Airport and Airway Trust Fund

On December 31, 1996, the government's authority to collect the taxes that finance the Airport and Airway Trust Fund, which has historically provided about three-quarters of the Federal Aviation Administration's (FAA) funding, lapsed. A coalition of the nation's largest airlines has proposed replacing the tax on domestic airline tickets, which has been the Trust Fund's main source of revenue, with fees on domestic operations. The coalition airlines contend that they pay for more than their fair share of the costs incurred by FAA in running the airport and airway system and that competing low-fare airlines underpay. This testimony discusses (1) the status of the Trust Fund, (2) issues raised by the coalition's proposal, (3) potential effects of the coalition's proposal on domestic competition, and (4) potential competitive impacts of alternative options for financing FAA.

GAO noted that: (1) based on FAA and U.S. Treasury estimates, the money available in the Trust Fund to finance new commitments would reach zero by July 1997, unless the taxes were reinstated or another financing mechanism adapted; (2) while FAA and the Treasury are still trying to determine when the Trust Fund would run out of money, based on FAA and Treasury data, FAA may have to stop making new capital commitments as early as March 1997 to ensure that FAA can pay its workforces through the end of the fiscal year; (3) if Congress reinstates the taxes or some other alternative by July, the Trust Fund should be able to fully finance its portion of FAA's fiscal year 1997 budget; (4) to the extent possible, commercial users of the nation's airspace should pay a fair, cost-based share of the total costs of the nation's airport and airway system; (5) recognizing the need for better cost data, Congress in October 1996 directed that: (a) an independent assessment of FAA's funding needs and the costs imposed on the system by each segment of the aviation industry be completed by February 1997; (b) GAO assess how air traffic control costs are allocated between FAA and the Department of Defense; and (c) a national commission study how best to finance FAA in light of these assessments, with a report due to the Secretary of Transportation by August 1997; (6) while many factors drive FAA's costs, such as the number of aircraft departures and aircraft miles flown, GAO found that the coalition airlines' proposal only incorporates factors that would substantially increase the taxes paid by low-fare and small airlines and decrease the taxes paid by the seven coalition airlines; (7) as a result, the proposal would dramatically redistribute the taxes among airlines and could have substantial implications for domestic competition; (8) if Congress decides to replace the ticket tax with a different financing mechanism, numerous options exist, including a tax on such common usage indicators as aircraft departures or passenger enplanements; (9) such options entail tradeoffs between their ease of administration, effect on how efficiently the nation's airports and airways are used, and ability to produce an equitable system in which commercial users pay their fair share of the costs; and (10) similarly, the potential competitive impacts of these options vary widely.