Federal Aviation Administration
Viability of Current Funding Structure for Aviation Activities and Observations on Funding Provisions of Reauthorization Proposals Gao ID: GAO-07-1104T July 12, 2007The Federal Aviation Administration (FAA) operates one of the safest air transportation systems in the world, but this system is under growing strain as the demand for air travel increases. Recognizing the need to transform this system, Congress created the Joint Planning and Development Office (JPDO), housed within FAA, to plan and develop the Next Generation Air Transportation System (NextGen). The current authorization for FAA, the Airport and Airway Trust Fund (Trust Fund), and the excise taxes that support the Trust Fund will expire September 30, 2007. Reauthorization bills in the Senate (S. 1300) and the House (H.R. 2881) identify various revenue sources, including flight surcharges and certain fees, to fund FAA, including NextGen. Concerned about the need for stable, sustainable financing for the nation's multibillion-dollar transportation infrastructure investments, including NextGen, GAO has designated transportation financing as high risk. GAO's statement addresses (1) the extent to which the current funding structure can support FAA's activities, including NextGen, (2) the implications of selected provisions of proposals to fund aviation activities, and (3) issues that could affect the overall cost of NextGen. The statement is based on recent GAO reports and testimonies, updated through interviews with FAA officials and stakeholder representatives.
Recent estimates indicate that FAA's current funding structure--consisting primarily of Trust Fund revenues plus a contribution from the General Fund of the U.S. Treasury--can potentially support FAA's activities, including NextGen. The current structure has provided sufficient funding for FAA's activities to date, and both FAA and the Congressional Budget Office (CBO) have estimated that revenues will continue to increase. According to CBO projections through 2017, the current structure, if maintained, could support about $22 billion in additional spending over current spending levels (adjusted for inflation). Congress could also raise more revenue for FAA by raising excise tax rates or by increasing the General Fund contribution. However, contributions from the General Fund may be limited by the federal government's long-term fiscal imbalance, and policy choices, structural changes in the aviation industry, and external events could affect Trust Fund revenues. Furthermore, the current funding structure raises concerns about equity and efficiency because users may pay more or less than the costs of the air traffic control services they receive, and therefore they may lack incentives to use the national airspace system as efficiently as possible. Selected proposals for funding aviation activities have implications for revenue generation, but could pose unintended consequences. For example, S. 1300 would authorize a surcharge of $25 per flight on many flights to help pay for NextGen capital projects. While a surcharge would create an incentive for efficient use of air traffic services, some stakeholders raise the possibility that such a fee could lead to reduced air service for small communities. S. 1300 would also allow FAA to seek debt financing for capital projects in the private capital market--a proposal designed to create a stable revenue source but costlier than using appropriations or borrowing from the U.S. Treasury. H.R. 2881 would raise airport passenger facility charges, thereby benefiting larger airports more than smaller ones, and it would increase fees for certain FAA certification and registration activities. However, in general, when fees are imposed for aviation activities, care must be taken that they do not contribute to a situation in which safety might be compromised. Issues that could affect the overall cost of NextGen are primarily related to the content and cost of its infrastructure and research. JPDO is developing and has issued some key planning documents that will provide more insights into some of these issues, but questions remain over which entities will perform activities such as research and development. Other issues include the cost savings that could result from more efficient FAA operations and acquisition processes, which could reduce the need for new NextGen funding, and the extent to which public-private partnerships and leasing can be used to acquire NextGen infrastructure as flexibly and cost-effectively as possible.
GAO-07-1104T, Federal Aviation Administration: Viability of Current Funding Structure for Aviation Activities and Observations on Funding Provisions of Reauthorization Proposals
This is the accessible text file for GAO report number GAO-07-1104T
entitled 'Federal Aviation Administration: Viability of Current Funding
Structure for Aviation Activities and Observations on Funding
Provisions of Reauthorization Proposals' which was released on , 2007.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Testimony:
Before the Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Thursday, July 12, 2007:
Federal Aviation Administration:
Viability of Current Funding Structure for Aviation Activities and
Observations on Funding Provisions of Reauthorization Proposals:
Statement of Gerald L. Dillingham, Ph.D.
Director, Physical Infrastructure Issues:
GAO-07-1104T:
GAO Highlights:
Highlights of GAO-07-1104T, a testimony before the Committee on
Finance, U.S. Senate
Why GAO Did This Study:
The Federal Aviation Administration (FAA) operates one of the safest
air transportation systems in the world, but this system is under
growing strain as the demand for air travel increases. Recognizing the
need to transform this system, Congress created the Joint Planning and
Development Office (JPDO), housed within FAA, to plan and develop the
Next Generation Air Transportation System (NextGen). The current
authorization for FAA, the Airport and Airway Trust Fund (Trust Fund),
and the excise taxes that support the Trust Fund will expire September
30, 2007. Reauthorization bills in the Senate (S. 1300) and the House
(H.R. 2881) identify various revenue sources, including flight
surcharges and certain fees, to fund FAA, including NextGen. Concerned
about the need for stable, sustainable financing for the nation‘s
multibillion-dollar transportation infrastructure investments,
including NextGen, GAO has designated transportation financing as high
risk.
GAO‘s statement addresses (1) the extent to which the current funding
structure can support FAA‘s activities, including NextGen, (2) the
implications of selected provisions of proposals to fund aviation
activities, and (3) issues that could affect the overall cost of
NextGen. The statement is based on recent GAO reports and testimonies,
updated through interviews with FAA officials and stakeholder
representatives.
What GAO Found:
Recent estimates indicate that FAA‘s current funding
structure”consisting primarily of Trust Fund revenues plus a
contribution from the General Fund of the U.S. Treasury”can potentially
support FAA‘s activities, including NextGen. The current structure has
provided sufficient funding for FAA‘s activities to date, and both FAA
and the Congressional Budget Office (CBO) have estimated that revenues
will continue to increase. According to CBO projections through 2017,
the current structure, if maintained, could support about $22 billion
in additional spending over current spending levels (adjusted for
inflation). Congress could also raise more revenue for FAA by raising
excise tax rates or by increasing the General Fund contribution.
However, contributions from the General Fund may be limited by the
federal government‘s long-term fiscal imbalance, and policy choices,
structural changes in the aviation industry, and external events could
affect Trust Fund revenues. Furthermore, the current funding structure
raises concerns about equity and efficiency because users may pay more
or less than the costs of the air traffic control services they
receive, and therefore they may lack incentives to use the national
airspace system as efficiently as possible.
Selected proposals for funding aviation activities have implications
for revenue generation, but could pose unintended consequences. For
example, S. 1300 would authorize a surcharge of $25 per flight on many
flights to help pay for NextGen capital projects. While a surcharge
would create an incentive for efficient use of air traffic services,
some stakeholders raise the possibility that such a fee could lead to
reduced air service for small communities. S. 1300 would also allow FAA
to seek debt financing for capital projects in the private capital
market”a proposal designed to create a stable revenue source but
costlier than using appropriations or borrowing from the U.S. Treasury.
H.R. 2881 would raise airport passenger facility charges, thereby
benefiting larger airports more than smaller ones, and it would
increase fees for certain FAA certification and registration
activities. However, in general, when fees are imposed for aviation
activities, care must be taken that they do not contribute to a
situation in which safety might be compromised.
Issues that could affect the overall cost of NextGen are primarily
related to the content and cost of its infrastructure and research.
JPDO is developing and has issued some key planning documents that will
provide more insights into some of these issues, but questions remain
over which entities will perform activities such as research and
development. Other issues include the cost savings that could result
from more efficient FAA operations and acquisition processes, which
could reduce the need for new NextGen funding, and the extent to which
public-private partnerships and leasing can be used to acquire NextGen
infrastructure as flexibly and cost-effectively as possible.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1104T].
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 Committee:
We appreciate the opportunity to participate in today's hearing on the
future funding of the Federal Aviation Administration (FAA). As you
know, FAA operates one of the safest air transportation systems in the
world, but this system is under growing strain as the demand for air
travel increases. According to FAA, over 740 million passengers flew in
fiscal year 2006, and 1 billion passengers per year are expected to fly
in 2015. FAA also predicts that 10,000 corporate aircraft, including
traditional business jets, turboprops, and very light jets, will be
added to the fleet between 2007 and 2017. To accommodate this increased
traffic, instrument flight rule operations--the most significant source
of demand on the air traffic control system--are projected to rise by
36 percent, from roughly 45,000 per day to 61,000 per day over the same
decade. Yet even at today's flight levels, flight arrival delays are
approaching the record levels set in 2000, when one in four flights
reached its destination late. The consensus is that the current air
traffic control system cannot be expanded to meet this expected growth.
According to a federal analysis of future demand and system capacity,
the estimated cost to the U.S. economy of failing to meet future
airspace demands could be $22 billion annually by 2023.
In 2003, recognizing the need for a new and different type of air
traffic control system to deal with the expected growth, Congress
authorized the creation of the Joint Planning and Development Office
(JPDO),[Footnote 1] housed within FAA, to lead a collaborative effort
of federal and nonfederal aviation stakeholders to conceptualize and
plan the Next Generation Air Transportation System (NextGen). The
transformation to NextGen will involve the acquisition of numerous
systems to support precision satellite navigation; digital, networked
communications; integrated weather information; and layered, adaptive
security. The total estimated expenditures for NextGen--for both
capital costs and research and development costs--is $4.3 billion over
the next 5 years.
As you know, the current authorization for FAA, the Airport and Airway
Trust Fund (Trust Fund), and the excise taxes that provide revenue for
the Trust Fund will expire at the end of this fiscal year.
Reauthorization proposals have been introduced in both the
Senate[Footnote 2] (S. 1300) and the House[Footnote 3] (H.R. 2881),
which identify various revenue sources to fund FAA, including
NextGen.[Footnote 4] These sources include the current excise taxes,
flight surcharges, and certification and registration fees. As
requested, my statement today will address the following questions: (1)
To what extent can the current funding structure support FAA's
activities, including NextGen? (2) What are the implications of
selected provisions of proposals to fund aviation activities? (3) What
issues could affect the overall cost of NextGen? My remarks are based
on recent GAO reports and testimonies[Footnote 5] on FAA's current
funding structure, funding options that might address those concerns,
and NextGen. For these reports and testimonies, we reviewed relevant
literature, examined FAA data and forecasts, and interviewed FAA and
other government agency officials, aviation industry group
representatives, and academic and financial experts. In addition, for
this statement, we analyzed provisions of the reauthorization proposals
dealing with funding FAA and NextGen and discussed them with FAA
officials and aviation industry group representatives. We conducted our
work during July 2007 in accordance with generally accepted government
auditing standards.
Summary:
² Recent estimates indicate that FAA's current funding structure--
consisting primarily of Trust Fund revenues plus a contribution from
the General Fund of the U.S. Treasury--can potentially support FAA's
activities, including NextGen. In aggregate, since the Trust Fund was
created in 1970, revenues to the fund have exceeded appropriations from
it, resulting in an uncommitted balance, or surplus. This balance has
declined in recent years, from about $7.3 billion at the end of fiscal
year 2001 to about $1.8 billion at the end of fiscal year 2006. This
decline has occurred because expenditures from the fund are based on
projected revenues and FAA has had to draw down funds when actual
revenues have fallen short of projections and have not been sufficient
to cover expenditures. To help ensure that revenues are sufficient to
cover expenditures, H.R. 2881 proposes that Congress base expenditures
from the Trust Fund on 95 percent, rather than 100 percent, of
estimated Trust Fund revenues. Notwithstanding these recent shortfalls,
both FAA and the Congressional Budget Office (CBO) have estimated that
FAA's revenues will continue to grow over the next decade under the
current structure. For example, CBO has projected that at current tax
rates, the current structure could support about $22 billion in
additional spending over current spending levels (adjusted for
inflation) through 2017. Moreover, should Congress wish to provide
additional funding for FAA activities, it could raise additional
revenue under the current structure by raising the rates on one or more
of the current excise taxes or by increasing the General Fund
contribution. This contribution may, however, be limited by the federal
government's long-term fiscal imbalance, and policy choices, structural
changes in the aviation industry, and external events could affect
revenues to the Trust Fund. Furthermore, the current funding structure
raises concerns about equity and efficiency because users may pay more
or less than the costs of the air traffic control services they
receive, and therefore they may lack incentives to use the national
airspace system as efficiently as possible.
² Selected provisions of proposals for funding aviation activities have
implications for revenue generation, but in some cases could have
unintended consequences. For example, S. 1300 would authorize the FAA
Administrator to impose a surcharge of $25 per flight on many aircraft
owners and operators to help pay for NextGen capital projects. While a
surcharge would create an incentive for efficient use of air traffic
services, some stakeholders question the equity of charging the same
fee for aircraft of all sizes, and raise the possibility that such a
fee could lead to reduced air service for small communities. S. 1300
would also allow FAA to seek debt financing for capital projects in the
private capital market--a proposal that could possibly create a stable
revenue source, but would cost the government more than paying for its
investments with appropriations or borrowing from the Treasury. H.R.
2881 would allow airports to raise their passenger facility charges
(PFC).[Footnote 6] This action would provide additional revenues for
aviation infrastructure and likely benefit larger airports more than
smaller airports. However, it could also have a limited effect on the
demand for air travel. H.R. 2881 would also establish increased fees
for certain FAA certification and registration activities, and such
fees would provide additional revenues. However, in general, when fees
are imposed for aviation activities, care must be taken to prevent them
from contributing to a situation in which safety might be compromised.
² While revenue estimates indicate that the current funding structure
could adequately support NextGen, a number of issues could affect its
overall cost, especially those related to its resource requirements. A
major issue is the precise content and associated costs of NextGen
infrastructure and research. JPDO is developing and has already
released some key planning documents that describe the capabilities
needed to transition to NextGen, establish time lines for completing
essential tasks, and identify the responsibilities of the JPDO partner
agencies for these tasks, together with the required funding. These
documents should provide more insight into NextGen's requirements and
costs. Additionally, questions remain over which entities will fund and
conduct some of the necessary research, development, demonstration
projects, and training that will be needed to achieve certain NextGen
capabilities. Other issues include the cost savings that could result
from improvements in FAA operations and acquisition processes, which
could reduce the need for new NextGen funding, and the extent to which
FAA uses public-private partnerships and leasing to acquire NextGen
infrastructure as flexibly and as cost-effectively as possible.
Background:
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.[Footnote 7]
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 and 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]
The Trust Fund was established by the Airport and Airway Revenue Act of
1970[Footnote 8] 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;[Footnote 9] 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.
Figure 1: Trust Fund Expenditures for Fiscal Year 2006:
[See PDF for image]
Source: GAO analysis of FAA data.
[End of figure]
Estimates Indicate That Current Funding Structure Can Support FAA
Activities, Including NextGen, but Structure Raises Concerns about
Equity and Efficiency:
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.[Footnote 10] 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.[Footnote 11]
Figure 2: Airport and Airway Trust Fund End-of-Year Uncommitted
Balance, Fiscal Years 1999-2007:
[See PDF for image]
Source: FAA.
Note: Amount for end of fiscal year 2007 is estimated.
[End of figure]
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),[Footnote 12] 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.[Footnote 13] 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.[Footnote
14] 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.[Footnote 15]
Selected Provisions of Proposals for Funding Aviation Activities Have
Implications for Revenue Generation and Could Have Unintended
Consequences:
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.[Footnote 16] 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).
Figure 3: Distribution of Surcharge by User, Based on 2006 Operations:
[See PDF for image]
Source: GAO analysis of FAA data.
[End of figure]
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.[Footnote 17]
A provision of H.R. 2881 would allow airports to increase PFCs to a
maximum of $7, while an S. 1300 provision would retain the cap at
$4.50. Increasing the cap on PFCs would generate more revenue,
especially for larger airports. A $7 PFC could generate nearly $2
billion in additional revenues for airports assuming all airports
imposed the maximum PFC (see table 2).
Table 2: Projected Maximum PFC Collections for 2007 with a $7 PFC:
Dollars in millions.
Airport size: Large hub;
2007 PFC collections[A]: $1,869;
2007 PFC collections if only airports currently at $4.50 increased to
$7: $2,831;
2007 PFC collections if all airports had a $7 PFC: $3,152.
Airport size: Medium hub;
2007 PFC collections[A]: 487;
2007 PFC collections if only airports currently at $4.50 increased to
$7: 706;
2007 PFC collections if all airports had a $7 PFC: 914.
Airport size: Subtotal;
2007 PFC collections[A]: $2,356;
2007 PFC collections if only airports currently at $4.50 increased to
$7: $3,537;
2007 PFC collections if all airports had a $7 PFC: $4,066.
Airport size: Small hub;
2007 PFC collections[A]: 184;
2007 PFC collections if only airports currently at $4.50 increased to
$7: 262;
2007 PFC collections if all airports had a $7 PFC: 354.
Airport size: Nonhub;
2007 PFC collections[A]: 71;
2007 PFC collections if only airports currently at $4.50 increased to
$7: 108;
2007 PFC collections if all airports had a $7 PFC: 144.
Airport size: Nonprimary Commercial Service;
2007 PFC collections[A]: 1;
2007 PFC collections if only airports currently at $4.50 increased to
$7: 1;
2007 PFC collections if all airports had a $7 PFC: 5.
Airport size: Subtotal;
2007 PFC collections[A]: $256;
2007 PFC collections if only airports currently at $4.50 increased to
$7: $371;
2007 PFC collections if all airports had a $7 PFC: $503.
Airport size: Total[B];
2007 PFC collections[A]: $2,612;
2007 PFC collections if only airports currently at $4.50 increased to
$7: $3,907;
2007 PFC collections if all airports had a $7 PFC: $4,569.
Source: GAO analysis of FAA data.
[A] There are currently 517 commercial service airports eligible to
apply for a PFC. These are airports with more than 2,500 annual
enplanements.
[B] May not total due to rounding.
[End of table]
However, not all airports are expected to move to the maximum ceiling
right away because many airports have a lesser or no PFC in place
currently. If only those airports with a PFC at the current maximum of
$4.50 increased their PFC to $7.00 and the others made no change, the
proposed fee increase would yield approximately $1.3 billion per year
in additional revenues. This calculation assumes that the increased PFC
would not affect passenger demand for air travel. We have previously
calculated that a PFC increase could reduce passenger demand, which
would reduce the PFC revenue collected at the higher rate.
Nevertheless, our previous work suggests the revenue reduction due to
demand effects would likely be small.[Footnote 18] Smaller airports
(small and nonhub) would not benefit directly as much from this ability
to increase PFCs because smaller airports have fewer passengers from
whom to collect PFCs.[Footnote 19] However, smaller airports, which
rely primarily on AIP grants for capital funding, may benefit
indirectly from an increased cap on PFCs. AIP's Small Airport Fund,
which totaled $428 million in 2006, is funded by the turnback of up to
75 percent of large and medium hub airports' entitlements.[Footnote 20]
H.R. 2881 would increase the turnback to 100 percent of entitlements
for large and medium hub airports that impose a PFC above $4.50. While
S. 1300 does not include an increase in PFCs, it does include a pilot
program for up to six airports to impose unlimited PFCs if the airports
collect the fee directly from passengers.
H.R. 2881 includes increased user fees to pay for the costs of certain
certification and registration activities of FAA. Such fees would
provide additional revenue and more directly link revenue contributions
to the cost of the services. These fees cover services and activities
for issuing certain certificates, registering aircraft and airmen,
issuing airmen medical certificates, and providing a legal opinion
pertaining to aircraft registration or recordation. In some cases, such
as the registration of aircraft, FAA already charges a modest fee ($5),
which has not been raised since 1964. We have reported that this fee
does not cover the cost of reviewing and processing a registration
application and have recommended that FAA increase the fee.[Footnote
21] The proposal would raise the fee to $130 and allow FAA to
periodically adjust this and other fees based on the cost of providing
the service. However, in general, when fees are imposed for aviation
activities, care must be taken that they do not contribute to a
situation in which safety might be compromised.
Resource Requirements for NextGen and Other Issues Could Affect Its
Overall Cost:
While revenue estimates indicate that the current funding structure can
potentially fund NextGen, a number of issues could affect NextGen's
overall cost, especially its resource requirements, which have not yet
been fully determined. The precise content and associated costs of
NextGen infrastructure and research are not fully known, nor are the
resources that will be contributed by other federal agencies. Other
issues include the cost savings that could result from more efficient
FAA operations and acquisition processes, which could reduce the need
for new NextGen funding, and the extent to which FAA uses public-
private partnerships or leasing arrangements to acquire NextGen
infrastructure as flexibly and as cost-effectively as possible.
JPDO recently estimated that the total federal cost for NextGen
infrastructure through 2025 will range between $15 billion and $22
billion. JPDO also reported that a preliminary estimate of the
corresponding cost to system users, who will have to equip with the
advanced avionics that are necessary to realize the full benefits of
some NextGen technologies, ranges between $14 billion and $20
billion.[Footnote 22] Thus, according to JPDO, the total costs for
NextGen could be anywhere between $29 billion and $42 billion. We
consider $13 billion to be a significantly wide range and believe there
is a need to better define the costs of NextGen.
According to JPDO officials, more precise cost estimates will depend on
information contained in several key planning documents, some of which
have been released and some of which are still being developed. Last
month, JPDO released both the latest version of the NextGen Concept of
Operations[Footnote 23] and the first version of the NextGen Enterprise
Architecture.[Footnote 24] JPDO is developing an Integrated Work Plan
that will describe the capabilities needed to transition to NextGen
from the current system and provide the research, policy and
regulation, and acquisition time lines necessary to achieve NextGen by
2025. The Integrated Work Plan, scheduled for release at the end of
this month, is akin to a project plan and will be critical for planning
the partner agencies' fiscal year 2009 budgets and programs. JPDO is
also developing an Office of Management and Budget (OMB) Exhibit 300
for NextGen that will be used as input to funding decisions for NextGen
research and acquisitions across JPDO's partner agencies.[Footnote 25]
This Exhibit 300 will be due to OMB in September 2007 and will inform
decisions about the partner agencies' 2009 budget submissions. It will
be important that these various documents be used in the near term to
develop more refined cost estimates for NextGen.
While JPDO has released estimates for NextGen, questions remain over
how much it will cost and which entities will fund and conduct some of
the necessary research, development, demonstration projects, and
training that will be key to achieving certain NextGen capabilities. In
the past, the National Aeronautics and Space Administration (NASA) has
performed a significant portion of federal aeronautics research and
development, including intermediate technology development. However,
NASA's aeronautics research budget and proposed funding show a 30-
percent decline, in constant 2005 dollars, from fiscal year 2005
through fiscal year 2011. To its credit, NASA plans to focus its
research on the needs of NextGen. However, NASA is also moving toward
an emphasis on fundamental research and away from developmental work
and demonstration projects, which could negatively affect NextGen if
other agencies do not assume these efforts. According to FAA and JPDO
officials, they are currently studying these issues and trying to
assess how much research and development work FAA can assume. FAA has
proposed increasing its research and development funding by $280
million over the next 5 years. However, a draft report by an advisory
committee to FAA stated that FAA would need at least $100 million
annually in increased funding to assume NASA's research and development
work, and establishing the necessary infrastructure within FAA could
delay the implementation of NextGen by 5 years.
The overall cost of NextGen could be reduced to the extent that FAA
realizes cost savings from improved operations and acquisition
processes. We have reported that, over the past few years, FAA has made
significant progress in moving to more businesslike and cost-effective
operations, which should better position the agency for the complex
implementation of NextGen.[Footnote 26] Cost savings could come about
in a number of ways. For example, the transformation to NextGen may
present new opportunities for consolidating facilities or outsourcing
services, both of which could bring long-term savings to FAA. In
addition, FAA has reported improvements in its management of major
system acquisitions. To the extent that FAA can keep NextGen systems on
schedule, FAA may be able to avoid the escalation in acquisition costs
that plagued its past modernization efforts. Keeping acquisitions on
schedule will also mean realizing more quickly the increased
efficiencies or safety benefits of new systems and technologies, as
well as avoiding the costs and inefficiencies of maintaining existing
systems.
Finally, the extent to which FAA employs public-private partnerships or
leasing arrangements as part of its acquisition strategy for NextGen
could affect the system's overall cost. FAA is currently exploring
these types of options for its future nationwide rollout of Automatic
Dependent Surveillance-Broadcast, a surveillance system that FAA
considers a cornerstone technology of NextGen. We believe that these
types of arrangements could produce significant cost savings and lessen
some risks for FAA. However, such arrangements must be carefully
structured to protect the interests of the public and the federal
government, and to ensure proper governmental oversight.
With the excise taxes that fund most of FAA's budget scheduled to
expire at the end of September 2007, Congress will need to act to avoid
a lapse in revenue to the Trust Fund. If the taxes are not reauthorized
by that time, the only revenues credited to the Trust Fund will be the
interest earned on the fund's cash balance. FAA estimates that two
previous lapses in 1996 and 1997 resulted in the Trust Fund not
receiving about $5 billion in taxes and fees that were never recovered.
FAA estimates that the uncommitted balance in the Trust Fund at the end
of fiscal year 2007 will be about $1.8 billion dollars. At current
monthly spending levels, a 2-to 3-month lapse in fiscal year 2008 could
reduce the revenue in the Trust Fund enough to cause the uncommitted
balance to fall to zero. If the Trust Fund balance falls to zero, the
continuation of FAA's programs--including the development of NextGen
and grants to airports--would depend on providing additional revenues
from the General Fund.
Thank you, Mr. Chairman, that concludes my statement. I will be pleased
to answer any questions that you or other Members of the Committee
might have.
Contacts and Acknowledgments:
For further information about this testimony, please contact Gerald L.
Dillingham at (202) 512-2834. Other key contributors to this testimony
include Paul Aussendorf, Jay Cherlow, Bess Eisenstadt, Carol Henn,
Maureen Luna-Long, Faye Morrison, Richard Scott, and Teresa Spisak.
(540159):
FOOTNOTES
[1] JPDO was authorized by the Vision 100--Century of Aviation
Reauthorization Act (Pub. L. No. 108-176).
[2] S.1300, 110th Cong., 1st Sess. (May 3, 2007).
[3] H.R.2881, 110th Cong., 1st Sess. (June 27, 2007).
[4] In addition, H.R. 2698 would authorize appropriations for FAA's
civil aviation research and development projects.
[5] Airport Finance: Preliminary Analysis Indicates Proposed Changes in
the Airport Improvement Program May Not Resolve Funding Needs for
Smaller Airports, GAO-07-617T (Washington, D.C.: Mar. 28, 2007);
Federal Aviation Administration: Observations on Selected Changes to
FAA's Funding and Budget Structure in the Administration's
Reauthorization Proposal, GAO-07-625T (Washington, D.C.: Mar. 21,
2007); Next Generation Air Transportation System: Progress and
Challenges Associated with the Transformation of the National Airspace
System, GAO-07-25 (Washington, D.C.: Nov. 13, 2006); Aviation Finance:
Observations on Potential FAA Funding Options, GAO-06-973 (Washington,
D.C.: Sept. 29, 2006); National Airspace System Modernization:
Observations on Potential Funding Options for FAA and the Next
Generation Airspace System, GAO-06-1114T (Washington, D.C.: Sept. 27,
2006); and Federal Aviation Administration: An Analysis of the
Financial Viability of the Airport and Airway Trust Fund, GAO-06-562T
(Washington, D.C.: Mar. 28, 2006).
[6] The PFC program allows the collection of PFC fees up to $4.50 for
every enplaned passenger at commercial airports controlled by public
agencies. Airports use these fees to fund FAA-approved projects that
enhance safety, security, or capacity; reduce noise; or increase air
carrier competition.
[7] As recommended by FAA, we are using 2005 data to show the breakdown
of Trust Fund revenue by source because of uncertainty in the available
2006 data regarding the distribution of fuel tax revenues between
commercial and general aviation.
[8] Pub. L. No. 91-258.
[9] For the past few years, FAA and NASA have been the primary
supporters of JPDO activities. The administration's proposed budget for
fiscal year 2008 for FAA includes $17.8 million to support JPDO
activities. NASA is planning to contribute about $18 million to JPDO in
fiscal year 2008.
[10] The Trust Fund's uncommitted balance represents money against
which there is no outstanding budget commitment or budget authority to
spend.
[11] In recent years, the difference between forecasted and actual
Trust Fund revenues has been smaller than it was earlier in the decade,
in part because the external demand shocks have been smaller and in
part because of efforts by FAA to improve its forecasting models.
However, the actual balance at the end of fiscal year 2007 will likely
be lower than forecasted, according to FAA.
[12] CBO, Financing Investment in the Air Traffic Control System
(Washington, D.C.: Sept. 27, 2006).
[13] This estimate takes into account expected increases in air travel
in estimating revenues, but, by law, it does not take into account any
possible increases in expenditures for FAA's Operations account due to
these increases in air travel because increases in expenditures are
based on a baseline figure adjusted for inflation.
[14] Assessing both the equity and the efficiency of a funding
structure requires knowledge of how costs are divided among users. FAA
recently completed a cost allocation study that assigns air traffic
control costs to user groups based on aircraft type. However, we
determined that FAA's methodology lacked certain analyses and
documentation that would be important in determining whether costs as
assigned reasonably reflect the services received by various users.
[15] Supply factors that influence users' decisions include other costs
of operating aircraft, such as labor, fuel, and capital costs. Demand
factors include the state of the economy and the price and convenience
of flying compared with using other modes of transportation. Given the
importance of some of these other factors to users' decisions about
using the national airspace system, the influence on these decisions of
the prices charged for FAA services may be comparatively small for some
users.
[16] These exempt categories include military and public aircraft,
piston engine aircraft, and turboprop aircraft operating outside of
controlled airspace, among others.
[17] GAO-06-1114T.
[18] GAO, Passenger Facility Charges: Program Implementation and the
Potential Effects of Proposed Changes, GAO/RCED-99-138 (Washington,
D.C.: May 19, 1999).
[19] General aviation airports are excluded since they do not have
passengers that would pay a PFC.
[20] Entitlements are AIP funds apportioned to airport sponsors and
states for eligible projects based on formulas.
[21] GAO, Aviation Safety: Unresolved Issues Involving U.S.-Registered
Aircraft, GAO/RCED-93-135 (Washington, D.C.: June 18, 1993).
[22] JPDO noted that this range for avionics costs reflects uncertainty
about equipage costs for individual aircraft, the number of very light
jets that will operate in high-performance airspace, and the amount of
out-of-service time required for installation.
[23] The NextGen Concept of Operations provides written descriptions of
how the NextGen system is envisioned to operate in 2025 and beyond,
including highlighting key research and policy issues that will need to
be addressed. Following an introductory section, the Concept of
Operations has eight sections covering air traffic management
operations, airport operations and infrastructure services, net-
centric infrastructure services, shared situational awareness services,
security services, an environmental management framework, safety
management services, and performance management services.
[24] The NextGen Enterprise Architecture is a technical description of
the NextGen system, akin to a blueprint for a building. The Enterprise
Architecture is meant to provide a common tool for planning and
understanding the complex, interrelated systems that will make up
NextGen.
[25] Section 300 of OMB Circular No. A-11, Preparation, Submission, and
Execution of the Budget (Nov. 2, 2005), sets forth requirements for
federal agencies for planning, budgeting, acquiring, and managing
information technology capital assets. Exhibit 300 is designed to
ensure that the business case for an investment is tied to an agency's
mission statement, long-term goals and objectives, and annual
performance plans. It is submitted with an agency's budget submission
to OMB.
[26] GAO, Federal Aviation Administration: Key Issues in Ensuring the
Efficient Development and Safe Operation of the Next Generation Air
Transportation System, GAO-07-636T (Washington, D.C.: Mar. 22, 2007).
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts
newly released reports, testimony, and correspondence on its Web site.
To have GAO e-mail you a list of newly posted products every afternoon,
go to www.gao.gov and select "Subscribe to Updates."
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office 441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125
Washington, D.C. 20548:
Public Affairs:
Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548:
