Assigning Air Traffic Control Costs to Users
Elements of FAA's Methodology Are Generally Consistent with Standards but Certain Assumptions and Methods Need Additional Support
GAO-08-76, Oct 19, 2007
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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.
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.
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Recommendations for Executive Action
Recommendation: To provide additional support for the reasonableness of FAA's cost assignment methodology and to monitor Facilities and Equipment (F&E) cost assignments to users, the Secretary of Transportation should direct the Administrator of FAA to adequately document the basis on which costs are assigned to user groups.
Agency Affected: Department of Transportation
Status: Open
Comments: According to FAA, in FY 2008 FAA prepared an interim Cost Allocation for Reauthorization Methodology and Application (CAMERA) work product using FY 2006 cost accounting and activity data. This product included documentation on changes made to the methods of allocating FAA's Air Traffic Organization's costs to users. As part of this update, FAA confirmed previous analyses and conducted interviews with subject matter experts. FAA tested a number of alternative regression models using FY 2006 cost and activity data that focused on multiple user activity measures and alternative groupings of users. These regressions produced no strong evidence for changing the existing CAMERA methodology or parameters.
Recommendation: To provide additional support for the reasonableness of FAA's cost assignment methodology and to monitor F&E cost assignments to users, the Secretary of Transportation should direct the Administrator of FAA to 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.
Agency Affected: Department of Transportation
Status: Open
Comments: According to FAA, for FY 2006 CAMERA incorporated improvements made in FAA's cost accounting system, integrating Labor Distribution Reporting which allows better charging practices. For example, one result of these improvements is that more maintenance labor costs were assigned directly to projects and service delivery points than in FY 2005 results. Increased precision in cost accounting data and consultations with subject matter experts resulted in a reduced share of the costs assigned to the common cost (Tier 3) pool and spread across services. Another improvement in the FY 2006 cost allocation methodology was in how projects that benefit more than one service are allocated to Air Traffic Organization services (e.g. using distribution of direct projects costs rather than pieces of equipment). After finalizing the FY 2005 analysis, improvements in the identification of aircraft engine types generally increased piston aircraft activity shares. FAA documented changes to its treatment of these costs as part of FY 2006 cost allocation studies.
Recommendation: To provide additional support for the reasonableness of FAA's cost assignment methodology and to monitor F&E cost assignments to users, the Secretary of Transportation should direct the Administrator of FAA to 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.
Agency Affected: Department of Transportation
Status: Open
Comments: According to FAA, in the analysis and preparation of CAS data for use in the allocation of ATO costs, FAA sought and received input from subject matter experts in FAA and performed quantitative cost and activity data modeling. These analyses have found no evidence of material differences in costs driven by commercial, general aviation, and exempt users of the same aircraft at the same facility.
Recommendation: To provide additional support for the reasonableness of FAA's cost assignment methodology and to monitor F&E cost assignments to users, the Secretary of Transportation should direct the Administrator of FAA to 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.
Agency Affected: Department of Transportation
Status: Open
Comments: According to FAA, it had only a limited opportunity to monitor differences between cost allocations for the facilities and equipment budget and the actual use of those assets, and, as it noted in its response, this work would require a long-term, ongoing analysis. However, in developing the FY 2006 cost allocations, it reviewed and made adjustments to its approach for the distribution of facilities and equipment costs. In FY 2005, facilities and equipment projects that benefit multiple ATO services were allocated based on equipment types used by each service. In FY 2006, the allocation basis was changed to the sum of the project costs for projects directly assigned to a unique service. The change in allocation basis affects ATO service distribution for facilities and equipment costs. In the analysis and preparation of CAS data for use in the allocation of ATO costs, FAA sought and received input from subject matter experts in FAA and performed quantitative cost and activity data modeling. These analyses have found no evidence of material differences in costs driven by commercial, general aviation, and exempt users of the same aircraft at the same facility. In FY 2006, an adjustment was made to the facilities and equipment budget distributed based on implementation and depreciation costs only rather than on implementation, depreciation, and acquisition costs. The adjustment recognizes that the majority of the acquisition cost remains at the service level and does not get assigned to the service delivery point level. The FAA recognizes that if this cost allocation system is to be relied on for ongoing decisions or as the basis for cost recovery, there would need to be a periodic adjustment mechanism for differences between forecast and actual activity and for differences between budgeted and actual costs.