Programs that support the interstate highway system, public transportation projects, aviation, railroads, and water transportation are funded mostly through the Department of Transportation, which distributes grants to state and local governments to help build and maintain transportation infrastructure. Funding for the federal-aid highway program constitutes about half of the budgetary resources for function 400, but substantial resources also go to air traffic control and Coast Guard operations. Aeronautics research sponsored by the National Aeronautics and Space Administration also is included in this category. The most significant recent change to function 400 was the establishment in 2003 of the Transportation Security Administration as part of the Department of Homeland Security.

The Congressional Budget Office (CBO) estimates that outlays for function 400 will total $75 billion in 2007, mostly for discretionary spending. The amounts of discretionary budget authority are much smaller than discretionary outlays, however, because many transportation programs are funded by contract authority (a mandatory form of budget authority) provided in authorizing legislation. Spending of that contract authority is controlled each year by obligation limitations set in appropriation bills.

Spending under function 400 has almost doubled since the early 1990s, largely because of substantial growth in outlays for the federal-aid highway program. Spending for surface transportation programs is authorized through 2009. The authorization for aviation programs expires in 2007, although CBO's baseline projections assume the Congress will enact legislation to extend those programs once they expire.

The Federal-Aid Highway Program provides grants to states for highways and other surface transportation projects. When the Congress last reauthorized the program, in 2004, it substantially increased highway funding from levels provided in the previous authorization period. Funding for the Federal-Aid Highway Program is provided in the form of contract authority, a type of mandatory budget authority. However, most spending from the program is controlled by annual limits on obligations set in appropriation acts. Over the 1992-1997 period, those obligation limitations averaged about $18 billion per year; over the 1998-2003 period, they averaged nearly $28 billion.

This option would reduce spending for highways by lowering the obligation limitation for the Federal-Aid Highway Program in 2008 to, at most, $25 billion—the actual level set in 1997, adjusted for inflation. That cut would decrease budgetary resources for the program by more than 30 percent annually over the next 10 years. The option would also reduce contract authority for the program by a commensurate amount each year. Those changes would lower outlays by more than $3 billion in 2008 and by $43 billion through 2012. (In the budget, revenues from the federal gasoline tax are credited to the Highway Trust Fund to finance highway programs; this option would have no effect on gasoline tax rates.)

The principal rationale for this option is that it would shift more of the cost of building and maintaining highways to state and local governments. Some highway analysts argue that decisions about highway spending can be made more effectively at the state and local level—where most of the benefits accrue—than at the federal level. Moreover, federal highway spending can displace spending by state and local governments and, in some cases, by the private sector. The Government Accountability Office reported in 2004 that the existence of federal grants has tended to cause state and local governments to reduce their own spending on highways and allocate those funds for other uses. Further, federal funding allocations are not always directed toward uses that offer the greatest net benefits.

An argument against this option is that the nation may need additional highway capacity to meet the demand caused by growing levels of economic activity. In addition, some analysts argue that the federal government has a responsibility to pay for maintaining an adequate highway system to facilitate interstate commerce and to ensure certain standards of safety and quality for roads throughout the country.

Under the "New Starts" program, the Department of Transportation provides funding for the construction of new rail and other "fixed-guideway" systems and for the expansion of existing systems. As defined by the program, fixed-guideway systems designate a separate right-of-way or rail line for the exclusive use of mass transportation. A related program, "Small Starts," provides discretionary grants for public transportation capital projects that cost less than $250 million and require less than $75 million in federal funding. Created in 2006 under the Safe Accountable Flexible Efficient Transportation Equity Act: A Legacy for Users, Small Starts was given an authorization of $200 million in annual appropriations. For 2007, the President proposed a total appropriation of $1.47 billion for both programs, of which $100 million was for Small Starts.

This option would eliminate the New Starts program, including Small Starts, saving more than $200 million in 2008 and almost $450 billion over the next five years.

One rationale for ending the program is that new rail transit systems tend to provide less value per dollar spent than bus systems do. Bus systems require much less capital and offer more flexibility when it is necessary to adjust schedules and routes to meet changing demands. Moreover, supporters of the option argue that letting the federal government dictate how communities should spend federal aid for transit is inappropriate and inefficient because local officials know their needs and priorities better than federal officials do. In addition, even without the New Starts program, state and local governments could still use federal aid distributed by formula grants (noncompetitive awards based on a predetermined formula) for new rail projects. In 2006, the federal government provided $6.9 billion in formula funding for transit projects, of which $1.4 billion was designated for the modernization of existing fixed-guideway systems and $3.8 billion (in broad "urbanized area" grants) was allocated for both existing and new systems.

A rationale against ending the New Starts program is that it seeks to identify the most promising rail transit projects from a long list of candidates. Supporters of rail transit assert that building additional roads does not alleviate urban congestion or pollution but leads only to greater decentralization and sprawl. New rail transit systems, by contrast, can help channel future commercial and residential development into corridors where public transportation is available, offering people easy and reliable access to their homes and the workplace.

When the Congress established the National Railroad Passenger Corporation—commonly known as Amtrak—in 1970, it anticipated providing subsidies for only a limited time, specifically until the railroad became self-supporting. After many years of providing federal subsidies, lawmakers in 1997 enacted the Amtrak Reform and Accountability Act, which directed the railroad to take a more businesslike approach to operations so that it would not need federal subsidies after 2002. For several years after that law was enacted, Amtrak reported to the Congress that it was on a "glide path" toward achieving operational self-sufficiency by the deadline. In the spring of 2002, however, it announced that it could not meet the deadline and that the goal of self-sufficiency was unrealistic. Amtrak has continued to receive federal subsidies annually, although the authorization for them expired at the end of 2002.

This option would reduce Amtrak's annual federal subsidy by $200 million in 2007 dollars, adjusted for inflation, yielding savings of $1.1 billion over five years. That size of reduction is illustrative, chosen on the basis of the financial gains the railroad could achieve by eliminating some particularly unprofitable routes and services. For example, the Department of Transportation's Inspector General estimates that eliminating sleeper-class services would help Amtrak attain cost savings—net of lost revenues from customers who would no longer travel by train if sleeper services were discontinued—of $75 million to $158 million annually. (Sleeper-class services include cars that accommodate overnight travelers, associated dining cars, onboard entertainment, lounge seating, checked baggage service, and food and beverage service.) Still larger savings could be realized by eliminating the five most unprofitable routes: according to Amtrak's Route Profitability System, those five routes accounted for combined annual losses of close to $250 million in recent years. The option does not specify any particular change in railroad operations, however, but instead leaves Amtrak's management free to decide how to adjust to the reduction in federal support.

Proponents of reducing subsidies generally favor having Amtrak function more like a business. They argue that it should cut routes and services that operate at a loss and focus instead on those that are in high demand and yield revenues that exceed costs. For example, only 16 percent of Amtrak's long-distance passengers use sleeper-class service. Given the cost of providing those amenities, per-passenger subsidies in 2004 for sleeper service ranged from $269 to $627, exceeding coach-service subsidies by at least 50 percent per route and by more than 100 percent in most cases. Similarly, cutting routes for which passenger revenues were not sufficient to cover operating costs would save funds and allow management to devote more attention to profitable routes. (If Amtrak's managers responded to reduced federal support by cutting such routes, travelers wouldn't necessarily be stranded: They could use alternative forms of transportation, or states could provide additional subsidies to keep routes operating.)

Opponents of reducing subsidies generally regard Amtrak as a public service that should be available on a nationwide basis. They maintain that passengers on lightly traveled routes have few transportation alternatives and that Amtrak is vital to the survival of small communities along those routes. Moreover, they say, improving service throughout the system could attract more passengers and make rail transportation more viable economically.

Under the Airport Improvement Program (AIP), the Federal Aviation Administration provides grants to airports to expand runways, improve safety and security, and make other capital investments. Between 1996 and 2006, about 40 percent of the program's funding went to airports classified, on the basis of the number of passenger boardings, as large and medium-sized hubs. Those hub airports—currently, there are about 70, though the number fluctuates from year to year—account for nearly 90 percent of boardings.

This option would eliminate the AIP's funding for large and medium-sized hub airports but would continue providing grants to smaller airports at levels consistent with those provided in 2006. In that year, smaller airports received about 65 percent of the $3.5 billion made available, or about $2.3 billion. Retaining only that portion of the program would reduce federal outlays by $237 million in 2008 and by $4.5 billion over the 2008-2012 period.

Funding for the AIP is subject to distinctive budgetary treatment. The program's budget authority is provided in authorization acts as contract authority, which is a mandatory form of budget authority. The spending of contract authority is subject to obligation limitations, which are contained in appropriation acts. Therefore, the resulting outlays are categorized as discretionary.

The main rationale for this option is that federal grants simply substitute for funds that larger airports could raise from private sources. Because those airports serve many passengers, they generally have been able to finance investments through bond issues as well as through passenger facility charges and other fees. Smaller airports may have more difficulty raising funds for capital improvements, although some have been successful in tapping the same sources of funding as their larger counterparts. By eliminating grants to larger airports, this option would focus federal spending on airports that appear to have the fewest alternative sources of funding.

A rationale against ending federal grants to large and medium-sized airports is that the grants could allow the Federal Aviation Administration to retain greater control over those airports by imposing conditions for aid. Such conditions could help ensure that the airports continued to make investment and operating decisions that would promote a safe and efficient aviation system.

The Essential Air Service program was created by the Airline Deregulation Act of 1978 to allow continued air service to communities that had received federally mandated service before deregulation. The program provides subsidies to air carriers serving small communities that meet certain criteria (such as being at least 70 miles from a large or medium-sized hub airport, except in Alaska and Hawaii, where separate rules apply). Those subsidies support air service to about 115 U.S. communities, including 3 in Hawaii and about 40 in Alaska. In 2005, the average subsidy per passenger ranged from $14 in Parkersburg, West Virginia, to $677 in Brookings, South Dakota. The Congress has directed that such subsidies not exceed $200 per passenger unless the community is more than 210 miles from the nearest large or medium-sized hub airport.

This option would eliminate the Essential Air Service program, reducing outlays by $88 million in 2008 and by $538 million over five years. (The President's 2007 budget proposed restructuring the program.)

One rationale for implementing this option is the high per-passenger cost of providing subsidized air transportation through the Essential Air Service program. Another is that the program was intended to be transitional, giving communities and airlines time to adjust to deregulation, more than a quarter of a century ago. Still another is that if states or communities derive benefits from air service to small communities, they could provide the subsidies themselves.

A rationale against eliminating the current program is that it alleviates the isolation of rural communities that otherwise would not receive air service. Because the availability of airline transportation is an important ingredient in the economic development of small communities, towns without the benefit of such service might lose a sizable portion of their economic base.

The terrorist attacks of September 11, 2001, led to increased security measures at the nation's transportation facilities. One of the most sweeping changes resulted from the Aviation and Transportation Security Act of 2001, which made the federal government, rather than airlines and airports, responsible for screening passengers, carry-on luggage, and checked baggage. Implementing the new standards required that more-highly-qualified screeners be hired and trained, necessitating increased compensation and raising overall costs to the government.

To help pay for increased security, the law authorized airlines to charge passengers a fee of $2.50 each time they boarded a plane, capped at $5 for a one-way trip. The 2001 law also authorized the government to impose fees on the airlines themselves and to provide funding to reimburse airlines, airport operators, and service providers for the additional costs of their security enhancements. According to the Congressional Budget Office's estimates, the Transportation Security Administration (TSA) would collect about $2.7 billion from such fees in 2008—slightly more than half of the $4.8 billion in federal funding that would be needed that year to continue aviation security activities as currently authorized.

This option would increase fees so that they cover a greater portion of the federal government's spending for aviation security. Following changes to TSA's passenger fee structure proposed in the Administration's 2007 budget request, this option would replace existing passenger fees with a flat fee of $5 per one-way trip. Implementing the option would boost collections (and thus reduce net spending) by $1.3 billion in 2008 and by $6.8 billion through 2012. Under standard budgetary treatment, such collections would be classified as revenues, but because the Aviation and Transportation Security Act requires that revenues from the existing fees be recorded as offsets to federal spending, this option would treat the additional fees the same way.

The rationales for and against fully funding federal aviation-security measures by imposing fees rest on the principle that the beneficiaries of a publicly provided service should pay for it. The differences lie in who is seen as benefiting from such measures. A justification for the option is that the primary beneficiaries of transportation security enhancements are the users of the system. Security is viewed as a basic cost of airline transportation, in the same way that fuel and labor costs are. The current situation, in which those costs are covered partly by taxpayers in general and partly by users of the aviation system, provides a subsidy to air transportation.

Conversely, the rationale against higher fees is that the public in general—not just air travelers—benefits from improved airport security. To the extent that greater security reduces the risk of terrorist attacks, the entire population is better off. That reasoning suggests that the federal government should fund the enhanced transportation security measures without collecting additional funds directly from the airline industry or its customers.

The St. Lawrence Seaway Development Corporation (SLSDC) was established in 1954 to operate and maintain the portion of the St. Lawrence Seaway controlled by the United States between the Port of Montreal and Lake Erie. The SLSDC, a federal agency within the Department of Transportation, collected commercial tolls to fund operation and maintenance costs from 1959 until the establishment of the harbor-maintenance tax in the Water Resources Development Act of 1986. Revenues from the tax, which is levied on imports and domestic shipments at Great Lakes and coastal ports, are credited to the Harbor Maintenance Trust Fund (HMTF). An appropriation from the HMTF currently funds operation and maintenance costs on the seaway.

This option would reestablish commercial tolls on the portion of the St. Lawrence Seaway governed by the United States to cover operation and maintenance costs incurred by the SLSDC. It also would terminate appropriations from the HTMF. By reestablishing such a fee, the SLSDC would operate in the same manner as its Canadian counterpart, the St. Lawrence Seaway Management Corporation, which already charges commercial tolls on the Canadian portion of the seaway. Those changes would generate receipts of $8 million in 2008 and $77 million over the 2008-2012 period.

The main rationale for this option is that users would be required to pay the SLSDC directly for the services they use. In particular, exporters—which are subsidized under the current system—would be put on an equal footing with importers and domestic shippers. The option's businesslike approach would give all users incentive to economize on their use of seaway services, thus improving efficiency.

A rationale against reintroducing such fees is that tolls could harm the Great Lakes shipping industry, particularly exporters, who currently are not taxed for their use of the United States' portion of the seaway. Certain importers and shippers of domestic goods that already contribute to operation and maintenance costs through the harbor-maintenance tax might be required to pay additional fees. The application of the harbor-maintenance tax on those users of Great Lakes ports could be repealed to avoid duplicative charges but doing so would reduce or eliminate the option's savings.