FAA Financing:

Issues and Options in Deciding to Reinstate or Replace the Airline Ticket Tax

T-RCED-97-56: Published: Feb 4, 1997. Publicly Released: Feb 4, 1997.

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GAO discussed issues related to the financing of the Federal Aviation Administration (FAA), focusing on the: (1) status of the Airport and Airway Trust Fund; (2) issues raised by the coalition of the nation's largest airlines to replace the tax on domestic airline tickets with fees on domestic operations; (3) potential effects of the coalition's proposal on domestic competition; and (4) potential competitive impacts of alternative options for financing FAA.

GAO noted that: (1) based on FAA and U.S. Treasury estimates, the money available in the Trust Fund to finance new commitments would reach zero by July 1997, unless the taxes were reinstated or another financing mechanism adapted; (2) while FAA and the Treasury are still trying to determine when the Trust Fund would run out of money, based on FAA and Treasury data, FAA may have to stop making new capital commitments as early as March 1997 to ensure that FAA can pay its workforces through the end of the fiscal year; (3) if Congress reinstates the taxes or some other alternative by July, the Trust Fund should be able to fully finance its portion of FAA's fiscal year 1997 budget; (4) to the extent possible, commercial users of the nation's airspace should pay a fair, cost-based share of the total costs of the nation's airport and airway system; (5) recognizing the need for better cost data, Congress in October 1996 directed that: (a) an independent assessment of FAA's funding needs and the costs imposed on the system by each segment of the aviation industry be completed by February 1997; (b) GAO assess how air traffic control costs are allocated between FAA and the Department of Defense; and (c) a national commission study how best to finance FAA in light of these assessments, with a report due to the Secretary of Transportation by August 1997; (6) while many factors drive FAA's costs, such as the number of aircraft departures and aircraft miles flown, GAO found that the coalition airlines' proposal only incorporates factors that would substantially increase the taxes paid by low-fare and small airlines and decrease the taxes paid by the seven coalition airlines; (7) as a result, the proposal would dramatically redistribute the taxes among airlines and could have substantial implications for domestic competition; (8) if Congress decides to replace the ticket tax with a different financing mechanism, numerous options exist, including a tax on such common usage indicators as aircraft departures or passenger enplanements; (9) such options entail tradeoffs between their ease of administration, effect on how efficiently the nation's airports and airways are used, and ability to produce an equitable system in which commercial users pay their fair share of the costs; and (10) similarly, the potential competitive impacts of these options vary widely.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: On February 28, 1997, the President signed the Airport and Airway Trust Fund Tax Reinstatement Act of 1997. The Joint Committee on Taxation and FAA estimate that the act will generate $3.5 billion in additional revenues for the Airport and Airway Trust Fund in FY 1997. In a December 1996 report, February 1997 testimony, and a set of briefings and direct assistance to congressional committee staff during the period leading up to the statutory action, GAO played a critical role in congressional reinstatement of the excise taxes that finance the Trust Fund.

    Matter: The financing alternative that is finally selected should be relatively easy to administer and help ensure that, in the long term, FAA has a secure funding source, the nation's airports and airways are used as efficiently as possible, commercial users of the system pay their fair share, and a strong, competitive airline industry continues to exist. Ultimately, it will be a policy call for the Congress to decide on how to achieve these goals.


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