United States Government Accountability Office

GAO Testimony 

Before the Committee on Finance, 

U.S. Senate

FEDERAL AVIATION 

ADMINISTRATION 

Viability of Current Funding 

Structure for Aviation 

Activities and Observations 

on Funding Provisions of 

Reauthorization Proposals 

Statement of Gerald L. Dillingham, Ph.D. 

Director, Physical Infrastructure Issues 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Thursday, July 12, 2007

 

GAO-07-1104T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 12, 2007

FEDERAL AVIATION ADMINISTRATION

Viability of Current Funding Structure for 

Aviation Activities and Observations on 

Funding Provisions of Reauthorization 

Proposals 

Highlights of GAO-07-1104T, a testimony 

before the Committee on Finance, U.S. 

Senate 

The Federal Aviation 

Administration (FAA) operates one 

of the safest air transportation 

systems in the world, but this 

system is under growing strain as 

the demand for air travel increases.

Recognizing the need to transform 

this system, Congress created the 

Joint Planning and Development 

Office (JPDO), housed within FAA, 

to plan and develop the Next

Generation Air Transportation 

System (NextGen). The current 

authorization for FAA, the Airport 

and Airway Trust Fund (Trust

Fund), and the excise taxes that 

support the Trust Fund will expire 

September 30, 2007.

Reauthorization bills in the Senate

(S. 1300) and the House (H.R. 2881)

identify various revenue sources, 

including flight surcharges and 

certain fees, to fund FAA, including

NextGen. Concerned about the 

need for stable, sustainable

financing for the nation’s 

multibillion-dollar transportation 

infrastructure investments,

including NextGen, GAO has 

designated transportation financing 

as high risk. 

GAO’s statement addresses (1) the

extent to which the current funding

structure can support FAA’s 

activities, including NextGen, (2) 

the implications of selected

provisions of proposals to fund 

aviation activities, and (3) issues 

that could affect the overall cost of

NextGen. The statement is based 

on recent GAO reports and

testimonies, updated through 

interviews with FAA officials and

stakeholder representatives. 

Recent estimates indicate that FAA’s current funding structure—consisting 

primarily of Trust Fund revenues plus a contribution from the General Fund

of the U.S. Treasury—can potentially support FAA’s activities, including 

NextGen. The current structure has provided sufficient funding for FAA’s 

activities to date, and both FAA and the Congressional Budget Office (CBO) 

have estimated that revenues will continue to increase. According to CBO 

projections through 2017, the current structure, if maintained, could support 

about $22 billion in additional spending over current spending levels 

(adjusted for inflation). Congress could also raise more revenue for FAA by 

raising excise tax rates or by increasing the General Fund contribution. 

However, contributions from the General Fund may be limited by the federal 

government’s long-term fiscal imbalance, and policy choices, structural 

changes in the aviation industry, and external events could affect Trust Fund 

revenues. Furthermore, the current funding structure raises concerns about 

equity and efficiency because users may pay more or less than the costs of 

the air traffic control services they receive, and therefore they may lack 

incentives to use the national airspace system as efficiently as possible. 

Selected proposals for funding aviation activities have implications for 

revenue generation, but could pose unintended consequences. For example, 

S. 1300 would authorize a surcharge of $25 per flight on many flights to help 

pay for NextGen capital projects. While a surcharge would create an 

incentive for efficient use of air traffic services, some stakeholders raise the 

possibility that such a fee could lead to reduced air service for small

communities. S. 1300 would also allow FAA to seek debt financing for 

capital projects in the private capital market—a proposal designed to create 

a stable revenue source but costlier than using appropriations or borrowing 

from the U.S. Treasury. H.R. 2881 would raise airport passenger facility

charges, thereby benefiting larger airports more than smaller ones, and it 

would increase fees for certain FAA certification and registration activities. 

However, in general, when fees are imposed for aviation activities, care must

be taken that they do not contribute to a situation in which safety might be 

compromised. 

Issues that could affect the overall cost of NextGen are primarily related to 

the content and cost of its infrastructure and research. JPDO is developing 

and has issued some key planning documents that will provide more insights 

into some of these issues, but questions remain over which entities will 

perform activities such as research and development. Other issues include 

the cost savings that could result from more efficient FAA operations and 

acquisition processes, which could reduce the need for new NextGen 

funding, and the extent to which public-private partnerships and leasing can 

be used to acquire NextGen infrastructure as flexibly and cost-effectively as

possible. 

www.gao.gov/cgi-bin/getrpt?GAO-07-1104T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Gerald L. 

Dillingham at (202) 512-2834 or 

dillinghamg@gao.gov. 
Mr. Chairman and Members of the Committee: 

We appreciate the opportunity to participate in today’s hearing on the 

future funding of the Federal Aviation Administration (FAA). As you 

know, FAA operates one of the safest air transportation systems in the 

world, but this system is under growing strain as the demand for air travel 

increases. According to FAA, over 740 million passengers flew in fiscal 

year 2006, and 1 billion passengers per year are expected to fly in 2015. 

FAA also predicts that 10,000 corporate aircraft, including traditional 

business jets, turboprops, and very light jets, will be added to the fleet 

between 2007 and 2017. To accommodate this increased traffic, instrument 

flight rule operations—the most significant source of demand on the air 

traffic control system—are projected to rise by 36 percent, from roughly 

45,000 per day to 61,000 per day over the same decade. Yet even at today’s

flight levels, flight arrival delays are approaching the record levels set in 

2000, when one in four flights reached its destination late. The consensus 

is that the current air traffic control system cannot be expanded to meet 

this expected growth. According to a federal analysis of future demand 

and system capacity, the estimated cost to the U.S. economy of failing to 

meet future airspace demands could be $22 billion annually by 2023. 

In 2003, recognizing the need for a new and different type of air traffic 

control system to deal with the expected growth, Congress authorized the 

creation of the Joint Planning and Development Office (JPDO),1

 housed 

within FAA, to lead a collaborative effort of federal and nonfederal 

aviation stakeholders to conceptualize and plan the Next Generation Air 

Transportation System (NextGen). The transformation to NextGen will 

involve the acquisition of numerous systems to support precision satellite 

navigation; digital, networked communications; integrated weather 

information; and layered, adaptive security. The total estimated 

expenditures for NextGen—for both capital costs and research and 

development costs—is $4.3 billion over the next 5 years. 

As you know, the current authorization for FAA, the Airport and Airway 

Trust Fund (Trust Fund), and the excise taxes that provide revenue for the 

Trust Fund will expire at the end of this fiscal year. Reauthorization 

proposals have been introduced in both the Senate2

 (S. 1300) and the 

 1

JPDO was authorized by the Vision 100—Century of Aviation Reauthorization Act (Pub. L.

No. 108-176). 

2

S.1300, 110th Cong., 1st Sess. (May 3, 2007). 

Page 1 GAO-07-1104T 
House3

 (H.R. 2881), which identify various revenue sources to fund FAA, 

including NextGen.4

 These sources include the current excise taxes, flight 

surcharges, and certification and registration fees. As requested, my 

statement today will address the following questions: (1) To what extent 

can the current funding structure support FAA’s activities, including 

NextGen? (2) What are the implications of selected provisions of 

proposals to fund aviation activities? (3) What issues could affect the 

overall cost of NextGen? My remarks are based on recent GAO reports and 

testimonies5

 on FAA’s current funding structure, funding options that 

might address those concerns, and NextGen. For these reports and 

testimonies, we reviewed relevant literature, examined FAA data and 

forecasts, and interviewed FAA and other government agency officials, 

aviation industry group representatives, and academic and financial 

experts. In addition, for this statement, we analyzed provisions of the 

reauthorization proposals dealing with funding FAA and NextGen and 

discussed them with FAA officials and aviation industry group 

representatives. We conducted our work during July 2007 in accordance 

with generally accepted government auditing standards. 

• Recent estimates indicate that FAA’s current funding structure—

consisting primarily of Trust Fund revenues plus a contribution from the 

General Fund of the U.S. Treasury—can potentially support FAA’s 

activities, including NextGen. In aggregate, since the Trust Fund was 

created in 1970, revenues to the fund have exceeded appropriations from 

it, resulting in an uncommitted balance, or surplus. This balance has 

Summary 

 3

H.R.2881, 110th Cong., 1st Sess. (June 27, 2007). 

4

In addition, H.R. 2698 would authorize appropriations for FAA’s civil aviation research and 

development projects. 

5

Airport Finance: Preliminary Analysis Indicates Proposed Changes in the Airport 

Improvement Program May Not Resolve Funding Needs for Smaller Airports, 

GAO-07-617T (Washington, D.C.: Mar. 28, 2007); Federal Aviation Administration: 

Observations on Selected Changes to FAA’s Funding and Budget Structure in the

Administration’s Reauthorization Proposal, GAO-07-625T (Washington, D.C.: Mar. 21, 

2007); Next Generation Air Transportation System: Progress and Challenges Associated

with the Transformation of the National Airspace System, GAO-07-25 (Washington, D.C.: 

Nov. 13, 2006); Aviation Finance: Observations on Potential FAA Funding Options, 

GAO-06-973 (Washington, D.C.: Sept. 29, 2006); National Airspace System Modernization: 

Observations on Potential Funding Options for FAA and the Next Generation Airspace 

System, GAO-06-1114T (Washington, D.C.: Sept. 27, 2006); and Federal Aviation 

Administration: An Analysis of the Financial Viability of the Airport and Airway Trust 

Fund, GAO-06-562T (Washington, D.C.: Mar. 28, 2006).

Page 2 GAO-07-1104T 
declined in recent years, from about $7.3 billion at the end of fiscal year 

2001 to about $1.8 billion at the end of fiscal year 2006. This decline has 

occurred because expenditures from the fund are based on projected 

revenues and FAA has had to draw down funds when actual revenues have 

fallen short of projections and have not been sufficient to cover 

expenditures. To help ensure that revenues are sufficient to cover 

expenditures, H.R. 2881 proposes that Congress base expenditures from 

the Trust Fund on 95 percent, rather than 100 percent, of estimated Trust 

Fund revenues. Notwithstanding these recent shortfalls, both FAA and the 

Congressional Budget Office (CBO) have estimated that FAA’s revenues 

will continue to grow over the next decade under the current structure. 

For example, CBO has projected that at current tax rates, the current 

structure could support about $22 billion in additional spending over 

current spending levels (adjusted for inflation) through 2017. Moreover, 

should Congress wish to provide additional funding for FAA activities, it 

could raise additional revenue under the current structure by raising the 

rates on one or more of the current excise taxes or by increasing the 

General Fund contribution. This contribution may, however, be limited by

the federal government’s long-term fiscal imbalance, and policy choices, 

structural changes in the aviation industry, and external events could 

affect revenues to the Trust Fund. Furthermore, the current funding 

structure raises concerns about equity and efficiency because users may 

pay more or less than the costs of the air traffic control services they 

receive, and therefore they may lack incentives to use the national 

airspace system as efficiently as possible. 

• Selected provisions of proposals for funding aviation activities have 

implications for revenue generation, but in some cases could have 

unintended consequences. For example, S. 1300 would authorize the FAA 

Administrator to impose a surcharge of $25 per flight on many aircraft 

owners and operators to help pay for NextGen capital projects. While a 

surcharge would create an incentive for efficient use of air traffic services,

some stakeholders question the equity of charging the same fee for aircraft 

of all sizes, and raise the possibility that such a fee could lead to reduced 

air service for small communities. S. 1300 would also allow FAA to seek 

debt financing for capital projects in the private capital market—a 

proposal that could possibly create a stable revenue source, but would 

cost the government more than paying for its investments with 

appropriations or borrowing from the Treasury. H.R. 2881 would allow 

Page 3 GAO-07-1104T 
airports to raise their passenger facility charges (PFC).6

 This action would 

provide additional revenues for aviation infrastructure and likely benefit 

larger airports more than smaller airports. However, it could also have a

limited effect on the demand for air travel. H.R. 2881 would also establish 

increased fees for certain FAA certification and registration activities, and

such fees would provide additional revenues. However, in general, when 

fees are imposed for aviation activities, care must be taken to prevent 

them from contributing to a situation in which safety might be 

compromised. 

• While revenue estimates indicate that the current funding structure could 

adequately support NextGen, a number of issues could affect its overall 

cost, especially those related to its resource requirements. A major issue is 

the precise content and associated costs of NextGen infrastructure and 

research. JPDO is developing and has already released some key planning 

documents that describe the capabilities needed to transition to NextGen, 

establish time lines for completing essential tasks, and identify the 

responsibilities of the JPDO partner agencies for these tasks, together with 

the required funding. These documents should provide more insight into 

NextGen’s requirements and costs. Additionally, questions remain over 

which entities will fund and conduct some of the necessary research, 

development, demonstration projects, and training that will be needed to 

achieve certain NextGen capabilities. Other issues include the cost savings

that could result from improvements in FAA operations and acquisition 

processes, which could reduce the need for new NextGen funding, and the 

extent to which FAA uses public-private partnerships and leasing to 

acquire NextGen infrastructure as flexibly and as cost-effectively as 

possible. 

Although there have been fluctuations in its funding sources, FAA has 

been supported by the current structure for decades. The agency is 

primarily funded by the Trust Fund (82 percent)—which receives revenues 

from a series of excise taxes paid by users of the national airspace 

system—and by General Fund revenues. These excise taxes are associated 

with purchases of airline tickets and aviation fuel, as well as the shipment 

of cargo, and are scheduled to expire September 30, 2007. Trust Fund 

revenues are available for use subject to appropriation. Including interest 

Background 

 6

The PFC program allows the collection of PFC fees up to $4.50 for every enplaned 

passenger at commercial airports controlled by public agencies. Airports use these fees to

fund FAA-approved projects that enhance safety, security, or capacity; reduce noise; or

increase air carrier competition. 

Page 4 GAO-07-1104T 
earned on its balances, the Trust Fund received about $11.2 billion in 2006. 

In addition, about $2.6 billion was appropriated for fiscal year 2006 from 

the General Fund for FAA operations. Table 1 shows the distribution of 

Trust Fund revenues for 2005 by source.7

Table 1: Sources of Trust Fund Revenue, Fiscal Year 2005 

Dollars in millions 

Revenue source Amount Percent

Passenger ticket tax $5,161 48

Passenger flight segment tax 1,900 18

Cargo tax 461 4

Fuel tax 971 9

International departure and arrival tax 1,922 18

Interest 440 4

Refundsa(101) (1)

Total $10,754 100

Source: GAO analysis of FAA data. 

a

Refunds include: refund of aviation fuel other than gas (noncommercial), refund of aviation gasoline 

(noncommercial), and other refunds/credits. 

The Trust Fund was established by the Airport and Airway Revenue Act of 

19708

 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 three of FAA’s four accounts, including (1) the 

Facilities and Equipment (F&E) account, which funds technological 

improvements to the air traffic control system; (2) the Research, 

Engineering, and Development (RE&D) account, which funds research on

issues related to aviation safety, mobility, and the environment as well as 

most of FAA’s contribution to JPDO;9

 and (3) the Airport Improvement 

Program (AIP), which provides grants for construction and safety projects

at airports. In addition, at various times during its history, the Trust Fund 

 7

As recommended by FAA, we are using 2005 data to show the breakdown of Trust Fund

revenue by source because of uncertainty in the available 2006 data regarding the

distribution of fuel tax revenues between commercial and general aviation.

8

Pub. L. No. 91-258. 

9

For the past few years, FAA and NASA have been the primary supporters of JPDO 

activities. The administration’s proposed budget for fiscal year 2008 for FAA includes $17.8 

million to support JPDO activities. NASA is planning to contribute about $18 million to 

JPDO in fiscal year 2008. 

Page 5 GAO-07-1104T 
has provided all or some portion of the funding for FAA’s Operations 

account. In 2006, expenditures from the Trust Fund totaling $11.2 billion 

were made among the four accounts as shown in figure 1. 

Figure 1: Trust Fund Expenditures for Fiscal Year 2006

The current funding structure—excise taxes plus a General Fund 

contribution—has funded FAA for many years, and estimates indicate that 

this structure can potentially provide sufficient funds for the next several 

years to support the transition to NextGen. As the number of air travelers 

has grown, so have excise tax revenues. Even though revenues fell with 

the decline in air travel following the terrorist attacks of September 11, 

2001, they began to rise again in fiscal year 2004, and FAA estimates that if 

the current taxes remain in effect at their current rates, revenues will 

continue to increase. 

While retaining the basic structure for funding FAA, Congress has at times 

changed the mix of excise taxes and some of the tax rates and has 

appropriated different amounts from the General Fund to offset Trust 

Fund fluctuations. For example, when the taxes were most recently 

reauthorized in 1997, Congress added the passenger segment tax while 

reducing the passenger ticket tax rate from 10 percent to 7.5 percent. 

48.8%

27.3%

22.7%

Airport improvement program ($3.071)

Facilities and equipment ($2.555)

1.2%

Research, engineering, and

development ($.137)

Operations ($5.486)

Source: GAO analysis of FAA data. 

Dollars in billions

Estimates Indicate 

That Current Funding 

Structure Can 

Support FAA 

Activities, Including 

NextGen, but 

Structure Raises

Concerns about 

Equity and Efficiency 

Page 6 GAO-07-1104T 
Congress has also appropriated varying amounts of General Fund 

revenues for FAA during the past 25 years, ranging from 0 to 59 percent of 

FAA’s budget and averaging around 20 percent since fiscal year 1997. The 

amount of the General Fund contribution fluctuates because the 

contribution is based on the incoming Trust Fund revenues that are 

available to fund the Operations account after revenues have been 

allocated to fund the F&E, AIP, and RE&D accounts. Therefore, 

fluctuations in Trust Fund revenues and FAA expenditures require 

different levels of General Fund contributions. 

Since the Trust Fund’s creation in 1970, revenues have in aggregate 

exceeded spending commitments, resulting in an uncommitted balance, or

surplus.10 As of the end of fiscal year 2006, the Trust Fund’s uncommitted 

balance was about $1.8 billion. The Trust Fund’s uncommitted balance 

depends on the revenues flowing into the fund and the appropriations 

made available from the fund for various spending accounts. Policy 

choices, structural changes in the aviation industry, and external events 

have affected revenues flowing into and out of the fund. For the last 6 

years, for example, the uncommitted balance has been declining because 

expenditures from the fund are based on projected revenues and actual

revenues have been less than FAA forecasted.11

 10The Trust Fund’s uncommitted balance represents money against which there is no 

outstanding budget commitment or budget authority to spend. 

11In recent years, the difference between forecasted and actual Trust Fund revenues has 

been smaller than it was earlier in the decade, in part because the external demand shocks

have been smaller and in part because of efforts by FAA to improve its forecasting models. 

However, the actual balance at the end of fiscal year 2007 will likely be lower than

forecasted, according to FAA. 

Page 7 GAO-07-1104T 
Figure 2: Airport and Airway Trust Fund End-of-Year Uncommitted Balance, Fiscal 

Years 1999-2007 

Note: Amount for end of fiscal year 2007 is estimated. 

In prior work, we ran scenarios in which Trust Fund revenues continued 

to fall short of forecasted levels and the Trust Fund balance continued to 

decline, eventually falling to zero. We believe these scenarios raise 

concerns because in the past the Trust Fund’s uncommitted balance has 

been used to offset lower-than-expected Trust Fund revenues and 

decreased General Fund contributions. The zero-balance scenario would 

most likely have implications for Congress in funding FAA programs, 

including NextGen. To address this concern, H.R. 2881 proposes to base 

expenditures from the Trust Fund on 95 percent, rather than 100 percent,

of estimated Trust Fund revenues, which would reduce the likelihood of 

running the Trust Fund balance to zero. 

According to projections prepared by the Congressional Budget Office 

(CBO),12 the existing funding structure, if maintained, will generate 

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1999 2000 2001 2002 2003 2004 2005 2006 2007

Dollars in millions

Source: FAA.

Fiscal year

 12CBO, Financing Investment in the Air Traffic Control System (Washington, D.C.: Sept. 

27, 2006). 

Page 8 GAO-07-1104T 
substantially increasing revenues over the next decade. Assuming that the

General Fund provides about 19 percent of FAA’s budget, CBO estimates 

that through 2017 the Trust Fund can support about $22 billion in 

additional spending over the baseline FAA spending levels CBO has 

calculated for FAA (the 2006 funding level, growing with inflation) 

provided that most of that spending occurs after 2010.13 According to FAA, 

the majority of the funding for NextGen will take place after 2010. 

Moreover, if the desired level of spending exceeded what was likely to be

available from the Trust Fund at current tax rates, Congress could make 

changes within the current structure that would provide FAA with 

additional revenue. For example, Congress could raise more revenue from 

airspace system users for modernization or for other purposes by raising

the rates on one or more of the current excise taxes. Congress could also 

provide more General Fund revenues for FAA, although the nation’s fiscal

imbalance may make a larger contribution from this source difficult. 

While the current funding structure can produce enough revenue to fund 

FAA, including NextGen, this structure presents equity and efficiency

concerns. FAA and others have stated that the current approach to 

collecting funds from users through excise taxes creates inequities 

because the revenue contributions of different flights are not directly 

linked to the costs of the services that these flights receive from FAA. 

Some stakeholders have also raised concerns that the current funding 

system does not provide aircraft operators with incentives to use FAA 

services in the most efficient manner. For users to make efficient 

decisions about their use of the national airspace system, their price for 

using the system (the taxes or charges they pay) should accurately reflect

the costs their use imposes on the system.14 These prices, along with other 

factors influencing supply and demand, will influence users’ decisions 

 13This estimate takes into account expected increases in air travel in estimating revenues, 

but, by law, it does not take into account any possible increases in expenditures for FAA’s

Operations account due to these increases in air travel because increases in expenditures

are based on a baseline figure adjusted for inflation. 

14Assessing both the equity and the efficiency of a funding structure requires knowledge of

how costs are divided among users. FAA recently completed a cost allocation study that

assigns air traffic control costs to user groups based on aircraft type. However, we

determined that FAA’s methodology lacked certain analyses and documentation that would 

be important in determining whether costs as assigned reasonably reflect the services 

received by various users. 

Page 9 GAO-07-1104T 
about the type, size, and number of aircraft to operate, and when and 

where to operate them.15

Provisions of the Senate and House reauthorization bills propose different

types of revenue sources to fund FAA and NextGen. These provisions have 

implications for revenue generation, but could also have unintended 

consequences. 

S. 1300 includes a provision requiring the FAA Administrator to impose a 

surcharge of $25 per flight to be available to pay the costs of NextGen 

capital projects. All owners or operators of aircraft in the national airspace 

system would be required to pay this surcharge except those that fall into

certain exempt categories.16 FAA estimates that this fee could yield $400

million a year by 2011. We estimate, on the basis of 2006 operations, that 

commercial airlines would contribute 36 percent of the fees; regional 

airlines would contribute 31 percent, though carrying far fewer 

passengers; and general aviation would contribute 11 percent (see fig. 3).

Selected Provisions of 

Proposals for Funding 

Aviation Activities 

Have Implications for 

Revenue Generation 

and Could Have 

Unintended 

Consequences 

 15Supply factors that influence users’ decisions include other costs of operating aircraft, 

such as labor, fuel, and capital costs. Demand factors include the state of the economy and 

the price and convenience of flying compared with using other modes of transportation.

Given the importance of some of these other factors to users’ decisions about using the

national airspace system, the influence on these decisions of the prices charged for FAA 

services may be comparatively small for some users. 

16These exempt categories include military and public aircraft, piston engine aircraft, and 

turboprop aircraft operating outside of controlled airspace, among others. 

Page 10 GAO-07-1104T 
Figure 3: Distribution of Surcharge by User, Based on 2006 Operations

One potential advantage of this type of charge is that it would establish a 

more direct relationship between revenue and costs compared with the 

current excise taxes. Advocates of this approach say that funding FAA in 

part through such a charge would do more than the current structure to 

ensure that revenues are adequate to cover costs over time and to create

incentives for efficient use of the national airspace system by directly

connecting charges with the costs imposed by users. On the other hand, 

although this connection would appear to exist for FAA’s costs of 

providing terminal control services—the more flights, the more charges an 

operator pays—there is no obvious connection with the costs of en route 

services because the charge would be the same for short and long flights.

In addition, concerns have been raised about the equity of a charge that 

would apply equally to all jet aircraft regardless of size. Another concern 

has been raised that the fee might lead to reduced air service by turboprop 

operators providing regular service to small communities as well as 

reduced service provided through the Essential Air Service program to 

small communities because of the increased expense that the fee would 

represent. 

Another S. 1300 provision would grant FAA the authority to seek debt

financing by issuing bonds directly to the private capital market. 

Regional airlines - turbo/piston 36%

18%

Source: GAO analysis of FAA data.

Regional airlines - jets <60 seats

9%

11%

5% 

4% 

6% 

U.S. commercial carriers

Regional airlines - jets 61+ seats

Fractional and part 135

11%

General aviation - turbine

Cargo

Foreign carriers

Page 11 GAO-07-1104T 
Supporters of this bonding proposal for FAA claim a number of 

advantages to this financing approach. One claim is that debt financing 

could provide FAA with a stable and predictable revenue source for 

funding capital development. FAA officials state that the uncertainty 

associated with the appropriation process makes planning for a large,

complex, and expensive air traffic control system like NextGen difficult. 

Over the years, federal agencies have used a variety of financing 

approaches to acquire capital assets. However, from a governmentwide 

perspective, some approaches, such as bonding, raise serious concerns 

because they ultimately will result in higher overall costs. Moreover, if 

FAA were granted borrowing authority, the associated costs would be 

higher by borrowing directly from the private capital market instead of 

through the Treasury. According to Treasury officials and representatives 

of investment firms, this occurs because the Treasury is charged a lower 

interest rate to borrow money. The costs of borrowing may also be higher 

if the revenue option—such as taxes or user charges—used to pay back 

the bond is subject to appropriations because there would most likely be a 

risk premium added to the credit rating to compensate for the risk that 

appropriations may not be provided. We have reported that given the 

federal government’s long-term structural fiscal imbalance, any action that 

may increase the government’s costs requires sound justification and 

careful consideration before it is adopted.17

A provision of H.R. 2881 would allow airports to increase PFCs to a 

maximum of $7, while an S. 1300 provision would retain the cap at $4.50.

Increasing the cap on PFCs would generate more revenue, especially for

larger airports. A $7 PFC could generate nearly $2 billion in additional 

revenues for airports assuming all airports imposed the maximum PFC 

(see table 2). 

 17GAO-06-1114T. 

Page 12 GAO-07-1104T 
Table 2: Projected Maximum PFC Collections for 2007 with a $7 PFC

Dollars in millions 

Airport size 

2007 PFC 

collectionsa

2007 PFC collections if 

only airports currently 

at $4.50 increased to $7 

2007 PFC collections

 if all airports had 

a $7 PFC

Large hub $1,869 $2,831 $3,152

Medium hub 487 706 914

Subtotal $2,356 $3,537 $4,066

Small hub 184 262 354

Nonhub 71 108 144

Nonprimary 

Commercial 

Service 1 1 5

Subtotal $256 $371 $503

Total

b

$2,612 $3,907 $4,569

Source: GAO analysis of FAA data. 

a

There are currently 517 commercial service airports eligible to apply for a PFC. These are airports

with more than 2,500 annual enplanements. 

b

May not total due to rounding. 

However, not all airports are expected to move to the maximum ceiling 

right away because many airports have a lesser or no PFC in place 

currently. If only those airports with a PFC at the current maximum of 

$4.50 increased their PFC to $7.00 and the others made no change, the 

proposed fee increase would yield approximately $1.3 billion per year in

additional revenues. This calculation assumes that the increased PFC 

would not affect passenger demand for air travel. We have previously 

calculated that a PFC increase could reduce passenger demand, which 

would reduce the PFC revenue collected at the higher rate. Nevertheless, 

our previous work suggests the revenue reduction due to demand effects 

would likely be small.18 Smaller airports (small and nonhub) would not 

benefit directly as much from this ability to increase PFCs because smaller 

airports have fewer passengers from whom to collect PFCs.19 However, 

smaller airports, which rely primarily on AIP grants for capital funding, 

may benefit indirectly from an increased cap on PFCs. AIP’s Small Airport 

 18GAO, Passenger Facility Charges: Program Implementation and the Potential Effects of

Proposed Changes, GAO/RCED-99-138 (Washington, D.C.: May 19, 1999). 

19General aviation airports are excluded since they do not have passengers that would pay 

a PFC. 

Page 13 GAO-07-1104T 
Fund, which totaled $428 million in 2006, is funded by the turnback of up

to 75 percent of large and medium hub airports’ entitlements.20 H.R. 2881 

would increase the turnback to 100 percent of entitlements for large and 

medium hub airports that impose a PFC above $4.50. While S. 1300 does 

not include an increase in PFCs, it does include a pilot program for up to 

six airports to impose unlimited PFCs if the airports collect the fee directly

from passengers. 

H.R. 2881 includes increased user fees to pay for the costs of certain 

certification and registration activities of FAA. Such fees would provide 

additional revenue and more directly link revenue contributions to the 

cost of the services. These fees cover services and activities for issuing 

certain certificates, registering aircraft and airmen, issuing airmen medical 

certificates, and providing a legal opinion pertaining to aircraft registration 

or recordation. In some cases, such as the registration of aircraft, FAA 

already charges a modest fee ($5), which has not been raised since 1964. 

We have reported that this fee does not cover the cost of reviewing and 

processing a registration application and have recommended that FAA 

increase the fee.21 The proposal would raise the fee to $130 and allow FAA 

to periodically adjust this and other fees based on the cost of providing the 

service. However, in general, when fees are imposed for aviation activities, 

care must be taken that they do not contribute to a situation in which 

safety might be compromised. 

While revenue estimates indicate that the current funding structure can 

potentially fund NextGen, a number of issues could affect NextGen’s 

overall cost, especially its resource requirements, which have not yet been

fully determined. The precise content and associated costs of NextGen 

infrastructure and research are not fully known, nor are the resources that 

will be contributed by other federal agencies. Other issues include the cost 

savings that could result from more efficient FAA operations and 

acquisition processes, which could reduce the need for new NextGen 

funding, and the extent to which FAA uses public-private partnerships or 

leasing arrangements to acquire NextGen infrastructure as flexibly and as 

cost-effectively as possible. 

Resource 

Requirements for 

NextGen and Other 

Issues Could Affect 

Its Overall Cost 

 20Entitlements are AIP funds apportioned to airport sponsors and states for eligible 

projects based on formulas. 

21GAO, Aviation Safety: Unresolved Issues Involving U.S.-Registered Aircraft, 

GAO/RCED-93-135 (Washington, D.C.: June 18, 1993). 

Page 14 GAO-07-1104T 
JPDO recently estimated that the total federal cost for NextGen 

infrastructure through 2025 will range between $15 billion and $22 billion. 

JPDO also reported that a preliminary estimate of the corresponding cost 

to system users, who will have to equip with the advanced avionics that 

are necessary to realize the full benefits of some NextGen technologies, 

ranges between $14 billion and $20 billion.22 Thus, according to JPDO, the 

total costs for NextGen could be anywhere between $29 billion and $42 

billion. We consider $13 billion to be a significantly wide range and believe 

there is a need to better define the costs of NextGen. 

According to JPDO officials, more precise cost estimates will depend on 

information contained in several key planning documents, some of which 

have been released and some of which are still being developed. Last 

month, JPDO released both the latest version of the NextGen Concept of 

Operations23 and the first version of the NextGen Enterprise Architecture.24

JPDO is developing an Integrated Work Plan that will describe the 

capabilities needed to transition to NextGen from the current system and 

provide the research, policy and regulation, and acquisition time lines 

necessary to achieve NextGen by 2025. The Integrated Work Plan, 

scheduled for release at the end of this month, is akin to a project plan and 

will be critical for planning the partner agencies’ fiscal year 2009 budgets 

and programs. JPDO is also developing an Office of Management and 

Budget (OMB) Exhibit 300 for NextGen that will be used as input to 

funding decisions for NextGen research and acquisitions across JPDO’s 

 22JPDO noted that this range for avionics costs reflects uncertainty about equipage costs 

for individual aircraft, the number of very light jets that will operate in high-performance 

airspace, and the amount of out-of-service time required for installation. 

23The NextGen Concept of Operations provides written descriptions of how the NextGen 

system is envisioned to operate in 2025 and beyond, including highlighting key research 

and policy issues that will need to be addressed. Following an introductory section, the

Concept of Operations has eight sections covering air traffic management operations, 

airport operations and infrastructure services, net-centric infrastructure services, shared

situational awareness services, security services, an environmental management 

framework, safety management services, and performance management services. 

24The NextGen Enterprise Architecture is a technical description of the NextGen system, 

akin to a blueprint for a building. The Enterprise Architecture is meant to provide a

common tool for planning and understanding the complex, interrelated systems that will 

make up NextGen. 

Page 15 GAO-07-1104T 
partner agencies.25 This Exhibit 300 will be due to OMB in September 2007 

and will inform decisions about the partner agencies’ 2009 budget 

submissions. It will be important that these various documents be used in

the near term to develop more refined cost estimates for NextGen. 

While JPDO has released estimates for NextGen, questions remain over 

how much it will cost and which entities will fund and conduct some of 

the necessary research, development, demonstration projects, and training

that will be key to achieving certain NextGen capabilities. In the past, the 

National Aeronautics and Space Administration (NASA) has performed a 

significant portion of federal aeronautics research and development, 

including intermediate technology development. However, NASA’s 

aeronautics research budget and proposed funding show a 30-percent 

decline, in constant 2005 dollars, from fiscal year 2005 through fiscal year 

2011. To its credit, NASA plans to focus its research on the needs of 

NextGen. However, NASA is also moving toward an emphasis on 

fundamental research and away from developmental work and 

demonstration projects, which could negatively affect NextGen if other 

agencies do not assume these efforts. According to FAA and JPDO 

officials, they are currently studying these issues and trying to assess how 

much research and development work FAA can assume. FAA has 

proposed increasing its research and development funding by $280 million 

over the next 5 years. However, a draft report by an advisory committee to 

FAA stated that FAA would need at least $100 million annually in 

increased funding to assume NASA’s research and development work, and 

establishing the necessary infrastructure within FAA could delay the 

implementation of NextGen by 5 years. 

The overall cost of NextGen could be reduced to the extent that FAA 

realizes cost savings from improved operations and acquisition processes. 

We have reported that, over the past few years, FAA has made significant 

progress in moving to more businesslike and cost-effective operations, 

which should better position the agency for the complex implementation 

 25Section 300 of OMB Circular No. A-11, Preparation, Submission, and Execution of the

Budget (Nov. 2, 2005), sets forth requirements for federal agencies for planning, budgeting, 

acquiring, and managing information technology capital assets. Exhibit 300 is designed to

ensure that the business case for an investment is tied to an agency’s mission statement, 

long-term goals and objectives, and annual performance plans. It is submitted with an 

agency’s budget submission to OMB. 

Page 16 GAO-07-1104T 
of NextGen.26 Cost savings could come about in a number of ways. For 

example, the transformation to NextGen may present new opportunities 

for consolidating facilities or outsourcing services, both of which could 

bring long-term savings to FAA. In addition, FAA has reported 

improvements in its management of major system acquisitions. To the 

extent that FAA can keep NextGen systems on schedule, FAA may be able 

to avoid the escalation in acquisition costs that plagued its past 

modernization efforts. Keeping acquisitions on schedule will also mean 

realizing more quickly the increased efficiencies or safety benefits of new 

systems and technologies, as well as avoiding the costs and inefficiencies 

of maintaining existing systems. 

Finally, the extent to which FAA employs public-private partnerships or 

leasing arrangements as part of its acquisition strategy for NextGen could 

affect the system’s overall cost. FAA is currently exploring these types of 

options for its future nationwide rollout of Automatic Dependent 

Surveillance-Broadcast, a surveillance system that FAA considers a 

cornerstone technology of NextGen. We believe that these types of 

arrangements could produce significant cost savings and lessen some risks 

for FAA. However, such arrangements must be carefully structured to 

protect the interests of the public and the federal government, and to 

ensure proper governmental oversight. 

With the excise taxes that fund most of FAA’s budget scheduled to expire 

at the end of September 2007, Congress will need to act to avoid a lapse in 

revenue to the Trust Fund. If the taxes are not reauthorized by that time, 

the only revenues credited to the Trust Fund will be the interest earned on 

the fund’s cash balance. FAA estimates that two previous lapses in 1996 

and 1997 resulted in the Trust Fund not receiving about $5 billion in taxes 

and fees that were never recovered. 

FAA estimates that the uncommitted balance in the Trust Fund at the end 

of fiscal year 2007 will be about $1.8 billion dollars. At current monthly 

spending levels, a 2- to 3-month lapse in fiscal year 2008 could reduce the 

revenue in the Trust Fund enough to cause the uncommitted balance to

fall to zero. If the Trust Fund balance falls to zero, the continuation of 

 26GAO, Federal Aviation Administration: Key Issues in Ensuring the Efficient 

Development and Safe Operation of the Next Generation Air Transportation System, 

GAO-07-636T (Washington, D.C.: Mar. 22, 2007). 

Page 17 GAO-07-1104T 
FAA’s programs—including the development of NextGen and grants to 

airports—would depend on providing additional revenues from the 

General Fund. 

Thank you, Mr. Chairman, that concludes my statement. I will be pleased 

to answer any questions that you or other Members of the Committee 

might have.

For further information about this testimony, please contact Gerald L. 

Dillingham at (202) 512-2834. Other key contributors to this testimony 

include Paul Aussendorf, Jay Cherlow, Bess Eisenstadt, Carol Henn, 

Maureen Luna-Long, Faye Morrison, Richard Scott, and Teresa Spisak. 

Contacts and 

Acknowledgments 

Page 18 GAO-07-1104T (540159) 
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