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Staff Paper Prepared for the President's Commission to Study Capital Budgeting

June 19, 1998

I. Description of Investment

The Space Station program will build and operate a state-of-the-art orbital research facility approximately 200 miles above the Earth. The International Space Station will consist of a number of modules providing living space for resident astronauts as well as laboratory facilities, and systems for navigation, propulsion, electrical power, and life support. In addition to contributions from the U.S., other nations are contributing to the project. They include Russia, Canada, Japan, Brazil, and eleven participating member countries of the European Space Agency.

The current space station was initiated in 1993, after $10 billion had been spent on the previous design. At that time, the National Aeronautics and Space Administration (NASA) projected that the Station would be completed in September 2003 at a total cost of $19.4 billion.

II. Decisionmaking process

A. Space Station Freedom. In 1984, President Reagan approved a plan for NASA to begin development of Space Station Freedom (the original name, while the current design is referred to as the International Space Station) at a projected cost of $8 billion. It was to be completed by 1994. A station in space had been a distant goal of the space program serving, potentially, as a steppingstone for human exploration of the Moon and other planets. Space Station Freedom was to be a facility with multiple purposes -- a laboratory for research on the effects of the space environment on humans, a transportation depot for equipment and supplies for other space missions, a facility for research on materials, a platform for both astronomical and Earth observations. Over about a decade, costs for Space Station Freedom escalated and the planned completion date slipped. In 1993, the Administration called for an overall review of the program, in order to contain the costs and not to cause harm to NASA's other space programs.

B. Space Station redesign. In 1993, President Clinton directed NASA to redesign the Space Station Freedom. Options developed accommodated the international partners while costs were capped at $2.1 billion per year, with an overall cap of $19.4 billion (not including the $10 billion from the previous design). The redesigned Space Station was to achieve permanent human occupancy in September, 2003.

Following the recommendations of the redesign team, NASA worked to establish a single prime contractor. The prime contractor reached agreement with the previous subcontractors in the Spring of 1996 to consolidate the contract.

C. Russian partnership. In December, 1993, the U.S. invited Russia to become a critical partner in building the International Space Station. The contributions of the Russians, including the use of Russian launch vehicles to carry hardware and supplies to the Station, a Russian emergency escape vehicle, and Russian modules as part of the Station, would accelerate the completion of the Station from September 2003 to June 2002, and would result in a net savings of $2 billion, reducing the total cost from $19.4 billion to $17.4 billion. These savings have not been realized (see Paragraph E below).

Following the inclusion of the Russians into the program, activity moved from development into manufacturing. The prime contractor experienced problems in design, test, and manufacturing, and NASA imposed additional requirements, such as increased testing and verification procedures. The commitments of the international partners sometimes wavered. The biggest problem was with the Russian commitment, primarily due to internal problems with the Russian economy that resulted in funding levels much less than their funding requirements.

D. Ongoing activity. The International Space Station program is now in its peak phase of development. Ongoing issues include how to maintain the Russian partnership in view of the Russian economy, and development problems associated with a one-of-a-kind, state-of-the-art project.

E. Funding for Space Station. In FY 1998 and FY 1999, the Administration requested advance appropriations to provide stability for outyear funding for the Space Station program. That outyear funding has not been provided by the Congress; rather, funds have been appropriated year by year. Cost overruns by the U.S. prime contractor and gaps in funding from the Russian government have required requests for additional funding for the program, primarily by transferring funds from other NASA programs. The current estimate for the total cost has grown from $17.4 billion to $21.3 billion with completion of assembly slipping 1.5 years until January 2004.

III. Specific Factors Related to Investment Decisions

A. Linkage to strategic goals. This investment is linked to the current strategic goals of the agency. However, the multiple purposes of the Station -- e.g. fundamental research on materials vs use as a facility to allow future interplanetary travel -- have caused confusion and have led to criticism of the program as not having a focus.

B. Long-term planning. This investment is part of a long-term plan for the agency. The commitment by the agency to overcome the problems associated with the program is indicative of the importance of the program to the agency's long term plan.

C. Biases for or against program or project compared to other agency priorities. This investment has the advantage of strong commitment from the agency's Administrator and from the Administration. The high profile of the program has led to great scrutiny from the Congress, however. In addition, there is the perception, from both inside and outside the agency, that this program is being implemented at the expense of other, unmanned space programs within the agency.

D. Full funding. This program did not receive full funding prior to the initiation of the project. Lack of full funding may have contributed in part to the cost growth of the program. Cost growth most likely would have occurred even if full funding had been provided, due to the complexities of the program and the incorporation of international partners. The Administration sought full funding through advance appropriations in the FY 1998 and FY 1999 budgets. So far, Congress has ignored the requests.

E. Spikes or lumpiness. The 1993 redesign of the program instituted an annual cap of $2.1 billion. The agency has pointed out that a flat funding profile is inappropriate for a development project, and that additional funds are required during peak development years. As a result the cap was removed in FY 1998 with peak funding at $2.4 billion.

F. Benefit/ cost analysis. The agency has determined that this project is necessary to achieve the agency's long term goals.

G. Leasing issues. Not applicable.

H. Dedicated revenues. Not applicable.

I. Inability under BEA to use dedicated revenues to finance discretionary capital spending. Not applicable.

President's Commission to Study Capital Budgeting

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