Federal Aviation Administration
An Analysis of the Financial Viability of the Airport and Airway Trust Fund Gao ID: GAO-06-562T March 28, 2006The Airport and Airway 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 and to fund investments in air traffic control facilities. It provides all of the funding for the Federal Aviation Administration's (FAA) capital accounts, including: (1) the Airport Improvement Program, which provides grants for construction and safety projects at airports; (2) the Facilities and Equipment account, which funds technological improvements to the air traffic control system; and (3) the Research, Engineering, and Development account, which funds continued research on aviation safety, mobility, and environment issues. In addition, at various times during its history, the Trust Fund has funded all or some portion of FAA's operations. To fund these accounts, the Trust Fund is credited with revenues from a variety of excise taxes related to passenger tickets, passenger flight segments, international arrivals/departures, cargo waybills, and aviation fuels. Including interest earned on its balances, the Trust Fund received $10.8 billion in fiscal year 2005. The various taxes that accrue to the Trust Fund are scheduled to expire at the end of fiscal year 2007. GAO was asked to provide information and analysis about the financial condition and future viability of the Trust Fund.
The Trust Fund's uncommitted balance decreased from $7.3 billion at the end of fiscal year 2001 to about $1.9 billion at the end of fiscal year 2005. In 3 of the last 4 fiscal years, the Trust Fund's uncommitted balance has fallen by over $1 billion because revenues were lower than FAA forecasted due to the impact of unanticipated events such as the September 11, 2001, terrorist attacks. However, the rate of decrease has slowed; during fiscal year 2005, the uncommitted balance decreased by about $500 million. Under FAA's current authorization, appropriations from the Trust Fund are based on forecasted revenues. Thus, if actual revenues approximate forecasted revenues, there should be no substantial change in the uncommitted balance. However, for each fiscal year since 2001, because actual revenues have been less than forecasted, the uncommitted balance has fallen. Based on its revenue forecast and appropriation for fiscal year 2006, FAA forecasts that the Trust Fund's uncommitted balance will fall by the end of 2006 to about $1.7 billion. If the Congress continues to follow the formula from Vision 100--FAA's current authorizing legislation that links appropriations made available from the fund to revenue forecasts--then FAA expects there will be little change in the uncommitted balance for fiscal year 2007. If, instead, the Congress adopts the President's budget for FAA for fiscal year 2007, FAA forecasts that the fund's uncommitted balance by the end of 2007 will rise to about $2.7 billion. This higher forecasted uncommitted balance occurs because the President's budget calls for an appropriation to FAA from the Trust Fund that is about $1 billion lower than the Vision 100 formula. If revenues in fiscal years 2006 and 2007 are below forecasted levels, the Trust Fund's uncommitted balance will be less than forecasted and, in one scenario we analyzed, will reach zero by the end of 2007. This scenario raises concerns because, in the past, the Trust Fund's uncommitted balance was used to offset lower-than-expected Trust Fund revenues and decreased general fund contributions. FAA could help address these concerns by continuing to look for ways to improve efficiency and reduce costs. However, the zero-balance scenario would most likely have implications for the Congress in funding FAA programs.
GAO-06-562T, Federal Aviation Administration: An Analysis of the Financial Viability of the Airport and Airway Trust Fund
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Testimony:
Before the Subcommittee on Aviation, Committee on Commerce, Science and
Transportation, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EST:
Tuesday, March 28, 2006:
Federal Aviation Administration:
An Analysis of the Financial Viability of the Airport and Airway Trust
Fund:
Statement of Gerald L. Dillingham, Ph.D.:
Director, Physical Infrastructure Issues:
GAO-06-562T:
GAO Highlights:
Highlights of GAO-06-562T, a testimony before the Subcommittee on
Aviation, Committee on Commerce, Science and Transportation, U.S.
Senate:
Why GAO Did This Study:
The Airport and Airway 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 and to fund investments in
air traffic control facilities. It provides all of the funding for the
Federal Aviation Administration‘s (FAA) capital accounts, including:
(1) the Airport Improvement Program, which provides grants for
construction and safety projects at airports; (2) the Facilities and
Equipment account, which funds technological improvements to the air
traffic control system; and (3) the Research, Engineering, and
Development account, which funds continued research on aviation safety,
mobility, and environment issues. In addition, at various times during
its history, the Trust Fund has funded all or some portion of FAA‘s
operations. To fund these accounts, the Trust Fund is credited with
revenues from a variety of excise taxes related to passenger tickets,
passenger flight segments, international arrivals/departures, cargo
waybills, and aviation fuels. Including interest earned on its
balances, the Trust Fund received $10.8 billion in fiscal year 2005.
The various taxes that accrue to the Trust Fund are scheduled to expire
at the end of fiscal year 2007. GAO was asked to provide information
and analysis about the financial condition and future viability of the
Trust Fund.
What GAO Found:
The Trust Fund‘s uncommitted balance decreased from $7.3 billion at the
end of fiscal year 2001 to about $1.9 billion at the end of fiscal year
2005. In 3 of the last 4 fiscal years, the Trust Fund‘s uncommitted
balance has fallen by over $1 billion because revenues were lower than
FAA forecasted due to the impact of unanticipated events such as the
September 11, 2001, terrorist attacks. However, the rate of decrease
has slowed; during fiscal year 2005, the uncommitted balance decreased
by about $500 million. Under FAA‘s current authorization,
appropriations from the Trust Fund are based on forecasted revenues.
Thus, if actual revenues approximate forecasted revenues, there should
be no substantial change in the uncommitted balance. However, for each
fiscal year since 2001, because actual revenues have been less than
forecasted, the uncommitted balance has fallen.
Based on its revenue forecast and appropriation for fiscal year 2006,
FAA forecasts that the Trust Fund‘s uncommitted balance will fall by
the end of 2006 to about $1.7 billion. If the Congress continues to
follow the formula from Vision 100”FAA‘s current authorizing
legislation that links appropriations made available from the fund to
revenue forecasts”then FAA expects there will be little change in the
uncommitted balance for fiscal year 2007. If, instead, the Congress
adopts the President‘s budget for FAA for fiscal year 2007, FAA
forecasts that the fund‘s uncommitted balance by the end of 2007 will
rise to about $2.7 billion (see figure). This higher forecasted
uncommitted balance occurs because the President‘s budget calls for an
appropriation to FAA from the Trust Fund that is about $1 billion lower
than the Vision 100 formula.
Trust Fund‘s Projected End-of-Year Uncommitted Balance:
[See PDF for image]
[End of figure]
If revenues in fiscal years 2006 and 2007 are below forecasted levels,
the Trust Fund‘s uncommitted balance will be less than forecasted and,
in one scenario we analyzed, will reach zero by the end of 2007. This
scenario raises concerns because, in the past, the Trust Fund‘s
uncommitted balance was used to offset lower-than-expected Trust Fund
revenues and decreased general fund contributions. FAA could help
address these concerns by continuing to look for ways to improve
efficiency and reduce costs. However, the zero-balance scenario would
most likely have implications for the Congress in funding FAA programs.
www.gao.gov/cgi-bin/getrpt?GAO-06-562T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gerald L. Dillingham at
(202) 512-2834 or dillinghamg@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here today to discuss the financial viability of
the Airport and Airway Trust Fund (Trust Fund) and the President's
proposed 2007 budget for the Federal Aviation Administration (FAA).
Over the course of FAA's last two authorizations, FAA's appropriations
increased from $9.8 billion in fiscal year 1999 to $14.3 billion this
fiscal year (2006), and fiscal year 2007 is projected to be $15.2
billion.[Footnote 1] In this testimony, we will present the results of
our analysis of the uncommitted balance[Footnote 2] of the Trust Fund
and related issues as requested by this committee.
FAA is currently funded by a combination of Trust Fund revenues derived
from excise taxes levied on a variety of aviation activities and from
general fund revenues. 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 example, the
uncommitted balance has been declining in recent years because Trust
Fund revenues for the last 5 years have been less than FAA's forecasted
levels. Our analysis includes scenarios in which Trust Fund revenues
continue to fall short of forecasted levels. Under these scenarios, the
Trust Fund balance continues to decline, and in one scenario, the
balance reaches zero by the end of 2007. We believe these scenarios
raise concerns because in the past the Trust Fund's uncommitted balance
was used to offset lower-than-expected Trust Fund revenues and
decreased general fund contributions. FAA could help address these
concerns by continuing to look for ways to improve efficiency and
reduce costs. However, the zero-balance scenario would most likely have
implications for the Congress in funding FAA programs. In addition, we
believe that the information about the financial viability of the Trust
Fund will be critical to congressional decision making regarding
appropriations for FAA's 2007 budget.
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 and to fund investments in air traffic control
facilities. It provides all of the funding for FAA's capital accounts,
including: the Airport Improvement Program (AIP), which provides grants
for construction and safety projects at airports; the Facilities and
Equipment (F&E) account, which funds technological improvements to the
air traffic control system; and the Research, Engineering, and
Development (RE&D) account, which funds continued research on aviation
safety, mobility, and environment issues as well as the FAA's portion
of the Joint Planning and Development Office. In addition, at various
times during its history, the Trust Fund has funded all or some portion
of FAA's operations. In 2005, expenditures from the Trust Fund were
made among the four accounts shown in figure 1.
Figure 1: Expenditures from the Trust Fund for Fiscal Year 2005 Total
$11,156 Million:
[See PDF for image]
[End of figure]
To fund these accounts, the Trust Fund is credited with revenues from a
variety of excise taxes related to passenger tickets, passenger flight
segments, international arrivals/departures, cargo waybills, and
aviation fuels. These taxes are scheduled to expire at the end of 2007.
Including interest earned on its balances, the Trust Fund received
$10.8 billion in 2005. Table 1 shows the distribution of Trust Fund
revenues for 2005 by source.
Table 1: Sources of Trust Fund Revenue, Fiscal Year 2005:
Dollars in millions:
Revenue source: Passenger ticket tax;
Amount: $5,161;
Percent: 48.
Revenue source: Passenger flight segment tax;
Amount: 1,900;
Percent: 18.
Revenue source: Cargo tax;
Amount: 461;
Percent: 4.
Revenue source: Fuel tax;
Amount: 971;
Percent: 9.
Revenue source: International departure/arrival tax;
Amount: 1,922;
Percent: 18.
Revenue source: Interest;
Amount: 440;
Percent: 4.
Revenue source: Refunds[A];
Amount: (101);
Percent: (1).
Revenue source: Total;
Amount: $10,754;
Percent: 100.
Source: GAO analysis of FAA data.
[A] Refunds include: refund of aviation fuel other than gas
(noncommercial), refund of aviation gasoline (noncommercial), and other
refunds/credits.
[End of table]
Although expenditures from the Trust Fund exceeded revenues in 2005,
since the Trust Fund's creation in 1970, revenues have in aggregate
exceeded spending commitments, resulting in a surplus or an uncommitted
balance. At the end of 2005, the Trust Fund's uncommitted balance was
about $1.9 billion.
Policy choices, structural changes in the aviation industry, and
external events have affected revenues flowing into and out of the fund
and have caused some aviation stakeholders to speculate about the
fund's financial status. Some aviation stakeholders have said that
there is a reason to be concerned about the financial condition of the
Trust Fund because in recent years, revenues have not kept pace with
funding commitments and the uncommitted balance has been used to close
the gap. Other aviation stakeholders state that the fund is healthy
because revenues are currently increasing and are expected to continue
to increase.
The focus today is the Trust Fund's revenues and balances over the past
few years; the projected near-term future of the Trust Fund,
considering the President's 2007 budget request for FAA; and policy
decisions that may affect longer-term Trust Fund balances. The scope of
our work and the specific methodology are discussed at the end of my
statement.
Recent Trends of the Trust Fund and the Effect on the Fund's
Uncommitted Balance:
Revenues Have Generally Increased with Some Fluctuations:
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. The amount of revenue flowing into the Trust
Fund has fluctuated from year to year but has generally trended upward,
as shown in figure 2. Some of the fluctuation has resulted from changes
in economic conditions, but some has been due to other factors. For
example, during 1981 and 1982, revenues (including interest) flowing
into the fund averaged about $629 million--the lowest amount in the
fund's history--because of a lapse in the collection of aviation taxes.
In 1999, revenue flowing into the fund totaled about $11.1 billion, the
largest amount in the fund's history.
Figure 2: Trust Fund Revenues Have Fluctuated but Generally Increased:
[See PDF for image]
Note: Trust revenues include interest earned.
[End of figure]
However, after revenues peaked in 1999, the amount of revenue flowing
into the Trust Fund decreased in each of the next 4 years, reaching a
level of about $9.3 billion in 2003. A number of factors contributed to
this decrease. For example, within the airline industry, the growth of
the Internet as a means to sell and distribute tickets, the growth of
low-cost airlines, and fare reductions by legacy carriers[Footnote 3]
all transformed the industry and led to lower average fares. These
lower fares have resulted in lower ticket taxes and less revenue going
into the Trust Fund. In addition, in the same time period, a series of
largely unforeseen events, including the September 11, 2001, terrorist
attacks, war in Iraq and associated security concerns, the Severe Acute
Respiratory Syndrome (SARS), and global recessions seriously affected
demand for air travel, resulting in a decrease in airline industry and
Trust Fund revenue.
Since the beginning of 2004, however, Trust Fund revenues have been
increasing. In fact, revenues from tax sources in 2005 were nearly as
high as in 1999, although total revenues were still below peak level
because less interest was earned due to a lower Trust Fund balance.
Expenditures from the Trust Fund Have Also Generally Increased:
Similar to the revenue picture, the annual amount of expenditures from
the Trust Fund also has generally increased since the fund's inception,
but with some fluctuation. One source of fluctuation has been that the
share of FAA operations paid by the Trust Fund has varied over
time.[Footnote 4] Figure 3 shows how expenditures from the fund have
changed over time and how they have compared with revenues. In some
years, they have exceeded revenues, but in other years they have been
less than revenues.
Figure 3: Trust Fund Expenditures Have Generally Increased over Time
and Occasionally Exceeded Revenues:
[See PDF for image]
[End of figure]
Appropriations from Trust Fund Are Now Linked to Projected Revenues:
In the Wendell H. Ford Aviation Investment and Reform Act for the 21st
Century (AIR-21), the Congress created a link between Trust Fund
revenues and appropriations from the fund to try to ensure that all
fund receipts, including interest, were committed to spending for
aviation purposes on an annual basis. According to a provision of AIR-
21, which was continued in the Century of Aviation Reauthorization Act
(Vision 100)--FAA's current authorizing legislation--total
appropriations made available from the fund in each fiscal year shall
equal the level of receipts plus interest in that year, and these
appropriations can be used only for aviation investment programs, which
are defined as FAA's capital accounts plus the Trust Fund's share of
FAA operations. Further, the level of receipts was specified to be the
level of excise taxes plus interest credited to the fund for a fiscal
year as set forth in the President's budget baseline projection for
that year.
Trust Fund's Uncommitted Balance Has Been Declining in Recent Years:
As shown in figure 4, with the exception of its first four years, the
Trust Fund has ended each year with an uncommitted balance; however,
the amount of the uncommitted balance has fluctuated substantially over
time, generally increasing when Trust Fund revenues exceed
appropriations from the fund and decreasing when they are less than
appropriations. As noted in the figure, the uncommitted balance has
decreased substantially in recent years. The Trust Fund's uncommitted
balance peaked at over $7 billion in 1991, 1999, and 2001. In contrast,
because of lapses in the taxes that accrue to the fund, at the end of
1982, the uncommitted balance was about $2.1 billion, and at the end of
1997, it was about $1.4 billion. Specifically, the Trust Fund's
uncommitted balance decreased from $7.3 billion at the end of 2001 to
$4.8 billion at the end of 2002 and has continued to decrease since
then, reaching about $1.9 billion at the end of 2005. However, the rate
of decrease has slowed; in 2005, the uncommitted balance decreased by
about $500 million, after falling by at least $900 million in each of
the previous 3 years.
Figure 4: Trust Fund's End-of-Year Uncommitted Balance Has Trended
Downward in Recent Years:
[See PDF for image]
[End of figure]
The uncommitted balance has fallen in recent years because Trust Fund
revenues have fallen short of forecasted levels by over $1 billion in 3
out of the last 4 fiscal years. For example, in 2001, the difference
between forecasted revenue and actual revenue coming in to the Trust
Fund was $383 million less than expected. In 2002, the difference
jumped to $2.3 billion due to the impact that unanticipated external
events such as the September 11, 2001, terrorist attacks had on the
aviation industry. Residual effects and other factors such as the war
in Iraq and the SARS outbreak lasted through 2003 and 2004, with each
year's actual revenues coming in at least $1 billion below forecasted
revenues.
As mentioned above, under Vision 100 and its predecessor, AIR-21,
appropriations made available from the Trust Fund are based on
forecasted revenues.[Footnote 5] Thus, if actual revenues approximate
forecasted revenues, there should be no substantial change in the
uncommitted balance. However, as shown in figure 5, for each year
beginning with 2001, actual revenues, including interest, have been
less than forecasted, so that in each year since then, the uncommitted
balance has fallen.
Figure 5: Comparison of Forecasted Revenue and Interest with Actual
Revenue and Interest Received:
[See PDF for image]
[End of figure]
Fund's Uncommitted Balance Is Projected to Be Positive through 2007 but
Depends on Realization of Forecasted Passenger Traffic Levels and
Airfares:
Based on its revenue forecast and appropriations for 2006, FAA
forecasts that the Trust Fund's uncommitted balance will decrease by
the end of 2006 to about $1.7 billion. FAA forecasts that if, for 2007,
the Congress continues to follow the Vision 100 formula for linking
budget resources made available from the fund to expected revenues,
then there will be little change in the uncommitted balance--$1.7
billion--during that year. If, instead, the Congress adopts the
President's budget request for FAA for 2007, FAA forecasts that the
fund's uncommitted balance by the end of 2007 will rise to about $2.7
billion. This higher forecasted uncommitted balance occurs because the
President's budget calls for an appropriation from the Trust Fund that
is about $1 billion lower than the Vision 100 formula. In addition,
compared with Vision 100, the President's budget calls for a reduction
in the appropriation to FAA from the general fund of about $500
million. Thus, in total, compared with Vision 100, the President's
budget calls for a reduction of about $1.5 billion in FAA's
appropriation. Figure 6 shows the forecasted year-end uncommitted
balance under both scenarios through 2007.
Figure 6: Trust Fund's Projected End-of-Year Uncommitted Balance under
Vision 100 and President's Budget Proposal:
[See PDF for image]
[End of figure]
While the President's budget calls for making a smaller appropriation
available from the Trust Fund than under Vision 100, largely due to
reductions in the AIP, it calls for greater reliance on the Trust Fund
to fund FAA's operations. Vision 100 uses the formula created in AIR-21
to determine how much funding for FAA operations should come from the
Trust Fund, but the President's budget proposal does not use this
formula. Under Vision 100, the formula makes the amount of Trust Fund
revenue that will be authorized for FAA operations and RE&D in a given
year equal to projected Trust Fund revenues (as specified in the
President's budget) minus the authorizations for the capital accounts
(AIP and F&E) in that year. Thus, under Vision 100, the Trust Fund is
projected to support $4.6 billion of FAA's operations, or 57 percent.
In contrast, the President's budget specifies a set amount of Trust
Fund revenue to be used for FAA operations. Therefore, if Congress
enacts the President's budget request for FAA, the Trust Fund would
provide $5.4 billion for FAA's operations in 2007, or 65 percent of its
total estimated cost for operations.
Although the Trust Fund is projected to have a surplus at the end of
2007 under each of the expenditure proposals, this projection depends
to a significant extent on achieving forecasted commercial passenger
traffic levels and airfares, as they have the largest impact on the
amount of revenues flowing into the Trust Fund. We recognize that it is
difficult to anticipate future events that may significantly affect the
demand for air travel, particularly since FAA makes a forecast that is
contained in the President's budget based on information available in
the first quarter of the preceding fiscal year. However, our analysis
shows that for each of the last 5 years, FAA's projected revenue
forecast for the President's budget was higher than the actual amount
of revenue received, as shown in figure 5.
Given the differences in recent years between the forecasted revenue
and actual amount of revenue received, we conducted sensitivity
analyses to estimate what would happen to the Trust Fund's uncommitted
balance if Trust Fund revenues in 2006 and 2007 fall below the levels
that FAA projected in March 2006.[Footnote 6] For example, table 2
shows the projected Trust Fund balances under Vision 100 and the
President's proposal and the impact if revenues, for whatever reason,
are 5 percent or 10 percent less than currently projected. If revenues
are 5 percent lower than projected, which they were in 2001, the Trust
Fund would have a small but positive uncommitted balance under both
expenditure proposals--Vision 100 and the President's budget proposal.
However, if the revenues were 10 percent lower than projected, as they
were in 2004, the uncommitted balance would drop below half a billion
dollars under the President's proposal and would fall to zero by the
end of 2007 under Vision 100.
Table 2: Sensitivity Analysis of the Trust Fund's Uncommitted Balance
to Revenue Shortfalls:
Dollars in millions.
Baseline uncommitted balance as of March 2006;
Revenue scenario showing projected uncommitted balance: Vision 100;
Fiscal year: 2006: $1,722;
Fiscal year: 2007: $1,718.
Revenue scenario showing projected uncommitted balance: President;
Fiscal year: 2006: 1,722;
Fiscal year: 2007: 2,706.
If revenues are 5 percent less than projected;
Revenue scenario showing projected uncommitted balance: Vision 100;
Fiscal year: 2006: 1,189;
Fiscal year: 2007: 595.
Revenue scenario showing projected uncommitted balance: President;
Fiscal year: 2006: 1,189;
Fiscal year: 2007: 1,582.
If revenues are 10 percent less than projected;
Revenue scenario showing projected uncommitted balance: Vision 100;
Fiscal year: 2006: 657;
Fiscal year: 2007: 0.
Revenue scenario showing projected uncommitted balance: President;
Fiscal year: 2006: 657;
Fiscal year: 2007: 459.
Source: GAO Analysis of FAA data.
[End of table]
We believe these scenarios raise concerns because, in the past, the
Trust Fund's uncommitted balance was used to offset lower-than-expected
Trust Fund revenues and decreased general fund contributions. FAA could
help address these concerns by continuing to look for ways to improve
efficiency and reduce costs. However, the zero-balance scenario would
most likely have implications for Congress in funding FAA programs.
To keep the Trust Fund from declining, the Congress could use an
alternate basis for authorizing and appropriating money out of the
Trust Fund that does not rely on the revenue forecast in the
President's budget. One alternative that would still maintain the link
between revenues and spending would be for appropriations from the
Trust Fund to be based on the actual Trust Fund revenues from the most
recent year for which data are available. That would mean, for example,
that the Congress would appropriate for 2007 the Trust Fund revenues
received in 2005. Although that would make it less likely that the
Trust Fund balance would decline further, it could also mean that a
smaller appropriation would be made available for aviation. Whereas
Trust Fund revenues in 2005 were about $10.8 billion, the President's
budget for 2007 forecasts Trust Fund revenues of about $11.8 billion.
Future Policy Decisions Will Affect the Trust Fund Balance beyond 2007:
Future policy decisions concerning spending for aviation will affect
the Trust Fund balances beyond 2007. If general fund appropriations for
FAA's operations are maintained at recent levels, future projected
Trust Fund revenues under the current tax structure may be insufficient
to pay for the expenditures that FAA says are needed to maintain and
modernize the current system. According to FAA, its aviation
infrastructure is aging, and replacing it will cost $32 billion. Even
more, Trust Fund revenues would be needed to pay for those expenses if
general fund appropriations for operations are reduced. Insufficient
Trust Fund revenues could result in critically needed capacity-
enhancing air traffic control modernization investments being deferred
or canceled at a time when commercial activity is returning to or
exceeding pre-September 11 levels.[Footnote 1]
Funding Will Be Needed for the Next Generation Air Transportation
System:
In addition to costs projected just to maintain FAA's current system,
additional capital expenses are on the horizon to modernize the system.
Vision 100 directed the administration to develop a comprehensive plan
for a Next Generation Air Transportation System (NGATS) that can
accommodate the changing needs of the aviation industry and meet air
traffic demands by 2025. The act chartered the Joint Planning and
Development Office (JPDO) within FAA to coordinate federal and private-
sector research related to air transportation. FAA leads the
interagency effort that leverages expertise and resources within the
Departments of Transportation, Defense, Homeland Security, and Commerce
as well as at the National Aeronautics and Space Administration and the
White House Office of Science and Technology Policy. The Congress
appropriated $5 million to FAA in seed money in 2005, and appropriated
$18 million to FAA for JPDO in 2006, while additional funding and in-
kind support comes from the participating agencies. For 2007, the
President's budget requests $18 million for JPDO critical system
engineering and planning efforts for NGATS, as well as funding for two
NGATS systems at a combined cost of $104 million.[Footnote 2]
JPDO published the Integrated Plan for the Next Generation Air
Transportation System in December 2004, but the plan did not specify
what new capabilities would be pursued or how much they would cost to
implement and maintain. Vision 100 also directed that an annual
progress report, including any changes to the Integrated Plan, be
submitted at the time of the President's budget request. In March 2006,
JPDO published its 2005 Progress Report to the Next Generation Air
Transportation System Integrated Plan and reported it is working to
identify the longer-term costs. JPDO conducted a financial analysis of
the air traffic management portions of NGATS, including examining the
existing 2025 operational vision, to understand the hardware and
software components that may be required to implement NGATS. However,
because of the high level of uncertainty in some areas and a
significant number of assumptions in others, JPDO reported more work is
required before this analysis can be useful and credible.[Footnote 3] A
clear understanding of proposed future capabilities for NGATS (and how
they will be paid for) will be important as the Congress prepares to
reauthorize FAA programs and explores financing mechanisms.
Continued Efforts for Cost Control Are Necessary:
While FAA has made great efforts in its cost-control program, cutting
costs will remain a challenge for FAA well into the future. In 2005,
FAA outsourced its flight service stations to a private contractor,
resulting in total savings estimated at $2.2 billion. Also in 2005, FAA
put in place a number of cost-control initiatives that affected smaller
programs and that, if successful, will generate smaller levels of
savings. We are reviewing options to fund FAA, at the request of this
subcommittee, and we will address this issue in detail later this year.
Although FAA has initiated several of these cost-control measures,
these initiatives alone cannot reduce expenses enough to free up
sufficient Trust Fund revenues to pay for the expenditures that FAA
says are necessary to maintain and modernize the current airspace
system, let alone finance future NGATS initiatives. Through the
reauthorization process, the Congress will determine both the level of
appropriations for aviation and the way in which that commitment will
be funded. Congressional decisions pertaining to the link between
annual Trust Fund revenues and appropriations made available for
aviation programs, as well as the method for funding the Trust Fund,
will continue to influence future Trust Fund balances.
To assess the current financial status and projected financial
viability of the Airport and Airway Trust Fund, we obtained financial
data from FAA and interviewed FAA officials familiar with the
information. To assess the comparisons of Vision 100 with the
President's budget, we analyzed the legislation and the
administration's 2007 budget proposal. We used a sensitivity analysis
to project what would happen if Trust Fund revenues in fiscal years
2006 and 2007 were 5 percent and 10 percent lower than the levels
projected by FAA in March 2006 under each of these proposals.
Accordingly, our findings on the financial outlook of the Trust Fund
are based on GAO projections, not FAA's. We performed our work in
February and March 2006 in accordance with generally accepted
government auditing standards.
Mr. Chairman, this concludes my prepared statement. At this time, I
would be pleased to answer any questions that you or other Members of
the Subcommittee may have.
GAO Contact and Staff Acknowledgments:
For further information on this testimony, please contact Dr. Gerald
Dillingham at (202) 512-2834 or dillinghamg@gao.gov. Individuals making
key contributions to this testimony include Chris Bonham, Jay Cherlow,
Tammy Conquest, Colin Fallon, David Hooper, Maureen Luna-Long, Maren
McAvoy, Rich Swayze, and Matt Zisman.
FOOTNOTES
[1] We note that the Trust Fund projections for 2008-2011 contained in
the President's budget show a large increase in the fund's uncommitted
balance, reaching $15.5 billion by the end of 2011. Officials at the
Office of Management and Budget told us that the underlying assumption
for the commitment of budget resources from the fund that yields this
projection is based on administration policies for reducing--or
limiting the increase in--nondefense, nonhomeland security
discretionary spending. Thus, the projection does not account for
challenges particular to any agency, such as FAA's projected increase
in workload or future air traffic control modernization spending.
Accordingly, we think the $15.5 billion projection is of limited value.
[2] The President's fiscal year 2007 budget requests $80 million for
the Automatic Dependent Surveillance-Broadcast system to replace
antiquated radars and outmoded technology. The budget also requests $24
million to begin developing System Wide Information capabilities that
will make advanced information distribution and sharing capabilities
possible.
[3] In order to address these matters and to better understand the
costs and benefits of NGATS, JPDO has asked the NGATS Institute to host
a forum in the spring of 2006, so that the critical assumptions and
uncertainties underlying any cost-benefit effort can be scrutinized and
validated. In addition, further detailed studies will focus on the near-
term costs and benefits that will be used to inform agency planning
activities over the next 5 years. JPDO will then expand its cost
analysis to consider the expected total systems costs for NGATS.
