Aviation Spending Guarantee Mechanisms






Prepared for Members and Committees of Congress



Since the 1971 creation of the user-supported airport and airway trust fund in the Airport and
Airway Development and Revenue Acts of 1970 (P.L. 91-259) there has been disagreement over
the appropriate use of the trust fund’s revenues. Some Members of Congress viewed the trust
fund as primarily a capital account that would fund the Federal Aviation Administration (FAA)
airport and airway (mostly air traffic control) capital requirements. Others, including the Office of
Management and Budget (OMB), some executive agencies, as well as some members of
congressional appropriations and budget committees, viewed the trust fund as the basis for a user-
pay system that would also fund some or all of the FAA’s operations expenses.
Since 1976, Congress has passed and amended a series of legislative provisions designed to
“guarantee” the full funding of the FAA’s capital programs—the Airport Improvement Program
(AIP) and Facilities and Equipment program (F&E). From FY1977 through FY1990, the
guarantees consisted of a variety of “cap and penalty” provisions which set a legislated cap on the
amount of aviation trust fund money that could be used to fund FAA operations. In addition,
penalty mechanisms were put in place that would reduce the cap by formula amounts in
proportion to the capital programs’ shortfall of appropriated funding from their authorized
amounts. Although the cap and penalty provisions had some apparent early success, there was
growing resistance to passing appropriations bills that adhered to the penalties during the 1980s.
In 1990, Congress removed the penalty. Some form of cap continued through 1998.
In 2000, the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (P.L. 106-
181; AIR21) included two new spending guarantees. One made it “out-of-order” in the House or
Senate to consider legislation that failed to use all trust fund receipts and interest annually. The
second made it out-of-order to consider any bills that provided any funding for research or
operations if it failed to fully fund AIP and F&E at their authorized levels. These guarantees were
extended through FY2007 in Vision 100-Century of Aviation Reauthorization Act (P.L. 108-176;
Vision 100). AIP has been nearly fully funded under these provisions. F&E has not during recent
years.
Both the cap and penalty, and the point of order enforced guarantees have had mixed success. The
success depends on the support that enforcing the mechanism has maintained during the
appropriations process. The history of these guarantees indicates that the broader budgetary
situation can trump the spending guarantees.
Aviation funding guarantees have received consideration during the FAA reauthorization debate th
of the 110 Congress. Options discussed during the debate have included retaining the current
system, modifying the current guarantees, resurrecting a mechanism analogous to the cap and
penalty provisions, reconsidering taking the trust fund “off-budget,” or erecting budgetary “fire
walls” as was done for the highway and transit programs in 1998.






Introduc tion ..................................................................................................................................... 1
Backgr ound ..................................................................................................................................... 1
A Note on the Unified Congressional Budget and the Aviation Trust Fund..............................3
Airport and Airway Development and Revenue Acts Amendments of 1971 (P.L. 92-
174) ........................................................................................................................................ 4
The Cap and Penalty Era: FY1977-FY1998...................................................................................5
Airport and Airway Development Act Amendments of 1976 (1976 Act; P.L. 94-353)
and the Aviation Safety and Noise Abatement Act of 1979 (1979 Act; P.L. 96-193,
Section 201)...........................................................................................................................5
The Cap...............................................................................................................................5
The Penalty.........................................................................................................................6
Airport and Airway Improvement Act of 1982 (1982 Act; Title V of P.L. 97-248) as
amended by the Surface Transportation Assistance Act of 1982 (STAA; P.L. 97-
424, Section 426 (c))..............................................................................................................7
The Cap under the 1982 Act, as amended...........................................................................7
The Penalty.........................................................................................................................8
Airport and Airway Safety and Capacity Expansion Act of 1987 (P.L. 100-223, 101
Stat 1492; 1987 Act)............................................................................................................10
The Cap..............................................................................................................................11
The Penalty........................................................................................................................11
Tax Trigger Provisions.......................................................................................................11
Omnibus Budget Reconciliation Act of 1990 (OBRA-90; P.L. 101-508)...............................12
The Cap.............................................................................................................................13
The Penalty.......................................................................................................................13
Federal Aviation Administration Reauthorization Act of 1994 (P.L. 103-305; 1994
Act) ........................................................................................................................... ........... 14
The Cap.............................................................................................................................14
Aviation Tax Authority Lapses..........................................................................................15
Federal Aviation Authorization Act of 1996 (P.L. 104-264; the 1996 Act).............................15
The Cap.............................................................................................................................16
FAA Funding in the Cap and Penalty Era (FY1977-FY1998)................................................16
Current FAA Funding Guarantees.................................................................................................18
Guaranteed or Out-of-Order....................................................................................................18
Waiver of the Points-of-Order...........................................................................................19
Guarantees in Current Reauthorization Proposals.........................................................................20
H.R. 2881................................................................................................................................20
Funding Guarantee Options...........................................................................................................20
Come to an Agreement............................................................................................................21
Impose New Cap and Penalty Provisions...............................................................................22
Take the Aviation Trust Fund Off-Budget...............................................................................22
Build Budgetary “Fire Walls”.................................................................................................23
Rearrange Program Funding...................................................................................................23





Table 1. Cap and Penalty Under the 1976 Act as Amended by the ASNAA 1979..........................6
Table 2. Cap and Penalty Under the 1982 Act, as Amended by the STAA 1982............................8
Table 3. Cap and Penalty Under the Airport and Airway Safety and Capacity Expansion
Act of 1987.................................................................................................................................10
Table 4. Cap and Penalty Under OBRA-90...................................................................................13
Table 5. Cap Under the Federal Aviation Administration Reauthorization Act of 1994...............14
Table 6. Cap Under the Federal Aviation Reauthorization Act of 1996........................................16
Author Contact Information..........................................................................................................24






Since the 1971 creation of the user-supported airport and airway trust fund under provisions of
the Airport and Airway Development and Revenue Acts of 1970 (P.L. 91-259; the 1970 Act) there
has been disagreement over the appropriate use of the trust fund’s revenues. The disagreement
centered on differing views of whether the trust fund’s primary purpose was to fund airport and
airway (mostly air traffic control) infrastructure and those who viewed the trust fund as a user pay
mechanism that should be available to also fund part or all of FAA operations (mostly salaries)
and maintenance activities. This led, beginning in 1976, to the enactment of a series of legislative
mechanisms (commonly referred to as “cap and penalty” provisions or “out of order” provisions)
designed to assure that federal capital spending for U.S. airports and airways would be funded at
their fully authorized levels. Some supporters also hoped that these provisions would also assure
a significant general fund share for the Federal Aviation Administration’s (FAA) operating
budget. Such funding guarantee proposals have been part of every FAA reauthorization debate
since 1976.
This report begins with a background discussion of the establishment of the Airport and Airway
Trust fund (hereafter referred to as the trust fund) and the spending policy conflict that arose from
different views concerning the legitimate use of the trust fund revenue during both the debate
over the creation of the trust fund and the first years of its existence. It then examines the 22-year
era when Congress imposed a variety of “cap and penalty” provisions on aviation trust fund
spending in an effort to both encourage full funding of the FAA’s capital programs spending as
well as assuring a significant general fund share to support the FAA’s operations. The report then
briefly examines the current spending guarantees that succeeded the cap and penalty provisions st
following passage of the Wendell H. Ford Aviation Investment and Reform Act for the 21
Century (AIR21; P.L. 106-181) in March 2000, and that were continued through FY2007 by
Vision 100—Century of Aviation Reauthorization Act (P.L. 108-176). Finally, the report discusses
a variety of spending guarantee options which may be discussed during the upcoming FAA
reauthorization debate.
This report’s analysis necessarily assumes the spending levels and program structure of the times.
There is an alternative view that too much is spent on the FAA, which is not discussed in detail in
this report.

The FAA budget is divided into four categories. Two of the categories, the grants-in-aid for
Airports category (basically the Airport Improvement Program (AIP)) and the Facilities and
Equipment (F&E) category are considered “capital” accounts or programs because they deal with
the development of airport and airway infrastructure. The AIP is a program of capital grant-in-aid
for airport development projects such as runways and taxiways, but it also funds noise mitigation 1
and other airport projects. F&E, which is also a capital program, pays for the equipping, housing
(such as airport towers), and modernizing of the air traffic control system. The two noncapital
categories include Research, Engineering and Development (RE&D) and Operations and

1 Prior to 1982 the aviation trust fund supported the AIPs forerunner program, the Airport Development Aid program
(ADAP).





Maintenance (O&M). The RE&D category funds research in support of the AIP and F&E
programs as well as safety research. The O&M account pays the salaries of all FAA employees
(aviation related) and also funds some maintenance, safety, and administrative activities.
The issue of who should pay for the programs and activities of the FAA predates the creation of
the aviation trust fund in 1971 by the Airport and Airway Development and Revenue Acts of
1970. Previously, the FAA’s budget had been paid for out of the U.S. Treasury’s general fund
which is supported by general taxpayer revenues. No dedicated tax revenues were used to fund
aviation use prior to implementation of the 1970 Act. The act authorized taxes on aviation users
and dedicated their use to aviation purposes by crediting all these tax revenues to the aviation
trust fund. Conflicts emerged immediately between those who viewed the aviation trust fund as a
capital-only source of funding versus those who viewed it more as the basis of a full user-pay
mechanism for all FAA funding. Studies by both the Congressional Budget Office (CBO) and the
General Accounting Office (GAO; now the Government Accountability Office) have concluded
that the 1970 Act was intended to provide that the aviation trust fund would finance airport and
airway capital needs and that remaining funds could then be used for the operating costs of the 2
airway system (mostly for air traffic control operations) as well. The issue of the appropriate
general fund share of the FAA budget has long been one of the most contentious issues during the
reauthorization debates. The general fund share within the context of aviation policy is to cover
costs to the aviation system of government use (mostly military use) and the benefits of the 3
system to nonusers. Aviation user groups have historically supported a larger general fund share
than has the FAA, the Department of Transportation (DOT), the Office of Management and
Budget (OMB) and the congressional budget and appropriations committees who often view, at
least part of the general fund contribution as an unwarranted and/or unnecessary subsidization of 4
civil aviation users by the general taxpayer.
The Nixon Administration’s FAA budget requests for FY1971 and FY1972 under the new trust
fund system brought it into immediate conflict with Congress over the budgetary treatment of 5
trust fund revenues. The Administration treated the new financing system as a user-pay system to
fund all or nearly all of the FAA budget, whereas many Members of Congress viewed the trust
fund as primarily a user-supported capital fund (although spending on FAA operations was
allowable). Adding to the controversy, the Administration’s first budget submissions of the trust
fund era (the proposed FY1971 supplemental and the President’s FY1972 budget proposal)
proposed funding both airport and airway facilities at well below the minimum authorized
amounts of $280 million for airport grants and $250 million for airway facilities. For FY1972, the
budget proposed that the remaining trust fund balance be used to pay for FAA administration and
operations costs. This would, however, have provided more trust fund financing, $700 million, for
operations than for airport grants and airway facilities combined. Many in Congress saw this

2 U.S. Congressional Budget Office. The Status of the Airport and Airway Trust Fund. Washington, CBO, 1988. p. X,
1-7; and U.S. General Accounting Office (now the Government Accountability Office). Was the Airport and Airway
Trust Fund Created Solely to Finance Aviation “Infrastructure. B-281779. Washington, GAO, 1999. 16 p.
3 An example of this benefit would be the benefit to both individuals and society of the delivery of donor organs to
recipients.
4 Studies attempting to estimate the public interest share go back as far as 1946. Depending on the study, the public
sector cost estimates have varied significantly (change in the military sector has had an impact in particular).
5 See U.S. Congressional Budget Office. Status of Airport and Airway Trust Fund. Washington, CBO, 1988. p. 3-11.





holding-down of FAA capital spending to free up trust fund resources for FAA operations costs as 6
a violation of the intent and spirit of the 1970 Act.
The adoption of the 1970 Act followed closely on the heels of the 1969 congressional adoption of
the unified budget concept, a change that would have ongoing influence on both the budgetary
treatment of trust fund revenues and the operation of subsequent spending guarantees that rely on 7
trust fund resources. Under the unified budget concept, all trust fund receipts and expenditures
were made part of the annual federal budget. Consequently, trust fund amounts, collected and
spent, influence the overall budget deficit or surplus totals. This, in turn, can have an impact on
the budgetary treatment of trust fund-supported programs and activities. Although the inclusion of
the aviation trust fund within the unified budget was not a major issue during debate over the trust
fund’s creation, the unified budget has, historically, had an impact on trust fund spending levels.
Within the context of the unified budget, an excess of aviation trust fund revenues over
expenditures can be seen as an offset in federal deficit computations. In some cases, however, the 8
balance may be seen as having been spent on non-aviation programs or purposes. Because the
balance is invested in short-term Treasury notes (the interest is payed to the aviation trust fund),
the federal government is lending itself an amount roughly equal to the balance. This, in effect,
frees up the money for spending elsewhere in the budget without pushing up the overall budget
deficit or putting pressure on budgetary ceilings established by the congressional budget process.
During the history of the aviation trust fund, concerns have been raised that this situation creates
an incentive, for those whose priorities for non-aviation spending (or for deficit reduction) are
higher than for aviation spending, to hold-down federal aviation trust-fund-supported spending on
aviation. This situation, where the trust fund’s unexpended balance (at times, somewhat
inaccurately referred to as a surplus) is allowed to grow and is not spent on federal aviation
programs and activities, has been opposed by much of the aviation community and by the 9
transportation authorizing committees. The unexpended balance has also been a factor cited in
attempts, since the creation of the trust fund, to legislate mechanisms that would encourage full
funding of the FAA’s capital budgets and assure that the aviation trust fund revenues are spent for
aviation purposes only.

6 U.S. Congress. Senate. Committee on Commerce. Aviation Subcommittee. Airport and Airway Development and
Revenue Acts Amendments of 1971, Hearings on S. 1437. Hearings held June 22 and 23, 1971. “Serial No. 92-19” 86 p.
To amend the Airport and Airway Development and Revenue Acts of 1970 to further clarify the intent of Congress as
to the priorities for airway modernization and airport development, and for other purposes.”
7 In making this decision Congress apparently relied on President Johnsons Commission on Budget Concepts. See
President’s Commission on Budget Concepts. p. 109. Report of the President’s Commission on Budget Concepts.
Washington, U.S. GPO 1967.
8 Because the mechanism of borrowing from the trust fund, in effect, moves the amount borrowed to the general fund,
it is technically impossible to prove that these funds are spent on anything in particular. They become indistinct from
all the other revenues flowing into the general fund.
9 Because there are outstanding commitments against these balances, the entire trust fund balance is generally not
considered available for further spending and most observers consider theuncommitted” balance to be a better
indicator of the amount of trust fund resources that could be available for additional spending.





Although the Nixon Administration quickly agreed to increase airport grants for FY1972 to the
$280 million minimum, and expressed the intent to meet the minimum spending goals for both
airport grants and airways facilities over the 10-year life of the trust fund’s tax provisions,
Congress passed the Airport and Airway Development and Revenue Acts Amendments of 1971, 10
effectively banning the spending of trust fund money on FAA operations.
The 1971 amendment was a strong congressional reaction consistent with many Members’
perceptions that the Nixon Administration was ignoring the intent of Congress under the 1970
Act. The reaction embodied in the 1971 amendment went beyond merely clarifying Congress’s
intent and significantly narrowed the allowable use of trust fund revenues. The Amendment made 11
the trust fund a capital-only account (although only temporarily). The 1971 amendment
eliminated the user-pay component. Ironically, by reinforcing the congressional intent that the
trust fund be used primarily as a capital account, the 1971 amendment eliminated the secondary
intent that private sector users, through taxes imposed under the 1970 Act, would help pay for the
federal services they benefitted from (once capital needs of the airport and airway systems were
met). The change, by making all noncapital components of the FAA’s budget dependent on
general fund revenues, left the FAA more exposed to the fiscal pressures that emerged from the
constrained general budgetary environment of the period. During FY1973-FY1976 the trust fund-
appropriated share of operations was zero. The general fund share of the total FAA appropriations 12
was 56% for FY1973, 81% for FY1974, 83% for FY1975, and 65% for FY1976. The 13
uncommitted end-of-year balance grew to $1.688 billion at the end of FY1976.

10 The Airport and Airway Development Act of 1970 authorized the taxes that supported the trust fund through
FY1980.
11 See U.S. General Accounting Office (now the Government Accountability Office). Congressional intent: whether or
not the Airport and Airway Trust Fund Was Created Solely to Finance Aviation “Infrastructure. “B-281779
Washington, GAO, 1999, 16 p.
12 Ibid. p. 12.
13 CBO. Status of the Airport and Airway Trust Fund. p. 12.






In 1976, during hearings on the aviation trust fund, Administration officials continued to assert
that the 1970 Act was “intended to adopt a very broad user tax policy and to impose taxes that 15
would pay for the full costs of the airway system including operation and maintenance.”
In the end, although Congress acknowledged that the aviation taxes in the 1970 Act were intended
to be user fees that could be used to fund both capital projects and some operations costs,
concerns still remained in Congress that the Executive branch would deplete the trust fund to
fully fund FAA operations and thereby constrain spending on airport and airway capital needs.
Consequently, despite the implicit acknowledgment that some spending for FAA operations was
appropriate, the 1976 Act included “cap and penalty” provisions, to prevent any “misuse” of 16
funds by the Administration.
Accordingly, Section 6 (d) of the act placed a cap on the use of trust fund revenues for costs of air
navigation services of $275 million for FY1977, $275 million for FY1978, $300 million for
FY1979, and $325 million for FY1980. No cap was authorized for FY1981 due to the lapsing of
the FAA’s authorization.

14 The statistics used in Table 1 through Table 6 have been drawn from a number of sources. AIP and ADAP
authorizations and obligation limitations for FY1977 through FY2004 were drawn from annual ADAP and AIP reports.
Appropriations for F&E; R,E&D; O&M; FAA as a whole, and the trust fund share of O&M and general fund share of
the FAA budget for FY1977-FY1998 were drawn from Table 3 in GAO report B-281779. More recent trust fund
balances were drawn from a funding table compiled by the Air Transport Association,Airport and Airway Trust Fund:
Cash Flow and Balance, FY1971-present.” CRS was unable to locate any record of the actual calculation of the cap and
penalty amounts. The estimated figures in Tables 1-6 were calculated according to the legislation cited using the data
shown in the tables. Authorizations for F&E and R,E&D were drawn from various authorization conference reports and
data provided by FAA.
15 U.S. House. Committee on Ways and Means. Status of the Airport and Airway Trust Fund, Hearings held April 12-
13, 1976, Washington, GPO, p. 29.
16 P.L. 94-353 Section 6 (c) & (d), 90 Stat 871, 873 (1976). For a discussion see U.S. Congress. House. Status of the
Airport and Airway Trust Fund. Hearing held April 12-13, 1976. Washington, GPO, 1976. 179 p.





Table 1. Cap and Penalty Under the 1976 Act as Amended by the ASNAA 1979
($ in millions)
FY1977 FY1978 FY1979 FY1980 FY1981
ADAP (Auth) $510 $540 $575 $667 $450
ADAP (ObLim) 545 540 629 640 450
F&E (Auth) 250 250 250 250 0
F&E (Approp) 200 209 345 293 350
TF share of O&M 250 275 300 325 525
Cap 250 275 300 325 0
GF Share of FAA Budget 1,488 1,623 1,733 1,845 1,815
%GF share of FAA Budget 59% 59% 56% 57% 54%
Trust Fund Balance 1,801 2,284 2,794 3,803 3,014
Source: see footnote 14. For explanation of table see text.
In addition, Section 6 (d) imposed a penalty clause that reduced these caps proportionally due to 17
any failure to fund airport grants at the program’s authorized obligation level. In effect, the caps
would have been reduced by the same fraction of Airport Development Aid Program (ADAP) 18
obligation limitation (ObLim) to ADAP authorization. For example, if the ADAP grants ObLim
was 3/4 of the ADAP authorization, then the cap on trust fund operations spending would be
reduced to 3/4 of the statutory cap for the fiscal year. In the 1979 Act, added a second penalty
provision. The provision provided, for FY1980 and FY1981, that any failure to fully obligate
F&E funding up to the appropriated level would lead to a reduction of the cap by an amount equal 19
to the dollar shortfall. Supporters of this provision may have hoped this would encourage the
FAA to speed up its implementation of the NAS plan.
During FY1977-FY1981 no penalties were assessed. ADAP’s obligation limitations equaled or
exceeded its authorizations in FY1977-FY1979 and 1981. The $17 million short fall in FY1980
did not lead to a penalty perhaps because F&E appropriations exceeded the F&E authorization by
$43 million, more than making up the difference.
The cap and penalty regime seems to have had a significant impact on the general fund share of
FAA funding. Although the removal of the outright ban on O&M spending of trust fund resources
(which were in effect from FY1973 to FY1976) lowered the general fund share of the FAA
budget, it remained high under the 1976 Act, averaging 57% during FY1977-FY1981. The
general fund share had averaged 71% under the 1971 Act.

17 U.S. Congress. Committee of Conference. Airport and Airway Development Act Amendments of 1976: Conference
Report. Senate Rept. 94-975. Washington, GPO, 1976. p. 22-24. Also CBO, Status of the Airport and Airway Trust
Fund. p. 7-8.
18 The obligation limitation or limitation on obligations is a ceiling on the sum of all obligations that can be made
within a fiscal year. The term is used for the ADAP and the AIP programs funding. For the purpose of this report it is
analogous to the appropriated amount.
19 P.L. 96-193 Section 201 (d); 94 Stat. 50,54.





The restriction on trust fund spending for operations in the 1971 Amendments act and the new
provisions in the 1976 Act, succeeded in limiting trust fund spending on FAA operations and
maintenance (O&M), but appropriations for the capital programs did not rise sufficiently to
absorb the excess revenue created by the rising tax revenues dedicated to the trust fund. Over
time, the uncommitted aviation trust fund balances continued to grow. On September 30, 1980
when the original aviation trust fund authorization expired, the fund had a projected uncommitted
balance of roughly $3.8 billion.
Disputes over what to do about the aviation trust fund balance, along with continuing
disagreements over the valid use of trust fund revenues and whose taxes should support the fund,
as well as concerns about deficit spending in general, all had a part in the legislative deadlock that
led to the lapsing of the aviation trust fund’s authorization on October 1, 1980. The gridlock on
reauthorization continued for almost two years. Because of the absence of revenues during the
lapse, while outlays from the trust fund continued, the uncommitted balance fell to just over $2
billion at the end of FY1982.
The 1982 Act authorized the operation of the operation of the trust fund from September 1, 1982 20
through December 31, 1987, as well as reauthorizing the taxes supporting the trust fund.
Section 506 (c) of the 1982 Act significantly modified the existing “cap and penalty” provisions 21
of the 1976 Act. Instead of setting dollar amounts to cap operations and maintenance spending
from the trust fund, the 1982 Act set $800 million for FY1982 but for later years established the
cap as the amounts actually made available for AIP times a multiplier (2.44 for FY1983, 1.57 for
FY1984, 1.39 for FY1985, 1.28 for FY1986, and 1.34 for FY1987). Four months later, however,
Section 426 (c) of the STAA of 1982 included a provision that significantly reduced the caps for 22
FY1983-FY1985. Table 2 sets forth the cap amounts and related data.
The amended Act retained the $800 million cap for FY1982 but lowered the cap ratio (applied
against funds made available for AIP) for the next three fiscal years as follows: 1.83 for FY1983;
1.25 for FY1984; 1.28 for FY1985. The ratios for the following two years remained the same at
1.28 for FY1986 and 1.34 for FY1987. Using ratios, in effect, made the cap flexible: the more

20 See U.S. Congress. Joint Committee on Taxation. General Explanation of the Revenue Provisions of the Tax Equity
and Fiscal Responsibility Act of 1982; Joint Committee Print. Washington, GPO, 1983. p. 403-409. The Air Traffic
Controller strike and the firing of the controllers in 1981 temporarily reduced personnel costs in 1981 and perhaps
1982.
21 96 Stat 678. As mentioned earlier, the Aviation Safety and Noise Abatement Act of 1979 (P.L. 96-193; 94 Stat
50,54) had, for FY1980, added a penalty provision which reduced the amount available for operations and maintenance
on a dollar-for-dollar basis for any failure to obligate the fully authorized amount for F&E for FY1980-FY1981. For
the new provisions see U.S. Congress. Senate. Committee of Conference. Tax Equity and Fiscal Responsibility Act of
1982: Conference Report to accompany H.R. 4961. Washington, GPO, 1982.p. 374-376, 704-707.
22 96 Stat. 21.





funds were obligated for AIP the more money would be available from the trust fund for O&M. It
was probably hoped this would make the spending on AIP more attractive to both OMB and the
appropriations committees. There is no clear evidence, however, that it had this intended effect.
The basis of the penalty provision was changed from the amounts made available for airport
grants under the 1976 Act to the amounts made available for F&E under the 1982 Act. The
amounts authorized from the trust fund for O&M for any fiscal year were to be reduced by twice
the amount that authorizations exceeded appropriations for F&E plus twice any F&E carryover 23
funds from the previous year. This change in the penalty provision appears to have been made
for two reasons. First, the cap now already included incentives for higher spending on AIP.
Second was the increase in authorizations for F&E (included in Section 506 of the 1982 Act)
under the influence of the proposed NAS plan and the growing perception that the airway system
needs (mostly for air traffic control) were great. In short, the cap would provide incentives for
spending on AIP while the penalty provisions would protect the increased spending on F&E. The
1982 Act also restricted O&M spending to the direct costs required to operate, and maintain air
navigation facilities.
Table 2. Cap and Penalty Under the 1982 Act, as Amended by the STAA 1982
($ in millions)
FY1982 FY1983 FY1984 FY1985 FY1986 FY1987
AIP (Auth) $450 $800 $994 $987 $1,017 $1,017
AIP (ObLim) 450 805 800 925 885 1,025
F&E (Auth) 261 725 1,393 1,407 1,377 1,164
F&E (Approp) 261 625 750 1,358 895 805
Cap (1983-1987 are estimates) 800 1,474 1,000 1,184 1,133 1,374
Penalty (estimates) 0 200 1,286 98 964 718
TF share of O&M 810 1,227 0 1,110 427 621
GF Share of Total FAA Budget 1,482 1,302 2,586 1,589 2,298 2,337
%GF share of FAA Budget 48% 32% 59% 30% 48% 47%
Trust Fund Balance 2,088 1,992 3,010 2,868 3,875 5,559
(uncommitted)
Source: see footnote 14. For explanation of table see text.
As can be seen in Table 2, during three of the six years shown, the appropriated level of the trust
fund share for O&M appropriations conformed to the cap provisions of the 1982 Act, as
amended. Five of the six years, FY1983-FY1987, however, were subject to penalties because AIP
and F&E funding was less than their authorizations. For three of these years, however, FY1984-
FY1986, the reduction in the trust fund share of operations was less than the penalty. Even so, the

23 The carryover provision was probably a device to prevent carryover funds from being counted as current year “funds
made available under the penalty provision. This could have been seen as counting some of F&E appropriations in
more than one year as a means of lessening a penalty assessment.





aggregate amount made available from the trust fund for O&M for FY1983-FY1987 was $2.7
billion less than the aggregate of the caps for these five years.
The general fund share of the total FAA budget was somewhat lower than under the previous
authorization, averaging 44% per year (down from an average of 57% for the previous five
years). The size of the penalties in FY1984, FY1986, and FY1987 appears to have influenced the
relatively high general fund share for those years.
The uncommitted balance of the trust fund increased nearly 180% from its FY1983 low of $1.992 24
billion to its FY1987 high of $5.559 billion. Also, the uncommitted balance appears to have
surged in the high penalty years of FY1984, FY1986, and FY1987.
The role of the cap and penalty provisions in causing the rapid growth of the trust fund’s
uncommitted balance and its role in maintaining the high general fund share increasingly became 25
a focus of disagreement between authorizing and appropriating committees. This led to
struggles during the annual appropriations process between supporters of full adherence to the
cap and penalty rules (often authorizing committee members) and those who felt the impact of the
rules was excessive and would argue for a partial application of the penalties (often
appropriations committee members).
The goal of the cap and penalty provisions continued to be to insure that the aviation trust fund
operate primarily as a capital account supporting AIP and F&E while operating, in part, as a user
pays system to support some operations spending. However, although the cap and penalty
provisions restricted the spending on operations, they did not result in full appropriation of the 26
authorized AIP and F&E funding levels. According to CBO,
Primarily because of program constraints, these provisions have merely altered the
accounting for aviation spending, forcing the general fund to finance more of these
expenditures ... In addition, there still remains an incentive to limit capital spending for
aviation programs. Given the annual level of excise tax revenue from aviation, each dollar of
aviation spending greater than these tax revenues must be funded by general revenues.
Therefore, regardless of the actual accounting for aviation spending, each dollar reduction in
spending on aviation either reduces the need for the general fund to finance aviation
spending, or produces a trust fund surplus from which the Treasury can borrow to cover non
aviation expenditures.
As mentioned earlier, the uncommitted balance of the trust fund continued to rise during the 1982
Act’s authorization cycle, reaching $5.559 billion at the end of FY1987.

24 The restart of the trust fund may also have been a factor.
25 See U.S. Congress. Senate. Committee on Appropriations. Department of Transportation and Related Agencies
Appropriations Bill, 1984: Report to Accompany H.R. 3329. S.Rept. 98-179. See also U.S. Congress. House.
Committee on Public Works and Transportation. Airport and Airway Improvement Act of 1981, Hearing on H.R. 2043.
March 31, April 1-2, 1981. Washington, GPO 1981.
26 CBO. Status of the Airport and Airway Trust Fund: 1988. p. 10-11.





The 1987 Act extended the excise taxes at existing rates and reauthorized FAA programs for three
years. The act substantially increased the authorizations for both
Table 3. Cap and Penalty Under the Airport and Airway Safety and Capacity
Expansion Act of 1987
($ in millions)
FY1988 FY1989 FY1990
AIP (Auth) $1,700 $1,700 $1,700
AIP (ObLim) 1,269 1,400 1,425
F&E (Auth) 1,377 1,730 2,191
F&E (Approp) 1,108 1,384 1,721
R, E & D (Auth) 201 216 222
R, E & D (Approp) 153 160 170
Cap (estimated) 1,265 1,472 1,658
Penalty (estimated) 1,496 1,002 1,094
Trust Fund share of O&M 826 471 807
GF Share of total FAA Budget 2,358 2,974 3,017
%GF share of FAA Budget 41% 47% 42%
Trust Fund Balance 5,841 6,870 7,446
(uncommitted)
Source: see footnote 14. For explanation of table see text.
AIP and F&E. Air traffic had continued to surge during the previous authorization period,
increasing the pressure on the airport and airway system capacity. The NAS plan’s
implementation had not progressed as quickly as planned in part for technological reasons. Some
attributed delays in the capital projects to constraints on trust fund capital spending imposed for 27
deficit reduction purposes. Others, however, argued that delays in implementation of the NAS 28
plan led to appropriations lagging behind authorizations.
The act also made changes to the existing “cap and penalty” provisions on O&M spending.

27 Ibid. Also U.S. Congress. House. Committee on Public Works and Transportation. Aviation Subcommittee.
Reauthorization of the Airport and Airway Trust Fund and Related Issues: Hearings. Hearings held February 24-25,
March 4-5, 1987. Washington, GPO, 1987, 1111 p.
28 See S.Rept. 100-198 p. 31. The Senate report for the 1989 Appropriations bill argued that major subsystems of the
NAS were still in development and had not reached the stage where major expenditure of trust fund resources was
feasible and, in any case, the NAS sub-systems were behind schedule due to technical and managerial problems. The
report also mentions the surge in ticket tax revenues from the increase in air travel in the preceding years and argued
that the cap and penalties system had reduced the amount of trust fund money that would have been spent by $3.3
billion.





The new provision (Section 105 (c)) amended the cap to 50% of the total annual appropriations
for AIP, F&E, and RE&D.
Under Section 105, the annual caps would be reduced by twice the amount of any shortfall
between the total of AIP obligation limitation and the appropriation for F&E and RE&D for each
year, versus amounts specified in the act for each fiscal year ($3.278 billion for FY1988, $3.445
billion for FY1989, and $3.863 billion for FY1990).
The act also added an additional penalty of sorts by directing a following year AIP appropriation
increase equal to twice the difference between the current year authorization and current year 29
appropriation for the three programs (referred to by some as “pop-up budget authority”).
As can be seen in Table 3, although the trust fund share of O&M funding was reduced
substantially below the cap, the reduction only approximated the penalty amount during one year,
FY1989. For FY1988 and FY1990, although the trust fund shares of O&M funding provided for
amounts that were significantly below the caps, the reductions were not equal to the full penalties
for those years. Despite this, the aggregate amount made available from the trust fund for O&M
was nearly $2.3 billion below the aggregate of the caps for these years and therefore roughly this
amount would have remained credited to the aviation trust fund.
The general fund share remained more than 40% during this authorization. During FY1989, the
year that the penalty was fully assessed against the spending ceiling, the general fund share was
5-6% higher than in other years and this may indicate that the penalties could have had an effect
on the general fund share. Also the uncommitted balance in the trust fund rose 18% in FY1989,
compared to 5% in FY1988 and 8% in FY1990, indicating that the higher penalty assessment for
FY1989 may have had a significant impact on the growth of the uncommitted balance.
In addition, the 1987 Act added a provision for FY1988-FY1989 that would trigger a reduction in
the aviation tax rates, if the total of the obligation limits for AIP and the appropriations for F&E
and RE&D for FY1988-FY1989 were less than 85% of the total amounts authorized for these
programs. If this situation occurred, then in 1990, the GA fuel rates, ticket tax, and waybill tax
would be reduced by 50%. The international departure tax would not be changed. The idea behind
the tax penalty was that it would eliminate the incentive to hold down spending on capital
improvements for budget deficit or non-aviation spending purposes because more revenue would 30
be lost than could be saved in outlays or added to the unexpended balance.

29 This budget authority does not appear to have resulted in an increase in amounts actually made available.
30 CBO, Status of the Airport and Airway Trust Fund, p. 11. Also GAO. Congress’ Intent. p. 8.; U.S. Congress. House.
Committee on Ways and Means. Explanation of the Airport and Airway Revenue Act of 1987: Committee Print.
Washington, GPO, 1987. 23 p. and U.S. Congress. Senate. Committee on Finance. Explanation of the Airport and
Airway Revenue Act of 1987: Committee Print. Washington, GPO, 1987. 17 p.





The tax reduction trigger was never implemented. This was not only due to a reluctance to follow
through on such a large percentage cut, but also because of pressure to reduce the overall federal
budget deficit. The amounts appropriated for FY1988 and FY1989 together were just over 80%
of the combined authorizations for those years. Without a legislative adjustment, the trigger
would have taken effect on January 1, 1990. However, to meet its reconciliation target the House
Ways and Means Committee proposed delaying the trigger mechanism for one year, estimating
that this would save $851 million in FY1990 and $269 million for FY1991. Although supporters
of the trigger mechanism, mostly on the authorizing committees, voiced opposition to an
extension of the trigger date, an extension of the date to January 1, 1991 was included in the
Revenue Reconciliation Act of 1989 (Title VII of the Omnibus Budget Reconciliation Act of

1989, P.L. 101-239).


At the end of FY1990 the uncommitted balance had grown to $7.446 billion from $5.559 billion
at the beginning of FY1988.
As the 1990 FAA reauthorization approached, appropriators and budgeteers became more
persistent in expressing their concerns. Among the complaints was that the “penalty clause” in
Section 506 (c) of the 1982 Act had resulted in general fund overpayments for FAA expenses that,
in effect, had the general taxpayer subsidizing aviation users. Congressional Budget Office
testimony reflected this view
The current accumulated surplus in the aviation trust fund is illusory. While this surplus
appears to indicate that private-sector users have paid more in taxes than they have received
in services, the opposite is, in fact, the case. The uncommitted balance in the trust fund has
developed, ironically, because private-sector users of the aviation system have received more
in capital and operating spending than they have paid in taxes ... the Airport and Airway
Trust Fund is particularly affected by provisions of law that restrict the level of trust fund
financing of operations expenditures for the Federal Aviation Administration. These
provisions tie the level of funding to the obligation limits for airport grants and the
appropriations for capital and research expenditures. Generally speaking, the closer these
appropriations are to their authorized levels, the greater the trust fund financing of
operations. Largely because of technical problems in the modernization of the airway
system, appropriations of capital expenditures have lagged behind authorizations. The result
has been a low proportion of FAA spending being debited to the trust fund and an 31
accompanying rise in its accumulated surplus.
OBRA-90 authorized FAA programs through FY1992 (Title IX of the act).32 OBRA-90 reflected
concerns of the time with the budget deficit. Accordingly, the tax increases in the act were
designed, in part, to contribute to federal budget deficit reduction. The increases in aviation taxes
were to go to the general fund for deficit reduction through FY1992 and then to the aviation trust
fund through FY1995. The

31 U.S. Congress. House. Committee on Appropriations. Transportation Appropriations Act, 1991. H.Rept. 101-584.
Washington, GPO, p. 39-40.
32 OBRA-90 authorized FAA programs through FY1992 only. The Airport and Airway Safety, Capacity, Noise
Improvement and Intermodal Transportation Act of 1992, P.L. 102-581, reauthorized funding for aviation programs
through FY1993.





Table 4. Cap and Penalty Under OBRA-90
FY1991 FY1992 FY1993
AIP (Auth) $1,800 $1,900 $2,025
AIP (ObLim) 1,800 1,900 1,800
F&E (Auth) 2,500 3,000 2,700
F&E (Approp) 2,095 2,409 2,302
R, E & D (Auth) 260 260 270
R, E & D (Approp) 205 218 230
Total O&M Appropriations 4,037 4,360 4,530
Cap (estimated) 2,003 2,138 2,315
Penalty (repealed in 1990) none none none
TF share of O&M 2,003 2,110 2,279
GF share of total FAA Budget 2,034 2,250 2,251
%GF share of FAA Budget 25% 25% 25%
Trust Fund Balance 7,686 6,872 4,268
(uncommitted)
Source: see footnote 14. For explanation of table see text.
bill also included provisions allowing airports to levy a head tax, called a passenger facility
charge (PFC) on each enplaning passenger. The PFC is not a federal tax but a local tax levied
with FAA permission. One of the rationales for allowing airports to levy PFCs was that PFCs
would lessen the level of funding that would otherwise be needed for the AIP. This concern over
deficit spending as well as the concerns over the growing unexpended balance of the trust fund
and the large general fund share of the FAA budget, discussed in the previous section, may have
also had an impact on the changes made in OBRA-90 to existing cap and penalty mechanisms.
Section 9107 of OBRA-90 changed the cap to 75% of the remainder of the total amounts made
available for AIP, F&E, RE &D, and O&M less the amounts made available for AIP, F&E, and 33
RE&D.
The penalty provision was eliminated. The tax trigger rate reduction mechanism was also
eliminated.
The elimination of the penalty was part of an agreement between authorizing and appropriating
committees that provided for full funding of AIP in return for the elimination of the penalty
provisions. The agreement remained in effect for two years FY1991-FY1992 (the penalty was not
reinstated, however).

33 Section 103 of the Airport and Airway Safety, Capacity, Noise Improvement, and Intermodal Transportation Act of
1992 (P.L. 102-581, 106 Stat. 4872) extended the OBRA-90 cap provision.





Under the OBRA-90 mechanism, trust fund spending for O&M was equal to or slightly below the
statutory cap. The overall general fund share of total FAA appropriations was 25% for FY1991-
FY1993. The uncommitted balance dropped from an all time high of $7.686 billion to $4.268
billion in FY1993.
The 1994 Act reauthorized funding for both FAA programs and the aviation trust fund through
FY1996.
Section 102 (b)(3) of the 1994 Act (108 Stat. 1571) altered the operations spending cap to the
lessor of 50% of the amount of funding made available for F&E, AIP and RE&D, or 70% of the
total amounts made available to FAA, less the amounts made available from the trust fund for
F&E, AIP, and RE&D.
Table 5. Cap Under the Federal Aviation Administration Reauthorization Act of
1994
($ in millions)
FY1994 FY1995 FY1996
AIP (Auth) $2,970 $2,161 $2,214
AIP (ObLim) 1,690 1,450 1,450
F&E (Auth) 2,524 2,670 2,735
F&E (Approp) 2,055 1,960 1,855
R, E & D (Auth) 297 267 280
R, E & D (Approp) 254 252 186
Total O &M Appropriations 4,579 4,572 4,643
Total FAA Appropriations 8,578 8,234 8,134
Cap (estimated) 2,000 1,831 1,746
TF share of O&M 2,295 2,450 2,223
GF share of total FAA Budget 2,285 2,122 2,420
%GF share of FAA Budget 27% 26% 30%
Trust Fund Balance 3,667 5,127 2,377
(uncommitted)
Source: see footnote 14. For explanation of table see text.
For FY1994-FY1996 the trust fund share of O&M exceeded the statutory caps in each of the
years. Because there was no penalty provision for the funding of AIP and F&E below the
statutory caps and because opposition to the lack of adherence to the caps was insufficient to





prevent passage of the transportation appropriations bill, Congress was able to fund the FAA at a 34
level that began reducing the unexpended balance in the trust fund.
Although the reauthorization of aviation taxes had not been expected to be controversial, the
legislative vehicle chosen, the budget reconciliation act of 1996, was vetoed by President Clinton 35
over other provisions in the bill. Authority to collect taxes for the aviation trust fund expired on
January 1, 1996. Spending from the fund, however, continued. The lapse continued for nearly
eight months, until August 27, 1996, when it was extended to the end of the calendar year by the
Small Business Job Protection Act of 1996 (P.L. 104-188). The authority lapsed again for roughly 36
two months on January 1, 1997. The trust fund did not receive an estimated $4 billion during the
first lapse and an estimated $1 billion during the second. Because spending from the trust fund
continued (spending was reauthorized under the 1996 Act discussed below) the uncommitted
balances of the trust fund were drawn down substantially. The end-of-year uncommitted balance
was $1.354 billion for FY1997. It had been $5.127 billion at the end of FY1995.
Although the 1996 Act was debated during the period when the aviation taxes had lapsed, the act
reauthorized FAA operations, AIP, and F&E and the trust fund expenditure authority for two
years, through September 30, 1998, and authorized RE&D for one year through September 30,

1997, but did not reauthorize the taxes that supported the trust fund.



34 See Department of Transportation and Related Agencies Appropriations Bill, 1996. H.Rept. 104-177. Washington,
GPO, 1995. p. 45-46.
35 See CRS Report 97-657, Aviation Taxes and the Airport and Airway Trust Fund, by John W. Fischer.
36 The Airport and Airway Trust Fund Reinstatement Act of 1997 (P.L. 105-2) authorized aviation taxes for the period
March 7, 1997 through September 30, 1997.





Table 6. Cap Under the Federal Aviation Reauthorization Act of 1996
($ in millions)
FY1997 FY1998
AIP (Auth) $2,280 $2,347
AIP (ObLim) 1,460 1,700
F&E (Auth) 2,068 2,129
F&E (Approp) 1,938 1,901
R, E & D (Auth) 209 227
R, E & D (Approp) 208 199
Total O&M Appropriation 4,955 4,579
Total FAA Appropriation 8,561 9,136
Cap (estimated) 1,803 1,900
TF share of O&M 1,700 1,902
GF Share of Total FAA budget 3,255 3,435
%GF share of FAA Budget 34% 36%
Trust Fund Balance (uncommitted) 1,345 4,339
Source: see footnote 14. For explanation of table, see text.
Section 103 (b)(3) of the 1996 Act (108 Stat. 1571) moved the operations spending cap to 72.5%
of total amounts made available to the FAA (general fund and trust fund) less the amounts made
available from the trust fund from AIP, F&E, and RE&D.
For the years FY1997-FY1998, the trust fund share of O&M was near or below the cap (see
Table 6). The general fund share for these years increased to 34% and 36% respectively, roughly

10% above the previous authorization cycle, possibly in part reflecting adherence to the caps.


However, from a low of $$1.345 billion, the uncommitted balance rebounded quickly to $4.339
billion at the end of FY1998 following the passage of the Taxpayer Relief Act of 1997 (P.L. 105-

34), which provided for a significant increase in revenues.


The success of the various cap and penalty provisions was mixed and its apparent successes were
marked with unintended consequences. It is also difficult to determine cause and effect in
separating out the impact of the cap and penalty provisions from other influences. Support for
adherence to fully implementing the penalty appears to have been influenced by events such as
the delays in the FAA’s implementation of the NAS. For example, this was reflected in years
when the penalties were only partially imposed, in recognition that the authorization levels for
F&E were based on optimistic assumptions. Also, especially in the mid-1990s, attempts to rein in
the budget deficit had an impact on the budgetary treatment of trust fund revenues. In addition,
because the penalties seem to put upward pressure on both the general fund share and the
uncommitted trust fund balance, it is unclear that the mechanism provided for a net increase in
overall FAA spending.





The first Cap and Penalty regime appears to have been successful in providing for funding of AIP
for FY1977-FY1979 and for both AIP and F&E in FY1980 at levels near or very near to their
authorized levels. However the uncommitted balance in the trust fund increased rapidly during
this period and the general fund share remained over 50%. While supporters of trust fund
spending on AIP and F&E and maintaining a substantial general fund share might see this as
success, some critics would note that much of the trust fund money squeezed out of the
operations budget was mostly retained in the trust fund and simply not spent.
During the 1980s, adherence to the penalty provisions varied from year to year probably due to
the varying degree of support for implementing the penalties during the appropriations process.
This was also a period when appropriators were skeptical of the FAA’s ability to successfully
manage and spend the amounts authorized for F&E.
Eliminating the penalty under OBRA-90 led to a period in the 1990s when the capital programs
were funded below the authorized levels and the trust fund share of O&M often exceeded the
legislated caps. The 1990s, however, was also a period when there was a consensus that the
overall federal budget deficit was a problem and this likely had an impact on the funding of AIP
and F&E, and on the support for enforcing the cap provisions. As was mentioned earlier, the
broader budget environment can trump the spending mechanisms.
Although the various “cap and penalty” mechanisms may have succeeded in restricting spending
from the aviation trust fund on operations, they did not necessarily succeed in forcing full
appropriation of authorized AIP and F&E funding levels in a number of years. The cap and
penalty provisions, combined with the appropriations shortfalls, led also to the growth of the trust 37
fund’s uncommitted balance. As a Congressional Budget Office (CBO) report explained,
Primarily because of program constraints, these provisions have merely altered the
accounting for aviation spending, forcing the general fund to finance more of these
expenditures ... In addition, there still remains an incentive to limit capital spending for
aviation programs. Given the annual level of excise tax revenue from aviation, each dollar of
aviation spending greater than these tax revenues must be funded by general revenues.
Therefore, regardless of the actual accounting for aviation spending, each dollar reduction in
spending on aviation either reduces the need for the general fund to finance aviation
spending, or produces a trust fund surplus from which the Treasury can borrow to cover non-
aviation expenditures.
In effect, within the context of the unified congressional budget, appropriators and budgeteers
were more concerned about the overall size of the budget or deficit than whether below-
authorized spending on AIP and F&E caused a squeezing-down of trust fund spending for O&M.
If the intent of the cap and penalty provisions was essentially political, however, (i.e. to shore up
support for the authorization bills among those who were concerned about trust fund spending on
operations), then it may be viewed as at least partially successful.
In the end the tax reduction trigger also proved somewhat ineffective. Although, as structured, the
trigger should have removed the incentive to restrain spending on the FAA’s capital and research
programs, broader budgetary needs mitigated against this result.

37 CBO. Status of the Airport and Airway Trust Fund: 1988. p. 10-11.






During the reauthorization debate that preceded the passage of the Wendell H. Ford Aviation st
Investment and Reform Act for the 21 Century (P.L. 106-181;AIR-21) supporters of spending
guarantees wanted a mechanism that would resolve the three issues that manifested themselves
under the cap and penalty provisions. First, they wanted legislation that would better assure full
funding of the FAA capital budget accounts, AIP and F&E. Second, they wanted the legislation to
assure that spending from the trust fund would roughly equal trust fund revenues each fiscal year
and thereby prevent the accumulation of large balances in the fund. Third, they wanted an
outcome that would continue a significant general fund share for the operations account.
Provisions that would have accomplished this by taking the aviation trust fund off-budget or
erecting budgetary “firewalls” to assure that all trust fund revenues and interest would be spent
each year for aviation purposes never emerged from the conference committee. Instead AIR-21
provided for funding guarantees that were to be enforced by points-of-order. Vision-100 retained
these provisions.
There are two existing spending guarantees which are different from the previously discussed cap
and penalty provisions. One makes it “out-of-order” in the House or Senate to consider legislation
that does not use all aviation trust fund receipts and interest annually. The second, the “capital
priority provision,” makes it “out-of-order” to consider any bill that provides a general fund
appropriation for any year under AIR-21 or Vision-100 for RE&D or O&M if the sum of the AIP
obligation limitation and the appropriation for F&E are below their authorized levels. As a
penalty of sorts, any failure to fully fund F&E will lead to an increased appropriation (sometimes
informally referred to as “pop-up budget authority”) for AIP equal to the appropriations short fall
for F&E.
On its face, the guarantee mechanism seemed to work as designed for FY2001 through FY2003.38
Both F&E and AIP were funded at, or very near, their authorized levels. There were shortfalls, but
they were relatively small. F&E shortfalls mostly reflected across-the-board appropriations
rescissions and ranged from roughly $6 million to $39 million (for FY2002 funds provided for
F&E actually exceeded its authorization by $107 million). AIP’s shortfalls ranged from $60 to
$105 million. In FY2003 most observers felt that the guarantees were either working or being
acquiesced to (at least regarding capital spending). The general fund share of total FAA
appropriations varied from 17% for FY2001, 8% for FY2002, and 24% for FY2003.
The next four years, under Vision-100, were years of nearly full funding for AIP. Its obligation
limitation was $3.294 billion for FY2004, $3.472 billion for FY2005, $3.515 billion for FY2006,
and $3.515 billion for FY2007, just $106 million, $28 million, $85 million, and $185 million
short of AIP’s authorized funding, respectively. F&E, however, did not fare so well during

38 There were no funding guarantees for FY1999 and FY2000. FAAs authorization lapsed and the extension acts did
not extend the cap and penalty provisions which were only authorized through FY1998. See CRS Report RS21621,
Surface Transportation and Aviation Extension Legislation: A Historical Perspective, by John W. Fischer and Robert
S. Kirk. The gap between authorized and appropriated amounts for AIP was $460 million for FY1999 and $624 million
for FY2000; for F&E the gaps were $97 million for FY1999 and $655 million for FY2000. For FY1999 the general
fund share dropped to 15%. For FY2000 there was no general fund contribution: the entire FAA budget was paid for
from the aviation trust fund.





FY2004-FY2007. Its annual appropriation fell below its authorization as follows: $320 million 39
for FY2004; $468 million for FY2005; $498 million for FY2006; and $592 million for FY2007.
The general fund contribution for these years was 22% for FY2004, 20% for FY2005, 18% for
FY2006, and 19% for FY2007.
Although AIP did not share the same funding fate as F&E, the F&E experience makes it clear
that, as was true with the “cap and penalty” provisions, the current spending guarantees can still
be trumped by broader budget policy goals (such as deficit reduction) or by the spending
priorities of appropriators. The experience of F&E lends credence to the view that AIP’s funding
success has more to do with the popularity of the program within Congress and around the
country than the guarantees. Every congressional district has at least one NPIAS airport and
nearly every county does also. Although F&E spending benefits localities across the nation, the
federal spending involved does not garner the same local government and media attention across
the nation as AIP grants.
Under AIR21 and Vision-100, beginning in FY2002, there has been a rapid draw-down of the
aviation trust fund’s uncommitted balance. The highway trust fund dropped from an FY2001 end-
of-year uncommitted balance of $7.3 billion to an estimated balance of $1.9 billion for FY2005.
According to GAO, part of this decline was due to overestimates of trust fund revenues. Actual
revenues were $383 million less than forecast for FY2001, $2.3 billion less than forecast for 40
FY2002, and $1 billion less than forecast for FY2003 and FY2004. Especially in FY2002, but
perhaps also a factor in the later years was the post-911 drop in flying, especially at high fare
levels. Because the funding guarantee requires that the spending of trust fund resources equal the
estimated annual revenues, these overestimates have led to a drawing down of the trust fund’s
balances. The revenue could be an issue of concern during the reauthorization debate.
Congress, can and often does, waive all points-of-order against a bill. Spending guarantees that
are enforced by point-of-order actions only work if they are raised by a member and if they have
not been waived by rule. In the House, recent annual appropriations bills have had all points-of-
order waived by the Rules Committee. Senators have chosen not to raise points-of-order against 41
violations of the AIP and F&E funding guarantees. Points-of-order have not been allowed on
appropriations bill conference reports. Also the “pop-up” AIP budget authorities, which some
viewed as part of the mechanism for preventing appropriators from spending any F&E shortfall
for noncapital aviation spending, can and have been rescinded. Congress has been rescinding this
pop-up budget authority in recent years. These rescissions allow appropriators to bring down the
nominal total cost of the Transportation/Treasury Appropriations bills in the next budget year.
The questionable effectiveness of the spending guarantees has implications for the future of FAA
spending. As discussed earlier, the uncommitted balance in the aviation trust fund dropped from

39 Figures in this paragraph were drawn from FAAs Budget[s] in Brief. 2003-2008.
40 U.S. Government Accountability Office. Federal Aviation Administration: An Analysis of the Financial Viability of
the Airport and Airway Trust fund. GA0-06-562T. Washington, GAO, 2005. p. 7-9.
41 In part, this may have been because, if a point of order were upheld, the entire AIP or F&E financing provision
would be stricken from the bill that Senate conferees would take to conference. This absence of a funding provision
could put the Senate conferees at a disadvantage in negotiating with House conferees over the contents of the bill to be
voted out of conference.





$7.674 billion for the end of FY2000 to a projected $1.356 billion for the end of FY2008. The
commitments to spend from the trust fund have exceeded the trust fund income for each of these
years. The resulting smaller trust fund cushion increases the likelihood that AIP and F&E
spending could level off or even decline in the face of resistance to raising revenues or increasing
general fund spending for the FAA. The FAA program authorizations and the authorization of the
taxes that provide revenue to the trust fund under Vision 100 expired on September 30, 2007. The
taxes and program authorizations continue under short-term authorization extension legislation.
Given the reduced size of the trust fund’s uncommitted balance, if the taxes supporting the fund
are allowed to expire, the uncommitted balance could quickly become negative.

The Vision 100 authorization of FAA’s programs and activities ended at the close of FY2007. As
was mentioned earlier, short-term extension legislation has allowed these programs and activities
to continue. Reauthorization proposals have originated in the Senate, the House, and the FAA.
The Senate bill (S. 1300) would extend the current spending guarantees through FY2011. The
FAA proposal (H.R. 1356) is silent on spending guarantees. The House bill (H.R. 2881), however,
would make some changes in the spending guarantee mechanism.
H.R. 2881
H.R. 2881 would amend the airport and airway trust fund guarantee that requires that the total
amounts made available from the trust fund be equal to the level of receipts plus interest for the
year. Under H.R. 2881, for each year FY2008-FY2009, the amounts made available would equal
95% of the estimated level of receipts plus interest on the fund for each respective fiscal year. For
FY2010 and FY2011, the guaranteed level would be 95% for each respective year plus the
difference between the actual receipts and total amounts made available for obligation from two
years before (i.e., FY2008 and FY2009, respectively). The bill would retain the point-of-order
enforcement mechanisms.
This change would have a number of possible implications. First, the change could lessen the
demands on trust fund revenues for the first two years of the reauthorization, allowing a modest
accumulation in the unexpended balance of the trust fund during these years. Second, it would
reduce the likelihood that overly optimistic revenue projections could lead to spending at rates
that exceed the actual revenues accruing to the trust fund (as has happened in recent years), at
least during the first two years of the bill. Finally, by limiting trust fund spending, the change
could, in the minds of some, increase the likelihood that the general fund contribution percentage
for the FAA budget could be set at a higher level.

Because of the nature of the topic, the analysis of the various spending guarantees in this report,
necessarily, assumes the existing programmatic structure and funding levels of the times.
Advocates of the guarantees view the fully authorized funding of the capital programs as well as a
significant general fund share as good things. Over time, however, there has also been an
alternative view, that too much was being spent on FAA programs. This view casts a more critical
eye on AIP and F&E, whose funding the guarantees were specifically designed to assure. These





critics often view the breadth of AIP spending and ever-widening project eligibilities as allowing
for spending that is increasingly inefficient, unfocused and of questionable federal purpose. They
are often critical, for example, of the amount of AIP’s resources that go to projects at small local
airports, that by their nature are questionable from a national mobility standpoint. They tend to
view F&E spending as having often been wastefully managed and having pursued questionable
technologies that have failed to pan-out. Some would even argue that by downsizing FAA
programs and/or restricting program spending, it could be feasible to fund the entire FAA budget
out of the trust fund and thereby ease the burden on the general taxpayer.
Despite questions about the effectiveness of existing and previous spending guarantee
mechanisms, it may be unlikely that an FAA reauthorization bill would be enacted without
language designed to encourage full funding of the FAA’s capital programs, including AIP. The
guarantee language in an authorization bill emphasizes the importance that authorizers place on
fully funding AIP and F&E. The provisions are seen by some as helping shore-up support for the
overall authorization legislation while the bills work their way through the legislative process.
Extending the current guarantees might be enough to maintain the political advantage during the
reauthorization debate. Extending or making minor modifications to the existing “guarantees”
would probably encounter the least resistance. Should spending guarantees become a major focus
of legislative effort, there are a number of options could arise during the debate. It is important to
keep in mind that as past history indicates, with the possible exception of the first option, all the
options would almost certainly be opposed by the appropriations and budget committees in
Congress as well as DOT and the Office of Management and Budget.
As mentioned earlier, historically, the authorizing committees and appropriating committees have
approached the funding of FAA programs and activities from different perspectives. Authorizing
committees generally support the full authorized level of spending for AIP and F&E as the
appropriate level of spending to meet the needs of the nation’s airports and airways. Although
also concerned about the needs of the airport and airway system, appropriators have viewed trust
fund spending within the context of the unified congressional budget and the pressures of the
overall budget environment of the time. This conflict of goals between the committees has meant
that the AIP and F&E appropriations have often been less than their authorizations. On its face,
the simplest way to resolve the disagreement between committees would be for the committees to
come to an agreement on trust fund spending. An informal, negotiated “treaty” between the
transportation authorizing and appropriating committees, although unusual, has been done at least
once in the past. In 1990, the appropriations committees agreed to fully fund AIP and the 42
authorizing committees agreed to eliminate the penalty portion of the penalty and cap regime.
This option has the advantage of being the simplest. Its weakness is that any participant may
abrogate the treaty. Under the treaty, AIP was fully funded for two years (FY1991, FY1992).

42 The penalty was repealed in OBRA 1990 (P.L. 101-508, Sec. 9107). See Department of Transportation and Related
Agencies Appropriations Bill, 1991. H.Rept. 101-584. Washington, Congress, House. Committee on Appropriations,
1990. p. 39-40. See also H.Rept. 102-156. p. 45. The agreement appears to have been promulgated primarily by the
House authorization and appropriations committees, however, the Senate agreed to fully fund AIP for FY1991 during
conference and for FY1992 recommended full funding for AIP in its reported version of the bill. The penalty was not
reinstated thereafter. From FY1993-FY2000 AIP was funded significantly below its annual authorizations.





A reimposition of something similar to the cap and penalty provisions of the 1970s or 1980s
might be considered by some during reauthorization. The time the cap and penalty mechanism
was probably at its most effective was when it was first authorized in 1976. At that time, support
in Congress for the provisions was strong, perhaps because it followed closely on the previously
mentioned conflicts over the appropriate use of trust fund money with the Nixon and Ford
Administrations. This environment might have encouraged adherence to the cap and penalty
provisions during the appropriations process.
As mentioned earlier, the success of the cap and penalty provisions has been mixed, and at times
may have had a role in unintended consequences such as rapidly growing trust fund balances and,
in the view of some, a higher than justified general fund shares of the FAA budget. Also, the
history of the cap and penalty indicates that, over time, it does not appear to have been successful
in assuring the full funding of FAA capital programs such as AIP and F&E. During much of the
cap and penalty era appropriators simply absorbed the penalty, allowed the unexpended balance
of the aviation trust fund to increase as a result, and used this growing balance as an off-set for
spending elsewhere.
The historical cap and penalty provisions may not be compatible with the current law concerning 43
the “Airport and Airway Trust Fund Guarantee.” The guarantee requires that annual trust fund
spending equal the estimated receipts for the year. The object of the guarantee is to assure the full
spending each year’s trust fund receipts. The cap and penalty mechanism, on the other hand, is
designed to limit and penalize certain kinds of spending.
Taking the aviation trust fund “off-budget” has, during past reauthorization debates, been
proposed as a means of assuring that the tax revenues deposited in the trust fund are used for 44
aviation purposes. In theory, an off budget entity’s budget authority, receipts, outlays and, in
most proposals, any deficit or surplus would not be counted in regard to the congressional or
presidential budgets. If the trust fund were off-budget there would be no apparent incentive for
budgeteers or appropriators to support spending less on aviation in order to be able to spend more
on other government programs or activities. Proponents also argue that unexpended trust fund
balances could no longer be used to mask the size of the federal budget deficit. Opponents of off-
budget proposals often argue that trust fund revenues should not be separated from overall
national needs and fiscal policies. Also, as mentioned earlier in regard with the aviation trust
fund, the uncommitted balance has been much reduced in recent years and some are now more
concerned about the trust fund going into deficit.
The trust fund’s revenues in and of themselves are not sufficient to cover all of the FAA’s needs.
This increases the likelihood that an off-budget aviation trust fund would not assure full funding

43 See P.L. 106-181, Section 106.
44 For further discussion see CRS Report RS20350, Off-Budget Status of Federal Entities: Background and Current
Proposals, by Bill Heniff Jr.





for FAA capital programs. AIP and F&E would still have to compete with other aviation 45
activities, such as operations, for the available trust fund resources in any given year.
Borrowing from surface transportation legislation, one alternative to taking the aviation trust fund
off-budget would be to amend the Balanced Budget and Emergency Deficit Control Act of 1985 46
to create a discretionary spending guarantee (firewall) for the FAA’s spending. This could be
done by creating a separate budget category for aviation and annual spending caps for programs
within the category. Funding from within this category could not be used to, in effect, off-set
increased spending elsewhere in the budget thereby removing any incentive for restraining the
spending of available trust fund revenues. In some ways, this mechanism has effects similar to
going off-budget, but the budgetary resources are still counted as part of the unified congressional
budget. This would prevent the reduction of FAA capital program spending to free up funding for 47
spending elsewhere in the budget. It is uncertain how effective this would be for FAA spending.
This option would be subject to many of the same caveats as taking the aviation trust fund off-
budget but would, in the eyes of proponents of full funding for AIP and F&E, have the advantage
of setting annual funding guarantees that appropriators would have to abide by. Because this
option reduces the appropriations committees’ influence on spending, they could be expected to
vigorously resist the change. Also because this option amends a budget act it would require the
acquiescence of the House and Senate budget committees.
Historically, the rationale underlying the cap and penalty provisions was that the reward for fully
funding the AIP and F&E capital accounts with trust fund revenues would be to fund the full
authorized trust fund amount for O&M and thereby lighten the demands for general fund support
for the FAA budget. Recently, the funding of the Federal Transit Administration (FTA) underwent
a change. Instead of using both trust fund and general fund monies to fund all programs, the
FTA’s formula programs are entirely paid for from the trust fund while the congressionally
popular New Starts capital program is entirely funded out of the general fund. Although this goes
against the historical rationale that trust fund resources should first pay for capital needs, it also
puts advocates of spending constraints in the position that they have to cut a part of the FTA
budget that has a history of strong congressional support. For FAA, an analogous change would
be to fund all of FAA’s budget, except the well supported AIP program, with trust fund revenues
and fund AIP with general fund revenues. This would require that those who wish to constrain
FAA spending to cut the part of the FAA budget that has the broadest and deepest support in
Congress. On the other hand, this option could leave AIP more exposed than other components of

45 In 1999 the House passed H.R. 1000 which would have taken the aviation trust fund off-budget. The provision never
emerged from conference with the Senate. The budget committee leadership had expressed strong opposition to the
provision.
46 For an explanation of the discretionary spending guarantees enacted for federal aid to highways and transit, see CRS
Report 98-749, The Transportation Equity Act for the 21st Century (TEA-21) and the Federal Budget, by John W.
Fischer.
47 The transit account would be more analogous to the FAAs budget situation since both rely on general fund revenues
to complete their budget needs.





the FAA budget should a consensus for deficit reduction reemerge or should other priorities take
precedence over AIP in the spending of general fund revenues.
Robert S. Kirk
Specialist in Transportation Policy
rkirk@crs.loc.gov, 7-7769