Airport and Airway Trust Fund
Declining Balance Raises Concerns over Ability to Meet Future Demands Gao ID: GAO-11-358T February 3, 2011In Process
The Trust Fund is the primary source of funding for FAA's capital programs and also provides funds for FAA's Operations account. The capital accounts include (1) the Facilities and Equipment (F&E) account, which funds technological improvements to the air traffic control system, including the modernization of the air traffic control system, called the Next Generation Air Transportation System (NextGen); (2) the Research, Engineering, and Development (RE&D) account, which funds research on issues related to aviation safety, mobility, and NextGen technologies; and (3) the Airport Improvement Program (AIP), which provides grants for airport planning and development. In addition, the Trust Fund has provided all or some portion of the funding for FAA's Operations account, which funds the operation of the air traffic control system and safety inspections, among other activities. Finally, the Trust Fund is used to pay for the Essential Air Service (EAS) program. In fiscal year 2010, FAA's expenditures totaled about $15.5 billion, with Trust Fund revenues covering about $10.2 billion, or 66 percent, of those expenditures. While total FAA expenditures grew about 60 percent from fiscal year 2000 through fiscal year 2010, the Trust Fund's revenue contribution only increased 12 percent, while the contribution of general revenues from the U.S. Treasury has increased to cover a larger share of FAA's operations expenditures. Since the Trust Fund's creation in 1970, revenues have in the aggregate generally exceeded spending commitments from FAA's appropriations, resulting in a surplus. This surplus is referred to as the Trust Fund's uncommitted balance--the balance in the Trust Fund that remains after funds have been appropriated from the Trust Fund and contract authority has been authorized. As of the end of fiscal year 2010, the Trust Fund's uncommitted balance was about $770 million. the Trust Fund's uncommitted balance has declined since reaching $7.35 billion in fiscal year 2001. This decline is largely a result of how Congress determines the amount of appropriations that should be made from the Trust Fund. Starting with the Wendell H. Ford Aviation Investment and Reform Act of the 21st Century (AIR-21) in 2000 and continuing with Vision 100,10 Congress has based FAA's fiscal year appropriation from the Trust Fund on the forecasted level of Trust Fund revenues, including interest on Trust Fund balances, as set forth in the President's baseline budget projection for the coming fiscal year. Each year's forecast, and accordingly FAA's appropriation, is based on information available in the first quarter of the preceding fiscal year. For example, the revenue forecast for fiscal year 2011 is prepared in the first quarter of fiscal year 2010. These revenue forecasts can be uncertain because it is difficult to anticipate, a year in advance, events that may significantly affect the demand for air travel or fuel usage, the fares that passengers pay, and other variables that affect Trust Fund revenues.
GAO-11-358T, Airport and Airway Trust Fund: Declining Balance Raises Concerns over Ability to Meet Future Demands
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United States Government Accountability Office:
GAO:
Testimony:
Before the Committee on Finance, U.S. Senate:
For Release on Delivery:
Expected at 10:00 a.m. EST:
Thursday, February 3, 2011:
Airport And Airway Trust Fund:
Declining Balance Raises Concerns over Ability to Meet Future Demands:
Statement of Gerald Dillingham, Director:
Physical Infrastructure:
GAO-11-358T:
Mr. Chairman and Members of the Committee:
We appreciate the opportunity to participate in today's hearing on the
status of the Airport and Airway Trust Fund (Trust Fund). Established
in 1970, the Trust Fund helps finance the Federal Aviation
Administration's (FAA) investments in the airport and airway system,
such as construction and safety improvements at airports and
technological upgrades to the air traffic control system, as well as
FAA operations, such as providing air traffic control and conducting
safety inspections.[Footnote 1] FAA, the Trust Fund, and the excise
taxes that support the Trust Fund (which are discussed later in this
statement) must all be periodically reauthorized. The most recent
reauthorization expired at the end of fiscal year 2007.[Footnote 2]
Proposed reauthorization legislation was considered but not enacted in
the 110th and 111th Congresses, although several short-term measures
were passed to extend the authorization of aviation programs, funding,
and Trust Fund revenue collections. The latest of these extensions--
the Airport and Airway Extension Act of 2010, Part IV--was enacted on
December 22, 2010, extending FAA programs, expenditure authority, and
aviation trust fund revenue collections through March 31, 2011.
[Footnote 3] The financial health of the Trust Fund is important to
ensure sustainable funding for a safe and efficient aviation system
without increasing demands on general revenues.
My statement today provides an update on the status of the Airport and
Airway Trust Fund, including the current financial condition of the
Trust Fund, anticipated Trust Fund expenditures for planning and
implementing improvements in the nation's air traffic management
system that are expected to enhance the safety and capacity of the air
transport system, and options for ensuring a sustainable Trust Fund.
This statement draws on our body of work on these issues, supplemented
with updated information on the Trust Fund from FAA and the
Congressional Budget Office.[Footnote 4] All dollars reported in this
statement are nominal, unless otherwise noted.
Background:
Sources of Trust Fund Revenues:
The Trust Fund provides the primary source of funding for FAA and
receives revenues principally from a variety of excise taxes paid by
users of the national airspace system. The excise taxes are imposed on
airline ticket purchases and aviation fuel, as well as the shipment of
cargo. Revenues deposited in the Trust Fund are subject to
congressional appropriations. In addition to Trust Fund revenues, in
most years, General Fund revenues have been used to help fund FAA
operations.
Table 1: Trust Fund Excise Tax Revenue Sources:
Source: Domestic passenger ticket tax;
Rates effective as of January 1, 2011: 7.5 percent.
Source: Domestic flight segment tax;
(excluding flights to or from rural airports);
Rates effective as of January 1, 2011: $3.70 per passenger per segment;
indexed to the Consumer Price Index.
Source: Tax on flights between the continental United States and
Alaska or Hawaii (or between Alaska and Hawaii);
Rates effective as of January 1, 2011: $8.20 per passenger; indexed to
the Consumer Price Index.
Source: Tax on international arrivals and departures;
Rates effective as of January 1, 2011: $16.30 per person; indexed to
the Consumer Price Index.
Source: Tax on mileage awards (frequent flyer awards tax);
Rates effective as of January 1, 2011: 7.5 percent of value of miles.
Source: Domestic commercial fuel tax;
Rates effective as of January 1, 2011: $0.043 per gallon.
Source: Domestic general aviation gasoline tax;
Rates effective as of January 1, 2011: $0.193 per gallon.
Source: Domestic general aviation jet fuel tax;
Rates effective as of January 1, 2011: $0.218 per gallon.
Source: Tax on domestic cargo or mail;
Rates effective as of January 1, 2011: 6.25 percent on the price paid
for transportation of domestic cargo or mail.
Source: GAO presentation of FAA and IRS data.
Note: The Trust Fund also earns interest on its cash balance along
with refunds or credits, such as refunds of taxes on aviation fuel
other than gas (noncommercial) and refunds of taxes on aviation
gasoline (noncommercial).
[End of table]
As figure 1 shows, Trust Fund revenues have fluctuated since fiscal
year 2000.[Footnote 5] A number of factors, such as external events
and general economic conditions, contributed to this fluctuation in
revenues because they affect the number of tickets purchased, the
fares paid by passengers, the amount of fuel purchased, and the value
of air cargo shipped. For example, revenues declined early in the
decade because of a series of largely unforeseen events, including the
September 11, 2001, terrorist attacks, that reduced the demand for air
travel, resulting in a steep decline in airline industry revenue.
Similarly, during the recent recession, Trust Fund revenues declined
from $12.4 billion in fiscal year 2008 to $10.9 billion in fiscal year
2009, in part because of the 7 percent decline in domestic passenger
traffic during that period.
Figure 1: Trust Fund Receipts, Fiscal Years 2000 through 2010:
[Refer to PDF for image: line graph]
Fiscal year: 2000;
Trust Fund receipts: $10.6 billion.
Fiscal year: 2001;
Trust Fund receipts: $10.1 billion.
Fiscal year: 2002;
Trust Fund receipts: $9.8 billion.
Fiscal year: 2003;
Trust Fund receipts: $9.3 billion.
Fiscal year: 2004;
Trust Fund receipts: $9.6 billion.
Fiscal year: 2005;
Trust Fund receipts: $10.8 billion.
Fiscal year: 2006;
Trust Fund receipts: $10.9 billion.
Fiscal year: 2007;
Trust Fund receipts: $11.9 billion.
Fiscal year: 2008;
Trust Fund receipts: $12.4 billion.
Fiscal year: 2009;
Trust Fund receipts: $10.9 billion.
Fiscal year: 2010;
Trust Fund receipts: $10.8 billion.
Source: GAO analysis of FAA data.
Note: Taxes related to passenger tickets, including the ticket tax,
made up about 65 percent to 69 percent of the revenues going into the
Trust Fund in fiscal years 2000 through 2010.
[End of figure]
Uses of Airport and Airway Trust Fund Revenues:
The Trust Fund is the primary source of funding for FAA's capital
programs and also provides funds for FAA's Operations account. The
capital accounts include (1) the Facilities and Equipment (F&E)
account, which funds technological improvements to the air traffic
control system, including the modernization of the air traffic control
system, called the Next Generation Air Transportation System
(NextGen); (2) the Research, Engineering, and Development (RE&D)
account, which funds research on issues related to aviation safety,
mobility, and NextGen technologies; and (3) the Airport Improvement
Program (AIP), which provides grants for airport planning and
development. In addition, the Trust Fund has provided all or some
portion of the funding for FAA's Operations account, which funds the
operation of the air traffic control system and safety inspections,
among other activities. Finally, the Trust Fund is used to pay for the
Essential Air Service (EAS) program.[Footnote 6] In fiscal year 2010,
FAA's expenditures totaled about $15.5 billion, with Trust Fund
revenues covering about $10.2 billion, or 66 percent, of those
expenditures. As figure 2 shows, while total FAA expenditures grew
about 60 percent from fiscal year 2000 through fiscal year 2010, the
Trust Fund's revenue contribution only increased 12 percent, while the
contribution of general revenues from the U.S. Treasury has increased
to cover a larger share of FAA's operations expenditures. We discuss
this change in more detail in the next section of this statement.
Figure 2: Trust Fund Expenditures, Fiscal Years 2000 through 2010:
[Refer to PDF for image: stacked vertical bar graph]
Fiscal year: 2000;
Total expenditures from the Trust Fund: $9.04 billion;
Total expenditures from the General Fund: $0.52 billion.
Fiscal year: 2001;
Total expenditures from the Trust Fund: $9.52 billion;
Total expenditures from the General Fund: $1.29 billion.
Fiscal year: 2002;
Total expenditures from the Trust Fund: $11.73 billion;
Total expenditures from the General Fund: $1.47 billion.
Fiscal year: 2003;
Total expenditures from the Trust Fund: $9.52 billion;
Total expenditures from the General Fund: $3.27 billion.
Fiscal year: 2004;
Total expenditures from the Trust Fund: $10.37 billion;
Total expenditures from the General Fund: $2.7 billion.
Fiscal year: 2005;
Total expenditures from the Trust Fund: $11.12 billion;
Total expenditures from the General Fund: $2.85 billion.
Fiscal year: 2006;
Total expenditures from the Trust Fund: $12.04 billion;
Total expenditures from the General Fund: $2.49 billion.
Fiscal year: 2007;
Total expenditures from the Trust Fund: $12.01 billion;
Total expenditures from the General Fund: $2.46 billion.
Fiscal year: 2008;
Total expenditures from the Trust Fund: $12.82 billion;
Total expenditures from the General Fund: $2.12 billion.
Fiscal year: 2009;
Total expenditures from the Trust Fund: $11.8 billion;
Total expenditures from the General Fund: $3.76 billion.
Fiscal year: 2010;
Total expenditures from the Trust Fund: $10.17 billion;
Total expenditures from the General Fund: $5.29 billion.
Source: GAO analysis of FAA data.
Note: These expenditures exclude the general revenues provided under
the American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5,
123 Stat. 115 (2009).
[End of figure]
The Financial Condition of the Trust Fund Has Deteriorated over the
Last Decade:
Since the Trust Fund's creation in 1970, revenues have in the
aggregate generally exceeded spending commitments from FAA's
appropriations, resulting in a surplus.[Footnote 7] This surplus is
referred to as the Trust Fund's uncommitted balance--the balance in
the Trust Fund that remains after funds have been appropriated from
the Trust Fund and contract authority has been authorized. As of the
end of fiscal year 2010, the Trust Fund's uncommitted balance was
about $770 million (see figure 3).[Footnote 8]
Figure 3: Trust Fund End-of-Year Uncommitted Balance, Fiscal Years
2000 through 2010:
[Refer to PDF for image: line graph]
Fiscal year: 2000;
Uncommitted balance: $7.07 billion.
Fiscal year: 2001;
Uncommitted balance: $7.35 billion.
Fiscal year: 2002;
Uncommitted balance: $4.82 billion.
Fiscal year: 2003;
Uncommitted balance: $3.9 billion.
Fiscal year: 2004;
Uncommitted balance: $2.45 billion.
Fiscal year: 2005;
Uncommitted balance: $1.94 billion.
Fiscal year: 2006;
Uncommitted balance: $1.77 billion.
Fiscal year: 2007;
Uncommitted balance: $1.53 billion.
Fiscal year: 2008;
Uncommitted balance: $1.44 billion.
Fiscal year: 2009;
Uncommitted balance: $0.3 billion.
Fiscal year: 2010;
Uncommitted balance: $0.77 billion.
Source: FAA.
[End of figure]
As figure 3 shows, the Trust Fund's uncommitted balance has declined
since reaching $7.35 billion in fiscal year 2001. This decline is
largely a result of how Congress determines the amount of
appropriations that should be made from the Trust Fund. Starting with
the Wendell H. Ford Aviation Investment and Reform Act of the 21st
Century (AIR-21)[Footnote 9] in 2000 and continuing with Vision
100,[Footnote 10] Congress has based FAA's fiscal year appropriation
from the Trust Fund on the forecasted level of Trust Fund revenues,
including interest on Trust Fund balances, as set forth in the
President's baseline budget projection for the coming fiscal year.
Each year's forecast, and accordingly FAA's appropriation, is based on
information available in the first quarter of the preceding fiscal
year. For example, the revenue forecast for fiscal year 2011 is
prepared in the first quarter of fiscal year 2010. These revenue
forecasts can be uncertain because it is difficult to anticipate, a
year in advance, events that may significantly affect the demand for
air travel or fuel usage, the fares that passengers pay, and other
variables that affect Trust Fund revenues. In fact, as figure 4 shows,
FAA's forecasts of Trust Fund revenues (including both tax revenues
and interest earned by the Trust Fund's cash balance) have exceeded
actual Trust Fund revenues (including interest) in 9 of 11 years, and
in aggregate, these forecasted revenues have exceeded actual tax
revenues by over $9 billion over that period.[Footnote 11]
Accordingly, appropriations from the Trust Fund, which are based on
these revenue forecasts, have also exceeded actual revenues, thus
drawing the uncommitted balance lower over the course of the last
decade.
Figure 4: Forecast Trust Fund Revenues and Actual Trust Fund Revenues
Received, Fiscal Years 2000 through 2010:
[Refer to PDF for image: vertical bar graph]
Fiscal year: 2000;
Forecast total revenue: $10.06 billion;
Actual total revenue: $10.54 billion.
Fiscal year: 2001;
Forecast total revenue: $10.46 billion;
Actual total revenue: $10.02 billion.
Fiscal year: 2002;
Forecast total revenue: $12.18 billion;
Actual total revenue: $9.89 billion.
Fiscal year: 2003;
Forecast total revenue: $10.30 billion;
Actual total revenue: $9.28 billion.
Fiscal year: 2004;
Forecast total revenue: $10.93 billion;
Actual total revenue: $9.65 billion.
Fiscal year: 2005;
Forecast total revenue: $11.09 billion;
Actual total revenue: $10.74 billion.
Fiscal year: 2006;
Forecast total revenue: $11.77 billion;
Actual total revenue: $10.92 billion.
Fiscal year: 2007;
Forecast total revenue: $11.79 billion;
Actual total revenue: $11.94 billion.
Fiscal year: 2008;
Forecast total revenue: $12.57 billion;
Actual total revenue: $12.43 billion.
Fiscal year: 2009;
Forecast total revenue: $13.04 billion;
Actual total revenue: $10.88 billion.
Fiscal year: 2010;
Forecast total revenue: $11.95 billion;
Actual total revenue: $10.81 billion.
Source: FAA.
[End of figure]
Until recently, FAA generated a forecast for the President's budget
using models based on historical relationships between key economic
variables, such as the growth rate of the economy, and aviation
measures, such as passenger traffic levels and passenger fares, that
affect Trust Fund revenues. The responsibility for forecasting Trust
Fund revenues shifted from FAA to the U.S. Department of the Treasury
(Treasury), which already had responsibility for other federal excise
tax revenue forecasts, in fiscal year 2010. We have recently been
asked by the Senate Commerce, Science, and Transportation Committee to
examine the Trust Fund revenue forecasting process and how it might be
improved; we expect to begin our review this year.
The Trust Fund's uncommitted balance, which exceeded $7.3 billion at
the end of fiscal year 2001, dropped to $299 million at the end of
fiscal year 2009--the lowest balance over the past decade. One of the
greatest declines in the uncommitted balance occurred in 2002
following the sudden drop-off in aviation activity after the terrorist
attacks of September 11. In addition, the declines in passenger
traffic and aircraft operations and reduced fuel consumption in 2009
resulted in actual revenues to the Trust Fund that fell significantly
below forecasted levels in fiscal year 2009 and an uncommitted Trust
Fund balance that approached zero.[Footnote 12] In response, the
fiscal year 2009 omnibus appropriation increased the general revenue
contributions to FAA's operations and decreased FAA's appropriation
from the Trust Fund by approximately $1 billion compared with what was
originally outlined in the President's fiscal year 2009 proposed
budget for FAA.[Footnote 13] These additional general revenues kept
the Trust Fund's uncommitted balance from going negative, thereby
avoiding budgetary challenges for FAA. As a result, general revenues
accounted for 24 percent of FAA's expenditures in fiscal year 2009 and
reached 34 percent in fiscal year 2010 (see figure 2).[Footnote 14]
If the uncommitted balance is nearly depleted and actual Trust Fund
revenues continue to fall below forecasted levels, there is a risk of
overcommitting available resources from the Trust Fund--meaning
revenues could be insufficient to cover all of the obligations that
FAA has the authority to incur.[Footnote 15] A low uncommitted balance
signals to FAA that limited revenues are available to incur new
obligations while still covering expenditures on existing obligations
and increases FAA's challenge in moving forward with planned projects
and programs. FAA officials have noted that they closely monitor the
Trust Fund's available cash and FAA's obligations to ensure that
enough cash and budget authority are available to cover FAA's
expenditures and obligations. In the short term, if there were a risk
of overcommitting Trust Fund resources, FAA officials noted that they
might delay obligations for capital programs if the Trust Fund did not
have adequate revenues to cover those obligations without additional
funding authorized and appropriated from the General Fund. According
to FAA officials, they would first defer some capital program
obligations so they could continue to fund operations, such as air
traffic control and safety inspections. These actions would ensure
that the agency did not incur obligations or expenditures in excess of
the Trust Fund's cash balance, which could potentially lead to a
violation of the Antideficiency Act.[Footnote 16] Later this month, in
the President's budget, the administration will release its newest
estimate of the Trust Fund's fiscal year 2011 year-end uncommitted
balance.
Anticipated Future Expenditures for NextGen:
Congress may choose to increase FAA's authorized funding level in the
near term to allow FAA to further develop NextGen, the new satellite-
based air traffic management system that is designed to replace the
current radar-based system. NextGen improvements include new
integrated systems, procedures, aircraft performance capabilities, and
supporting infrastructure needed for a performance-based air
transportation system that uses satellite-based surveillance and
navigation and network-centric operations. These improvements are
intended to improve the efficiency and capacity of the air
transportation system while maintaining its safety so that it can
accommodate anticipated future growth. FAA has generally identified
the NextGen capabilities that it plans to implement in the near term
to midterm, through 2018. FAA's capital investment is expected to be
$11 billion to $12 billion through 2018. This cost does not include
research, the airport and associated airfield improvements, or the
aircraft equipage that is necessary to realize all benefits. In
addition to FAA's capital investment costs, FAA estimates that the
equipage necessary to realize significant capabilities implemented
through 2018 will cost in the range of $5 billion to $7 billion.
Decisions about the long-term direction for NextGen (beyond 2018) have
yet to be made, and two key planning documents--the NextGen Integrated
Work Plan and Enterprise Architecture--contain a wide variety of
possible ideas and approaches. Therefore, the costs of the system over
the long term are uncertain, but have been estimated to be in the $40
billion range (combined public and private investment in ground
infrastructure and avionics). FAA's proposed budget for NextGen
activities is $1.14 billion in fiscal year 2011, up from the $700
million spent in fiscal year 2009 and the $868 million spent in fiscal
year 2010. In addition, as we have previously reported, NextGen's
ability to enhance capacity will partly depend on how well airports
can handle greater capacity.[Footnote 17] FAA's plans call for
building or expanding runways at the nation's 35 busiest airports to
help meet the expected increases. However, even with these planned
runway improvements and the additional capacity gained through NextGen
technologies and procedures, FAA analyses indicate that 14 more
airports will still need additional capacity, which could require
additional Trust Fund resources.
Additionally, the Future of Aviation Advisory Committee[Footnote 18]
recently proposed to the Secretary of Transportation that the federal
government undertake a significant financial investment to accelerate
efforts to equip aircraft and train staff to use key NextGen
technologies and operational capabilities, including performance-based
navigation (PBN), automatic dependent surveillance--broadcast (ADS-B),
ground-based augmentation system (GBAS) and data communications. The
amount of investment required will depend on how any financial
incentives are structured. Financial assistance can come in a variety
of forms, including grants, cost-sharing arrangements, loans, loan
guarantees, tax incentives, and other innovative financing
arrangements. One financing option proposed by the NextGen Midterm
Implementation Task Force[Footnote 19] to encourage the purchase of
aircraft equipment is the use of equipage banks, which would provide
federal loans to operators to equip their aircraft. Another financing
option, proposed in various forms by a variety of stakeholders, would
involve setting up an equipage fund using private equity backed by
federal loan guarantees. While the details of different proposals
vary, they would all allow operators who purchase equipment through
the fund to defer payments on the equipment until FAA makes
improvements required for the operators to benefit from the equipment.
As we have previously reported, prudent use of taxpayer dollars is
always important; therefore, any financial incentives should be
applied carefully and in accordance with key principles.[Footnote 20]
For example, mechanisms for financial assistance should be designed so
as to effectively target parts of the fleet and geographical locations
where benefits are deemed to be greatest, avoid unnecessarily
equipping aircraft (e.g., those that are about to be retired), and not
displace private investment that would otherwise occur. Furthermore,
it is preferable that the mechanism used for federal financial
assistance result in minimizing the use of government resources (e.g.,
some mechanisms may cost the government more to implement or may place
the government at greater risk than others).
Options for Ensuring a Sustainable Trust Fund:
Given the uncertainty inherent in forecasting revenues and the decline
in the uncommitted balance of the Trust Fund, we have suggested that
Congress should work with FAA to develop alternative ways to reduce
the risk of overcommitting budgetary resources from the Trust Fund.
[Footnote 21] Better matching of actual revenues to the appropriation
from the Trust Fund would help to ensure that Trust Fund revenues are
sufficient to cover all the obligations that FAA has the authority to
incur, thereby reducing the risk of disruptions in funding for
aviation projects and programs. One approach would be to appropriate
less than 100 percent of the forecasted revenues, especially until a
sufficient surplus is established to protect against potential
disruptions in revenue collection. This change would reduce the
likelihood that FAA would incur obligations in excess of the cash
needed to liquidate these obligations and thus reduce the risk of
delaying or terminating projects. The House of Representatives' FAA
reauthorization bill proposed in the 111th Congress includes a
provision that would limit the budgetary resources initially made
available each fiscal year from the Trust Fund to 90 percent, rather
than 100 percent, of forecasted revenues for that year; then 2 fiscal
years later, when actual revenues would be known, any amount that
exceeded 90 percent of forecasted revenues in the second previous year
would be appropriated from the Trust Fund to FAA.[Footnote 22]
Congress would need to provide additional general revenues in the
first 2 years to make up the difference. Another approach would be to
target a minimum level for the Trust Fund's uncommitted balance and
base appropriations on the goal of maintaining that target level. This
change would make it more likely that uncommitted resources would be
available to FAA in the event that actual revenues fell short of
forecasted revenues in a future year. Either approach would result in
fewer Trust Fund resources available for FAA for some period of time,
requiring additional general revenues to make up the difference,
unless FAA's overall resources are reduced.
In the longer term, future Trust Fund revenues under the current tax
structure may be lower than previously anticipated. For example, in
January 2011, the Congressional Budget Office forecast about $25
billion less in Trust Fund revenues over the next 6 years (through
fiscal year 2017) than it forecast in 2007 for that same time period.
Given the decline in expected future revenues, appropriations from the
Trust Fund under current law will be lower in future years than
previously projected unless new revenue sources are found. To maintain
appropriations consistent with what earlier revenue forecasts would
have afforded, Congress could take action such as increasing general
revenue contributions or increasing Trust Fund revenues. For example,
we suggested that if Congress determines that the benefit of added
revenue to the Trust Fund warrants taxation of optional airline
service fees, such as baggage fees, then it should consider amending
the Internal Revenue Code to make mandatory the taxation of certain or
all airline-imposed fees and require that the revenue be deposited in
the Trust Fund.[Footnote 23]
The Future of Aviation Advisory Committee also recommended that the
Secretary of Transportation commission an independent study of the
federal aviation tax burden on passengers, airlines, and general
aviation to determine if existing levels of taxes and fees
sufficiently balance the Department's statutory mandates to "encourage
efficient and well-managed air carriers to earn adequate profits and
attract capital...;" "promote, encourage, and develop civil
aeronautics and a viable, privately-owned United States air transport
industry;" and "ensure that consumers in all regions of the United
States, including those in small communities and rural remote areas,
have access to affordable, regularly scheduled air service."[Footnote
24] The committee recommended that the study address the following
questions:
* How do the federal taxes imposed on the U.S. aviation industry
compare to those imposed on other modes of transportation?
* Is the existing level of aviation taxes and fees levied efficiently
and effectively for the services provided by the federal government?
* Are there more efficient ways to collect and administer existing
aviation taxes and fees that would save taxpayer and aviation industry
dollars?
* Would regular consultation between those departments and agencies
that administer aviation taxes and fees prior to implementing any
changes to tax rates and policies result in (1) a more efficient and
rational aviation tax system and (2) the desired industry and social
outcome?
* What is the appropriate balance between General Fund financing and
Trust Fund financing of capital and operating costs of the national
aviation system, recognizing the significant role commercial and
general aviation play in fostering economic growth and development?
Based on the results of the study, the committee recommends that the
Secretary pursue appropriate legislative and regulatory actions that
may be needed to ensure that existing and any new aviation taxes and
fees applied to passengers, airlines, and general aviation are
effective and collected efficiently, appropriately recognizing the
role commercial and general aviation play in fostering economic growth
and development.[Footnote 25]
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 Staff Acknowledgments:
For future questions about this statement, please contact me at (202)
512-2834 or dillinghamg@gao.gov. Individuals making key contributions
to this report were Paul Aussendorf, Assistant Director; Amy
Abramowitz; Jessica Bryant-Bertail; Lauren Calhoun; Carol Henn; Bess
Eisenstadt; Heather Krause; Hannah Laufe; Maureen Luna-Long; and
Andrew Von Ah.
[End of section]
Footnotes:
[1] Airport and Airway Revenue Act of 1970, Pub. L. No. 91-258, 84
Stat. 236 (1970).
[2] Vision 100--Century of Aviation Reauthorization Act (Vision 100),
Pub. L. No. 108-176, 117 Stat. 2490 (2003).
[3] Pub. L. No. 111-329, 124 Stat. 3566 (2010). While the majority of
the extensions expire March 31, 2011, certain authorities were
extended until April 1, 2011, or June 30, 2011.
[4] Commercial Aviation: Consumers Could Benefit from Better
Information about Airline-Imposed Fees and Refundability of Government-
Imposed Taxes and Fees, [hyperlink,
http://www.gao.gov/products/GAO-10-785] (Washington, D.C.: July 14,
2010); Next Generation Air Transportation System: FAA Faces Challenges
Responding to Task Force Recommendations, [hyperlink,
http://www.gao.gov/products/GAO-10-188T] (Washington, D.C.: Oct. 28,
2009); Commercial Aviation: Airline Industry Contraction Due to
Volatile Fuel Prices and Falling Demand Affects Airports, Passengers,
and Federal Government Revenues, [hyperlink,
http://www.gao.gov/products/GAO-09-393] (Washington, D.C.: Apr. 21,
2009); Next Generation Air Transportation System: Status of Systems
Acquisition and the Transition to the Next Generation Air
Transportation System, [hyperlink,
http://www.gao.gov/products/GAO-08-1078] (Washington, D.C.: Sept. 11,
2008); Aviation Finance: Observations on Potential FAA Funding
Options, [hyperlink, http://www.gao.gov/products/GAO-06-973]
(Washington, D.C.: September 29, 2006); and Airport and Airway Trust
Fund: Preliminary Observations on Past, Present, and Future,
[hyperlink, http://www.gao.gov/products/GAO-05-657T], (Washington,
D.C.: May 4, 2005).
[5] Although figure 1 shows Trust Fund receipts fluctuating, these
receipts are in nominal dollars; if the numbers were adjusted for
inflation, the value of receipts in fiscal year 2010 would be
considerably lower than the value of the receipts in fiscal year 2000.
[6] EAS was established when the airline industry was deregulated in
1978. Airline Deregulation Act of 1978, Pub. L. No. 95-504, § 33(a),
92 Stat. 1705, 1732-39 (1978) (codified as amended at 49 U.S.C. §§
41731--41748). Since then, the program has subsidized air service to
eligible communities that would otherwise not have scheduled service.
[7] FAA considers the committed balance to include appropriations from
the Trust Fund and authorized contract authority, whether or not
obligated.
[8] GAO annually audits the excise tax contributions to the Trust
Fund, and the most recent audit was published in November 2010. See
GAO, Applying Agreed-Upon Procedures: Fiscal Year 2010 Airport and
Airway Trust Fund Excise Taxes, [hyperlink,
http://www.gao.gov/products/GAO-11-120R] (Washington, D.C.: Nov. 4,
2010).
[9] Pub. L. No. 106-181, 114 Stat. 61 (2000).
[10] Pub. L. No. 108-176, 117 Stat. 2490 (2003).
[11] As previously noted, the Trust Fund also earns interest on its
cash balances.
[12] Some of the decline in Trust Fund revenues could also be
attributed to a decline in tax revenues from cargo and general
aviation.
[13] Omnibus Appropriations Act 2009, Pub. L. No. 111-8, div. I, title
I, 123 Stat. 524, 918-19 (2009).
[14] FAA's general revenue contribution can also be presented in
relation to FAA's appropriation. Although the numbers for general
revenue contributions in relation to expenditures and in relation to
appropriations are not necessarily the same, these numbers are very
similar.
[15] An obligation is an action that creates a legal liability or
definite commitment on the part of the government to make a
disbursement at some later date. FAA's fiscal year appropriations and
authorization provide the legal authority for FAA to incur obligations
and make payments out of the Trust Fund (through the Treasury).
[16] The Antideficiency Act prohibits an officer or employee of the
federal government from incurring an obligation, or making an
expenditure, in advance or in excess of an appropriation or fund. 31
U.S.C. § 1341(a)(1). However, FAA's aviation programs are partly
funded with contract authority, which is an exemption to the
Antideficiency Act and authorizes FAA to incur obligations in advance
or in excess of an appropriation. This authority permits FAA to incur
obligations in excess of the revenue in the Trust Fund. However, FAA
must receive an appropriation from the Trust Fund in order to
liquidate these obligations. If there is not adequate revenue in the
Trust Fund, the obligation cannot be liquidated. Because of the
uncertainty in forecasting, the addition of revenues into the Trust
Fund throughout the fiscal year, and the mix of FAA programs funded
through contract authority and through regular appropriations, it may
be difficult for FAA to determine at what point it would violate the
Antideficiency Act. Accordingly, FAA must carefully manage its
obligations and expenditures so that it can take action before it
reaches the point where it could potentially incur an Antideficiency
Act violation.
[17] [hyperlink, http://www.gao.gov/products/GAO-08-1078].
[18] On March 24, 2010, the Secretary of Transportation authorized the
establishment of a Federal Advisory Committee to address aviation
issues. The Future of Aviation Advisory Committee (FAAC) was set up to
develop information, advice, and recommendations to the Secretary of
Transportation on ensuring the competitiveness of the U.S. aviation
industry and its capability to address the evolving transportation
needs, challenges, and opportunities of the global economy. On
December 15, 2010, the committee presented its recommendations to the
Secretary of Transportation.
[19] Recognizing the importance of near-term and midterm solutions,
FAA requested that RTCA, Inc.--a private, not-for-profit corporation
that develops consensus-based recommendations on communications,
navigation, surveillance, and air traffic management system issues--
create a NextGen Midterm Implementation Task Force to reach consensus
within the aviation community on the operational improvements that can
be implemented between now and 2018. The Task Force issued its
recommendations in September 2009.
[20] [hyperlink, http://www.gao.gov/products/GAO-10-188T].
[21] [hyperlink, http://www.gao.gov/products/GAO-09-393].
[22] This provision is contained in H.R. 915, 111th Cong. (2009),
introduced on February 9, 2009, but was amended from 95 percent to 90
percent on March 5, 2009. H.R. 2881, 110TH Cong. (2007), which was
introduced two sessions ago, passed in the House on September 20,
2007, and included a provision to limit FAA's budget authority to 95
percent.
[23] As we reported in [hyperlink,
http://www.gao.gov/products/GAO-10-785], while fares have decreased,
airlines have imposed fees for a variety of passenger services, most
notably for a first or second checked bag, for which separate charges
did not previously exist. Fees have also been imposed for early
boarding, seat selection, and meals, among other services. Under
governing Treasury regulations and Internal Revenue Service (IRS)
guidance, charges for services beyond those mandatory charges
necessary to transport passengers, such as checked baggage, are not
subject to the 7.5 percent excise tax, and consequently, those
revenues are not deposited into the Trust Fund. See Rev. Rul. 73-508,
1973-2, C.B. 366. See also Rev. Rul. 80-31, 1980-1, C.B. 251; Priv.
Ltr. Rul. 118216-09 (Sept. 28, 2009); 26 C.F.R. §§ 49.4261-7, 49.4261-
8. To the extent that airlines continue to rely on revenues from
optional services, such as baggage fees, the Trust Fund will not
benefit because many of these additional fees, in accordance with
Treasury regulations and IRS guidance, are not included in the tax
base. If baggage fees alone had been subject to the 7.5 percent excise
tax in fiscal year 2010, the Trust Fund would have received
approximately an additional $248 million in revenues. This amount is
expected to grow in future years if airlines continue to shift toward
more fee revenue relative to fare revenue.
[24] 49 U.S.C. § 40101(a).
[25] The committee's recommendations are currently under consideration
by the Secretary of Transportation.
[End of section]
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