Federal Aviation Administration: Observations on Selected Changes
to FAA's Funding and Budget Structure in the Administration's	 
Reauthorization Proposal (21-MAR-07, GAO-07-625T).		 
                                                                 
Recently, the administration submitted a proposal for		 
reauthorizing the Federal Aviation Administration (FAA) and the  
excise taxes that fund most of its budget. FAA's current	 
authorization expires in 6 months. The proposal calls for major  
changes to FAA's funding and budget structure that are intended  
to address concerns about the long-term revenue adequacy, equity,
and efficiency of FAA's current funding structure and to provide 
a more stable, reliable basis for funding a new air traffic	 
control system that FAA is developing (at an estimated cost of	 
$15 billion to 22 billion through 2025) to meet forecasted	 
increases in air travel demand. The proposal would introduce	 
cost-based charges for commercial users of air traffic control	 
services, eliminate many current taxes, substantially raise fuel 
taxes for general aviation users, charge commercial and general  
aviation users a fuel tax to pay primarily for airport capital	 
improvements, modify FAA's budget accounts to align with specific
FAA activities, and link the portion of FAA's budget that comes  
from the Treasury's General Fund with public benefits FAA	 
provides. This statement offers GAO's observations on the	 
proposed changes in FAA's (1) funding and (2) budget structure	 
and is based on GAO's analysis of FAA's proposal and a recent GAO
report on FAA funding options.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-625T					        
    ACCNO:   A67104						        
  TITLE:     Federal Aviation Administration: Observations on Selected
Changes to FAA's Funding and Budget Structure in the		 
Administration's Reauthorization Proposal			 
     DATE:   03/21/2007 
  SUBJECT:   Allocation (Government accounting) 		 
	     Budgets						 
	     Cost-based budgeting				 
	     Excise taxes					 
	     Federal agency accounting systems			 
	     Financial analysis 				 
	     Financial management				 
	     Fuel taxes 					 
	     Transportation					 
	     Transportation law 				 
	     Trust funds					 
	     Treasury General 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-07-625T

   

     * [1]Summary
     * [2]Background
     * [3]Observations on Proposed Changes to FAA's Funding Structure

          * [4]FAA's Current Funding Structure Has Kept Up with Demand for
          * [5]Funding Changes in Reauthorization Proposal Are Intended to
          * [6]Concerns about the Soundness of the Cost Allocation Methodol
          * [7]Proposed Fuel Tax Rates May Not Yield the Revenue to Produce
          * [8]Proposal to Create an Advisory Board Has Uncertain Implicati

     * [9]Observations on Proposed Changes to the Budget Structure and
     * [10]Concluding Observations
     * [11]Contacts and Acknowledgments
     * [12]GAO's Mission
     * [13]Obtaining Copies of GAO Reports and Testimony

          * [14]Order by Mail or Phone

     * [15]To Report Fraud, Waste, and Abuse in Federal Programs
     * [16]Congressional Relations
     * [17]Public Affairs

Testimony

Before the Subcommittee on Aviation, Committee on Transportation and
Infrastructure, House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 10:00 a.m. EDT
Wednesday, March 21, 2007

FEDERALAVIATION ADMINISTRATION

Observations on Selected Changes to FAA's Funding and Budget Structure in
the Administration's Reauthorization Proposal

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

GAO-07-625T

Mr. Chairman and Members of the Subcommittee:

We appreciate the opportunity to participate in this hearing today to
present GAO's observations on major changes to the Federal Aviation
Administration's (FAA) funding and budget structure that are included in
the administration's recently submitted reauthorization proposal. FAA
operates one of the safest air transportation systems in the world. This
system is, however, under growing strain as the skies over America become
more crowded. Demand for air travel has increased in recent years, with
over 740 million passengers flying in fiscal year 2006 and 1 billion
passengers expected to fly in 2015, according to FAA estimates. Already,
this increasing demand for air travel has led to an increase in flight
arrival delays, which are now approaching the record levels set in 2000,
when one in four flights reached its destination behind schedule. The
system is also expected to absorb a growing variety of aircraft, from the
jumbo Airbus A380, which can hold more than 500 passengers, to very light
jets, which might greatly increase the number of aircraft in the sky while
transporting six or fewer passengers on any given flight. FAA is therefore
developing a modernized air traffic control system, called the Next
Generation Air Transportation System (NextGen), to meet the forecasted
increases in air travel demand. The administration's reauthorization
proposal serves as a blueprint for funding FAA as it begins its
transformation to NextGen.

According to FAA, the changes to its funding and budget accounts that the
administration has proposed are intended to provide a more stable and
reliable funding structure to pay for NextGen. FAA also says that the
proposed changes would improve the revenue adequacy, equity, and
efficiency of its funding and better link revenues with the costs that
users of the National Airspace System (NAS) impose on the system. These
funding changes include introducing user charges for commercial aircraft
based on the cost of the air traffic control services they receive;
eliminating many current taxes; substantially increasing the fuel taxes
general aviation operators pay; charging both commercial and general
aviation a fuel tax to pay for airport capital improvements, the Essential
Air Service (EAS) program,^1 and air traffic system research and
development; modifying FAA's budget accounts to align with FAA's
activities or lines of business; and linking the contribution to FAA's
budget from the General Fund of the U.S. Treasury to the public benefits
FAA provides.^2 These changes would begin in fiscal year 2009. If
implemented, the changes would alter the basis for funding FAA, in part by
recovering the costs of services provided by FAA's Air Traffic
Organization (ATO) in accordance with the cost assignments in a recently
issued FAA cost allocation study. These changes would also redistribute
the funding burden among user groups, increasing the share general
aviation would contribute. FAA has stated that currently general aviation
is not paying its fair share of the costs for services that it uses. Some
stakeholders, such as general aviation, question whether all of the
proposed changes are necessary, or even desirable, saying that the current
funding structure has supported FAA adequately in the past and can
generate more revenue in the future if Congress chooses to increase
appropriations for aviation. These stakeholders also state that the
current distribution of funding for FAA costs among aviation users is
reasonable.

^1The EAS program, established after airline deregulation in 1978, is
designed to ensure that small communities that received passenger air
service before deregulation continue to have access to the nation's air
transportation system.

The current authorization for FAA and for the excise taxes that fund most
of FAA's budget expires at the end of September of this year. Regardless
of the action taken on the proposed changes, timely reauthorization of
funding for FAA for at least the next year is critical, because the
uncommitted balance^3 in FAA's principal funding source, the Airport and
Airway Trust Fund (Trust Fund),^4 is low relative to recent levels.^5

In my statement today, I will present GAO's observations on the proposed
changes in FAA's (1) funding and (2) budget structure, including the
proposed method of determining the General Fund contribution to FAA's
budget.

My remarks are based in part on work we did for a report we issued last
year that analyzed (1) FAA's current funding structure--both its
advantages and the concerns that FAA and others had identified about its
long-term revenue adequacy, equity, and efficiency--and (2) several
funding options to assess how those options might address those
concerns.^6 For that report, we reviewed relevant literature, examined FAA
data and forecasts, and interviewed officials from FAA and other
government agencies, representatives of aviation industry groups, and
academic and financial experts. In addition, for this statement, we
analyzed selected funding and budget elements of the administration's
reauthorization proposal and FAA's newly released cost allocation study,
focusing on their implications for revenue adequacy, equity, and
efficiency, and discussed them with FAA officials and representatives of
aviation industry groups. We conducted our work from February to March
2007 in accordance with generally accepted government auditing standards.

^2Appropriations from the General Fund supplement appropriations from the
Airport and Airway Trust Fund as necessary to pay for budgeted FAA
programs.

^3The uncommitted balance represents money against which there is no
outstanding budget commitment or budget authority to spend.

^4Excise tax revenues are deposited in the Trust Fund, from which they can
be appropriated by Congress to fund FAA.

^5The Trust Fund's uncommitted balance at the end of fiscal year 2006 was
less than $2 billion. At the end of fiscal year 2001 it was $7.3 billion.

Summary

           o Funding Structure: The current funding structure has supported
           FAA as FAA's budget has grown, and it can continue to fund planned
           modernization. Trust Fund revenues are forecasted to increase if
           the current excise taxes are extended without change and therefore
           could support additional congressional spending on aviation. If
           necessary, Congress can obtain more revenue by increasing excise
           tax rates or the General Fund contribution, although the nation's
           fiscal imbalance could make such an increase difficult.
           Nonetheless, FAA is concerned about the long-term revenue
           adequacy, equity, and efficiency of its current funding structure,
           and its proposed new funding structure is intended to address
           these concerns by linking revenues more closely with costs. By
           more closely linking revenues with workload and costs, FAA states
           that it will be better able to pay for future air traffic demands,
           for example the transition to NextGen, which is estimated to cost
           between $15 billion to $22 billion through 2025.^7 It is uncertain
           how effective FAA's proposed cost-based funding approach, if
           enacted, will be in addressing these concerns. Its effectiveness
           depends on how accurately FAA's new cost allocation methodology
           assigns costs and on how closely the proposed approach adheres to
           the principle that there should be a direct link between a user's
           revenue contribution to funding FAA and the costs the user
           imposes. Stakeholders have raised questions about both of these
           considerations. Also uncertain are the equity of the tax burden
           commercial and general aviation would incur for airport capital
           improvements, the adequacy of FAA's proposed fuel tax rate to
           collect anticipated revenues, the implications of a proposed
           advisory board, and the impact of a proposal to give FAA limited
           debt financing authority. In addition, FAA has not taken into
           account a potential reduction in demand that could result from a
           fuel tax increase and could lead, in turn, to less fuel tax
           revenue than anticipated. The implications of an advisory board
           that has some influence but limited authority in setting user fees
           and the advantages of debt financing are unclear.
           o Budget Structure: FAA's proposal to modify its budget accounts
           is consistent with its emphasis on aligning revenues and costs but
           may present implementation issues in that some FAA activities may
           be difficult to categorize. More specifically, the proposed
           restructuring could allow FAA to better identify funding options
           that link revenues and costs and may improve transparency by
           showing how much is being spent on each line of business. However,
           some activities, such as those related to safety, may not lend
           themselves to placement in discrete categories. Linking the
           General Fund contribution to public benefits is an appropriate way
           to recognize that users are not the only beneficiaries of a safe
           air transportation system. Judgments, however, will still be
           necessary, since many activities that create public benefits, such
           as safety, also benefit users.
			  
			  Background

           Although there have been fluctuations in its funding sources, FAA
           is primarily supported by the Trust Fund (82 percent), which
           receives revenues from a series of excise taxes paid by users of
           the NAS. These excise taxes are associated with purchases of
           airline tickets and aviation fuel, as well as the shipment of
           cargo. These Trust Fund revenues are then available for use
           subject to appropriations. In addition to these revenues, in most
           years, General Fund revenues have been used to fund FAA. About
           $2.6 billion was appropriated for fiscal year 2006 from the
           General Fund for FAA's operations. This amount represents about 18
           percent of FAA's total appropriation.

           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. The Trust Fund provides
           funding for FAA's two capital accounts--the Airport Improvement
           Program (AIP) and the Facilities and Equipment (F&E)
           account--which provide grants to airports and funds for
           modernizing the air traffic control system, respectively. The
           Trust Fund also provides funding for the Research, Engineering,
           and Development (RE&D) account and supports part of FAA's
           Operations account. To fund these accounts, the Trust Fund is
           credited with revenues collected from system users through the
           dedicated excise taxes. In fiscal year 2005,^8 the ticket tax was
           the largest single source of Trust Fund revenue, followed by the
           international departure and arrival tax, the passenger segment
           tax, and fuel taxes (see table 1 for a description of current
           taxes).

           The administration's reauthorization proposal would change FAA's
           financing system from one based mainly on excise taxes to one
           based more on cost-based charges. Under the proposed system,
           funding for ATO would come primarily from user charges on
           commercial aircraft and fuel taxes on general aviation aircraft.^9
           In addition, contributions from the General Fund would be
           appropriated to FAA to cover ATO costs of providing services to
           military and other public aircraft, flight service stations, and a
           few other services.^10 Funding for AIP, EAS, and part of RE&D
           would come from an equal fuel tax on both general and commercial
           aviation and a tax on arriving and departing international
           passengers. Funding for Safety and Operations would include some
           fees, but mostly General Fund contributions. The reauthorization
           proposal would also create an advisory board and give FAA limited
           borrowing authority.^11 Table 1 compares elements of the current
           and proposed funding structure for FAA.

^6GAO, Aviation Finance: Observations on Potential FAA Funding Options,
[18]GAO-06-973 (Washington, D.C.: September 29, 2006).

^7FAA is working through the Joint Planning and Development Office with
other government agencies to design NextGen. The Joint Planning and
Development Office is responsible for NextGen cost estimates.

^8Fiscal year 2005 is the last year for which complete tax data are
available.

^9FAA would also receive authority to impose a fee for use of congested
major airports that would apply to both commercial and general aviation
aircraft.

^10Military and public aircraft include flights for government purposes,
such as those used by the Departments of Defense, State, and the Interior.
These aircraft are internationally defined as state aircraft that are
exempt from paying fees and taxes. A flight service station is an air
traffic facility that provides weather briefings and flight planning
services, largely to general aviation pilots. Other services that FAA
proposes to exempt from fees include, but are not limited to, air
ambulances, aviation safety regulation and oversight, and the operation of
air traffic control towers at airports with fewer than 100,000 passenger
boardings per year.

^11Other provisions in the reauthorization proposal address funding during
the transition to a user-based funding structure and the creation of a
reserve fund to be available in case future revenues fall short of
expectations.

Table 1: Elements of the Current and Proposed FAA Funding Structure

Current FAA funding structure    Proposed FAA funding structure            
7.5 percent tax on ticket price  Eliminated.                               
of domestic airline tickets.                                               
$3.30 per-passenger tax on       Eliminated.                               
domestic passenger flight                                                  
segment.                                                                   
Not applicable.                  User fee for jet and turboprop commercial 
                                    aircraft. Fees for en route and oceanic   
                                    air traffic services may be based on      
                                    distance traveled or other factors        
                                    consistent with U.S. treaties and         
                                    international agreements. A user fee for  
                                    (1) operations conducted in terminal      
                                    airspace may be based on aircraft weight  
                                    and (2) takeoffs and landings at airports 
                                    with more than 100,000 passenger          
                                    boardings annually.                       
Not applicable.                  Congestion fee for landings and takeoffs  
                                    by all aircraft at congested large-hub    
                                    airports based on time of day and day of  
                                    week. Daytime fees could differ from      
                                    nighttime fees.                           
6.25 percent tax on shipping     Eliminated.                               
price for transportation of                                                
domestic cargo or mail.                                                    
$0.043 per-gallon tax on         $0.136 per gallon tax on domestic         
domestic commercial aviation     commercial aviation fuel to fund AIP,     
fuel.                            EAS, and RE&D account.                    
$0.193 per-gallon tax on         $0.70 per-gallon tax on both domestic     
domestic general aviation        general aviation gasoline and jet fuel,   
gasoline.                        with $0.564 per gallon to fund air        
$0.218 per-gallon tax on         traffic control services and $0.136 per   
domestic general aviation jet    gallon to fund AIP, EAS, and RE&D         
fuel.                            account.                                  
$14.50 per-passenger  tax for    $6.39 per-passenger tax on international  
international passenger arrivals passenger arrivals and departures to fund 
and departures.                  AIP, EAS, and RE&D account.               
7.5 percent tax on award value   Eliminated.                               
of frequent flyer awards.                                                  
$7.30 per-passenger fee for      Eliminated.                               
passenger service between the                                              
continental United States and                                              
Alaska or Hawaii or between                                                
Alaska and Hawaii.                                                         
Minimal aircraft certification   Aircraft certification and registration   
and registration fees set below  fees to fund additional activities and    
the cost of providing the        tied to the cost of providing service.    
service.                                                                   
General Fund contribution.       General Fund contribution.                
No debt financing authority.     $5 billion in Treasury debt financing     
                                    authority for NextGen-related capital     
                                    needs for fiscal years 2013-2017.         
Management Advisory Council      Air Transportation System Advisory Board  
reviews and makes                established to make recommendations on    
recommendations on FAA           setting of user fees.                     
management, policy, spending,                                              
funding and regulatory matters                                             
affecting the aviation industry.                                           

Source: GAO analysis of FAA data.

The administration's proposal also calls for changing FAA's budget
structure by establishing two new budget accounts--(1) Air Traffic
Organization and (2) Safety and Operations--to align with FAA's lines of
business and proposed funding. These two new accounts would replace the
Operations and F&E accounts. The proposal retains the AIP and RE&D
accounts. See table 2 for a comparison of the current and proposed FAA
budget structure.

Table 2: Current and Proposed FAA Budget Accounts

                    Current budget account       Proposed budget account      
Account name     Operations                   Safety and Operations        
Activity funded  Aviation safety              Aviation safety              
                                                                              
                    Commercial space             Commercial space             
                    transportation               transportation               
                                                                              
                    FAA overhead                 FAA overhead                 
                                                                              
                    ATO salaries and expenses                                 
Funding source   Trust Fund (about 68         User fees (about 32 percent) 
                    percent)                                                  
                                                 Trust Fund (about 4 percent) 
                    General Fund (about 32                                    
                    percent)                     General Fund (about 64       
                                                 percent)                     
Account name     Facilities and Equipment     Air Traffic Organization     
                                                 (ATO)                        
Activity funded  Air traffic modernization    Air traffic modernization    
                                                                              
                                                 ATO salaries and expenses    
Funding source   Trust Fund (100 percent)     Trust Fund (11 percent)      
                                                                              
                                                 User fees (74 percent)       
                                                                              
                                                 General Fund (15 percent)    
Account name     Airport Improvement Program  Airport Improvement Program  
Activity funded  Airport capital development  Airport capital development  
Funding source   Trust Fund (100 percent)     Trust Fund (100 percent)     
Account name     Research, Engineering, and   Research, Engineering, and   
                    Development                  Development                  
Activity funded  Research on aviation safety, Research on aviation safety, 
                    capacity, and environmental  capacity, and environmental  
                    issues                       issues                       
Funding source   Trust Fund (100 percent)     Trust Fund (about 88         
                                                 percent)                     
                                                                              
                                                 General Fund (about 12       
                                                 percent)                     

Source: GAO analysis of data from the Budget of the United States
Government Fiscal Year 2008 (Washington, D.C.: Feb. 5, 2007).

In January 2007, FAA released a new cost allocation study.^12 This report
sets forth a methodology for assigning air traffic costs to user groups on
the basis of aircraft type. The two principal user groups are the
high-performance group, which includes all fixed-wing turbine engine
aircraft operations, and the piston aircraft group, which includes piston
engine fixed-wing aircraft operations and helicopters. According to FAA,
this cost allocation methodology is based on the assumption that
high-performance users generally compete for the same air traffic control
resources and their operations are more time-sensitive than piston
aircraft operations, requiring more complex air traffic equipment and
procedures. Piston aircraft operations, on the other hand, tend to be less
time-sensitive and typically rely on less complex equipment. Differences
in the speed and cruising altitudes of the two aircraft types also affect
their en route costs.

^12Federal Aviation Administration, FY2005 Cost Allocation Report
(Washington, D.C.: Jan. 31, 2007).

Observations on Proposed Changes to FAA's Funding Structure

The current funding structure, with some modifications to the excise taxes
and tax rates and changes in the levels of General Fund contributions, has
successfully funded a growing FAA budget. Trust Fund revenues are
projected to increase substantially at current excise tax rates. If, to
fund the additional costs of NextGen or for other reasons, Congress
chooses to increase spending on aviation beyond what can be paid for at
current excise tax rates, it can obtain additional revenue through the
current funding structure by increasing excise tax rates, the General Fund
contribution, or both, although the nation's fiscal imbalance could make
such an increase difficult. Nonetheless, because some factors that drive
tax revenues, such as ticket prices, are not well linked to FAA's workload
and costs, FAA has been concerned about the long-run revenue adequacy,
equity, and efficiency of its funding.^13

Some of the administration's proposed changes for funding FAA, such as
establishing direct user charges for commercial aviation and substantially
increasing fuel taxes for general aviation are intended to link FAA's
revenues more closely with its costs. For other elements of FAA's budget,
however, it is not possible to establish a direct link between revenues
and costs. For example, because AIP expenditures are not the direct result
of costs imposed by users of the NAS, the proposal to fund AIP through
equal fuel taxes on all aircraft operators can best be evaluated on equity
grounds. Better alignment of FAA's revenues and costs can address some of
the concerns about the current funding system that derive from the lack of
connection between some key drivers of current FAA revenues, such as
ticket prices, and FAA's workload and costs. However, the effectiveness of
the proposed funding structure in linking costs with revenues depends
critically on how well FAA's new cost allocation method assigns costs to
users and on how closely the proposed funding structure adheres to the
principle of cost-based funding, and questions remain about both
considerations.^14 Furthermore, FAA's method for estimating the fuel tax
rates needed to collect its intended level of fuel tax revenue may have
underestimated the tax rates needed by not accounting for possible
reductions in fuel consumption due to the higher tax rates. The
implications of some of the other proposed changes, including one creating
an advisory board that can make recommendations on fee setting and another
authorizing limited authority for FAA to use debt financing, are
uncertain.

^13Revenue adequacy refers to the ability of FAA's funding system to
produce revenues commensurate with workload changes over time. Equity
refers to the fairness of the distribution of costs to aviation users.
Efficiency refers to incentives that encourage the efficient use of the
NAS.

FAA's Current Funding Structure Has Kept Up with Demand for Many Years and Can
Provide Funding to Cover the Development and Implementation of NextGen

Congress has used the current funding structure--excise taxes plus a
General Fund contribution--to fund FAA for many years. As the number of
air travelers has grown, so have excise tax revenues. Even though revenues
fell during the early years of this decade as the demand for air travel
fell, 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. 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.^15 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 fluctuation in the
amount of the General Fund contribution occurs 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, RE&D accounts. Therefore, fluctuations in the Trust Fund revenues and
FAA expenditures require different levels of General Fund contributions.

^14Cost-based funding attempts to establish a more direct link between a
user's payment for services and the costs the user imposes on a system.

^15At that time, Congress also increased the international departure tax
from $6 to $12 per person, applied this tax to international arrivals, and
added the frequent flyer tax and the Hawaii/Alaska passenger taxes.

As air traffic grows and FAA embarks on modernization through NextGen,
Congress may appropriate additional funds to FAA to fund new investment
and to maintain a safe and efficient airspace system, although there is
considerable uncertainty about how much NextGen will cost. FAA estimates
that NextGen will cost between $15 billion to $22 billion through 2025.
However, funding NextGen does not mean that the current funding structure
needs to be changed. According to projections prepared by the
Congressional Budget Office (CBO),^16 revenues obtained from the existing
funding structure are projected to increase substantially. Assuming that
the General Fund provides about 19 percent of FAA's budget, CBO estimates
that through 2016 the Trust Fund can support about $19 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. How far this money
will go to fund modernization is subject to a number of
uncertainties--including the future cost of NextGen investments, the
volume of air traffic, the future costs of operating the NAS, and the
levels of future appropriations for AIP, all of which may influence
funding for FAA.

However, if the desired level of spending exceeded what was likely to be
available from the Trust Fund at current tax rates, Congress could make
further changes within the current structure that would provide FAA with
additional revenue if Congress believed that larger FAA appropriations
were appropriate--for example, if FAA experienced increased workload
demands as a result of increased demand for air traffic services. Congress
could raise more revenue from airspace system users for NAS 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. Thus, it is necessary to look at factors other
than a need for more revenues to justify a major change in FAA's funding
structure.

^16Congressional Budget Office, Financing Investment in the Air Traffic
Control System (Washington, D.C.: Sept. 27, 2006).

Funding Changes in Reauthorization Proposal Are Intended to Address Concerns
about Long-term Revenue Adequacy, Equity, and Efficiency of Current Funding
Structure

FAA has expressed concern that revenues from the current funding structure
depend heavily on factors, such as ticket prices, that are not connected
to FAA's workload and costs. According to FAA, under the current
structure, increases in the agency's workload may not be accompanied by
revenue increases because users are not directly charged for the costs
that they impose on FAA for their use of the NAS. Revenues collected from
excise taxes are primarily dependent on the price of tickets and the
number of passengers on planes, while workload is driven by flight control
and safety activities. This disconnect raises three key concerns about the
current funding structure--its long-term revenue adequacy, equity, and
efficiency. Moreover, these three concerns are supported by long-term
industry trends and FAA forecasts of declines in inflation-adjusted air
fares, the growing use of smaller aircraft, and FAA's 2007 cost allocation
study. The administration has used these concerns as its rationale for
proposing major changes in FAA's funding.

Many of the proposed changes for funding FAA contained in the
administration's reauthorization proposal are intended to address the
concerns about revenue adequacy, equity, and efficiency by linking FAA's
revenues more closely with its costs. The proposal calls for a combination
of methods for funding FAA, which we previously reported might best
address concerns with the current system by providing a better link
between revenues and costs than any option used separately.^17 For
example, the proposal would eliminate all the excise taxes except the
taxes on fuel and the tax on arriving and departing international
passengers. The ATO, the largest part of FAA's budget, would then be
funded by direct user charges on commercial aircraft--including air taxis,
fractionally owned aircraft, and aircraft providing charter service--that
use the NAS, fuel taxes paid by general aviation users of the NAS (both
turbine and piston), and General Fund revenues to cover the costs of
exempt aircraft such as military and other state aircraft and flight
service stations.

The proposal would also allow FAA to establish a fee for all aircraft
using the nation's most congested airports. Based on the time of day or
day of the week, the fee would be designed to increase efficient use of
the NAS by discouraging peak-period traffic at congested airports and,
thus, reducing delays. Under such a fee, cargo carriers could pay lower
fees by operating at night than they would pay by operating at peak
periods of the day, creating an incentive for some cargo carriers to
switch daytime operations to nighttime. The fee could also create
incentives for general aviation aircraft flying to and from metropolitan
areas with congested airports to use other nearby airports instead.

^17 [19]GAO-06-973 .

The shares of ATO costs to be recovered from commercial and general
aviation aircraft, respectively, and the General Fund contribution to
cover the costs of exempt aircraft would be based on the results of FAA's
cost allocation study. In addition, the proposal would authorize FAA to
impose fees to pay for costs related to certain aircraft certification and
registration activities that it conducts.^18

Basing cost recovery for ATO only on cost allocation is a policy choice.
In many other countries, cost recovery is based in part on cost allocation
and in part on other principles, such as ability to pay.^19 For example,
some countries charge a fee for en route services based on weight and
distance; weight is included as a factor in charging formulas because many
believe that it reflects an aircraft operator's ability to pay. Using
additional principles for cost recovery could result in different
distributions of the funding burden among user groups.

For one large area of FAA's budget, AIP, it is not possible to establish a
direct link between revenues and costs because AIP expenditures are not
the direct result of costs imposed by users of the NAS. FAA distributes
AIP grants on the basis of congressional priorities established in
authorizations and appropriations. Accordingly, equity would appear to be
the best criterion to use in evaluating the administration's proposal to
fund AIP through a fuel tax of 13.6 cents per gallon on commercial and
general aviation operators and a tax of $6.39 per passenger on the use of
international travel facilities.^20

18FAA issues certificates and registrations to aircraft owners as well as
certifications of domestic and foreign repair stations that are authorized
to perform maintenance on U.S. registered aircraft. Other certification
fees include charges to flight schools, training centers, and maintenance
technical schools and fees for training provided to foreign aviation
authorities, among others.

^19The ability-to- pay principle is a concept of tax fairness that states
that those individuals with a greater financial capacity--measured by
wealth, income, or other levels of well-being--to bear a tax burden should
pay more in taxes than those individuals with a lesser financial capacity.

^20The fuel tax and the international passenger tax also pay for EAS and
for part of the RE&D account.

According to an FAA official, the decision to establish equal tax rates
for commercial and general aviation operators was made to achieve fairness
and simplicity. One way to evaluate the fairness or equity of funding AIP
in this way would be to compare the distribution of the funding burden
among user groups with the distribution of the grants funded by AIP.^21
With all aircraft being charged the same fuel tax rate, according to FAA
forecasts for fiscal year 2009, commercial aircraft operators would pay
about 88 percent of the fuel tax revenues collected primarily to fund AIP,
while general aviation operators would pay 12 percent. However, under the
current AIP program, about one-third of AIP grants would go to airports
with no commercial service, and some additional grants would go to
airports where general aviation traffic makes up a substantial share of
the aircraft operations.^22 Thus, under the administration's proposal,
commercial aviation users would appear to be paying for a large share of
the benefits that come from capital spending at general aviation airports.
This result is no different from what happens today; commercial aviation
users currently pay for a large share of these benefits, since the largest
share of the Trust Fund comes from passenger ticket taxes.

Some portion of these benefits may accrue to commercial aviation users if
capital spending at general aviation airports keeps general aviation
traffic from using congested commercial airports. However, most of the
benefits from capital spending at general aviation airports would likely
go to users of those airports or their surrounding communities--or to the
general public to the extent a national system of airports that includes
general aviation airports creates public benefits. In that case, funding
those benefits by fuel taxes paid by commercial aircraft may raise equity
issues. An alternative approach that would be consistent with a policy
choice to charge general aviation users less than the cost of the benefits
they receive from AIP grants would be to use General Fund revenues to fund
part of AIP.

^21Other ways to evaluate the equity of funding AIP in this way might lead
to different findings.

^22This allocation of AIP grants among airport types might change if the
AIP provisions of the reauthorization bill are adopted.

Concerns about the Soundness of the Cost Allocation Methodology and Adherence to
Principle of Cost-Based Funding May Limit Proposal's Ability to Address FAA's
Key Concerns

A better alignment of FAA's revenues and costs can address revenue
adequacy, equity and efficiency concerns, but the ability of the proposed
funding structure to link revenues and costs to address these concerns
depends critically on two things--first, the soundness of FAA's cost
allocation system in allocating costs to users and, second, how closely
the proposed funding structure adheres to the principle of cost-based
funding.

FAA's new cost allocation study was released at the end of January, so we
and others have had only a short time to review it. However, we, as well
as industry stakeholders, have raised a number of concerns about the study
and its cost allocation methodology. For example, FAA divides NAS users
into two groups: high-performance aircraft, such as jets and turboprop
aircraft, and piston aircraft. According to FAA, dividing users this way
creates two principal groups whose flights impose substantially different
costs on FAA. High-performance aircraft which fly at higher altitudes and
speeds, and normally use Instrument Flight Rules, are "controlled" through
en route airspace and for landings and takeoffs by air traffic
controllers. Therefore, they impose higher costs on FAA than piston
aircraft which fly at lower altitudes and often use Visual Flight Rules,
under which they are not "controlled" through en route airspace but can
use air traffic control services for landings and takeoffs.

However, FAA did not conduct a statistical cost analysis to determine
whether high-performance aircraft of different types might impose
sufficiently different costs on the system to warrant dividing NAS users
into more than two groups. For example, differences in aircraft weight^23
could affect terminal airspace costs even though they may not affect en
route costs. Although there may be no effect of aircraft weight on en
route costs, FAA officials told us that the administration's
reauthorization proposal requests authority to set terminal airspace user
fees based in part on weight because they believe that larger aircraft
require greater separation, thus imposing greater terminal airspace costs.
Under FAA's cost allocation methodology, fixed costs^24 are assigned to
the group that is the primary user of the air traffic control services
that generate those costs. Accordingly, it might be more consistent to
divide high-performance aircraft into subgroups before FAA allocated the
fixed costs of air traffic control services used by aircraft in all groups
to the group that is the primary user of that service.^25

23We cite weight only as an example. Statistical cost analysis might
identify other factors that could be relevant in dividing aircraft into
principal groups that impose different costs on the NAS.

^24Fixed costs refer to the costs associated with a product or service
that remain constant when the level of output changes.

Creating only two principal groups resulted in the allocation of some
portion of the fixed costs to general aviation jet aircraft, because the
high-performance group, which FAA defines to include general aviation jet
aircraft, is the primary user of services that are responsible for most
fixed costs. If instead, for example, FAA had created three principal
aircraft groups--piston, heavy high-performance, and light
high-performance--and if the heavy high-performance group was the primary
user of services that are responsible for most fixed costs, then the fixed
costs would have been allocated only to that group. The effect of this
change in methodology would likely have been that general aviation turbine
users would have been allocated a smaller share of total ATO costs and a
lower fuel tax rate would have been needed to collect their share of FAA's
revenues.

Because a sound cost allocation methodology is central to the successful
application of cost-based funding, more time may be needed for FAA to
further analyze the differences among aircraft types that lead to
differences in the costs they impose on the NAS. More time may also be
needed for a fuller analysis and discussion of FAA's cost allocation
methodology, after which, perhaps, a wider consensus might be reached on
FAA's cost allocation methodology. At the request of this Committee, we
are continuing to review FAA's cost allocation methodology.

In addition to our concerns about the cost allocation methodology, we have
identified some instances in which the reauthorization proposal does not
strictly adhere to the principle of cost-based funding. For example, FAA
has made what it terms a policy decision to not apply the congestion
charge for using terminal airspace near large, busy airports to all
aircraft that fly through that airspace. Aircraft flying near busy
airports and using the same airspace but not taking off or landing at
these airports would not be charged, even though such flights would use
air traffic control services provided by the same approach control
centers. FAA officials told us that they made this decision because the
approach control centers would not exist if they were not serving traffic
at the busy airports. In addition, they said, FAA wanted to create
incentives for general aviation aircraft to avoid flying to or from the
busy airports and to use other nearby airports instead. Although that
rationale could provide a justification for allocating the fixed costs of
such centers to users of the busy airports, allocating all of the variable
costs to users at those airports is a deviation from a cost-based
approach. While such policy decisions on pricing may be appropriate in
some instances for various reasons, but they create deviations from the
principle of cost-based funding that may limit the ability of the
administration's proposal to address concerns about the disconnect between
revenues and costs associated with the current funding structure.

^25According to FAA, one potential concern with dividing the
high-performance group into smaller groups by weight is that the dividing
point would be arbitrary and could result in large differences in costs
assigned to aircraft that do not differ much by weight but do fall near
the dividing line, yet on opposite sides.

Proposed Fuel Tax Rates May Not Yield the Revenue to Produce Anticipated Fuel
Tax Revenues

The proposed fuel tax rates, although much higher than current rates, may
not yield the revenue that FAA expects to collect from fuel taxes. FAA
estimated the tax rates necessary to collect from general aviation
operators the share of ATO costs allocated to them and from both
commercial and general aviation operators the revenue needed to fund the
proposed level of $2.75 billion for AIP, EAS, and the portion of the RE&D
account to be funded through fuel taxes (less the share paid by
international passengers). FAA officials confirmed for us that in
performing these estimates they did not take into account possible
reductions in fuel purchases due to the increase in the tax rates.
Although we do not know by how much such purchases would decline,
conventional economic reasoning, supported by the opinions of industry
stakeholders, suggests that some decline would take place.^26 Therefore,
the tax rate should be set taking into consideration effects on use and
the resulting impact on revenue. FAA officials told us that they believe
that these effects would be small because the increased tax burden is a
small share of aircraft operating costs and therefore there was no need to
take its impact into account. Representatives of general aviation,
however, have said that the impact could be more substantial.

Even if there is no change in fuel purchases due to higher tax rates,
FAA's forecasts suggest that fuel tax revenues might be less than the
proposed spending to be funded by those tax revenues.^27 Furthermore, we
observe that the administration's proposed spending for AIP is
substantially below the levels at which Congress funded the program in
recent years. If Congress were to adopt the proposed funding structure but
fund AIP at the same level as this year, fuel tax rates would need to be
raised above the proposed level to obtain enough revenue to fully fund AIP
without resorting to alternative funding sources, such as the General Fund
or drawing down the Trust Fund balance.

^26FAA could use variations in fuel prices over time, such as the big
increase in 2005 due to crude oil price increases, to estimate the decline
in fuel purchases likely to result from fuel tax increases of the
magnitude proposed. We recognize that in making such estimates FAA would
need to take into account the effect that other factors such as the state
of the economy that can have on fuel purchases.

Proposal to Create an Advisory Board Has Uncertain Implications While Proposal
Authorizing Limited Borrowing Authority Is Unlikely to Have a Major Impact

The proposed creation of an advisory board raises questions about the
influence that NAS users would have on fee setting and the impact that
such a board would have on congressional oversight. According to the
reauthorization proposal, the advisory board would be able to recommend
user fee amounts to the FAA Administrator, who would have the final
decision in setting fees. If the advisory board objected to the fee, the
Administrator would be required to publish a written explanation in the
Federal Register. Aviation stakeholders could appeal the fee to the
Secretary of Transportation but there would be no judicial review of the
Secretary's appeal decision.^28 According to a recent report by the
Congressional Research Service, the FAA Administrator would have
substantial discretion in how much to use the advisory board's
expertise.^29 Congress would have no role in setting fees, whereas under
the current system, Congress sets the tax rates. The combination of these
elements raises the issue of how to ensure the appropriate level of
congressional oversight. With a user fee, Congress would set the total
amount to collect and spend from the fees through the appropriations
process.

^27For example, FAA's fuel consumption forecasts for fiscal year 2009
imply fuel tax revenues for the Trust Fund of about $2.2 billion, and
about $0.5 billion is forecasted to be collected in tax revenue from
international passengers, for a total of about $2.8 billion (differs from
components because of rounding). However, proposed AIP obligations for
that year are about $2.9 billion and spending for EAS and RE&D to be
funded from these revenues will increase that amount.

^28Appeals would need to be based on evidence that the fees (1) are not
based on appropriate costs, or (2) do not fairly allocate costs among
users or (3) are unreasonably discriminatory to a particular category of
users or (4) are not in accordance with the agency's strategic business
plan.

^29Congressional Research Service, Federal Aviation Administration
Reauthorization: An Overview of Selected Provisions in Proposed
Legislation (Washington, D.C.: Mar. 14, 2007).

The authorization of limited borrowing authority (up to $5 billion) for
FAA in the administration's proposal seems unlikely to have a major effect
on FAA's ability to pay for capital investment associated with moving to
NextGen, because the payback period is relatively short. With a maximum
payback period of 5 years, the advantage of matching the time period for
paying for a capital investment with the time period in which the benefits
of that investment are realized is unlikely to be achieved. As a result,
the advantage of this type of borrowing compared to appropriations also
funded by Treasury debt is less clear. In either case, user fee
collections could offset the borrowing. However, it is possible that
having FAA borrow from the Treasury with a relatively short time period
for repayment could serve as a way to tighten and make more explicit the
link between the borrowing and the fees that are the source of
repayment--and could ensure that the fees were set at a level sufficient
to provide the needed funds.

Limiting FAA's authority to borrow from the Treasury and collecting
revenue from user fees, as proposed, is preferable to giving FAA direct
access to capital markets or repaying debt with appropriations or new
borrowing. The Treasury can borrow at lower interest rates than FAA could
achieve by going to the capital markets because Treasury securities are
considered risk-free, since they are backed by the federal government. We
have recommended that only those agencies that would be able to repay
their borrowing through revenue collections be granted authority to
borrow. In addition, we have reported that debt financing raises issues
about borrowing costs that are particularly important in light of the
federal government's long-term structural fiscal imbalance. Mandatory
federal commitments to health and retirement programs will consume an
ever-increasing share of the nation's gross domestic product and federal
budgetary resources. Accordingly, any program or policy change that may
increase costs requires sound justification and careful consideration
before adoption.

Observations on Proposed Changes to the Budget Structure and on the Method for
Determining the General Fund Contribution

The reauthorization proposal to align FAA's budget accounts with FAA's
lines of business has advantages and disadvantages. Such a restructuring
is consistent with FAA's emphasis on aligning revenues and costs and could
allow FAA to more specifically distinguish those funding options that
provide a better links between costs and revenues. For example, an ATO
account dedicated to the operation, maintenance, and upgrade of the NAS
could better enable the agency to charge for direct usage of the NAS. In
addition, such a system could show the costs attributable to each line of
business, thereby supporting the agency's internal financial management.
However, some FAA activities may not be clearly divisible into discrete
categories. For example, one new account--the Safety and Operations
account--includes safety-related activities. Nonetheless, there could be
some ambiguity in how safety activities are defined and in how their costs
should be allocated between aviation users which benefit directly from a
safe air traffic control system and the public which receives general
safety benefits.

Linking the General Fund contribution to FAA's budget, as the
administration is proposing, would explicitly recognize that users of the
system are not the only beneficiaries of it. Such an approach allows for a
"bottom up" calculation of the General Fund contribution that is based on
the different public benefits that FAA provides, such as safety and use of
the NAS by federal agencies. This approach is different from the current
one, which bases the General Fund contribution on how much money is left
in the Trust Fund to fund the Operations account after Trust Fund revenues
for that particular year have been allocated to fund the F&E, AIP, and
RE&D accounts. An approach that links a General Fund contribution to
public benefits is consistent with the principle of public finance that
public benefits should come from the General Fund and not from user
contributions. This should not, however, be viewed as a precise
determination. Some aviation activities, such as safety, benefit both
users and the nonuser public. Others, such as a national airport system
that includes small airports that receive federal grants, may be seen as a
benefit solely to the users of those airports, to their communities, or to
the broader public. In addition, such a change in the method of
determining the General Fund contribution may result in an increase or a
decrease in that contribution, which would have implications for how
aviation activities are funded.

Concluding Observations

The administration has introduced a complex proposal for funding FAA, and
we believe that it deserves serious and thoughtful consideration. Adopting
this proposal is not necessary to provide more money to FAA if Congress
thinks that additional spending on aviation is needed to address air
traffic increases and new investment demands, including NextGen, because
additional funding can be provided within the current structure. However,
given the current federal fiscal imbalance, appropriating additional funds
to aviation may be difficult. Furthermore, the proposal may address some
of the concerns that FAA and other stakeholders have raised with the
current funding structure, such as equity, but only if the cost allocation
from which the cost-based funding is derived is sound. FAA's cost
allocation methodology is new and has raised issues, suggesting that
further analysis and more time may be needed to reach a consensus as to
whether it is sufficiently sound to support a cost-based funding structure
for FAA.

In the meantime, the taxes that currently provide most of the revenue for
FAA are scheduled to expire at the end of the current fiscal year. Given
the relatively low uncommitted balance in the Trust Fund, a lapse in tax
revenues could affect the funding of most FAA activities. Thus, timely
reauthorization of the current tax revenues to avoid a tax lapse is
critical even if Congress chooses to continue its consideration of the
administration's proposal or other alternatives for funding FAA beyond
this fiscal year.

Mr. Chairman, this concludes my prepared statement. I would be pleased to
respond to any questions that you or other Members of the subcommittee
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 Jay Cherlow, Ed Laughlin, Maureen Luna-Long, Maren McAvoy,
Jennifer Kim, and Elizabeth Eisenstadt.

(540145)

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-07-625T

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-07-625T, a testimony before the Subcommittee on
Aviation, Committee on Transportation and Infrastructure, House of
Representatives

March 21, 2007

FEDERAL AVIATION ADMINISTRATION

Observations on Selected Changes to FAA's Funding and Budget Structure in
the Administration's Reauthorization Proposal

Funding Structure: The current funding structure has supported FAA as
FAA's budget has grown, and it can continue to do so to fund planned
modernization. Excise tax revenues are forecasted to increase if the
current taxes are reauthorized without change and thus could support
additional spending. If necessary, Congress can obtain more revenue by
increasing the excise tax rates or the General Fund contribution to FAA's
budget, although the nation's fiscal imbalance could make such an increase
difficult. FAA is concerned because revenues from the current funding
structure depend primarily on ticket prices and passenger numbers, which
are not well linked to FAA's workload and costs. The proposed new funding
structure would link revenues more closely with costs to ensure that
revenues rise with increases in FAA's air traffic control and safety
activities. According to FAA, cost-based user charges would also be more
equitable and could create incentives for more efficient use of the system
by aircraft operators. How well FAA's proposed funding structure, if
enacted, would achieve these goals is uncertain because it depends on two
unknowns--the soundness of a new FAA cost allocation methodology and the
extent to which the proposed structure links revenues to costs. Also
uncertain are the adequacy of FAA's proposed fuel tax rate to collect
anticipated revenues, the implications of a proposed advisory board, and
the impact of a proposal to give FAA limited debt-financing authority.
Furthermore, GAO notes, user charges would reduce Congress's role in
setting revenues.

Budget Structure: Modifying FAA's budget accounts is consistent with FAA's
emphasis on aligning revenues and costs, but may present implementation
issues, in that some FAA activities may be difficult to categorize. More
specifically, the proposed restructuring could allow FAA to better
identify funding options that link revenues and costs and may improve
transparency by showing how much is being spent on specific FAA
activities. However, some activities, such as those related to safety, may
not lend themselves to placement in discrete categories. Linking the
General Fund contribution to public benefits is appropriate, but since
some activities may provide both public and private benefits, judgment
rather than a precise calculation may determine the contribution.

Concluding Observations: The administration has introduced a complex
proposal for funding FAA that GAO believes deserves serious and thoughtful
consideration. While not necessary to provide more money for FAA, the
proposed structure may address some of the concerns raised by the current
structure if its cost allocation is sound. Because FAA's cost allocation
model is new, further analysis and more time may be needed to determine
whether it can adequately support a cost-based funding structure for FAA.
Timely reauthorization of funding for FAA for at least the next year is,
however, critical to prevent a lapse in funding for most FAA activities,
regardless of the action taken on the proposed changes.

Recently, the administration submitted a proposal for reauthorizing the
Federal Aviation Administration (FAA) and the excise taxes that fund most
of its budget. FAA's current authorization expires in 6 months. The
proposal calls for major changes to FAA's funding and budget structure
that are intended to address concerns about the long-term revenue
adequacy, equity, and efficiency of FAA's current funding structure and to
provide a more stable, reliable basis for funding a new air traffic
control system that FAA is developing (at an estimated cost of $15 billion
to 22 billion through 2025) to meet forecasted increases in air travel
demand. The proposal would introduce cost-based charges for commercial
users of air traffic control services, eliminate many current taxes,
substantially raise fuel taxes for general aviation users, charge
commercial and general aviation users a fuel tax to pay primarily for
airport capital improvements, modify FAA's budget accounts to align with
specific FAA activities, and link the portion of FAA's budget that comes
from the Treasury's General Fund with public benefits FAA provides.

This statement offers GAO's observations on the proposed changes in FAA's
(1) funding and (2) budget structure and is based on GAO's analysis of
FAA's proposal and a recent GAO report on FAA funding options.

References

Visible links
  18. http://www.gao.gov/cgi-bin/getrpt?GAO-06-973
  19. http://www.gao.gov/cgi-bin/getrpt?GAO-06-973
*** End of document. ***