Order Code RL33913
Aviation Finance: Federal Aviation Administration
(FAA) Reauthorization and Related Issues
March 12, 2007
John W. Fischer
Specialist in Transportation
Resources, Science, and Industry Division

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Aviation Finance: Federal Aviation Administration (FAA)
Reauthorization and Related Issues
Summary
The aviation taxes and fees associated with funding the Federal Aviation
Administration’s (FAA) operation and oversight of the federal aviation system will
expire at the end of FY2007, as will most of the related federal aviation programs.
These taxes and fees, which are deposited in the airport and airways trust fund
(aviation trust fund), pay for the majority of FAA’s activities. The FAA and others
have expressed concern that the current funding system is inadequate to meet future
federal needs for upgrading, expanding, maintaining, and operating the existing
federal air navigation system as part of the FAA’s Next Generation Air
Transportation System (NGATS). This view is disputed by some aviation industry
groups who believe that the existing trust fund based system is adequate for the
foreseeable future. Many of these same groups would even argue that overall federal
spending on certain federal aviation programs could be increased in new
authorization legislation without a new funding system. There is also a third view,
which suggests that the current financing system needs to be reexamined because it
is potentially unreliable, e.g. events such as September 11th and recessions can have
a major and unpredictable impact on annual tax and fee collections. Hence, in this
view, the existing system might not be able to provide the long term consistent
source of annual revenues that would allow for the orderly funding of NGATS and
other FAA programs.
This report provides background information on how the existing trust fund
based aviation finance system operates, discusses several basic issues concerning
aviation taxation, and identifies FAA programmatic spending. From that point on
the report focuses on three major issues related to the trust fund. First is the question
of whether the trust fund will provide sufficient revenue to meet the growing needs
of the FAA’s activities and programs. Second is the controversial issue of how much
of the FAA’s total funding should come from the Treasury’s general fund account,
the so-called “public interest” contribution. And third is the long standing issue of
whether the existing tax and fee system is the appropriate mechanism for producing
trust fund revenues, or whether an entirely new revenue collection mechanism should
be adopted.
The FAA remains firmly convinced of the need to create a new aviation funding
system, with corresponding FAA budgetary and administrative changes. On February
14, 2007, the FAA released a legislative proposal encompassing this view (H.R.
1356, introduced by request). The FAA contends that this legislation will provide
for improved delivery of its air traffic control and other services, in part by directly
linking taxes and fees paid by users to their use of Agency resources. This report
discusses the financial aspects of this proposal.
Congress has begun consideration of the FAA reauthorization proposal and
hearings are scheduled in House and Senate authorizing committees during the
month of March. Any FAA reauthorization proposal must also face consideration by
congressional finance committees. This report will be updated as additional
reauthorization legislation is introduced.

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Contents
The Aviation Tax and Fee Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FAA-Related Taxes and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Non-FAA Federal Taxes and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Passenger Facility Charges (PFCs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Who Pays the Tax? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FAA Major Program Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Trust Fund Revenue Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The General Fund Share and the “Public Interest” . . . . . . . . . . . . . . . . . . . . . . . 14
Defining the Public Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
The General Fund Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Cost Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The Corporate/Business Aircraft Question . . . . . . . . . . . . . . . . . . . . . 18
The FY2007 Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The FAA Funding Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Aviation Interest Group Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . 20
Legislative Proposals and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
The Bush Administration’s Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Proposed Tax and Fee Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Air Transportation System Advisory Board (Board) . . . . . . . . . . . . . . 24
Budget and Structural Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Agency Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The Status Quo Alternative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
List of Tables
Table 1: Existing Aviation Related Federal Taxes and Fees, 2007 . . . . . . . . . . . . 3
Table 2: FAA Major Program Funding: AIR-21 and Vision 100,
FY2001 - FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 3: Airport And Airway Trust Fund: Revenue Flow and Balances
, FY1998-FY2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 4: Principal FAA Cost Allocation Reports: Allocation of Aviation Activit
y by User Group, by Report Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

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Aviation Finance: Federal Aviation
Administration (FAA) Reauthorization and
Related Issues
The aviation taxes and fees associated with funding the Federal Aviation
Administration’s (FAA) operation and oversight of the federal aviation system will
expire at the end of FY2007, as will most of the related federal aviation programs.
These taxes and fees, which are deposited in the airport and airways trust fund
(aviation trust fund), pay for the majority of FAA’s activities. The FAA and others
have expressed concern that the current funding system is inadequate to meet future
federal needs for upgrading, expanding, maintaining, and operating the existing
federal air navigation system as part of the FAA’s Next Generation Air
Transportation System (NGATS). This view is disputed by some aviation industry
groups who believe that the existing trust fund-based system is adequate for the
foreseeable future. Many of these same groups would even argue that overall federal
spending on certain federal aviation programs could be increased in new
authorization legislation without a new funding mechanism. There is also a third
view, which suggests that the current financing system needs to be reexamined
because it is potentially unreliable, e.g. events such as September 11th and recessions
can have a major and unpredictable impact on annual tax and fee collections. Hence,
in this view, the existing system might not be able to provide the long term consistent
source of annual revenues that would allow for the orderly funding of NGATS and
other FAA programs.
The primary focus of this report is a discussion of aviation taxes and fees as they
relate to the funding of the principal federal aviation activities overseen and operated
by the FAA. These taxes and fees are frequently referred to as user fees. As will be
discussed, they are not viewed as true user fees in the economic sense and may more
appropriately be thought of as proxies for user fees. Further, as will be pointed out,
there are a wide range of federal taxes and fees imposed on aviation system users,
almost all of which are statutorily linked to federal activities related to aviation, but
not all of which go to towards funding the FAA and its programs.
The Aviation Tax and Fee Structure
FAA-Related Taxes and Fees
The debate about how the FAA should be funded largely revolves around the
concept of user fees. There are a number of variations as to how a user fee is defined.
A useful definition of a user fee from a transportation perspective was provided in
1953 by the Department of Commerce, Office of Transportation, and is still valid for
today’s discussion:

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... a user charge is defined as any charge made to beneficiaries or users of
services and facilities directly related to transportation and furnished in whole
or in part by the Federal Government. Such charge must be paid for use of such
service or facility and shall be fixed to recover part or all of the capital,
operating, and maintenance costs of such service or facility. The services shall
not include cash subsidies, mortgage-aid, or tax-aid or certain other activities not
confined to transportation or involving transportation only incidentally.1
For aviation, most of the interest in user fees has been in recovering the costs
associated with industry use of the national air navigation system (air traffic control
(ATC) system).
User fees can be direct (sometimes referred to as pay-for-use or pay-for-service),
whereby an aircraft or operator is charged for a specific activity. Examples of direct
charges include radio contacts with ATC en-route centers, contacts with airport
towers, and weight-distance charges of the type levied frequently outside the United
States (the weight of the aircraft multiplied by the distance flown). The other type
of user fee that can be levied is an indirect fee. Examples include fuel taxes, aircraft
registration fees, and gross revenue taxes. Indirect fees and charges are often viewed
by economists as proxies for user fees rather than as actual user fees. They are
normally viewed as imperfect in that the fee charged is often more poorly correlated
to the service provided than a direct fee would be. A common example is the
existing airline passenger tax, where airline passengers flying on the same aircraft are
charged fees based on the often very different fares that they paid, even though all are
using exactly the same amount of airway resources. For a number of reasons,
indirect fees are the dominant type of fee in use in the U.S. aviation system today.
Prior to 1970 there were no federally imposed charges for use of the federally
operated ATC system. This is not to say that there were no federal taxes imposed on
aviation. There was a tax on gasoline, and there was a transportation passenger ticket
tax imposed on airline passengers, among others. At that time, however, these taxes
were deposited in the general fund of the U.S. Treasury, where they were available
to pay for any government activity, and were not designated as offsets to federal
aviation activities.
1 U.S. Department of Commerce, Office of Transportation, Charges for Private Use of
Federally-Provided Transportation Services and Facilities, A Staff Study of the Principles
Involved in Federal User Charges, Washington, D.C. July 1953, p.9.

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CRS-3
Table 1: Existing Aviation Related Federal Taxes and Fees, 2007
Tax or Fee
Tax or Fee Rate
Airport and Airway Trust Fund
Passenger Ticket Tax
7.5% on all domestic airline tickets
Segment Tax
$3.40 per flight segment defined as a single take-off and single landing (tax level indexed to CPI beginning in FY2003)
Waybill Tax
6.25% cargo waybill tax
Fuel Tax*
19.3 cents/gallon on general aviation use of gasoline
21.8 cents/gallon on general aviation use of jet fuel
4.3 cents/gallon on commercial aviation jet fuel
International
$15.10 international departure tax (indexed to CPI)(prorated Alaska/Hawaii to mainland)
Departure/Arrival Tax
$15.10 international arrivals tax (indexed to CPI)(prorated Alaska/Hawaii from mainland)
Rural Airports Tax
7.5% on domestic airline tickets to “qualified rural airports”
Frequent Flyer Awards Tax
7.5% on awards of free or reduced rate air transportation, e.g. frequent flyer awards based on credit card use.
Interest on Investments
Interest paid on Treasury Bonds held in the Airport and Airway Trust Fund
Passenger Facility
PFCs are essentially local taxes that require federal authority for collection (also sometimes referred to as head taxes). $1.00 to
Charges (PFCs)
$4.50 per emplaned passenger at commercial service airports. Maximum of $18 may be imposed on a round trip ticket.
Overflight User Fees
Charged on flights transiting the United States and using air traffic control services. $33.72/100 miles in enroute environment
and $15.94/100 miles in oceanic environment.
Transportation Security Administration (TSA) Fees
Passenger Security Fee
$2.50 per enplanement on flights originating at an airport in the United States. Maximum of $10 per round trip. Collection of
(collection suspended
this fee began February 1, 2002. (Also known as September 11th or 9/11 fee)
6/1/03 -9/31/03)
Aviation Security
Determined by the TSA. Fees may not exceed the aggregate cost paid by the airline industry for security screening in Calendar
Infrastructure Fee (ASIF)
Year 2000. Adjustment of per-carrier limit began in FY2005
(collection suspended
6/1/03 -9/31/03)
Immigration and Customs Enforcement
Immigration Fee
$7 per arriving international airline passenger

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Customs & Border Protection Service
Inspection Fee
$5 per passenger, not collected from passengers originating in Mexico, Canada, or the Carribean.
Animal and Plant Health Inspection Service (APHIS)
Passenger Inspection Fee
$5.00 on each arriving international passenger not collected from passengers originating in Canada
Commercial Aircraft
$70.50 per aircraft on international arrivals (raised to $70.75 for FY2008). Not collected from aircraft operating solely between
Inspection Fee
Canada and the United States
* Does not include .01 cent per gallon Leaking Underground Storage Tank (LUST) fee deposited in LUST trust fund.
Sources: U.S. Government. Office of Management and Budget. Budget of the United States Government, various years. Air Transport Association.

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CRS-5
By 1970, the concept of a user fee based system to pay for federal aviation
activities had been discussed for over two decades. During that period the federal
government considered a host of direct and indirect fees and taxes that might be used
to pay for aviation services, but the Congresses and Presidential Administrations of
the period had been unable to reach a consensus on any specific approach. It was
only in the near crisis atmosphere of the late 1960s2 that industry and government
were able to coalesce around a particular mix of indirect user fees as a way to fund
needed aviation system improvements.
On May 21, 1970, President Nixon signed the Airport and Airway Development
and Revenue Acts of 1970 (P.L. 91-258; 1970 Act), which was the origin of the trust
fund financing system still in place today. The fee system consisted of an 8% airline
ticket tax, a 5% freight/cargo waybill tax, a $3 international departure tax (also
applied to Alaska and Hawaii), a 7 cent per gallon tax on noncommercial (primarily
general aviation (GA) aircraft) use of gasoline and jet fuel, and finally, a graduated
aircraft registration fee starting at $25 per aircraft, plus an additional fee of 2 cents
per pound on piston powered aircraft of 2,500 pounds or more and plus an additional
fee of 3.5 cents per pound on all turbine powered aircraft above 2,500 pounds for
each pound in excess of 2,500 pounds. All of the revenues collected from these
sources were deposited in a newly created airport and airway trust fund (also known
as the aviation trust fund). The 1970 Act also transferred revenues from an existing
excise tax on tires and inner tubes into the trust fund.
Three and a half decades later, the same basic framework of taxes and fees —
with the deletion of the aircraft registration fee, and the addition of a segment fee, an
international arrivals tax, and a frequent flyer tax (which can be viewed as an
extension of the ticket tax) — remain the principal sources of income for the trust
fund. The tax and fee structure and the rates charged, however, have been modified
on several occasions, most notably of late by the Taxpayers Relief Act of 1997 (P.L.
105-34) which provides the taxing authority that expires at the end of FY2007.
Table 1 details the tax and fee structure as it exists at the beginning of 2007.
Non-FAA Federal Taxes and Fees
There are other dedicated aviation related fees that are also enumerated in Table
1, such as Immigration, Customs, and Agricultural inspection fees. Each of these fees
predate the aviation trust fund structure imposed in the 1970 Act and, while dedicated
to an aviation related activity, they are deposited directly into the U.S. Treasury’s
general funds account.3 More recently added are the passenger security fee (also
2 The late 1960s were notable for well publicized delays in airline travel that often resulted
in large numbers of aircraft being placed in holding patterns above major U.S. cities. These
delays and other incidents focused public opinion on the need for the federal government
to make significant improvements to the airport and airway system.
3 There are a few additional federal activities that are viewed by some as having an aviation
related purpose that have no separate tax and fee structure associated with them and are not
discussed in this report. For example, aeronautical research provided by NASA is funded
(continued...)

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CRS-6
known as the September 11th fee) and the airline security fee which are direct
outgrowths of the events of September 11, 2001. These fees, imposed on airline
passengers and airlines respectively, offset to some degree spending by the
Transportation Security Administration (TSA) on its aviation security activities.
Collection of these fees began in 2002. A few of the fees discussed here have broad
application that goes well beyond aviation. The Customs & Border Protection
Service, Immigration & Customs Enforcement, and the Animal and Plant Health
Inspection Service (APHIS) all provide extensive services related to other modes of
transportation. Some of the Immigration, Customs, and Agricultural related fees,
unlike the others discussed here, are statutorily linked to the cost of providing
inspections services. That is, the fee is modified periodically to provide the agency
performing the service with supposed full cost recovery.
Passenger Facility Charges (PFCs)
The Passenger Facility Charges (PFC), is collected from airline passengers
based on their travel to and from specific airports, but it is not actually a federal tax,
rather it is a local tax requiring federal approval. PFCs were first allowed in 1990
and the original rate of taxation has been modified since. Because PFCs accrue
directly to the levying airport, and not to the trust fund, they are not discussed in
detail in this report.4 It should be noted, however, that PFCs will be part of the FAA
reauthorization debate. Airport interests are seeking an increase in the existing $4.50
per airport departure level although a specific level for that increase has not yet been
identified. Depending upon how this proposal is ultimately framed it may be
opposed by the airlines who often view any PFC increase as having negative
consequences for their fare setting ability.
Who Pays the Tax?
With a couple of notable exceptions the taxes and fees discussed above are
collected by airlines as part of the airline ticket. The taxes, however, are statutorily
imposed on the airline passenger — not on the airline itself. This does not mean that
the effects of the tax are borne entirely by the passenger. Airlines must, for example,
address how much of the tax can be passed on to the consumer in terms of higher
fares without negatively depressing traffic.
Although fees, as discussed above, have an impact on airline travel, those fees
imposed prior to September 11th probably did not create a significant barrier to travel.
Since September 11th, however, it is argued that the new security fees, along with
other factors, such as security-related hassles and delays, may be having some impact
on travel. To the extent that a traveler’s costs are raised, and not all costs are directly
measurable in dollar terms, there is always the possibility of the consumer seeking
alternate means of making a trip or, perhaps foregoing a trip altogether. For example,
3 (...continued)
entirely by U.S. Treasury General Funds.
4 See CRS Report RL33891, Airport Improvement Program: Issues for Congress. Discussion
on pages 22-25, 40-41.

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there is considerable evidence that heightened security since September 11th, and its
associated “hassle” factor, have reduced short distance flying in markets where
driving is viewed as a viable alternative. The key is what constitutes an acceptable
cost (not measured strictly in monetary terms) from the consumer’s standpoint.
Airlines in most cases are collection agents for these fees. In many instances an
airline bills the passenger for the fee at the time a ticket is sold. At some specified
interval, the airlines are required to turn the proceeds over to the U.S. Treasury for
deposit in the appropriate account. During the period between ticket sale and
distribution to the Treasury, airlines are typically allowed to hold these funds in
appropriate financial instruments and retain any interest payments made on these
instruments. By way of example, the APHIS program requires quarterly payments,
but the rules are written in such a way that an airline could retain some of these fees
and earn interest on them for up to four months. The ability to retain interest has
always been viewed as a way to offset an airline’s costs of collection. The amount
of interest that an airline might receive in this manner was not inconsequential during
periods of high interest rates. At the present time, however, low interest rates have
greatly reduced the attractiveness of using this funding mechanism as a way to offset
the costs of collection incurred by the airline from the airline industry perspective.
Of the fees shown in Table 1, four are directly paid by the airlines. The first,
and smallest in dollar terms, is the APHIS aircraft inspection fee on aircraft arriving
from outside the United States. The second fee is a 4.4 cent per gallon tax on jet fuel
used by the airline industry. Of this amount 4.3 cents is deposited in the airport and
airway trust fund, with the remaining 0.1 cent placed in the non-aviation related
leaking underground storage tank (LUST) trust fund. The third fee is the overflight
fee, which is normally levied on non-U.S. airlines that are transiting United States
airspace. This fee is designed to offset the cost of air traffic control services provided
to these air carriers during transit, although the funds collected are used to fund a
portion of the Essential Air Services program.
The last direct fee is the aviation security infrastructure fee (ASIF) imposed on
the airlines as a result of the Aviation and Transportation Security Act (ATSA)(P.L.
107-71) enacted on November 16, 2001. The annual fee is limited to the amount that
the industry spent to provide security in calendar year 2000. It is worth noting that
an effect of establishing this fee was the elimination of the industry’s potential future
direct costs for increased security, because it transfers the security responsibility to
the Transportation Security Administration (TSA).
FAA Major Program Funding
The FAA receives the majority of its funding from receipts to the aviation trust
fund. It also receives an annual appropriation of Treasury general funds to pay for
the remainder of its activities. The trust fund pays for all of the FAA’s airport
improvement program (AIP), facilities and equipment (F&E) program, and research,
engineering and development (RE&D) program. It also pays for much of the FAA’s
operations and maintenance (O&M) program, which also receives general funds.
As can be seen in Table 2, annual appropriations for the AIP program roughly
followed the amounts authorized in the last two FAA reauthorization acts, AIR-21

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CRS-8
(P.L. 106-181) and Vision 100 (P.L. 108-176), but appropriations for the other three
programs have not. Funding for F&E tracked the authorization through FY2004, but
has since been significantly below the authorized amount. Annual RE&D
appropriations have been well below their authorized levels in each year. O&M
appropriations have been higher than the amounts authorized in two years, below in
the other four, but in only one instance, FY2003, did the program fail to grow on a
year-over-year basis.
There are many in the aviation industry, and also within the FAA, who believe
that significantly greater funding will be required in the years ahead for each of the
four major FAA programs. These requests come against the backdrop of three years
of FAA spending in which annual appropriations for the agency increased on a fairly
modest basis.
Table 2: FAA Major Program Funding: AIR-21 and Vision 100,
FY2001 - FY2006
($ in millions)
FY
FY
FY
FY
FY
FY
FY
2001
2002
2003
2004
2005
2006
2007
AIP
authorized
3,200
3,300
3,400
3,400
3,500
3,600
3,700
(TF)
oblimit
3,193
3,475
3,378
3,380
3,472
3,515
3,515
F&E
authorized
2,657
2,914
2,981
3,183
2,993
3,053
3,110
(TF)
appropriations
2,651
3,021
2,942
2,863
2,525
2,555
2,515
RE&D
authorized
237
249
— -
346
356
352
356
(TF)
appropriations
187
245
147
119
130
137
130
O&M
authorized
6,592
6,886
7,357
7,591
7,732
7,889
8,064
(TF/GF)
appropriations
6,603
7,077
7,023
7,479
7,707
8,104
8,330
GF share
2,198
1,104
3,248
3,010
2,828
2,619
2,703
Total
oblimit &
12,634
13,818
13,490
13,843
13,858
14,311
14,490
(TF/GF)
appropriations
Note: TF = aviation trust fund, GF = Treasury General Funds
Sources: Authorization amounts from AIR-21 and Vision 100 (AIR-21 did not include an RE&D
authorization for FY2003). Appropriations information from FAA data.

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Airport and Airway Trust Fund Issues
The reauthorization debate is likely to focus on three major issues related to the
trust fund. First is the question of whether the trust fund will provide sufficient
revenue to meet the growing needs of the FAA’s activities and programs. Second is
the controversial issue of how much of the FAA’s total funding should come from
Treasury general funds, the so-called “public interest” contribution, a major element
of which is FAA’s computation of the cost-allocation amongst aviation user groups.
And third is the long standing issue of whether the existing tax and fee system is the
appropriate mechanism for producing trust fund revenues, or whether an entirely new
revenue collection mechanism should be adopted.
Trust Fund Revenue Adequacy

There is considerable discussion over the question of whether the existing trust
fund revenue stream will be able to provide adequate funding in the years ahead.
Table 3 shows that total trust fund income began rising after FY1999 following the
last major reauthorization of trust fund directed taxes and fees by the Taxpayers
Relief Act of 1997 (P.L. 105-34). It then declined somewhat in FY2000 and dropped
precipitously after September 11, 2001. As a result primarily, but not exclusively,
of the post September 11th drop in airline activity, the revenue stream did not exceed
the FY2001 level again until FY2005, and did not exceed the record FY1999 level
until FY2006 (which it did just barely). Throughout this period FAA spending has
not been reduced to accommodate the trust fund’s reduced income stream. Rather,
FAA spending has continued apace, mostly by spending down the uncommitted
balance of the trust fund, which stood at over $7.3 billion at the end of FY2001 and
which was down to around $1.7 billion by the end of FY2006.
When the FAA began discussing reauthorization in 2005, the future of the
aviation trust fund was listed as a key item for consideration.5 The FAA contends
that something needs to be done to either increase the trust fund income stream
and/or replace it with a new funding mechanism, all with the goal of preventing even
further erosion in the uncommitted balance of the fund. For a number of reasons
detailed at its reauthorization website6, the FAA sees little prospect of a major
increase in revenue from the trust fund’s existing tax and fee system. Instead, the
FAA seeks a reexamination of the tax and fee system with an eye toward a new
system that more closely tracks actual aviation industry activity than the current
system and that in the process ensures that the trust fund will receive adequate
revenues to finance future FAA aviation system needs.
FAA funding needs. A largely unanswered, and perhaps unanswerable,
question, at least for the moment, is exactly how much additional funding the FAA
needs in the years ahead. Certainly, the NGATS proposal is expensive. CRS
estimates that total F&E spending, including NGATS, will require between $69
5 [http://www.faa.gov/airports_airtraffic/trust_fund/media/Trust_Fund.pdf]
6 [http://www.faa.gov/regulations_policies/reauthorization/]

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CRS-10
billion and $76 billion by 2025.7 But, as is pointed out in the discussion
accompanying these estimates, there are a wide range of variables that could further
affect these numbers. For example, these estimates cannot account for potential
efficiency gains engendered by NGATS technology that might reduce the overall cost
of operating the FAA. At the same time, these estimates cannot account for
additional costs that might be added by missed deadlines, technology problems, and
cost overruns - all of which were conditions that plagued FAA modernization efforts
throughout the 1980s, the 1990s, and into the current century.
7 See CRS Report RL33698. Reauthorization of the Federal Aviation Administration:
Background and Issues for Congress. Discussion on pages 60 - 64.

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Table 3: Airport And Airway Trust Fund: Revenue Flow and Balances, FY1998-FY2007
($ in millions)
Fiscal Year
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007E
Income
Ticket Tax
5,455
5,941
5,103
4,805
4,726
4,223
4,556
5,044
Flight Segment
547
1,339
1,655
1,556
1,532
1,783
1,800
2,042
Fee
Waybill Tax
313
412
500
493
474
422
499
567
Fuel Tax
659
1,009
887
769
789
711
712
977
Rural Airports
48
57
86
82
80
67
71
76
Tax
Frequent Flyer
141
149
159
150
148
147
145
159
Tax
International
948
1,484
1,349
1,336
1,282
1,331
1,391
1,651
Arrival/Depart.
Tax
Tax Refunds
—
—
—
—
—
—
—
—
—
Interest on
543
698
805
882
860
591
477
423
495
495
Balance
Offsetting
42
32
144
76
178
97
36
152
109
210
Collections
Total Trust
$8,696
$11,121
$10,688
$10,149
$10,069
$9,372
$9,687
$11,092
$11,194
$12,131
Fund (TF)
Income
Operations TF
$1,902
$4,112
$5,898
$4,405
$5,973
$3,775
$4,469
$4,879
$5,486
$5,486
Share
Appropriations.
Total Trust
($5,914)
($8,089)
($9,198)
($9,601)
($11,909)
($9,618)
($10,415)
($11,092)
($12,148)
($12,308)
Fund Cash
Outlays
End of Year
$9,140
$12,446
$13,934
$14,482
$12,642
$12,397
$11,669
$11,596
$10,336
$10,159
(EOY)
Balance

---

CRS-12
Commitments
($4,801)
($5,080)
($6,860)
($7,167)
($7,855)
($8,499)
($9,222)
($9,493)
($8,563)
($8,153)
Uncommitted
$4,339
$7,366
$7,074
$7,315
$4,787
$3,898
$2,447
$2,103
$1,773
$2,006
Balance EOY
General Fund Share of FAA Appropriations
Total FAA
$9,052
$9,808
$10,043
$12,634
$13,818
$13,490
$13,843
$13,858
$14,470
$14,423
Appropriations
GF Share of
3,351
1,474
0
2,198
1,104
3,248
3,010
2,828
2,652
2,622
FAA Budget
GF Percent
37%
15%
0%
17%
8%
24%
22%
20%
18%
18%
Share
Sources: Air Transport Association, see [http://www.airlines.org/files/trustfund.pdf] for more detail concerning outlays. Also see Federal Aviation Administration
websites: [http://www.faa.gov/aba/html_budget/2003.html] and [http://www.faa.gov/about/office_org/headquarters_offices/aep/aatf/] for more trust fund information.
Data for FY2006 income are estimates, appropriations data are enacted. Appropriations data (including trust fund and general fund share data) provided by FAA.

---

CRS-13
While much of the interest in reauthorization to date is being focused on the
NGATS process, it is not the only financial issue facing the FAA. Controller
workforce issues (hiring, retirements, and collective bargaining), safety inspection,
aircraft certification, RE&D requirements, and possible funding increases for the AIP
program, are all likely to put pressure on the FAA budget in the years ahead. It can
be assumed that these costs will increase by at least the cost of inflation as they are
shown in the CRS report mentioned in the previous paragraph. Historically, however,
events, such as major airline crashes, terrorism, etc. have often required additional
resource needs for the agency that cannot be easily forecast.
Trust Fund Revenue Estimates. The FAA position is that the trust
fund will not be able to provide adequate long-term agency funding. This position is
supported by Treasury estimates made in the summer of 2006, which suggest that
annual revenue increases to the trust fund in the years ahead will be modest at best.8
Treasury’s summer forecast was that the annual increase in trust fund revenue for
FY2007 would be $766 million, with total receipts for the year amounting to $11.6
billion. Increases in future years would be between $710 million and $816 million
annually. According to Treasury projections this leaves the trust fund with total
annual revenues of $14.7 billion in FY2011. According to the FAA these increases
may be insufficient to fund the FAA’s already identified needs for NGATS and other
ongoing air navigation program upgrades, as well as for expected increases in other
necessary FAA program activities.
In the President’s budget submission for FY2008 it appears that Treasury has
increased its year-over-year revenue estimate for FY2007 to approximately $937
million over the FY2006 level, with a further increase of $492 million in FY2008
(which is below the annual rate of increase predicted in the summer of 2006).9 In
both FY2007 and FY2008, the budget submission assumes that FAA spending will
continue to exceed total income in each year.10 The budget does not provide any
estimates for the period beyond FY2008.
An estimate produced by the Congressional Budget Office (CBO) in September
2006 appears to some to be somewhat more positive about the future of the trust
fund’s finances long-term.11 CBO’s estimate expected that the annual trust fund
revenue stream would increase at a slightly higher rate than inflation and that the trust
fund, assuming FAA spending only increases at the rate of inflation, would have an
uncommitted balance of $4.3 billion in 2011 and an uncommitted balance of $18.6
8 U.S. Department of the Treasury. Office of Tax Analysis. Airport and Airway Trust Fund:
FY2007 Mid Session Review. Current Law Baseline. Summer 2006.
9 Office of Management and Budget. The Budget for Fiscal Year 2006, Appendix. February
5, 2007. p. 799.
10 The budget assumes reduced future spending for certain FAA programs in FY2008
(primarily in the AIP program) leading to a situation in which the uncommitted balance in
the trust fund would increase modestly to $3.1 billion.
11 U.S. Congressional Budget Office. CBO Testimony. Financing Investment in the Air
Traffic Control System, Statement of Donald B. Marron, Acting Director, House Committee
on Transportation and Infrastructure, Subcommittee on Aviation, September 27, 2006.

---

CRS-14
billion in 2016. In the CBO analysis “the trust fund can support about $19 billion in
additional spending over baseline levels (the 2006 funding level growing with
inflation), provided that most of that spending occurs after 2010.”12 It should be
pointed out that this positive outcome is highly dependant on a stable general fund
contribution (a situation that has not always been the case, as will be discussed in the
next section of this report) and on relatively stable growth in inflation and a
concomitant increase in FAA spending. Subsequent data provided by CBO that
assumes a general fund contribution in line with the provisions of Vision-100, results
in a significantly lower uncommitted balance in the trust fund over the same period.
In this scenario, the uncommitted balance decreases slightly each year from the
current level, none-the-less remaining slightly positive through the next decade.
A further estimate produced by the Aircraft Owners and Pilots Association
(AOPA), predicts that the trust fund will have an adequate revenue stream well into
the future.13 Unlike the FAA view, AOPA and others sharing their perspective,
believe that rising airline fares and airline activity, increased income from fuel taxes,
and cost reductions from air traffic control (ATC) modernization, will be sufficient
to result in an unexpended trust fund balance of over $4 billion by FY2011, with the
possibility that the balance could be considerably higher.
There is still another view, which suggests that the trajectory of the future
revenue stream into the trust fund, cannot be predicted with any accuracy, thereby
making claims about the trust fund’s future health, or lack thereof, mostly a matter
of conjecture at this point. An analysis prepared by the Airports Council
International - North America (ACI-NA) suggests that there are a wide range of
possible revenue and spending scenarios for the trust fund in the years ahead; some
positive, many others negative.14 From the ACI-NA perspective it is this uncertainty
that justifies a renewed look at the trust fund revenue structure. ACI-NA, however,
has not aligned itself with a specific proposal on how to fund the FAA in the future.
The General Fund Share and the “Public Interest”
Defining the Public Interest
In the discussion about aviation user fees, the term public interest has had a
multiplicity of meanings over the last six decades. In the current context of federal
aviation policy, the public interest is usually viewed as being synonymous with the
general fund contribution.
12 ibid. p.6.
13 [http://www.aopa.org/whatsnew/la-userfees.html]
14 Chambers, Charles R. Airports Council International. Giving Airports the Tools to
Increase Capacity. Presentation at the 86th Transportation Research Board Annual Meeting.
Washington, DC. January 22, 2007.

---

CRS-15
Much of the public interest debate stems from the economic concept of a public
good.15 Some elements of the aviation industry, especially general aviation, long
claimed that the airways system was a pure public good and should therefore be paid
for exclusively by government. A public good is normally viewed as something that
cannot be produced efficiently in the marketplace. The classic example of a public
good is defense, which is normally viewed as something that only government can
adequately provide. Defining a public good, however, is not as simple as the defense
example would make it sound. Whole sections of economics text books are dedicated
to the understanding of what constitutes a public good. What these text book
definitions suggest is that a product can be a public good if it meets several tests. The
two most important are nonexclusivity and nonrivalry. Nonexclusivity refers to the
fact that one cannot be excluded from benefitting from the good whether one pays for
it directly or not. A nonrival good is one where there are no marginal costs
associated with producing an additional unit of whatever the good happens to be. A
good that could meet both of these tests without any caveats could be viewed as a
pure public good. A good that can’t meet this test for any variety of reasons, but still
might be provided exclusively by government, is an imperfect public good. The
majority of economists who have written on this subject appear to view air traffic
control as an activity that aligns best with the definition of an imperfect public good.
Throughout the 1940s, 1950s, and 1960s, many aviation interest groups
regarded provision of airways services as a public good and did not believe they
should be charged for system use. As late as 1969, in hearings before the House
Committee on Ways and Means, the Aircraft Owners and Pilots Association (AOPA)
was suggesting in relation to the airways system that:
Government programs adopted in the public interest and imposed by law should
be paid for by the public. Therefore, such programs should be financed by
general taxation — not selective taxation disguised as “user fees.”
As applied to airway, airport, and aviation services and facilities provided by
government, these principles mean that AOPA is opposed to financing them
through user charges. These facilities and services were established in the public
interest. AOPA believes they are still in the public interest.16
AOPA’s position could be said to have defined one end of the spectrum, in its
opposition to user fees. An AOPA comment during the same hearing that “the air
15 The discussion here presents an extremely simplified view of a public good. For further
information see Walter Nicholson. Intermediate Microeconomics and its Application. Fort
Worth, Texas: Dryden Press. 1999. p. 531. or Joseph E. Stiglitz. Economics of the
Public Sector. New York: W.W. Norton Co. 1986. p. 599. The information in this section
largely derives from these two texts.
16 U.S. Congress. House Committee on Ways and Means. Administration’s Proposal on
Aviation User Charges. Hearings. 91st Congress. 1st Session. September 16, 17, 18, and
19, 1969. U.S. Govt. Printing Office. Washington. 1969. p. 110.

---

CRS-16
was provided by Nature at no cost to anyone” left little doubt as to their dislike of
user fees. 17
The 1970 Act would in the end reject the position held by AOPA, instead more-
or-less adopting the view that the public interest was not necessarily the same as a
public good. The framers of the legislation ended up agreeing with the authors of the
various FAA and predecessor agency reports that the public interest equated to the
use of the system by the military and other government aircraft, with some
accommodation for the value of the system to the public in general, whether they
flew or not.18 It should be pointed out that in the current debate about reauthorization
there are no longer any groups calling for complete federal funding (i.e., 100% of
funding from the Treasury’s general fund) of the system, as many did well into the
1970s.
The General Fund Share
Since the existing tax and fee structure was created in 1970 there has been
general acceptance of the aforementioned concept that there is a public interest
component to the operation of the national aviation system. From the perspective of
federal aviation policy, the public interest generally refers specifically to that portion
of the cost of the FAA’s operation of the airway system that is appropriated from the
Treasury’s general fund. This is the amount that is supposed to equate to what the
military, government, and nonuser beneficiaries (also known as societal users) of the
aviation system might have contributed to the aviation trust fund through the
payment of user fees, if they actually paid these fees. This has been one of the most
contentious elements of the aviation funding debate and is likely to remain so in the
year ahead. In sum, many aviation interest groups and congressional authorizing
committees believe that the federal general fund contribution to the FAA’s annual
appropriation is too small to correspond to the existing and potential military and
other public benefits of the airways system. Conversely, the FAA, OMB, and other
government agencies, as well as congressional appropriations and budget
committees, usually believe the general fund contribution is too large.
The authors of the 1970 Act envisioned that the trust fund would primarily
support FAA capital programs. Although there are some who contend that the trust
fund was intended “only” for capital programs, several studies have suggested that
this was not the case, and that the 1970 Act allowed trust fund revenues to be spent
for noncapital, mostly operations and maintenance activities.19 Since President Nixon
unsuccessfully sought to fund all FAA activities out of the trust fund in the early
1970s, a tension has existed between those who seek to maximize use of the trust
17 ibid. p. 125
18 An example of the type of aviation service that provides value to the public in general
would be a regional air ambulance/evacuation system.
19 U.S. Congressional Budget Office. The Status of the Airport and Airway Trust Fund.
Washington, CBO, 1988. p. X, 1-7; and U.S. General Accounting Office, Whether the
Airport and Airway Trust Fund Was Created Solely to Finance Aviation “Infrastructure.”
B-281779. Washington, GAO, 1999, 16 p.

---

CRS-17
fund for all aviation purposes and those who seek to have its funds directed only or
primarily toward capital activities. As Table 3 shows the general fund contribution
to overall FAA appropriations has varied over the last decade ranging from a low of
0% in FY2000 to a high of 38% in FY1998 and FY1999. In the most recent five year
period, however, the general fund share has averaged around 20%.
The general fund contribution permeates every aspect of the overall trust fund
discussion. CBO’s work, for example, indicates that a stable trust fund contribution
in line with the recent annual rate goes a long ways toward insuring the health of the
trust fund long-term in and of itself. Interest groups have long sought a relatively
high and relatively stable annual contribution to the FAA’s budget. The figure of
25% is often discussed as a target in these discussions, but these proposals are best
viewed as informal. The FAA, DOT, and OMB have often sought to minimize the
trust fund contribution, believing, as mentioned above, that user fees should be the
primary source of funding for the FAA and that general fund contributions should be
limited to the amount comparable to the public use as determined by stringent cost
allocation determinations.
Cost Allocation
The concept of cost-allocation among system users and non-users is a
sometimes contentious element of the discussion of federal aviation user fees,
especially as it regards the general fund contribution. The 1970 Act required a new
cost allocation study that was expected to be much more comprehensive than those
done prior to that date. This study was supposed to settle many of the unresolved
questions at that time about which group should actually pay for which portion of the
system’s costs. The report, completed in 1973, achieved few of these goals and
instead became a target for criticism, especially by the GA community. The 1973
Report suggested that the military/public share of system costs was somewhere
between 19.6% and 32.1% of total system costs.20 Further, the 1973 report created
additional controversy by suggesting that no share of FAA expenditures should be
allocated to nonusers of the aviation system.21
The principal result of the unhappiness with the 1973 Report was a call for a
new one. The FAA completed a new study in 1978 using a somewhat different
methodology that indicated that the nonuser (public interest) share of system costs
was 26.4%, with the military/government share put at 10.1%.22 These findings
played an important role in the discussion of what the general fund contribution
should be in the run up to reauthorization of the FAA that was slated for 1980, but
instead took place two years later.
20 Eastman, Samuel Ewer. General Aviation and the Airport and Airway System : an
Analysis of Cost Allocation and Recovery. Transportation Research Record. No. 840.
Washington: Transportation Research Board. 1982. p. 28
21 ibid. p. 27.
22 A societal user element was part of the public interest component in the 1978 and 1986
reports, but has not been stated in any of the three cost allocation efforts completed since.

---

CRS-18
Since 1978 there have been several additional cost allocation studies performed
either by the FAA or at the FAA’s behest using outside contractors. The findings of
these studies were not as controversial as those of the 1970s. In part this was because
Congress never chose to specifically link tax and fee rates to the cost allocation
results, even when the FAA and others suggested that it should. The cost allocation
findings for all of the major studies since the 1970 Act are included in Table 4.
The Corporate/Business Aircraft Question. Like the public interest
allocation, the GA allocation has also been controversial. In this instance, however,
the concern has not so much been with the overall GA user group allocation, but
rather that the definition of general aviation is so broad that it encompasses a wide
range of users who operate very differently within the ATC system. Of particular
concern has been that sub-class of GA that operates in the same part of the ATC
system as the commercial air carriers (primarily turbine (jet) powered aircraft).
Critics of the cost allocation process have often suggested that GA be broken into
user sub-classes that are better matched to how they use the ATC system and in turn
their proportional impact on the system. In part this is because some observers
believe that the existing tax and fee system is not charging high performance GA
users of the ATC system fees that are commensurate with their use of the system.
GA proponents, however, have argued that they are operating in a system designed
for the air carriers that they would not otherwise need, and that they are incidental
system users. Therefore, they reject the idea that their activities should be taxed at
a different, i.e. higher, rate.
Table 4: Principal FAA Cost Allocation Reports: Allocation of
Aviation Activity by User Group, by Report Year
(in percent)
1973
1978
1986
1992
1997
2007
Air Carrier
50
50
60
62
81
73.5
General
30
24
27
26
12
15.6
Aviation
Public Users
20
26
13
12
7
4.8
Overflights
1
Flight Service
6.1
Stations
Note: Air Taxi industry moved from GA to Air Carrier in the 1997 report. Overflights were not
calculated prior to 1997 report. Flight Service Station (FSS) activity was assigned to user groups in
reports prior to 2007. FSSs are a source of preflight and some inflight services for aviation system
users. They are use primarily by GA.
Source: FAA Cost Allocation Studies for the year indicated and Federal Aviation Administration,
Office of Aviation Policy and Plans, A Cost Allocation Study of FAA’s FY1995 Costs, March 19,
1997, and FY2005 Cost Allocation Report, January 31, 2007.

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CRS-19
The FY2007 Report. With its new report, the FAA is attempting to establish
a firm link between the costs incurred by the ATO for supplying air traffic services,
and a newly proposed user fee system intended to pay for those services (the
provisions of the FAA’s reauthorization proposal will be discussed later in this
report). FAA believes that the argument for this link is on much firmer actuarial
grounds than its previous attempts to link agency costs to taxes and fees. This is due
to its relatively new cost allocation system (CAS), which for the first time is
providing detailed cost information down to the so-called service delivery point
(SDP).23 Other improved data sources are also viewed as contributing to an improved
cost allocation study. Finally, the FAA believes that with its new cost allocation
methodology (called CAMERA) it has created a mechanism that can be used
repeatedly over time, with significant confidence, to adjust the user and other fees it
is proposing in response to changing industry use patterns.
The FAA believes that costs should be allocated as shown in the Table 4 above.
As can be seen, the results differ significantly from those obtained in previous years.
The FAA argues that the new results accurately reflect the industry’s current use
structure, whereas earlier studies done using different methodologies and financial
starting points are not directly comparable to the new results.
The 2007 report differs from previous reports in several aspects. The primary
change is that it concerns itself primarily with allocating costs associated with its Air
Traffic Organization (ATO) activities, which it does on a fully allocated basis24.
Some previous reports used total agency obligations and other starting points thereby
attempting to allocate costs amongst all FAA activities (airports, research, safety, and
security, etc.). Another important change is the assignment of users into two
principal groups: a high performance group (all turbine (jet) powered aircraft) and
piston aircraft group (all piston powered aircraft and helicopters (regardless of power
source)). By this action, the FAA is attempting to better stratify general aviation
system users. The new cost allocation system suggests that high performance GA
(turbine) aircraft use 9.7% of system capacity, while other GA users should be
allocated 5.9%.
The FAA Funding Debate
In 2005, the FAA announced that it was beginning a detailed examination of
how the agency was funded and whether there could be a more appropriate funding
mechanism. A key element of that examination is the issue of whether the existing
indirect system of taxation should be replaced by direct charges for specific air
navigation services. It became clear in 2006 that the FAA would seek a new revenue
system when FAA Administrator Marion Blakey remarked that using the existing
23 A major complaint about previous cost allocation efforts has been that the FAA could not
actually provide detailed information about what it cost to operate each of its facilities in
real terms. The new CAS has been created in part in response to demonstrated
congressional concerns.
24 Related FAA administrative and overhead costs appear to be included in the allocation
process.

---

CRS-20
ticket tax mechanism was a system that “might as well be tied to the price of milk.”25
Although the elements of the FAA plan were still unknown in their totality at that
point, enough had been surmised that aviation interest groups began actively
supporting or opposing various potential elements of a direct user fee system.
Aviation Interest Group Perspectives. While the FAA continued its
studies, aviation interest groups launched their own preemptive strikes for and
against a fee-for-service system of financing. The airline industry, through the Air
Transport Association (ATA), struck first, making its own proposal for a new
financing system in early March 2006.26 ATA’s so-called “Smartskies” proposal
would be based on direct charges for departures and flight duration that would apply
to all aircraft regardless of size or type of use. The exception in the ATA proposal
was that piston-powered general aviation aircraft would continue to pay only a fuel
tax. By its own estimates, the ATA proposal could shift an estimated $2 billion of
system costs to certain GA sector users, primarily corporate aircraft, which the ATA
believes currently underpay for their use of the ATC system.27 The ATA proposal
goes beyond just fee structure changes and suggests that the FAA’s air traffic
organization become an autonomous part of the agency, with the ability to operate
without the need for direct congressional appropriations. Instead the fees collected
from aviation system users, which would still be deposited in the aviation trust fund,
would be immediately available to the ATO. One final feature of the proposal would
give the ATO the authority to issue bonds for infrastructure improvements backed
by expected future fee collections.
On the same day that the ATA made its proposal, a group of GA-related interest
groups released a statement suggesting that the “airlines’ plan for improving the air
transportation system is for them to pay less and control more.”28 From the GA
perspective, the ATA case that certain GA users underpay for their use of the ATC
system is incorrect for a number of reasons. The GA contention is that the current
structure of the ATC system was primarily created to support commercial airline use
and that they are not putting a significant additional burden on the ATC system as a
result of their flying activities. From the GA perspective fuel taxes remain the most
appropriate type of user fee, and the ATA’s proposal to remove the ATO’s activities
from the regular congressional appropriations process is viewed as undesirable public
policy.
The above discussion is a simplification of the very complex and contentious
issue about who pays and who should pay for FAA aviation services, that goes back
for at least six decades. It should be noted that the discussion of aviation user fees
has been almost exclusively a conversation between the federal government and
aviation industry. For example, the views of the largest group of current contributors
25 Wald, Matthew W. F.A.A. Seeks New Source of Revenue in User Fees. The New York
Times. March 7, 2006. p. A18.
26 Bond, David. “Fire when Ready,” Aviation Week & Space Technology, March 13, 2006,
p. 47.
27 Ibid.
28 [http://web.nbaa.org/public/news/200607eaa/GAUnitedAgainstUserFees.pdf]

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CRS-21
to the aviation trust fund, airline passengers, are not well known. Little non-
government or non-interest group-funded research on the aviation user fee system has
been done and the lack of such outside research in itself might be a subject worthy
of some attention as part of the reauthorization debate.
Legislative Proposals and Options
The FAA remains firmly convinced of the need to create a new aviation funding
system, with corresponding FAA budgetary and administrative provisions. On
February 14, 2007, the FAA released a legislative proposal encompassing these
views (H.R. 1356, hereafter referred to by bill number or as the FAA proposal).29 The
FAA contends that this legislation will provide for improved delivery of its air traffic
control and other services, in part by directly linking taxes and fees paid by users to
their use of Agency resources.

The remainder of this section discusses the finance related provisions of the
legislative proposal put forth by the FAA in some detail and then looks briefly at the
status-quo as a policy option for continued funding of the FAA. Additional
legislation may be introduced during the remainder of the 1st Session.
The Bush Administration’s Proposal30
In H.R. 1356, the Next Generation Air Transportation System Financing Reform
Act of 2007, the FAA proposes the most significant change in aviation finance since
the federal program was created by the 1970 Act. The FAA proposal provides for a
three year authorization period (FY2008 - FY2010) during which the FAA would
transition from its existing trust fund/general fund based financing system to a system
based on new direct fees and existing excise taxes, as well as general fund monies.
Although the trust fund would be continued, its overall role in funding the agency is
significantly reduced. The proposal uses a mix of direct fees (referred to as user fees
by the FAA and throughout this section), excise taxes, and general funds, to pay for
the FAA’s ATO related activities. The proposal funds the FAA’s safety activities
primarily from general funds, but also allows the FAA to collect user fees related to
its registration and certification activities for this purpose. Excise taxes would be
used to support the continued aviation trust fund which is dedicated primarily toward
funding AIP, but also supports part of RE&D and essential air service (EAS)
programs.
The FAA proposal does not set new user fee rates for ATO services. Rather it
enunciates a framework for how fees can be set and creates an Air Transportation
System Advisory Board (Board) to assist the FAA Administrator in establishing
29 Representative Oberstar introduced the FAA proposal (H.R. 1356), by request, on March
6, 2007.
30 The FAA’s proposed legislation and supporting documentation is available at
[http://www.faa.gov/regulations_policies/reauthorization/]

---

CRS-22
appropriate fee levels and mechanisms, among other things. Ultimately, however, the
Administrator would be the sole decision maker on fee setting issues.
The proposal adopts a new financial structure for the FAA that corresponds to
the new program funding regime. To facilitate this structure: it would create two new
accounts in the Treasury to receive the newly imposed user fees; allows for the
establishment of a reserve fund; and allows the FAA to issue bonds to speed-up F&E
equipment acquisition. Agency spending would still be subject to annual
congressional appropriations.
The FAA proposal is controversial, and several aviation interest groups came
out against it almost as soon as it was introduced.31 The proposal, however, has
supporters, especially the ATA, which views it as a positive step forward.32 Hearings
on H.R. 1356, which embodies the FAA proposal, have been scheduled in both the
House and the Senate.
Proposed Tax and Fee Structure. The principal feature of the FAA
proposal is the creation of a direct user fee system to pay for the majority of the
Agency’s costs associated with its ATO activities. The proposal, however, does not
recommend a specific user fee structure. Instead, it lists the criteria that must be
considered in setting fee levels and leaves it to the Board and ultimately the FAA
Administrator to actually set the fees. The proposal would require that the
Administrator consult with affected parties prior to establishing a fee structure, but
gives the affected parties no further role in the process.33
ATO user fees.
Specific ATO user fees could be set for enroute, oceanic,
and terminal area flight activity. According to the language in the proposal, enroute
and oceanic fees can be based on “distance traveled or any other method that is
consistent with the treaties and international agreements to which the United States
is a party.” Since much of the rest of the world uses aircraft weight and the distance
flown as part of its fee setting process, it would appear that a similar fee setting
regime could be implemented here.34 Overflight fees (for aircraft transiting U.S.
airspace) would be eliminated and these flights would be subject to the enroute and
oceanic fee system.
Fee setting for terminal area activities could be somewhat more complicated
because the proposal allows for fees to be differentiated at various locations and at
different times of the day. Factors that could be included in the terminal fee structure
may include aircraft takeoffs/landings (at airports with over 100,000 passenger
boardings per year), aircraft weight, operations at a large hub airport (1% of total
31 Wolfe, Kathryn. FAA’s Funding Proposal Doesn’t Fly With Entire Aviation Industry,
Lawmakers. CQ Today - Transportation and Infrastructure. February 16, 2007.
32 [http://www.airlines.org/news/releases/2007/statement_12-14-07.htm?PF=true]
33 It would appear that the Board, with wide aviation industry representation, is supposed
to be part of the consultation process, although this is unstated in H.R. 1356.
34 The airline industry, and groups such as the air cargo industry, have traditionally opposed
weight based tax structures.

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CRS-23
U.S. enplanements), time of day or day of week at congested large hubs, and different
fees for daytime and nighttime operations.
User fees would be imposed on all commercial users of ATO services
irrespective of aircraft type. For the purposes of determining which tax certain
aircraft might pay, the applicability of IRS regulations would delineate between
commercial and noncommercial users. Although GA aircraft will operate outside of
the ATO user fee system most of the time, they are subject to terminal related fees
at congested large hub airports.
The proposal would require that fees be set in relation to the costs incurred for
providing ATO services. In setting the fees mentioned above the FAA would be
prohibited from using flight altitude as a fee setting factor. It could offer incentives,
by way of reduced fees, for the purchase and use of equipment that would enhance
an aircraft’s safe and efficient operation in the air traffic system. In addition, it could
seek sufficient user fee revenues to establish a reserve fund to be available if system
revenues fail to reach projected levels.
The ATO would also receive funding from excise taxes. The proposal suggests
that a 70 cent per gallon fuel tax be imposed on all GA users (kerojet or aviation
gasoline). Of this 56.4 cents per gallon is dedicated to ATO activities and 13.6 cents
is reserved for the aviation trust fund. These fees are to be indexed to inflation
beginning in 2009 and can be modified by the Administrator in future years. The
FAA believes that it is no longer necessary to differentiate the tax rate for turbine
(avgas) and piston (aviation gasoline) aircraft users, as has been done in the past,
because of the much higher fuel use rates of turbine aircraft.
Safety and Operations User Fees. Safety and non-ATO operations
activities would be primarily funded by Treasury general funds. In addition, the FAA
proposes registration fees for specified services at rates detailed in the proposed
legislation. By way of example, aircraft registration would be subject to a $130 fee
and issuing an airman medical certificate would cost $42. Many of the activities
listed here were previously provided at nominal fee levels.
Fees are also to be imposed for FAA certification activities. Specific fees for
activities such as certification of a large foreign repair station or a maintenance
technical school are not enumerated in the legislation. Rather, the Administrator is
to set fees at levels that correspond to the costs imposed on the FAA for providing
the certification service in question.
Trust Fund Excise Taxes. The largest source of revenues for the trust fund
would come from the 13.6 cent per gallon fuel tax on all aircraft irrespective of fuel
type. These taxes are to be adjusted for inflation and can also be adjusted up or down
if the FAA cost allocation process so dictates.
The other principal source of funding for the trust fund is by continuation of the
international arrivals/departure fee which is set at $6.39 per event. This tax can also
be adjusted for inflation and/or cost allocation reasons.

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CRS-24
Although the FAA proposal is based primarily on direct user fees, there is a
transition period during which the trust fund would continue to provide some funding
for ATO and all other FAA activities, albeit at a diminishing level.
Air Transportation System Advisory Board (Board). The FAA proposal
would create a 13-member Board charged with advising the Administrator on user
fee and other issues at his or her request. The Board’s membership would include
the Administrator, a Department of Defense representative, three members
representing “the public interest,” an airport member, three airline members
representing different size air carriers, a cargo airline, member, a GA member, a
business aviation member, and a representative of the aviation manufacturing
industry. Appointment of all members would be made by the Secretary of
Transportation. In addition, the proposal would prescribe the Board members’ terms
and provide guidance on its administrative functioning.
The Board would advise the Administrator on a wide range of FAA programs
and activities. At the outset, however, it would appear that the Board’s principal duty
would be to help with the creation of the new user fee system. According to
provisions of the proposal, “prior to establishing or modifying fees ...... the
Administrator shall consult with and seek the recommendations of the type and level
of such fees.” A procedure would be established whereby the Administrator, who
has ultimate fee setting responsibility, could disagree with the Board’s
recommendations and establish fees by publishing the reasons for disagreement in
the Federal Register.
Should the FAA proposal be enacted into law, it will be very much up to the
Administrator to determine how, and how much, they might wish to use the Board’s
expertise. There is nothing in the legislation as proposed that automatically gives the
Board any power to exercise its advisory role, especially in a public forum. This is
because the Board’s actions would not be subject to the public meeting or any other
administrative provisions of Title 5 U.S.C. Further, it is not clear that the Board
would have access to information about cost allocation and other subjects, except to
the extent that the Administrator wishes to make this material available to the Board.
Budget and Structural Provisions. As suggested by the new tax and fee
proposal, the FAA would be reorganized from a budgetary perspective. ATO
assessed user fees would be deposited into a newly created Treasury ATO account.
Similarly, registration and certification fees would be deposited in a newly created
Treasury safety and operations account. The trust fund, however, would remain
intact, but its role in financing overall federal aviation activities is greatly reduced.
The new user fees would require a new collection system to insure that they are
deposited in the appropriate account. The Administrator would be charged with
developing this system, perhaps with the help of the Board. The FAA proposal
would give the Administrator some enforcement powers to assist in the collection
effort long term.
FAA spending would still require annual liquidating appropriation by Congress.
The relationship between the FAA and congressional appropriations committees
would apparently be unchanged. From a budgetary standpoint, however, it appears

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CRS-25
that the offsetting collections process created by the proposal would remove FAA
spending from the discretionary part of the budget. At least one source has suggested
that the new funding arrangement could run afoul of the newly created pay-as-you-go
rules adopted by the House of Representatives.35 In short, it is unclear at this point
how the new funding arrangement proposed here would play out as part of the
congressional budget and appropriations process.
Congressional finance committees (House Ways and Means and Senate
Finance) could lose their existing jurisdiction over some aspects of the FAA tax and
fee setting. These committees would likely retain their jurisdiction over the excise
taxes to be deposited in the aviation trust fund, but would have no role or oversight
over the newly established user fees. Authorizing committees normally have
jurisdiction over offsetting collection programs of the type that are proposed for the
ATO, and for safety and operations. As proposed, however, all fee setting powers
would reside with the Administrator, meaning that a specific oversight role for the
authorizing committees is not defined in the legislation.
Bonding Authority. The Secretary of Transportation would have the ability
to issue Treasury bonds to facilitate a rapid implementation of the NGATS program.
Up to $5 billion could be issued at interest rates established by the Treasury. To
finance the bonding the Secretary could increase user fees by an amount needed to
repay the bonds with interest. These additional revenues would not go into the new
Treasury accounts mentioned earlier, but would flow directly to the Treasury. Full
repayment would be required by the end of FY2017.
The concept of using bonds to speed up the acquisition of F&E capital items has
been discussed for years. The dedicated revenue stream to the ATO account would
make bonding possible as part of the FAA’s program for the first time. It has been
argued that having this authority would allow the FAA to better program its
acquisition requirements over an extended period of time, as opposed to the potential
uncertainty of the annual appropriations process. In addition, access to additional
funds could give the Agency the ability to pursue a number of technology and
equipment upgrades at the same time. The main argument against bonding is that the
interest payments make it a more expensive way to pay for infrastructure than
through direct appropriations.
Agency Funding. The FAA proposal would provide overall authorization
levels for the FY2008 - FY2010 period of nearly $28 billion. This number, however,
cannot be meaningfully compared to previous legislation because it excludes much
of the funding required by the prospectively user fee funded ATO, and safety and
operations activities. These activities would now be linked to actual system costs
which cannot be determined this far in advance. To the extent that the authorized
levels can be compared they suggest a significant annual cut in airport improvement
program (AIP) and essential air services (EAS) funding from the FY2007 enacted
levels.
35 Transportation Weekly. Administration FAA Bill Likely Violates House Pay-As-You-Go
Budget Rule. February 28, 2007. p. 13.

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Observations. The proposed FAA legislation is seen as ambitious and far
reaching, encompassing many of the goals delineated by the agency when it started
its review of the aviation finance system in 2005.36 The proposal would establish a
new funding mechanism for aviation activities directly linking user taxes and other
fees to the costs incurred for the operation of air traffic and other FAA services.
The FAA proposal, however, contains many provisions that may cause
congressional concern. The broad delegation of fee setting and other authority to the
Administrator, in particular, is likely to be viewed by many as a significant transfer
of power from the congressional to the executive branch. This could be very
problematic, especially for authorizing committees who could lose some of their
existing oversight jurisdiction. This problem is especially acute vis-a-vis the
activities of the Board which could largely be hidden from public view by virtue of
the Board’s proposed exemption from U.S.C. Title 5 regulations.
The user tax proposal is complex and includes many unknowns. The FAA
proposed legislation, as mentioned above, leaves the task of actually establishing user
fees to the Administrator, perhaps with the advice of the Board, making it impossible
for system users to have any certainty as to what specific user fee obligations they
would face in the years ahead. This lack of certainty is likely to make many system
users cautious of this proposal, even if they believe they might benefit from it.
This sense of caution is also likely to extend to programs funded out of the trust
fund. For example, the size of the AIP appears to be closely tied to revenues expected
from trust fund dedicated excise taxes. The FAA is proposing a smaller AIP for the
years ahead. If Congress were to increase the AIP to just its FY2007 level for the life
of the new reauthorization it is quite possible that excise taxes would have to be
adjusted upward.
The FAA Administrator has stated that this is a “once in a lifetime opportunity”
to create a new aviation finance system to insure the adoption of NGATS.37 It is not
at all clear that this viewed is shared by a majority of the aviation community at this
point in the reauthorization debate. In 1970, when the existing aviation funding
system was created, a shared sense of crisis seems to have permeated the entire
industry. That does not, however, seem to be the case today. As a result, it remains
to be seen whether Congress will choose to follow the guidance put forth by the FAA
or choose a different path toward reauthorizing federal aviation activities.
The Status Quo Alternative
The status quo can be viewed as the preferred option for most of the aviation
interest groups aligned with the general aviation community. As a group they would
argue that the existing system has provided adequate funding for the FAA over time
and that there is no reason to change a system that has worked well. As discussed
earlier, these groups have faith in estimates that show sufficient growth in overall
36 [http://www.faa.gov/regulations_policies/reauthorization/media/Financing_Principles.pdf]
37 [http://www.faa.gov/news/testimony/news_story.cfm?newsId=8184]

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CRS-27
aviation tax and fee revenues to support expected growth in the FAA budget, at least
during the life of the next reauthorization period (most recent reauthorizations have
been for three or four year periods). If for some reason trust fund revenues do fall
below needs, the difference, in this view, should be made up by a more robust general
fund contribution (25% or the total FAA budget or more) , which, in this view,
should be encouraged regardless of the outcome of the rest of the funding debate.
Further, these groups assert that Congress has provided an appropriate level of
stewardship for the aviation community and that proposals that would reduce
Congress’s oversight and fee setting role are likely unwise and unnecessary.
One perceived problem with this scenario is the uncertain and/or inadequate
revenue growth estimates that the FAA and other industry groups predict over the
next few years and its heavy reliance on a stable general fund contribution. Based
on the revenue estimates on which the success of the status quo is based it can be
suggested that they succeed only so long as the general fund contribution holds
steady or grows. Any significant event that depresses airline traffic, reduces the trust
fund’s principal revenue source. In the event of another September 11 or some sort
of pandemic, it would be unlikely that the status quo system would be able to muddle
through without significantly higher general fund support, which depending on the
originating cause of the system disruption might be hard to come by.
In light of the perceived need for funding for NGATS implementation and other
FAA activities the case can also be made that the existing tax structure should be
adjusted upward if the current funding system is maintained. Existing taxes and fees
have not been raised in a decade. It can be argued that certain of these taxes and fees
are not keeping up with inflation. This is especially the view as regards the fuel
taxes, which is why the FAA’s reauthorization proposal would have its proposed new
tax levels linked to the CPI.
Politically the status quo is probably the easiest scenario to implement. But
much is dependant on how many changes might be made in the FAA’s funding
programs and how much additional money might be needed to implement these
changes. At that point, the debate will inevitably return to money. It is not out of the
question, therefore, that maintenance of the status quo financial system would result
in a significant congressional debate about tax and fee rates.

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