Operations of and Outlook for the Transportation Trust Funds

Published by the Government Accountability Office on 1990-05-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                    United   States General Accounting    Office

For Release          Operations       of   and Outlook    for      the
on Delivery          Transportation         Trust   Funds
Expected     at
lo:00    a.m. EDT
May 8, 1990

                     Statement    of
                     John W. Hill,      ,Jr.
                     Associate    Director,      Transportation          Issues
                     Resources,     Community,      and Economic
                        Development     Division

                     Before     the S:Ahcommitte     oc InX,Testigations
                         and Oversigh:
                     Committee        on Public  Works and
                     tinited    States    House of Representatives

                        f34&w-l            p-/i SC/
                                                                            GAO Form 160 (12/87)
Mr.     Chairman         and Members of the                         Subcommittee:

          I am pleased             to have this                   opportunity             to testify              on the
operations           of and outlook                  for      the        Highway         and Airport              and Airways
trust       funds.        As your          committee                examines          how best            to use the
revenues        credited           to the          trust           funds,        items        warranting           attention
include        unexpended            balances              as well            as trust         fund       revenues            that
could       be made available                    to meet our burgeoning                           surface          and air
transportation              needs.

          As you know,             critical               needs confront                 the    nation's           highway                and
bridge       network.            Yet,      a $10.6            billion            balance        exists           in the         Highway
Account        of the       Highway             Trust       Fund.             Why?       The primary              reason             is
that      limitations            are placed                on the            amount      of    funds        states           are
allowed        to obligate.                    In addition,                  states      have not           used an
estimated         $1 billion              in the           trust         fund     revenues         available                 to be
obligated.              State      officials               told      us they          do not       use these                 funds
primarily        because           they         provide            a cushion          against           an uneven             flow         in
federal        funds.           Under      recent           projections,                 the    trust           fund    balance             at
the     end of its          life        will       exceed           outstanding               commitments              by an
estimated         $6.4      billion.               This       means that              a one-time                increase             in
authorizations              of $3.4             billion            is possible            while         still      retaining                a
safety       cushion        of $3 billion                   in the            fund--the         maximum federal
transportation              officials              believe              is    required         to provide              for
unforseen        disruptions               to highway                   taxes     or inaccurate                  revenue
projections.              Finally,              to prevent               future       build-ups             in the           trust

fund     balance,          obligation             ceilings          should         more closely               approximate
expected       income --revenues                   and interest--to                   the       trust        fund.

         The nation's             aviation           needs are similarly                        critical.            The
administration              has proposed              raising             user     fees       to    fund      future
Federal       Aviation         Administration                  (FAA) equipment                     and operations
costs.        However,         air      traffic           control          modernization                 requirements,                 by
themselves,           do not         necessitate             an increase              in user            fees.         In the
near-term,          the     fund      can accommodate                     a greater           share         of the
agency's       operations             expenses            without          increasing              fees--albeit                not     at
the     spending       level         proposed         by FAA.              An increase              in user          fees       will
be needed           in the     fiscal        year         1994 time              frame     to support             the
agency's       proposed           spending           plans         for     equipment            and operations.

         My testimony             today      will         focus          on the     operations               of each of the
trust      funds,         including         yearly          revenue          and expenditure                  streams:
reasons       for     the     buildups            in the       two funds'             balances:              and our
observations           on the         process         for      drawing            down the          balances.
Unfortunately,              the      severity         of the             general         fund      deficit        has made
the     concept       underlying            trust         funds--that              revenues             be spent         for
their      intended         purpose--quite                  different             in reality,               because       various
trust      fund      balances         are used to mask the                         deficit.              In the        current
budget       environment,             the    reality           is that            any accelerated                 drawdown             of
the     Highway       and Aviation                Trust      Fund balances                 can be accomplished
only     by increasing               the    deficit          or at the             expense          of other            federal

         Starting         with     the     Highway          Trust        Fund,       I will            focus      first          on
the    Highway       Account.


         The federal             Highway      Trust         Fund was established                         in     1956 as a
mechanism         to support          and expand             the      rapidly             growing        Federal-Aid
Highway       Program.            The program              includes          the         Interstate,            primary,
secondary,          and urban         highway         systems,              and accounts                for     over        80
percent       of all       vehicle         miles      travelled.

         The trust         fund      is    funded         through           user         fees    such as the                federal
g-cent       per gallon           gasoline         tax,      taxes          on tires,            heavy         vehicle-use
taxes,       and interest            on the        trust          fund      balance.             This         fund     is used
to reimburse           state       governments              for      money spent                improving             the
federal-aid          highway         system.          The federal                  government            generally               pays
75 percent          of a project's             cost,         although              for      some projects,                  such as
on the       Interstate           system,      the         federal          share         may be as high                  as 90

         The trust         fund      is reauthorized                  periodically,                 most recently                     in
1987.        The 1987 Highway                Act    authorized               roughly            $14 billion               in funds
for    the    Federal-Aid            Highway        Program           for     each year                through         fiscal
year      1991.      Most federal             programs             require          congressional
authorizations             to be followed                 by appropriations                      that         grant
  approval           for      spending          or obligating               program           funds.         Programs
  within        the        federal-aid           highway          system,          however,           generally          bypass
  this       two-step          process.           Rather,             federal-aid             authorizations                 are made
  available            for     obligation1              without           appropriations                 through        what      is
  called           81contract        authority."

             However,          not    all       authorized             funds       may be available                 in a given
  year       for     states'         use.        The Congress               may impose              obligation           ceilings
  on authorized                highway          funds,         which,       according              to the       Department             of
  Transportation                 (DOT),         are part          of an overall                effort          to control
,-federal           spending.            For instance,                 while       $22.1       billion          was available
  for       highway          programs          in fiscal          year       1989,       the       obligation           ceiling
  was set           at $12.2         billion           for     that       year.       With         the    exception            of $2.2
  billion           available          for      programs          exempt          from       the    ceiling,        the        total
  of states'               commitments           for         highway       projects           could       not    exceed         $12.2

  Hiahway           and Bridue           Needs Are Escalatinq

             Difficult           decisions             face     the       Congress           on the       amount        of     federal
   funds      that         should      be directed              to highway            and bridge               needs.          For
   instance,           the      Interstate             Highway         System        is vital            to our
  transportation                 network,          as it        carries           slightly          more than           20 percent

  lAn obligation      is a commitment of the federal  government     to
  reimburse    states   for the federal share of a project's    eligible

of vehicle             traffic.                DOT statistics              show that            over      40 percent                of
the       Interstate              is      in barely        tolerable            or worse         condition.                 Further,
the       federal         Interstate             preservation              program,         commonly             known as the
Interstate             4R program,               is currently              funded      at $2.8           billion            a year,
but       the   Department                 of Transportation                    (DOT) estimates                 $4.2      billion
to    $5.5      billion            will        be needed       annually            through        the        year        2005 in
federal          funds       for        this     program,         if      the     federal        cost        share        remains
the       same.

           In addition,                 the     number of deficient                   bridges           on the           federal-

aid       system       has grown               since     1982.           Bridge     deficiencies                 on the
federal-aid               system           increased        from         about     70,000        to     77,000           from       1982

to    1988,         according              to DOT statistics.                     Much of this                 increase          is
due to the             rapid           growth      in deficient              Interstate           bridges.                Federal
transportation                    statistics           show an increase                 in deficient                   Interstate
bridges          from      approximately                 4,900          in 1982 to almost                 8,200          in 1988.

Build-up            in the         Hishwav         Trust      Fund Balance

           In the         first           12 years       of its          existence,         the        trust        fund        balance
remained            at $1 billion                or less.           (See fig.         1.)        After          a rapid          growth
in the          197Os,       the        balance        peaked           at $12.6      billion           in      1979.
Through          fiscal           year      1989 the        trust         fund     has accumulated                     revenues
and interest               totaling             $219.6      billion          and has made available                             $209
billion          to the           states.          The current             trust      fund       balance            is

$10.6      billion,           with     projections               estimating              a 1991 trust             fund
balance         of $11.6         billion.

         The effect            of trust          fund         revenues           and expenditures                 on the
trust      fund        balance        is     illustrated                in figure         2.      The dashed             line
represents             income        to the      trust          fund.           From 1983 to           1989 income                 to
the     trust         fund    has generally                  increased.              The heavy         line       indicates
expenditures             from        the     fund      which         were at times               greater         than,      equal
to,     and less         than        income.           The thinner               line     represents             the     trust
fund     balance.             The trust             fund      balance           represents         the      excess        of
trust      fund        income        over     expenditures.

         Since         the    beginning          of the          trust          fund     in 1956,          the    interest
earned       has totaled              $14.7      billion              through        1989.        In recent            years,
interest         earned         has ranged             from       $800 million               to $1.1        billion         per
year.       We see no distinction                            in revenues             credited         from user
receipts         and revenues                credited           as interest              income       in terms           of the
amounts         to be made available                         from       trust     fund       balances.

Reasons         for     the     Build-up            in the       Hiqhwav          Trust         Fund Balance

         The Highway             Trust        Fund balance                 exists,        in large          part,        because
of funds         that        are not         obligated            for      highway        projects.              These
unobligated             funds        occur      for         several        reasons.            (See fig.         3.)      A
primary         reason        accounting              for      the      Highway         Trust     Fund balance                is
congressionally                 established                 obligation           ceilings,         which         constrain

the     federal         funds         available            for      states       to spend on highway
projects.              The funds            that     are restricted                   from     states'           use
accumulate             in the         trust        fund,         contributing           to the         growth          in the
fund's        balance.            In fiscal               year      1989,       the    Highway         Trust       Fund
balance        was $10.6              billion        and ceilings                accounted          for        approximately
$8 billion             of the         balance.

          Another          explanation              for     the        trust     fund     balance          is that             states
did     not     obligate          approximately                   $1 billion           in funds           they     had
accumulated             that     were exempt                  from      obligation           ceilings.             State
officials           said       they      have held               on to these           funds       primarily            to
protect        themselves              against            an uneven            flow    of federal              funds.

Obliqations             Ceilinss            Constrain             States'        Snendinq

          The authorization                      of federal-aid                 highway        funds       is not         a
guarantee           that       those        funds      will        be available              for    states         to use in a
given       year.          In the        late       196Os,         the      administration                instituted
impoundments,               which        temporarily               forced        states       to delay
obligations.                About        a decade           later,          these      impoundments              were
replaced         by congressionally                        set     obligation           ceilings.               The effect
was the        same-- both             restricted              states          from    obligating           the        total
amount        of funds          authorized.

          For instance,                in       1983 the          obligation          ceiling,           set      at
$12.4       billion,           permitted            states         to spend close                to the         amount

originally              authorized           by the        Congress.              In 1989 the                obligation
ceiling           was set       at approximately                     $2 billion             below      the      original
authorization,                 according            to DOT records.

           To exacerbate              the     situation,               the     funds        that      are restricted
from       obligation           in one year              carry         over     to the         next      year.          Although
these           unobligated          funds       could         be made available                    in addition             to new
authorizations                 in the        next       year,        newly      imposed            obligation           ceilings
restrict            states      from        spending           these     funds.             (See fig.           4.)        The
result           is that       the margin            between           funds      which        states         may      obligate
as defined              by the       ceilings,           and the         funds         which        could       be available
for      state       spending,          continues              to widen.

           If     the    states       were permitted                   to obligate             more federal-aid
funds,           several       indicators            point       to states'             ability          to provide              the
necessary            matching         funds.            I would         like      to make note                of two such
indicators--             annual       requests           for     additional             obligation              authority           and
states'           use of a procedure                    that     enables          them to start                 projects
without           obligating          federal           funds.          A redistribution                     of obligation
authority            occurs       annually           after       August,          at which            time      obligation
authority            released         by some states                   is given         to states             requesting
additional              authority.            For fiscal               years      1987 through                1989,        states
requested            between         $2.4     billion           and $2.8          billion           in additional
obligation              authority,           although           approximately                $800 million               was
actually            available         for     redistribution.                     Over the            3-year          period,
states'           requests        totaled           nearly       $8 billion.

          States         are able         to advance            the     construction              of approved
federal         projects          prior      to receiving               obligation            authority.              In
essence,            under       advance      construction               procedures            states       use their             own
funds       until        additional          federal           obligation            authority         becomes
available.               When it        does become available,                         states      convert          the
projects            to the       appropriate           federal          program           categories             and funds
are obligated                  to cover      the     federal           share        of project           costs.          Since
1987 the            advance       construction            balance             ranged       between        $2 billion
and $2.6            billion.

Some Hiohway                Prosrams       Are Exempt From Obliaation                             Ceilings

          The Congress             also      authorizes               highway        funds       which      it     exempts
from      the       obligation          ceilings.              When the         Congress          exempts          programs
from the            obligation          ceilings,         it        permits         states       to spend          100
percent         of the          funds     authorized            for     that        program.         Exempt         funds
represent            a small       portion          of the          entire      highway          program.           For
instance,            since       1983 the       amount          of funds            not    subject        to obligation
ceilings            has ranged          annually        from approximately                       $700 million              to
$2.2      billion.              The Congress           may designate                 any number           of programs                as
exempt,         and may change               the     categories               from year          to year.

          The most significant                      exemptions               from    obligation           ceilings,             in
dollar       terms,            are the minimum            allocation                program       and demonstration
projects.              The minimum           allocation               program        guarantees           that      states

receive            back at least                 85 percent              of their            revenue          contributions            to
the       trust       fund.          In fiscal              year        1990,        19 states             received       minimum
allocation                funds.        Minimum             allocation               funds     account            for
approximately                 67 percent              of the            exempt        funds,         and demonstration
projects            account          for     31 percent.                      The remaining                2 percent         is
comprised             of a variety                 of small             programs.

           Although           states         are free              to use all            of these             funds,      the     unused
amount        has grown              from        $0.2       billion            in fiscal            year      1983 to the
fiscal        year         1989 level              of approximately                     $1 billion.                 (See fig.         5.)
The bulk            of this          $1 billion               is composed               of minimum              allocation
funds,        which,          according             to state             transportation                    officials,         are held
by states             as protection                 against             an uneven            flow     of federal             funds.
Saving            these      funds         is particularly                     attractive            to states           because
minimum            allocation              funds      may be used in a variety                                of program          areas,
unlike            other      highway         funds,          which            are generally                restricted         to use
within            a specific          road         system.

The Fund Could                  Support            a Hisher             Authorization                Level

           A common belief                   is that           the       trust        fund     balance            represents          a
surplus.              This      view,        however,              is        not    accurate         since        the    balance
plus       projected            future           revenues             will         be needed to cover                   commitments.

           For instance,                   the     fiscal          year        1989 trust            fund       balance       of $10.6
billion            is needed          to cover              commitments                (unpaid        authorizations),                 but

it    is    not      sufficient            to cover            all       outstanding                 amounts          that        were
authorized             through          1989.         The authorized                      amounts          outstanding,
including            those       constrained                 from      state         spending             through          obligation
ceilings,            totaled           about       $31.6       billion              in     fiscal         year       1989.
Consequently,                 an apparent             shortfall               of $21 billion                    exists.

           This      situation,            however,            is permitted                     because         when the
Congress           established             the       trust       fund,         it        also       established              a safety
mechanism            to ensure           that        sufficient               funds         would         be available              to
liquidate            commitments               at the         end of each fiscal                          year.           As revised
by the       Surface            Transportation                 Assistance                 Act       in    1982,       the     Byrd
Amendment now permits                          the    total          projected              commitments               at the        end of
the    fiscal         year       to exceed            the      trust          fund        balance          so long           as income
projected            for      the      following             2 years          is     sufficient              to cover             the

           In a May 1989 report                       to the           Senate            Appropriations                   Committee,
we pointed             out      that     the      trust        fund          could        support          a higher           level       of
program           activity          because          future          total          revenues             over       the    fund's
authorized             life      are expected                 to exceed              the        level      of future
authorized            commitments.                   At the          time      of our review,                     the      anticipated
amount       of      funds       in excess            of all          commitments                   was $7.4          billion.

           Federal           transportation               officials,                 however,             believe          that     a
safety       cushion            of between            $1 billion               and $3 billion                     would       be
necessary            to guard           against         unforeseen                  disruptions              to highway             tax

revenues             or inaccurate             revenue         projections.                  Further,        since        the
time       of our review,                $1 billion            in Emergency               Relief          funds     was
authorized             because        of the        highway          and bridge              damage caused            by the
October           1989 Loma Prieta                earthquake              in California.                   Assuming        a
conservative                safety       cushion         of $3 billion               and taking             into     account
the    additional              $1 billion           authorized,              the     trust         fund     could     support
$3.4       billion          in additional               authorizations.

           Now I would            like      to address            the Mass Transit                   Account         of the
Highway           Trust       Fund.

Hiqhwav           Trust       Fund --Mass         Transit         Account

           The Highway           Revenue Act               of 1982 established                      a special          Mass
Transit           Account        (MTA) in the              Highway          Trust      Fund to fund                several
Urban Mass Transportation                           Administration                  (UMTA) grant             programs,
including             the     Section        3 Discretionary                 Grants          and Section            8 Planning
Grants        programs.              MTA receives              revenues            from      1 cent        of the      motor
fuel       tax.        Through        fiscal        year       1991,        MTA is        expected          to receive
income        of about          $13.5        billion.           However,            about       28 percent,            or $3.8
billion,             of the MTA funds               have either              not     been authorized                 to be
obligated             ($3.1     billion)          or not been obligated                        by UMTA because                  of
appropriations                 limitations              ($.7    billion).

           Of the         approximately             $13.5       billion         MTA received                in income,           the
Congress             has provided            permanent          contract            authority             to obligate

$10.4      billion            through         fiscal        year      1991.         However,            the       annual
appropriations                 process         has placed             limitations               on obligations               of the
MTA funds            to about          $9.7      billion.             Consequently,               UMTA is not
authorized            to obligate              about        $3.8      billion.

         UMTA is expected                     to obligate             all     of the           $9.7     billion         MTA funds
authorized            to be obligated                   and to        incur       expenditures                totaling        about
$5.7     billion             through      fiscal         year       1991.         Therefore,             about         $4 billion
of the       obligations               are not          expected            to be funded               at the        end of
fiscal       year       1991.          This      occurs         because          obligated             funds        remain
available            until       expended,             and expenditures                  for     some projects,               such
as construction                  of new transit                 systems,          are     incurred             over      a number
of years.

         Finally,             the MTA balance                at the          end of fiscal                year        1991 is
expected           to be $7.8            billion.            However,            about         $4.0     billion          of this
balance        is     committed           to prior           years'          obligations               that       have not       been
funded.            As previously               discussed,             the     remaining               MTA balance
consists           of the        $3.8     billion           funds       not      authorized             to be obligated.

         Now I would              like        to address            the Aviation                Trust         Fund.


         The Airport              and Airway             Trust        Fund,       also         known as the              Aviation
Trust      Fund,        was established                  in 1970.             The trust               fund     is     financed      by

excise           taxes      levied          on air     passengers,           air      cargo,      and general
aviation            fuel.         The fund           supports        all    airport       grants        and capital
improvements,                 such as new radars                  and traffic           control         towers.
Within           certain         limits       set     by the      Congress,           some of the             remaining
money can be used to cover                             the      FAA’s      operations          expenses.             That
portion           of FAA's           operations         expenses           not paid       from trust            fund
revenues           must be financed                   from the          general       funds     of the U.S.
Treasury.                 The income          generated          by the      trust      fund--revenues                and
interest--           is shown in figure                   6.

Use of the Trust                     Fund

          Generally,               receipts          have exceeded           trust      fund      spending.            The
current           $14.6      billion          balance          exceeds      outstanding           commitments             by
more      than       $7.6        billion,        and,     in that          sense,      the     fund     has a surplus.
(See fig.            7.)         This       surplus     traces          to congressional               restrictions            on
spending            for     FAA operational               expenses          and to slower              spending        on
air     traffic            control          modernization            than    authorized           by the        Congress
because           of delays             in project        development.

          Trust           fund    expenditures            for     operations           have been restricted
since       1971.           Although          the     Congress          has allowed           FAA to spend
aviation           user       fees        to cover      operations           expenses          since         1976,    there
are     limits            on how much the              trust      fund      can contribute              for
operations.                 The overall              cap on trust           fund      spending         for     operations

is much less               than         the     burden          created         by the         system's             users.2          The
maximum allowable                       amount          that     may be spent                 for     operations              is
further         reduced           if     spending              targets         for     capital            programs          are not
met.       If     it     were not              for      these      limitations,                there         would         be no
surplus.               In fact,          if     the      users        paid      for     all         the     costs      occasioned
by their         use,          then      the         trust      fund would             be running                 a deficit        of
more than              $1 billion              annually.

          In a 1988 study                      the      Congressional                 Budget         Office          concluded          that
private         aviation               (commercial              and general)              operations                 are
responsible               for     about         85 percent               of the        costs         of FAA's           aviation
programs,              while      public             aviation         (primarily              military)              operations
are responsible                   for         the     remaining            15 percent.                    In 1988 three-
fourths         of FAA's               operations              expenses         were paid                 by the      General        Fund.
Had private               sector         users          covered          all    of the         costs             associated        with
their      use,         only      one-fourth                  would      have been paid                    by the       General

Reasons         for       Build-Uv             in Trust           Fund Balance

          In addition                  to the         overall         cap on spending                      for     FAA's
operations,               there         is also              a penalty         provision             that         reduces      the

2Trust   fund spending      for operations  is currently   capped at an
amount equal to 50 percent        of the total   amounts available     for
airport    grants, facilities     and equipment,   and research    and
3 The Status of the Airport                                    and Airway Trust                     Fund,         Congressional
Budget Office, Washington,                                    D.C., Dec. 1988.
maximum amount                that      can be spent                      for     operations            in proportion                to
any shortfall             in spending                    on capital               programs.4             If      not     for    this
penalty       clause,          the      trust            fund,        rather            than    general          revenues,           would
have been used to                    fund          $6.6     billion              for     FAA operations                between         1983
and 1990.5              These unspent                     funds       plus        their        accrued         interest--92.1
billion--equal                $8.7      billion.                   This         exceeds        the     estimated          fiscal
year      1990 surplus               of $7.6             billion           surplus         by over            $1 billion.

          The Congress               responded              to the              growing        trust     fund      balance           by
adopting          the    trigger             tax     provision                  of the     Airport            and Airway           Safety
and Capacity             Expansion                 Act     of      1987.          While        the     spending          cap limits
trust      fund     outlays            for         FAA's        operations               costs,        the     trigger         tax
provision          reduces           trust          fund        taxes,           and therefore                income      to the
fund,      by 50 percent,                    if     capital           spend ing           fa ils       to meet
congressional             targets.6                  The Congress                      chose to postpone                 activating
the     trigger         tax    until              next     year.

41n the Airport   and Airway Safety and Capacity      Expansion Act of
1987, the penalty    clause reduced the amount of FAA's operating
costs that could be covered by the trust        fund.  The annual maximum
amount for operations      is reduced by twice the amount by which the
actual  amounts made available      for these programs fall    short of
levels  specified  in the law.
5Furthermore,    aviation   excise tax revenues of $1.18 billion       in
fiscal   year 1981 and $1.04 billion     in fiscal year 1982 were not
credited   to the trust   fund, but remained in the general      fund.
6The trigger             provision      reduces aviation    excise taxes by 50 percent
if the sum of             the obligation       limits   for airport    grants and
appropriations              for facilities       and equipment    acquisition  and
research     and         development       for 1988 and 1989 is less than 85 percent
of the total             amounts the Congress authorized.

           Finally,           the      trust        fund      balance            is large         because          FAA has
experienced               delays        in modernizing                     the    nation's          air     traffic          control
system.            Initiated            in       1981,      FAA's          National         Airspace          System          (NAS)
Plan was designed                      to replace             computer,               radar,      and communication
equipment.                Our prior            work has found                    that      the    delays          have resulted
primarily             from unrealistic                     initial           schedules           and problems               in
developing               new technologies.7                          System       development              delays        are
related           to FAA's            underestimating                      (1) the       complexity           of highly
automated             systems,           (2) the           time       needed          to develop           system        software,
and (3) the               interdependencies                       among systems.                  In addition,
contractors               have been unable                    to perform                on schedule.

           Major         systems        whose schedules                      suffered           major      delays        include
the       $4.4     b illion           Advanced           Automation              System,         the      $892 million              Vo ice
Switching             and Control                System,          and the            $495 million           Mode S
Communications                 System.             Modernization                  problems          have led            to the
accumulation                of unspent             balances             in the          trust     fund.           In addition,
initial           cost      estimates             are rising.                 This       will     significantly                   impact
future        trust         fund       expenditures.                    FAA now projects                   that       the    NAS Plan
will       cost       $4 billion             more than               the     original           $12 billion             estimated.
Furthermore,                because          more        projects            are being           added,       total         air
traffic           control        modernization                    costs       will       be even greater.                    Indeed,
if     the    costs         of all        associated                 projects           to modernize              the    system        are
included,             the     total       will       be about              $27 billion            through          the      year

71ssues           Related        to an Indevendent                         FAA (GAO/T-RCED-88-45,                        June 2,

2000.8            FAA now acknowledges                  that      modernization                   will      need
continuous           funding,          and not      end in        1991 as its                   preliminary             cost-
benefit          analysis       for     the     NAS Plan         indicated.

          This     year,      the      administration             is proposing                   that     the     trust            fund
be used to cover                85 percent          of FAA's           total         budget          beginning              with
fiscal      year      1991 --thereby             eliminating            the         general          fund     subsidy.                  In
fiscal      year      1990,       the    trust      fund       is expected                 to pay for            only         about
58 percent           of FAA expenditures.                      To meet this                 expanded          use of the
trust      fund      and to pay for              modernization,                    the     administration                   has
proposed          raising       passenger          ticket        taxes,            which        form     a large            bulk        of
such fees,           from     8 to      10 percent.

          Increased         modernization             costs        and expanded                  use of the                trust
fund      to pay for          operations           expenses--albeit                       not    at the         level
desired          by the     administration--do                   not        necessarily              require          an
immediate           increase          in user      fees.         Figure            8 illustrates                how current
trust      fund      user      fee revenues           combined              with      existing            uncommitted
balances          could     be used to cover                75 percent                of the         entire        FAA
budget.           Fees must be increased                    only       if      the        fund      is relied              on to
cover      85 percent             of the       FAA budget.             Indeed,             the      surplus       would            be
depleted          by fiscal           year     1994 if      fees       are not             increased            and
proposed          expenditures               are maintained.                 On the          other        hand,       if      the
trust      fund's         share       of FAA's      expenses           is maintained                     at the       current
level      of about         58 percent            and if       user         fees         continue         at the           existing

8FAA Aooronriation                    Issues      (GAO/T-RCED-89-20),                        Apr.        4, 1989).
levels,      the      surplus   could    rise     to about   $11 billion       in fiscal   year

This      concludes      my testimony.          I will   be glad   to answer     any questions
at this      time.

Figure   1

             Highway Trust Fund Balance Growth
                Highway Account-FY 1957-91*
             Dollars   in Billions







      Change in Highway 7 lust Fund Balance
          Highway Accoun -FY 1983-91
                 Billions       of Dollars

                                                 /             ,‘          /
                           /          /                                               ’    --
      4     I      I                        I            I            I          I

                                          1986       1987           1988       1989       1990*    1991’
          1983   1984
                      __-.     1985

                  I----I        Balance              m       Expenditures                 a       Income

*Represents FHWA PrOjeCtiOnS
Figure    3
               -                     -.-_--       -..       ~-__~-     ~~-

               Total Unobligated Highway Funds
                    Fiscal Years 19834989
               /Dollars        in Billions
   $10     /
                1I                                                                 $8
     $8                                                   $6.9       /.----. -71
     $6               $4.6
                   /----   /         $3.6


                   1983           1984
      States’ Expenditures of Available Funds*
               Fiscal Years 1983-1989

                                                                $19.8      $19.2       $19.3
                                                           ,’            ,.- -----Tl r---    /

                          1984            1985      1986          1987        1988        1989
                           .____-_-.                       ___-___        _

                            m          State Obligations             @%%k!
                                                                        Funds      Available

l   Funds   Subject   to Obligation       Ceiling
Figure        5

                                    Obligation of Exempt Funds*
                                      Fiscal Years 1983-1989
                                    Dollars   in Billions





                      1983            1984       1985         1986   1987     1988     1989

                                        m     Obligated      Funds   @@# Funds Available*

 l   Funds    Exempt         from Obligation       Ceiling


I= t
 c 3
       Impact of Fee Increases and Recovery
         Factors on the Aviation Trust Fund
       Surplus    in Billions    of Dollars
    12 r---
    10 I                                                       //-e--------

                                              Fiscal   Years

           -     Fee Increase,     85% RF
           +     No Increase,     58% RF

Note: The Recovery Factor (RF) is the
percentage   of FAA’s needs paid by the
Aviation Trust Fund.