It provides  all of the funding for three of FAA’s four accounts, including (1) the  Facilities and Equipment (F&E) account, which funds technological  improvements to the air traffic control system; (2) the Research,  Engineering, and Development (RE&D) account, which funds research on  issues related to aviation safety, mobility, and the environment as well as  most of FAA’s contribution to JPDO; and (3) the Airport Improvement  Program (AIP), which provides grants for construction and safety projects  at airports. Estimates Indicate That Current Funding Structure Can Support FAA Activities, Including NextGen, but Structure Raises Concerns about Equity and Efficiency

The current funding structure—excise taxes plus a General Fund  contribution—has funded FAA for many years, and estimates indicate that  this structure can potentially provide sufficient funds for the next several  years to support the transition to NextGen. Policy  choices, structural changes in the aviation industry, and external events  have affected revenues flowing into and out of the fund. According to projections prepared by the Congressional Budget Office  (CBO), the existing funding structure, if maintained, will generate  substantially increasing revenues over the next decade. Assuming that the  General Fund provides about 19 percent of FAA’s budget, CBO estimates  that through 2017 the Trust Fund can support about $22 billion in  additional spending over the baseline FAA spending levels CBO has  calculated for FAA (the 2006 funding level, growing with inflation)  provided that most of that spending occurs after 2010. For example, Congress could raise more revenue from  airspace system users for modernization or for other purposes by raising  the rates on one or more of the current excise taxes. Congress could also  provide more General Fund revenues for FAA, although the nation’s fiscal  imbalance may make a larger contribution from this source difficult. Some stakeholders have also raised concerns that the current funding  system does not provide aircraft operators with incentives to use FAA  services in the most efficient manner. Selected Provisions of Proposals for Funding Aviation Activities Have Implications for Revenue Generation and Could Have Unintended Consequences

Provisions of the Senate and House reauthorization bills propose different  types of revenue sources to fund FAA and NextGen. S. 1300 includes a provision requiring the FAA Administrator to impose a  surcharge of $25 per flight to be available to pay the costs of NextGen  capital projects. Advocates of this approach say that funding FAA in  part through such a charge would do more than the current structure to  ensure that revenues are adequate to cover costs over time and to create  incentives for efficient use of the national airspace system by directly  connecting charges with the costs imposed by users. Another S. 1300 provision would grant FAA the authority to seek debt  financing by issuing bonds directly to the private capital market. This calculation assumes that the increased PFC  would not affect passenger demand for air travel. H.R. H.R. 2881 includes increased user fees to pay for the costs of certain  certification and registration activities of FAA. The proposal would raise the fee to $130 and allow FAA  to periodically adjust this and other fees based on the cost of providing the  service. However, in general, when fees are imposed for aviation activities,  care must be taken that they do not contribute to a situation in which  safety might be compromised. Other issues include the cost  savings that could result from more efficient FAA operations and  acquisition processes, which could reduce the need for new NextGen  funding, and the extent to which FAA uses public-private partnerships or  leasing arrangements to acquire NextGen infrastructure as flexibly and as  cost-effectively as possible. While JPDO has released estimates for NextGen, questions remain over  how much it will cost and which entities will fund and conduct some of  the necessary research, development, demonstration projects, and training  that will be key to achieving certain NextGen capabilities. The overall cost of NextGen could be reduced to the extent that FAA  realizes cost savings from improved operations and acquisition processes.
Why GAO Did This Study

The Federal Aviation Administration (FAA) operates one of the safest air transportation systems in the world, but this system is under growing strain as the demand for air travel increases. Recognizing the need to transform this system, Congress created the Joint Planning and Development Office (JPDO), housed within FAA, to plan and develop the Next Generation Air Transportation System (NextGen). The current authorization for FAA, the Airport and Airway Trust Fund (Trust Fund), and the excise taxes that support the Trust Fund will expire September 30, 2007. Reauthorization bills in the Senate (S. 1300) and the House (H.R. 2881) identify various revenue sources, including flight surcharges and certain fees, to fund FAA, including NextGen. Concerned about the need for stable, sustainable financing for the nation's multibillion-dollar transportation infrastructure investments, including NextGen, GAO has designated transportation financing as high risk. GAO's statement addresses (1) the extent to which the current funding structure can support FAA's activities, including NextGen, (2) the implications of selected provisions of proposals to fund aviation activities, and (3) issues that could affect the overall cost of NextGen. The statement is based on recent GAO reports and testimonies, updated through interviews with FAA officials and stakeholder representatives.

What GAO Found

Recent estimates indicate that FAA's current funding structure--consisting primarily of Trust Fund revenues plus a contribution from the General Fund of the U.S. Treasury--can potentially support FAA's activities, including NextGen. The current structure has provided sufficient funding for FAA's activities to date, and both FAA and the Congressional Budget Office (CBO) have estimated that revenues will continue to increase. According to CBO projections through 2017, the current structure, if maintained, could support about $22 billion in additional spending over current spending levels (adjusted for inflation). Congress could also raise more revenue for FAA by raising excise tax rates or by increasing the General Fund contribution. However, contributions from the General Fund may be limited by the federal government's long-term fiscal imbalance, and policy choices, structural changes in the aviation industry, and external events could affect Trust Fund revenues. Furthermore, the current funding structure raises concerns about equity and efficiency because users may pay more or less than the costs of the air traffic control services they receive, and therefore they may lack incentives to use the national airspace system as efficiently as possible. Selected proposals for funding aviation activities have implications for revenue generation, but could pose unintended consequences. For example, S. 1300 would authorize a surcharge of $25 per flight on many flights to help pay for NextGen capital projects. While a surcharge would create an incentive for efficient use of air traffic services, some stakeholders raise the possibility that such a fee could lead to reduced air service for small communities. S. 1300 would also allow FAA to seek debt financing for capital projects in the private capital market--a proposal designed to create a stable revenue source but costlier than using appropriations or borrowing from the U.S. Treasury. H.R. 2881 would raise airport passenger facility charges, thereby benefiting larger airports more than smaller ones, and it would increase fees for certain FAA certification and registration activities. However, in general, when fees are imposed for aviation activities, care must be taken that they do not contribute to a situation in which safety might be compromised. Issues that could affect the overall cost of NextGen are primarily related to the content and cost of its infrastructure and research. JPDO is developing and has issued some key planning documents that will provide more insights into some of these issues, but questions remain over which entities will perform activities such as research and development. Other issues include the cost savings that could result from more efficient FAA operations and acquisition processes, which could reduce the need for new NextGen funding, and the extent to which public-private partnerships and leasing can be used to acquire NextGen infrastructure as flexibly and cost-effectively as possible.