a

GAO

United States General Accounting Office

Report to Congressional Requesters

September 2003 AIRPORT AND 

AIRWAY TRUST 

FUND

Financial Outlook Is 

Positive, but the Trust 

Fund’s Balance Would 

Be Affected If Taxes 

Were Suspended

GAO-03-979
Over the next 3 years, with no change in tax rates and assuming that FAA’s 

passenger traffic and airfare projections are valid, the Trust Fund is 

expected to continue to have sufficient revenue to cover authorized 

spending and end each year with a surplus, or an “uncommitted balance” as 

it is usually called, under each of the three expenditure scenarios we 

analyzed. For fiscal years 2004 through 2006, the potential uncommitted 

balances would range from over $4.4 billion (if Congress adopted either the 

House or the Senate proposal) to $1 billion, if the President’s proposal were 

adopted. 

Suspending some or all of the taxes that accrue to the Trust Fund for 1 year 

would reduce or eliminate the Trust Fund’s uncommitted balance. As 

depicted below, if all taxes accruing to the Trust Fund were suspended, 

effective April 1, 2003, almost $10 billion in tax revenue would be forgone 

and the uncommitted balance would be eliminated by October 2003. The 

status of the Trust Fund would also differ according to the reauthorization 

proposal adopted and the taxes suspended. For example, suspending the 

passenger ticket tax and adopting either the House or Senate proposal would 

reduce the uncommitted balance to $1.8 billion and $2 billion, respectively, 

in 2006. However, suspending the same tax and adopting the President’s 

proposal would eliminate the uncommitted balance by October 2003. The 

budgetary consequences of the remaining potential tax holidays would vary 

substantially. FAA officials stated that under the President’s proposal, a 

passenger ticket tax holiday might require spending cuts to its capital 

programs, while a cargo tax holiday would require few if any spending cuts 

to its programs. In its comments on a draft of this report, FAA agreed with 

the report’s findings and provided some clarifying comments that we 

incorporated where appropriate. 

 

Amount of Forgone Tax Revenues under Five Potential Tax Holiday Scenarios, April 1, 2003, 

through April 1, 2004 

The multibillion dollar Airport and 

Airway Trust Fund (Trust Fund) 

provides most of the funding for 

the Federal Aviation 

Administration (FAA). The Trust 

Fund relies on revenue from 10 

taxes, including passenger ticket, 

fuel, and cargo taxes. Concerns 

about the financial outlook of the 

Trust Fund have emerged recently 

given the downturn in passenger 

air travel, requests from the airlines 

to suspend some of the Trust Fund 

taxes, and the need to reauthorize 

FAA’s major programs in 2003. 

GAO was asked to determine (1) 

the projected financial outlook of 

the Trust Fund and (2) how a 1-

year suspension of various taxes 

accruing to the Trust Fund (i.e., a 

tax holiday), would affect its 

financial status. We were asked to 

assess five potential tax holidays 

that would have begun on April 1, 

2003, and ended on April 1, 2004. 

GAO used a model developed by 

FAA that made financial 

projections for the Trust Fund 

using expenditure assumptions that 

were based on (1) the Senate 

Committee on Commerce, Science, 

and Transportation’s May 2, 2003, 

and the House Subcommittee on 

Aviation’s May 15, 2003, 

reauthorization proposals 

authorizing over $34 billion and (2) 

the President’s proposal 

authorizing almost $38 billion from 

the Trust Fund. For each of these 

proposals, GAO asked FAA to 

model the effects of five different 

tax holidays. 

www.gao.gov/cgi-bin/getrpt?GAO-03-979.

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-03-979, a report to the 

Senate Committee on Commerce, 

Science, and Transportation and its 

Subcommittee on Aviation 

September 2003

AIRPORT AND AIRWAY TRUST FUND 

Financial Outlook Is Positive, but the 

Trust Fund’s Balance Would Be Affected 

If Taxes Were Suspended 
Page i GAO-03-979 Airport and Airway Trust Fund

Contents

Letter 1

Results in Brief 4

Background 5

Projected Financial Outlook for the Trust Fund Is Positive but 

Depends on Realization of Forecasted Passenger Traffic Levels 

and Airfares 11

Suspending Some or All Taxes Accruing to the Trust Fund Would 

Reduce or Eliminate the Trust Fund’s Uncommitted Balance 13

Agency Comments 20

Appendix

Appendix I: Scope and Methodology 21

Tables Table 1: Projected Trust Fund Uncommitted Balances at the End of 

Fiscal Year 2006, by Tax Holiday and Reauthorization 

Proposal 5

Table 2: Expenditures Scenarios Showing Proposal Authorizations 

from the Trust Fund for FAA 10

Table 3: Sensitivity Analysis of the Trust Fund’s Uncommitted 

Balance to Revenue Shortfalls 13

Figures Figure 1: Trust Fund Revenues Totaled $10 Billion in Fiscal Year 

2002 7

Figure 2: Trust Fund Expenditures Totaled $12 Billion in Fiscal 

Year 2002 8

Figure 3: Projected Uncommitted Balances of the Trust Fund, 

Fiscal Years 2003 through 2006 11

Figure 4: The Amount of Forgone Tax Revenues under the Five 

Potential Tax Holiday Scenarios, April 1, 2003, through 

April 1, 2004 14

Figure 5: Trust Fund’s Projected Uncommitted Balances Based on 

Tax Holidays, under the Senate Committee on 

Commerce, Science, and Transportation’s Proposal 15

Figure 6: Trust Fund’s Projected Uncommitted Balances Based on 

Tax Holidays, under the House Committee on 

Transportation and Infrastructure, Subcommittee on 

Aviation’s Proposal 16

Figure 7: Trust Fund’s Projected Uncommitted Balances Based on 

Tax Holidays, under the President’s Proposal 18
Contents

Page ii GAO-03-979 Airport and Airway Trust Fund

Abbreviations

AIP Airport Improvement Program

AIR-21 Wendell H. Ford Aviation Investment and Reform Act for the 21st

Century

FAA Federal Aviation Administration

F&E Facilities and Equipment

RED Research, Engineering, and Development

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-03-979 Airport and Airway Trust Fund

United States General Accounting Office

Washington, D.C. 20548

A

September 15, 2003 Letr

The Honorable John McCain

Chairman

The Honorable Ernest F. Hollings

Ranking Minority Member

Committee on Commerce, Science, and Transportation

United States Senate

The Honorable Trent Lott

Chairman

The Honorable John D. Rockefeller, IV

Ranking Minority Member

Subcommittee on Aviation 

Committee on Commerce, Science, and Transportation

United States Senate

The multibillion dollar Airport and Airway Trust Fund (hereafter called the 

Trust Fund) provides all of the funding for three out of four of the Federal 

Aviation Administration’s (FAA) major accounts—Airport Improvement 

Program; Facilities and Equipment; and Research, Engineering, and 

Development—and a majority of support for the fourth account, 

Operations. The Trust Fund relies on a number of taxes for its revenue, 

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

passengers and airlines.

In fiscal year 2002, the Trust Fund received about $10 billion in revenue and 

had expenditures of about $12 billion. Although expenditures exceeded 

revenues in fiscal year 2002, since its creation in 1970, Trust Fund revenues 

have generally exceeded expenditures—resulting in a surplus (or an 

“uncommitted balance” as it is usually called). For example, at the end of 

fiscal year 2002, the Trust Fund’s uncommitted balance was nearly $5 

billion. The Trust Fund’s uncommitted balance represents money against 

which there is no outstanding budget commitment or authority to spend 

and, subject to congressional approval, is the amount available to finance 

FAA accounts in the future. It was also used to offset forgone revenue 

when Trust Fund taxes lapsed in 1996 and to fund new airport security 

requirements resulting from the September 11, 2001, terrorist attacks. 

Although the Trust Fund’s uncommitted balance totaled almost $5 billion at 

the end of fiscal year 2002, a number of recent developments have raised 

congressional concerns about its financial outlook. First, domestic 
Page 2 GAO-03-979 Airport and Airway Trust Fund

passenger traffic has declined over 12 percent over the last 3 years, in part 

because of a sluggish economy and the public’s reluctance to travel. 

Second, the airline industry is experiencing significant financial problems, 

and the airlines have asked Congress for tax relief, such as suspending the 

taxes that support the Trust Fund, which is known as a “tax holiday.” 

According to Air Transport Association officials, such relief could lower 

airline operational costs, generate additional passenger traffic through 

lower fares, or improve yields realized on existing traffic. Third, given that 

the current authority—the Wendell H. Ford Aviation Investment and 

Reform Act for the 21st Century—for funding FAA’s major programs and 

activities expires at the end of fiscal year 2003, Congress will have to 

decide what level of expenditures from the Trust Fund is appropriate to 

authorize for fiscal year 2004 and beyond. Recently, the Senate Committee 

on Commerce, Science, and Transportation; the House Committee on 

Transportation and Infrastructure’s Subcommittee on Aviation; and the 

President presented reauthorization proposals for FAA. The three 

proposals differ regarding the amounts authorized from the Trust Fund, the 

number of years authorized, and how much would be used to support FAA 

programs. In light of these developments, we were asked to address the 

following questions:

1. What is the projected financial outlook of the Trust Fund?

2. How would the suspension (i.e., a tax holiday) of various taxes 

accruing to the Trust Fund affect its financial status?
Page 3 GAO-03-979 Airport and Airway Trust Fund

To answer these questions, we requested Trust Fund financial projections 

from FAA using the expenditure scenarios included in the following three 

proposals: (1) the Senate Commerce, Science, and Transportation 

Committee’s reauthorization proposal, known as the Aviation Investment 

and Revitalization Vision Act (S. 824, May 2, 2003, version, hereafter called 

the Senate); (2) the House Transportation and Infrastructure Committee, 

the Aviation Subcommittee’s reauthorization proposal, known as Flight 

100—Century of Aviation Reauthorization Act (H.R. 2115, May 15, 2003, 

version, hereafter called the House); and (3) the President’s reauthorization 

proposal, known as the Aviation Authorization Act of 2003. Because there 

is a difference in the number of years that the three expenditure scenarios 

would authorize funding for FAA’s accounts, our analysis compares 

proposed authorizations for fiscal years 2004 through 2006, which were 

included in each scenario. For each of these three proposals, we asked FAA 

to model the effects of the following five different tax holidays: a cargo tax 

holiday, a fuel tax holiday, a flight segment tax holiday, a passenger ticket 

tax holiday,1

 and an “all” tax holiday that would include the four taxes 

previously mentioned and the international departure/arrival taxes. We 

selected these five holidays because they represent a range of different tax 

holiday scenarios. At your request, our analysis was based on a tax holiday 

hypothetically beginning on April 1, 2003, and lasting 1 year until April 1, 

2004. Although our analysis is based on hypothetical tax holidays during 

this period, the results of our analysis would remain valid if Congress were 

to decide to implement the tax holidays retroactive to April 1, 2003, or 

would be similar if Congress were to grant a tax holiday at a later time. The 

information and analysis presented in this report are based on FAA’s most 

recently published aviation forecasts, which were made in November 2002. 

Appendix I provides additional details on our scope and methodology.

We performed our work from February through August 2003 in accordance 

with generally accepted government auditing standards.

1

The passenger ticket tax holiday scenario includes the taxes on domestic airline tickets, 

rural airport tickets, and frequent flyer awards.
Page 4 GAO-03-979 Airport and Airway Trust Fund

Results in Brief With no change in tax rates and assuming FAA’s passenger traffic and 

airfare projections are valid, the Trust Fund is expected to continue to have 

sufficient revenue to cover authorized spending and end each year through 

fiscal year 2006, with a surplus (or an “uncommitted balance”) under each 

of the three expenditure proposals we analyzed. For example, if Congress 

were to adopt the Senate’s or House’s reauthorization proposal, which 

would authorize over $34 billion from the Trust Fund, the Fund’s 

uncommitted balances are projected to be over $4.4 billion each year from 

2004 through 2006. In comparison, if the President’s reauthorization 

proposal to authorize $38 billion from the Trust Fund were to be adopted, 

the Fund’s uncommitted balance is projected to decline from $4.8 billion in 

2002 to $1 billion in 2006 because it authorizes a higher amount of Fund 

revenue for FAA’s Operations. However, if passenger traffic and airfares2

through 2006 are below the levels projected in FAA’s November 2002 

forecast, Trust Fund revenues may not be sufficient to cover planned 

expenditures beginning in 2005. According to FAA officials, as of May 2003, 

passenger traffic levels and airfares are lower than the projections made in 

November 2002.

The suspension of some or all of the taxes that accrue to the Trust Fund for 

1 year would reduce or eliminate the uncommitted balance of the Trust 

Fund. As shown in table 1, for example, suspending all taxes accruing to 

the Trust Fund for 1 year, starting on April 1, 2003, would cause the Trust 

Fund’s uncommitted balance to reach zero by October 2003, no matter 

which legislative proposal were adopted.

2

For forecasting Trust Fund revenues, FAA uses airfares to calculate yields that measure the 

average amount of revenue per passenger mile.
Page 5 GAO-03-979 Airport and Airway Trust Fund

Table 1: Projected Trust Fund Uncommitted Balances at the End of Fiscal Year 2006, by Tax Holiday and Reauthorization 

Proposal 

Source: FAA.

Notes:

At the end of fiscal year 2002, the Trust Fund’s uncommitted balance was $4.8 billion.

The Senate’s reauthorization proposal is the version of S. 824 passed by the Senate Commerce, 

Science, and Transportation Committee on May 2, 2003, and the House’s reauthorization proposal is 

the version of H.R. 2115 passed by the House Transportation and Infrastructure Committee’s Aviation 

Subcommittee on May 15, 2003.

Under an all tax holiday, all taxes accruing to the Trust Fund are suspended. A passenger ticket tax 

holiday would suspend the passenger ticket tax, the rural airport tax, and the frequent flyer tax. A flight 

segment tax holiday would suspend the segment tax. A fuel tax holiday would suspend the commercial 

aviation, general aviation gasoline, and general aviation jet fuel taxes. A cargo tax holiday would 

suspend the cargo waybill taxes.

In addition, according to FAA officials, an all tax holiday would require 

significant spending cuts to FAA’s capital programs and could result in 

contract termination costs in excess of $1 billion under all three 

expenditure scenarios, unless Congress authorized funding from the 

General Fund. However, FAA officials stated that air traffic control services 

would be maintained if taxes were suspended and the Trust Fund’s 

uncommitted balance reached zero because such services are considered 

an emergency function that involves the safety of human life. According to 

FAA officials, to ensure the continued safe operations of the national 

airspace system, the agency would use available Trust Fund revenue to first 

fund Operations costs, which primarily support air traffic control activities. 

In commenting on a draft of this report, FAA agreed with information 

contained in this report and provided some clarifying and technical 

comments that we incorporated where appropriate.

 Background 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 

Dollars in millions

Tax holiday scenarios Senate’s proposal House’s proposal President’s proposal

All taxes Eliminated as of October 2003 Eliminated as of October 2003 Eliminated as of October 2003

Passenger ticket taxes $1,957 $1,772 Eliminated as of October 2003

Flight segment tax 3,608 3,424 Eliminated as of April 2004

Fuel tax 4,237 4,053 $135

Cargo tax 4,412 4,228 495
Page 6 GAO-03-979 Airport and Airway Trust Fund

airway system and to fund FAA investments in air traffic control facilities. 

It provides all of the funding for the Airport Improvement Program (AIP), 

which provides grants for construction and safety projects at airports; the 

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

improvements to the air traffic control system; and a Research, 

Engineering, and Development (RED) account. In fiscal year 2002, the 

Trust Fund provided 79 percent of the funding for FAA Operations, which 

represented almost 50 percent of Trust Fund expenditures.

The Trust Fund is supported by 10 dedicated excise taxes. One of the major 

taxes is referred to as the passenger ticket tax, which include the following 

3 taxes:

• 7.5 percent tax on the price of domestic airline tickets,

• 7.5 percent tax on the value of awards of free or reduced-rate air fares 

(frequent flyer awards tax), and 

• 7.5 percent tax on the price of domestic airline tickets to “qualified rural 

airports” (flight segment fees do not apply if this tax is levied).

The remaining 7 excise taxes that finance the Trust Fund include the 

following:

• $3 on each flight segment, indexed to inflation starting in 2002;

• 6.25 percent tax on the price charged for transporting cargo by air;

• $0.043 per gallon tax on commercial aviation jet fuel;

• $0.193 per gallon tax on general aviation gasoline;

• $0.218 per gallon tax on general aviation jet fuel;

• $13.40 tax on international arrivals, indexed to inflation; and

• $13.40 tax on international departures, indexed to inflation.
Page 7 GAO-03-979 Airport and Airway Trust Fund

In fiscal year 2002, the Trust Fund received about $10 billion in revenue 

from these taxes and interest.3

 As shown in figure 1, the passenger ticket 

tax was the largest single source of Trust Fund revenue, totaling about 47 

percent of all receipts, followed by the flight segment tax at 15 percent of 

total receipts, and the international departure/arrival tax at about 13 

percent of total receipts. 

Figure 1: Trust Fund Revenues Totaled $10 Billion in Fiscal Year 2002

Note: Other revenues to the Trust Fund include the rural airport tax, the frequent flyer tax, and the 

collection of fees from other activities.

Trust Fund expenditures totaled almost $12 billion in fiscal year 2002. As 

shown in figure 2, FAA Operations accounted for nearly half of Trust Fund 

expenditures, followed by AIP grant funding at 24 percent, F&E at 23 

percent, and RED at almost 2 percent. 

3

Interest refers to the amount of money earned on the Trust Fund’s cash balance.
Page 8 GAO-03-979 Airport and Airway Trust Fund

Figure 2: Trust Fund Expenditures Totaled $12 Billion in Fiscal Year 2002

Note: Other expenditures include offsetting collections from the program accounts to the Trust Fund 

and appropriations to the Payments to Air Carriers Program managed by the Department of 

Transportation.

FAA’s current authorization expires on September 30, 2003, and Congress is 

considering three proposals that would reauthorize funding for FAA. In the 

May 2, 2003, version of S. 824, the Senate proposes to authorize $43.4 

billion from 2004 through 2006 for FAA programs, of which $34.4 billion 

would be funded from the Trust Fund, with the balance of $9.1 billion 

covered by the General Fund. In the May 15, 2003, version of H.R. 2115, the 

House Subcommittee on Aviation proposes to authorize $60 billion from 

2004 through 2007 for FAA programs, of which $47.2 billion would be 

funded from the Trust Fund, with the balance of $12.8 billion covered by 

the General Fund. The President’s proposal authorizes $57.3 billion from 

2004 through 2007 for FAA programs, of which $50.8 billion would be 

funded from the Trust Fund and the remaining $6.6 billion would be funded 

from the General Fund. 
Page 9 GAO-03-979 Airport and Airway Trust Fund

Table 2 breaks down the distribution of the funding among FAA programs 

for each of the three expenditure scenarios through 2006.4

 Under each 

proposal, the Trust Fund provides all of the funding for the AIP, F&E, and 

RED programs and funds between 58 and 79 percent of FAA Operations. 

The balance of FAA Operations is funded through the General Fund and not 

reflected in table 2.

4

Although the House’s and President’s reauthorization proposals authorize funding through 

2007, for comparative purposes, our analysis includes authorizations for fiscal years 2004 

through 2006, which were included in all three proposals.
Page 10 GAO-03-979 Airport and Airway Trust Fund

Table 2: Expenditures Scenarios Showing Proposal Authorizations from the Trust 

Fund for FAA

Source: S. 824 (May 2, 2003, version), H.R. 2115 (May 15, 2003, version), H.R. 586, and the President’s reauthorization proposal.

Note: “Other” includes funding for an airline data and analysis program, and a climate change 

program, but does not include payments to air carriers funding. In some cases, the numbers do not 

add to reported totals due to rounding.

Dollars in millions

Fiscal year

2004 2005 2006 Total

Airport Improvement Program

Senate’s proposal $3,400 $3,500 $3,600 $10,500

House’s proposal 3,400 3,600 3,800 10,800

President’s proposal 3,400 3,400 3,400 10,200

Facilities and Equipment

Senate’s proposal 2,916 2,971 3,030 8,917

House’s proposal 2,938 2,993 3,053 8,984

President’s proposal 2,916 2,971 3,031 8,918

Research, Engineering, and

Development

Senate’s proposal 289 204 317 810

House’s proposal 366 410 462 1,238

President’s proposal 100 102 104 306

Operations

Senate’s proposal 4,124 4,808 5,210 14,142

House’s proposal 4,025 4,480 4,842 13,347

President’s proposal 6,000 6,112 6,236 18,348

Other

Senate’s proposal 0 0 0 0

House’s proposal 5 7 5 16

President’s proposal 4 5 5 13

Total authorizations

Senate’s proposal $10,729 $11,483 $12,157 $34,369

House’s proposal 10,734 11,490 12,162 34,385

President’s proposal 12,420 12,590 12,776 37,785
Page 11 GAO-03-979 Airport and Airway Trust Fund

Projected Financial 

Outlook for the Trust 

Fund Is Positive but 

Depends on 

Realization of 

Forecasted Passenger 

Traffic Levels and 

Airfares

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 each of the three expenditure proposals. This 

positive financial outlook depends on the realization of FAA’s forecasted 

passenger traffic levels and airfares. As shown in figure 3, under the 

Senate’s and House’s proposals, the Trust Fund’s year-end uncommitted 

balance is projected to be over $4.4 billion over the next 3 years. Under the 

President’s proposal, the Trust Fund’s year-end uncommitted balance is 

projected to range between $2.9 billion in 2004 and $1 billion in 2006.

Figure 3: Projected Uncommitted Balances of the Trust Fund, Fiscal Years 2003 

through 2006

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

higher under the Senate’s and House’s proposals is that they use the 

formula created in the Wendell H. Ford Aviation Investment and Reform 
Page 12 GAO-03-979 Airport and Airway Trust Fund

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 and RED in a given year equal to 

projected Trust Fund revenues (as specified in the President’s budget) 

minus the authorizations for the capital accounts (AIP and F&E) in that 

year. Thus, under the Senate’s proposal, the Trust Fund is projected to 

support $14.1 billion, or 61 percent of FAA Operations from 2004 through 

2006. Under the House’s proposal, the Trust Fund is projected to support 

$13.3 billion, or 58 percent of FAA Operations from 2004 through 2006.5

 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 $18.3 billion for FAA 

Operations from 2004 through 2006, or about 79 percent of its total 

estimated costs for Operations. 

Although the Trust Fund is projected to have a surplus over the next 

several years under each of the expenditure proposals, this projection 

depends to a significant extent on the realization of forecasted commercial 

passenger traffic levels and airfares. If passenger traffic or yields fall below 

the levels that FAA projected in November 2002, the Trust Fund may not 

have sufficient revenues to fund projected expenditures. For example, 

table 3 presents the projected Trust Fund balances under each expenditure 

proposal and shows the impact if revenues were 5 percent or 10 percent 

less than currently projected. The Trust Fund could absorb these revenue 

shortfalls while retaining a positive balance under the Senate’s and House’s 

proposals because the AIR-21 formula would limit appropriations from the 

Trust Fund for FAA Operations. In contrast, if revenues were 5 percent 

lower than projected, the uncommitted balance of the Trust Fund would 

reach zero during 2006 under the President’s proposal; if the revenues were 

10 percent lower than projected the uncommitted balance would reach 

zero in 2005.

5

Although the House and Senate use the same formulas to determine how much funding of 

FAA Operations should come from the Trust Fund, the total amount of funding in the two 

proposals differ.
Page 13 GAO-03-979 Airport and Airway Trust Fund

Table 3: Sensitivity Analysis of the Trust Fund’s Uncommitted Balance to Revenue 

Shortfalls

Source: FAA.

Suspending Some or 

All Taxes Accruing to 

the Trust Fund Would 

Reduce or Eliminate 

the Trust Fund’s 

Uncommitted Balance

Billions of Trust Fund revenue would be forgone if all taxes accruing to the 

Trust Fund were suspended for 1 year. As shown in figure 4, suspending all 

taxes would result in almost $10 billion in forgone Trust Fund revenues. 

The amount of Trust Fund revenues forgone under the other tax holiday 

scenarios would range from approximately $447 million if the cargo tax 

were suspended to nearly $5.2 billion if the passenger ticket taxes were 

suspended. 

Dollars in millions

Fiscal year

Revenue scenario Proposal 2004 2005 2006

Baseline projections 

as of November 2002. 

Senate $4,565 $4,630 $4,651

House 4,500 4,502 4,467

President 2,878 1,744 1,003

If revenues are 5 percent less

than projected.

Senate 4,098 4,167 4,195

House 4,033 4,039 4,010

President 1,874 143 0

If revenues are 10 percent less

than projected.

Senate 3,631 3,704 3,738

House 3,566 3,576 3,553

President 871 0 0
Page 14 GAO-03-979 Airport and Airway Trust Fund

Figure 4: The Amount of Forgone Tax Revenues under the Five Potential Tax Holiday 

Scenarios, April 1, 2003, through April 1, 2004

Note: This figure does not include the amount of Trust Fund interest that would be forgone. 

Under an all tax holiday, the Trust Fund’s uncommitted balance would 

reach zero by October 2003, no matter which expenditure proposal were 

adopted, as shown in figures 5 through 7. However, the other four tax 

holiday scenarios would affect the Trust Fund’s uncommitted balance in 

different ways under each of the three expenditure proposals. Figure 5 

shows the effects of several tax holidays under the Senate’s proposal. 

Although the Trust Fund’s uncommitted balance would decrease under the 

other four tax holiday scenarios, it would not reach zero. For example, a 

passenger ticket tax holiday would decrease the Trust Fund’s uncommitted 

balance from $4.8 billion in 2002 to $2 billion in 2003 and to $2.1 billion in 

2004, while a fuel tax holiday would reduce it to $4.1 billion in 2003 and to 

$4.2 billion in 2004.
Page 15 GAO-03-979 Airport and Airway Trust Fund

Figure 5: Trust Fund’s Projected Uncommitted Balances Based on Tax Holidays, 

under the Senate Committee on Commerce, Science, and Transportation’s Proposal

Notes:

This figure includes fiscal years 2002 and 2003 and reflects expenditures according to AIR-21, which 

expires on September 30, 2003. It also includes fiscal years 2004 through 2006, which reflects the 

Senate’s reauthorization proposal. 

The baseline represents FAA’s projections of the Trust Fund’s uncommitted balance under the 

Senate’s proposal with no tax holiday. Under an all tax holiday, all taxes accruing to the Trust Fund are 

suspended. A passenger ticket tax holiday would suspend the passenger ticket tax, the rural airport 

tax, and the frequent flyer tax. A flight segment tax holiday would suspend the segment fee. A fuel tax 

holiday would suspend the commercial aviation, general aviation gasoline, and general aviation jet fuel 

taxes. A cargo tax holiday would suspend the cargo waybill taxes.

Similarly, as shown in figure 6, under the House’s proposal, the Trust Fund’s 

uncommitted balance would also decrease under the other four tax holiday 

scenarios, but it would not reach zero. For example, a flight segment fee 

tax holiday would decrease the Trust Fund’s uncommitted balance from 

$4.8 billion in 2002 to $3.5 billion in 2003 and to $3.6 billion in 2004, while a 
Page 16 GAO-03-979 Airport and Airway Trust Fund

cargo tax holiday would reduce it to $4.3 billion in 2003 and to $4.3 billion 

in 2004. 

Figure 6: Trust Fund’s Projected Uncommitted Balances Based on Tax Holidays, 

under the House Committee on Transportation and Infrastructure, Subcommittee on 

Aviation’s Proposal

Notes: 

This figure includes fiscal years 2002 and 2003 and reflects AIR-21, which expires on September 30, 

2003. It also includes fiscal years 2004 through 2006, which reflects the House’s reauthorization 

proposal. 

The baseline represents FAA’s projections of the Trust Fund’s uncommitted balance under the House’s 

proposal with no tax holiday. Under an all tax holiday, all taxes accruing to the Trust Fund are 

suspended. A passenger ticket tax holiday would suspend the passenger ticket tax, the rural airport 

tax, and the frequent flyer tax. A flight segment tax holiday would suspend the segment fee. A fuel tax 

holiday would suspend the commercial aviation, general aviation gasoline, and general aviation jet fuel 

taxes. A cargo tax holiday would suspend the cargo waybill taxes.

In contrast, as shown in figure 7, under the President’s proposal, the Trust 

Fund’s uncommitted balance would reach zero under three of the five tax 
Page 17 GAO-03-979 Airport and Airway Trust Fund

holiday scenarios by the end of 2006. For example, a passenger ticket tax 

holiday would cause the uncommitted balance to reach zero by October 

2003. A fuel tax holiday and cargo tax holiday would be the only tax holiday 

scenarios in which the Trust Fund’s uncommitted balance would not reach 

zero by 2006 under the President’s proposal. Under a fuel tax holiday, the 

Trust Fund’s uncommitted balance would decrease from $4.8 billion in 2002 

to $135 million in 2006, a decrease of about $4.7 billion. Similarly, a cargo 

tax holiday would decrease to $495 million in 2006, a decrease of about $4.3 

billion.

A tax holiday under the President’s proposal would have a greater effect 

because that proposal would require the Trust Fund to support a larger 

percentage of FAA Operations compared with the Senate’s and House’s 

proposals. For example, if there were an all tax holiday and the President’s 

proposal was adopted, the Trust Fund would support 79 percent of FAA 

Operations. Under the Senate’s and House’s proposals, the amount of 

funding spent on FAA Operations would be reduced in response to the 

amount of revenues lost from a tax holiday due to the adoption of the AIR21 funding formula for Operations. 
Page 18 GAO-03-979 Airport and Airway Trust Fund

Figure 7: Trust Fund’s Projected Uncommitted Balances Based on Tax Holidays, 

under the President’s Proposal

Notes: 

This figure includes fiscal years 2002 and 2003 and reflects AIR-21, which expires on September 30, 

2003. It also includes fiscal years 2004 through 2006, which reflects the President’s reauthorization 

proposal. 

The baseline represents FAA’s projections of the Trust Fund’s uncommitted balance under the 

President’s proposal with no tax holiday. Under an all tax holiday, all taxes accruing to the Trust Fund 

are suspended. A passenger ticket tax holiday would suspend the passenger ticket tax, the rural 

airport tax, and the frequent flyer tax. A flight segment tax holiday would suspend the segment fee. A 

fuel tax holiday would suspend the commercial aviation, general aviation gasoline, and general 

aviation jet fuel taxes. A cargo tax holiday would suspend the cargo waybill taxes.

In addition to forgone revenue and the elimination or reduction of the Trust 

Fund’s uncommitted balance, granting any kind of tax holiday could pose 

budgetary challenges for FAA. For example, as previously noted, a 1-year 

all tax holiday starting in April 2003 would cause the uncommitted balance 

of the Trust Fund to reach zero by October 2003 and might require FAA to 

make significant spending cuts to the aviation programs supported by the 
Page 19 GAO-03-979 Airport and Airway Trust Fund

Trust Fund unless additional funding were authorized from the General 

Fund. If there were a 1-year all tax holiday, FAA officials said they would 

continue to maintain some FAA Operations, particularly air traffic control 

services because it is considered an emergency function that involves the 

safety of human life. However, according to FAA officials, the agency 

would have to suspend activities for the AIP, F&E, and RED programs until 

April 2004 and use the funds appropriated for these suspended capital 

programs to continue to first fund FAA Operations. According to FAA 

officials, additional support from the General Fund would also be needed 

to continue funding Operations during the first 6 months of fiscal year 2004.

FAA officials also stated that if a 1-year all tax holiday under all three 

expenditure scenarios were granted, FAA might have to delay or terminate 

some multimillion dollar F&E contracts, unless Congress authorized 

funding from the General Fund. FAA officials stated that while their 

contracts have clauses that limit liability, it is their experience that any 

remaining obligated funds for contracts in a given fiscal year that have not 

actually been expended would be used to offset contract termination costs. 

If there were a 1-year all tax holiday, FAA estimates it could incur in excess 

of $1 billion in contract termination costs. For example, according to FAA 

officials, terminating the National Aerospace System Implementation 

Services contract, which provides engineering support for the 

implementation of programs such as the Standard Terminal Automation 

Replacement System, would result in termination costs of $20 million. We 

reviewed FAA’s data on the unobligated balances of outstanding F&E 

contracts and verified that the amount totaled $1.5 billion. However, we did 

not review individual FAA outstanding F&E contracts to confirm FAA’s 

statement that on the basis of its experience, any remaining obligated funds 

for contracts in a given fiscal year that have not actually been expended 

would be used to offset contract termination costs.

Although FAA would not have to terminate contracts under the House’s and 

Senate’s proposals if there were a passenger ticket tax, flight segment tax, 

or fuel tax holiday, FAA’ s ability to continue to fund its programs with 

Trust Fund revenue would be affected under the President’s proposal if one 

of these holidays were granted. For example, if passenger ticket taxes were 

suspended for 1 year, beginning in April 2003, the uncommitted balance 

would reach zero by October 2003. Consequently, FAA officials stated that 

its AIP and F&E programs would have to be suspended from October 2003 

through May 2004, if additional funds were not provided from the General 

Fund. However, to fully fund FAA Operations, particularly air traffic 
Page 20 GAO-03-979 Airport and Airway Trust Fund

control services, Congress would have to authorize additional funding from 

the General Fund to offset revenue shortfalls created by these tax holidays.

Agency Comments We provided the Department of Transportation with a draft of this report 

for its review and comment. FAA officials agreed with information 

contained in this report and provided some clarifying and technical 

comments that we incorporated where appropriate.

We are sending copies of this report to the appropriate congressional 

committees; the Secretary of Transportation; and the Administrator, FAA. 

We will also make copies available to others upon request. In addition, this 

report is also available at no charge on GAO’s Web site at 

http://www.gao.gov.

Please contact me or Tammy Conquest at (202) 512-2834 if you have any 

questions. In addition, Jay Cherlow, Colin Fallon, Dave Hooper, and 

Richard Swayze made key contributions to this report.

Gerald Dillingham

Director, Physical Infrastructure Issues
Page 21 GAO-03-979 Airport and Airway Trust Fund

Appendix I

Scope and Methodology AAppenednxidexiIs

To determine the projected financial status of the multibillion dollar 

Airport and Airway Trust Fund (hereafter called the Trust Fund), we 

obtained from the Federal Aviation Administration (FAA) the financial 

projections for the Trust Fund that it had developed under the expenditure 

proposals included in the President’s reauthorization proposal.1 We 

subsequently asked FAA to develop similar projections using the 

expenditure scenarios in the proposals from the Senate Committee on 

Commerce, Science, and Transportation and the House Committee on 

Transportation and Infrastructure, Subcommittee on Aviation. In addition, 

since the realization of FAA’s projections depends on passenger traffic 

levels and airfares, we asked FAA to develop two additional projections 

under each of the three expenditure proposals. Specifically, we asked FAA 

to project what would happen if tax revenues accruing to the Trust Fund 

from fiscal years 2003 through 2007 were 5 percent and 10 percent below 

the levels projected in FAA’s November 2002 forecasts. Accordingly, our 

findings on the financial outlook of the Trust Fund are based on FAA’s 

projections, rather than on any projections of our own. We reviewed the 

process, methodology, and sources of information used by FAA to make 

these projections and found them reasonable.2

 We discussed the approach 

and results of our analysis with FAA officials who are responsible for 

making the projections, representatives from the Airports Council 

International and the Air Transport Association, and two academic experts.

To assess the effect of various tax holidays on the financial status of the 

Trust Fund, we asked FAA to develop additional financial projections 

under various tax holiday scenarios. FAA developed these additional 

projections under each of the three expenditure proposals that we used in 

determining the financial condition of the Trust Fund. We then assessed the 

effect of each tax holiday scenario under each expenditure proposal by 

comparing the financial projection for the Trust Fund under that tax 

holiday scenario and expenditure proposal with FAA’s baseline projection. 

We used the following five tax holiday scenarios:

1

FAA develops financial projections for the Trust Fund in conjunction with its forecasts of 

aviation activity.

2

FAA uses both econometric and spreadsheet models to develop its financial projections for 

the Trust Fund. Although we did not do a comprehensive evaluation of FAA’s models, we 

reviewed them to determine their appropriateness for this purpose.
Appendix I

Scope and Methodology

Page 22 GAO-03-979 Airport and Airway Trust Fund

• An all taxes holiday, in which all taxes that accrue to the Trust Fund are 

suspended.

• A passenger ticket tax holiday, in which the passenger ticket tax, the 

rural airport tax, and the frequent flyer tax are suspended.

• A flight segment tax holiday, in which the passenger segment tax holiday 

is suspended.

• A fuel tax holiday in which the commercial aviation, general aviation 

gasoline, and general aviation jet fuel taxes are suspended.

• A cargo tax holiday in which the cargo waybill taxes are suspended.

The following assumptions were also included in the analyses:

• As requested in March 2003, we based our analysis on hypothetical tax 

holidays that would have begun on April 1, 2003, and ended on April 1, 

2004. 

• The FAA projections presented do not account for budgetary responses 

by FAA to the drop in revenues resulting from a tax holiday. Unless each 

dollar of lost revenue resulting from a tax holiday was replaced by 

General Fund revenues, FAA would adjust its spending plans, which in 

turn would have a direct effect on FAA’s projections.

In addition, in projecting the effect of any particular tax holiday on the 

Trust Fund’s revenues, FAA set the tax rate to zero for the tax or taxes that 

were being suspended while keeping all other factors in its forecast model 

unchanged. That is, FAA’s projections do not take into account changes that 

might cause the Trust Fund’s revenues from one tax to increase when 

another tax was suspended (i.e., feedback effects). For example, a 

suspension of the passenger ticket taxes might lead to lower fares for air 

travelers, which in turn might cause more trips to be made, thereby 

increasing the Trust Fund’s revenues from the flight segment tax. We 

discussed with FAA officials the possibility of preparing additional 

projections that incorporated feedback effects to more thoroughly analyze 

the impact of tax holidays. However, we chose not to make such a request 

because preliminary analysis that we and FAA officials conducted 

indicated that these feedback effects would likely not be large enough to 

change our findings. Finally, to assess the effect that tax holidays would 

have on FAA’s ability to continue to use Trust Fund revenue to support its 
Appendix I

Scope and Methodology

Page 23 GAO-03-979 Airport and Airway Trust Fund

programs, we interviewed FAA officials. We reviewed FAA data on the 

outstanding Facilities and Equipment (F&E) contracts that had unobligated 

balances and verified that they totaled $1.5 billion. However, we did not 

review individual FAA outstanding F&E contracts to confirm FAA’s 

statement that on the basis of its experience, any remaining obligated funds 

for contracts in a given fiscal year that have not actually been expended 

would be used to offset contract termination costs.

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