During this reauthorization period, the Congress and the administration face several key challenges in attempting to increase the capacity of the national airspace system and expand service to small communities. These challenges include determining (1) how much airport capital development is needed, (2) how that development will be funded, (3) how assistance for enhancing air service to small communities will be provided, and (4) how the current process for enhancing capacity, particularly the runway development process, can be expedited. FAA and the Airport Council International (ACI), an organization representing the airport industry, have developed two different estimates of airports’ planned capital development costs that are based on two different sets of projects. According to FAA’s estimate, which includes only projects that are eligible for Airport Improvement Program (AIP) grants, such as runways, taxiways, and noise mitigation and noise reduction efforts, the total cost of airport development will be about $46 billion, or over $9 billion per year, for 2001 through 2005. FAA’s estimate is based on the agency’s National Plan of Integrated Airport Systems, which FAA published in August 2002. ACI’s estimate includes all of the projects in FAA’s estimate, plus other planned airport capital projects that may or may not be eligible for AIP grants. Projects that are not eligible for AIP funding include parking garages, hangars, and expansions of commercial space in terminals. ACI estimates a total cost of almost $75 billion, or nearly $15 billion per year, for 2002 through 2006. Neither ACI’s nor FAA’s estimate includes funding for the terminal modification projects that are needed to accommodate the new explosives detection systems required to screen checked baggage. ACI estimates that these projects will cost about $3 billion to $5 billion over the next 5 years. Although there is a difference of $6 billion a year between FAA’s and ACI’s estimates of planned development costs, both estimates cover projects for every type of airport. As table 1 indicates, the estimates are identical for all but the large- and medium-hub airports, which are responsible for transporting about 90 percent of the traveling public. For these airports, ACI’s estimate of planned development costs is about twice as large as FAA’s. As the Congress moves forward with reauthorizing FAA’s programs, it will have to determine what level of planned capital development is appropriate to increase the capacity, efficiency, and safety of the national airspace system. Over the past 5 years, the ability of airports—especially smaller airports— to fund their capital development projects has improved, in part because AIR-21 increased both the total amount of funding for AIP grants and the proportion of AIP funding that went to smaller airports. In 1998, we reported that large- and medium-hub airports could fund about 79 percent of their planned capital development and smaller airports could fund about 52 percent of their planned capital development if they continued to receive funding at prior years’ levels. In 2003, the funding ability of both groups of airports increased. As shown in figure 1, large- and medium-hub airports could fund about 80 percent of their planned capital development, an increase of 1 percentage point, while smaller airports could fund about 73 percent of their planned capital development, an increase of 21 percentage points, assuming the continuation of prior years’ funding levels. The primary reason why smaller airports are able to fund 73 percent of their planned development in 2003, rather than the 52 percent we reported in 1998, is that they have benefited significantly from the increases in AIP grants, which are a larger source of funding for smaller airports than for larger airports. In addition, smaller airports have received an increasing share of AIP grants because of statutorily required changes in the distribution of AIP grants. For example, in AIR-21, the Congress increased the funding for two grant categories that primarily or exclusively benefit smaller airports—the state apportionment fund and the small airport fund—and created general aviation entitlement grants, which also benefit smaller airports. The Senate’s and the administration’s reauthorization proposals continue to support increases in the amount of AIP grant funding awarded to smaller airports. In spite of the progress that has been made, over 25 percent of planned capital development is not funded. The Congress needs to be mindful of this situation as it considers reauthorization issues. The use of AIP grants to fund new airport security requirements and additional decreases in the Airport and Airway Trust Fund’s revenues could affect the future ability of airports to fund their planned capital development. In recent fiscal years, airports obtained most of their funding for planned capital development from bonds, AIP grants, and passenger facility charges. Because the Trust Fund is the source of funding for AIP grants, its financial condition is important to the ability of airports to fund capital development, and decreases in its revenues could reduce the amount of funding for airport planned capital development. Reductions in AIP grant funds would have the greatest effect on smaller airports, which derive most of their planned capital development funding from AIP grants, whereas large- and medium-hub airports derive most of their funding from bonds. According to FAA officials, FAA plans to allocate the same amount of AIP grant funds for new security projects at airports in fiscal year 2003 as it allocated in fiscal year 2002—$561 million. As we reported in October 2002, the use of AIP grants for security projects reduced the funding available for other airport development projects, such as projects to bring airports up to FAA’s design standards and reconstruction projects, and caused FAA to defer three letter-of-intent payments totaling $28 million to three airports until fiscal year 2003 or later. Among the key reauthorization issues facing the Congress are how the funding needs for capacity and security projects will be balanced and how the new security requirements, including the terminal modification projects that are expected to cost $3 billion to $5 billion, will be funded. The future ability of airports to fund planned capital development may be affected by uncertainties surrounding the condition of the Trust Fund. As you know, the Trust Fund is the source of funding not only for AIP grants but also for other FAA accounts, including facilities and equipment; research, engineering, and development; and most operations. Revenues to the Trust Fund come from several types of taxes, including passenger ticket and fuel taxes. Although projections made in November 2002 indicate that the Trust Fund will be able to meet its traditional obligations over the next 10 years, the financial outlook for the next 5 to 8 years is uncertain, in part, because passenger traffic has decreased with the slowdown in the economy. Current estimates indicate that between fiscal year 2003 and fiscal year 2007, the Trust Fund’s 2002 uncommitted balance of about $4.8 billion will decline by about $4 billion, leaving a balance of less than a billion dollars. In addition, if revenues fall short of current projections, the Trust Fund’s uncommitted balance may be zero. Under this scenario, AIP grants and other FAA accounts supported by the Trust Fund could potentially receive less funding, and the Congress and the administration would have to decide how to offset the potential decreases. As figure 2 shows, from 1999 through 2002, revenues to the Trust Fund have declined, while expenditures from the fund have increased. Revenues fell from about $11 billion in 1999 to almost $10 billion in 2002, a decrease of almost 10 percent. During the same period, expenditures increased from about $8 billion to about $12 billion, an increase of about 47 percent. As a result, the uncommitted balance (surplus) has fallen by nearly 35 percent, from $7 billion in 1999 to almost $5 billion in 2002. The major reason for the decline in Trust Fund revenues was a drop in passenger ticket tax revenues, which fell by nearly $1.2 billion from 1999 to 2002. The increase in Trust Fund expenditures from 1999 through 2002, amounting to almost $4 billion, can be attributed primarily to increases in funding for FAA operations and AIP grants, which accounted for about 47 percent and about 34 percent of the total increase, respectively. In addition, the administration is proposing actions that would further reduce the Trust Fund balance over the next several years. Specifically, the President’s fiscal year 2004 budget request would increase the percentage of FAA operations funded by the Trust Fund from 75 percent to 79 percent. The decrease in Trust Fund revenues and increase in Trust Fund expenditures presents an issue that the Congress may want to address as it moves forward with the reauthorization process. While there is a general consensus that building runways is one of the most effective ways to increase capacity in the national airspace system, resolving the challenges associated with planning and building runways is an important issue that is directly related to enhancing capacity. In December 2002, FAA published the most recent version of its Operational Evolution Plan, a 10-year plan to increase the capacity and efficiency of the national airspace system, primarily by building runways. Figure 3 illustrates how capacity will be increased at one airport through runway construction. If successfully carried out, FAA’s Operational Evolution Plan would substantially increase capacity and improve efficiency. However, FAA faces several challenges in implementing the plan. First, the success of the plan depends on adequate funding and on the consensus of FAA’s aviation industry partners. Yet according to the most recent version of the plan, the timing and implementation of some activities may be in jeopardy because of the current economic situation and the uncertain viability of some industry participants. For example, the plan calls for the airline industry to invest $11 billion in new equipment for aircraft. FAA is currently reviewing the ability of the airlines to make this investment. Second, as noted, the plan relies heavily on runway development to increase capacity, but the most recent version of the plan reports mixed results in building new runways.