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[Federal Register Volume 79, Number 196 (Thursday, October 9, 2014)]
[Rules and Regulations]
[Pages 60951-60953]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-24190]

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Rules and Regulations
                                                Federal Register
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having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
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Federal Register / Vol. 79, No. 196 / Thursday, October 9, 2014 / 
Rules and Regulations

[[Page 60951]]

DEPARTMENT OF TRANSPORTATION

14 CFR Part 398

[Docket No.: DOT-OST-2014-0061]

Essential Air Service Enforcement Policy

AGENCY: Office of Aviation Analysis (X50), Department of Transportation 
(DOT).

ACTION: Final notice of enforcement policy.

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SUMMARY: This notice of enforcement policy announces how the Department 
of Transportation (DOT or Department) will enforce compliance with the 
requirements of the Department of Transportation and Related Agencies 
Appropriations Act, 2000, which prohibits the Department from 
subsidizing Essential Air Service (EAS) to communities located within 
the 48 contiguous States receiving per passenger subsidy amounts 
exceeding $200, unless the communities are located more than 210 miles 
from the nearest large or medium hub airport. All communities receiving 
subsidized EAS have until September 30, 2015, based on data from 
October 1, 2014 through September 30, 2015, to ensure compliance with 
the $200 subsidy cap or face termination of subsidy eligibility. After 
September 30, 2015, the Department will enforce the $200 subsidy cap on 
an annual basis based on data compiled at the end of every fiscal year. 
Consistent with established procedures, DOT will issue a show-cause 
order to each EAS community that has been identified as failing to meet 
the $200 per passenger subsidy requirement. Each such community will 
have a fair and reasonable opportunity to demonstrate compliance with 
the $200 subsidy cap prior to a final decision by DOT. In addition, any 
community that is deemed ineligible under the $200 subsidy cap 
provision may petition the Secretary for a waiver. After receiving a 
community's petition for a waiver, the Secretary may waive the subsidy 
cap for a limited period of time, on a case-by-case basis, and subject 
to the availability of funds. To provide the Department with sufficient 
time to evaluate the FY 2015 data for potentially affected communities, 
DOT does not intend to issue any show-cause orders concerning 
compliance with the $200 subsidy cap until 2016.

DATES: This enforcement policy is effective November 10, 2014.

FOR FURTHER INFORMATION CONTACT: For technical questions concerning 
this action, contact Kevin Schlemmer, Chief, Essential Air Service and 
Domestic Analysis Division, Office of Aviation Analysis, Department of 
Transportation, 1200 New Jersey Avenue SE., Room W86-309, Washington, 
DC 20590; telephone: (202) 366-3176; Kevin.Schlemmer@dot.gov. For legal 
questions concerning this action, contact Claire McKenna, Attorney, 
Office of the General Counsel, Department of Transportation, 1200 New 
Jersey Avenue SE., Room 96-309; telephone: (202) 366-0365; email: 
Claire.McKenna@dot.gov.

SUPPLEMENTARY INFORMATION:

Background

    The Airline Deregulation Act, passed in 1978, gave airlines 
significant flexibility to determine which markets to serve 
domestically and what fares to charge for that service. The United 
States Congress (Congress) established the EAS program to guarantee 
that small communities that were served by certificated air carriers 
before deregulation would maintain at least a minimum level of 
scheduled air service after airline deregulation. Since its inception, 
the EAS program has provided a vital link for eligible small 
communities to the National Airspace System (NAS). Indeed, this program 
ensures that small communities across America can tap into the economic 
and quality of life benefits that scheduled air services offer.
    Over the years, Congress has made a number of statutory changes to 
the program (most recently in 2011 and 2012), but the fundamental 
purpose of the program remains unchanged. Given the socio-economic 
importance of this program, DOT remains committed to preserving the EAS 
program for eligible communities and ensuring the sustainability of the 
program for the future.
    This enforcement policy concerns the statutory mandate that 
prohibits DOT from providing EAS funds to any carrier to serve any 
community in the 48 contiguous states that requires a per-passenger-
subsidy in excess of $200 unless the community is located more than 210 
miles from the nearest large or medium airport. Congress first imposed 
a $200 subsidy per passenger cap for communities in the 48 contiguous 
States in Fiscal Year 1990 appropriations language. Such language was 
repeated in several later appropriations acts throughout the 1990s, and 
was made permanent by the Department of Transportation and Related 
Agencies Appropriations Act, 2000, Public Law 106-69, 113 Stat. 986 
(Oct. 9, 1999). Specifically, the Act provides that:

Hereafter, notwithstanding 49 U.S.C. 41742, no essential air service 
subsidies shall be provided to communities in the 48 contiguous 
States that are located fewer than 70 highway miles from the nearest 
large or medium hub airport, or that require a rate of subsidy per 
passenger in excess of $200 unless such point is greater than 210 
miles from the nearest large or medium hub airport.

The Department has always expected communities less than 210 miles from 
a large or medium hub airport \1\ to work together with air carriers 
providing EAS to keep the subsidy per passenger below the $200 cap or 
risk termination of eligibility for EAS subsidy. DOT has also routinely 
provided notice of this statutory mandate to communities that were or 
appeared to be at risk of exceeding the cap, and a number of EAS 
communities have lost their eligibility as a result of this 
requirement.
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    \1\ Consistent with longstanding practice, DOT calculates the 
shortest driving distance between an EAS community and a large or 
medium hub airport from the center of the EAS community to the 
entrance of the nearest large or medium hub airport as determined by 
the Federal Highway Administration.
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    Although the $200 subsidy cap is a longstanding statutory 
provision, in 2012, Congress added a provision that allows the 
Secretary to grant waivers in limited circumstances. To effectuate that 
new provision and to ensure the fair and consistent treatment of all 
EAS communities subject to the $200 subsidy cap prospectively, DOT 
published a notice of proposed enforcement policy on May 1, 2014,

[[Page 60952]]

seeking public comments on a proposed policy to enforce the $200 
subsidy cap. Comments on the proposal were due June 30.
    The Department received seven comments on the proposed policy. All 
of the commenters noted that the $200 subsidy cap established by the 
Department of Transportation and Related Agencies Appropriations Act, 
2000, Public Law 106-69, 113 Stat. 986 (Oct. 9, 1999), has not kept up 
with the pace of inflation, and that enforcement of the cap would 
impose a hardship on EAS communities and be contrary to the EAS 
program's objectives (to ensure these communities have air service). We 
recognize these comments; however, the requirements of the statute do 
not provide us with discretion to adjust the subsidy cap amount or 
refrain from enforcement.
    One commenter offered several suggested changes to the proposed 
enforcement policy, such as: (1) The subsidy cap should be calculated 
based on actual subsidy paid, not the estimates provided in the 
carrier's proposal that form the basis of the subsidy award in the 
selection order; (2) enforcement of the subsidy cap should be based on 
the contract term, not the fiscal year--so as to not disadvantage 
carriers and communities that will be mid-contract at the time of the 
enforcement action in 2016 (and each year after that); and (3) 
communities should be permitted to refund funds to the Department, or 
contribute funds to carriers so that the Federal Government's share of 
the subsidy is below the subsidy cap. We appreciate these suggestions.
    First, regarding the suggestion that the calculation be based on 
actual subsidy paid, the method of calculating per passenger subsidy 
described in the Notice of Proposed Enforcement Policy reflects the 
Department's long standing practice. This method formed the basis of 
the enforcement actions taken under this provision since it first 
appeared in appropriations language in 1990. Carriers and communities 
are familiar with the use of this methodology and we do not, at this 
time, believe that a change is warranted. Moreover, if a community were 
over the $200 per passenger cap based on the Department's traditional 
application, but under $200 based on actual subsidy payments, the 
community could object to a tentative finding in the show-cause order 
or raise this point in a petition for waiver, and the Department would 
then assess those arguments on a case-by-case basis.
    Second, with respect to the comment on enforcement by contract 
term, rather than fiscal year, the Department believes it has given all 
of the affected parties ample time to come into compliance with the 
subsidy cap by delaying enforcement until 2016. In addition, while most 
EAS subsidy contracts have a two-year term, there are several that are 
for four-year, or even five-year, terms. The Department believes it 
would not be fiscally prudent, or fair to communities operating under a 
two year contract, to permit communities with subsidy caps well in 
excess of $200 per passenger to be essentially excused from this 
statutory requirement for many years simply because they are operating 
under longer EAS contracts. While we recognize that there may be some 
drawbacks to enforcement on a fiscal year basis, there are also 
drawbacks to a contract-based approach, as noted in the preceding 
sentence. With this in mind, the Department will move forward with the 
fiscal year based approach described in the Notice of Proposed 
Enforcement Policy. We believe that this approach is the most fair to 
communities, given the variety of contract terms, and is consistent 
with the practice for enforcement of other EAS eligibility 
requirements, such as the requirement that EAS communities enplane ten 
or more passengers per day. 49 U.S.C. 41731(a)(1)(B). The Department 
intends to publish quarterly calculations of per passenger subsidies at 
EAS communities on its Web site. We believe that this will further 
support communities in their efforts to remain below the subsidy cap by 
providing them with on-going notice of their per passenger subsidy 
amounts that will hopefully facilitate proactive discussions between 
communities and carriers to address potential threats to their 
continued eligibility well in advance of any enforcement action by the 
Department.
    Third, regarding the suggestion that communities be able to remit 
funds to the Department to lower its subsidy per passenger, section 323 
of Public Law 106-69 (Oct. 9, 1999) states that ``no [EAS] subsidies 
shall be provided'' to communities that require a rate of subsidy in 
excess of $200 per passenger. The Department has consistently construed 
this not as a limit on the Department's ability to pay more than $200 
per passenger, but rather, as an overall limitation on any subsidy 
payment for EAS service when the required subsidy is in excess of $200 
per passenger. See DOT Order 89-12-52 (Dec. 29, 1989) (finding that the 
subsidy cap ``was a disqualification for any subsidy at a point that 
exceeded'' the cap). Thus, we do not believe that the statute permits 
this approach.
    Having carefully considered the comments received and the statutory 
requirements for eligibility, we are finalizing the enforcement policy 
proposed in the Notice of Proposed Enforcement Policy, as follows:

Enforcement Policy

    The Department will begin enforcement of the $200 subsidy cap in 
2016, based on data compiled from October 1, 2014, through September 
30, 2015, as described in this policy. The Department will continue 
enforcement of the $200 subsidy cap on an annual basis based on data 
compiled at the end of every fiscal year and submitted to DOT after the 
close of the most recent fiscal year.
    If after September 30, 2015 (and each September 30 thereafter for 
the preceding fiscal year), a particular community's subsidy per 
passenger is above $200 (as measured on an annual basis) and its 
location is less than 210 miles from a large or medium hub airport, the 
Department will initiate proceedings, consistent with 49 U.S.C. 
41733(f) and Public Law 112-95 (Feb. 14, 2012), Section 426(c), 
directing interested persons to show cause why the Department should 
not terminate the eligibility of the community in question under the 
EAS Program. This process will provide each potentially affected 
community with a fair and reasonable opportunity to demonstrate 
compliance with the $200 subsidy cap prior to a final decision by DOT.
    Communities are reminded that the EAS program contains certain 
statutory protections that may be invoked by an EAS community adversely 
affected by the $200 per passenger subsidy cap. First, in the event 
that DOT determines that a community is ineligible because it exceeds 
the $200 subsidy cap provision in a given fiscal year, the community 
may petition the U.S. Transportation Secretary for a waiver pursuant to 
Public Law 112-95, Sec. 426(c) (Feb. 14, 2012). Under this provision, 
``[s]ubject to the availability of funds, the Secretary may waive, on a 
case-by-case basis, the subsidy-per-passenger cap.'' The law further 
provides: ``A waiver . . . shall remain in effect for a limited period 
of time, as determined by the Secretary.'' Second, a community that is 
deemed ineligible for subsidy based on the $200 subsidy cap may submit 
a proposal to the Secretary for restoration of subsidy. Upon receipt of 
a proposal, the Department will restore the community's subsidy 
eligibility if the Secretary determines that the rate of the per 
passenger

[[Page 60953]]

subsidy under the proposal does not exceed $200, and the proposal is 
likely to result in an average of more than 10 enplanements per day and 
is consistent with the EAS program's other legal and regulatory 
requirements. 49 U.S.C. 41733(g).
    Consistent with past practice and the Department's obligations 
under 49 U.S.C. 41733(f)(2), DOT encourages potentially affected 
communities to work with air carriers providing subsidized EAS to 
maximize use of the service awarded under their respective carrier-
selection orders to avoid exceeding the $200 subsidy cap.

    Issued in Washington, DC, on October 2, 2014.
Brandon M. Belford,
Deputy Assistant Secretary for Aviation and International Affairs.
[FR Doc. 2014-24190 Filed 10-8-14; 8:45 am]
BILLING CODE 4910-9X-P
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