The excise taxes are imposed on airline ticket purchases and  aviation fuel, as well as the shipment of cargo. FAA’s three capital accounts  include (1) the Facilities and Equipment account, which funds technological  improvements to the air traffic control system, including the modernization of  the air traffic control system called the Next Generation Air Transportation  System (NextGen); (2) the Research, Engineering, and Development  account, which funds research on issues related to aviation safety, mobility,  and NextGen technologies; and (3) the Airport Improvement Program (AIP),  which provides grants for airport planning and development. These provisions require that the total  budget resources made available each fiscal year from the trust fund— that is, the appropriation from the trust fund—equal the President’s  baseline budget projection, or forecast, for excise taxes and interest  credited to the trust fund for the coming fiscal year (budget year).2000, appropriations from the trust fund have generally followed the  forecast amounts, but they can, and have, varied—a point we discuss in  more detail later in this report. FAA  recently estimated the cost for NextGen for the agency to be between $15  billion and $22 billion, and another $5 billion to $7 billion for equipping aircraft  with NextGen technology, for fiscal years 2012 through 2025—much of  which will be funded from the trust fund. It Is Too Soon to Compare the Accuracy of FAA’s and Treasury’s Budget Year Forecasting Approaches

After just 1 year and without certified receipts for the fourth quarter of  2011, it is too soon to tell whether Treasury’s demand-based econometric  approach will provide more accurate revenue forecasts for the budget  year than FAA’s more detailed, capacity-based approach. Overforecasting of Revenues Due to Aviation Shocks and Other Factors Has Contributed to a Significant Decline in the Trust Fund’s Uncommitted Balance

		Overforecasting of Revenues for 9 of the Past 11 Years Has Contributed to a Decline in the Trust Fund’s Uncommitted Balance

During the past 11 years, FAA overforecasted trust-fund revenues by a  net total of $9.34 billion, with overforecasts in 9 of the 11 years. For example, for fiscal year 2005,   Congress appropriated $59 million less than the forecast revenues, and  the revenue forecast was $414 million higher than the actual revenues. Unexpected events causing changes in aviation demand or airline  capacity can considerably affect trust-fund revenues and the accuracy  of trust-fund revenue forecasts. Developed over a year in advance, the forecasts  often cannot account for the effects of unexpected events, such as the  September 11 attacks or changes in economic conditions. These various factors—exogenous shocks, the timing of forecasts, and  lags in recognizing structural changes to the airline industry—affect  forecast accuracy for key activity and pricing measures, such as  enplanements and ticket prices. Options Exist to Reduce, but Not Eliminate, the Risk of Overcommitting Trust-Fund Resources

Although the trust fund’s uncommitted balance was used to offset lower- than-forecast trust-fund revenues in the past, the current trust-fund  balance provides less protection against overcommitting trust-fund  resources. OMB, the Department of Transportation (DOT),  and FAA budget officials noted that if the trust fund were to become  overcommitted, there would be some time to determine what actions, if  any, FAA might have to take and to address this issue through the  appropriations process, given capital programs are paid for—or  outlayed—over several years and because the trust fund maintains a  cash balance ($9.4 billion as of the end-of-fiscal-year 2010), for which  revenues are continually paid into the trust fund. 658) includes a provision that would limit the budget resources  made available for appropriation from the trust fund to 90 percent, rather  than 100 percent, of forecast revenues and apply any differences  between actual trust-fund revenues and appropriations from the trust fund  to a subsequent year. These options would increase the likelihood  that uncommitted resources would be available to FAA if actual revenues  fell short of forecast revenues. In addition, these options could result in the availability of  fewer resources for some period of time than under current law, unless a  general-revenue appropriation made up the difference. The Extent to Which Trust-Fund Revenues Might Support Future FAA Expenditures Will Depend on Differing Assumptions and Other Factors

		The President’s Budget Forecasts Show FAA Expenditures Continuing to Exceed Trust-Fund Revenues

According to the President’s fiscal year 2012 budget request and mid- session review, FAA expenditures (as reflected by OMB’s estimates of  FAA’s budget authority) are expected to continue to exceed forecast trust- fund revenues through fiscal year 2021 (see fig. 7). 8). By contrast, applying the AIR-21 approach to current revenue and  expenditures forecasts would reduce the amount of additional general  revenues needed to cover forecast expenditures but would maintain the  current uncommitted balance level and still require some level of  additional general revenues or increases in aviation tax levels or sources  into the trust fund to fund FAA expenditures as compared to OMB’s  approach (fig. In particular,  congressional decisions, including the level of FAA’s appropriations or the  trust-fund tax structure; unexpected changes affecting trust-fund  revenues and FAA expenditures; and FAA’s implementation and  management of programs, such as NextGen, could significantly affect  trust-fund revenues and FAA expenditures in future years. Deciding on the appropriate mechanism for determining the level  of appropriations from the trust fund requires Congress to weigh trade- offs between the amount available for appropriations from the trust fund,  the amount of general revenues in a given year, and the overall level of  FAA expenditures, all while ensuring stable and sustainable funding for  aviation investment. Each entity provided technical comments that we  incorporated, as appropriate.
Why GAO Did This Study

Established in 1970, the Airport and Airway Trust Fund (trust fund) is the primary source of funding for the Federal Aviation Administrations (FAA) investments in the airport and airway system. Trust-fund revenues come largely from taxes on airline tickets and aviation fuel. The financial health of the trust fund is important to ensure sustainable funding for FAA without increasing demands on general revenues. Current law authorizes appropriations from the trust fund equal to forecast trust-fund revenues. However, if forecasts overestimate actual revenues and Congress appropriates the forecast level, the trust funds uncommitted balancethat is, the balance in excess of what has been appropriated from the fund or authorized as contract authorityis drawn down.
Among its objectives, GAO was asked to examine (1) the accuracy of the trust-fund revenue forecasts and factors affecting forecast accuracy, (2) different options for determining appropriations from the trust fund that would reduce the risk of overcommitting the fund, and (3) the extent to which trust-fund revenues might cover planned FAA expenditures through fiscal year 2021. GAO reviewed the Department of the Treasurys (Treasury) and FAAs forecasting methods, analyzed trust-fund revenue and forecast data, and interviewed federal officials and aviation-industry and forecasting experts. The Departments of Transportation and Treasury and the Office of Management and Budget provided technical comments, which GAO incorporated into the report as appropriate.

What GAO Found

Actual trust-fund revenues fell short of FAAs revenue forecasts for 9 of the past 11 years, contributing to a decline in the trust funds uncommitted balance from over $7 billion in fiscal year 2000 to $770 million in fiscal year 2010. Inaccurate forecasts for the taxes related to domestic passenger tickets, which account for over 70 percent of trust-fund revenues, drove the aggregate overforecast, but inaccurate forecasts for other taxes also had an effect. This inaccuracy is largely attributable to unexpected events affecting aviation, such as the terrorist attacks of September 11, 2001, and the recession in 2009; the budget process requiring the forecasts to be developed over a year in advance of the fiscal year; and lags in recognizing structural changes in the airline industry, such as airlines increased reliance on ancillary fees for which excise taxes for the trust fund are not collected. Changes in the methodology for forecasting trust-fund revenues and the assumption of forecasting responsibility by Treasury, begun in fiscal year 2011, may also affect the future accuracy of forecasts, but it is too soon to tell what effect the changes will have after just 1 fiscal year.
Alternative options for how Congress determines available resources for appropriation from the trust fund could provide for substantially greater protection against overcommitting trust-fund resourcesthat is, help ensure that trust-fund revenues would be sufficient to cover FAAs expendituresor requiring additional general-revenue contributions than the current approach outlined in law. To this end, Congress could limit budget resources available for appropriation from the trust fund to less than the forecast revenuesfor example, the current House FAA Reauthorization bill has a provision that would make only 90 percent of forecast revenues available for appropriation from the trust fund as well as any prior year differences between actual trust-fund revenues and appropriations from the trust fund. Other options would make only actual revenues from the prior year available, or base appropriations on the maintenance of a target level for the trust funds balance. However, unless a sufficiently large minimum balance is established, there would still be some risk of overcommitting trust-fund resources under these options. The alternatives could also result in greater swings in trust-fund appropriations, requiring varying levels of general revenues to maintain overall stable spending levels for FAA.
The extent to which trust-fund revenues might cover FAAs future expenditures will depend on whether trust-fund revenue and FAA expenditure forecasts are realized. Under current revenue and expenditure forecasts, between 8 percent and 32 percent of FAAs annual expenditures for fiscal years 2013 through 2021 could have to be paid for by general revenues unless spending is reduced or additional taxes are paid into the trust fund. However, congressional decisions, including the level of FAAs appropriations; unexpected events affecting trust-fund revenues and FAA expenditures; and FAAs implementation and management of programs could significantly change forecast revenues and expenditures in future years. For example, FAAs modernization of the air traffic control system, called the Next Generation Air Transportation System (NextGen), is currently estimated to cost FAA $15 billion to $22 billion, and an additional $5 billion to $7 billion for equipping aircraft with NextGen technology, but those costs could change depending upon the speed of implementation and other factors.