1. 1 FNGATSWG-Initial Observations Financing the Next Generation Air Transportation System Working Group (FNGATSWG) July 27, 2005

2. 2 Financing the Next Generation Air Transportation System Working Group (FNGATSWG) approach: 1.Establish in cooperation with the JPDO and other elements: a baseline 2006-2025 cost estimate for developing, implementing, and operating the planned NAS if the NGATS is not implemented. a corresponding 2006-2025 cost estimate for developing, implementing and operating the NAS converting to NGATS in 2010. 2.Identify the options for funding the resulting system cost through user fees or user taxes supplemented by a general fund contribution. 3.Develop a set of criteria for assessing these options. 4.Determine if a financing approach such as bonding based on a stream of user or other fees is needed; if so identify options for doing so. 5. Consider approaches to implementing the NGATS that the industry and Congress would support. W e are looking for opportunities to reduce costs through advanced technologies and techniques or outsourcing, but we are not considering issues such as labor contracts, privatization or major structural changes in the FAA.

3. 3 FNGATSWG-Initial Observations (1) The group has not yet reached a conclusion on any aspect of its work. Therefore, the observations below are not final. They will change as we continue our work. 1.Required funding levels are estimated at about $15 Billion per year in 2005 dollars, considering R&D, F&E, Operations, and AIP funding in either NAS or NGATS scenarios. The FAA operations costs dominates these figures. At present, there are no definitive official cost projections through 2025 for either the NAS or NGATS option. The working group will come up with a reasonable best estimate based on discussions with all knowledgeable parties.

4. 4 FNGATSWG-Initial Observations (2) The group has not yet reached a conclusion on any aspect of its work. Therefore, the observations below are not final. They will change as we continue our work. 2.The current FAA revenue structure will not generate enough income to support either the current NAS or the future NGATS between FY2006 through FY2025. One factor driving the shortfall is the likely continued ticket price decline which reduces ticket tax revenue. The shortfall will be greater if the OMB proposed reduction in the General Fund contribution takes effect. On the other hand, there is the potential for substantial cost reductions in FAA operations. Because both cost and revenue projections are uncertain, the working group is considering revenue mechanisms which are flexible enough to be adjusted to create income change without structural modification. Cost and revenue growth are out of sync and will forever need to be adjusted to maintain balance and stability with the current approach.

5. 5 FNGATSWG-Initial Observations (3) The group has not yet reached a conclusion on any aspect of its work. Therefore, the observations below are not final. They will change as we continue our work. 3.The current funding approach can be made to work by adjusting the rates and proportions among the four major income sources. –The General Fund Contribution – Currently about 22% Reflects the contribution made by the aviation infrastructure to the nation as a whole –The Fuel Tax – Currently about ___% Roughly proportional to the cost of service demand (proportional to operations) –The Ticket Tax – Currently about ___% Roughly proportional to the passenger enplanements times ticket prices –The Waybill Tax-Currently about ___% Proportional to the value of the way bill Some users would like a reassessment of the fairness of the distribution of costs across the industry and the costs apportioned to newer players vs. the legacy elements. Additionally, FAA funding stability would be enhanced if the fee structure more closely coupled revenue growth with cost growth.

6. 6 FNGATSWG-Initial Observations (4) The group has not yet reached a conclusion on any aspect of its work. Therefore, the observations below are not final. They will change as we continue our work. 4.The costs of current NAS system operation with costs of development and implementation of planned improvements are as much or more than operating the the NAS through 2010 and then transitioning to NGATS through 2025. The current NAS improvements will provide limited, but insufficient increases in capacity to meet the projected 2025 demand. The NGATS provides the needed capacity while it reduces the operations cost. It is probably less costly to implement NGATS than not implement NGATS. Technology insertions that lead to a reduction of operations cost over time have an exceptional ROI and may lead to reduced budget requirements in the out years. Many of these same technologies will also contribute significantly to the needed capacity increase.

7. 7 FNGATSWG-Initial Observations (5) The group has not yet reached a conclusion on any aspect of its work. Therefore, the observations below are not final. They will change as we continue our work. 5.Near term cost control of the FAA ATM operations cost is being accomplished by the FAA ATO organization through a broad review of appropriate industrial actions and limited insertion of technology. Associated with these activities is an improved accounting system that supports identification of cost control opportunities and effectiveness measurement of actions taken. In the longer term, the NASA aeronautics R&D program is the principle source of technologies needed to enable future aviation system capacity and to control FAA operations cost. Continued funding of this NASA program (funded from the General Fund and not part of the FAA budget) is required if the Next Generation ATS is to become a reality.

8. 8 FNGATSWG-Initial Observations (6) The group has not yet reached a conclusion on any aspect of its work. Therefore, the observations below are not final. They will change as we continue our work. 6.The level of General Fund support is critical to the trust fund approach. At present it appears that a 25% contribution may be appropriate. Can any percentage of the General Fund contribution be considered stable and sustainable from year to year given changing national priorities? General Fund Contribution to Total FAA Budget (billion) Ratio General to Trust General Fund (billion) Trust Fund (billion) $15.0013.4% $2.00 $13.00 20.0% $3.00 $12.00 26.7% $4.00 $11.00 Note: OMB instructions for FY06 and beyond is 13% or about $1.95B

9. 9 FNGATSWG-Initial Observations (7) The group has not yet reached a conclusion on any aspect of its work. Therefore, the observations below are not final. They will change as we continue our work. 7.Development and implementation of the NGATS is a fifteen-year activity with a relatively constant level of required funding. There is probably no need for financing scenarios including approaches such as revenue bonds. However, we with the JPDO are continue to look for approaches to implement the NGATS earlier than now planned. These approaches may require some up front financing.

10. 10 Continuing Work of FNGATSWG Development of alternate funding scenarios Review of program management alternatives that would likely improve the acceptability of a funding approach to the agency, industry and Congress. Continuing review of projected costs and opportunities for reducing future costs. Continue to solicit input for all of the industry stakeholders.