Under the proposed system, funding for ATO  would come primarily from user charges on commercial aircraft and fuel  taxes on general aviation aircraft. The reauthorization proposal would also  create an advisory board and give FAA limited borrowing authority. 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. See table 2 for a comparison of the current and proposed FAA  budget structure. 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. 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. FAA  estimates that NextGen will cost between $15 billion to $22 billion through  2025. 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. 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. 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. 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. 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. 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. However, some FAA activities may not be clearly divisible into discrete  categories. 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. 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. 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. 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. Given the  relatively low uncommitted balance in the Trust Fund, a lapse in tax  revenues could affect the funding of most FAA activities.
Why GAO Did This Study

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.

What GAO Found

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.