OMB Reform and Reorganization Plan: Business Opportunity Impact at the Department of Transportation

When the new administration took office in January 2017 it floated the idea of privatizing the air traffic control functions of the Federal Aviation Administration. That idea is back with a vengeance in the Office of Management and Budget’s new Reform and Reorganization Plan. Claiming “the most significant misalignment [of the DOT’s] operational responsibilities [is] principally the Federal Aviation Administration’s air traffic control services,” the plan goes on to argue that spinning off “air traffic control services to a non-profit entity would better enable our aviation system to respond to consumer needs and modernize services.”

How can a system that ensures safe air transportation in the United States, be misaligned? As OMB explains, 70% of the DOT’s annual spending goes to providing financial assistance to states and localities through grant programs. The remaining budget goes to safety oversight and operations, with air traffic control being the largest operational item in the FAA’s budget. The air traffic control program to which the OMB refers is of course the Next Generation Air Traffic Control, or NextGen program. NextGen programs account for nearly $1B in spending annually, most of which goes to information technology goods and services. In short, the OMB is suggesting the DOT divest itself of a program that makes up one-third of the department’s total IT spending.

The challenge in all of this is Congress. Members of both the House and Senate have stated publicly that air traffic control privatization is dead on arrival. With more than $10B spent on NextGen since the program’s inception in FY 2009 one can perhaps understand why. The OMB makes an argument, however, that 60 nations around the world have adopted a similar non-profit run system that is as safe as the system run by the U.S. This includes Canada, which took the privatization course years ago.

Other Consolidation/Divestment Recommendations

• Saint Lawrence Seaway – In addition to air traffic control, the OMB’s plan suggests spinning off FAA management of the Saint Lawrence Seaway for largely the same reason – to reduce a misaligned operational budget. Significantly less money is spent on SLC administration ($36M in FY 2017) than on air traffic control, money the OMB argues would be saved if the government-run SLC Development Corporation transferred administrative responsibilities to a non-profit organization.
• Maritime Administration – An organization with no safety regulatory function and limited financial assistance activities, the OMB sees an opportunity to expand MARAD’s responsibilities by shifting coastal port dredging and operation of U.S. inland waterway systems from the Army Corps of Engineers. Some of these functions could then be privatized.
• Surface Transportation Security – Citing duplication with Federal Emergency Management Administration grant programs and Transportation Security Administration, the OMB suggests consolidating all transit and rail grant funding, as well as surface-related security programs within DOT. This step would eliminate redundant programs at FEMA and TSA.

Bottom Line

The OMB plan does not necessarily call for the wholesale divestment and reorganization of the DOT. In terms of business opportunity transferring NextGen programs to the control of a non-profit would put a serious dent in FAA IT spending, eliminating significant opportunities for IT vendors. Conversely, the shifting of certain grant and oversight programs to DOT control could grow the need for additional non-IT professional services support, something that small businesses in particular could capitalize on.