In fiscal year 2002, the Trust Fund received about $10 billion in revenue  from these taxes and interest. Table 2 breaks down the distribution of the funding among FAA programs  for each of the three expenditure scenarios through 2006. Projected Financial Outlook for the Trust Fund Is Positive but Depends on Realization of Forecasted Passenger Traffic Levels and Airfares

Over the next 3 years, the Trust Fund is projected to have sufficient  revenue to fund authorized spending and end each year with an  uncommitted balance under each of the three expenditure proposals. Suspending Some or All Taxes Accruing to the Trust Fund Would Reduce or Eliminate the Trust Fund’s Uncommitted Balance

Billions of Trust Fund revenue would be forgone if all taxes accruing to the  Trust Fund were suspended for 1 year. For example, a  passenger ticket tax holiday would decrease the Trust Fund’s uncommitted  balance from $4.8 billion in 2002 to $2 billion in 2003 and to $2.1 billion in  2004, while a fuel tax holiday would reduce it to $4.1 billion in 2003 and to  $4.2 billion in 2004. For example, a passenger ticket tax  holiday would cause the uncommitted balance to reach zero by October  2003. A tax holiday under the President’s proposal would have a greater effect  because that proposal would require the Trust Fund to support a larger  percentage of FAA Operations compared with the Senate’s and House’s  proposals. For example, as previously noted, a 1-year  all tax holiday starting in April 2003 would cause the uncommitted balance  of the Trust Fund to reach zero by October 2003 and might require FAA to  make significant spending cuts to the aviation programs supported by the  Trust Fund unless additional funding were authorized from the General  Fund. Although FAA would not have to terminate contracts under the House’s and  Senate’s proposals if there were a passenger ticket tax, flight segment tax,  or fuel tax holiday, FAA’ s ability to continue to fund its programs with  Trust Fund revenue would be affected under the President’s proposal if one  of these holidays were granted. Agency Comments

We provided the Department of Transportation with a draft of this report  for its review and comment. FAA officials agreed with information  contained in this report and provided some clarifying and technical  comments that we incorporated where appropriate. Scope and Methodology

To determine the projected financial status of the multibillion dollar  Airport and Airway Trust Fund (hereafter called the Trust Fund), we  obtained from the Federal Aviation Administration (FAA) the financial  projections for the Trust Fund that it had developed under the expenditure  proposals included in the President’s reauthorization proposal. We  subsequently asked FAA to develop similar projections using the  expenditure scenarios in the proposals from the Senate Committee on  Commerce, Science, and Transportation and the House Committee on  Transportation and Infrastructure, Subcommittee on Aviation. To assess the effect of various tax holidays on the financial status of the  Trust Fund, we asked FAA to develop additional financial projections  under various tax holiday scenarios. A cargo tax holiday in which the cargo waybill taxes are suspended. The following assumptions were also included in the analyses:  As requested in March 2003, we based our analysis on hypothetical tax  holidays that would have begun on April 1, 2003, and ended on April 1,  2004.
Why GAO Did This Study

The multibillion dollar Airport and Airway Trust Fund (Trust Fund) provides most of the funding for the Federal Aviation Administration (FAA). The Trust Fund relies on revenue from 10 taxes, including passenger ticket, fuel, and cargo taxes. Concerns about the financial outlook of the Trust Fund have emerged recently given the downturn in passenger air travel, requests from the airlines to suspend some of the Trust Fund taxes, and the need to reauthorize FAA's major programs in 2003. GAO was asked to determine (1) the projected financial outlook of the Trust Fund and (2) how a 1- year suspension of various taxes accruing to the Trust Fund (i.e., a tax holiday), would affect its financial status. We were asked to assess five potential tax holidays that would have begun on April 1, 2003, and ended on April 1, 2004. GAO used a model developed by FAA that made financial projections for the Trust Fund using expenditure assumptions that were based on (1) the Senate Committee on Commerce, Science, and Transportation's May 2, 2003, and the House Subcommittee on Aviation's May 15, 2003, reauthorization proposals authorizing over $34 billion and (2) the President's proposal authorizing almost $38 billion from the Trust Fund. For each of these proposals, GAO asked FAA to model the effects of five different tax holidays.

What GAO Found

Over the next 3 years, with no change in tax rates and assuming that FAA's passenger traffic and airfare projections are valid, the Trust Fund is expected to continue to have sufficient revenue to cover authorized spending and end each year with a surplus, or an "uncommitted balance" as it is usually called, under each of the three expenditure scenarios we analyzed. For fiscal years 2004 through 2006, the potential uncommitted balances would range from over $4.4 billion (if Congress adopted either the House or the Senate proposal) to $1 billion, if the President's proposal were adopted. Suspending some or all of the taxes that accrue to the Trust Fund for 1 year would reduce or eliminate the Trust Fund's uncommitted balance. As depicted below, if all taxes accruing to the Trust Fund were suspended, effective April 1, 2003, almost $10 billion in tax revenue would be forgone and the uncommitted balance would be eliminated by October 2003. The status of the Trust Fund would also differ according to the reauthorization proposal adopted and the taxes suspended. For example, suspending the passenger ticket tax and adopting either the House or Senate proposal would reduce the uncommitted balance to $1.8 billion and $2 billion, respectively, in 2006. However, suspending the same tax and adopting the President's proposal would eliminate the uncommitted balance by October 2003. The budgetary consequences of the remaining potential tax holidays would vary substantially. FAA officials stated that under the President's proposal, a passenger ticket tax holiday might require spending cuts to its capital programs, while a cargo tax holiday would require few if any spending cuts to its programs. In its comments on a draft of this report, FAA agreed with the report's findings and provided some clarifying comments that we incorporated where appropriate.