Airport and Airway Trust Fund: Declining Balance Raises Concerns over Ability to Meet Future Demands
Published: 2011-02-03T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony discusses the status of the Airport and Airway Trust Fund (Trust Fund). Established in 1970, the Trust Fund helps finance the Federal Aviation Administration's (FAA) investments in the airport and airway system, such as construction and safety improvements at airports and technological upgrades to the air traffic control system, as well as FAA operations, such as providing air traffic control and conducting safety inspections. FAA, the Trust Fund, and the excise taxes that support the Trust Fund (which are discussed later in this statement) must all be periodically reauthorized. The most recent reauthorization expired at the end of fiscal year 2007. Proposed reauthorization legislation was considered but not enacted in the 110th and 111th Congresses, although several short-term measures were passed to extend the authorization of aviation programs, funding, and Trust Fund revenue collections. The latest of these extensions--the Airport and Airway Extension Act of 2010, Part IV--was enacted on December 22, 2010, extending FAA programs, expenditure authority, and aviation trust fund revenue collections through March 31, 2011. The financial health of the Trust Fund is important to ensure sustainable funding for a safe and efficient aviation system without increasing demands on general revenues. This testimony provides an update on the status of the Airport and Airway Trust Fund, including the current financial condition of the Trust Fund, anticipated Trust Fund expenditures for planning and implementing improvements in the nation's air traffic management system that are expected to enhance the safety and capacity of the air transport system, and options for ensuring a sustainable Trust Fund. This statement draws on our body of work on these issues, supplemented with updated information on the Trust Fund from FAA and the Congressional Budget Office. All dollars reported in this statement are nominal, unless otherwise noted.
section_title: What GAO Found
paragraphs: The Trust Fund is the primary source of funding for FAA's capital programs and also provides funds for FAA's Operations account. The capital accounts include (1) the Facilities and Equipment (F&E) account, which funds technological improvements to the air traffic control system, including the modernization of the air traffic control system, called the Next Generation Air Transportation System (NextGen); (2) the Research, Engineering, and Development (RE&D) account, which funds research on issues related to aviation safety, mobility, and NextGen technologies; and (3) the Airport Improvement Program (AIP), which provides grants for airport planning and development. In addition, the Trust Fund has provided all or some portion of the funding for FAA's Operations account, which funds the operation of the air traffic control system and safety inspections, among other activities. Finally, the Trust Fund is used to pay for the Essential Air Service (EAS) program. In fiscal year 2010, FAA's expenditures totaled about $15.5 billion, with Trust Fund revenues covering about $10.2 billion, or 66 percent, of those expenditures. While total FAA expenditures grew about 60 percent from fiscal year 2000 through fiscal year 2010, the Trust Fund's revenue contribution only increased 12 percent, while the contribution of general revenues from the U.S. Treasury has increased to cover a larger share of FAA's operations expenditures. Since the Trust Fund's creation in 1970, revenues have in the aggregate generally exceeded spending commitments from FAA's appropriations, resulting in a surplus. This surplus is referred to as the Trust Fund's uncommitted balance--the balance in the Trust Fund that remains after funds have been appropriated from the Trust Fund and contract authority has been authorized. As of the end of fiscal year 2010, the Trust Fund's uncommitted balance was about $770 million. the Trust Fund's uncommitted balance has declined since reaching $7.35 billion in fiscal year 2001. This decline is largely a result of how Congress determines the amount of appropriations that should be made from the Trust Fund. Starting with the Wendell H. Ford Aviation Investment and Reform Act of the 21st Century (AIR-21) in 2000 and continuing with Vision 100,10 Congress has based FAA's fiscal year appropriation from the Trust Fund on the forecasted level of Trust Fund revenues, including interest on Trust Fund balances, as set forth in the President's baseline budget projection for the coming fiscal year. Each year's forecast, and accordingly FAA's appropriation, is based on information available in the first quarter of the preceding fiscal year. For example, the revenue forecast for fiscal year 2011 is prepared in the first quarter of fiscal year 2010. These revenue forecasts can be uncertain because it is difficult to anticipate, a year in advance, events that may significantly affect the demand for air travel or fuel usage, the fares that passengers pay, and other variables that affect Trust Fund revenues.

section_title: Letter
paragraphs: We appreciate the opportunity to participate in today’s hearing on the  status of the Airport and Airway Trust Fund (Trust Fund). Established in  1970, the Trust Fund helps finance the Federal Aviation Administration’s  (FAA) investments in the airport and airway system, such as construction  and safety improvements at airports and technological upgrades to the air  traffic control system, as well as FAA operations, such as providing air  traffic control and conducting safety inspections. FAA, the Trust Fund,  and the excise taxes that support the Trust Fund (which are discussed  later in this statement) must all be periodically reauthorized. The most  recent reauthorization expired at the end of fiscal year 2007. Proposed  reauthorization legislation was considered but not enacted in the 110th  and 111th Congresses, although several short-term measures were passed  to extend the authorization of aviation programs, funding, and Trust Fund  revenue collections. The latest of these extensions—the Airport and  Airway Extension Act of 2010, Part IV—was enacted on December 22,  2010, extending FAA programs, expenditure authority, and aviation trust  fund revenue collections through March 31, 2011. The financial health of  the Trust Fund is important to ensure sustainable funding for a safe and  efficient aviation system without increasing demands on general revenues.
My statement today provides an update on the status of the Airport and  Airway Trust Fund, including the current financial condition of the Trust  Fund, anticipated Trust Fund expenditures for planning and implementing  improvements in the nation’s air traffic management system that are  expected to enhance the safety and capacity of the air transport system,  and options for ensuring a sustainable Trust Fund. This statement draws  on our body of work on these issues, supplemented with updated  information on the Trust Fund from FAA and the Congressional Budget  Office. All dollars reported in this statement are nominal, unless  otherwise noted.
subsections: section_title: Background
subsections: section_title: Sources of Trust Fund Revenues
paragraphs: The Trust Fund provides the primary source of funding for FAA and  receives revenues principally from a variety of excise taxes paid by users  of the national airspace system. The excise taxes are imposed on airline  ticket purchases and aviation fuel, as well as the shipment of cargo.  Revenues deposited in the Trust Fund are subject to congressional  appropriations. In addition to Trust Fund revenues, in most years, General  Fund revenues have been used to help fund FAA operations.
As figure 1 shows, Trust Fund revenues have fluctuated since fiscal year  2000. A number of factors, such as external events and general economic  conditions, contributed to this fluctuation in revenues because they affect  the number of tickets purchased, the fares paid by passengers, the amount  of fuel purchased, and the value of air cargo shipped. For example,  revenues declined early in the decade because of a series of largely  unforeseen events, including the September 11, 2001, terrorist attacks, that  reduced the demand for air travel, resulting in a steep decline in airline  industry revenue. Similarly, during the recent recession, Trust Fund  revenues declined from $12.4 billion in fiscal year 2008 to $10.9 billion in  fiscal year 2009, in part because of the 7 percent decline in domestic  stic  passenger traffic during that period.  passenger traffic during that period.
section_title: Uses of Airport and Airway Trust Fund Revenues
paragraphs: The Trust Fund is the primary source of funding for FAA’s capital  programs and also provides funds for FAA’s Operations account. The  capital accounts include (1) the Facilities and Equipment (F&E) account,  which funds technological improvements to the air traffic control system,  including the modernization of the air traffic control system, called the  Next Generation Air Transportation System (NextGen); (2) the Research,  Engineering, and Development (RE&D) account, which funds research on  issues related to aviation safety, mobility, and NextGen technologies; and  (3) the Airport Improvement Program (AIP), which provides grants for  airport planning and development. In addition, the Trust Fund has  provided all or some portion of the funding for FAA’s Operations account,  which funds the operation of the air traffic control system and safety  inspections, among other activities. Finally, the Trust Fund is used to pay  for the Essential Air Service (EAS) program. In fiscal year 2010, FAA’s  expenditures totaled about $15.5 billion, with Trust Fund revenues  covering about $10.2 billion, or 66 percent, of those expenditures. As  figure 2 shows, while total FAA expenditures grew about 60 percent from  fiscal year 2000 through fiscal year 2010, the Trust Fund’s revenue  contribution only increased 12 percent, while the contribution of general  revenues from the U.S. Treasury has increased to cover a larger share of  FAA’s operations expenditures. We discuss this change in more detail in  the next section of this statement.
section_title: The Financial Condition of the Trust Fund Has Deteriorated over the Last Decade
paragraphs: Since the Trust Fund’s creation in 1970, revenues have in the aggregate  generally exceeded spending commitments from FAA’s appropriations,  resulting in a surplus. This surplus is referred to as the Trust Fund’s  uncommitted balance—the balance in the Trust Fund that remains after  funds have been appropriated from the Trust Fund and contract authority  has been authorized. As of the end of fiscal year 2010, the Trust Fund’s  uncommitted balance was about $770 million (see fig. 3).
As figure 3 shows, the Trust Fund’s uncommitted balance has declined  since reaching $7.35 billion in fiscal year 2001. This decline is largely a  result of how Congress determines the amount of appropriations that  should be made from the Trust Fund. Starting with the Wendell H. Ford  Aviation Investment and Reform Act of the 21st Century (AIR-21) in 2000  and continuing with Vision 100, Congress has based FAA’s fiscal year  appropriation from the Trust Fund on the forecasted level of Trust Fund  revenues, including interest on Trust Fund balances, as set forth in the  President’s baseline budget projection for the coming fiscal year. Each  year’s forecast, and accordingly FAA’s appropriation, is based on  information available in the first quarter of the preceding fiscal year. For  example, the revenue forecast for fiscal year 2011 is prepared in the first  quarter of fiscal year 2010. These revenue forecasts can be uncertain  because it is difficult to anticipate, a year in advance, events that may  significantly affect the demand for air travel or fuel usage, the fares that  passengers pay, and other variables that affect Trust Fund revenues. In  fact, as figure 4 shows, FAA’s forecasts of Trust Fund revenues (including  both tax revenues and interest earned by the Trust Fund’s cash balance)  have exceeded actual Trust Fund revenues (including interest) in 9 of 11  years, and in aggregate, these forecasted revenues have exceeded actual  tax revenues by over $9 billion over that period. Accordingly,  appropriations from the Trust Fund, which are based on these revenue  forecasts, have also exceeded actual revenues, thus drawing the  us drawing the  uncommitted balance lower over the course of the last decade.  uncommitted balance lower over the course of the last decade.
Until recently, FAA generated a forecast for the President’s budget using  models based on historical relationships between key economic variables,  such as the growth rate of the economy, and aviation measures, such as  passenger traffic levels and passenger fares, that affect Trust Fund  revenues. The responsibility for forecasting Trust Fund revenues shifted  from FAA to the U.S. Department of the Treasury (Treasury), which  already had responsibility for other federal excise tax revenue forecasts, in  fiscal year 2010. We have recently been asked by the Senate Commerce,  Science, and Transportation Committee to examine the Trust Fund  revenue forecasting process and how it might be improved; we expect to  begin our review this year.
The Trust Fund’s uncommitted balance, which exceeded $7.3 billion at the  end of fiscal year 2001, dropped to $299 million at the end of fiscal year  2009—the lowest balance over the past decade. One of the greatest  declines in the uncommitted balance occurred in 2002 following the  sudden drop-off in aviation activity after the terrorist attacks of September  11. In addition, the declines in passenger traffic and aircraft operations  and reduced fuel consumption in 2009 resulted in actual revenues to the  Trust Fund that fell significantly below forecasted levels in fiscal year 2009  and an uncommitted Trust Fund balance that approached zero. In  response, the fiscal year 2009 omnibus appropriation increased the general  revenue contributions to FAA’s operations and decreased FAA’s  appropriation from the Trust Fund by approximately $1 billion compared  with what was originally outlined in the President’s fiscal year 2009  proposed budget for FAA. These additional general revenues kept the  Trust Fund’s uncommitted balance from going negative, thereby avoiding  budgetary challenges for FAA. As a result, general revenues accounted for  24 percent of FAA’s expenditures in fiscal year 2009 and reached 34  percent in fiscal year 2010 (see fig. 2).
If the uncommitted balance is nearly depleted and actual Trust Fund  revenues continue to fall below forecasted levels, there is a risk of  overcommitting available resources from the Trust Fund—meaning  revenues could be insufficient to cover all of the obligations that FAA has  the authority to incur. A low uncommitted balance signals to FAA that  limited revenues are available to incur new obligations while still covering  expenditures on existing obligations and increases FAA’s challenge in  moving forward with planned projects and programs. FAA officials have  noted that they closely monitor the Trust Fund’s available cash and FAA’s  obligations to ensure that enough cash and budget authority are available  to cover FAA’s expenditures and obligations. In the short term, if there  were a risk of overcommitting Trust Fund resources, FAA officials noted  that they might delay obligations for capital programs if the Trust Fund did  not have adequate revenues to cover those obligations without additional  funding authorized and appropriated from the General Fund. According to  FAA officials, they would first defer some capital program obligations so  they could continue to fund operations, such as air traffic control and  safety inspections. These actions would ensure that the agency did not  incur obligations or expenditures in excess of the Trust Fund’s cash  balance, which could potentially lead to a violation of the Antideficiency  Act. Later this month, in the President’s budget, the administration will  release its newest estimate of the Trust Fund’s fiscal year 2011 year-end  uncommitted balance.
section_title: Anticipated Future Expenditures for NextGen
paragraphs: Congress may choose to increase FAA’s authorized funding level in the  near term to allow FAA to further develop NextGen, the new satellite- based air traffic management system that is designed to replace the  current radar-based system. NextGen improvements include new  integrated systems, procedures, aircraft performance capabilities, and  supporting infrastructure needed for a performance-based air  transportation system that uses satellite-based surveillance and navigation  and network-centric operations. These improvements are intended to  improve the efficiency and capacity of the air transportation system while  maintaining its safety so that it can accommodate anticipated future  growth. FAA has generally identified the NextGen capabilities that it plans  to implement in the near term to midterm, through 2018. FAA’s capital  investment is expected to be $11 billion to $12 billion through 2018. This  cost does not include research, the airport and associated airfield  improvements, or the aircraft equipage that is necessary to realize all  benefits. In addition to FAA’s capital investment costs, FAA estimates that  the equipage necessary to realize significant capabilities implemented  through 2018 will cost in the range of $5 billion to $7 billion. Decisions  about the long-term direction for NextGen (beyond 2018) have yet to be  made, and two key planning documents—the NextGen Integrated Work  Plan and Enterprise Architecture—contain a wide variety of possible ideas  and approaches. Therefore, the costs of the system over the long term are  uncertain, but have been estimated to be in the $40 billion range  (combined public and private investment in ground infrastructure and  avionics). FAA’s proposed budget for NextGen activities is $1.14 billion in  fiscal year 2011, up from the $700 million spent in fiscal year 2009 and the  $868 million spent in fiscal year 2010. In addition, as we have previously  reported, NextGen’s ability to enhance capacity will partly depend on how  well airports can handle greater capacity. FAA’s plans call for building or  expanding runways at the nation’s 35 busiest airports to help meet the  expected increases. However, even with these planned runway  improvements and the additional capacity gained through NextGen  technologies and procedures, FAA analyses indicate that 14 more airports  will still need additional capacity, which could require additional Trust  Fund resources.
Additionally, the Future of Aviation Advisory Committee recently  proposed to the Secretary of Transportation that the federal government  undertake a significant financial investment to accelerate efforts to equip  aircraft and train staff to use key NextGen technologies and operational  capabilities, including performance-based navigation (PBN), automatic  dependent surveillance—broadcast (ADS-B), ground-based augmentation  system (GBAS) and data communications. The amount of investment  required will depend on how any financial incentives are structured.  Financial assistance can come in a variety of forms, including grants, cost- sharing arrangements, loans, loan guarantees, tax incentives, and other  innovative financing arrangements. One financing option proposed by the  NextGen Midterm Implementation Task Force to encourage the purchase  of aircraft equipment is the use of equipage banks, which would provide  federal loans to operators to equip their aircraft. Another financing option,  proposed in various forms by a variety of stakeholders, would involve  setting up an equipage fund using private equity backed by federal loan  guarantees. While the details of different proposals vary, they would all  allow operators who purchase equipment through the fund to defer  payments on the equipment until FAA makes improvements required for  the operators to benefit from the equipment. As we have previously  reported, prudent use of taxpayer dollars is always important; therefore,  any financial incentives should be applied carefully and in accordance  with key principles. For example, mechanisms for financial assistance  should be designed so as to effectively target parts of the fleet and  geographical locations where benefits are deemed to be greatest, avoid  unnecessarily equipping aircraft (e.g., those that are about to be retired),  and not displace private investment that would otherwise occur.  Furthermore, it is preferable that the mechanism used for federal financial  assistance result in minimizing the use of government resources (e.g.,  some mechanisms may cost the government more to implement or may  place the government at greater risk than others).
section_title: Options for Ensuring a Sustainable Trust Fund
paragraphs: Given the uncertainty inherent in forecasting revenues and the decline in  the uncommitted balance of the Trust Fund, we have suggested that  Congress should work with FAA to develop alternative ways to reduce the  risk of overcommitting budgetary resources from the Trust Fund. Better  matching of actual revenues to the appropriation from the Trust Fund  would help to ensure that Trust Fund revenues are sufficient to cover all  the obligations that FAA has the authority to incur, thereby reducing the  risk of disruptions in funding for aviation projects and programs. One  approach would be to appropriate less than 100 percent of the forecasted  revenues, especially until a sufficient surplus is established to protect  against potential disruptions in revenue collection. This change would  reduce the likelihood that FAA would incur obligations in excess of the  cash needed to liquidate these obligations and thus reduce the risk of  delaying or terminating projects. The House of Representatives’ FAA  reauthorization bill proposed in the 111th Congress includes a provision  that would limit the budgetary resources initially made available each  fiscal year from the Trust Fund to 90 percent, rather than 100 percent, of  forecasted revenues for that year; then 2 fiscal years later, when actual  revenues would be known, any amount that exceeded 90 percent of  forecasted revenues in the second previous year would be appropriated  from the Trust Fund to FAA. Congress would need to provide additional  general revenues in the first 2 years to make up the difference. Another  approach would be to target a minimum level for the Trust Fund’s  uncommitted balance and base appropriations on the goal of maintaining  that target level. This change would make it more likely that uncommitted  resources would be available to FAA in the event that actual revenues fell  short of forecasted revenues in a future year. Either approach would result  in fewer Trust Fund resources available for FAA for some period of time,  requiring additional general revenues to make up the difference, unless  FAA’s overall resources are reduced.
In the longer term, future Trust Fund revenues under the current tax  structure may be lower than previously anticipated. For example, in  January 2011, the Congressional Budget Office forecast about $25 billion  less in Trust Fund revenues over the next 6 years (through fiscal year  2017) than it forecast in 2007 for that same time period. Given the decline  in expected future revenues, appropriations from the Trust Fund under  current law will be lower in future years than previously projected unless  new revenue sources are found. To maintain appropriations consistent  with what earlier revenue forecasts would have afforded, Congress could  take action such as increasing general revenue contributions or increasing  Trust Fund revenues. For example, we suggested that if Congress  determines that the benefit of added revenue to the Trust Fund warrants  taxation of optional airline service fees, such as baggage fees, then it  should consider amending the Internal Revenue Code to make mandatory  the taxation of certain or all airline-imposed fees and require that the  revenue be deposited in the Trust Fund.
The Future of Aviation Advisory Committee also recommended that the  Secretary of Transportation commission an independent study of the  federal aviation tax burden on passengers, airlines, and general aviation to  determine if existing levels of taxes and fees sufficiently balance the  Department’s statutory mandates to “encourage efficient and well- managed air carriers to earn adequate profits and attract capital...;”  “promot, encourag, and develop civil aeronautics and a viable,  privately-owned United States air transport industry;” and “ensur that  consumers in all regions of the United States, including those in small  communities and rural remote areas, have access to affordable, regularly  scheduled air service.” The committee recommended that the study  address the following questions:    How do the federal taxes imposed on the U.S. aviation industry compare  to those imposed on other modes of transportation?  Is the existing level of aviation taxes and fees levied efficiently and  effectively for the services provided by the federal government?
Are there more efficient ways to collect and administer existing aviation  taxes and fees that would save taxpayer and aviation industry dollars?
Would regular consultation between those departments and agencies that  administer aviation taxes and fees prior to implementing any changes to  tax rates and policies result in (1) a more efficient and rational aviation tax  system and (2) the desired industry and social outcome?
What is the appropriate balance between General Fund financing and  Trust Fund financing of capital and operating costs of the national aviation  system, recognizing the significant role commercial and general aviation  play in fostering economic growth and development?
Based on the results of the study, the committee recommends that the  Secretary pursue appropriate legislative and regulatory actions that may  be needed to ensure that existing and any new aviation taxes and fees  applied to passengers, airlines, and general aviation are effective and  collected efficiently, appropriately recognizing the role commercial and  general aviation play in fostering economic growth and development.
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.
section_title: Contacts and Staff Acknowledgments
paragraphs: For future questions about this statement, please contact me at (202) 512- 2834 or dillinghamg@gao.gov. Individuals making key contributions to this  report were Paul Aussendorf, Assistant Director; Amy Abramowitz; Jessica  Bryant-Bertail; Lauren Calhoun; Carol Henn; Bess Eisenstadt; Heather  Krause; Hannah Laufe; Maureen Luna-Long; and Andrew Von Ah.
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