In 1970, almost a decade before airline deregulation, Congress created the trust fund to provide a dedicated source of funding for the aviation system. The trust fund is funded principally by a variety of excise taxes paid by users of the national airspace system, as well as by interest revenue. The excise taxes are imposed on airline ticket purchases and aviation fuel, as well as the shipment of cargo. Disbursement of revenues deposited in the trust fund is subject to congressional appropriations. These taxes are classified in six categories or “tax lines,” as shown in table 1. The trust fund finances capital improvements of the airport and airway system, and to the extent funds are made available, it funds the government’s operation and maintenance of that system. Figure 1 shows how trust-fund revenues were appropriated to FAA’s operations and capital accounts for fiscal year 2010, which generally represents the breakout of trust-fund revenue use for recent years. FAA’s three capital accounts include (1) the Facilities and Equipment 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 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. General revenues from the U.S. Treasury have been used to supplement trust-fund revenues for operations and have funded about 16 to 57 percent of FAA’s operation appropriation—or 8 to 33 percent of FAA’s total appropriation—during fiscal years 2001 through 2010. From the trust fund’s creation in 1970 through the late 1990s, appropriations from the trust fund were consistently lower than revenues deposited into the trust fund, resulting in a growing uncommitted balance. To ensure that revenue collected from persons and businesses paying taxes into the trust fund are used for aviation purposes, AIR-21 and Vision 100, which reauthorized FAA investments in the airport and airway system, added certain provisions. These provisions require that the total budget resources made available each fiscal year from the trust fund— that is, the appropriation from the trust fund—equal the President’s baseline budget projection, or forecast, for excise taxes and interest credited to the trust fund for the coming fiscal year (budget year).2000, appropriations from the trust fund have generally followed the forecast amounts, but they can, and have, varied—a point we discuss in more detail later in this report. The budget-year trust-fund revenue forecast, and accordingly FAA’s appropriation, is based on information available in the first quarter of the preceding fiscal year and more than 2 years before the final accounting for the forecast year is certified by IRS. Figure 2 shows the timeline for the fiscal year 2010 budget process, which generally reflects a typical budget cycle for recent years. Because the President’s budget is released about 8 months before the beginning of the fiscal year, the revenue forecast for the fiscal year 2010 budget submission to Congress was developed in the first quarter of fiscal year 2009—October through December of calendar year 2008—or about a year before the start of the fiscal year. Furthermore, the most recent available data on actual trust- fund revenues (IRS-certified tax-receipt data) for preparing this forecast were from the first three quarters of fiscal year 2008, or through June 30, 2008. Likewise, the accuracy of the fiscal year 2010 revenue forecasts could not be assessed against IRS-certified data until February 2011, which was 5 months after the end of the fiscal year. In addition to the budget-year forecast, the President’s budget includes revenue forecasts for the 9 years beyond the budget year (referred to as out-year forecasts), which are then updated during roughly the middle of the calendar year as part of the mid-session review. Through fiscal year 2010, FAA generated the trust-fund revenue forecast for the President’s annual budget request. Starting with fiscal year 2011, the responsibility for forecasting trust-fund revenues shifted from FAA to Treasury. According to Treasury officials, Treasury assumed this responsibility so that it would have responsibility for all federal excise-tax forecasts, including the revenues for other trust funds such as the Highway Trust Fund. In addition to budget-year and out-year revenue forecasts, the President’s annual budget request includes forecasts of FAA’s budget authority for the same period. Budget authority forecasts represent the estimated amount that may be requested for FAA to enter into obligations that will result in outlays of federal funds; in this report, we refer to FAA’s forecast budget authority as its forecast expenditures. According to OMB budget guidance, OMB forecasts the out-year budget-authority levels for agencies based on proposed changes in legislation along with the administration’s overall policy goals and forecasts of economic growth. As this guidance indicates, these forecasts are developed to allow an analysis of the long-term consequences of proposed program or tax-policy initiatives. FAA works with OMB to develop the proposed expenditures for a given budget year and then works to align its programs and plans with OMB’s out-year budget-authority targets. After the President submits his budget to Congress, Congress begins deliberations on the appropriate level of federal revenues and expenditures for a given fiscal year. Since the AIR-21 spending provisions were introduced in 2000, the trust fund’s uncommitted balance—that is, the revenues in the trust fund that remain after funds have been appropriated from the trust fund and a limitation on obligations established—has generally declined because it has been used to offset shortfalls in forecast trust-fund revenues. As we previously reported, the trust fund’s uncommitted balance, which exceeded $7 billion at the end of fiscal year 2001, declined to $299 million at the end of fiscal year 2009—the lowest balance over the past decade—before slightly rebounding in fiscal year 2010 (fig. 3). The largest decline in the uncommitted balance in the past decade occurred in 2002 following the sudden drop-off in aviation activity after the terrorist attacks of September 11, 2001. This decline occurred because revenue forecasts, which had been developed many months before the September 11 attacks and the subsequent decline in air travel, were considered in determining the level of appropriations from the trust fund. In addition, declines in passenger traffic, aircraft operations, and fuel consumption in 2009 resulted in actual revenues to the trust fund that fell well below forecast levels and an uncommitted trust-fund balance that approached zero. As previously reported, if the trust fund’s uncommitted balance approaches zero, FAA officials noted that they might be required to delay obligations for capital programs if they do not have adequate revenues in the trust fund to cover them—unless additional general revenues are first authorized and appropriated. As we have previously reported, NextGen will transform the way in which the air transportation system operates today, in part by using satellite-based surveillance as opposed to ground-based radar, using performance-based navigation instead of cumbersome step-by- replacing routine voice communications with data transmissions, and organizing and merging the disjointed data that pilots, controllers, airports, airlines, and others currently rely on to operate the system. Because of the potential benefits of modernizing the air transportation system and the substantial costs of modernization, NextGen implementation has been a top congressional priority. FAA has been planning and developing NextGen since 2003 and is now implementing near-term (through 2012) and midterm (through 2018) capabilities. According to FAA, approximately $2.9 billion was appropriated for NextGen for fiscal years 2004 through 2011—most of which was funded from the trust fund. FAA recently estimated the cost for NextGen for the agency to be between $15 billion and $22 billion, and another $5 billion to $7 billion for equipping aircraft with NextGen technology, for fiscal years 2012 through 2025—much of which will be funded from the trust fund. In FAA’s latest Capital Improvement Plan—which outlines FAA’s planned facilities and equipment expenditures for the next 5 years—about one-third, or $4.8 billion of the $14.3 billion, in planned capital improvements for fiscal years 2012 through 2016 is for NextGen or NextGen-related projects. In addition, given the incremental rollout of NextGen technology, FAA has stated that significant levels of investment—including those that rely on trust-fund revenues—will continue to be allocated to sustaining current infrastructure to prevent failures and maintain the reliability and efficiency of current operations. Beginning in fiscal year 2011, when the administration transferred the responsibility for developing trust-fund revenue forecasts from FAA to Treasury, Treasury has been forecasting trust-fund revenues (tax receipts) for both the budget year and out-years using a demand-based econometric model. Specifically, according to Treasury officials, Treasury begins its forecast by estimating activity measures that reflect aviation demand, such as domestic enplanements, international enplanements, revenue-ton miles, and purchased gallons of fuel and gasoline. For example, in estimating aviation demand as measured by domestic enplanements, Treasury assumes these enplanements grow with the economy and population and are a function of ticket prices and certain other factors, which is consistent with economic theory. Similarly, according to Treasury officials, Treasury forecasts all other aviation activity measures for future years based on elements of the economy that are likely to affect growth in those activities. In addition, Treasury estimates average ticket prices. Treasury uses these activity and pricing estimates, along with applicable tax rates, to forecast revenues for seven of the nine trust-fund-related tax sources listed in table 1 on page 5.