Federal Aviation Administration: Reauthorization Provides Opportunities to Address Key Agency Challenges
Published: 2003-04-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Much has changed since the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21) reauthorized the Federal Aviation Administration's (FAA) programs 3 years ago. At that time, air traffic was increasing, and concerns about congestion and flight delays were paramount. Since then, the downturn in the nation's economy, the terrorist attacks of September 11, 2001, and, most recently, the war in Iraq have taken a heavy toll on aviation. Analysts nonetheless expect the demand for air travel to rebound, and the nation's aviation system must be ready to accommodate the projected growth safely and securely. The current reauthorization of FAA's programs provides an opportunity for the Congress and the administration to focus on challenges in increasing aviation capacity, efficiency, and safety and in controlling aviation program costs.
section_title: What GAO Found
paragraphs: Increasing capacity and service in the national airspace system poses several challenges. While airports currently receive enough funding to cover FAA's estimate of their planned capital development costs, a declining surplus in the trust fund that helps to support development and the need to spend up to $5 billion over the next 5 years for security-related capital improvements make the financial outlook for the next 5 to 8 years uncertain. Runway development, the principal means of increasing capacity, is now taking 10 to 14 years to complete, in large part because of time-consuming environmental reviews and community concerns. Providing air service for small communities is also becoming more difficult as costs increase and passenger ticket revenues decline. Intermodal alternatives may hold promise. Efforts to improve the efficiency of the national airspace system by modernizing the air traffic control system face challenges despite actions taken by the Congress and the administration to eliminate the cost overruns, schedule delays, and performance shortfalls that have plagued FAA's modernization efforts. Overall, FAA is improving its management of the air traffic modernization program and has implemented some systems, but key projects continue to experience problems. To enhance aviation safety, FAA and the aviation industry have undertaken an initiative to reduce the fatal accident rate, and FAA is working to strengthen its safety inspections of airlines' operations. Interagency coordination of aviation safety and aviation security activities has emerged as a challenge with the transfer of aviation security responsibilities from FAA to the Transportation Security Administration. FAA faces challenges in implementing controls over its costs. Although it has partially implemented a new cost accounting system that enables it to track 70 percent of its air traffic services costs, this system lacks internal controls over $3.1 billion in labor costs, according to the Department of Transportation's Inspector General. Congressional oversight is important to ensure that FAA implements controls and spends its resources effectively.

section_title: Letter
paragraphs: We are here today to discuss the reauthorization of federal aviation  programs and issues relevant to ensuring the safe and efficient operation  of the national airspace system. Much has changed since the Wendell H.  Ford Aviation Investment and Reform Act for the 21st Century (AIR-21)  reauthorized the Federal Aviation Administration’s (FAA) programs 3  years ago. At that time, as you know, air traffic was increasing, and  concerns about congestion and flight delays were paramount. Since then,  the downturn in the nation’s economy, the terrorist attacks of September  11, 2001, and, most recently, the war in Iraq have taken a heavy toll on  aviation. Flights that were once filled are now being canceled for lack of  business, and major air carriers are in serious financial difficulty.  Furthermore, as the federal budget deficit has increased, competition for  federal resources has intensified. Analysts nonetheless expect the demand  for air travel to rebound, and the nation’s aviation system must be ready to  accommodate the projected growth safely and securely. The current  slowdown in the economy and in the aviation industry has created a  window of opportunity to prepare for this growth without the pressures of  congestion and flight delays. My statement today focuses on the  challenges that the Congress, the administration, and FAA face in  increasing aviation capacity, efficiency, and safety, and maintaining  controls over costs. My statement is based primarily on our published  reports, as well as our ongoing work for this Committee discussed in the  scope and methodology section at the end of the statement.
Increasing capacity and service in the national airspace system poses  several challenges for the Congress and the administration during this  reauthorization process. Chief among them is deciding how much of  airports’ planned capital development should be funded to increase  capacity and service, as well as improve the efficiency and safety of the  national airspace system. Funds for airports’ capital development have  increased over the last 5 years, in part because of increases in the federal  grant funding provided to airports under the Airport Improvement  Program. Current funding levels are sufficient to cover much of the  estimated cost of planned capital development. However, future funding  levels may be affected by changes in the allocation of Airport  Improvement Program grant funds and by projected decreases in the  Airport and Airway Trust Fund, which supports the Airport Improvement  Program and other FAA accounts. Other challenges include building  runways expeditiously to increase capacity and providing air service to  small communities. Runway development now takes 10 to 14 years,  primarily because of time-consuming environmental reviews and  community concerns. Two federal programs, the Essential Air Service and  the Small Community Air Service Development Pilot programs, help bring  air service to small communities, but the costs of this service are  increasing while passenger ticket revenues are declining. The  administration is proposing an approach to streamline the environmental  reviews required for runway development, and intermodal alternatives,  such as rail or bus service, could provide access to the national air  transportation system for some small communities.
Efforts to improve the efficiency of the national airspace system by  modernizing its principal component, the air traffic control system, face  ongoing challenges despite actions taken by the Congress and the  administration to eliminate the cost overruns, schedule delays, and  performance shortfalls that have plagued FAA’s air traffic modernization  program and led us to designate this program as high risk. These actions  include granting FAA acquisition and human capital flexibilities in 1996  and creating a new, three-component structure to improve the oversight,  management, and operation of the air traffic control system in 2000. Our  work has shown that FAA has responded to these actions to varying  degrees, but more remains to be done. Overall, FAA is improving its  management of the air traffic modernization program and has  implemented some systems, but key projects continue to experience cost,  schedule, and performance problems. Additionally, FAA has used its  acquisition flexibilities to establish an acquisition management system and  its human capital flexibilities to fully or partially implement human capital  reform initiatives. The acquisition management system has provided FAA  with a structured management approach for selecting and controlling its  investments, and the human capital reform initiatives are affording  opportunities for FAA to manage its workforce more efficiently. However,  in implementing both of these reforms, FAA has not yet incorporated  important processes or elements for evaluating the results of its efforts,  modifying these efforts as necessary, and holding its managers  accountable. Finally, one of the three components of the new structure for  improving the performance of the air traffic control system has been  implemented. The oversight component, the Air Traffic Services  Subcommittee, has been meeting since January 2001 and emphasizing  performance management, but without the management and operating  components, the new structure is not yet functioning as intended.  Completing the implementation of, and continuing to improve, these  efforts will be important to enhancing the efficiency of the air traffic  control system.
Important steps have been taken to enhance aviation safety, but some  challenges remain. Safer Skies, an initiative designed by FAA and the  aviation industry to reduce the nation’s fatal aviation accident rate by 80  percent by 2007, is the centerpiece of these efforts to improve aviation  safety. This initiative began in 1998, and many preventive actions are  under way but have not yet been fully implemented. Another key effort to  improve aviation safety is FAA’s Air Transportation Oversight System,  which was redesigned to provide more effective inspections of the nation’s  airline operations. In reporting on this system in 1999, we noted that it  incorporated important features to ensure that airlines have systems to  control risks and prevent accidents, but that it had encountered startup  problems with data collection and program guidance. Many of these  problems were not yet fully resolved when the Department of  Transportation’s Inspector General reported on the inspection system last  year. Finally, because of the often vital link between aviation safety and  aviation security, it will be critical for FAA to ensure that aviation safety is  maintained as the Department of Homeland Security’s Transportation  Security Administration implements new security enhancements.
With the decline in revenues to the Airport and Airway Trust Fund—the  principal source of funding for most of FAA’s operations, facilities and  equipment, and grant programs—it is especially important that FAA  control or reduce costs, run its programs efficiently, and detect and  prevent fraudulent activities. FAA, however, faces challenges in  implementing controls over its costs. For example, during fiscal year 2000,  weaknesses in the internal controls over FAA’s purchase card program  contributed to $5.4 million in improper purchases by FAA employees and  over $630,000 in purchases that were considered wasteful or questionable.  In addition, FAA has partially implemented a new cost accounting system  that enables it to track 70 percent of its air traffic services costs; however,  according to the Department of Transportation’s Inspector General, this  system lacks internal controls over $3.1 billion in labor costs. The  Inspector General further noted that a portion of this system, if  implemented as designed, could provide workforce data that would be  helpful in determining how many controllers are needed and where. These  data would assist FAA in planning for the anticipated retirement of large  numbers of air traffic controllers in the near and long term.
subsections: section_title: Efforts to Increase Aviation Capacity and Service Face Funding and Other Challenges
paragraphs: During this reauthorization period, the Congress and the administration  face several key challenges in attempting to increase the capacity of the  national airspace system and expand service to small communities. These  challenges include determining (1) how much airport capital development  is needed, (2) how that development will be funded, (3) how assistance for  enhancing air service to small communities will be provided, and (4) how  the current process for enhancing capacity, particularly the runway  development process, can be expedited.
subsections: section_title: FAA and the Airport Industry Have Developed Different Estimates of Airports’ Planned Capital Development Costs
paragraphs: FAA and the Airport Council International (ACI), an organization  representing the airport industry, have developed two different estimates  of airports’ planned capital development costs that are based on two  different sets of projects. According to FAA’s estimate, which includes  only projects that are eligible for Airport Improvement Program (AIP)  grants, such as runways, taxiways, and noise mitigation and noise  reduction efforts, the total cost of airport development will be about $46  billion, or over $9 billion per year, for 2001 through 2005. FAA’s estimate is  based on the agency’s National Plan of Integrated Airport Systems, which  FAA published in August 2002. ACI’s estimate includes all of the projects  in FAA’s estimate, plus other planned airport capital projects that may or  may not be eligible for AIP grants. Projects that are not eligible for AIP  funding include parking garages, hangars, and expansions of commercial  space in terminals. ACI estimates a total cost of almost $75 billion, or  nearly $15 billion per year, for 2002 through 2006. Neither ACI’s nor FAA’s  estimate includes funding for the terminal modification projects that are  needed to accommodate the new explosives detection systems required to  screen checked baggage. ACI estimates that these projects will cost about  $3 billion to $5 billion over the next 5 years.
Although there is a difference of $6 billion a year between FAA’s and ACI’s  estimates of planned development costs, both estimates cover projects for  every type of airport. As table 1 indicates, the estimates are identical for all  but the large- and medium-hub airports, which are responsible for  transporting about 90 percent of the traveling public. For these airports,  ACI’s estimate of planned development costs is about twice as large as  FAA’s. As the Congress moves forward with reauthorizing FAA’s  programs, it will have to determine what level of planned capital  development is appropriate to increase the capacity, efficiency, and safety  of the national airspace system.
section_title: Airports’ Ability to Fund Planned Capital Development Has Improved
paragraphs: Over the past 5 years, the ability of airports—especially smaller airports— to fund their capital development projects has improved, in part because  AIR-21 increased both the total amount of funding for AIP grants and the  proportion of AIP funding that went to smaller airports. In 1998, we  reported that large- and medium-hub airports could fund about 79 percent  of their planned capital development and smaller airports could fund  about 52 percent of their planned capital development if they continued to  receive funding at prior years’ levels. In 2003, the funding ability of both  groups of airports increased. As shown in figure 1, large- and medium-hub  airports could fund about 80 percent of their planned capital development,  an increase of 1 percentage point, while smaller airports could fund about  73 percent of their planned capital development, an increase of 21  percentage points, assuming the continuation of prior years’ funding  levels.
The primary reason why smaller airports are able to fund 73 percent of  their planned development in 2003, rather than the 52 percent we reported  in 1998, is that they have benefited significantly from the increases in AIP  grants, which are a larger source of funding for smaller airports than for  larger airports. In addition, smaller airports have received an increasing  share of AIP grants because of statutorily required changes in the  distribution of AIP grants. For example, in AIR-21, the Congress increased  the funding for two grant categories that primarily or exclusively benefit  smaller airports—the state apportionment fund and the small airport  fund—and created general aviation entitlement grants, which also benefit  smaller airports. The Senate’s and the administration’s reauthorization  proposals continue to support increases in the amount of AIP grant  funding awarded to smaller airports. In spite of the progress that has been  made, over 25 percent of planned capital development is not funded. The  Congress needs to be mindful of this situation as it considers  reauthorization issues.
section_title: Changes in the Use of AIP Grants and Additional Decreases in Trust Fund Revenue Could Affect Airports’ Future Funding Ability
paragraphs: The use of AIP grants to fund new airport security requirements and  additional decreases in the Airport and Airway Trust Fund’s revenues  could affect the future ability of airports to fund their planned capital  development. In recent fiscal years, airports obtained most of their funding  for planned capital development from bonds, AIP grants, and passenger  facility charges. Because the Trust Fund is the source of funding for AIP  grants, its financial condition is important to the ability of airports to fund  capital development, and decreases in its revenues could reduce the  amount of funding for airport planned capital development. Reductions in  AIP grant funds would have the greatest effect on smaller airports, which  derive most of their planned capital development funding from AIP grants,  whereas large- and medium-hub airports derive most of their funding from  bonds.
subsections: section_title: Continued Use of AIP Grant Funds for Security Projects Would Reduce Funding for Capacity Projects
paragraphs: According to FAA officials, FAA plans to allocate the same amount of AIP  grant funds for new security projects at airports in fiscal year 2003 as it  allocated in fiscal year 2002—$561 million. As we reported in October  2002, the use of AIP grants for security projects reduced the funding  available for other airport development projects, such as projects to bring  airports up to FAA’s design standards and reconstruction projects, and  caused FAA to defer three letter-of-intent payments totaling $28 million to  three airports until fiscal year 2003 or later. Among the key  reauthorization issues facing the Congress are how the funding needs for  capacity and security projects will be balanced and how the new security  requirements, including the terminal modification projects that are  expected to cost $3 billion to $5 billion, will be funded.
section_title: Additional Declines in Airport and Airway Trust Fund Revenue Could Also Affect Amount of AIP Grant Funds Available for Future Capital Development
paragraphs: The future ability of airports to fund planned capital development may be  affected by uncertainties surrounding the condition of the Trust Fund. As  you know, the Trust Fund is the source of funding not only for AIP grants  but also for other FAA accounts, including facilities and equipment;  research, engineering, and development; and most operations. Revenues  to the Trust Fund come from several types of taxes, including passenger  ticket and fuel taxes. Although projections made in November 2002  indicate that the Trust Fund will be able to meet its traditional obligations  over the next 10 years, the financial outlook for the next 5 to 8 years is  uncertain, in part, because passenger traffic has decreased with the  slowdown in the economy. Current estimates indicate that between fiscal  year 2003 and fiscal year 2007, the Trust Fund’s 2002 uncommitted balance  of about $4.8 billion will decline by about $4 billion, leaving a balance of  less than a billion dollars. In addition, if revenues fall short of current  projections, the Trust Fund’s uncommitted balance may be zero. Under  this scenario, AIP grants and other FAA accounts supported by the Trust  Fund could potentially receive less funding, and the Congress and the  administration would have to decide how to offset the potential decreases.
As figure 2 shows, from 1999 through 2002, revenues to the Trust Fund  have declined, while expenditures from the fund have increased. Revenues  fell from about $11 billion in 1999 to almost $10 billion in 2002, a decrease  of almost 10 percent. During the same period, expenditures increased from  about $8 billion to about $12 billion, an increase of about 47 percent. As a  result, the uncommitted balance (surplus) has fallen by nearly 35 percent,  from $7 billion in 1999 to almost $5 billion in 2002.
The major reason for the decline in Trust Fund revenues was a drop in  passenger ticket tax revenues, which fell by nearly $1.2 billion from 1999  to 2002. The increase in Trust Fund expenditures from 1999 through 2002,  amounting to almost $4 billion, can be attributed primarily to increases in  funding for FAA operations and AIP grants, which accounted for about 47  percent and about 34 percent of the total increase, respectively.
In addition, the administration is proposing actions that would further  reduce the Trust Fund balance over the next several years. Specifically,  the President’s fiscal year 2004 budget request would increase the  percentage of FAA operations funded by the Trust Fund from 75 percent  to 79 percent. The decrease in Trust Fund revenues and increase in Trust  Fund expenditures presents an issue that the Congress may want to  address as it moves forward with the reauthorization process.
section_title: Resolving Challenges to Runway Development Remains an Important Issue
paragraphs: While there is a general consensus that building runways is one of the  most effective ways to increase capacity in the national airspace system,  resolving the challenges associated with planning and building runways is  an important issue that is directly related to enhancing capacity. In  December 2002, FAA published the most recent version of its Operational  Evolution Plan, a 10-year plan to increase the capacity and efficiency of  the national airspace system, primarily by building runways. Figure 3  illustrates how capacity will be increased at one airport through runway  construction.
If successfully carried out, FAA’s Operational Evolution Plan would  substantially increase capacity and improve efficiency. However, FAA  faces several challenges in implementing the plan. First, the success of the  plan depends on adequate funding and on the consensus of FAA’s aviation  industry partners. Yet according to the most recent version of the plan, the  timing and implementation of some activities may be in jeopardy because  of the current economic situation and the uncertain viability of some  industry participants. For example, the plan calls for the airline industry to  invest $11 billion in new equipment for aircraft. FAA is currently reviewing  the ability of the airlines to make this investment. Second, as noted, the  plan relies heavily on runway development to increase capacity, but the  most recent version of the plan reports mixed results in building new  runways. While the plan indicates that one new runway will be built during  the next 10 years, it points out that another runway has been canceled and  the construction of six additional runways has been delayed because of  local situations.
In January 2003, we reported that airports spent about 10 years planning  and building recently completed runways and expect to spend about 14  years on runways that are not yet completed. We also reported that  several external factors affect how much time is spent planning and  building runways, and several airports with unfinished runway projects  identified significant challenges that had delayed the completion of their  projects. While many airports believed that completing the environmental  review phase was a significant challenge and is an issue that warrants  immediate attention, airports also faced obstacles that some said were as  onerous as the environmental review phase. They identified significant  challenges in reaching agreement with community interest groups during  the planning phase and in mitigating the potential impact of aircraft noise  on the surrounding community. Although there may be no single solution  to resolving all of the issues involved in planning and building runways,  the federal government and airport authorities are taking some action. For  example, the Senate’s and the administration’s reauthorization proposals  call for streamlining the environmental review of transportation  infrastructure projects.
Recognizing that building new runways is not always a practicable way to  increase capacity at some airports, we identified three alternatives to  building runways in our December 2001 report:    Find ways to manage and distribute demand within the system’s existing  capacity at busy airports such as LaGuardia, by, for example, limiting the  number of takeoffs and landings during peak periods or limiting the ability  of general aviation aircraft to use especially congested airports (under  current law, all aircraft have equal access to even the largest airports).  Airports are restricted in using pricing to reflect the scarcity and  congestion of airspace.
Add capacity by using nearby airports that have available capacity.
Examine other modes of intercity travel, such as high-speed rail, where  metropolitan areas are relatively close, to form an integrated, intermodal  transportation network.
Accordingly, we recommended that the Department of Transportation  (DOT) begin a more extensive evaluation of initiatives, including  intermodal solutions and a dialogue with transportation stakeholders, as a  basis for developing a comprehensive blueprint for addressing the nation’s  long-term transportation needs. DOT has recognized the need for more  and better long-range planning on the potential use of such measures and  agreed with our recommendation. The Department’s evaluation efforts are  in the beginning stages. The current hiatus in air traffic growth creates an  opportunity for the development of long-term transportation plans.
section_title: Federal Programs to Help Small Communities Improve Air Service Face Budgetary Pressures and Questions about Their Effectiveness
paragraphs: While the need for greater capacity is a vital issue for some large- and  medium-hub airports, the primary issue at other airports that serve small  communities is to obtain or retain commercial air service. The  reauthorization process provides an opportunity for the Congress to  clarify the federal strategy for helping small communities acquire the  commercial air service they desire. Currently, the challenges that small  communities have long faced in obtaining or retaining commercial air  service are increasing as many U.S. airlines try to stem unprecedented  financial losses through numerous cost-cutting measures, including  reducing or eliminating service in some markets. Small communities feel  such losses disproportionately because they may have service from only  one or two airlines. For them, reductions can mean no air service at all.
The Essential Air Service (EAS) program, authorized under the Airline  Deregulation Act of 1978, guarantees that small communities served  before deregulation will continue to receive a certain level of scheduled air  service. Its costs have more than tripled since fiscal year 1995, and  indications are that without changes to the program, the demand for  subsidies will soon exceed the program’s $113 million appropriation for  fiscal year 2003. At the same time, aggregate passenger levels at EAS- subsidized airports continue to fall. Often fewer than 10 percent of a  community’s potential passengers use the subsidized local service; the rest  choose to drive to their destination or drive to a larger airport that offers  lower fares or more frequent service to more destinations. In 2000, the  median number of passengers on each EAS-subsidized flight was three.  The administration’s budget proposal for fiscal year 2004 would  substantially reduce the federal subsidy for small community air service  and require communities that wish to retain the service to help subsidize  it. Specifically, the budget proposal would reduce federal EAS funding  from $133 million in 2003 to $50 million in 2004, alter the eligibility criteria  for funding, and require nonfederal matching funds. Consistent with its  budget proposal, the administration’s reauthorization proposal would  restructure the EAS program to direct its resources to the small  communities with the greatest need to maintain access to national air  transportation service. The Senate bill proposes to reauthorize funding for  the program at current levels.
The Small Community Air Service Development Pilot Program, authorized  as part of AIR-21, provides grants to communities to enhance local air  service. In fiscal year 2002, 180 communities requested over $142 million  in air service development grants, and $20 million was appropriated. In  March 2003, we reported that the program funded some innovative  approaches. For example, Mobile, Alabama, received about $450,000 to  provide ground-handling services to an airline, and Caspar, Wyoming,  received $500,000 to purchase and lease back an aircraft to an airline to  ensure service to the community. The program also funded the same types  of projects that many small communities have undertaken in recent years,  such as evaluations of marketing activities and the use of financial  incentives to encourage airlines to either start or enhance service.  According to our analysis of similar approaches used by about 100 small  communities, financial incentives offered the most promise for attracting  new or additional service. However, the additional service typically ended  with the incentives. The sustainability of such improvements in air service  over the longer term appeared to depend on the community’s size and  ability to demonstrate a commitment to that air service, either by  providing a profitable passenger base or through direct financial  assistance. As you know, the administration’s fiscal year 2004 budget  proposal would eliminate the funding for this pilot program. It is too soon  to determine how effective the various types of initiatives funded through  this program might prove to be. Other options for making the national air  transportation system more accessible to small communities might include  intermodal initiatives such as those we proposed as alternatives to runway  development.
section_title: Efforts to Improve the Efficiency of the Air Traffic Control System Face Ongoing Challenges
paragraphs: Improving the efficiency of the air traffic control system will be important  to accommodate the expected return to pre-September 11 air traffic levels.  Efforts to achieve this improvement pose continuing challenges, as FAA  attempts to put acquisition management and human capital reforms in  place and establish an effective oversight and organizational structure to  help ensure that resources are spent cost-effectively and improvements  are realized.
subsections: section_title: FAA’s Air Traffic Modernization Remains High Risk
paragraphs: To increase the safety, capacity, and efficiency of the national airspace  system, FAA undertook a major effort in 1981 to modernize and replace  aging air traffic control equipment. This effort, which includes major  projects in such areas as communications, surveillance, navigation, and  weather, has been plagued by cost overruns, schedule delays, and  performance shortfalls. As a result, we designated FAA’s air traffic  modernization program as high risk in 1995, and we continue to designate  it as such. Figure 4 combines our and the DOT Inspector General’s  analysis of FAA’s progress in meeting cost and schedule goals for selected  air traffic control projects—the Standard Terminal Automation  Replacement System (STARS), Wide Area Augmentation System (WAAS),  Next-Generation Air/Ground Communication (NEXCOM), free flight, Local  Area Augmentation System (LAAS), and Integrated Terminal Weather  System (ITWS).
FAA is making progress in managing the air traffic control modernization  effort and has implemented some key projects. For example, the agency  has replaced the automated color display equipment used by air traffic  controllers to control traffic in some facilities (Display System  Replacement); installed the initial phase of the computer that receives,  processes, and tracks aircraft movement throughout the airspace system  (HOST computer); and implemented some free flight technologies that are  expected to allow for more efficient use of the system by improving  operations in various segments of flight. Figure 5 shows an FAA  representative using the Display System Replacement to monitor and  handle air traffic.
However, other key projects continue to experience cost, schedule, and  performance problems. The Inspector General has reported that the costs  of five acquisitions have grown by $3 billion—the equivalent of 1 year’s  budget for the modernization program—and the delay in completing these  acquisitions has ranged from 3 to 5 years. Problems in implementing the  Standard Terminal Automation Replacement System are indicative of the  problems that have plagued the modernization program. Since September  1996, FAA has been developing the STARS project to replace the outdated  computer equipment that air traffic controllers currently use in some  facilities to control air traffic within 5 to 50 nautical miles of an airport.
The current program presently bears little resemblance to the program  envisioned in 1996. Initially FAA anticipated very little software  development, planned to install STARS in 172 facilities at a cost of $940  million, and expected implementation to begin in 1998 and end in 2005. In  1999, FAA modified its acquisition approach (from off-the-shelf software  to a combination of customized and off-the-shelf software) and increased  to 188 the number of facilities scheduled to receive STARS. Then the  agency concluded that it did not have adequate funding to deploy STARS  to 188 facilities, and in March 2002, it received approval to deploy STARS  at 74 facilities that had frequent equipment failures, were new, or had the  digital radar needed to operate STARS.
FAA does not yet know to what extent its estimate of STARS’s remaining  development costs is reliable because, as we reported in January 2003,  FAA lacks accurate, valid, current data on the STARS program’s remaining  costs and progress. Without such data, FAA is limited in its ability to  effectively oversee the contractor’s performance and reliably estimate  future costs. Although FAA has adopted clear procurement management  policies and procedures, it did not consistently apply this guidance in  managing the STARS contract. For example, the development cost  estimate is based on the contractor’s projections, which FAA had not yet  independently analyzed as its guidance directs. We made several  recommendations to improve the management of STARS and subsequent  terminal modernization programs and to provide the Congress with more  reliable information for oversight. FAA agreed with our recommendations  and is implementing them.
section_title: Acquisition Management System Is in Place, but Weaknesses Limit FAA’s Ability to Manage Its Investments Effectively
paragraphs: As part of its procurement reforms, FAA introduced an acquisition  management system in 1996 to reduce the time and cost to deploy new  products and services. In 1999, we reported that this system provided a  structured management approach for selecting and controlling  investments, but still had weaknesses, such as incomplete data on  projects’ costs, schedule, benefits, performance, and risks, that limited  FAA’s ability to manage its investments effectively. We made several  recommendations to address these weaknesses and FAA has made  changes to better manage its investments. We have since found that FAA is  overseeing investment risk and capturing key information from the  investment selection process in a management information system and is  also developing guidance for validating costs, benefits, and risks.  However, FAA is not yet incorporating actual costs from related system  development efforts in its processes for estimating the costs of new  projects. Moreover, FAA has not yet implemented processes for evaluating  projects after implementation in order to identify lessons learned and  improve the investment management process. These weaknesses have  impeded FAA’s ability to manage its investments effectively and make  sound decisions about continuing, modifying, or canceling projects.  Because its acquisition reform effort is not complete, major projects  continue to face challenges that could affect their costs, schedule, and  performance.
section_title: Human Capital Reform Initiatives Do Not Incorporate Elements Important for Effective Management
paragraphs: In response to claims by FAA that burdensome governmentwide human  capital rules impeded its ability to hire, train, and deploy personnel, the  Congress exempted FAA from many federal laws governing human  capital, and the agency began implementing sweeping human capital  reforms in 1996. These reforms addressed three broad areas: (1)  compensation and performance management, (2) workforce management,  and (3) labor and employee relations. Figure 6 summarizes our analysis of  FAA’s progress in implementing initiatives in each of these areas.
While FAA has fully or partially implemented the initiatives in each of its  three broad reform areas, it has not fully incorporated elements that are  important to effective human capital management into its overall reform  effort. These elements include data collection and analysis, performance  goals and measures, and links between reform goals and program goals.  Furthermore, as we reported in February 2003, FAA has not developed  specific steps and time frames for building these missing elements into its  human capital management and for using these elements to evaluate the  effects of its personnel reform initiatives, make strategic improvements,  and hold the agency’s leadership accountable.
section_title: New Structure for Improving the Performance of the Air Traffic Control System Has Not Been Fully Implemented
paragraphs: In 2000, AIR-21 and an executive order established a new structure to  accelerate the modernization and improve the performance of the air  traffic control system. This structure was to consist of (1) a five-member  board, called the Air Traffic Services Subcommittee (Subcommittee), to  oversee the air traffic control system, (2) a chief operating officer to  manage the air traffic control system, and (3) a new performance-based  organization, to be known as the Air Traffic Organization, to operate the  air traffic control system. Under the act, the Subcommittee provides  oversight by, among other things, reviewing and approving strategic plans,  large contracts, and budget requests for the air traffic control system.
The Subcommittee has been meeting since January 2001, but a chief  operating officer has not yet been appointed, and FAA is waiting for an  appointment before putting the new air traffic organization in place. To  date, the Subcommittee has focused on bringing performance  management, accountability, and a more businesslike structure to the air  traffic control system, and it has taken some specific actions, including  reviewing and approving performance metrics, a budget, and three large  procurements that FAA initiated. However, without a chief operating  officer or a performance-based organization, the new structure is not  functioning as intended.
FAA and other stakeholders have suggested reasons for the difficulties in  implementing the new structure and have proposed changes to AIR-21 that  they believe would address these reasons. For example, they have noted  that the Subcommittee’s authority to approve the budget request for the  air traffic control system challenges the administration’s prerogative to  submit a budget request reflecting its priorities, and they have cited  uncertainties in the responsibilities and reporting relationships of the chief  operating officer, the FAA Administrator, and the Subcommittee that, they  say, have made it difficult to hire a chief operating officer. To address  these issues, the administration’s reauthorization proposal would (1)  eliminate the Subcommittee’s approval authority, making the  Subcommittee an advisory body, and (2) designate the FAA Administrator  as the chair of the Subcommittee, thereby strengthening the  Administrator’s authority over, and accountability for the performance of,  the chief operating officer. While these changes would eliminate the  challenge that the Subcommittee’s approval authority poses to the  administration’s prerogatives; would clarify the lines of authority between  the chief operating officer, the FAA Administrator, and the Subcommittee;  and could make it easier to hire a chief operating officer, they would also  limit the power of the Subcommittee. The Senate’s reauthorization  proposal would also designate the FAA Administrator as the chair of the  Subcommittee, but it would retain the Subcommittee’s approval authority.  The merits of these and other proposed changes depend, in large part, on  the extent to which approval authority is viewed as necessary or desirable  to bring about improvements in the performance of the air traffic control  system.
section_title: FAA Is Implementing Safety Initiatives and Faces New Challenges in Ensuring That Security Enhancements Maintain Aircraft Safety
paragraphs: Safety has always been and continues to be FAA’s highest priority. FAA  has taken a number of important steps to improve aviation safety;  however, its planning and implementation could sometimes be more  effective. In addition, with the transfer of most aviation security  responsibilities to the Transportation Security Administration (TSA), FAA  faces the challenge of maintaining close coordination with TSA to ensure  that aircraft safety is maintained as TSA implements new security  enhancements.
subsections: section_title: FAA and Industry Have Taken Actions to Reduce the Fatal Accident Rate
paragraphs: Reducing fatal aviation accidents is key to improving aviation safety.  FAA’s centerpiece for reaching this goal is Safer Skies, an initiative that  dates back to 1998, when FAA and aviation industry representatives  worked together to identify the major causes of fatal accidents and to  design and implement actions to prevent future accidents. Safer Skies is  intended to reduce the fatal accident rate for commercial aviation by 80  percent and to reduce the number of fatal accidents for general aviation to  350 a year by 2007. Because many preventive actions have not yet been  fully implemented, it may be too early to assess their effectiveness.  Achieving the initiative’s goals will require FAA to systematically  implement preventive actions, such as requiring additional safety  inspections of aircraft, and to maintain good data to monitor the progress  of these actions and evaluate their effectiveness. As of February 2003, 44  preventive actions had been undertaken—of which 16 are completed and  28 are under way, according to FAA.
section_title: FAA’s New Safety Inspection System Offers Promise, but Problems Still Need to Be Addressed
paragraphs: Improving the effectiveness of FAA’s inspections of airline operations is  key to improving aviation safety. The FAA Administrator has noted that  perhaps the greatest support the agency can provide to the industry is a  robust safety oversight role that will not waver in difficult times. FAA’s  new inspection program, the Air Transportation Oversight System, is  central to this oversight role. This program, which was implemented in  1998, aims to ensure not only that airlines comply with FAA’s safety  requirements but also that they have operating systems to control risks  and prevent accidents. Figure 7 shows an FAA inspector inspecting an  aircraft for compliance with FAA’s safety requirements.
We reported in 1999 that FAA had not completed many critical steps, such  as developing guidance for inspectors and creating databases to use in  prioritizing inspection resources, before implementing the new inspection  system in 1998. As a result, the agency’s ability to conduct effective  inspections remains limited. FAA has begun to address some of the  problems that we identified with the guidance and the databases.  However, according to a 2002 review by the DOT Inspector General, many  of the problems that we identified persist, and the program’s  implementation remains inconsistent because FAA has not established  strong oversight and accountability procedures. This situation limits  FAA’s ability to conduct more systematic, structured inspections; analyze  the resulting data to identify safety trends; and target its resources to the  greatest aviation safety risks.
section_title: Aviation Safety and Security Require Close Coordination between FAA and TSA
paragraphs: Some key efforts under way to improve aviation security require  interagency coordination between FAA and TSA because they could also  affect aircraft safety. While TSA is responsible for most issues related to  aviation security, FAA retains responsibility for those related to aviation  safety, including approving the initial aircraft design, structural  modifications, and procedures for emergency evacuation and the  transportation of hazardous cargo. For example, strengthening cockpit  doors to increase cockpit security during flights was one of the  government’s earliest responses to the September 11 terrorist attacks.  Because the modifications could increase the weight of the doors and  change the way they are attached to the aircraft, FAA has been certifying  these modifications to ensure that they will not cause decompression  during flight or affect the aircraft’s structural integrity. In addition, new  security procedures require that the cockpit door remain locked during  flight and that access to the cockpit be restricted to the flight crew. As a  result, senior flight attendants will no longer carry keys to the cockpit, and  FAA is approving changes to the procedures for rescuing the flight crew in  an emergency.
FAA is also responsible for the safe transport of dangerous materials  onboard aircraft. Dangerous goods are chemical (including infectious)  substances (or anything containing such substances) that pose a threat to  public safety or the environment during transportation. When these goods  are properly packaged, labeled, and stowed onboard, they can be  transported safely, but when they are not, they can pose significant threats  to people and property. TSA is responsible for screening all passengers  and property, including cargo, that will be carried aboard an aircraft. If,  during the screening of passengers or baggage, TSA discovers dangerous  goods that are not properly packaged or labeled, TSA will need to  coordinate and share information with FAA, which is responsible for  enforcing any regulatory violations.
In addition, aircraft crashes could fall under the jurisdiction of either FAA  or TSA, depending on whether they were the results of accidents (FAA) or  deliberate acts (TSA). It will be important for the two agencies to work  together closely during the initial stages of crash investigations. To  facilitate coordination on these and other security issues that affect  aviation safety, TSA and FAA signed a memorandum of agreement on  February 28, 2003. In addition, on March 4, 2003, the Secretary of  Transportation agreed to assign a senior official within the Office of the  Secretary to serve as DOT’s primary liaison to TSA. It is important that  both FAA and TSA remain committed to coordinating closely on safety  and security issues and that congressional oversight ensures that the  memorandum of agreement is implemented.
section_title: FAA Faces Challenges in Implementing Controls over Its Costs
paragraphs: As the administration and the Congress focus on increasing aviation  capacity, efficiency, and safety, they do so in an extremely challenging  fiscal environment—the federal budget deficit has increased and  competition for federal resources has intensified. Moreover, as we  mentioned previously in this statement, revenues to the aviation Trust  Fund, which is the source of funding for most of FAA’s operations,  facilities and equipment, and grant programs, have declined in recent  years while outlays have increased. It is, therefore, especially important  that FAA control or reduce costs, run its programs efficiently, and detect  and prevent fraudulent activities. We and DOT’s Inspector General have  reported that improvements are needed in these areas.
For example, in March 2003, we reported that weaknesses in FAA’s  purchase card controls resulted in instances of improper, wasteful, and  questionable purchases, as well as missing and stolen assets. These  internal control weaknesses included inadequate segregation of duties  (i.e., the cardholder requested the purchase, placed the order, and picked  up or received the goods without any other review or approval), lax  supervisory review and approval, missing purchase documents, inadequate  training, and insufficient program monitoring activities, all of which  created an environment vulnerable to fraud, waste, and abuse. During  fiscal year 2000, these weaknesses contributed to $5.4 million in improper  purchases by FAA employees and over $630,000 in purchases that were  considered wasteful or questionable because they were missing a receipt  to show what was actually purchased. To reduce the likelihood of  improper and wasteful purchases, we recommended a number of actions  to strengthen the internal controls over FAA’s purchase card program,  such as developing detailed procedures that specify the type and extent of  review or approval that is expected. FAA agreed with our  recommendations.
In addition, DOT’s Inspector General reported in January 2003 that FAA  needs to contain increases in its operating costs and improve its internal  controls over costs. Over the past 6 years, FAA’s operations budget,  which is 73 percent personnel costs, increased by over 41 percent, from  $5.3 billion in fiscal year 1998 to $7.5 billion in fiscal year 2003. The  Inspector General noted that FAA has made extensive use of its human  capital flexibilities to substantially increase salaries, but has done little to  reduce operating costs. FAA has improved its ability to track its costs by  partially implementing a new cost accounting system that the Congress  directed it to develop in 1996. The new system, which FAA expects to be  fully operational by the end of 2003, now tracks 70 percent of the  personnel, overhead, and other costs related to air traffic services.  However, DOT’s Inspector General has reported problems with the labor  distribution system, which is part of the cost accounting system and is  used to account for and distribute air traffic controller labor costs of about  $3.1 billion annually to specific facilities and functions. The Inspector  General noted that the system omitted important internal controls needed  to ensure that the time worked by air traffic controllers would be  accurately recorded in the accounting system and paid from the proper  account. The Inspector General brought these deficiencies to the attention  of FAA, and the Administrator agreed to correct them. The Inspector  General further noted that the system as designed could provide  workforce data that would help determine how many controllers are  needed and where. These data would assist FAA in planning for the  anticipated retirement of large numbers of air traffic controllers in the  near and long term.  Congressional oversight is important to ensure that  FAA follows through and corrects the problems that we and the Inspector  General have identified so that FAA can spend its resources on projects  and services that will provide the greatest return on the public’s  investment.
section_title: Scope and Methodology
paragraphs: This statement is based primarily on issued reports that are listed under  Related GAO Products. However, the sections on the Airport and Airway  Trust Fund and the Air Traffic Services Subcommittee reflect our ongoing  work for this Committee. As a result, the results of this work that we  discuss in this testimony are still preliminary.
To assess the current and projected financial status of the Airport and  Airway Trust Fund, we obtained financial data from FAA and interviewed  FAA officials familiar with the information. To assess the status of efforts  to implement the new structure established under AIR-21 to improve the  oversight, management, and operation of the air traffic control system, we  analyzed the legislation and related executive order, the administration’s  reauthorization proposal, and the first report of the Air Traffic Services  Subcommittee. We also interviewed officials from FAA, the Air Traffic  Services Subcommittee, and aviation industry organizations. We  performed our work in accordance with generally accepted government  auditing standards.
section_title: Contact Information
paragraphs: For further information on this testimony, please contact Gerald  Dillingham at (202) 512-2834. Individuals making key contributions to this  testimony include Tammy Conquest, Howard Cott, Elizabeth Eisenstadt,  Edward Laughlin, Belva Martin, Maren McAvoy, John W. Shumann, Teresa  Spisak, and Richard Swayze.
section_title: Related GAO Products
paragraphs: FAA Purchase Cards: Weak Controls Resulted in Instances of Improper  and Wasteful Purchases and Missing Assets. GAO-03-405. Washington,  D.C.: March 21, 2003.
Commercial Aviation: Issues Regarding Federal Assistance for  Enhancing Air Service to Small Communities. GAO-03-540T.  Washington, D.C.: March 11, 2003.
Airport Finance: Past Funding Levels May Not Be Sufficient to Cover  Airports’ Planned Capital Development. GAO-03-497T. Washington, D.C.:  February 25, 2003.
National Airspace System: Reauthorizing FAA Provides Opportunities  and Options to Address Challenges. GAO-03-473T. Washington, D.C.:  February 12, 2003.
Aviation Finance: Implementation of General Aviation Entitlement  Grants. GAO-03-347. Washington, D.C.: February 11, 2003.
Human Capital Management: FAA’s Reform Effort Requires a More  Strategic Approach. GAO-03-156. Washington, D.C.: February 3, 2003.
National Airspace System: Better Cost Data Could Improve FAA’s  Management of the Standard Terminal Automation Replacement  System. GAO-03-343. Washington, D.C.: January 31, 2003.
Aviation Infrastructure: Challenges Related to Building Runways and  Actions to Address Them. GAO-03-164. Washington, D.C.: January 30,  2003.
Aviation Safety: Undeclared Shipments of Dangerous Goods and DOT’s  Enforcement Approach. GAO-03-22. Washington, D.C.: January 10, 2003.
High-Risk Series: An Update. GAO-03-119. Washington, D.C.: January  2003.
Air Traffic Control: Impact of Revised Personnel Relocation Policies Is  Uncertain. GAO-03-141. Washington, D.C.: October 31, 2002.
Airport Finance: Using Airport Grant Funds for Security Projects Has  Affected Some Development Projects. GAO-03-27. Washington, D.C.:  October 15, 2002.
National Airspace System: Status of FAA’s Standard Terminal  Automation Replacement System. GAO-02-1071. Washington, D.C.:  September 17, 2002.
Options to Enhance the Long-term Viability of the Essential Air Service  Program. GAO-02-997R. Washington, D.C.: August 30, 2002.
Air Traffic Control: FAA Needs to Better Prepare for Impending Wave of  Controller Attrition. GAO-02-591. Washington, D.C.: June 14, 2002.
Aviation Finance: Distribution of Airport Grant Funds Complied with  Statutory Requirements. GAO-02-283. Washington, D.C.: April 30, 2002.
Department of Transportation, Transportation Security  Administration: Aviation Security Infrastructure Fees. GAO-02-484R.  Washington, D.C.: March 11, 2002.
Applying Agreed-upon Procedures: Airport and Airway Trust Fund  Excise Taxes. GAO-02-380R. Washington, D.C.: February 15, 2002.
National Airspace System: Long-Term Capacity Planning Needed  Despite Recent Reduction in Flight Delays. GAO-02-185. Washington,  D.C.: December 14, 2001.
National Airspace System: Free Flight Tools Show Promise, but  Implementation Challenges Remain. GAO-01-932. Washington, D.C.:  August 31, 2001.
Air Traffic Control: Role of FAA’s Modernization Program in Reducing  Delays and Congestion. GAO-01-725T. Washington, D.C.: May 10, 2001.
Aviation Safety: Safer Skies Initiative Has Taken Initial Steps to Reduce  Accident Rates by 2007. GAO/RCED-00-111. Washington, D.C.: June 30,  2000.
National Airspace System: Problems Plaguing the Wide Area  Augmentation System and FAA’s Actions to Address Them. GAO/T- RCED-00-229. Washington, D.C.: June 29, 2000.
National Airspace System: Persistent Problems in FAA’s New  Navigation System Highlight Need for Periodic Reevaluation.  GAO/RCED/AIMD-00-130. Washington, D.C.: June 12, 2000.
Federal Aviation Administration: Challenges in Modernizing the  Agency. GAO/T-RCED/AIMD-00-87. Washington, D.C.: February 3, 2000.
Air Traffic Control: Status of FAA’s Implementation of the Display  System Replacement Project. GAO/T-RCED-00-19. Washington, D.C.:  October 11, 1999.
Aviation Safety: FAA’s New Inspection System Offers Promise, but  Problems Need to Be Addressed. GAO/RCED-99-183. Washington, D.C.:  June 28, 1999.
General Aviation Airports: Oversight and Funding. GAO/T-RCED-99-214.  Washington, D.C.: June 9, 1999.
Passenger Facility Charges: Program Implementation and the Potential  Effects of Proposed Changes. GAO/RCED-99-138. Washington, D.C.: May  19, 1999.
Airport Improvement Program: Analysis of Discretionary Spending for  Fiscal Years 1996-98. GAO/RCED-99-160R. Washington, D.C.: May 18,  1999.
Air Traffic Control: FAA’s Modernization Investment Management  Approach Could Be Strengthened. GAO/RCED/AIMD-99-88. Washington,  D.C.: April 30, 1999.
Air Traffic Control: Observations on FAA’s Air Traffic Control  Modernization Program. GAO/T-RCED/AIMD-99-137. Washington, D.C.:  March 25, 1999.
Federal Aviation Administration: Financial Management Issues.  GAO/T-AIMD-99-122. Washington, D.C.: March 18, 1999.
Airport Financing: Smaller Airports Face Future Funding Shortfalls.  GAO/T-RCED-99-96. Washington, D.C.: February 22, 1999.
Airport Financing: Annual Funding As Much As $3 Billion Less Than  Planned Development. GAO/T-RCED-99-84. Washington, D.C.: February  10, 1999.