either to general revenues or to the states, and (2) narrowing the federal Highway Trust Fund’s focus to rebuilding and modernizing the Interstate System, both urban and inter-city. This Interstate 2.0 approach would increase federal investment in the nation’s most important arteries by nearly $10 billion per year. Refocusing the federal gas tax on rebuilding and modernizing these vital roadways would restore the kind of trust in the Highway Trust Fund that was present during its early years. Making this change is also probably the best hope we have for gaining political support, not for all-purpose transportation tax increases, but for significantly improving the performance of the nation’s most critically important highway infrastructure.

This proposal should be attractive to the traditional highway community, which in recent decades has accepted diversions of highway-user taxes to non-highway purposes in exchange for a larger total program. That trade-off appears to be coming to an end, thanks to strong public opposition to increasing the gas tax. This proposal would lead to genuine increases in needed highway investment, targeted to the most urgent national needs.

Friends of mass transit should understand that in today’s political climate, it is not necessary to tap into the gradually shrinking pool of petroleum-based highway taxes in order to have high-quality transit systems. State and local jurisdictions, where the benefits from transit occur, have been more willing to invest in transit in recent years. We don’t think there is any national interest or benefit from local transit systems or reason for the federal government to help fund them. For now though, Congress seems keen to continue funding transit and is increasingly willing to spend general fund monies on transportation. Since transit is unable to generate significant user revenues the way highways can, it is a far more appropriate candidate than highways for general-fund support.

I would point out that when local Municipal Planning Organizations (MPOs) have control over the planning, design, and construction of transportation arteries and light rail transit systems they usually identify each project they want to build, assign a budget, and put the measure to a vote. Every time they have done this the measure passes with a good majority allowing the MPO to impose a 1 or 2 cent sales tax increase. The public will support defined projects, not pigs in a poke.

Most states would be better off with the proposal presented in this paper. All would benefit from the major reconstruction and modernization of their most important highways, the Interstates. They would gain new freedom to manage their non-Interstate highways, freed from costly federal requirements and priorities, and instead could focus on their own transportation needs and goals. On the funding side, although they would no longer receive federal funding for non-Interstates, they would gain new freedom to use tolling and public-private partnerships to shore up their programs. If they decided to replace some former federal revenue, states could find savings by aggressive efforts to improve efficiency, prioritizing projects that will produce the largest benefits, and embracing tolling to pay for new roads and improvements to existing ones, preferably via public-private partnerships that shift financing and risk away from taxpayers and onto the private sector. This has been very successful in Orange County, California even though it was a long, hard fight with the California Department of Transportation to get it done.

The urgent need to rebuild and modernize vital Interstate highway infrastructure is bogged down

By a system that prioritizes politics and ribbon-cutting. The federal gas tax has become a general purpose public works tax instead of a true highway user fee. Refocusing the federal program on Interstate 2.0, and restoring the true user fee nature of the federal fuel tax, offers a way to cut the Gordian knot of complex and misused highway trust funds.

As this is a subject very near and dear to me I will have more to say in this issue in a future blog.

Sandy Springs is Showing the Way

“Hell hath no fury like a bureaucrat scorned.” – Milton Friedman

For years I have been preaching the value of outsourcing most of the services provided by government to the private sector. As Ronald Reagan once said “government should not provide any service that they can buy in the Yellow Pages.” This applies to all levels of government: city, county, state and federal.

By creating staff in-house, a governmental agency is not only being inefficient it is creating debt for the taxpayers. For years governmental agencies have been building bloated staffs to do what is available just by looking in the yellow book.

The reason hey do this is because over the years the myth has been pushed on us that only government employees could provide services such as: public works engineering, trash collection, legal services, infrastructure maintenance, tree trimming, financial services, police, fire fighting, water delivery, air traffic control, airports, schools, and many other services the people of a community or the nation desire and are willing to pay for.

Over the years these bureaucratic public employees have garnered support from the politicians (mainly the Democrat party) and formed unions, like the AFGE, AFSCME and numerous teachers unions that now control most government workers and the agencies they work for.

Daniel Disalova states a good case against government unions and public sector employment in a 2010 article in National Affairs “Since the middle of the 20th century, organized labor in America has undergone two transformations with major implications for the nation's politics. The first is the dramatic decline in overall union membership. In 1955, organized labor represented one-third of the non-agricultural work force; today, it represents just 12.3%. The second transformation, however, is even more significant: the change in the composition of the unionized work force.”

“As private-sector unions have withered, public-sector unions have grown dramatically. The Bureau of Labor Statistics reports that, in 2009, for the first time ever, more public-sector employees (7.9 million) than private-sector employees (7.4 million) belonged to unions. Today, unionized workers are more likely to be teachers, librarians, trash collectors, policemen, or firefighters than they are to be carpenters, electricians, plumbers, auto workers, or coal miners.”

“The rise of government-worker unionism has also combined with the broader transformation of the American economy to produce a sharp divergence between public – and private-sector employment. In today's public sector, good pay, generous benefits, and job security make possible a stable middle-class existence for nearly everyone from janitors to jailors. In the private economy, meanwhile, cutthroat competition, increased income inequality, and layoffs squeeze the middle class. This discrepancy indicates how poorly the middle class has fared in recent decades in the private economy, which is home to 80% of American jobs. But it also highlights the increased benefits of government work, and shines a spotlight on the gains public-sector unions have secured for their members. Perhaps this success helps explain why, on average, 39% of state- and local-government employees belong to unions. (Differences in state and local laws of course mean that the percentage varies from state to state; New York tops the chart with roughly 70% of state employees in unions, while many Southern right-to-work states hover in the single digits.)”

Disalova continues; “Since public-sector unions began to develop in earnest, their importance in political campaigns has grown by leaps and bounds. Starting from almost nothing in the 1960s, government-workers' unions now far exceed private-sector unions in political contributions. According to the Center for Responsive Politics, from 1989 to 2004, the AFSCME was the biggest spender in America, giving nearly $40 million to candidates in federal elections (98.5% of it to Democrats). It is important to stress that this was spending on federal elections; the union represents mostly state and local workers. But given the magnitude of federal contributions to state budgets, the AFSCME is heavily involved in electioneering to shape Washington's spending in ways that protect public workers and the supply of government services. And so over that 15-year period, the AFSCME was willing and able to outspend any other organization in the country.”

“The political influence of public-sector unions is probably greatest, however, in low-turnout elections to school boards and state and local offices, and in votes to decide ballot initiatives and referenda. For example, two of the top five biggest spenders in Wisconsin's 2003 and 2004 state elections were the Wisconsin Education Association Council and the AFSCME-affiliated Wisconsin “PEOPLE Conference. Only the state Republican Party and two other political action committees — those belonging to the National Association of Realtors and SBC / Ameritech — spent more. The same is true in state after state, as unions work to exert control over the very governments that employs their members.”

“This political dimension of public-sector unionism also changes the substantive priorities and demands of the unions themselves. Although private-sector unions in the United States have engaged in leftist "social activism," they have mostly concentrated their efforts on securing the best wages, benefits, pensions, and working conditions for their members: "pure and simple unionism," as longtime American Federation of Labor president Samuel Gompers used to call it. Rarely do they demand more hiring, since — given the constant private-sector imperative to keep operating costs minimal — increasing the number of a company's employees can limit wage and benefit increases for the workers already on the company's payroll.”

“By contrast, as economist Richard Freeman has written, "public sector unions can be viewed as using their political power to raise demand for public services, as well as using their bargaining power to fight for higher wages." The millions spent by public-employee unions on ballot measures in states like California and Oregon, for instance, almost always support the options that would lead to higher taxes and more government spending. The California Teachers Association, for example, spent $57 million in 2005 to defeat referenda that would have reduced union power and checked government growth. And the political influence of such massive spending is of course only amplified by the get-out-the-vote efforts of the unions and their members. This power of government-workers' unions to increase (and then sustain) levels of employment through the political process helps explain why, for instance, the city of Buffalo, New York, had the same number of public workers in 2006 as it did in 1950 — despite having lost half of its population (and thus a significant amount of the demand for public services).”

For a case study in how public-sector unions manipulate both supply and demand, consider the example of the California Correctional Peace Officers Association. Throughout the 1980s and '90s, the CCPOA lobbied the state government to increase California's prison facilities — since more prisons would obviously mean more jobs for corrections officers. And between 1980 and 2000, the Golden State constructed 22 new prisons for adults (before 1980, California had only 12 such facilities). The CCPOA also pushed for the 1994 "three strikes" sentencing law, which imposed stiff penalties on repeat offenders. The prison population exploded — and, as intended, the new prisoners required more guards. The CCPOA has been no less successful in increasing members' compensation: In 2006, the average union member made $70,000 a year, and more than $100,000 with overtime. Corrections officers can also retire with 90% of their salaries as early as age 50. Today, an amazing 11% of the state budget — more than what is spent on higher education — goes to the penal system. Governor Arnold Schwarzenegger proposed privatizing portions of the prison system to escape the unions' grip — though his proposal has so far met with predictable (union supported) political opposition.

The skyrocketing costs of public employees' pensions now present a huge challenge to state and local governments. If allowed to persist, such massive obligations will inevitably force a fundamental re-ordering of government priorities. After all, if government must spend more on pensions, it cannot spend more on schools, roads, and relief for the poor — in other words, the basic functions people expect their governments to perform. But because many states' pension commitments are constitutionally guaranteed, there is no easy way out of this financial sink hole. Recent court decisions indicate that pension obligations will have to be fulfilled even if governments declare bankruptcy — because while federal law allows bankruptcy judges to change pension and health-care packages in the private sector, it forbids such changes in public employees' agreements.

I have written numerous times about this issue, mainly from the perspective of public works engineering and architecture services. No city, county or state need have an in-house capability for these services as they can be found in the private sector. Some will use the argument that the public sector employees are better educated, better trained, more efficient and more cost-effective. That claim is pure balderdash. I and my colleagues in the private sector were educated in the same schools, licensed by the same state bureaus and have done the same work as they. This is just an argument the public sector uses to bamboozle the taxpayers and the politicians who support them and expect their contributions and votes.

Municipalities are the ones hardest hit by this issue. They have a limited or declining tax base. Due the collapse of the housing bubble many houses have been devalued creating a lowering of property tax revenues while their payrolls and pension obligations have been increasing. No business could operate this way – bankruptcy would be on the horizon. This condition also affects the public school system. In essence the honeymoon for the public sector is over.

One city in Georgia has dealt with this problem in a business-like efficient and cost-effective manner. The city of Sandy Springs has privatized all aspects of city services with the exception of police and firefighting – services which also could benefit from some degree of privatization.

Outside of the police and fire departments Sandy Springs, a city of 87,000 has a mere four employees on the public payroll. No bloated salaries, no pension liabilities and a more efficient means of delivering the services their citizens desire.

To accomplish this they retained the services of CH2M-Hill, a Colorado based engineering and program management firm. I am familiar with CH2M-Hill as I have been a subcontractor to them on several infrastructure projects in California. They are a good firm with a good reputation. Cost containment is one of their major missions.

Sandy Springs is become a model for the outsourcing of municipal services at all levels. This is how it works:

• The municipality retains the services of a program management firm like CH2M-Hill, or others through a qualifications based selection.
• The program management firm then performs a needs analysis of municipality.
• Once the needs analysis is completed a report is given to the city manager and city council, who then approve it of recommend changes
• Once the report is approved a strategic plan is developed and submitted for approval to the city manager and council.
• After approval of the strategic plan the program manager, in this case CH2M-Hill, begins subcontracting to local firms for the services the municipality desires. This subcontracting is done in two ways. If it the services are cost based services such as street repair or trash collection they are retained by competitive bids from qualified, reputable firms. If the services are professional in nature, such as civil engineering or legal, they are retained in a three-step process. The first step is to garner qualifications from firms interested in providing the services. The second step is to create a short list of qualified firms and conduct interviews. The third step is to select the “most qualified firm” and negotiate a fee schedule. If they cannot conclude successful negotiations with the most qualified firm they will move to the next firm on the list. In all my days of providing professional engineering services I have never encountered a case where the most qualified firm has not negotiated a fair and equitable contract.
• This method of outsourcing brings several benefits to the taxpayers:
• The municipality is not obligating itself to long term public sector employment contracts.
• The municipality is not incurring long term pension and health care obligations. Those obligations re left to the program manager and the subcontractors. Things like health care may be mandated in the contracts and the only impact will be the increase in legitimate, allowable overhead costs to the contractor, which will be negotiated into the contract.
• People can be fired for poor performance or malfeasance without going through union representatives of public boards.
• Staffing levels can be adjusted to fit the needs of the community or economy very quickly.
• A better class of employees can be retained

Pay for performance can be delivered by the contractors in the form of performance bonuses.

Complaints by the public are given a greater degree of service as no contractor wants to aggravate their clients. They are driven by the profit motive – no client, no profit.

I have delivered professional engineering services to cities, county and state agencies for over twenty-five years and I know this system works. It is a completive field and the clients have a plethora of good, qualified firms to choose from. There aren’t and “no bid contracts”. All contracts are given by one of the two processes listed above.

While cities across the country are cutting services, raising taxes and contemplating bankruptcy, something extraordinary is happening in a suburban community just north of Atlanta, Georgia.

Since incorporating in 2005, Sandy Springs has improved its services, invested tens of millions of dollars in infrastructure and kept taxes flat. And get this: Sandy Springs has no long-term liabilities. It has outsourced everything except police and fire fighting.

Sandy Spring is doing it right. By never letting the public sector unions in the door the politicians will have no group to go to for funds. Therefore the taxpayers will be the better for it.

John Stossel exposes the dangers of public service unions

Sandy Springs has no long-term liabilities

You can click here for a page where there are numerous links to video reports on the success of Sandy Springs. Now let’s go for some privatization in the schools, police and fire departments.

It’s Time to Privatize the FAA

“Governments never learn. Only people learn.” — Milton Friedman

Lately there has been much in the news about the misconduct of air traffic controllers. There have been reports of controllers sleeping on the job and watching movies in the control tower. This is only the surface of a corrupt, union controlled, bureaucratic air traffic control system operated by the Federal Aviation Administration.

Federal involvement in air traffic control has a long history. The 1926 Air Commerce Act tasked the Department of Commerce with issuing and enforcing air traffic rules, licensing pilots, certifying aircraft, establishing airways, and operating aids for air navigation. In the mid-1930s, the federal Bureau of Air Commerce took over the initial air traffic control centers for en route tracking created by the airlines, which complemented the operation of local control towers by municipal authorities. During the 1940s, the federal government began taking over the operation of local control towers, and following World War II all aspects of air traffic control became federal.

Airport development took a different path. In the early years of commercial aviation, some private airports (e.g., Burbank, California) existed alongside those established by state and local governments. Today, virtually all U.S. commercial airports are owned by state and local governments. The federal government's role has been to regulate and subsidize those facilities. Federal financial aid to airports began with work relief programs in the 1930s, and was followed by the Federal Airport Act of 1946, which provided $500 million in airport grants to state and local governments over seven years. These airports are not to be confused with the hundreds of General Aviation airports and airfields across the United States. These air fields are privately owned and operated and service the owners of non-commercial aircraft.

General aviation airports normally have one runway, hanger facilities and a tower manned on an irregular basis by private air traffic controllers. They are subject to all safety regulations of the FAA and ICAO and usually have stated hours of operation.

The coming of jet aircraft and the large number of aviation accidents spurred Congress to pass the Federal Aviation Act of 1958, which created the Federal Aviation Administration (FAA). The new administration replaced previous federal agencies involved in air traffic control and airport development.

Congress started taxing the commercial aviation industry soon after it was established. It passed an excise tax on gasoline and aviation fuels in 1932 and an excise on airline passenger tickets in 1941. The revenue from these levies went into the federal government's general fund. That changed in 1970 when Congress passed legislation creating an Airport and Airway Trust Fund, which had dedicated streams of revenue to be used for air traffic control and federal aid to airports. Trust Fund revenue sources included ticket taxes on domestic and international flights, taxes on fuels, and various fees.

The Airport and Airway Trust Fund currently raises more than $12 billion annually from a 7.5 percent tax on domestic airline tickets, a tax on each segment flown, taxes on gasoline and jet fuel, international departure and arrival taxes, and half a dozen other fees. Trust Fund revenues pay for almost four-fifths of the FAA's $16.4 billion budget, with the balance coming from general federal funds covering the FAA's safety regulatory and miscellaneous other activities.

While air traffic control is an increasingly technology-intensive industry, labor union issues have long played an important role in the ATC system. A period of labor unrest began in the late 1960s as FAA controllers pushed for job improvements and official status as an employee union. In 1969, about 500 members of the Professional Air Traffic Controllers Organization stayed home "sick" causing air service interruptions. The following year, 3,000 PATCO members took part in another "sickout" or illegal strike, which caused chaos for the nation's air traffic.3

Labor problems continued during the 1970s, with various work slowdowns and union protests over contract issues. Then in 1981, PATCO declared a major system-wide illegal strike after negotiations on a new contract broke down. That prompted President Ronald Reagan to order controllers to return to work within 48 hours or else face termination. More than 11,000 controllers refused to return to work and were fired by Reagan and initially banned from federal service. PATCO was dissolved and a new controllers union was created in 1987, the National Air Traffic Controllers Association (NATCA).

Today, an important aspect of the federal ATC system is the high labor costs. In 2010, the operations portion of FAA had about 43,000 workers who earned a total of $6.5 billion in wages and benefits, or about $151,000 per worker.4 Just looking at controllers, a 2005 FAA study found that compensation packages averaged $166,000 annually.5 Labor costs account for two-thirds of the cost of FAA operations.

While organized labor has created management challenges for the FAA, so has the implementation of new technologies. Delays and cost overruns on major technology projects have been common. For example, the Advanced Automation System project was launched in the early 1980s and was originally expected to cost $2.5 billion and be completed by 1996. But by 1994, estimated project costs had soared to $7.6 billion and the project was seven years behind schedule.7 The FAA terminated some parts of the AAS program and restructured others, but $1.5 billion of spending ended up being completely wasted.

More recently, a 2005 study by the Department of Transportation's Office of Inspector General looked at 16 major air traffic control upgrade projects and found that the combined costs had risen from $8.9 billion to $14.5 billion.8 The cost of the Standard Terminal Automation Replacement System project had jumped 194 percent to $2.7 billion and was seven years behind schedule. The OIG said that the STARS project was "facing obsolescence" even before it was completed.9 Meanwhile, the cost of the Wide Area Augmentation System project had jumped 274 percent to $3.3 billion and was 12 years behind schedule. A Government Accountability Office analysis in 2005 found similar cost overruns and delays in these projects.

Delays and cost overruns have not been uncommon in federally subsidized airport projects either. For example, Denver's new international airport finally opened in 1995 after many delays and huge cost overruns. The project was originally supposed to cost $1.7 billion but ended up costing almost three times as much at $4.9 billion, with $685 million coming from federal taxpayers.

In sum, federal funding of airports and the operation of the nation's ATC system have not been models of efficiency over the decades. There is large room for improvement in the management of the nation's aviation infrastructure.

The way to address all three of these organizational problems is to take the ATC system out of the federal budget process and make it a self-supporting entity, funded directly by its customers. Variants of this commercialization approach have been recommended by a series of federal studies and commissions over the past 15 years.

As part of Vice President Al Gore's efforts at "reinventing government" in the 1990s, for example, the Clinton administration proposed turning the ATC system into a separate, self-funded, nonprofit government corporation within the Department of Transportation. The 1997 National Civil Aviation Review Commission, which was chaired by Norman Mineta, similarly proposed moving toward a self-supporting air traffic control organization.

Commercialization would entail shifting from aviation-related taxes paid to the U.S. Treasury to fees for ATC services paid directly by customers to a new self-supporting Air Traffic Organization. This change would allow fees to grow in proportion to the growth of flight activity, rather than being tied to a less-stable variable, such as fuel prices or airline ticket prices. Moreover, a predictable revenue stream that was not subject to the federal budget process would provide the basis for the ATO to issue long-term bonds for funding capital investments.

Commercialization would also address the management problems that have plagued the FAA's efforts to modernize. A non-civil-service ATO could attract the best private-sector managers and engineers skilled at implementing complex technology projects. Such an ATO could hire, fire, and compensate its employees as other high-tech businesses do. Private sector managers would have an incentive to ask tough questions about whether new investments offered real value for the money, a process that often doesn't occur at the FAA or in Congress.

In addition, a separate, self-supporting ATO—no longer part of the FAA—would be overseen at arm's length for aviation safety by the remaining FAA. Numerous studies have pointed out that the FAA's air-safety role is compromised when it comes to the ATC system, since that system is operated "in-house" by a different branch of the same FAA. All other players in aviation—pilots, mechanics, aircraft manufacturers, airlines, and so forth—are regulated at arm's length for safety by the FAA. This separation of ATC operations from safety regulation is especially critical given the major changes entailed by shifting to the semi-automated next generation (NextGen) and Free Flight, where numerous safety versus capacity questions will need to be addressed in a rigorous and transparent manner.

Finally, a self-supporting ATO would address the political obstacles to improving system efficiency, such as making decisions to close facilities. By passing the enabling legislation for ATC reform, Congress would delegate such contentious issues to the customer-oriented ATO organization.

During the past two decades, nearly 50 governments have commercialized their air traffic control systems. That means they have separated their ATC activities from their transport ministries, removed them from the civil service, and made them self-supporting from fees charged to aircraft operators. These new Air Navigation Service Providers (ANSPs) are usually regulated at arm's length by their government's aviation safety agency.

Britain's ATC system has been commercialized by means of a "public-private partnership." National Air Traffic Services is a jointly owned company, with British airlines owning 42 percent, the airport company BAA owning 4 percent, employees owning 5 percent, and the government owning the remaining minority stake. NATS is operated on a not-for-profit basis.

Canada's ATC system has been fully commercialized. In 1996, Canada set up a private, nonprofit ATC corporation, Nav Canada, which is self-supporting from charges on aviation users. The Canadian system has been widely praised for its sound finances, solid management, and its investment in new technologies. The Canadian system is a very good reform model for the United States to consider.

Nav Canada's corporate board is composed largely of aviation stakeholders. It has 4 seats for the airlines, 3 for the government, 2 for employees, and 1 for the non-commercial aviation industry. Those 10 stakeholders select 4 directors from outside aviation, and then those 14 select the company president, who becomes the 15th board member. To further strengthen governance, neither elected officials nor anyone connected with suppliers to Nav Canada can serve on the board. Nav Canada also has a 20-member outside Advisory Committee.

A number of studies have found that ATC commercialization has generally resulted in improvements to service quality, better management, and reduced costs. At the same time, air safety has remained the same or improved in the countries that have pursued reforms to set up independent ANSP organizations.

A thorough 2009 report by Glen McDougall and Alasdair Roberts (Commercializing Air Traffic Control: Have the Reforms Worked?") compared the performance of 10 commercialized ATC systems and the FAA during the 1997 to 2004 period. They looked at large amounts of performance and safety data from the systems in the various countries and conducted over 200 interviews with managers, workers, and users of the different systems. The researchers found:

“ANSP commercialization has generally achieved its objectives. Service quality has improved in most cases. Several ANSPs have successfully modernized workplace technologies. The safety records of ANSPs are not adversely affected by commercialization and in some cases safety is improved. Costs are generally reduced, sometimes significantly. Other risks of commercialization—such as erosion of accountability to government, deterioration of labor relations, or worsened relationships between civil and military air traffic controllers—have not materialized.”

Other nations and regions that have privatized their ATC systems are: EUROCONTROL, COCESNA and Deutsche Flugsicherung (DFS). EUROCONTROL and COCESNA are regional organizations for Europe and Central America respectively while DFS is the German state owned ATC company. None of these organizations use union or civil service air traffic controllers. COCESNA is responsible for all ATC above 17,000 feet over Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Belize. All airports in the countries have their own ATC controllers to deal with approach and take off actions.

I have worked as a contractor for the FAA providing Safety of Navigation airfield surveys and for airports in Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Belize and Venezuela providing airport surveys to develop Global Navigation Satellite System (GNSS) approach and departure procedures. I have also given several seminars on this subject in Port-a Prince, Trinidad-Tobago, San Salvador, Quito, Ecuador, Caracas, Venezuela Miami, Jeju Island, South Korea and at the FAA headquarters in Washington, D.C. Click here for a PDF file of the presentation slides.

I recall sitting in the conference room at the FAA with the Jane Garvey, the then administrator, and the assistant administrator for international projects, my client, having a discussion about the implantation the GNSS for approach and departure procedures. I was a bit shocked when I heard Garvey’s response that no such implementation could be made at commercial airports without the approval of the ATC controller’s union. He said any automation technology that would have an influence of the jobs of the controllers has to be signed off by the union. In essence the NATCA runs the FAA when it comes to cost saving or safety issues — they want to protect the jobs of the controllers.

On October 26, 2009 US Department of Transportation Inspector General Calvin Scovel and US Government Accountability Office Director of Civil Aviation Issues Gerald Dillingham told Congress that the FAA faces considerable challenges in implementing a satellite-based NextGen ATC system, ranging from delays in approving new procedures and technology to skepticism among airlines regarding investment in new equipment. Testifying before the House of Representatives aviation subcommittee, Scovel warned that "the cost, schedule and benefits for NextGen are uncertain". Dillingham added that the "FAA faces cultural and organizational challenges in implementing NextGen capabilities".

Keep in mind that this year the FAA got $700 million dollars for ATC controller’s salaries. This, like the TSA, is an area where the civil service unions are not only dictating the terms of employment and compensation, but also impacting the efficiency and safety of our air traffic control system. 50 other nations are not taking this path.

For the United States, a commercialized ATC organization would be more likely than the FAA to efficiently implement the major aviation infrastructure advances that the nation desperately needs. Air traffic control is more complex and dynamic than ever, and it needs to be managed in the sort of efficient and flexible manner that only a commercialized environment can offer. Countries like Canada have shown the way forward for air traffic control, and U.S. policymakers should adopt the proven organizational reforms that have been implemented abroad.