Testimony 

Before the Subcommittee on Aviation, 

Committee on Transportation and 

Infrastructure, House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 10:00 a.m. EDT 

Wednesday, May 4, 2005 AIRPORT AND AIRWAY 

TRUST FUND 

Preliminary Observations 

on Past, Present, and 

Future 

Statement of Gerald L. Dillingham, Ph.D. 

Director, Physical Infrastructure Issues 

GAO-05-657T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-657T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Gerald 

Dillingham at (202) 512-2834 or 

dillinghamg@gao.gov. 

Highlights of GAO-05-657T, a report to 

Subcommittee on Aviation, House 

Committee on Transportation and 

Infrastructure 

May 4, 2005

AIRPORT AND AIRWAY TRUST FUND

Preliminary Observations on Past, 

Present, and Future 

With the exception of its first four years, the Trust Fund has ended each year 

with an uncommitted balance; however, the amount of the uncommitted 

balance has fluctuated and is currently trending downward. In 1991 and 

1999, the Trust Fund’s uncommitted balance totaled over $7 billion—its 

highest level. However, in several years, the Trust Fund’s balance 

experienced dramatic decreases resulting in a lower uncommitted 

balance, in part, because of lapses in the taxes that accrue to the Fund or 

reductions in demand for air travel. The Trust Fund’s uncommitted balance 

decreased from $7.3 billion in 2001 to $4.8 billion in 2002 and has continued 

to decrease by about $1 billion each year since. This declining uncommitted

balance has been caused by a number of underlying factors, such as 

reductions in the demand for air travel. 

Over the next 3 years, the Trust Fund is projected to have sufficient revenue 

to fund authorized spending and end each year with an uncommitted balance

under the current law, referred to as Vision 100, and the President’s 2006 

budget proposal, as shown below. However, this financial outlook depends 

on the realization of FAA’s forecasted commercial passenger traffic levels 

and airfares. If revenues are 5 percent lower than projected, as they were in 

2001, the Trust Fund’s uncommitted balance would be $1.5 billion or lower 

under both Vision 100 and the President’s budget proposal in 2006 and 2007. 

If the revenues were 10 percent lower than projected, as they were in 2004, 

the uncommitted balance would reach zero in 2006 under the President’s 

proposal and in 2007 under Vision 100. FAA officials told GAO that if the 

uncommitted balance reached zero, FAA would still fund air traffic control 

services but would have to suspend some AIP and F&E activities. 

Trust Fund’s Projected Year End Uncommitted Balance Under Vision 100 and President’s 

2006 Budget Proposal 

0

1

2

3

President’s proposal

Vision 100

2005 2006 2007

Fiscal year

Dollars in billions

Source: FAA.

The Airport and Airway Trust Fund 

(Trust Fund) was established in 

1970 to help fund the development 

of a nationwide airport and airway 

system and to fund investments in 

air traffic control facilities. It 

provides all of the funding for 

FAA’s accounts such as the Airport 

Improvement Program (AIP), 

which provides grants for 

construction and safety projects at 

airports, the Facilities and 

Equipment (F&E),which funds 

technological improvements to the 

air traffic control system, and the 

Research, Engineering, and 

Development (RE&D). In addition, 

the Trust Fund provides some 

funding for FAA’s operations 

account. To fund these accounts, 

the Trust Fund relies on a number 

of taxes for revenue, including 

passenger ticket, fuel, and cargo 

taxes that are paid by passengers 

and airlines. Since 1970, revenues 

have generally exceeded 

expenditures —resulting in a 

surplus or an uncommitted 

balance. In 2004, the Trust Fund’s 

year end uncommitted balance was 

about $2 billion. 

A number of structural changes in 

the aviation industry and external 

events have affected revenues 

flowing into and out of the Fund 

and have caused some aviation 

stakeholders to speculate about the 

Fund’s financial condition. The 

various taxes that accrue to the 

Trust Fund are scheduled to expire 

in 2007. GAO was asked to provide 

information and analysis about the 

financial outlook of the Trust Fund. 
Page 1

Mr. Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss the financial condition of the 

Airport and Airway Trust Fund (Trust Fund). The Trust Fund was 

established by the Airport and Airway Revenue Act of 1970 (P.L. 91-258) to 

help fund the development of a nationwide airport and airway system and 

to fund investments in air traffic control facilities. It provides all or some 

of the funding for FAA’s accounts which include the 

• Airport Improvement Program (AIP), that provides grants for 

construction and safety projects at airports, 

• Facilities and Equipment (F&E) account that funds technological 

improvements to the air traffic control system, 

• the Research, Engineering, and Development (RE&D) account, and 

• Operations account. 

To fund these accounts, the Trust Fund relies on a number of taxes for 

revenue, including passenger ticket, fuel, and cargo taxes, that are paid by 

passengers and airlines. In fiscal year 2004, the Trust Fund received $9.7 

billion in revenue and had expenditures of $10.4 billion.1

 Although Trust 

Fund expenditures exceeded revenues in 2004, since its creation in 1970, 

revenues have generally exceeded expenditures —resulting in a surplus or 

an uncommitted balance.2

 At the end of 2004, the Trust Fund’s 

uncommitted balance was about $2.4 billion, a decrease of about 67 

percent since 2001.3

A number of structural changes in the aviation industry and external 

events have affected revenues flowing into and out of the Trust Fund and 

have caused some aviation stakeholders to speculate about the Fund’s 

financial condition. For example, some aviation stakeholders believe that 

there is a reason to be concerned about the financial condition of the Trust 

 1

For purposes of this report, we are using the expenditure amount rather than the 

appropriated amount. The expenditure amount includes the amount of funding spent on 

AIP, F&E, RE&D, and operations and does not include commitments. 

2

The Trust Fund’s uncommitted balance represents money against which there is no 

outstanding budget commitment or authority to spend. 

3

 All dollar amounts in this testimony are in nominal dollars. 
Page 2

Fund because revenues have not recently kept pace with expenditures. In 

contrast, other aviation stakeholders state that the Trust Fund is healthy 

because revenues are expected to continue increasing. The various taxes 

that accrue to the Trust Fund are scheduled to expire in 2007. 

My statement today is based on our ongoing work on the Trust Fund and 

discusses our preliminary observations on the past, present, and future 

financial outlook of the Trust Fund. We plan to issue a final report to this 

Subcommittee later this year. 

As shown in figure 1, with the exception of its first four years, the Trust 

Fund has ended each year with an uncommitted balance; however, the 

amount of the uncommitted balance has fluctuated and is currently 

trending downward. In 1991 and 1999, the Trust Fund’s uncommitted 

balance totaled over $7 billion, which represented its highest amount.4

However, in several years, the Trust Fund’s experienced dramatic 

decreases resulting in a lower uncommitted balance. For example, in 1982, 

the end of year uncommitted balance was $2.1 billion, and in 1997 it was 

$1.4 billion because of a lapse in the taxes that accrue to the Trust Fund. 

The Trust Fund’s uncommitted balance also decreased from $7.3 billion in 

2001 to $4.8 billion in 2002 and has continued to decrease by about $1 

billion each year since. There are a number of reasons for this downward 

trend, including changes in the amount of revenue flowing into and out of 

the Trust Fund. 

 4

 Because of price level increases that reduced the value of a dollar over time, in terms of 

purchasing power, the Trust Fund was larger in 1991 than in 1999. 

Historically, Trust 

Fund Has Generally 

Had an Uncommitted 

Balance but Recently 

the Balance Has 

Started to Trend 

Downward 
Page 3

Figure 1: Trust Fund’s Uncommitted Balance Has Recently Started to Trend 

Downward 

The amount of revenues flowing into the Trust Fund has fluctuated from 

year to year but has generally trended upward, as shown in figure 2. The 

Trust Fund relies on a number of taxes for revenue, including passenger 

ticket, fuel, and cargo taxes that are paid by passengers and airlines. 

During 1981 and 1982 the amount of revenues including interest flowing 

into the Trust Fund averaged $629 million which was the lowest amount in 

its history because of a lapse in the collection of aviation taxes. In 

contrast, in 1999, revenue flowing into the Trust Fund totaled $11.1 billion, 

which was the largest amount in its history. 

Revenues Have Generally 

Increased With Some 

Fluctuations 

-1

0

1

2

3

4

5

6

7

8

Dollars in billions

1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004

Year

Source: Congressional Budget Office and FAA budgets.
Page 4

Figure 2: Trust Fund Revenues Have Fluctuated but Generally Increased 

However, after revenues peaked in 1999, the amount of revenue flowing 

into the Trust Fund started to trend downward, totaling $9.7 billion in 

2004. A number of factors may have contributed to this decrease. For 

example, within the airline industry, the growth of the Internet as a means 

to sell and distribute tickets, the growth of the low cost airlines, and fare 

reductions by legacy carriers all transformed the industry and led to lower 

average fares. These lower fares may have resulted in lower ticket taxes 

and less revenue into the Trust Fund.5

 In addition, a series of largely 

unforeseen events, including the September 11 terrorist attacks, war in 

Iraq and associated security concerns, the Severe Acute Respiratory 

Syndrome (SARS), global recessions, and a steep decline in business travel 

seriously reduced the demand for air travel resulting in a sharp decrease in 

airline industry revenue. 

 5

Increased traffic from these lower fares may have offset some of the decline in tax 

revenue. 

Source: Congressional Budget Office and FAA budgets.

0

2

4

6

8

10

12

Dollars in billions

1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004

Year
Page 5

The amount of funds flowing out of the Trust Fund also has generally 

increased since the Fund’s inception and has also exceeded revenues in 

some years. For example, as shown in figure 3, from 2002 through 2004, 

expenditures exceeded revenues by an average of about $938 million, or 

about 9 percent. 

Figure 3: Expenditures Exceeded Revenues in Some Years 

As mentioned earlier, the Trust Fund provides all the funding for AIP, 

F&E, and RE&D and provides some funding for operations. Trust Fund 

expenditures have grown because of increases in both spending for these 

accounts and in the amount of FAA operations funded by the Trust Fund. 

For example, the amount of funding provided for AIP increased from 

about $1.5 billion in 1998 to $3.5 billion in 2005. In addition, as shown in 

figure 4, since its inception the Trust Fund has funded some portion of 

FAA’s operations. In 1972 and 2000, the Trust Fund funded 100 percent of 

the cost of FAA operations. In 2004, the Trust Fund funded 60 percent and 

it is expected to fund 63 percent in 2005. 

Trust Fund Expenditures 

Have Also Increased and 

Exceeded Revenue in 

Some Years 

Source: Congressional Budget Office and FAA budgets.

Dollars in billions

Year

0

2

4

6

8

10

12

Expenditures

Revenues

1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004
Page 6

Figure 4: FAA Operations Cost Funded By Trust Fund and General Fund 

Over the next 3 years, the Trust Fund is projected to have sufficient 

revenue to fund authorized spending and end each year with an 

uncommitted balance under Vision 100 and the President’s 2006 budget 

proposal. However, this financial outlook depends on the realization of 

FAA’s forecasted commercial passenger traffic levels and airfares. As 

shown in figure 5, under the current law—the Century of Aviation 

Reauthorization Act (Vision 100)—the Trust Fund’s year-end uncommitted 

balance is projected to be about $2.6 billion in 2006. Under the President’s 

proposal, it is projected to be slightly over $1 billion in 2006. 

Projected Trust 

Fund’s Uncommitted 

Balance Is Positive 

but Depends on 

Realization of 

Forecasted Passenger 

Traffic Levels and 

Airfares 

Source: FAA.

Dollars in billions

Year

0

1

2

3

4

5

6

7

8

General Fund

Trust Fund

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004
Page 7

Figure 5: Trust Fund’s Projected Uncommitted Balances Under Vision 100 and 

President’s Budget Proposal 

0

1

2

3

President’s proposal

Vision 100

2005 2006 2007

Fiscal year

Dollars in billions

Source: FAA.

The primary reason that the Trust Fund’s uncommitted balance would be 

higher under Vision 100 is that it uses the formula created in the Wendell 

H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21) 

to determine how much funding for FAA Operations should come from the 

Trust Fund, and the President’s proposal does not. Under AIR-21, the 

formula sets the amount of Trust Fund revenue that will be authorized for 

FAA Operations in a given year equal to projected Trust Fund revenues (as 

specified in the President’s budget) minus the authorizations for AIP, F&E, 

and RE&D in that year. Thus, under Vision 100, the Trust Fund is projected 

to support almost $15 billion, or 63 percent of FAA Operations from 2005 

through 2007. In contrast, the President’s proposal specifies a set amount 

of Trust Fund revenue to be used for FAA Operations. Therefore, if 

Congress enacts the President’s proposal, the Trust Fund would provide 

$17.7 billion for FAA Operations from 2005 through 2007, or about 74 

percent of its total estimated costs for Operations. 

In contrast to 2006, in 2007, the Trust Fund’s uncommitted balance would 

be about $300 million higher under the President’s budget proposal than 
Page 8

under Vision 100. According to FAA officials, this is primarily because of 

reduced spending for AIP and F&E under the President’s budget proposal. 

Although the Trust Fund is projected to have a positive uncommitted 

balance from 2005 to 2007 under each of the expenditure proposals, this 

projection depends to a significant extent on achieving forecasted 

commercial passenger traffic levels and airfares that affect the amount of 

revenues flowing into the Trust Fund. We recognize that it is very difficult 

to anticipate future events that may significantly affect the demand for air 

travel and our analysis shows FAA’s projected revenue forecast exceeds 

the actual amount of revenue received for four of the last five years as 

shown in figure 6. According to FAA officials, the major reasons why 

projected revenues were lower than actual revenues is because forecasted 

airline yields6

 were higher than the actual yields and aviation activity was 

below anticipated levels for the last several years. 

Figure 6: Comparison of Forecasted Revenue with Actual Revenue Received 

Source: FAA budgets.

Year

0

2

4

6

8

10

12

14

Actual

Forecast

2000 2001 2002 2003 2004 

Dollars in billions

 6

Yields are commonly measured in cents per revenue passenger mile—with revenue 

passenger miles being the number of miles revenue passengers are transported. 
Page 9

Given the difference between the forecasted revenue and actual amount of 

revenue received, we conducted sensitivity analyses to estimate what 

would happen to the Trust Fund’s uncommitted balance if passenger 

traffic or yields fall below the levels that FAA projected in November 2004. 

For example, table 1 shows the projected Trust Fund balances under 

Vision 100 and the President’s proposal and the impact if revenues are 5 

percent or 10 percent less than currently projected. If revenues are 5 

percent lower than projected, as they were in 2001, the Trust Fund’s 

uncommitted balance would be $1.5 billion or lower under both Vision 100 

and the President’s budget proposal in 2006 and 2007. However, if the 

revenues are 10 percent lower than projected, as they were in 2004, the 

uncommitted balance would reach zero in 2006 under the President’s 

proposal and in 2007 under Vision 100. 

Table 1: Sensitivity Analysis of the Trust Fund’s Uncommitted Balance to Revenue 

Shortfalls 

Dollars in millions 

Revenue scenario Fiscal year uncommitted balance 

Proposal 2005 2006 2007

Baseline projections as of November 2004 Vision 100 $2,103 $2,571 $2,615

President’s 

budget 

2,103 1,195 2,937

If revenues are 5 percent less than 

projected 

Vision 100 1,577 1,459 855

 President’s 

budget 

1,577 83 1,176

If revenues are 10 percent less than 

projected 

Vision 100 1,051 346 0

 President’s 

budget 

1,051 0 0

Source: GAO analysis of FAA data. 

A scenario in which the Trust Fund reaches zero is cause for concern. 

According to FAA officials, the elimination or reduction of the Trust 

Fund’s uncommitted balance could also pose budgetary challenges. For 

example, if the Trust Fund’s uncommitted balance reached zero in 2006 it 

might require FAA to make significant spending cuts to aviation programs 

currently supported by the Trust Fund unless additional funding were 

authorized and appropriated from the General Fund. According to FAA 

officials, they would continue to fund air traffic control services because it 

is considered an emergency function that involves the safety of human life. 

However, to fund air traffic control services, FAA officials said it would 
Page 10

have to suspend activities for AIP, F&E, and RE&D accounts including 

some F&E contracts. 

Regarding the long-term financial outlook of the Trust Fund, we believe 

that it is difficult to project beyond 2007 because the Trust Fund expires in 

2007 and it is unknown if the current tax schedule will change. In addition, 

as mentioned earlier, forecasting aviation activity is difficult in part 

because of the complexities and uncertainties associated with anticipating 

future events that may affect the demand for air travel. Projecting the longterm financial outlook of the Trust Fund also requires some consideration 

of the planned spending of the programs that it finances. 

According to FAA officials, over the next 4 years, there may be an $8.2 

billion dollar gap between costs and revenues, which reflects a $5 billion 

shortfall for operations and $3.2 billion shortfall for capital development. 

If this projected gap is realized, our past work suggests that the cost saving 

initiatives that FAA has identified will not be sufficient to close this gap.7

Consequently, additional reductions will be needed. For example, to meet 

air traffic controller staffing needs FAA could consider making greater use 

of the Air Traffic Collegiate Training Initiative Program which could save 

millions of dollars annually. In addition, FAA could save millions of dollars 

by eliminating redundant ground based navigational aids. 

Deciding what changes may need to be made to the Trust Fund to help 

ensure a safe, efficient, and adequately funded national airspace system 

will require some tough choices by Congress and FAA. One of the critical 

questions that will need to be addressed is not only the amount of the 

Trust Fund’s uncommitted balance but also whether the government has 

the fiscal capacity to fund current and future Trust Fund obligations while 

concurrently addressing the needs of other competing programs for scarce 

resources. 

FAA and Congress will also have to find a way to better align FAA’s costs 

with revenue and to better address both the cost and revenue sides of the 

ledger. In terms of cost savings, our past work suggests that the cost 

saving initiatives that FAA has identified will not be sufficient to close its 

 7

 U.S. Government Accountability Office, National Airspace System: Progress and 

Ongoing Challenges for the Air Traffic Organization, GAO-05-485T (Washington, D.C.: 

April 14, 2005). 

Concluding 

Observations 
Page 11

projected 4-year cumulative $8.2 billion shortfall. On the revenue side, this 

decision-making will include the consideration of a number of alternatives 

that have been proposed by various aviation stakeholders— ranging from 

increasing the current taxes that accrue to the Trust Fund to adopting user 

fees that would be more cost related— and the trade-offs associated with 

each. We plan to review these alternatives as part of our ongoing review of 

alternative approaches for funding FAA that we are doing at the request of 

this Subcommittee. 

This concludes my statement. I would be pleased to answer any questions 

that you or other members of the Subcommittee may have. 

For further information on this testimony, please contact Dr. Gerald 

Dillingham at (202) 512-2834 or by email at dillinghamg@gao.gov. 

Individuals making key contributions to this testimony include, Jay 

Cherlow, Tammy Conquest, Colin Fallon, David Hooper, Maren McAvoy, 

and Nicolas Zitelli. 

Contacts and 

Acknowledgments 

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