Although there have been fluctuations in its funding sources, FAA is primarily supported by the Trust Fund (82 percent), which receives revenues from a series of excise taxes paid by users of the NAS. These excise taxes are associated with purchases of airline tickets and aviation fuel, as well as the shipment of cargo. These Trust Fund revenues are then available for use subject to appropriations. In addition to these revenues, in most years, General Fund revenues have been used to fund FAA. About $2.6 billion was appropriated for fiscal year 2006 from the General Fund for FAA’s operations. This amount represents about 18 percent of FAA’s total appropriation. 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 airway system. The Trust Fund provides funding for FAA’s two capital accounts—the Airport Improvement Program (AIP) and the Facilities and Equipment (F&E) account—which provide grants to airports and funds for modernizing the air traffic control system, respectively. The Trust Fund also provides funding for the Research, Engineering, and Development (RE&D) account and supports part of FAA’s Operations account. To fund these accounts, the Trust Fund is credited with revenues collected from system users through the dedicated excise taxes. In fiscal year 2005, the ticket tax was the largest single source of Trust Fund revenue, followed by the international departure and arrival tax, the passenger segment tax, and fuel taxes (see table 1 for a description of current taxes). The administration’s reauthorization proposal would change FAA’s financing system from one based mainly on excise taxes to one based more on cost-based charges. Under the proposed system, funding for ATO would come primarily from user charges on commercial aircraft and fuel taxes on general aviation aircraft. In addition, contributions from the General Fund would be appropriated to FAA to cover ATO costs of providing services to military and other public aircraft, flight service stations, and a few other services. Funding for AIP, EAS, and part of RE&D would come from an equal fuel tax on both general and commercial aviation and a tax on arriving and departing international passengers. Funding for Safety and Operations would include some fees, but mostly General Fund contributions. The reauthorization proposal would also create an advisory board and give FAA limited borrowing authority. Table 1 compares elements of the current and proposed funding structure for FAA. The administration’s proposal also calls for changing FAA’s budget structure by establishing two new budget accounts—(1) Air Traffic Organization and (2) Safety and Operations—to align with FAA’s lines of business and proposed funding. These two new accounts would replace the Operations and F&E accounts. The proposal retains the AIP and RE&D accounts. See table 2 for a comparison of the current and proposed FAA budget structure. In January 2007, FAA released a new cost allocation study. This report sets forth a methodology for assigning air traffic costs to user groups on the basis of aircraft type. The two principal user groups are the high- performance group, which includes all fixed-wing turbine engine aircraft operations, and the piston aircraft group, which includes piston engine fixed-wing aircraft operations and helicopters. According to FAA, this cost allocation methodology is based on the assumption that high-performance users generally compete for the same air traffic control resources and their operations are more time-sensitive than piston aircraft operations, requiring more complex air traffic equipment and procedures. Piston aircraft operations, on the other hand, tend to be less time-sensitive and typically rely on less complex equipment. Differences in the speed and cruising altitudes of the two aircraft types also affect their en route costs. The current funding structure, with some modifications to the excise taxes and tax rates and changes in the levels of General Fund contributions, has successfully funded a growing FAA budget. Trust Fund revenues are projected to increase substantially at current excise tax rates. If, to fund the additional costs of NextGen or for other reasons, Congress chooses to increase spending on aviation beyond what can be paid for at current excise tax rates, it can obtain additional revenue through the current funding structure by increasing excise tax rates, the General Fund contribution, or both, although the nation’s fiscal imbalance could make such an increase difficult. Nonetheless, because some factors that drive tax revenues, such as ticket prices, are not well linked to FAA’s workload and costs, FAA has been concerned about the long-run revenue adequacy, equity, and efficiency of its funding. Some of the administration’s proposed changes for funding FAA, such as establishing direct user charges for commercial aviation and substantially increasing fuel taxes for general aviation are intended to link FAA’s revenues more closely with its costs. For other elements of FAA’s budget, however, it is not possible to establish a direct link between revenues and costs. For example, because AIP expenditures are not the direct result of costs imposed by users of the NAS, the proposal to fund AIP through equal fuel taxes on all aircraft operators can best be evaluated on equity grounds. Better alignment of FAA’s revenues and costs can address some of the concerns about the current funding system that derive from the lack of connection between some key drivers of current FAA revenues, such as ticket prices, and FAA’s workload and costs. However, the effectiveness of the proposed funding structure in linking costs with revenues depends critically on how well FAA’s new cost allocation method assigns costs to users and on how closely the proposed funding structure adheres to the principle of cost-based funding, and questions remain about both considerations. Furthermore, FAA’s method for estimating the fuel tax rates needed to collect its intended level of fuel tax revenue may have underestimated the tax rates needed by not accounting for possible reductions in fuel consumption due to the higher tax rates. The implications of some of the other proposed changes, including one creating an advisory board that can make recommendations on fee setting and another authorizing limited authority for FAA to use debt financing, are uncertain. Congress has used the current funding structure—excise taxes plus a General Fund contribution—to fund FAA for many years. As the number of air travelers has grown, so have excise tax revenues. Even though revenues fell during the early years of this decade as the demand for air travel fell, they began to rise again in fiscal year 2004, and FAA estimates that if the current taxes remain in effect at their current rates, revenues will continue to increase. While retaining the basic structure for funding FAA, Congress has at times changed the mix of excise taxes and some of the tax rates. For example, when the taxes were most recently reauthorized in 1997, Congress added the passenger segment tax while reducing the passenger ticket tax rate from 10 percent to 7.5 percent. Congress has also appropriated varying amounts of General Fund revenues for FAA during the past 25 years, ranging from 0 to 59 percent of FAA’s budget and averaging around 20 percent since fiscal year 1997. The fluctuation in the amount of the General Fund contribution occurs because the contribution is based on the incoming Trust Fund revenues that are available to fund the Operations account after revenues have been allocated to fund the F&E, AIP, RE&D accounts. Therefore, fluctuations in the Trust Fund revenues and FAA expenditures require different levels of General Fund contributions. As air traffic grows and FAA embarks on modernization through NextGen, Congress may appropriate additional funds to FAA to fund new investment and to maintain a safe and efficient airspace system, although there is considerable uncertainty about how much NextGen will cost. FAA estimates that NextGen will cost between $15 billion to $22 billion through 2025. However, funding NextGen does not mean that the current funding structure needs to be changed. According to projections prepared by the Congressional Budget Office (CBO), revenues obtained from the existing funding structure are projected to increase substantially. Assuming that the General Fund provides about 19 percent of FAA’s budget, CBO estimates that through 2016 the Trust Fund can support about $19 billion in additional spending over the baseline FAA spending levels CBO has calculated for FAA (the 2006 funding level, growing with inflation) provided that most of that spending occurs after 2010. How far this money will go to fund modernization is subject to a number of uncertainties— including the future cost of NextGen investments, the volume of air traffic, the future costs of operating the NAS, and the levels of future appropriations for AIP, all of which may influence funding for FAA. However, if the desired level of spending exceeded what was likely to be available from the Trust Fund at current tax rates, Congress could make further changes within the current structure that would provide FAA with additional revenue if Congress believed that larger FAA appropriations were appropriate—for example, if FAA experienced increased workload demands as a result of increased demand for air traffic services. Congress could raise more revenue from airspace system users for NAS modernization or for other purposes by raising the rates on one or more of the current excise taxes. Congress could also provide more General Fund revenues for FAA, although the nation’s fiscal imbalance may make a larger contribution from this source difficult. Thus, it is necessary to look at factors other than a need for more revenues to justify a major change in FAA’s funding structure. FAA has expressed concern that revenues from the current funding structure depend heavily on factors, such as ticket prices, that are not connected to FAA’s workload and costs. According to FAA, under the current structure, increases in the agency’s workload may not be accompanied by revenue increases because users are not directly charged for the costs that they impose on FAA for their use of the NAS. Revenues collected from excise taxes are primarily dependent on the price of tickets and the number of passengers on planes, while workload is driven by flight control and safety activities. This disconnect raises three key concerns about the current funding structure—its long-term revenue adequacy, equity, and efficiency.