FAA fulfills its mission of maintaining the NAS by providing services through four lines of business: Air Traffic Organization, Aviation Safety, Airports, and Commercial Space Transportation. The Air Traffic Organization (ATO) is the business line that provides air traffic control (ATC) services to users of the NAS through a network of towers, control centers, and flight service stations. ATC includes a variety of activities that guide and control the flow of aircraft through the NAS. ATO groups these activities into four types of services—oceanic en route (oceanic), domestic en route (en route), terminal, and flight services. The costs to operate and maintain this network and to make improvements to the ATC system are currently funded through excise taxes deposited into the Airport and Airway Trust Fund and contributions from the General Fund of the U.S. Treasury. FAA is subject to various laws that have an effect on agencies’ development and use of cost information. These laws were enacted after the Comptroller General’s 1985 report which provided the framework for the reforms needed to improve federal financial management and manage the cost of government. The earliest of these laws—the Chief Financial Officers Act (CFO Act) of 1990—applied to 24 federal departments and agencies, including the Department of Transportation, of which FAA is a part. Another of these laws is the Federal Financial Management Improvement Act of 1996 (FFMIA), which required, among other things, that agencies covered by the CFO Act have systems that comply substantially with federal accounting standards. One such standard is Statement of Federal Financial Accounting Standards (SFFAS) No. 4, Managerial Cost Accounting Standards and Concepts, which states that essential uses of cost information include controlling costs, measuring performance, setting fees, evaluating program costs and benefits, and making economic choice decisions. In plain language, the principal purpose of cost accounting is to assess how much it costs to do whatever is being measured, thus allowing agency management, Congress, and others to analyze that cost information when making decisions. When cost accounting is used as a basis for setting fees or recovering costs, the objective is to ensure that users who receive the related services or products are assigned costs appropriately to avoid unintentional cross- subsidization among users who would then pay more or pay less than the cost of the services they use. The Federal Aviation Reauthorization Act of 1996 requires that FAA develop a cost accounting system that accurately reflects the investment, operating and overhead costs, revenues, and other financial measurement and reporting aspects of its operations. One of the stated purposes of the act was also to authorize FAA to recover the costs of services from those who benefit from, but do not contribute to, the national aviation system and the services provided by FAA. Specifically, FAA was required to collect overflight fees and to ensure that the fees were directly related to FAA’s costs of providing the services rendered. In 1997, the National Civil Aviation Review Commission (the “Mineta Commission”) recommended that FAA establish a cost accounting system to support the objective of FAA operating in a more performance-based, business-like manner. These legislative requirements and recommendations provided the impetus for FAA’s decade-long development and deployment of its cost accounting system to all of its lines of business. The International Civil Aviation Organization (ICAO), an advisory organization affiliated with the United Nations, aims to promote the establishment of international civil aviation standards and recommended practices and procedures. As such, ICAO has issued policies and guidance on assigning costs and the establishment of charges for air navigation services. The United States is a member of the governing Council of ICAO. The previous FAA study of air traffic control service costs issued in 1997 allocated fixed costs (those that do not vary with the level of activity or output) and common costs (such as general and administrative overhead, which cannot be traced to a particular product or service) of air traffic control services to user types based on an economic pricing method that assigns more of these costs to users that have a greater willingness to pay them. This pricing method takes into consideration the demand for services and how the pricing of those services may impact demand. However, in its January 2007 report on its study of 2005 costs, FAA assigned costs to users without using this pricing method, an approach which is consistent with the statutory requirement for setting overflight fees and the federal government’s policies on establishing user fees. In designing its cost assignment methodology, simplicity and transparency were among FAA’s objectives to facilitate stakeholder understanding and acceptance. The methodology, known as CAMERA (Cost Assignment Methodology for Estimating Resource Allocation), assigns air traffic control service costs to user groups by type of aircraft—turbine and piston—and to aircraft operators—commercial, general aviation, and exempt. After developing six cost pools for air traffic control services, CAMERA assigns costs to Tiers 1, 2, and 3 depending on whether the cost can be directly assigned to a single user group (Tier 1), can be assigned to both user groups (Tier 2), or is overhead, indirect, or other miscellaneous cost allocated to both groups (Tier 3). The total of the three tiers for each user group is allocated to aircraft operators: commercial, general aviation, and exempt. Figure 1 illustrates the CAMERA process. FAA’s CAS is the source for the cost data used to develop a cost base for CAMERA. CAS captures cost data from FAA’s financial accounting system as those costs are recognized as expenses incurred in accordance with generally accepted accounting principles (GAAP). CAS classifies costs by ATO’s four types of air traffic services—oceanic, en route, terminals, and flight services—by assigning direct costs and allocating overhead and other indirect costs to services and facilities that provide those services. CAMERA classifies the CAS data, as adjusted, into six cost pools, namely, oceanic, en route, large hubs, middle terminals, low-activity towers, and flight services. Once the CAMERA costs are classified into the six cost pools, the costs for distinct operations and capital projects within five of the pools (excluding flight services) are put into one of three tiers for assignment to users—turbine or piston. The three tiers of costs are 1. costs exclusively assigned to a single user group, either because the project in question principally benefits a single user group or because the other user group does not drive material or measurable incremental costs (Tier 1); 2. costs assigned to both user groups because the projects benefit both user groups and use by the secondary user group drives measurable incremental costs (Tier 2); and 3. overhead costs, costs indirectly related to the delivery of services, and other miscellaneous costs that could not be directly assigned to the user groups, which were allocated based on each user group’s proportional share of the total costs assigned to the first two tiers (Tier 3). Once all costs are assigned by type of service, tier, and user group, total costs for turbine and piston user groups within each of the five service pools (excluding flight services) are further allocated to subgroups representing the types of aircraft operators—commercial, general aviation, and exempt—based on the proportion of each operator’s share of total activity at facilities in the pool. The allocations by type of aircraft operator within the turbine and piston user groups are then combined and serve as the basis on which the proposed user fees, fuel taxes, or general fund appropriations are determined. Designing a costing methodology requires, within the parameters of applicable cost accounting principles, that management make judgments about how precise the resulting cost information needs to be and whether the benefits of achieving a higher level of precision justify the additional resources required to refine its cost methodology and related systems. These judgments will in turn influence management’s choice of assumptions and cost assignment methods. Different sets of assumptions and methods applied to the same pool of costs can yield different results. 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 recognize that one of the purposes of cost information is to set fees, and both the federal standards and the ICAO guidance for implementing its policy on user fees provide direction on allocating these costs. We found that, as designed, key elements of CAMERA used methods that are generally consistent with federal accounting standards and ICAO guidance. However, as discussed subsequently, we identified matters related to the application of certain assumptions and cost assignment methods underlying FAA’s methodology that needed better support through additional documentation and analysis to demonstrate that the resulting cost assignments to users are reasonable. Federal cost accounting standards establish a flexible principle for assigning costs, not a specific methodology that agency management must follow. The standards recognize that agency management should select costing methods that best meet their needs, taking into consideration the costs and benefits of reasonable alternatives, and once selected, follow those methods consistently. Further, the standards require that cost information developed for different purposes should be drawn from a common data source, such as consistently using information from an entity’s financial management system to prepare all cost analyses. To attribute costs to services or products, the federal standards list three categories of cost assignment methods in order of preference: (1) direct tracing of costs to, in this case, a specifically identifiable user wherever feasible and economically practicable, (2) assigning costs on a cause-and- effect basis, or (3) allocating costs on a reasonable and consistent basis. The standards provide that when seeking to assign costs of resources that are shared by, for example, activities, services, or customers, agency management may find it useful to classify these activities, services, or customers as either primary or secondary.