Elements of FAA’s Cost Assignment Methodology Design Are Generally Consistent with Federal Cost Accounting Standards and International Guidance

FAA designed its CAMERA cost methodology so that the resulting cost  assignments would be consistent with federal policies on the  establishment of user fees, and, to the extent practicable, with  international guidance for air navigation service providers on setting fees. Federal cost accounting standards establish a flexible principle for  assigning costs, not a specific methodology that agency management must  follow. FAA used the three  categories of costing methods found in the federal standards to assign  costs to users. Further Documentation and Analysis Is Needed to Justify Key Assumptions and Methods

While elements of FAA’s cost assignment methodology design comply with  pertinent guidance, we identified matters related to the application of  certain assumptions and cost assignment methods underlying the  methodology that need further justification to demonstrate that the  resulting cost assignments to users are reasonable. However, FAA did  not (1) adequately document the basis on which it assigned costs to  turbine and piston user groups or (2) conduct sufficient analysis (e.g.,  econometric analysis) to support its assumption that all types of aircraft  with the same type of engine (e.g., smaller jet aircraft versus larger  commercial jets) affect costs in the same manner. Because general aviation jet aircraft are  included in the turbine user group, FAA’s methodology allocated a portion  of these costs, such as those for navigational aids and other equipment, to  the general aviation aircraft operators. Use of Facilities and Equipment Budget Authority in the Cost Base Needs to be Monitored

Because the total of ATO’s fiscal year 2005 GAAP-based acquisition,  implementation, and depreciation expenses taken from CAS were less  than ATO’s budget authority for the F&E account, a user fee based on  GAAP expenses would be insufficient to fund the budgeted costs for  facilities and equipment. The manner in which these adjustments are assigned  may, over time, result in costs being assigned to users who differ from the  ultimate users of the new F&E when it becomes operational, leading to  unintentional cross-subsidization among users. The design of FAA’s methodology is generally consistent with the  principles and methods set forth in federal cost accounting standards and  international guidance. However, the lack of sufficient support for certain  of the methodology’s underlying assumptions and methods leaves open  the possibility that the study should assign costs to commercial, general  aviation, and exempt users differently. Notwithstanding the need to  balance precision with simplicity and transparency, FAA, Congress, and  users of air traffic control services would benefit from additional  documentation and analysis for key assumptions impacting the assignment  of costs to the different user groups and further evaluation of the  reasonableness of FAA’s method of allocating overhead, indirect, and  other miscellaneous costs. Recommendations for Executive Action

To provide additional support for the reasonableness of FAA’s cost  assignment methodology and to monitor F&E cost assignments to users,  we recommend that the Secretary of Transportation direct the  Administrator of FAA to    adequately document the basis on which costs are assigned to user groups;    evaluate the methods and basis upon which various overhead, indirect,  and other miscellaneous costs are assigned to user groups and document  the effect of any changes thereto;   determine whether and quantify the extent to which commercial, general  aviation, and exempt users who use either single type of aircraft—turbine  or piston—impose costs differently on the air traffic control system; and   establish a mechanism for monitoring, by user group, any cumulative  difference between original cost allocations for budgeted facilities and  equipment project costs and actual usage of those assets, and adjusting  prospective cost assignments accordingly.
Why GAO Did This Study

In January 2007 Federal Aviation Administration (FAA) reported the results of its study that assigned the fiscal year 2005 costs of its Air Traffic Organization (ATO) to users. FAA used this study to support the President's proposal to replace many current excise taxes with cost-based fees for commercial aviation users and higher fuel taxes for general aviation users. GAO assessed (1) the consistency of FAA's cost assignment methodology with established standards and guidance, (2) the support for selected cost assignment assumptions and methods, and (3) the impact of including budgeted capital costs in the cost baseline. GAO compared FAA's methodology to federal accounting standards and international guidance, reviewed available documents and analyses supporting FAA's assumptions and methods, and interviewed FAA officials and consultants.

What GAO Found

With the federal government preparing for the next generation of air travel, the President, Congress, and users of the national airspace are considering alternative methods for funding air traffic control in the national airspace. To support a cost-based funding structure such as the current proposal from the President, FAA developed a methodology for assigning costs to users. Federal cost accounting standards and international guidance establish flexible principles for assigning costs and recognize that the selection of methods involves making choices that require balancing the cost of development and implementation with the benefit of precision in the resulting cost assignments. GAO found that the design of key elements of FAA's methodology was generally consistent with federal standards and international guidance. But GAO also identified matters related to the application of certain assumptions and cost assignment methods that need additional documentation and analysis. Because building a methodology for assigning costs to users involves standards, alternative methodologies, and choices, documenting the decisions made and how they were made is important to allow users and others to assess whether the methodology and the structure of cost assignment is reasonable. FAA provided adequate support for its decision to assign costs based on whether the aircraft using air traffic control services are powered by turbine engines, such as jets, or piston engines, such as propeller-driven airplanes. However, FAA did not adequately document the basis on which it assigned costs to the aircraft groups or support its assumption that all types of aircraft with the same engine type affect costs in the same manner, leaving open the possibility that costs should be assigned to users differently. GAO also found that FAA's methodology does not take advantage of allocations already made in its cost accounting system, but instead aggregates the costs and then allocates them to aircraft groups. For some of these costs, such as employee benefit costs, a different method of allocation could have produced a more precise distribution between the groups. A user fee designed to fund new facilities and equipment expenditures must provide funds equal to the annual budget for those expenditures. FAA's methodology includes adjusting current-year actual expenses to equal the budgeted amount for facilities and equipment costs. These adjustments are then assigned to users in the same proportion as are current acquisition, implementation, and depreciation expenses. But users of future facilities and equipment may be different from users of existing facilities and equipment. The manner in which the costs of facilities and equipment are assigned may, over time, result in assigning costs to users who are different from the ultimate users of future facilities and equipment once they become operational. Consequently, the implementation of this method warrants careful monitoring to avoid unintentional cross-subsidization among users.