Airport and Airway Trust Fund

As pressure mounts to rein in federal spending, user fees for government services have become an increasingly attractive option. GAO believes that commercial users of the nation's airspace should pay their fair share of the costs that they impose on the system, and GAO has identified some areas, such as the certification of new airlines, where additional fees could be justified. Because the tax on domestic airline tickets is based on the fares paid by travelers and not on the Federal Aviation Administration's (FAA) actual costs, it may not fairly allocate the system's costs among the users. In May 1996, a coalition of the seven largest U.S. airlines proposed replacing the ticket tax with user fees. The coalition's proposal, however, would substantially boost the fees paid by low-fare and small airlines and would lower the fees paid by the seven coalition airlines. The upshot is that the proposal would dramatically redistribute the cost burden among airlines and could have substantial implications for domestic competition. If Congress decides to replace the ticket tax with a different fee system, such a system would need to account for the wide range of costs that FAA incurs in managing the airport and airway system, which vary greatly by the amount, type, and timing of various airline operations. In addition, the views of all affected parties--not just a particular group of airlines--would need to be considered. Recognizing this, Congress in October 1996 established a 21-member commission to study how best to meet FAA's financing needs.

GAO found that: (1) because the ticket tax is based on the fares paid by travelers and not an allocation of actual FAA costs, it may not fairly allocate the system's costs among the users; (2) the coalition airlines' proposal to replace the ticket tax with user fees only incorporates factors that would substantially increase the fees paid by low-fare and small airlines and decrease the fees paid by the seven coalition airlines; (3) the proposal would dramatically redistribute the cost burden among airlines and could have substantial implications for domestic competition; (4) any replacement system for the ticket tax would need to account for the wide range of costs incurred by FAA in managing the airport and airway system; (5) the views of all affected parties, not just any particular group of airlines, would need to be included in assessing the mechanisms for financing the airport and airway system; and (6) Congress established a commission to study how best to meet FAA financing needs which will help ensure that, in the long term, FAA has a secure funding source, commercial users of the system pay their fair share, and a strong, competitive airline industry continues to exist.