Airport and Airway Trust Fund: Issues Raised by Proposal to Replace the
Airline Ticket Tax (Letter Report, 12/09/96, GAO/RCED-97-23).

Pursuant to a congressional request, GAO examined the proposal by a
coalition of the seven largest U.S. airlines to replace the ticket tax
with user fees, focusing on: (1) whether the ticket tax should be
replaced by a different fee system; (2) what the potential competitive
impacts of the fees proposed by the coalition airlines would be; (3)
what factors need to be considered if a new fee system were to be
developed; and (4) the implications on the Federal Aviation
Administration's (FAA) budget of reinstating or not reinstating the
taxes that finance the Airport and Airway Trust Fund.

GAO found that: (1) because the ticket tax is based on the fares paid by
travelers and not an allocation of actual FAA costs, it may not fairly
allocate the system's costs among the users; (2) the coalition airlines'
proposal to replace the ticket tax with user fees only incorporates
factors that would substantially increase the fees paid by low-fare and
small airlines and decrease the fees paid by the seven coalition
airlines; (3) the proposal would dramatically redistribute the cost
burden among airlines and could have substantial implications for
domestic competition; (4) any replacement system for the ticket tax
would need to account for the wide range of costs incurred by FAA in
managing the airport and airway system; (5) the views of all affected
parties, not just any particular group of airlines, would need to be
included in assessing the mechanisms for financing the airport and
airway system; and (6) Congress established a commission to study how
best to meet FAA financing needs which will help ensure that, in the
long term, FAA has a secure funding source, commercial users of the
system pay their fair share, and a strong, competitive airline industry
continues to exist.

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

 REPORTNUM:  RCED-97-23
     TITLE:  Airport and Airway Trust Fund: Issues Raised by Proposal to 
             Replace the Airline Ticket Tax
      DATE:  12/09/96
   SUBJECT:  Commercial aviation
             Airline industry
             Excise taxes
             Competition
             Airports
             Future budget projections
             Air traffic control systems
             Air transportation operations
             User fees
IDENTIFIER:  Airport and Airway Trust Fund
             
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Cover
================================================================ COVER


Report to Congressional Requesters

December 1996

AIRPORT AND AIRWAY TRUST FUND -
ISSUES RAISED BY PROPOSAL TO
REPLACE THE AIRLINE TICKET TAX

GAO/RCED-97-23

FAA Financing

(341515)


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

  CEO -
  DOT -
  FAA -

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


B-275327

December 5, 1996

Congressional Requesters

In fiscal year 1996, nearly three-quarters of the Federal Aviation
Administration's (FAA) funding came from the Airport and Airway Trust
Fund, and the balance came from the General Fund of the U.S. 
Treasury.  Since its creation in 1970, the Trust Fund's primary
source of revenue has been a tax on domestic airline tickets. 
Currently, the tax is 10 percent of the fares paid.  While relatively
easy to administer, the ticket tax has been challenged by the
nation's largest airlines as unfair in a deregulated environment
where other competing airlines often charge much lower fares.  The
government's authority to collect the ticket tax lapsed on December
31, 1995.  In May 1996, a coalition of the seven largest U.S. 
airlines proposed replacing the tax with user fees, which they
believe would more accurately charge each airline for the costs that
its operations impose on the airport and airway system.\1

In August 1996, the Congress reinstated the ticket tax through
December 31, 1996, when it will lapse again.  FAA estimates that the
money available in the Trust Fund at the end of the year will be
sufficient to finance the Trust Fund's portion of FAA's budget until
early July 1997.\2 You asked us to examine the issues raised by the
coalition's proposal, including (1) whether the ticket tax should be
replaced by a different fee system, (2) what the potential
competitive impacts of the fees proposed by the coalition airlines
would be, and (3) what factors need to be considered if a new fee
system were to be developed.  Also, at your request, we have updated
our April 1996 report on the status of the Trust Fund,\3

including the implications on FAA's budget of reinstating or not
reinstating the taxes that finance the Trust Fund.  (See app.  I.)


--------------------
\1 In this report, we use the term "user fee" in a general sense to
describe either a fee or tax designed to charge users for the costs
of government services they consume.  Whether the monies are
classified as a tax or a user fee affects the congressional
committees that have jurisdiction over them.  We are not suggesting
how the monies collected should be treated for budgetary purposes. 
It is more appropriate for the Congress to make such determinations. 

\2 According to a recent report prepared by the Joint Committee on
Taxation (Present Law and Background Information on Federal
Transportation Excise Taxes and Trust Fund Expenditure Programs, Nov. 
14, 1996), the Trust Fund's cash balance will reach $0 early in
fiscal year 1998.  This estimate does not distinguish between the
cash balance available to pay outstanding commitments and the cash
balance available to make new commitments.  In contrast, FAA's
estimates distinguish between these cash balances.  According to FAA,
under current law, the Trust Fund cash balance available to make new
commitments will reach $0 by early July 1997.  Trust Fund money would
be available to meet all unpaid commitments made by early July 1997. 

\3 Airport and Airway Trust Fund:  Effects of the Trust Fund Taxes'
Lapsing on FAA's Budget (GAO/RCED-96-130, Apr.  15, 1996). 


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

As constraints on federal spending grow, the concept of directly
charging users for the costs of the government services that they
consume is increasingly attractive.  Over the past several years, we
have noted that commercial users of the nation's airspace should pay
their fair share of the costs that they impose on the system, and we
have identified some areas, such as the certification of new
airlines, where additional fees could be justified.  Because the
ticket tax is based on the fares paid by travelers and not an
allocation of FAA's actual costs, it may not fairly allocate the
system's costs among the users. 

The coalition airlines' proposal to replace the ticket tax with user
fees, however, only incorporates factors that would substantially
increase the fees paid by low-fare and small airlines and decrease
the fees paid by the seven coalition airlines.  As a result, the
proposal would dramatically redistribute the cost burden among
airlines and could have substantial implications for domestic
competition. 

If the Congress decides to replace the ticket tax with a different
fee system, such a system would need to account for the wide range of
costs incurred by FAA in managing the airport and airway system,
which vary greatly by the amount, type, and timing of various airline
operations.  In addition, the views of all affected parties--not just
any particular group of airlines--would need to be included in
assessing the mechanisms for financing the airport and airway system. 
Recognizing this, the Congress in October 1996 established a
21-member commission to study how best to meet FAA's financing
needs.\4 Such a broad-based study will help ensure that, in the
long-term, FAA has a secure funding source; commercial users of the
system pay their fair share; and a strong, competitive airline
industry continues to exist. 


--------------------
\4 The commission was created by the Federal Aviation Reauthorization
Act of 1996 (P.L.  104-264). 


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

The Airport and Airway Trust Fund was established by the Airport and
Airway Revenue Act of 1970 (P.L.  91-258) to finance FAA's
investments in the airport and airway system, such as construction
and safety improvements at airports and technological upgrades to the
air traffic control system.  Historically, about 87 percent of the
tax revenues for the Trust Fund have come from a tax on domestic
airline tickets.  The remainder of the Trust Fund is financed by a $6
per passenger charge on flights departing the United States for
international destinations, a 6.25-percent charge on the amount paid
to transport domestic cargo by air, a 15-cents-per-gallon charge on
purchases of noncommercial aviation gasoline, and a
17.5-cents-per-gallon charge on purchases of noncommercial jet fuel. 


   TICKET TAX MAY NOT FAIRLY
   ALLOCATE THE SYSTEM'S COSTS
   AMONG ITS USERS
------------------------------------------------------------ Letter :3

FAA is responsible for a wide range of functions, which range from
certifying new aircraft; to inspecting the existing fleet; to
providing air traffic services, such as controlling takeoffs and
landings and managing the flow of aircraft between airports.  Over
the past decade, the growth of domestic and international air travel
has greatly increased the demand for FAA's services.  At the same
time, FAA must operate in an environment of increasingly tight
federal resources. 

In this context, we have generally supported FAA's consideration of
charging commercial users for the agency's services.  In particular,
we have previously suggested that FAA examine the feasibility of
charging fees to new airlines for the agency's certification
activities and to foreign airlines for flights that pass through our
nation's airspace.\5 Similarly, we have reported our view that the
various commercial users of the nation's airspace and airports should
pay their fair share of the costs that they impose on the system.  In
addition, to ensure full cost recovery, we have suggested that FAA
consider raising the fees that it charges for the certification and
surveillance of foreign repair stations.\6

Because the various taxes that make up the Trust Fund are not based
on factors that directly relate to the system's costs, the extent to
which the current financing system charges users according to their
demand on the system is open to question.  For example, two airlines
flying the same number of passengers on the same type of aircraft
from Minneapolis, Minnesota, to Des Moines, Iowa, at the same time of
day will impose the same costs on the airport and air traffic control
system.  However, because the ticket tax is based on the fares paid,
the airline that charges the lower fares in this example will pay
less for the system's use, even though both airlines had the same
number of takeoffs and landings and flew the same number of
passengers, the same type of aircraft, and the same distance. 


--------------------
\5 Certification of New Airlines:  Department of Transportation Has
Taken Action to Improve Its Certification Process (GAO/RCED-96-8,
Jan.  11, 1996) and Management Reform:  Implementation of the
National Performance Review's Recommendations (GAO/OCG-95-1, Dec.  5,
1994). 

\6 In 1996, the Congress authorized FAA to collect $100 million in
user fees for (1) air traffic control and related services to
nongovernmental aircraft that fly over but do not takeoff or land in
the United States and (2) any other services provided to a foreign
government.  FAA must use up to $75 million of the overflight fees
for its fiscal year 1997 budget.  Any overflight fees collected above
this level must be used for the Essential Air Service Program. 


   PROPOSAL BY LARGER AIRLINES
   WOULD INCREASE THE SHARE PAID
   BY OTHER AIRLINES AND HAVE
   SUBSTANTIAL COMPETITIVE IMPACTS
------------------------------------------------------------ Letter :4

Motivated by their belief that the current system unfairly subsidizes
their low-fare competitors, the nation's seven largest airlines have
proposed that the ticket tax be replaced by user fees on domestic
operations.  Under the proposal, airlines would pay fees for domestic
operations according to the following three-part formula:  (1) $4.50
per originating passenger, (2) $2 per seat on jet aircraft with 71 or
more seats and $1 per seat on jets and turboprop aircraft with 70 or
fewer seats, and (3) $0.005 per nonstop passenger mile.\7

By using two factors in particular--originating passengers and
nonstop passenger miles--the formula tends to favor the larger
airlines, which operate hub-and-spoke systems, at the expense of the
low-fare and small airlines, which tend to operate point-to-point
systems.  This relationship can best be shown by example.  Consider
the two possible routings between St.  Louis, Missouri, and Orlando,
Florida, shown in figure 1.  The "hubbing" airline first takes the
passenger to a hub, such as Chicago's O'Hare Airport, to connect to
another flight to Orlando.  The point-to-point carrier takes the St. 
Louis passenger nonstop to Orlando. 

   Figure 1:  Comparison of
   Potential Hubbing and
   Point-to-Point Service Options
   Between St.  Louis and Orlando

   (See figure in printed
   edition.)

The airline that lands at O'Hare to transfer the passenger to another
flight to Orlando has twice as many takeoffs and landings as the
airline that flies nonstop between St.  Louis and Orlando.  As a
result, the costs imposed by the hubbing airline on the air traffic
control system are greater.  However, by charging $4.50 per
"originating" passenger, the airline that flies the passenger from
St.  Louis to Orlando via O'Hare would pay the same amount as the
airline that flies the passenger nonstop between St.  Louis and
Orlando, even though the hubbing carrier puts a greater burden on the
system. 

In addition, by charging $0.005 per "nonstop passenger mile"--or the
straight-line distance between the points of origin and
destination--the formula does not charge the hubbing airlines for the
circuitous routings that are common to their hub-and-spoke
operations.  As a result, the airline transporting a passenger 297
miles from St.  Louis to O'Hare and then flying that passenger 1,157
miles to Orlando would be charged the same as an airline flying a
passenger nonstop from St.  Louis to Orlando, even though the hubbing
carrier placed a greater burden on the air traffic control system. 

Because the seven largest airlines operate hub-and-spoke systems and
most low-fare and small airlines operate point-to-point systems, the
proposed fee system would shift the financial burden away from the
larger airlines and onto their competitors.  For example, as figure 2
shows, on the basis of FAA's traffic forecasts for fiscal year 1997,
if the ticket tax were replaced by this proposal, the cost to the
nation's seven largest airlines would decrease by nearly $600
million, while the cost to Southwest Airlines, America West, and
other low-fare and small airlines would increase by nearly $550
million. 

   Figure 2:  Projected Change in
   the Amount Paid by Selected
   Airlines Under Large Airlines'
   User Fee Proposal Compared With
   the Ticket Tax, Fiscal Year
   1997

   (See figure in printed
   edition.)

Source:  GAO's analysis of data contained in the coalition airlines'
user fee proposal. 

In addition, the coalition's proposal would charge commuter carriers
$1 per seat while charging airlines $2 per seat.  Most major commuter
carriers are owned by or affiliated with one of the coalition
airlines; Continental Express, for example, is a wholly-owned
subsidiary of Continental Airlines.  As a result, by charging
commuter carriers less per seat, the proposal would provide the
coalition airlines with an additional benefit. 

Implementing a proposal that would shift nearly $600 million in costs
from one segment of the industry to another could have substantial
competitive impacts and needs to be studied first.  While the ticket
tax might provide low-fare airlines with a competitive advantage,
other public policies favor some large carriers.  For example, a few
large airlines control nearly all the takeoff and landing slots at
the four "slot-controlled" airports,\8

which give them an advantage over their competitors.  Simply
eliminating the potential "subsidy" to low-fare airlines created by
the ticket tax, while leaving the other policies in place that
provide some large airlines with a competitive advantage, might
result in higher fares and a reduction in service options for
consumers. 

In addition, the proposal as written could have a dramatic shift in
costs that could affect regions differently.  On the one hand,
consumers in regions such as the West and Southwest that have
benefitted from the entry of low-fare airlines could pay more than
they do under the ticket tax.  On the other hand, consumers in the
East and Upper Midwest, who have not experienced the entry of
low-fare airlines to the same extent, could pay relatively less. 

Nevertheless, under any fee system that incorporated common measures
of the system's usage, such as departures and aircraft miles flown,
it is likely that the relative share paid by low-fare airlines would
increase compared with what they pay now under the ticket tax.  In
1995, for example, Southwest accounted for 6.3 percent of the
airlines' payments under the ticket tax.  In that year, Southwest
accounted for 10 percent of the industry's departures and 7 percent
of the aircraft miles flown.  However, if only these two measures
were considered, Southwest's share would not increase to the same
extent as under the large airlines' proposal.  Under the coalition's
proposal, Southwest's share of the industry's contribution to the
Trust Fund would increase to 10.3 percent. 

A more precise fee system, however, would account for those costs
incurred by FAA in managing the airport and airway system, which vary
greatly by the amount, type, and timing of various airline
operations.  For example, the air traffic control costs imposed by a
flight arriving at 5 p.m.  at New York's congested LaGuardia
Airport--regardless if that flight involves a large jet or commuter
aircraft--are much greater than those imposed by a flight arriving at
noon at the noncongested airport in Des Moines.  Likewise, hubbing
operations at the nation's largest airports increase the peak service
demands on the airway system and increase FAA's operating and
staffing costs.  Neither the 10-percent ticket tax nor the largest
airlines' proposal accounts for these factors. 


--------------------
\7 Air Traffic Control User Fees:  A Proposal by the Coalition for
Fair FAA Funding, Revised June 7, 1996.  The coalition comprises the
seven largest airlines--American Airlines, Continental Airlines,
Delta Air Lines, Northwest Airlines, Trans World Airlines, United
Airlines, and USAir.  According to the proposal, the originating
passenger is determined on the basis of the beginning point of the
trip, irrespective of the number of takeoffs and landings made during
the journey. 

\8 To minimize flight delays, FAA limits the number of operations
(takeoffs and landings) that can occur during certain periods of the
day at four key congested airports--Chicago's O'Hare, Washington
National, and New York's Kennedy and LaGuardia.  The authority to
conduct a single operation during these periods is commonly referred
to as a "slot."


   FURTHER STUDY WITH BROADER
   INPUT NEEDED TO DETERMINE HOW
   BEST TO FINANCE FAA
------------------------------------------------------------ Letter :5

Determining how best to finance FAA involves complex issues,
requiring careful examination.  In addition, an evaluation of
alternative financing for FAA would need to involve the Department of
Transportation's (DOT) Office of Aviation and International Affairs. 
This office is responsible for evaluating the potential competitive
implications of any changes to our aviation system.  By changing what
each airline pays, any new funding mechanism will have ramifications
for airline competition that DOT would be better positioned to
examine for the Congress than FAA.  Likewise, DOT may also be better
positioned than FAA to determine the extent to which a new financing
mechanism might otherwise affect the aviation system. 

Recognizing the complexities associated with determining how best to
finance FAA, the Congress recently directed that the issues involved
be studied further.  Specifically, the Federal Aviation
Reauthorization Act (P.L.  104-264), enacted in October 1996,
requires FAA to contract with an independent firm to assess the
agency's funding needs and the costs occasioned by each segment of
the aviation industry on the airport and airway system.\9 This
assessment, which the contractor is required to complete by February
1997, will be a critical piece in designing a new fee system if the
Congress ultimately decides to replace the ticket tax. 

The 1996 act also created the National Civil Aviation Review
Commission, which is charged with studying how best to finance FAA in
light of the contractor's independent assessment of funding needs and
system costs.  The commission is to have 21 members--13 appointed by
the Secretary of Transportation and 8 appointed by the Congress--and
represent "a balanced view of the issues important to general
aviation, major air carriers, air cargo carriers, regional air
carriers, business aviation, airports, aircraft manufacturers, the
financial community, aviation industry workers, and airline
passengers."\10 The commission must report its findings and
recommendations to the Secretary of Transportation within 6 months of
receiving the contractor's independent assessment--in other words, by
August 1997.  After receiving the commission's report, the Secretary
of Transportation is required to consult with the Secretary of the
Treasury and report to the Congress by October 1997 on the
Administration's recommendations for funding the needs of the
aviation system through 2002. 


--------------------
\9 On November 18, 1996, FAA awarded a $900,000 contract to Coopers &
Lybrand to conduct the independent assessment. 

\10 The Federal Aviation Reauthorization Act of 1996 (P.L.  104-264,
sec.  274(b)). 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

We provided DOT with a draft copy of this report for review and
comment.  We discussed the draft with DOT officials, including the
Deputy Assistant Secretary for Aviation and International Affairs,
who stated that the agency was in complete agreement with the report. 
DOT also provided us with two comments, which we incorporated where
appropriate.  First, the agency noted that the coalition's proposal
also benefits the largest airlines by charging commuter carriers $1
per seat while charging airlines $2 per seat.  DOT pointed out that
because most of the commuter carriers are owned by or affiliated with
one of the coalition airlines, this differential would provide the
coalition airlines with an additional benefit.  Second, in our draft
report, we stated that FAA was completing work on its own cost
allocation study, which the agency expected to release by the end of
the year.  DOT commented, however, that because of the recent
congressional mandate that FAA contract with an independent firm to
undertake such an assessment, FAA would likely not release its study. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

We obtained information for this report from (1) documents and data
provided by DOT, FAA, and the coalition airlines and (2) our
discussions with representatives of the coalition as well as the
executives of several large carriers, including the CEO of American
Airlines, and representatives of low-fare and other smaller airlines,
including the CEO of Southwest Airlines.  For our analysis of the
implications of reinstating the taxes, we used the rates in effect as
of November 1996.  For FAA's funding levels, we used the agency's
enacted fiscal year 1997 budget.  We performed our review from June
through November 1996 in accordance with generally accepted
government auditing standards. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to the Secretary of
Transportation; the Acting Administrator, FAA; the Director, Office
of Management and Budget; and other interested parties.  We will send
copies to others upon request. 

If you or your staff have any questions, please call me at (202)
512-2834.  Major contributors to this report are listed in appendix
II. 

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

List of Requesters

The Honorable Larry Pressler
Chairman
The Honorable Ernest F.  Hollings
Ranking Minority Member
Committee on Commerce, Science,
 and Transportation
United States Senate

The Honorable John McCain
Chairman
The Honorable Wendell H.  Ford
Ranking Minority Member
Subcommittee on Aviation
Committee on Commerce, Science,
 and Transportation
United States Senate

The Honorable William V.  Roth, Jr.
Chairman, Committee on Finance
United States Senate

The Honorable James L.  Oberstar
Ranking Democratic Member
Committee on Transportation
 and Infrastructure
House of Representatives

The Honorable John J.  Duncan
Chairman
The Honorable William O.  Lipinski
Ranking Democratic Member
Subcommittee on Aviation
Committee on Transportation
 and Infrastructure
House of Representatives

The Honorable Bill Archer
Chairman, Committee on Ways and Means
House of Representatives


STATUS OF THE AIRPORT AND AIRWAY
TRUST FUND AND THE POTENTIAL
EFFECT ON FAA'S BUDGET OF THE
TRUST FUND'S TAXES LAPSING
=========================================================== Appendix I

During fiscal years 1990 through 1996, the Airport and Airway Trust
Fund 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, during this
period, the Trust Fund has, with the exception of fiscal year 1990,
financed about half of FAA's fourth account--Operations--and the
remainder of this account was financed by the General Fund.  Under
FAA's fiscal year 1997 budget, as enacted, the Trust Fund would
continue to finance 100 percent of three accounts and would finance
one-third of the Operations account if the taxes that finance the
Trust Fund are extended beyond December 31, 1996.\1

Table I.1 shows FAA's funding sources for fiscal years 1990 through
1996 and FAA's fiscal year 1997 budget as enacted. 



                                        Table I.1
                         
                            FAA Funding, Fiscal Years 1990-97

                                  (Dollars in millions)


FAA account                 1990    1991    1992    1993    1994    1995    1996  1997\a
------------------------  ------  ------  ------  ------  ------  ------  ------  ------
Operations                $3,824  $4,036  $4,360  $4,530  $4,580  $4,572  $4,643  $4,955
                                                                                       \
(General Fund)            (3,017  (2,033  (2,250  (2,251  (2,285  (2,122  (2,420  (3,255
                               )       )       )       )       )       )       )     )\b
(Trust Fund)               (807)  (2,003  (2,110  (2,279  (2,295  (2,450  (2,223  (1,700
                                       )       )       )       )       )       )       )
Percentage from the          21%     50%     48%     50%     50%     54%     48%     34%
 Trust Fund
Airport Improvement       $1,425  $1,800  $1,900  $1,800  $1,690  $1,450  $1,450  $1,460
 Program (Obligation
 Limitation)
Facilities and Equipment  $1,721  $2,095  $2,409  $2,302  $2,055  $1,960  $1,866  $1,938
Research, Engineering,      $170    $205    $218    $230    $254    $252    $186    $208
 and Development
========================================================================================
Total                     $7,140  $8,136  $8,887  $8,862  $8,579  $8,234  $8,145  $8,561
(General Fund)            (3,017  (2,033  (2,250  (2,251  (2,285  (2,122  (2,420  (3,255
                               )       )       )       )       )       )       )     )\b
(Trust Fund)              (4,123  (6,103  (6,637  (6,611  (6,294  (6,112  (5,725  (5,306
                               )       )       )       )       )       )       )       )
Percentage from the          58%     75%     75%     75%     73%     74%     70%     62%
 Trust Fund
----------------------------------------------------------------------------------------
Note:  Figures represent budget authority adjusted for obligation
limitations and rescissions. 

\a FAA's fiscal year 1997 budget as enacted. 

\b Under Public Law 104-205, FAA must use up to $75 million in user
fees charged for air traffic control and related services to
nongovernmental aircraft that fly over but do not takeoff or land in
the United States in lieu of General Fund financing. 

Source:  FAA. 

If the taxes that finance the Trust Fund are not extended beyond
December 31, 1996, the Trust Fund's balance available (referred to as
the uncommitted balance) will be below the level needed to finance
FAA's fiscal year 1997 budget as enacted.  Specifically, the Trust
Fund will be about $1 billion short of the funding needed to finance
its portion of FAA's fiscal year 1997 budget.  Therefore, the total
funding commitments that FAA can make are reduced by this amount. 

According to FAA's estimates, the Trust Fund could provide about
$4.28 billion for FAA's budget and $65 million for non-FAA
expenditures, thereby bringing the Trust Fund's total contribution to
about $4.35 billion.  However, FAA's budget as enacted calls for
$5.31 billion from the Trust Fund and $3.26 billion from the General
Fund.  FAA also estimates that, under current law, the Trust Fund
balance available will be $0 by early July 1997 if the taxes are not
reinstated (or the tax on airline tickets is not replaced by user
fees).\2 Table I.2 shows the Trust Fund's enacted share of FAA and
non-FAA budgets and the potential funding shortfall for fiscal year
1997. 



                               Table I.2
                
                 Trust Fund's Enacted Share of FAA and
                Non-FAA Fiscal Year 1997 Budgets and Its
                          Potential Shortfall

                         (Dollars in billions)

--------------------------------------------------  ------------------
Trust Fund's share of FAA's fiscal year 1997                    $5.306
 budget
Trust Fund's share of non-FAA expenditures in the                0.065
 Department of Transportation's fiscal year 1997
 budget
======================================================================
Total of Trust Fund's enacted share of fiscal year               5.371
 1997 budgets
Trust Fund's uncommitted balance at the end of                   2.366
 fiscal year 1996
Enacted fiscal year 1997 rescission of contract                  0.050
 authority for fiscal year 1996
Estimated taxes through December 1996 placed in                  1.371
 the Trust Fund before 1997
Estimated interest on the Trust Fund's balance                   0.560
======================================================================
Trust Fund money available to fund FAA and non-                  4.347
 FAA programs in fiscal year 1997
======================================================================
Potential shortfall under current law\a                         $1.024
----------------------------------------------------------------------
Note:  FAA's estimates are based on preliminary data for the end of
fiscal year 1996. 

\a This shortfall does not include $820 million in unobligated
contract authority for the Airport Improvement Program.  This amount
is the difference between the Airport Improvement Program's fiscal
year 1997 obligation limitation level of $1.46 billion and contract
authority level of $2.28 billion. 

Source:  FAA. 

Also, the authority to transfer the tax receipts from the Treasury to
the Trust Fund will expire on December 31, 1996.\3 As a result, some
taxes imposed late in 1996 will not be deposited in the Treasury
until 1997 and, therefore, cannot be transferred to the Trust Fund. 
FAA estimates that this amount will total about $300 million.\4 If
the Congress provides transfer authority for moving this $300 million
to the Trust Fund, then FAA estimates that the Trust Fund balance
available to finance FAA would not reach $0 until late July 1997 and
the potential shortfall would be reduced to $724 million. 

FAA officials estimate that in order for the Trust Fund to finance
$5.31 billion of FAA's fiscal year 1997 budget, the taxes would need
to be reinstated by July 1997.  However, according to FAA officials,
reinstatement by this date allows for almost no margin of error in
the agency's estimates of tax revenue.  Consequently, if revenue is
less than estimated, congressional action would be required to obtain
additional financing from the General Fund.  Also, the Trust Fund
balance available to finance FAA's fiscal year 1998 budget would
depend on when the taxes and transfer authority are reinstated, as
shown in figure I.1. 

   Figure I.1:  Trust Fund's
   Uncommitted Balance at the End
   of Fiscal Year 1997 to Finance
   FAA if the Taxes and Transfer
   Authority Were Reinstated by
   Various Dates

   (See figure in printed
   edition.)

Note:  These balances do not reflect the $820 million in unobligated
contract authority for the Airport Improvement Program.  If the
obligation limitation level were increased to include the $820
million, the balances would decrease by that amount.  Also, these
balances reflect some spending on non-FAA programs, including
Essential Air Service and rent to the General Services
Administration. 

Source:  FAA. 


--------------------
\1 The Trust Fund is financed from taxes on domestic airline tickets,
international air travel from the United States, domestic cargo
transported by air, and noncommercial aviation fuels. 

\2 According to the Joint Committee on Taxation, the Trust Fund's
cash balance will reach $0 early in fiscal year 1998.  This estimate
does not distinguish between the cash balance available to pay
outstanding commitments and the cash balance available to make new
commitments.  In contrast, FAA's estimates, which are used in our
analysis, distinguish between these cash balances. 

\3 Without transfer authority, the tax receipts remain in the General
Fund. 

\4 When the taxes and transfer authority lapsed on December 31, 1995,
$205 million of the taxes imposed in late 1995 were deposited in the
Treasury in 1996.  This money was transferred from the Treasury to
the Trust Fund after the Congress temporarily reinstated the transfer
authority in August 1996. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   RESOURCES, COMMUNITY, AND
   ECONOMIC DEVELOPMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:1

Charles R.  Chambers
Gerald L.  Dillingham
Timothy F.  Hannegan
Julian L.  King
Robert E.  Levin
Francis P.  Mulvey
John T.  Noto


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