Airport and Airway Trust Fund: Effects of the Trust Fund Taxes' Lapsing
on FAA's Budget (Letter Report, 04/15/96, GAO/RCED-96-130).

Pursuant to congressional request, GAO reviewed the Federal Aviation
Administration's (FAA) Airport and Airway Trust Fund, focusing on the
FAA budget implications of reinstating the taxes that support the fund.

GAO found that: (1) between fiscal year (FY) 1990 and FY 1996, the Fund
has financed all of FAA Grants-in-Aid for the Airport Improvement
Program, Facilities and Equipment, and Research, Engineering, and
Development accounts and half of the FAA Operations account; (2) the
Fund can meet its $5.7 billion FAA FY 1996 budget responsibility; (3) if
Congress approves the President's FY 1997 FAA budget of $8.1 billion,
the Fund would be able to finance only a portion of the budget because
the taxes that support the Fund no longer exist; (4) if the taxes that
support the Fund are reinstated by December 1996, it could meet its
$6.1-billion FY 1997 budget responsibility; and (5) if the taxes that
support the Fund are not reinstated by December 1996, it will incur
monthly deficits of $550 million through FY 1997.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-96-130
     TITLE:  Airport and Airway Trust Fund: Effects of the Trust Fund 
             Taxes' Lapsing on FAA's Budget
      DATE:  04/15/96
   SUBJECT:  Trust funds
             Airports
             Budget administration
             Budget receipts
             Federal taxes
             Airline industry
             Excise taxes
             Presidential budgets
IDENTIFIER:  Airport and Airway Trust Fund
             FAA Grants-in-Aid for Airports Program
             FAA Airport Improvement Program
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Subcommittee on Transportation
and Related Agencies, Committee on Appropriations, House of
Representatives

April 1996

AIRPORT AND AIRWAY TRUST FUND -
EFFECTS OF THE TRUST FUND TAXES'
LAPSING
ON FAA'S BUDGET

GAO/RCED-96-130

Effects of the Trust Fund Taxes' Lapsing on FAA's Budget

(341489)


Abbreviations
=============================================================== ABBREV

  FAA - Federal Aviation Administration
  GAO - General Accounting Office

Letter
=============================================================== LETTER


B-271675

April 15, 1996

The Honorable Ronald D.  Coleman
Ranking Minority Member
Subcommittee on Transportation and
 Related Agencies
Committee on Appropriations
House of Representatives

Dear Mr.  Coleman: 

The Airport and Airway Trust Fund (Trust Fund) was established by the
Airport and Airway Revenue Act of 1970 (P.L.  91-258) to finance the
Federal Aviation Administration's (FAA) investments in the airport
and airway system, such as construction and safety improvements at
airports and technological upgrades to the air traffic control
system.  The act further provided that FAA's operating cost could be
financed from the Trust Fund.  Since 1990, the Trust Fund has
provided about $42 billion for these purposes.  The Trust Fund was
financed from taxes on domestic and international airline travel,
domestic cargo transported by air, and noncommercial aviation fuels
until these taxes expired on December 31, 1995. 

In March 1996, you requested that we provide you with information on
the status of the Trust Fund, including the implications of
reinstating or not reinstating the taxes on FAA's budget. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Although the taxes that financed the Trust Fund have expired, the
money available in the Trust Fund is sufficient to finance its
portion of FAA's fiscal year 1996 budget as enacted.  With no tax
receipts, FAA estimates that the Trust Fund money available at the
end of fiscal year 1996 would total $600 million.  FAA also estimates
that the taxes would have to be reinstated no later than December
1996 to enable the Trust Fund to finance $6.1 billion of FAA's $8.1
billion fiscal year 1997 budget as requested, with the General Fund
financing the remainder.  For each full month beyond December 1996
that passes with no tax receipts, an additional $550 million would be
needed from the General Fund to finance FAA's fiscal year 1997
budget. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Although FAA is authorized to make expenditures from the Trust Fund
through the end of fiscal year 1996,\1 the taxes that finance the
Trust Fund lapsed on December 31, 1995.  Also, the authority to
transfer the tax receipts from the Treasury to the Trust Fund for
FAA's use expired on December 31, 1995.\2 At expiration, the tax
rates were 10 percent of the amount paid on airline tickets for
travel in the United States, $6 per passenger on each flight from the
United States to an international destination, 6.25 percent of the
amount paid to transport domestic cargo by air, 15 cents per gallon
for noncommercial aviation gasoline, and 17.5 cents per gallon for
noncommercial jet fuel.  Receipts from these taxes have averaged
about $5 billion annually in recent years.  FAA estimates that
receipts would have been about $6 billion in fiscal year 1996 had the
taxes not lapsed. 


--------------------
\1 26 U.S.C.  section 9502(d)(1). 

\2 Without transfer authority, the tax receipts remain in the General
Fund.  FAA estimates that about $400 million in taxes levied from
October through December 1995 were not received by the Treasury until
after December 31, 1995, and therefore remain in the General Fund. 
FAA also estimates that $200 million in receipts from October through
December 1995 may be refunded to taxpayers for airline tickets
purchased before January 1, 1996, for travel on or after that date. 


   FINANCING FAA FROM THE TRUST
   FUND
------------------------------------------------------------ Letter :3

In fiscal years 1990 through 1996, the Trust Fund has financed 100
percent of three FAA accounts--Grants-in-Aid for Airports (the
Airport Improvement Program); Facilities and Equipment; and Research,
Engineering, and Development.  Also, in this period, the Trust Fund
has generally financed about half of FAA's fourth
account--Operations--with the remainder of this account financed by
the General Fund.  (See app.  I for FAA's historical funding levels.)

Although the taxes expired, the Trust Fund has sufficient funds to
finance its portion of FAA's fiscal year 1996 budget as enacted; the
Trust Fund is providing $5.7 billion, and the General Fund is
providing $2.4 billion.  However, without tax receipts, FAA estimates
that the Trust Fund's uncommitted balance\3 would be $600 million at
the end of fiscal year 1996.\4 The President requested $8.1 billion
in budget authority to finance FAA in fiscal year 1997, including
$6.1 billion from the Trust Fund\5 and $2 billion from the General
Fund.  Therefore, if the Congress approves this budget and no taxes
are collected, FAA's fiscal year 1997 budget would have to be
financed almost entirely from the General Fund.\6

If the taxes were reinstated by December 1996, FAA estimates that the
Trust Fund could finance $6.1 billion of FAA's fiscal year 1997
budget as requested.  FAA also estimates that for each full month
beyond December 1996 that passes with no taxes, an additional $550
million would be needed from the General Fund.  Any revenue
shortfalls may require additional financing from the General Fund. 
Figure 1 shows the Trust Fund's end-of-fiscal-year-1996 uncommitted
balance if the taxes were reinstated by various dates.  (See app.  II
for an analysis of how various tax reinstatement dates would affect
the Trust Fund's uncommitted balance in future fiscal years.)

   Figure 1:  Trust Fund's
   Estimated Uncommitted Balance
   at the End of Fiscal Year 1996
   If the Taxes Were Reinstated by
   Various Dates

   (See figure in printed
   edition.)

Source:  FAA. 


--------------------
\3 The Trust Fund's uncommitted balance represents money against
which there is no outstanding budget commitment in the form of budget
authority or authority to spend.  This balance, subject to
congressional approval, is the amount available in the Trust Fund to
finance FAA in future fiscal years. 

\4 FAA's estimate of the Trust Fund's end-of-fiscal-year-1996
uncommitted balance does not include $764 million in contract
authority for the Airport Improvement Program that the Congress could
rescind and return to the Trust Fund's uncommitted balance.  This
amount is the difference between the program's fiscal year 1996
obligation limitation level of $1.45 billion and contract authority
level of $2.214 billion. 

\5 The President's budget assumed that the Trust Fund would finance
75 percent of FAA's fiscal year 1997 budget. 

\6 S.  1239 and H.R.  2403, "Air Traffic Management System
Performance Act of 1995," were introduced in the 104th Congress. 
These bills set forth a process that could permit FAA to charge user
fees for the services it provides. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :4

We provided copies of a draft of this report to Department of
Transportation and FAA officials.  We met with these officials for
their review and comment, including the Director, Office of Aviation
Policy and Plans, and the Director, Office of Financial Services. 
The officials reviewed the draft report and provided us with oral
comments, including clarifying information, which we incorporated
into the text as necessary. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :5

We obtained information for this report from documents obtained from
FAA and interviews and discussions with various FAA officials.  For
our analysis of the implications of reinstating the taxes, we used
the rates in effect as of December 31, 1995, when the taxes lapsed. 
For FAA's funding levels, we used the agency's enacted fiscal year
1996 budget and the President's fiscal year 1997 budget request for
FAA, which includes future funding targets through fiscal year 2002. 

For our analysis in appendix II on how reinstating the taxes by
various dates would affect the uncommitted balance of the Trust Fund
in fiscal years 1997 through 2002, we assumed the Trust Fund would
contribute either 70 percent, 75 percent, or 85 percent of FAA's
budget.  The 70-percent and 75-percent levels are based on FAA's
recent funding levels from the Trust Fund, as provided by the
Congress.  The 85-percent level is based on studies by FAA that show
this level represents the costs for the agency to serve nongovernment
users of the aviation system. 

This report does not discuss the implications of the Trust Fund
taxes' lapsing on the federal budget deficit and debt.  We performed
our review in March and April 1996 in accordance with generally
accepted government auditing standards. 


---------------------------------------------------------- Letter :5.1


As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 7 days from its issue date.  At that time, we will send copies
to the Secretary of Transportation and the Administrator, Federal
Aviation Administration.  We will also make copies available to
others on request.  Please call me at (202) 512-2834 if you have any
questions about this report.  Major contributors to this report are
listed in appendix III. 

Sincerely yours,

John H.  Anderson, Jr.
Director, Transportation and
 Telecommunications Issues


FAA'S FUNDING HISTORY, FISCAL
YEARS 1990-96
=========================================================== Appendix I

                              (Dollars in millions)


FAA
account         1990      1991      1992      1993      1994      1995      1996
----------  --------  --------  --------  --------  --------  --------  --------
Operations    $3,824    $4,036    $4,360    $4,530    $4,580    $4,572    $4,643
(General     (3,017)   (2,033)   (2,250)   (2,251)   (2,285)   (2,122)   (2,420)
 Fund)
(Trust        ( 807)   (2,003)   (2,110)   (2,279)   (2,295)   (2,450)   (2,223)
 Fund)
Percentage       21%       50%       48%       50%       50%       54%       48%
 from the
 Trust
 Fund
Airport       $1,425    $1,800    $1,900    $1,800    $1,690    $1,450    $1,450
 Improveme
 nt
 Program
 (Obligati
 on
 Limitatio
 n)
Facilities    $1,721    $2,095    $2,409    $2,302    $2,055    $1,960    $1,875
 and
 Equipment
Research,       $170      $205      $218      $230      $254      $252      $186
 Engineeri
 ng, and
 Developme
 nt
================================================================================
Total         $7,140    $8,136    $8,887    $8,862    $8,579    $8,234    $8,154
(General     (3,017)   (2,033)   (2,250)   (2,251)   (2,285)   (2,122)   (2,420)
 Fund)
(Trust       (4,123)   (6,103)   (6,637)   (6,611)   (6,294)   (6,112)   (5,734)
 Fund)
Percentage       58%       75%       75%       75%       73%       74%       70%
 from the
 Trust
 Fund
--------------------------------------------------------------------------------
Note:  Figures represent budget authority adjusted for obligation
limitations and rescissions. 

Source:  FAA. 


TRUST FUND'S ESTIMATED UNCOMMITTED
BALANCE IF THE TAXES WERE
REINSTATED, FISCAL YEARS 1997-2002
========================================================== Appendix II

                               (Dollars in billions)



Fi
sc
al
ye   FAA's    June    Aug.    Oct.    June    Aug.    Oct.    June    Aug.    Oct.
ar  budget    1996    1996    1996    1996    1996    1996    1996    1996    1996
--  ------  ------  ------  ------  ------  ------  ------  ------  ------  ------

19    $8.1   $ 3.7   $ 2.6   $ 1.5   $ 3.2   $ 2.2   $ 1.1    $2.4    $1.3    $0.2
 97
19     8.1     5.2     4.0     2.9     4.3     3.2     2.0     2.6     1.5     0.3
 98
19     8.0     7.2     6.0     4.7     5.9     4.7     3.4     3.3     2.1     0.8
 99
20     8.0     9.7     8.4     7.1     8.0     6.7     5.3     4.4     3.1     1.8
 00
20     8.3    12.6    11.2     9.8    10.3     8.9     7.5     5.7     4.3     3.0
 01
20     8.6    15.8    14.4    12.9    12.9    11.5    10.0     7.2     5.8     4.3
 02
----------------------------------------------------------------------------------
Note:  The uncommitted balances do not include $764 million in
unobligated contract authority for the Airport Improvement Program. 
Also, the uncommitted balances reflect some spending on non-FAA
programs, including Essential Air Service and rent to the General
Services Administration.  Finally, the uncommitted balances vary from
those contained in the President's budget because FAA used more
conservative interest assumptions. 

Source:  FAA. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION

Michael G.  Burros
Charles R.  Chambers
Gerald L.  Dillingham
Robert E.  Levin
John T.  Noto
Randall B.  Williamson


*** End of document. ***