Airport and Airway Trust Fund Issues in the 106th Congress

Order Code RS20177

Updated November 2, 2000

CRS Report for Congress

Received through the CRS Web

Airport and Airway Trust Fund Issues in the 106th

Congress

John W. Fischer

Specialist in Transportation

Resources, Science, and Industry Division

Summary

Congress concluded its debate on the airport and airway trust fund (aviation trust

fund) by modifying its treatment in the budget. The Wendell H. Ford Aviation Investment

and Reform Act for the 21st Century (AIR21 or FAIR21)(P.L. 106-181) contains a so

called “guarantee” that uses House and Senate point-of-order rules to ensure that all

aviation trust fund receipts (including interest) are spent for aviation purposes on an

annual basis. This provision represents a compromise in what had become a contentious

debate. When the legislation was first considered in the House in 1999 it contained two

separate budget options for the trust fund. The first, taking the trust fund off-budget,

was contained in the passed House version of the bill. The second option, which would

have created a “firewall” around aviation programs, was dropped during later committee

consideration.1 Changing the budget treatment of the trust fund was opposed by the

Clinton Administration and by some Members of the House and Senate Budget and

Appropriations Committees. Reauthorization legislation passed by the Senate contained

no budget treatment provisions. The budget treatment provisions in AIR21 were not

challenged during the FY2001 appropriations process. This report will not be updated.

The airport and airway trust fund was created by the revenue title of the Airport and

Airway Development Act of 1970 (P.L. 91-258). The “aviation trust fund,” as it is also

known, was established to provide funding for the federal commitment to the nation’s

aviation system. The scope of the programs funded by the aviation trust fund has been

expanded over time.

1

For further discussion of off-budget and “firewall” budget treatment see: U.S. Library of

Congress. Congressional Research Service. Transportation Trust Funds: Budget Treatment. by

John W. Fischer. CRS Report 98-63E and The Transportation Equity Act for the 21st Century

(TEA21) and the Federal Budget. CRS Report 98-749E. by John W. Fischer.

Congressional Research Service ˜ The Library of Congress

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Aviation Taxation

The Taxpayer Relief Act of 1997 (P.L. 105-34) made some changes in the system of

taxation for the trust fund and provided for their authorization through FY2007. For

aviation, the action equated to a tax increase that was expected to raise an additional $3

billion in revenues over the first 5-year period covered by the Act.

The system of taxation imposed in 1997 relies heavily on an airline passenger ticket

tax currently levied at 7.5%. A new segment tax was created — a segment is defined as

a single take-off and single landing — and is currently imposed at a rate of $2.50 per

segment (this level rises to $3 by FY2002 and is then subject to annual adjustment).

Additional sources of funding for the trust fund include: a 6.25% cargo waybill tax; a

$12.40 international arrival/departure tax, and taxes on general aviation fuels (17.5

cents/gallon on jet fuel and 15 cents/gallon on gasoline). A preexisting tax of 4.3

cents/gallon imposed on all aviation fuels, including those used by airlines, was redirected

to the trust fund. Finally, the new system taxes second party payments for travel awards

provided by airlines at the 7.5% level. This is primarily a tax on frequent flyer awards

linked to credit card and other commercial activities. Trust fund income from these

sources is detailed in Table 1.

The 1997 increase in taxation was not specifically tied to aviation needs, but was

rather a portion of the larger balanced budget initiative. In addition, these changes did not

necessarily equate to additional funding for aviation. In fact, the balanced budget

agreement linked to the Taxpayer Relief Act allowed for only a modest increase in overall

transportation spending in the years covered by the agreement.

FAA Programs and Spending

The trust fund, at present, provides funding for all four of the FAA budget’s major

components: Operations and Maintenance (O&M), Facilities and Equipment (F&E),

Research, Engineering, and Development (RE&D), and the Airport Improvement Program

(AIP). The trust fund provides all funding for all but the O&M account. Funding for the

O&M account is derived from both the trust fund and the U.S. Treasury general fund

(issues concerning this split will be discussed later in this report).

As can be seen in Table 1, overall FAA program spending rose significantly between

FY1989 and FY1999. Overall growth did moderate, and actually decline, for a period in

the mid-1990s. The increases in the O&M account have been the most substantial and

most consistent on a relative basis. A source of growth in spending has been the ongoing,

and controversial, upgrade of the air traffic control system which began in the early 1980s

and is still many years from completion. Most of this spending shows up in the F&E

account, but this spending has affected other accounts as well.

Trust Fund Issues

Two philosophical views about how trust funds relate to the budget frame the current

debate about the context of the trust fund as part of the federal unified budget. According

to those seeking to change the budget status of the aviation trust fund the fund mechanism

represents a contract with the taxpayers to spend revenues on the specific activities

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identified as the purpose of the trust fund. In the view of those who support the unified

budget approach, on the other hand, a dollar of federal revenue is a dollar of federal

revenue. Spending decisions, therefore, need to be in the context of national rather than

programmatic requirements. These competing views can be examined in the context of

the two specific issues, balance and appropriate use.

The balance issue is usually the most visible of the two and drives the budget

treatment debate to a large extent. By far the most contentious disagreement over trust

fund spending arises because actual federal spending for trust fund programs often does

not match program spending levels set in authorizing legislation, and is often below annual

revenue collections for the fund. The disagreement over spending levels usually reflects

the differing priorities that congressional committees face. For example, the authorizing

committees with authority over transportation programs often support full funding for

these programs. Budget and appropriations committees, by contrast, often view

transportation spending as competing with other federal needs within a broader context

of fiscal policy.

A related issue is the question of the accumulation of unexpended funds in the trust

fund over time. During most of its life, as can be seen for a recent period in Table 1, the

trust fund has had a large unexpended balance. There are commitments against the

unexpended balances, so not all of the funds shown as unexpended are actually available

at any given time. Nonetheless, the unexpended and uncommitted balances have often

been quite large relative to the size of the annual federal aviation program. There are

numerous additional reasons for these balances, other than a lack of spending. And many

of these, such as the payment of interest on trust fund investments and the use of general

funds to pay for a portion of the FAA’s operating expenses are very controversial.

A temporary expiration of the trust fund in 1996 eliminated a significant portion of

the unexpended balance. By all predictions, however, including the Congressional Budget

Office’s February 1999 baseline estimate, the trust fund’s unexpended balance was

expected to grow dramatically in the next few years unless there was additional spending

over current levels. AIR21 has dramatically raised spending levels, but projections still

indicate that a significant unexpended balance in the fund will continue to exist.

Another long-standing issue surrounding the trust fund is the appropriateness of

spending trust fund revenues for FAA O&M expenses. The trust fund was established as

a means of paying for federal aviation needs, which were viewed by many, but not all, of

its authors as being primarily capital needs. Every presidential Administration since the

trust fund was established, however, has sought additional O&M funding from the trust

fund. As can be seen in Table 1, the general fund share of FAA spending has varied over

time. Over the last 12 years, for example, the share has ranged from a low of 0% to a high

of 47%.

Legislation considered in the 1st session of the 106th Congress (H.R. 1000, S. 82) was

predicated on the maintenance of a large general fund contribution to FAA expenses. This

contribution is justified on the basis of the public benefits accruing to the population in

general from aviation activities. The public contribution philosophy was a part of the

original trust fund concept. At issue, has been the size of the public contribution, and the

more recently proposed notion that the FAA should be funded entirely by user fees.

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The FAA has sponsored numerous cost-allocation studies that have provided an

economic rationale for the general fund contribution by detailing an FAA cost component

related to provision of services to other government agencies, such as DOD, and to the

public at large.2 These periodic assessments have always been somewhat controversial

because there have been numerous questions about the ability of these studies to attribute

specific FAA costs to specific system users and to the “public use” component identified

in these studies. The public use component identified by these studies has been dropping

over the three decade history of this program. The most recent of these studies shows that

the public sector costs are now well below 10% of total FAA costs while the general fund

contribution has remained at the higher levels shown in Table 1.

Concern about the appropriate use and balance issues has led several Members of

Congress to the position that aviation is unlikely to get the support it needs as long as the

trust fund is just another part of the unified federal budget. For most of the last decade

attempts to change the budget treatment of the trust fund have focused on moving it offbudget. Although often discussed, and sometimes considered, the off-budget concept has

never received approval in both the House and the Senate during the same Congress.

Early in the 106th Congress, aviation spending proponents turned their attention to

the firewall concept in the development of H.R. 1000. During the debate leading to

passage of TEA21 trust fund proponents developed a new budgetary device, the spending

guarantee, better known as firewalls, to guarantee spending for highways and transit. This

device was seen by many as having essentially the same effect as taking the programs offbudget. Subsequent action on H.R. 1000 (which became AIR21), however, dropped the

firewall approach and substituted off-budget provisions. These provisions were

complimented by other budgetary devices intended to adjust aviation program spending

to levels corresponding to annual trust fund revenues.

Budget Provisions in H.R. 1000 as Considered by the House

H.R. 1000 as passed by the House on June 15, 1999, would, according to CBO “take

the trust fund off-budget and exempt airport and airway trust fund spending from

discretionary spending caps, pay-as-you-go procedures and congressional budget

controls.”3

The bill also contained additional budget provisions that would further affect the

annual aviation funding process. Most significant among these are provisions that “cap”

the annual general fund contribution and a mechanism that provides additional funding for

AIP based on trust fund revenues and aviation program spending. The “cap” which could

be viewed as somewhat of a guarantee, except in FY2000, has the effect of setting the

general fund contribution at a level that equates to the contribution in FY1998 ($3.351

billion).

From the perspective of the promoters of AIR21 the off-budget provisions made full

funding of aviation programs more likely in the context of the annual budget and

2

GRA, Incorporated. A Cost Allocation Study of FAA’s FY1995 Costs. Final Report. March 19,

1997. Prepared for: FAA Office of Aviation Policy and Plans.

3

Congressional Budget Office. Cost Estimate. H.R. 1000. May 28, 1999.

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appropriations process. AIR21 programs remain subject to appropriations. For the

Appropriations and Budget Committees, however, there would appear to be little incentive

to change any AIR21 funding authorizations because these changes would have no effect

on the annual congressional budget. The promoters of this legislation also contended that

it was not a threat to other federal transportation programs and that; “Any budget increase

would be outside the caps and would be fully paid for by the aviation taxes deposited into

the Aviation Trust Fund. For this reason, passage of AIR 21 will not cause reductions in

any other programs.4“

Opponents of the bill believed that H.R. 1000 could lead to a “balkanization” of the

unified budget process as each programmatic interest seeks special budget provisions for

its activities. There is also a concern that annual FAA program oversight by the

appropriations process will be somewhat limited. In this regard, opponents specifically

point to the FAA as an agency that has had a lot of difficulty getting projects accomplished

on time and on budget.

AIR21

AIR21contains neither an off-budget provision or a TEA21 style spending guarantee.

Instead, the agreement substitutes a spending “guarantee” that requires spending the total

budget resources of the aviation trust fund for aviation purposes on an annual basis.

Enforcement of the guarantee relies on changes to House and Senate point-of-order rules.

The Agreement uses a two step process to facilitate the guarantee. First, Title 1, Section

106 (c)(1) makes it out-of-order for either Body to consider legislation that first does not

spend all aviation trust fund revenues for the aviation purposes authorized by the

Agreement. Second, Title 1, Section 106 (c)(2) makes it out-of-order for either body to

consider legislation providing sums for Research and Development, and Operations, if

spending for AIP and F&E are below the levels authorized by AIR21.

These guarantees do not appear to be as strident as those created by TEA21 which

created new budget categories for the highway and transit accounts of the highway trust

fund. The point-of-order changes, none-the-less, give those seeking full funding of

aviation programs a tool to preclude redistribution of aviation trust fund revenues to other

budget categories.

4

[http://www.house.gov/transportation/press/presss99.htm]

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Table 1. Balances of the Airport and Airway Trust Fund, FY1989-FY1999 (in millions of dollars)

1989

1990

1991

1992

1993

1994

1995

1996c

1997

1998

1999

Trust Fund Income

Passenger Ticket Tax (includes

segment tax beginning FY1998)

3,201

3,219

4,341

4,012

4,472

4,528

4,768

2,123

3,389

6,002

7,280

Waybill Tax

181

178

222

249

255

284

361

151

331

313

412

Fuel Tax

629

141

140

167

121

187

211

3

128

659

1,009

International Departure/Arrival

Tax

106

181

217

231

223

218

233

128

194

948

1,484

3,665

3,700

4,910

4,644

3,261

5,217

5,573

2,369

4,027

8,153

10,423

1,009

1,245

1,297

1,273

1,040

837

757

759

481

543

698

5,918

b

6,082

6,363

3,209

4,508

8,696

11,121

Total Tax Revenuea

Interest on Investments

Total Trust Fund Income

b

4,674

4,945

6,206

4,302

Federal Aviation Administration Appropriations

Airport Grants-in-aid

1,400

1,425

1,800

1,900

1,800

1,690

1,450

1,450

1,460

1,700

1,565

Facilities & Equipment

1,384

1,721

2,095

2,409

2,302

2,055

1,960

1,855

1,938

1,901

2,195

Research, Engineering, &

Development

160

170

205

218

230

254

252

186

208

199

174

Operations & Maintenance

(Trust Fund)

471

807

2,003

2,110

2,279

2,295

2,450

2,223

1,700

1,902

4,122

Operations & Maintenance

(General Fund)

2,974

3,017

2,034

2,250

2,251

2,285

2,122

2,420

3,255

3,435

1,474

Total Expenditures

6,389

7,141

8,137

8,887

8,862

8,578

8,234

8,134

8,561

9,136

8,089

47

42

25

25

25

27

26

30

38

38

0

Percent of Expenditures from

General Fund

Trust Fund Balances

Unexpended Balance, Start of

Year

11,120

12,938

14,355

15,263

15,203

12,851

12,386

11,365

7,692

6,358

9,411

Unexpended Balance, End of

Year

12,938

14,355

15,263

15,204

12,850

12,386

11,365

7,875

6,442

9,140

12,446

a

Includes frequent flyer tax, rural airports tax, refunds of taxes and offsetting collections.

Includes offsetting collections and additional payments. In FY1993, $1,795 million were transferred to the general funds (P.L. 102-581)

c

All trust fund activities for FY1996 are affected by the lapse in revenue collection authority during the January - August 1996 period.

Source: U.S. Government. Office of Management and Budget. Budget of the United States Government, various years.

b