Although there have been fluctuations in its funding sources, FAA has been supported by the current structure for decades. The agency is primarily funded by the Trust Fund (82 percent)—which receives revenues from a series of excise taxes paid by users of the national airspace system—and by General Fund revenues. These excise taxes are associated with purchases of airline tickets and aviation fuel, as well as the shipment of cargo, and are scheduled to expire September 30, 2007. Trust Fund revenues are available for use subject to appropriation. Including interest earned on its balances, the Trust Fund received about $11.2 billion in 2006. In addition, about $2.6 billion was appropriated for fiscal year 2006 from the General Fund for FAA operations. Table 1 shows the distribution of Trust Fund revenues for 2005 by source. The Trust Fund was established by the Airport and Airway Revenue Act of 1970 to help fund the development of a nationwide airport and airway system and to fund investments in air traffic control facilities. It provides all of the funding for three of FAA’s four accounts, including (1) the Facilities and Equipment (F&E) account, which funds technological improvements to the air traffic control system; (2) the Research, Engineering, and Development (RE&D) account, which funds research on issues related to aviation safety, mobility, and the environment as well as most of FAA’s contribution to JPDO; and (3) the Airport Improvement Program (AIP), which provides grants for construction and safety projects at airports. In addition, at various times during its history, the Trust Fund has provided all or some portion of the funding for FAA’s Operations account. In 2006, expenditures from the Trust Fund totaling $11.2 billion were made among the four accounts as shown in figure 1. The current funding structure—excise taxes plus a General Fund contribution—has funded FAA for many years, and estimates indicate that this structure can potentially provide sufficient funds for the next several years to support the transition to NextGen. As the number of air travelers has grown, so have excise tax revenues. Even though revenues fell with the decline in air travel following the terrorist attacks of September 11, 2001, 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 and has appropriated different amounts from the General Fund to offset Trust Fund fluctuations. 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 amount of the General Fund contribution fluctuates 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, and RE&D accounts. Therefore, fluctuations in Trust Fund revenues and FAA expenditures require different levels of General Fund contributions. Since the Trust Fund’s creation in 1970, revenues have in aggregate exceeded spending commitments, resulting in an uncommitted balance, or surplus. As of the end of fiscal year 2006, the Trust Fund’s uncommitted balance was about $1.8 billion. The Trust Fund’s uncommitted balance depends on the revenues flowing into the fund and the appropriations made available from the fund for various spending accounts. Policy choices, structural changes in the aviation industry, and external events have affected revenues flowing into and out of the fund. For the last 6 years, for example, the uncommitted balance has been declining because expenditures from the fund are based on projected revenues and actual revenues have been less than FAA forecasted. In prior work, we ran scenarios in which Trust Fund revenues continued to fall short of forecasted levels and the Trust Fund balance continued to decline, eventually falling to zero. We believe these scenarios raise concerns because in the past the Trust Fund’s uncommitted balance has been used to offset lower-than-expected Trust Fund revenues and decreased General Fund contributions. The zero-balance scenario would most likely have implications for Congress in funding FAA programs, including NextGen. To address this concern, H.R. 2881 proposes to base expenditures from the Trust Fund on 95 percent, rather than 100 percent, of estimated Trust Fund revenues, which would reduce the likelihood of running the Trust Fund balance to zero. According to projections prepared by the Congressional Budget Office (CBO), the existing funding structure, if maintained, will generate substantially increasing revenues over the next decade. Assuming that the General Fund provides about 19 percent of FAA’s budget, CBO estimates that through 2017 the Trust Fund can support about $22 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. According to FAA, the majority of the funding for NextGen will take place after 2010. Moreover, if the desired level of spending exceeded what was likely to be available from the Trust Fund at current tax rates, Congress could make changes within the current structure that would provide FAA with additional revenue. For example, Congress could raise more revenue from airspace system users for 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. While the current funding structure can produce enough revenue to fund FAA, including NextGen, this structure presents equity and efficiency concerns. FAA and others have stated that the current approach to collecting funds from users through excise taxes creates inequities because the revenue contributions of different flights are not directly linked to the costs of the services that these flights receive from FAA. Some stakeholders have also raised concerns that the current funding system does not provide aircraft operators with incentives to use FAA services in the most efficient manner. For users to make efficient decisions about their use of the national airspace system, their price for using the system (the taxes or charges they pay) should accurately reflect the costs their use imposes on the system. These prices, along with other factors influencing supply and demand, will influence users’ decisions about the type, size, and number of aircraft to operate, and when and where to operate them. Provisions of the Senate and House reauthorization bills propose different types of revenue sources to fund FAA and NextGen. These provisions have implications for revenue generation, but could also have unintended consequences. S. 1300 includes a provision requiring the FAA Administrator to impose a surcharge of $25 per flight to be available to pay the costs of NextGen capital projects. All owners or operators of aircraft in the national airspace system would be required to pay this surcharge except those that fall into certain exempt categories. FAA estimates that this fee could yield $400 million a year by 2011. We estimate, on the basis of 2006 operations, that commercial airlines would contribute 36 percent of the fees; regional airlines would contribute 31 percent, though carrying far fewer passengers; and general aviation would contribute 11 percent (see fig. 3). One potential advantage of this type of charge is that it would establish a more direct relationship between revenue and costs compared with the current excise taxes. Advocates of this approach say that funding FAA in part through such a charge would do more than the current structure to ensure that revenues are adequate to cover costs over time and to create incentives for efficient use of the national airspace system by directly connecting charges with the costs imposed by users. On the other hand, although this connection would appear to exist for FAA’s costs of providing terminal control services—the more flights, the more charges an operator pays—there is no obvious connection with the costs of en route services because the charge would be the same for short and long flights. In addition, concerns have been raised about the equity of a charge that would apply equally to all jet aircraft regardless of size. Another concern has been raised that the fee might lead to reduced air service by turboprop operators providing regular service to small communities as well as reduced service provided through the Essential Air Service program to small communities because of the increased expense that the fee would represent. Another S. 1300 provision would grant FAA the authority to seek debt financing by issuing bonds directly to the private capital market. Supporters of this bonding proposal for FAA claim a number of advantages to this financing approach. One claim is that debt financing could provide FAA with a stable and predictable revenue source for funding capital development. FAA officials state that the uncertainty associated with the appropriation process makes planning for a large, complex, and expensive air traffic control system like NextGen difficult. Over the years, federal agencies have used a variety of financing approaches to acquire capital assets. However, from a governmentwide perspective, some approaches, such as bonding, raise serious concerns because they ultimately will result in higher overall costs. Moreover, if FAA were granted borrowing authority, the associated costs would be higher by borrowing directly from the private capital market instead of through the Treasury. According to Treasury officials and representatives of investment firms, this occurs because the Treasury is charged a lower interest rate to borrow money. The costs of borrowing may also be higher if the revenue option—such as taxes or user charges—used to pay back the bond is subject to appropriations because there would most likely be a risk premium added to the credit rating to compensate for the risk that appropriations may not be provided. We have reported that given the federal government’s long-term structural fiscal imbalance, any action that may increase the government’s costs requires sound justification and careful consideration before it is adopted. A provision of H.R.