• The Airport and Airway Trust Fund was created by the Airport and Airway Development Act of 1970 (P.L.91-258) to provide user-fee funding for capital improvements to the nation’s airport and airway system. Subsequently, authority was provided to cover some Federal Aviation Administration (FAA) operating expenses.

• Revenues into the trust fund come primarily from airline user fees, including a tax on domestic airline tickets, a cargo waybill tax, an international departure tax, and taxes on aviation fuel used by general aviation, plus interest on the unspent balance. According to the latest data from the Committee on Transportation and Infrastructure, annual user fee tax revenues into the trust fund will grow from $7.7 billion in FY 98 to $11.0 billion in FY 2003.

• The Airport and Airway Trust Fund finances:
• Airport improvement program (100% trust fund);
• Facilities and equipment program (100% trust fund);
• Research, engineering and development program (100% trust fund); and
• FAA operations and maintenance programs (varying, usually around 50% trust fund, remainder from general funds).
• During the 1980s and 1990s, the Airport and Airway Trust Fund accumulated significant unexpended balances. These balances were drawn down during FY 96 and FY 97, when authority to collect taxes for the aviation trust fund expired on two occasions, costing the trust fund approximately $5 billion in revenues. The Taxpayer Relief Act of 1997 (P.L.105-34) reinstated the aviation taxes with some modifications effective October 1, 1997, raising slightly more revenues for the aviation trust fund during the next five years than would have been raised under the former tax structure.

• Unexpended balances in the Airport and Airway Trust Fund have the same effect on the federal budget as unspent balances in the Highway Trust Fund or the Social Security Trust Fund. They allow user fee revenues to be diverted to unintended uses and help mask the size of the federal deficit—or allow the government to claim a budget surplus when none would exist if trust fund revenues were being used only for their intended purposes.

• Under current revenue and spending policies, the uncommitted balance in the Airport and Airway Trust Fund will grow from $3.8 billion at the end of FY 98 to a record $22.3 billion by the end of FY 03, compared to a peak of $7.7 billion during the last buildup at the end of FY 91. The uncommitted balance could explode to $52 billion by FY 08 according to FAA data from the Committee on Transportation and Infrastructure.
• At the same time, there are significant unmet needs in our nation’s air transportsystem:
  • The National Civil Aviation Review Commission, created by the Federal Aviation Reauthorization Act of 1996, found that under-investment in airport construction, caused by recent cuts in appropriations for the Airport Improvement Program, will "certainly lead to further congestion in the aviation system." The number of airports characterized by the FAA as "severely congested" will climb from 25 currently to 29 by the year 2005.
  • The National Commission found that the current practice of capping the FAA budget and diverting funds from capital improvements to operating expenses will only make matters worse as more and more of the agency’s funds are required just to maintain aging equipment and facilities. Between 1989 and 1997, such diversions reduced funding for the Airport Improvement Program from 25 percent of the FAA budget to just over 15 percent.
  • The Commission also found that the increasing frequency of large jet accidents is unacceptable; without a significant reduction in the accident rate as passenger traffic increases, the number of accidents and fatalities will go up. Solutions will require additional federal resources. According to the Commission, "the importance of adequate resources to meet the needs of aviation safety cannot be overstated." The report continues "the federal government must maintain a sufficient funding level for aviation safety."
  • In a recent study, the General Accounting Office found that 26 percent of airport runways are currently at or below the critical pavement condition index level and require rehabilitation. GAO estimates that 50 percent of runways will require rehabilitation within the next 10 years, including 75 percent of runways at large and medium hubs. A minimum of $1.38 billion must be spent during the next 10 years to rehabilitate these runways, under the best case assumption that the expenditures occur at the optimal time for rehabilitation. If expenditures are made only as funds become available, the total cost would rise to $1.62 billion since many runways would deteriorate beyond the least-cost repair option. Because GAO surveyed only 1,154 of the 3,331 airports on the national system, the report concluded "it is likely that the need for rehabilitation funds for all the airports in the system is considerably higher than the amount we could identify."
  • The Federal Aviation Administration estimates that the number of domestic airline passengers will rise 50 percent during the next ten years, from 626 million in 1998 to 926 million in 2008. This will put additional strain on the nation’s airports, as well as on access roads and parking facilities.

• The solution—the National Commission made the following recommendation:

FAA’s budget treatment must change. The Commission recommends that the FAA’s funding and financing system receive a federal budget treatment ensuring that revenues from aviation users and spending on aviation services are directly linked and shielded from discretionary budget caps. This will ensure that FAA expenditures will be driven by aviation demand.

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