A bill to reform the essential air service program, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Rural Aviation Improvement Act''.

SEC. 2. REPEAL OF ESSENTIAL AIR SERVICE LOCAL PARTICIPATION PROGRAM.

    (a) In General.--Subchapter II of chapter 417 of title 49, United 
States Code, is amended by striking section 41747, and such title 49 
shall be applied as if such section 41747 had not been enacted.
    (b) Clerical Amendment.--The analysis for chapter 417 of title 49, 
United States Code, is amended by striking the item relating to section 
41747.

SEC. 3. PER PASSENGER SUBSIDY FOR ESSENTIAL AIR SERVICE.

    (a) In General.--Section 41742 of title 49, United States Code, is 
amended by adding at the end the following:
    ``(c) Per Passenger Subsidy Cap.--
            ``(1) In general.--The Secretary of Transportation may not 
        provide compensation to an air carrier to provide air 
        transportation under this subchapter to an otherwise eligible 
        place in the 48 contiguous States if the eligible place--
                    ``(A) is located fewer than 70 highway miles from 
                the nearest large or medium hub airport; or
                    ``(B) is fewer than 210 miles from the nearest 
                large or medium hub airport and requires a per 
                passenger subsidy in excess of the dollar amount 
                described in paragraph (2).
            ``(2) Dollar amount of per passenger subsidy.--
                    ``(A) In general.--The dollar amount described in 
                this paragraph is--
                            ``(i) for calendar year 2008, $200; and
                            ``(ii) for each calendar year after 
                        calendar year 2008, $200 increased by an amount 
                        equal to--
                                    ``(I) $200, multiplied by
                                    ``(II) the percentage (if any) by 
                                which the CPI for the preceding 
                                calendar year exceeds the CPI for 
                                calendar year 2007.
                    ``(B) Rounding.--Any increase under subparagraph 
                (A)(ii) shall be rounded to the nearest dollar.
            ``(3) Definitions.--In this subsection:
                    ``(A) CPI for the preceding calendar year.--The 
                term `CPI for the preceding calendar year' means the 
                average of the Consumer Price Index as of the close of 
                the 12-month period ending on August 31 of such 
                calendar year.
                    ``(B) Consumer price index.--The term `Consumer 
                Price Index' means the last Consumer Price Index for 
                all-urban consumers published by the Department of 
                Labor.''.
    (b) Per Passenger Subsidy Defined.--Section 41731(a) of title 49, 
United States Code, is amended by adding at the end the following:
            ``(3) `per passenger subsidy' means--
                    ``(A) the total compensation provided by the 
                Secretary of Transportation to an air carrier under 
                this subchapter that is necessary for the air carrier 
                to provide air transportation to an eligible place, 
                divided by
                    ``(B) the total number of passengers using such air 
                transportation.''.
    (c) Conforming Repeal.--Section 332 of the Department of 
Transportation and Related Agencies Appropriations Act, 2000 (Public 
Law 106-69; 49 U.S.C. 41731 note) is repealed.

SEC. 4. COMMUNITIES ABOVE PER PASSENGER SUBSIDY CAP.

    (a) In General.--Subchapter II of chapter 417 of title 49, United 
States Code, is amended by adding at the end the following:
``Sec. 41749. Essential air service for eligible places above per 
              passenger subsidy cap
    ``(a) Proposals.--A State or local government may submit a proposal 
to the Secretary of Transportation for compensation for an air carrier 
to provide air transportation to a place described in subsection (b).
    ``(b) Place Described.--A place described in this subsection is a 
place--
            ``(1) that is otherwise an eligible place; and
            ``(2) for which the per passenger subsidy exceeds the 
        dollar amount allowable under section 41742(c).
    ``(c) Decisions.--Not later than 90 days after receiving a proposal 
under subsection (a) for compensation for an air carrier to provide air 
transportation to a place described in subsection (b), the Secretary 
shall--
            ``(1) decide whether to provide compensation for the air 
        carrier to provide air transportation to the place; and
            ``(2) approve the proposal if the State or local government 
        or a person is willing and able to pay the difference between--
                    ``(A) the per passenger subsidy; and
                    ``(B) the dollar amount allowable for such subsidy 
                under section 41742(c).
    ``(d) Compensation Payments.--
            ``(1) In general.--The Secretary shall pay compensation 
        under this section at such time and in such manner as the 
        Secretary determines is appropriate.
            ``(2) Duration of payments.--The Secretary shall continue 
        to pay compensation under this section only as long as--
                    ``(A) the State or local government or person 
                agreeing to pay compensation under subsection (c)(2) 
                continues to pay such compensation; and
                    ``(B) the Secretary decides the compensation is 
                necessary to maintain air transportation to the place.
    ``(e) Review.--
            ``(1) In general.--The Secretary shall periodically review 
        the type and level of air service provided under this section.
            ``(2) Consultation.--The Secretary may make appropriate 
        adjustments in the type and level of air service to a place 
        under this section based on the review under paragraph (1) and 
        consultation with the affected community and the State or local 
        government or person agreeing to pay compensation under 
        subsection (c)(2).
    ``(f) Ending, Suspending, and Reducing Air Transportation.--An air 
carrier providing air transportation to a place under this section may 
end, suspend, or reduce such air transportation if, not later than 30 
days before ending, suspending, or reducing such air transportation, 
the air carrier provides notice of the intent of the air carrier to 
end, suspend, or reduce such air transportation to--
            ``(1) the Secretary;
            ``(2) the affected community; and
            ``(3) the State or local government or person agreeing to 
        pay compensation under subsection (c)(2).''.
    (b) Clerical Amendment.--The analysis for chapter 417 of title 49, 
United States Code, is amended by adding after the item relating to 
section 41748 the following new item:

``41749. Essential air service for eligible places above per passenger 
                            subsidy cap.''.

SEC. 5. PREFERRED ESSENTIAL AIR SERVICE.

    (a) In General.--Subchapter II of chapter 417 of title 49, United 
States Code, as amended by section 4, is further amended by adding 
after section 41749 the following:
``Sec. 41750. Preferred essential air service
    ``(a) Proposals.--A State or local government may submit a proposal 
to the Secretary of Transportation for compensation for a preferred air 
carrier described in subsection (b) to provide air transportation to an 
eligible place.
    ``(b) Preferred Air Carrier Described.--A preferred air carrier 
described in this subsection is an air carrier that--
            ``(1) submits an application under section 41733(c) to 
        provide air transportation to an eligible place;
            ``(2) is not the air carrier that submits the lowest cost 
        bid to provide air transportation to the eligible place; and
            ``(3) is an air carrier that the affected community prefers 
        to provide air transportation to the eligible place instead of 
        the air carrier that submits the lowest cost bid.
    ``(c) Decisions.--Not later than 90 days after receiving a proposal 
under subsection (a) for compensation for a preferred air carrier 
described in subsection (b) to provide air transportation to an 
eligible place, the Secretary shall--
            ``(1) decide whether to provide compensation for the 
        preferred air carrier to provide air transportation to the 
        eligible place; and
            ``(2) approve the proposal if the State or local government 
        or a person is willing and able to pay the difference between--
                    ``(A) the rate of compensation the Secretary would 
                provide to the air carrier that submits the lowest cost 
                bid to provide air transportation to the eligible 
                place; and
                    ``(B) the rate of compensation the preferred air 
                carrier estimates to be necessary to provide air 
                transportation to the eligible place.
    ``(d) Compensation Payments.--
            ``(1) In general.--The Secretary shall pay compensation 
        under this section at such time and in such manner as the 
        Secretary determines is appropriate.
            ``(2) Duration of payments.--The Secretary shall continue 
        to pay compensation under this section only as long as--
                    ``(A) the State or local government or person 
                agreeing to pay compensation under subsection (c)(2) 
                continues to pay such compensation; and
                    ``(B) the Secretary decides the compensation is 
                necessary to maintain air transportation to the 
                eligible place.
    ``(e) Review.--
            ``(1) In general.--The Secretary shall periodically review 
        the type and level of air service provided under this section.
            ``(2) Consultation.--The Secretary may make appropriate 
        adjustments in the type and level of air service to an eligible 
        place under this section based on the review under paragraph 
        (1) and consultation with the affected community and the State 
        or local government or person agreeing to pay compensation 
        under subsection (c)(2).
    ``(f) Ending, Suspending, and Reducing Air Transportation.--A 
preferred air carrier providing air transportation to an eligible place 
under this section may end, suspend, or reduce such air transportation 
if, not later than 30 days before ending, suspending, or reducing such 
air transportation, the preferred air carrier provides notice of the 
intent of the preferred air carrier to end, suspend, or reduce such air 
transportation to--
            ``(1) the Secretary;
            ``(2) the affected community; and
            ``(3) the State or local government or person agreeing to 
        pay compensation under subsection (c)(2).''.
    (b) Clerical Amendment.--The analysis for chapter 417 of title 49, 
United States Code, as amended by section 4, is further amended by 
adding after the item relating to section 41749 the following new item:

``41750. Preferred essential air service.''.

SEC. 6. RESTORATION OF ELIGIBILITY TO A PLACE DETERMINED BY THE 
              SECRETARY TO BE INELIGIBLE FOR SUBSIDIZED ESSENTIAL AIR 
              SERVICE.

    Section 41733 of title 49, United States Code, is amended by adding 
at the end the following new subsection:
    ``(f) Restoration of Eligibility for Subsidized Essential Air 
Service.--
            ``(1) In general.--If the Secretary of Transportation 
        terminates the eligibility of an otherwise eligible place to 
        receive basic essential air service by an air carrier for 
        compensation under subsection (c), a State or local government 
        may submit to the Secretary a proposal for restoring such 
        eligibility.
            ``(2) Determination by secretary.--If the per passenger 
        subsidy required by the proposal submitted by a State or local 
        government under paragraph (1) does not exceed the per 
        passenger subsidy cap provided under section 41742(c), the 
        Secretary shall issue an order restoring the eligibility of the 
        otherwise eligible place to receive basic essential air service 
        by an air carrier for compensation under subsection (c).''.

SEC. 7. CALCULATION OF HIGHWAY MILEAGE TO MEDIUM AND LARGE HUB 
              AIRPORTS.

    (a) In General.--Section 41731 of title 49, United States Code, is 
amended by adding at the end the following:
    ``(c) Calculation of Highway Mileage to Medium and Large Hub 
Airports.--
            ``(1) In general.--In any determination under this 
        subchapter of compensation or eligibility for compensation for 
        essential air service based on the highway mileage of an 
        eligible place from the nearest medium hub airport or large hub 
        airport, the highway mileage shall be that of the most commonly 
        used route, as identified under paragraph (2).
            ``(2) Most commonly used route.--The Secretary of 
        Transportation shall identify the most commonly used route 
        between an eligible place and the nearest medium hub airport or 
        large hub airport by--
                    ``(A) consulting with the Governor or a designee of 
                the Governor in the State in which the eligible place 
                is located; and
                    ``(B) considering the certification of the Governor 
                or a designee of the Governor as to the most commonly 
                used route.
            ``(3) Applicability.--This subsection shall apply only to 
        eligible places in the 48 contiguous States and the District of 
        Columbia.''.
    (b) Conforming Amendment.--Section 409 of Vision 100--Century of 
Aviation Reauthorization Act (Public Law 108-176; 49 U.S.C. 41731 note) 
is repealed.

SEC. 8. OFFICE OF RURAL AVIATION.

    (a) Establishment.--There is established within the Office of the 
Secretary of Transportation the Office of Rural Aviation (referred to 
in this section as the ``Office'').
    (b) Functions.--The functions of the Office are--
            (1) to develop a uniform 4-year contract for air carriers 
        providing essential air service to communities under subchapter 
        II of chapter 417 of title 49, United States Code;
            (2) to develop a mechanism for comparing applications 
        submitted by air carriers under section 41733(c) to provide 
        essential air service to communities, including comparing--
                    (A) estimates from air carriers on--
                            (i) the cost of providing essential air 
                        service; and
                            (ii) the revenues air carriers expect to 
                        receive when providing essential air service; 
                        and
                    (B) estimated schedules for air transportation; and
            (3) to select an air carrier from among air carriers 
        applying to provide essential air service, based on the 
        criteria described in paragraph (2).

SEC. 9. EXTENSION OF AUTHORITY TO MAKE AGREEMENTS UNDER THE ESSENTIAL 
              AIR SERVICE PROGRAM.

    Section 41743(e)(2) of title 49, United States Code, is amended by 
striking ``2008'' and inserting ``2011''.

SEC. 10. ADJUSTMENTS TO COMPENSATION FOR SIGNIFICANTLY INCREASED COSTS.

    Section 41737 of title 49, United States Code, is amended--
            (1) in subsection (a)(1)--
                    (A) in subparagraph (B), by striking ``; and'' and 
                inserting a semicolon;
                    (B) in subparagraph (C), by striking the period and 
                inserting ``; and''; and
                    (C) by adding at the end the following:
                    ``(D) provide for an adjustment in compensation to 
                account for significant increases in fuel costs, in 
                accordance with subsection (e).''; and
            (2) in subsection (e)--
                    (A) in paragraph (1), by striking ``may'' and 
                inserting ``shall''; and
                    (B) in paragraph (2), by striking ``may'' and 
                inserting ``shall''.

SEC. 11. CHARTER AIR CARRIER PASSENGER BOARDINGS.

    Notwithstanding any other provision of law, the Secretary of 
Transportation shall treat passenger boardings on aircraft operated by 
charter air carriers at airports receiving essential air service under 
subchapter II of chapter 417 of title 49, United States Code, as 
passenger boardings for purposes of section 47114(c)(1)(E) of such 
title.

SEC. 12. AUTHORIZATION OF APPROPRIATIONS FOR ESSENTIAL AIR SERVICE.

    (a) Adjustment to Authorization of Appropriations.--Section 41742 
of title 49, United States Code, is amended--
            (1) in subsection (a)(2), by striking ``$77,000,000'' and 
        inserting ``$33,000,000''; and
            (2) in subsection (b), by striking ``Notwithstanding 
        section 47114'' and all that follows.
    (b) Funds From Airport and Airway Trust Fund.--Section 41737(d)(2) 
of title 49, United States Code, is amended to read as follows:
            ``(2) In addition to amounts authorized to be appropriated 
        under section 41742(a), not more than $50,000,000 shall be 
        available to the Secretary out of the Fund for each of the 
        fiscal years 2008 through 2011 to incur obligations under this 
        section. Amounts made available under this section remain 
        available until expended.''.

Summary: Rural Aviation Improvement Act - Repeals the Essential Air Service Local Participation Program. Prohibits the Secretary of Transportation from compensating an air carrier for providing essential air service to an eligible community in the 48 contiguous states if such community: (1) is located fewer than 70 miles from the nearest large or medium hub airport. Or (2) is fewer than 210 miles from the nearest large or medium hub airport and requires a per passenger subsidy for such service in excess of $200 for calendar year 2008, including any increase for each ensuing calendar year. Authorizes a state or local government to submit a proposal to the Secretary to: (1) compensate an air carrier for essential air service to an eligible community above the $200 per passenger subsidy cap, (2) compensate a preferred air carrier for providing such service. And (3) restore the eligibility of a community to receive subsidized essential air service. Requires the Secretary, in determining compensation for essential air service based on highway mileage, to use the highway mileage of the most commonly used route between the eligible community and the nearest medium hub airport or large hub airport. Establishes within the Office of the Secretary the Office of Rural Aviation. Extends through FY2011 the Secretary's authority under the essential air service program to make agreements to provide assistance to underserved airports. Requires adjustment of compensation to air carriers for providing essential air service in order to take into account significant increases in fuel costs. Directs the Secretary to treat passenger boardings on aircraft operated by charter air carriers at airports receiving essential air service as passenger boardings for purposes of making apportionments of airport improvement grant funds.