The Legislative History of the AATF

Before the Trust Fund

Federal Support insufficient to keep pace with growth in aviation; user taxes and fees not dedicated to aviation

The Air Commerce Act of 1926 charged the federal government with the operation and maintenance of the airway system and of all aids to air navigation.  However, airport facilities were funded by state or local governments or private entities such as airlines until 1946, when the Federal Airport Act provided grants for the development of a comprehensive system of airports.  The original seven-year program was limited to operational facilities (i.e., runways and other airfield development), and was extended through 1961, then again through June 30, 1970.

Special taxes on users of the transportation system had been around since World War II, when a passenger transportation tax was imposed as a means of discouraging use of scarce resources such as petroleum and rubber.  This tax persisted throughout the Korean War.  In 1962 President Kennedy called for repeal of the 10-percent tax that then applied to all commercial modes of transport.  In its place, the President proposed a 5-percent tax on airline tickets and air freight waybills.   General aviation would pay its share through a fuel tax.

With the coming of the jet age in the 1960s, it was clear that the existing funding was insufficient to keep pace with the rapid growth in air transportation, and alternative funding mechanisms began to be proposed. 

“One of the most notable aspects of our Nation’s prosperity in this decade has been the surging growth of its civil aviation.  Travel by both commercial airlines and privately owned aircraft has increased to an extent that has astonished all but the most optimistic forecasters. . . .  all who travel by air are aware, however, that the great increases in air traffic in recent years have brought their problems.  Congestion at the large airports of our metropolitan areas is one of these problems.  It is a nagging, troublesome problem which is becoming more extensive and severe.” Senate Committee on Commerce, S.  Rep. No. 1355, July 1, 1968.

Legislation was introduced that would establish an airport and airways trust fund to serve as the repository for existing and future taxes on air transportation.  In a speech to Congress on June 16, 1969, President Nixon called for a major expansion of the Federal programs for airport and airway development.  The President proposed a revised and expanded schedule of taxes on air passenger tickets, airfreight waybills, and fuels used by general aviation to fund a 10 year program costing $5 billion.  These taxes were to be imposed on users of the aviation system, rather than the general public, and were collectively referred to at the time as “user charges.”   The method for setting these taxes was to be based on “up-to-date information on the volumes and characteristics of traffic in the airspace” so that each user group would pay its fair share of the total.  

“The statistics on traffic determine the relative use made of the airways subsystems, facilities and services by the airlines, general aviation, and military aviation.  The relative use, thus determined, provides the basis for allocating the costs of the system and for establishing equitable user charges.” Senate Committee on Commerce, S. Rep. No. 1355, July 1, 1968, at p. 18.

All users of the systems were expected to pay their fair share.  In 1969, total IFR operations were projected to double over the next decade, and general aviation was expected to have the fastest percentage growth. (Report of Committee on Ways and Means, reprinted in 1970 U.S.C.C.A.N. 3083.)

THE TRUST FUND IS ESTABLISHED

Dedicated to expansion of the national aviation system and funded by users

A Dedicated Fund for Capital Improvements

In 1970 legislation establishing the Airport and Airway Trust Fund was enacted by Congress. The Trust Fund authorized a number of aviation-related excise taxes and fees to provide a dedicated source for funding the infrastructure needs of the National Airspace System. 

“In enacting this legislation, the Congress was well aware that general appropriations requested by the Executive for air systems improvements and amounts allocated by Congress historically have been substantially reduced in deference to nonaviation budgetary demands.  To ensure that the modernization and expansion effort contemplated under the Airport and Airway Development Act did not suffer a similar shortfall, a special trust fund was established to accumulate user revenues to be employed in the capital development program.  (H.Rep. No. 92-459, reprinted at 1971 U.S.C.C.A.N. 1798-99.)

The Trust Fund was intended first and foremost to fund capital development of the airport and airway system.  Congress took the unusual step of specifying minimum amounts to be allocated to system improvements rather than the more usual practice of imposing maximum limitations on spending.  After these needs were met the balance was to be made available for administrative costs, for the maintenance and operation of air navigation facilities and the conduct of certain other functions of the Federal Aviation Administration.  From the start, the question of how much should be spent to maintain, rather than improve the system was controversial.  Just one year after the Trust Fund was established Congress removed the provision authorizing trust fund balances to be used “for the maintenance and operation of air navigation facilities.”

 “This legislation proposes amendments to the Airport and Airway Development Act of 1970 which are designed to restate and sharpen Congressional intent with respect to the priority modernization of our nation’s airports and air navigational facilities and to restrict to those purposes the expenditure of aviation user fees which are accumulated in the trust fund created by that law.”  H.Rep. No. 92-459, reprinted at 1971 U.S.C.C.A.N. 1797.

Although this provision was restored in 1976, subject to a cap and a penalty if capacity expenditures fell below the authorized minimum, the right balance between capital development and operation of the system remained subject to debate.

A Funding Mechanism Intended to Reflect Use of the System

The 1970 legislation raised the existing 5% passenger ticket tax on domestic flights to 8%, added a new $3 per person departure tax on international flights and a imposed a new 5% waybill tax on the value of air cargo shipments.  The existing fuel tax, which consisted of a net tax of 2 cents per gallon on aviation gasoline (AvGas) was increased to 7 cents, and extended to other fuels used in general aviation (jet fuel, or kerosene).   The existing taxes on inner tubes and tires (10 and 5 cents respectively) were retained but were redirected from the Highway Fund to the newly-established Airport and Airways Trust Fund.  In addition, a new annual aircraft registration fee was imposed.  For piston-powered aircraft the registration fee was $25 plus 2 cents per pound over 2,500 pounds, while for turbine powered aircraft the per pound rate was 3.5 cents based on an assumption about the higher costs that those aircraft imposed on the system.

“The aircraft registration fee is based upon the premise that all aircraft should pay a basic fee as an entry fee to use the system.  It was decided that this fee should be determined according to the aircraft weight and type of propulsion.  Thus, the turbine-engined planes, which have the more sophisticated equipment and require a greater degree of air traffic control supervision because of their speed, will be charged a higher registration tax per pound.” Report of Committee on Ways and Means, reprinted in 1970 U.S.C.C.A.N. 3085.

From the beginning, Congress sought to link funding to use of the system through taxes and fees that were believed to approximate relative costs imposed.

“Under this legislation a better future is promised because a trust fund will be established and there will be a direct relationship between the use of the system and the money generated to meet the needs required by the users. It is fitting that the primary financial burden will be assumed by the direct users.” H.R. No. 91-601, reprinted in 1970 U.S.C.C.A.N. 3049.

In 1970 the idea that there would be a direct relationship between ticket taxes and use of the system was well-founded.  Since the establishment of the Civil Aeronautics Board in 1940, the airline industry had been subject to extensive economic regulation.  Fares were set based on a system which took into account fixed costs per operation as well as distance traveled.  Therefore, a tax based on ticket prices could be assumed to correlate closely with the costs imposed on the system.

“. . . a ticket tax is geared to charge an equitable tax related to the distance traveled and the cost per mile of air operation, since ticket prices for short flights are more per mile than long-line flights and the tax is proportional to the price of the ticket.”  Report of Committee on Ways and Means, reprinted in 1970 U.S.C.C.A.N. 3084. 

In 1970 it also was fair to assume that growth in revenue would keep pace with growth in use of the system.  The dominant users of the air traffic control system at the time – commercial airlines – were to pay the bulk of the taxes and fees.   Ticket taxes would increase in proportion to the number of operations and the length of trips, as would fuel tax revenues.

“One of the benefits of this legislation is that, through a system user charges, the funding of our airports/airways system will generally match and grow with the demands for its use.” H.R. No. 91-601, reprinted in 1970 U.S.C.C.A.N. 3055.

While it was considered possible to calculate the costs imposed on the aviation system by the highly-regulated airline industry, general aviation – a significant and growing sector – presented more of a challenge.   In 1962, President Kennedy had estimated that a fuel tax of 3 cents per gallon on general aviation would be “a minimal step toward recouping the heavy Federal investment in the airways.”   By the time the Trust Fund legislation was being debated, that number had increased, drawing criticism from those who would have to pay.

“Regarding the fuel tax on general aviation, the committee finds very little information to decide the appropriate tax.  The administration’s proposed fuel tax would apparently fall far short of providing the revenues to match the share of airway costs it allocates to general aviation.  The secretary of Transportation stated a fuel tax of about 47 cents a gallon would be required to recover the general aviation share of the costs of the airways over the next 5 years.  The representatives of general aviation, however, objected at the hearing that the administration’s costs were improperly allocated among the categories of users (and particularly, insufficiently to the general public).  It was their argument that they were already paying their fair share of the airway costs.”  Senate Committee on Commerce, S.  Rep. No. 1355, July 1, 1968, at p. 29.

With the deregulation of the airline industry in 1978, the direct link between ticket taxes and use of the system was broken.   Air fares were no longer set by rigid formula that reflected cost-per-mile and distance flown, but were now based on market demand and competition.  This resulted in dramatically lower prices for consumers, but also meant that the ticket tax – a percentage of the air fare – no longer correlated to use of the system.

The original intent of Congress was to create a tax and fee structure that would spread the burden among all users of the system in proportion to the costs they imposed.  In fact, the 1970 legislation called for a study which would allow Congress to make sure that all users were paying their fair share.

“The Secretary of Transportation is hereby authorized and directed, in cooperation with such other Federal officers and agencies as may be designated by the president and through full consultation with and consideration of the views of the users of the system, to make a study and investigation to make available to Congress information on the basis of which it may determine what revisions, if any, of the taxes imposed by the United States should be made in order to assure, insofar as practicable, an equitable distribution of the tax burden among the various classes of persons using the airports and airways of the United States or otherwise deriving benefits from such airports and airways.”  (P.L. 91-258 § 209) 

Although periodic studies were completed and the taxes and fees adjusted several times, limitations on the ability to accurately account for the costs imposed by certain classes of users made it difficult to achieve the original stated goal of a truly equitable distribution of the tax burden.

Expiration and Reauthorization of the Trust Fund 

In 1980, the authority to collect taxes and deposit them in the Trust Fund expired. Aviation taxes in place prior to 1970 did not expire, but proceeds were deposited in the general fund (ticket tax) or the Highway Trust Fund (gasoline, tire and tube taxes) and reverted to previous levels.   However, since a significant balance had been allowed to build up in the Trust Fund, funding for aviation programs did not cease.

The Airport and Airways Improvement Act of 1982 reestablished the Trust Fund and reauthorized spending from the Trust Fund for aviation programs through FY 1987.   The 8% ticket tax, $3 international departure tax and 5% waybill tax were reauthorized, while the aircraft registration tax was eliminated.  Taxes on aviation fuel increased to 12 cents per gallon for gasoline and 14 cents a gallon on other fuels to offset the loss of revenue from the aircraft registration fee.

“Since general aviation would no longer be paying the registration tax, and since general aviation’s share of total annual aviation taxes was proportionately less than its use of the aviation system, these [fuel] taxes were raised substantially. . . . .”  Congressional Budget Office, The Status of the Airport and Airway Trust Fund – A Special Study, December 1988, at p. 9 (citing S. Rep. 494, 97:2 (1982).

In 1987 the taxes were extended for another three years at existing rates, although the legislation called for reducing tax rates by 50% in January, 1990 if spending on aviation capital programs did not reach certain levels in 1988 and 1989.  In these years, the debate about how much of the Trust Fund revenues should go to fund operation, as opposed to improvement of the system picked up steam, as did the debate over how much surplus should be allowed to accumulate.  A 1988 special study by the Congressional Budget Office outlined four options under consideration for the Trust Fund, ranging from maintaining the existing policy to restructuring the Trust Fund so that user taxes and fees fully covered all costs associated with operating and improving the system.   The study noted that this latter approach could not be accomplished simply by raising all of the existing taxes, since some users were paying a disproportionate share of costs.

“While full recovery from system users might produce a more efficient use of the aviation system, some private-sector user groups might be subsidizing other private-sector users if the current tax structure was continued.  Specifically, general aviation appears to underpay its share of private-sector costs.  Raising all aviation-related excise taxes by the same percentage would continue this subsidy by commercial aviation.”    The Status of the Airport and Airway Trust Fund – A Special Study, December 1988, at p. 56, n. 4/

In 1990 the ticket tax was increased from 8 percent to 10 percent, the international departure fee from $3 to $6, the waybill tax from 5 percent to 6.25 percent and the rate for noncommercial jet fuel from 14 cents to 17.5 cents per gallon, although the increase in aviation tax revenues went to the general fund through 1992.  At the end of 1995, the aviation taxes expired for a second time, were reinstated for a short period and lapsed again.  Once again, there was a sufficient balance in the Trust Fund to allow funding to continue more or less uninterrupted.  This time around, the debate centered on the fairness of the ticket tax, which accounted for about 87% of Trust Fund revenue.  (Issues Related to Determining How Best to Finance FAA (PDF) (February 5, 1997) p. 5).

Becuase the various taxes that make up the Trust Fund are not based on factors that directly relate to the system’s costs, the extent to which the current financing system charges users according to their demand on the system is open to question. (Issues Raised by Proposal to Replace the Airline Ticket Tax (December 1996) p. 3).

Finally, in 1997 the Trust Fund was reauthorized for another decade, through September 30, 2007.  Recognizing the complex issues involved in reauthorization of the Trust Fund, Congress in 1996 established a 21-member commission to study how best to meet FAA’s financing needs.  The Mineta Commission, as it came to be called after its chairman, Norman Mineta, issued its report in December 1997.   The Mineta Commission called for sweeping changes in the approach to funding FAA programs.