In the case of both local service airports and low-density trunk airports, the alternative to making large, fixed investments ought to be carefully examined by the Government. Very often the costs of airport improvements necessary to permit certificated air carrier service by jets could be avoided by using aircraft less demanding of concrete. In other cases, the appropriate solution might be to discontinue trunk or local service and substitute service by the so-called third level, commuter, or air taxi operators.

When the continuation of trunk service to a low-density airport will require a capital investment whose amortization for the next 20 years may cost in excess of $100 per passenger carried, it is time to reexamine our air transportation service and Federal aid philosophies. The same reexamination is called for when it is evident that the amortized costs for the next 20 years of proposed airport development may be in excess of $15 per passenger carried at many local service air carrier airports. This cost is to be compared with the average price of a local service ticket, which is only $17.

With respect to airports in the fourth category, general avaiation airports where reasonable charges will amortize development costs, there is certainly no economic rationale for Federal assistance, nor do we believe there is any overriding Federal interest which warrants Federal subsidy. Very few airports in this category now charge any landing fee to the general aviation aircraft user-a survey of the airports in six States indicated that only 1.3 percent did make such charges.

Many of these airports do levy other charges in the form of tie-down fees and fuel flow-through fees. The point, however, is that for a very nominal increase in existing fees, of whatever type, many of these airports could amortize their full development costs. In a sample of 41 general aviation airports which received Federal grants in the period 1962-66 and which had control towers thus giving us accurate traffic counts-we found that all but seven could have amortized both the Federal grant and the local community's contribution by charging itinerant aircraft $1 or less per landing, and charging local operations nothing. Five of the seven could have amortized all costs by charging only itinerant operations $1.30 or less; one by charging $3.06; and one by charging $8.80. The latter two are atypical in that they had a disproportionately large number of local operations necessitating a large airport investment. If local operations at those two airports were also charged a fee, the cost per operation would decline to $1.32 and $1.95, respectively.

The impact of a $1 airport development fee for each itinerant landing by a general aviation aircraft would be negligible. An analysis of operating costs of 10 different types of undepreciated general aviation aircraft in the one- and two-engine piston and jet categories shows that a $1 fee per itinerant landing would cost one-half cent or less per mile. flown in every case but one. In that case, the cost would be 0.7 cent per mile. Looked at in terms of total operating expenses for these 10 aircraft, the $1 fee would add 1 percent or less to the total operating cost of five of the aircraft, less than 3 percent for three aircraft, and less than 4 percent in the case of the remaining two aircraft.

With respect to the fifth category, general aviation airports where traffic will be insufficient to amortize development costs without the imposition of unreasonably high fees, a fundamental issue of Federal versus State or local interest is raised. Federal aid is sought for many of the airports in this category on the ground that an airport is necessary to enable community X or State X to attract new industry, an area of intensive competition between communities within a State and between States. Is there a Federal interest in providing aid which influences the outcome of this competition? We think not. The real beneficiaries of the competition for new industry are the States and communities who succeed in broadening their tax bases, increasing their payrolls, et cetera. If airport subsidy is required to do this, it should come from the State or local community.

Furthermore, the evidence is quite clear that those in industry and other commercial pursuits who depend on private air transportation for the conduct of their business are capable of bearing the full cost of airport services. The statistics for 1966 indicate that almost 80 percent of the hours flown by general aviation aircraft were deductible as a business expense of the aircraft operator. A substantial portion of any additional charges for airport improvements are therefore susceptible to being written off.

A survey by Time magazine of persons who purchased new aircraft in 1963 for private use would tend to confirm this. According to the Time survey, the median income of the buyers was $33,300; 78 percent of these were businessmen and 70 percent were in top-management jobs; 75 percent of their flying was for business purposes; and 85 percent flew 10 hours or more per month.

If the program principles are sound, and if the facts available to us are substantially correct, the airport assistance program which the Administration has proposed will protect the Federal interest in a national airport system. Equally important, this program and the policies which underlie it will create an environment in which the fundamental issues of the quality, quantity, and cost of our air transportation system can be more rationally examined and decided.

The local service airport grant program will provide the necessary matching funds to those airports where the airport costs do not exceed the value of the service provided. Where the costs are found to exceed the value of service, the Government can examine other courses of action which will permit continuation of an appropriate type of service on a more economical basis if it appears justified.

The loan program which the administration proposes will assure that necessary airport development is accomplished under two differing sets of conditions. In the first, it will make loans available even to the financially most healthy airport if, because of tight conditions in the money market, financing is not available on reasonable terms. In the second, it will make loans available to those airports which are potentially viable but whose condition is marginal and not attractive to private capital except on unreasonable terms.

Finally, it will place national airport system planning on a much more comprehensive basis, both in terms of identifying total airport development needs and in terms of relating airport development to other transportation programs. It will create a planning environment which will permit Federal, State and local governments to work more

closely together and with industry in identifying and relating local and national airport system requirements.

The argument is sometimes made that a large Federal grant-in-aid program is essential to assure that airport capacity is provided when it is needed and where it is needed. Yet, no amount of Federal money can solve the problem of whether a fourth jetport is needed in the New York City area, or where it should be located. Here, environmental issues have predominated in the decisionmaking process and, ultimately, these must be resolved at the local level. Problems of this type will be solved sooner, and more in keeping with our concepts of private enterprise and creative federalism, through a cooperative planning system in which the common interests of the most immediately affected parties the airport operator, the users, the airport neighbors, and other segments of the community-are determinative of airport development.

The basic justification for the airways program which the administration is proposing lies in the projected growth of air transportation. I have already reviewed our 5-year traffic projections. We can obtain no solace from the 10-year projections. These indicate a 300-percent growth in revenue passenger-miles; a doubling of aircraft hours flown: a doubling of the general aviation fleet; a tripling in the number of aircraft handled by the air route traffic control centers; and a quadrupling of aircraft handled by airport towers.

One basic premise underlies these forecasts-it is that there will be no constraints placed upon the growth of traffic. Thus, the system of support facilities and the forecasts are inseparable. Either we increase the capacity of the system or revise the forecasts.

Since our 5-year program for meeting the forecasts has already been described in some detail, I would like to turn to the issue of user charges and present our reasoning as to the size of the increases and the allocation of costs among the users.

In his letter to me of September 20 last year, the President made it quite clear that one condition to an expansion of the airways program was that the users of the system bear their fair share of the costs.

Within the definition of airway costs, we have included all costs of the Federal Aviation Administration except those incurred directly for, or in support of, the two National Capital airports, the Federalaid support programs, and the supersonic aircraft development program.

On an annual expenditure basis, our proposed 5-year program will total $5.5 billion; $1.1 billion of that amount can be attributed to military aviation, leaving a net civil aviation share of $4.4 billion. Of this civil share, $3 billion has been attributed to air carriers, and $1.4 billion to general aviation. The allocation of costs between military and civil users and, within the civil group, between the air carriers and general aviation, was done by identifying and allocating all costs solely attributable to one segment or the other, and then apportioning costs common to all on the basis of their relative use of the system.

Over the 5-year period, revenue from the ticket and waybill taxes proposed for air carriers will total $2.8 billion, and cover 95 percent of the costs attributable to them. Revenue from the fuel tax proposed for general aviation will total $290 million, and cover 20 percent of

the revenues attributable to them. The deficit of $1.1 billion for general aviation must come from general tax revenues.

Are the cost allocation and tax levies equitable? By its very nature, cost allocation requires innumerable judgmental decisions, and judg ments differ. Cost allocation is a very subjective matter. The best method in the view of one being charged is quite naturally that which minimizes his costs. General aviation would argue that virtually the whole system is for the air carrier or the military; but it is quite likely that the booming business segment of aviation would not be booming if there were not available a safe, all-weather system that could carry a corporation president as safely in a business jet as in a scheduled airliner. The airlines, on the other hand, would argue that much more of the system costs are attributable to the military than we would be prepared to concede. We can only say that we have used our best judgment given the operational and cost data at hand.

With respect to the equity of the tax levy, we have struck as close a balance as possible with respect to air carriers. Given the necessity to forecast costs for 5 years and revenues for 5 years, we believe that a 95-percent recovery should be considered full recovery. As to general aviation, the relative degree of equity is quite apparent. Assuming the accuracy of the cost allocation method, the Federal Government's airway expenditures for general aviation in excess of revenues received amount to about $1,500 per year for each aircraft in the general aviation fleet. Obviously, the benefits to those aircraft which seldom use the system are much less than this amount, while the benefits to the frequent users such as the business jets are very much more.

It was the judgment of the administration, however, that a fuel tax in excess of that proposed for general aviation would work substantial inequities on some elements of general aviation and still not significantly close the gap between costs and revenues. The fact that this large gap exists, however, would indicate that all future airway expenditures for general aviation must be very carefully considered. Our analyses of the operating costs of 10 representative types of undepreciated general aviation aircraft show that a fuel tax of 10 cents per gallon would:

(1) Increase the costs of the four single engine piston aircraft by less than 1 cent per mile, and increase their total expenses by less than 4 percent;

(2) Increase the costs of the four 2-engine piston aircraft by less than 2 cents per mile, and increase their total expenses by less than 3 percent; and

(3) Increase the cost of the 2-engine jet by less than 6 cents per mile, and increase its total expense by 6.4 percent. Given the fact that the purchase prices of these undepreciated aircraft range from $7,300 for the smallest single-engine piston, to $650,000 for the small twin-engine jet, and their annual operating costs range from $2,789 to $203,775, the taxes proposed are not considered to be unreasonable, or likely to adversely affect the growth of general aviation. In this respect, it is worth reiterating that about 80 percent of general aviation flying is business related and presumably a deductible item for income tax purposes.

A number of alternative airport programs have been proposed by various groups from time to time. The approach now favored by the

Air Transport Association, as reflected in S. 3641, is the establishment of a trust fund for airport development to be funded with a 2-percent tax on airline tickets and a $2 head tax on airline passengers departing the United States. The fund would be used to pay up to 75 percent of the principal and interest on securities issued by local communities to finance airport development. All air carrier airports and general aviation reliever airports operated by public agencies would be eligible for assistance. All development projects in connection with the operation of an airport, including landing area, terminals, parking, and so forth, would be eligible for assistance. This program would be in addition to the grant program authorized by the Federal Airport Act. The administration opposes this proposal for several fundamental

reasons:

1. It involves the Federal Government in a funding program as a collection and disbursement agent for no sound reason. All of the funds would come from the air carriers' passengers and most of the funds would go to finance costs incurred due to the air carriers' operations. With just as much logic, we could establish a tax on the air passenger in order to make payments to aircraft manufacturers for aircraft required by the airlines.

The only plausible argument in support of this approach to air carrier airport development is that there is a fundamental resource allocation problem which cannot be solved without Government intervention. The allocation problem arises from the fact that the air carrier passengers are not evenly distributed by airports, necessitating a mechanism for transferring funds from the high-density passenger terminals to the low-density terminals.

This same type of allocation problem exists universally for public utilities but typically the utility itself, not the Federal Government does the reallocating. It charges higher-than-cost rates to low-cost users to permit it to charge lower-than-cost rates to high-cost users. The airlines have high-cost routes and low-cost routes and, in their present rate structures, the low-cost routes are subsidizing the highcost routes. There is no reason why airport costs should be excluded from this process and the Government brought in to act as a broker. As stated earlier, our analyses indicate that in one of the potentially worst cases for a trunk airline's entire system, the airline could finance all of the added airport development costs on its system, attributable to its operations, for a systemwide fare increase of 25 cents per ticket. There is no doubt whatsoever that this would be much more economical and much more efficient than invoking the taxing and spending powers of the Federal Government, just to obtain essentially the same result. Two other arguments advanced for the proposal are also unpersuasive. One is that, through the use of reallocated tax revenues for debt service, a "multiplier effect" can be achieved which will make substantially larger amounts available for airport development. This same result can be achieved by direct financing. It does not require Government intervention.

Second, it is argued that Government intervention is necessary to avoid diversion of aviation revenues to nonaviation purposes. This is unpersuasive. The only means available to the Government to prevent diversion is through contracts with the airport operators. Similar