Federal Aviation Administration: An Analysis of the Financial	 
Viability of the Airport and Airway Trust Fund (28-MAR-06,	 
GAO-06-562T).							 
                                                                 
The Airport and Airway Trust Fund was established by the Airport 
and Airway Revenue Act of 1970 (P.L. 91-258) to help fund the	 
development of a nationwide airport and airway system and to fund
investments in air traffic control facilities. It provides all of
the funding for the Federal Aviation Administration's (FAA)	 
capital accounts, including: (1) the Airport Improvement Program,
which provides grants for construction and safety projects at	 
airports; (2) the Facilities and Equipment account, which funds  
technological improvements to the air traffic control system; and
(3) the Research, Engineering, and Development account, which	 
funds continued research on aviation safety, mobility, and	 
environment issues. In addition, at various times during its	 
history, the Trust Fund has funded all or some portion of FAA's  
operations. To fund these accounts, the Trust Fund is credited	 
with revenues from a variety of excise taxes related to passenger
tickets, passenger flight segments, international		 
arrivals/departures, cargo waybills, and aviation fuels.	 
Including interest earned on its balances, the Trust Fund	 
received $10.8 billion in fiscal year 2005. The various taxes	 
that accrue to the Trust Fund are scheduled to expire at the end 
of fiscal year 2007. GAO was asked to provide information and	 
analysis about the financial condition and future viability of	 
the Trust Fund. 						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-562T					        
    ACCNO:   A50177						        
  TITLE:     Federal Aviation Administration: An Analysis of the      
Financial Viability of the Airport and Airway Trust Fund	 
     DATE:   03/28/2006 
  SUBJECT:   Excise taxes					 
	     Financial management				 
	     Future budget projections				 
	     Presidential budgets				 
	     Trust funds					 
	     Unobligated budget balances			 
	     Financial analysis 				 
	     Airport and Airway Trust Fund			 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-06-562T

     

     * Recent Trends of the Trust Fund and the Effect on the Fund's
          * Revenues Have Generally Increased with Some Fluctuations
          * Expenditures from the Trust Fund Have Also Generally Increas
          * Appropriations from Trust Fund Are Now Linked to Projected R
          * Trust Fund's Uncommitted Balance Has Been Declining in Recen
     * Fund's Uncommitted Balance Is Projected to Be Positive throu
     * Future Policy Decisions Will Affect the Trust Fund Balance b
          * Funding Will Be Needed for the Next Generation Air Transport
          * Continued Efforts for Cost Control Are Necessary
     * GAO Contact and Staff Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Testimony

Before the Subcommittee on Aviation, Committee on Commerce, Science and
Transportation, U.S. Senate

United States Government Accountability Office

GAO

For Release on Delivery Expected at 10:00 a.m. EST

Tuesday, March 28, 2006

FEDERAL AVIATION ADMINISTRATION

An Analysis of the Financial Viability of the Airport and Airway Trust
Fund

Statement of Gerald L. Dillingham, Ph.D. Director, Physical Infrastructure
Issues

GAO-06-562T

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss the financial viability of the
Airport and Airway Trust Fund (Trust Fund) and the President's proposed
2007 budget for the Federal Aviation Administration (FAA). Over the course
of FAA's last two authorizations, FAA's appropriations increased from $9.8
billion in fiscal year 1999 to $14.3 billion this fiscal year (2006), and
fiscal year 2007 is projected to be $15.2 billion.1 In this testimony, we
will present the results of our analysis of the uncommitted balance2 of
the Trust Fund and related issues as requested by this committee.

FAA is currently funded by a combination of Trust Fund revenues derived
from excise taxes levied on a variety of aviation activities and from
general fund revenues. The Trust Fund's uncommitted balance depends on the
revenues flowing into the fund and the appropriations made available from
the fund for various spending accounts. Policy choices, structural changes
in the aviation industry, and external events have affected revenues
flowing into and out of the fund. For example, the uncommitted balance has
been declining in recent years because Trust Fund revenues for the last 5
years have been less than FAA's forecasted levels. Our analysis includes
scenarios in which Trust Fund revenues continue to fall short of
forecasted levels. Under these scenarios, the Trust Fund balance continues
to decline, and in one scenario, the balance reaches zero by the end of
2007. We believe these scenarios raise concerns because in the past the
Trust Fund's uncommitted balance was used to offset lower-than-expected
Trust Fund revenues and decreased general fund contributions. FAA could
help address these concerns by continuing to look for ways to improve
efficiency and reduce costs. However, the zero-balance scenario would most
likely have implications for the Congress in funding FAA programs. In
addition, we believe that the information about the financial viability of
the Trust Fund will be critical to congressional decision making regarding
appropriations for FAA's 2007 budget.

The Trust Fund was established by the Airport and Airway Revenue Act of
1970 (P.L. 91-258) to help fund the development of a nationwide airport
and airway system and to fund investments in air traffic control
facilities. It provides all of the funding for FAA's capital accounts,
including: the Airport Improvement Program (AIP), which provides grants
for construction and safety projects at airports; the Facilities and
Equipment (F&E) account, which funds technological improvements to the air
traffic control system; and the Research, Engineering, and Development
(RE&D) account, which funds continued research on aviation safety,
mobility, and environment issues as well as the FAA's portion of the Joint
Planning and Development Office. In addition, at various times during its
history, the Trust Fund has funded all or some portion of FAA's
operations. In 2005, expenditures from the Trust Fund were made among the
four accounts shown in figure 1.

1Unless otherwise specified, all dollar amounts in this testimony are in
nominal dollars and all data discussed and presented are on a fiscal year
basis.

2The Trust Fund's uncommitted balance represents money against which there
is no outstanding budget commitment or budget authority to spend.

Figure 1: Expenditures from the Trust Fund for Fiscal Year 2005 Total
$11,156 Million

To fund these accounts, the Trust Fund is credited with revenues from a
variety of excise taxes related to passenger tickets, passenger flight
segments, international arrivals/departures, cargo waybills, and aviation
fuels. These taxes are scheduled to expire at the end of 2007. Including
interest earned on its balances, the Trust Fund received $10.8 billion in
2005. Table 1 shows the distribution of Trust Fund revenues for 2005 by
source.

Table 1: Sources of Trust Fund Revenue, Fiscal Year 2005

Dollars in millions                         
Revenue source                       Amount Percent 
Passenger ticket tax                 $5,161      48 
Passenger flight segment tax          1,900      18 
Cargo tax                               461       4 
Fuel tax                                971       9 
International departure/arrival tax   1,922      18 
Interest                                440       4 
Refundsa                              (101)     (1) 
Total                               $10,754     100 

Source: GAO analysis of FAA data.

aRefunds include: refund of aviation fuel other than gas (noncommercial),
refund of aviation gasoline (noncommercial), and other refunds/credits.

Although expenditures from the Trust Fund exceeded revenues in 2005, since
the Trust Fund's creation in 1970, revenues have in aggregate exceeded
spending commitments, resulting in a surplus or an uncommitted balance. At
the end of 2005, the Trust Fund's uncommitted balance was about $1.9
billion.

Policy choices, structural changes in the aviation industry, and external
events have affected revenues flowing into and out of the fund and have
caused some aviation stakeholders to speculate about the fund's financial
status. Some aviation stakeholders have said that there is a reason to be
concerned about the financial condition of the Trust Fund because in
recent years, revenues have not kept pace with funding commitments and the
uncommitted balance has been used to close the gap. Other aviation
stakeholders state that the fund is healthy because revenues are currently
increasing and are expected to continue to increase.

The focus today is the Trust Fund's revenues and balances over the past
few years; the projected near-term future of the Trust Fund, considering
the President's 2007 budget request for FAA; and policy decisions that may
affect longer-term Trust Fund balances. The scope of our work and the
specific methodology are discussed at the end of my statement.

Recent Trends of the Trust Fund and the Effect on the Fund's Uncommitted Balance

Revenues Have Generally Increased with Some Fluctuations

The Trust Fund's uncommitted balance depends on the revenues flowing into
the fund and the appropriations made available from the fund for various
spending accounts. The amount of revenue flowing into the Trust Fund has
fluctuated from year to year but has generally trended upward, as shown in
figure 2. Some of the fluctuation has resulted from changes in economic
conditions, but some has been due to other factors. For example, during
1981 and 1982, revenues (including interest) flowing into the fund
averaged about $629 million-the lowest amount in the fund's
history-because of a lapse in the collection of aviation taxes. In 1999,
revenue flowing into the fund totaled about $11.1 billion, the largest
amount in the fund's history.

Figure 2: Trust Fund Revenues Have Fluctuated but Generally Increased

Note: Trust revenues include interest earned.

However, after revenues peaked in 1999, the amount of revenue flowing into
the Trust Fund decreased in each of the next 4 years, reaching a level of
about $9.3 billion in 2003. A number of factors contributed to this
decrease. For example, within the airline industry, the growth of the
Internet as a means to sell and distribute tickets, the growth of low-cost
airlines, and fare reductions by legacy carriers3 all transformed the
industry and led to lower average fares. These lower fares have resulted
in lower ticket taxes and less revenue going into the Trust Fund. In
addition, in the same time period, a series of largely unforeseen events,
including the September 11, 2001, terrorist attacks, war in Iraq and
associated security concerns, the Severe Acute Respiratory Syndrome
(SARS), and global recessions seriously affected demand for air travel,
resulting in a decrease in airline industry and Trust Fund revenue.

Since the beginning of 2004, however, Trust Fund revenues have been
increasing. In fact, revenues from tax sources in 2005 were nearly as high
as in 1999, although total revenues were still below peak level because
less interest was earned due to a lower Trust Fund balance.

Expenditures from the Trust Fund Have Also Generally Increased

Similar to the revenue picture, the annual amount of expenditures from the
Trust Fund also has generally increased since the fund's inception, but
with some fluctuation. One source of fluctuation has been that the share
of FAA operations paid by the Trust Fund has varied over time.4 Figure 3
shows how expenditures from the fund have changed over time and how they
have compared with revenues. In some years, they have exceeded revenues,
but in other years they have been less than revenues.

3Generally, legacy carriers are those network airlines whose interstate
operations predate airline deregulation of 1978 and that have adopted a
hub-and-spoke network model.

4In a majority of years since its inception, the Trust Fund has funded
some portion of FAA's operations.

Figure 3: Trust Fund Expenditures Have Generally Increased over Time and
Occasionally Exceeded Revenues

Appropriations from Trust Fund Are Now Linked to Projected Revenues

In the Wendell H. Ford Aviation Investment and Reform Act for the 21st
Century (AIR-21), the Congress created a link between Trust Fund revenues
and appropriations from the fund to try to ensure that all fund receipts,
including interest, were committed to spending for aviation purposes on an
annual basis. According to a provision of AIR-21, which was continued in
the Century of Aviation Reauthorization Act (Vision 100)-FAA's current
authorizing legislation-total appropriations made available from the fund
in each fiscal year shall equal the level of receipts plus interest in
that year, and these appropriations can be used only for aviation
investment programs, which are defined as FAA's capital accounts plus the
Trust Fund's share of FAA operations. Further, the level of receipts was
specified to be the level of excise taxes plus interest credited to the
fund for a fiscal year as set forth in the President's budget baseline
projection for that year.

Trust Fund's Uncommitted Balance Has Been Declining in Recent Years

As shown in figure 4, with the exception of its first four years, the
Trust Fund has ended each year with an uncommitted balance; however, the
amount of the uncommitted balance has fluctuated substantially over time,
generally increasing when Trust Fund revenues exceed appropriations from
the fund and decreasing when they are less than appropriations. As noted
in the figure, the uncommitted balance has decreased substantially in
recent years. The Trust Fund's uncommitted balance peaked at over $7
billion in 1991, 1999, and 2001. In contrast, because of lapses in the
taxes that accrue to the fund, at the end of 1982, the uncommitted balance
was about $2.1 billion, and at the end of 1997, it was about $1.4 billion.
Specifically, the Trust Fund's uncommitted balance decreased from $7.3
billion at the end of 2001 to $4.8 billion at the end of 2002 and has
continued to decrease since then, reaching about $1.9 billion at the end
of 2005. However, the rate of decrease has slowed; in 2005, the
uncommitted balance decreased by about $500 million, after falling by at
least $900 million in each of the previous 3 years.

Figure 4: Trust Fund's End-of-Year Uncommitted Balance Has Trended
Downward in Recent Years

The uncommitted balance has fallen in recent years because Trust Fund
revenues have fallen short of forecasted levels by over $1 billion in 3
out of the last 4 fiscal years. For example, in 2001, the difference
between forecasted revenue and actual revenue coming in to the Trust Fund
was $383 million less than expected. In 2002, the difference jumped to
$2.3 billion due to the impact that unanticipated external events such as
the September 11, 2001, terrorist attacks had on the aviation industry.
Residual effects and other factors such as the war in Iraq and the SARS
outbreak lasted through 2003 and 2004, with each year's actual revenues
coming in at least $1 billion below forecasted revenues.

As mentioned above, under Vision 100 and its predecessor, AIR-21,
appropriations made available from the Trust Fund are based on forecasted
revenues.5 Thus, if actual revenues approximate forecasted revenues, there
should be no substantial change in the uncommitted balance. However, as
shown in figure 5, for each year beginning with 2001, actual revenues,
including interest, have been less than forecasted, so that in each year
since then, the uncommitted balance has fallen.

5FAA has developed econometric forecast models and established a forecast
process that attempt to anticipate changes that may affect the future
direction of the aviation industry. Using this forecast process, FAA
annually provides 12-year forecasts of aviation demand and activity
measures that are used for aviation-related personnel and facility
planning. FAA also occasionally sponsors workshops that focus on the
forecasting process and ways to improve the reliability and utility of
forecasting results. Some errors in forecasting can be attributed to
unanticipated external events and their impact on activity (e.g.,
terrorism, the outbreak of SARS, rapid rise in oil prices); others can be
attributed to errors in the assumptions (e.g., passenger trip length,
seats per aircraft, economic growth) behind the forecasts.

Figure 5: Comparison of Forecasted Revenue and Interest with Actual
Revenue and Interest Received

Fund's Uncommitted Balance Is Projected to Be Positive through 2007 but Depends
       on Realization of Forecasted Passenger Traffic Levels and Airfares

Based on its revenue forecast and appropriations for 2006, FAA forecasts
that the Trust Fund's uncommitted balance will decrease by the end of 2006
to about $1.7 billion. FAA forecasts that if, for 2007, the Congress
continues to follow the Vision 100 formula for linking budget resources
made available from the fund to expected revenues, then there will be
little change in the uncommitted balance-$1.7 billion-during that year.
If, instead, the Congress adopts the President's budget request for FAA
for 2007, FAA forecasts that the fund's uncommitted balance by the end of
2007 will rise to about $2.7 billion. This higher forecasted uncommitted
balance occurs because the President's budget calls for an appropriation
from the Trust Fund that is about $1 billion lower than the Vision 100
formula. In addition, compared with Vision 100, the President's budget
calls for a reduction in the appropriation to FAA from the general fund of
about $500 million. Thus, in total, compared with Vision 100, the
President's budget calls for a reduction of about $1.5 billion in FAA's
appropriation. Figure 6 shows the forecasted year-end uncommitted balance
under both scenarios through 2007.

Figure 6: Trust Fund's Projected End-of-Year Uncommitted Balance under
Vision 100 and President's Budget Proposal

While the President's budget calls for making a smaller appropriation
available from the Trust Fund than under Vision 100, largely due to
reductions in the AIP, it calls for greater reliance on the Trust Fund to
fund FAA's operations. Vision 100 uses the formula created in AIR-21 to
determine how much funding for FAA operations should come from the Trust
Fund, but the President's budget proposal does not use this formula. Under
Vision 100, the formula makes the amount of Trust Fund revenue that will
be authorized for FAA operations and RE&D in a given year equal to
projected Trust Fund revenues (as specified in the President's budget)
minus the authorizations for the capital accounts (AIP and F&E) in that
year. Thus, under Vision 100, the Trust Fund is projected to support $4.6
billion of FAA's operations, or 57 percent. In contrast, the President's
budget specifies a set amount of Trust Fund revenue to be used for FAA
operations. Therefore, if Congress enacts the President's budget request
for FAA, the Trust Fund would provide $5.4 billion for FAA's operations in
2007, or 65 percent of its total estimated cost for operations.

Although the Trust Fund is projected to have a surplus at the end of 2007
under each of the expenditure proposals, this projection depends to a
significant extent on achieving forecasted commercial passenger traffic
levels and airfares, as they have the largest impact on the amount of
revenues flowing into the Trust Fund. We recognize that it is difficult to
anticipate future events that may significantly affect the demand for air
travel, particularly since FAA makes a forecast that is contained in the
President's budget based on information available in the first quarter of
the preceding fiscal year. However, our analysis shows that for each of
the last 5 years, FAA's projected revenue forecast for the President's
budget was higher than the actual amount of revenue received, as shown in
figure 5.

Given the differences in recent years between the forecasted revenue and
actual amount of revenue received, we conducted sensitivity analyses to
estimate what would happen to the Trust Fund's uncommitted balance if
Trust Fund revenues in 2006 and 2007 fall below the levels that FAA
projected in March 2006.6 For example, table 2 shows the projected Trust
Fund balances under Vision 100 and the President's proposal and the impact
if revenues, for whatever reason, are 5 percent or 10 percent less than
currently projected. If revenues are 5 percent lower than projected, which
they were in 2001, the Trust Fund would have a small but positive
uncommitted balance under both expenditure proposals-Vision 100 and the
President's budget proposal. However, if the revenues were 10 percent
lower than projected, as they were in 2004, the uncommitted balance would
drop below half a billion dollars under the President's proposal and would
fall to zero by the end of 2007 under Vision 100.

6We did not conduct a sensitivity analysis beyond 2007 because both the
current FAA authorization and the excise taxes that fund the Trust Fund
are scheduled to expire at the end of 2007, making it difficult to project
the long-term financial outlook of the Trust Fund.

Table 2: Sensitivity Analysis of the Trust Fund's Uncommitted Balance to
Revenue Shortfalls

Dollars in million                                               
    Revenue scenario showing projected uncommitted balance    Fiscal year
                                                               2006   2007 
Baseline uncommitted balance as of March 2006  Vision 100 $1,722 $1,718 
                                                  President   1,722  2,706 
If revenues are 5 percent less than projected  Vision 100  1,189    595 
                                                  President   1,189  1,582 
If revenues are 10 percent less than projected Vision 100    657      0 
                                                  President     657    459 

Source: GAO Analysis of FAA data.

We believe these scenarios raise concerns because, in the past, the Trust
Fund's uncommitted balance was used to offset lower-than-expected Trust
Fund revenues and decreased general fund contributions. FAA could help
address these concerns by continuing to look for ways to improve
efficiency and reduce costs. However, the zero-balance scenario would most
likely have implications for Congress in funding FAA programs.

To keep the Trust Fund from declining, the Congress could use an alternate
basis for authorizing and appropriating money out of the Trust Fund that
does not rely on the revenue forecast in the President's budget. One
alternative that would still maintain the link between revenues and
spending would be for appropriations from the Trust Fund to be based on
the actual Trust Fund revenues from the most recent year for which data
are available. That would mean, for example, that the Congress would
appropriate for 2007 the Trust Fund revenues received in 2005. Although
that would make it less likely that the Trust Fund balance would decline
further, it could also mean that a smaller appropriation would be made
available for aviation. Whereas Trust Fund revenues in 2005 were about
$10.8 billion, the President's budget for 2007 forecasts Trust Fund
revenues of about $11.8 billion.

     Future Policy Decisions Will Affect the Trust Fund Balance beyond 2007

Future policy decisions concerning spending for aviation will affect the
Trust Fund balances beyond 2007. If general fund appropriations for FAA's
operations are maintained at recent levels, future projected Trust Fund
revenues under the current tax structure may be insufficient to pay for
the expenditures that FAA says are needed to maintain and modernize the
current system. According to FAA, its aviation infrastructure is aging,
and replacing it will cost $32 billion. Even more, Trust Fund revenues
would be needed to pay for those expenses if general fund appropriations
for operations are reduced. Insufficient Trust Fund revenues could result
in critically needed capacity-enhancing air traffic control modernization
investments being deferred or canceled at a time when commercial activity
is returning to or exceeding pre-September 11 levels.7

Funding Will Be Needed for the Next Generation Air Transportation System

In addition to costs projected just to maintain FAA's current system,
additional capital expenses are on the horizon to modernize the system.
Vision 100 directed the administration to develop a comprehensive plan for
a Next Generation Air Transportation System (NGATS) that can accommodate
the changing needs of the aviation industry and meet air traffic demands
by 2025. The act chartered the Joint Planning and Development Office
(JPDO) within FAA to coordinate federal and private-sector research
related to air transportation. FAA leads the interagency effort that
leverages expertise and resources within the Departments of
Transportation, Defense, Homeland Security, and Commerce as well as at the
National Aeronautics and Space Administration and the White House Office
of Science and Technology Policy. The Congress appropriated $5 million to
FAA in seed money in 2005, and appropriated $18 million to FAA for JPDO in
2006, while additional funding and in-kind support comes from the
participating agencies. For 2007, the President's budget requests $18
million for JPDO critical system engineering and planning efforts for
NGATS, as well as funding for two NGATS systems at a combined cost of $104
million.8

7We note that the Trust Fund projections for 2008-2011 contained in the
President's budget show a large increase in the fund's uncommitted
balance, reaching $15.5 billion by the end of 2011. Officials at the
Office of Management and Budget told us that the underlying assumption for
the commitment of budget resources from the fund that yields this
projection is based on administration policies for reducing-or limiting
the increase in-nondefense, nonhomeland security discretionary spending.
Thus, the projection does not account for challenges particular to any
agency, such as FAA's projected increase in workload or future air traffic
control modernization spending. Accordingly, we think the $15.5 billion
projection is of limited value.

JPDO published the Integrated Plan for the Next Generation Air
Transportation System in December 2004, but the plan did not specify what
new capabilities would be pursued or how much they would cost to implement
and maintain. Vision 100 also directed that an annual progress report,
including any changes to the Integrated Plan, be submitted at the time of
the President's budget request. In March 2006, JPDO published its 2005
Progress Report to the Next Generation Air Transportation System
Integrated Plan and reported it is working to identify the longer-term
costs. JPDO conducted a financial analysis of the air traffic management
portions of NGATS, including examining the existing 2025 operational
vision, to understand the hardware and software components that may be
required to implement NGATS. However, because of the high level of
uncertainty in some areas and a significant number of assumptions in
others, JPDO reported more work is required before this analysis can be
useful and credible.9 A clear understanding of proposed future
capabilities for NGATS (and how they will be paid for) will be important
as the Congress prepares to reauthorize FAA programs and explores
financing mechanisms.

Continued Efforts for Cost Control Are Necessary

While FAA has made great efforts in its cost-control program, cutting
costs will remain a challenge for FAA well into the future. In 2005, FAA
outsourced its flight service stations to a private contractor, resulting
in total savings estimated at $2.2 billion. Also in 2005, FAA put in place
a number of cost-control initiatives that affected smaller programs and
that, if successful, will generate smaller levels of savings. We are
reviewing options to fund FAA, at the request of this subcommittee, and we
will address this issue in detail later this year.

8The President's fiscal year 2007 budget requests $80 million for the
Automatic Dependent Surveillance-Broadcast system to replace antiquated
radars and outmoded technology. The budget also requests $24 million to
begin developing System Wide Information capabilities that will make
advanced information distribution and sharing capabilities possible.

9In order to address these matters and to better understand the costs and
benefits of NGATS, JPDO has asked the NGATS Institute to host a forum in
the spring of 2006, so that the critical assumptions and uncertainties
underlying any cost-benefit effort can be scrutinized and validated. In
addition, further detailed studies will focus on the near-term costs and
benefits that will be used to inform agency planning activities over the
next 5 years. JPDO will then expand its cost analysis to consider the
expected total systems costs for NGATS.

Although FAA has initiated several of these cost-control measures, these
initiatives alone cannot reduce expenses enough to free up sufficient
Trust Fund revenues to pay for the expenditures that FAA says are
necessary to maintain and modernize the current airspace system, let alone
finance future NGATS initiatives. Through the reauthorization process, the
Congress will determine both the level of appropriations for aviation and
the way in which that commitment will be funded. Congressional decisions
pertaining to the link between annual Trust Fund revenues and
appropriations made available for aviation programs, as well as the method
for funding the Trust Fund, will continue to influence future Trust Fund
balances.

To assess the current financial status and projected financial viability
of the Airport and Airway Trust Fund, we obtained financial data from FAA
and interviewed FAA officials familiar with the information. To assess the
comparisons of Vision 100 with the President's budget, we analyzed the
legislation and the administration's 2007 budget proposal. We used a
sensitivity analysis to project what would happen if Trust Fund revenues
in fiscal years 2006 and 2007 were 5 percent and 10 percent lower than the
levels projected by FAA in March 2006 under each of these proposals.
Accordingly, our findings on the financial outlook of the Trust Fund are
based on GAO projections, not FAA's. We performed our work in February and
March 2006 in accordance with generally accepted government auditing
standards.

Mr. Chairman, this concludes my prepared statement. At this time, I would
be pleased to answer any questions that you or other Members of the
Subcommittee may have.

                     GAO Contact and Staff Acknowledgments

For further information on this testimony, please contact Dr. Gerald
Dillingham at (202) 512-2834 or [email protected] . Individuals making
key contributions to this testimony include Chris Bonham, Jay Cherlow,
Tammy Conquest, Colin Fallon, David Hooper, Maureen Luna-Long, Maren
McAvoy, Rich Swayze, and Matt Zisman.

(540118)

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. However, 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.

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: [email protected]
Automated answering system: (800) 424-5454 or (202) 512-7470

Congressional Relations

Gloria Jarmon, Managing Director, [email protected] (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125 Washington,
D.C. 20548

Public Affairs

Paul Anderson, Managing Director, [email protected] (202) 512-4800 U.S.
Government Accountability Office, 441 G Street NW, Room 7149 Washington,
D.C. 20548

www.gao.gov/cgi-bin/getrpt? GAO-06-562T .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Gerald L. Dillingham at (202) 512-2834 or
[email protected].

Highlights of GAO-06-562T , a testimony before the Subcommittee on
Aviation, Committee on Commerce, Science and Transportation, U.S. Senate

March 28, 2006

FEDERALAVIATION ADMINISTRATION

An Analysis of the Financial Viability of the Airport and Airway Trust
Fund

The Airport and Airway Trust Fund was established by the Airport and
Airway Revenue Act of 1970 (P.L. 91-258) to help fund the development of a
nationwide airport and airway system and to fund investments in air
traffic control facilities. It provides all of the funding for the Federal
Aviation Administration's (FAA) capital accounts, including: (1) the
Airport Improvement Program, which provides grants for construction and
safety projects at airports; (2) the Facilities and Equipment account,
which funds technological improvements to the air traffic control system;
and (3) the Research, Engineering, and Development account, which funds
continued research on aviation safety, mobility, and environment issues.
In addition, at various times during its history, the Trust Fund has
funded all or some portion of FAA's operations. To fund these accounts,
the Trust Fund is credited with revenues from a variety of excise taxes
related to passenger tickets, passenger flight segments, international
arrivals/departures, cargo waybills, and aviation fuels. Including
interest earned on its balances, the Trust Fund received $10.8 billion in
fiscal year 2005.

The various taxes that accrue to the Trust Fund are scheduled to expire at
the end of fiscal year 2007. GAO was asked to provide information and
analysis about the financial condition and future viability of the Trust
Fund.

The Trust Fund's uncommitted balance decreased from $7.3 billion at the
end of fiscal year 2001 to about $1.9 billion at the end of fiscal year
2005. In 3 of the last 4 fiscal years, the Trust Fund's uncommitted
balance has fallen by over $1 billion because revenues were lower than FAA
forecasted due to the impact of unanticipated events such as the September
11, 2001, terrorist attacks. However, the rate of decrease has slowed;
during fiscal year 2005, the uncommitted balance decreased by about $500
million. Under FAA's current authorization, appropriations from the Trust
Fund are based on forecasted revenues. Thus, if actual revenues
approximate forecasted revenues, there should be no substantial change in
the uncommitted balance. However, for each fiscal year since 2001, because
actual revenues have been less than forecasted, the uncommitted balance
has fallen.

Based on its revenue forecast and appropriation for fiscal year 2006, FAA
forecasts that the Trust Fund's uncommitted balance will fall by the end
of 2006 to about $1.7 billion. If the Congress continues to follow the
formula from Vision 100-FAA's current authorizing legislation that links
appropriations made available from the fund to revenue forecasts-then FAA
expects there will be little change in the uncommitted balance for fiscal
year 2007. If, instead, the Congress adopts the President's budget for FAA
for fiscal year 2007, FAA forecasts that the fund's uncommitted balance by
the end of 2007 will rise to about $2.7 billion (see figure). This higher
forecasted uncommitted balance occurs because the President's budget calls
for an appropriation to FAA from the Trust Fund that is about $1 billion
lower than the Vision 100 formula.

Trust Fund's Projected End-of-Year Uncommitted Balance

If revenues in fiscal years 2006 and 2007 are below forecasted levels, the
Trust Fund's uncommitted balance will be less than forecasted and, in one
scenario we analyzed, will reach zero by the end of 2007. This scenario
raises concerns because, in the past, the Trust Fund's uncommitted balance
was used to offset lower-than-expected Trust Fund revenues and decreased
general fund contributions. FAA could help address these concerns by
continuing to look for ways to improve efficiency and reduce costs.
However, the zero-balance scenario would most likely have implications for
the Congress in funding FAA programs.
*** End of document. ***