Before I discuss these issues in detail, let me sketch the background of the EAS and SCASDP programs. Mr. Chairman, as you know, Congress established EAS as part of the Airline Deregulation Act of 1978 to help areas that face limited service. The act guaranteed that for 10 years communities served by air carriers before deregulation would continue to receive a certain level of scheduled air service by authorizing DOT to require carriers to continue providing service at these communities. If an air carrier could not continue that service without incurring a loss, DOT could then use EAS funds to award that carrier a subsidy. In 1987, Congress extended the program for another 10 years, and in 1998, it eliminated the sunset provision, thereby permanently authorizing EAS. To be eligible for this subsidized service, communities must meet three general requirements. They (1) must have received scheduled commercial passenger service as of October 1978, (2) may be no closer than 70 highway miles to a medium- or large-hub airport, and (3) must require a subsidy of less than $200 per person (unless the community is more than 210 highway miles from the nearest medium- or large-hub airport, in which case no average per-passenger dollar limit applies). Air carriers apply to DOT for EAS subsidies. DOT selects a carrier and sets a subsidy amount to cover the difference between the carrier’s projected cost of operation and its expected passenger revenues, while providing the carrier with a profit element equal to 5 percent of total operating expenses, according to statute. Funding for EAS has come from a combination of permanent and annual appropriations. The Federal Aviation Reauthorization Act of 1996 (P.L. 104-264) permanently appropriated the first $50 million of such funding— for EAS and safety projects at rural airports—from the collection of overflight fees. Congress has appropriated additional funds from the general fund on an annual basis. The Department of Transportation’s reauthorization proposal suggests changing the source of program funding to a mandatory appropriation of $50 million per year from the Airport and Airway Trust Fund. A new, small aviation fuel tax would be used to generate this $50 million. Furthermore, according to DOT officials, since $50 million would not sufficiently support all currently subsidized service, communities would be ranked in order of isolation, with Alaskan communities at the top of the list. Thus, some of the EAS communities currently receiving EAS subsidies under the roughly $100 million Congress has appropriated in recent years, might no longer receive air service. Turning now to SCASDP, Congress authorized it as a pilot program in the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21), to help small communities enhance their air service. AIR-21 authorized the program for fiscal years 2002 and 2003, and subsequent legislation reauthorized the program through fiscal year 2008 and eliminated the “pilot” status of the program. The Office of Aviation Analysis in DOT’s Office of the Secretary is responsible for administering the program. The law establishing SCASDP allows DOT considerable flexibility in implementing the program and selecting projects to be funded. The law defines basic eligibility criteria and statutory priority factors, but meeting a given number of priority factors does not automatically mean DOT will select a project. SCASDP grants may be made to single communities or a consortium of communities, although no more than four grants each year may be in the same state. Both small hubs and non hubs are eligible for this program. Thus, small hubs, such as Buffalo Niagara International Airport in Buffalo, New York, which enplaned over 2.4 million passengers in 2005, and small, nonhub airports, such in Moab, Utah (with about 2,600 enplanements) are eligible. SCASDP grants are available in the 50 states, the District of Columbia, Puerto Rico, and U.S. territories and possessions. DOT’s SCASDP awards have been geographically dispersed. Figure 1 shows the location of all SCASDP grants awarded as of August 31, 2006, as well as communities receiving EAS subsidies as of April 1, 2007. Mr. Chairman, as you know EAS provides service to many communities that otherwise would not receive air service. However, the increase in the number of communities receiving subsidies and the cost of these subsidies raise concerns over the funding needed to provide this service in an environment of federal deficits. For example, the funding for EAS has grown from $25.9 million in 1997 to $109.4 million in 2007. Furthermore, the federal median subsidy for providing air service to EAS communities is about $98 per passenger; the subsidies varied among communities from about $13 to over $677 per passenger in 2006. Finally, the number of air carriers flying smaller aircraft suitable for EAS communities may decrease and some industry officials are beginning to voice concerns about the availability of appropriate planes to provide small community air service in the future. In fiscal year 2007, EAS provided subsidies to 145 communities. In fiscal year 2005, the most recent year for which passenger data is available, the EAS program supported over 1 million passengers. As we have noted in past reports, if EAS subsidies were removed, air service might end at many small communities. Since air carriers have to show financial data to support a subsidy calculation—proving the service is not profitable to run—it is likely that if the subsidy is no longer available commercial air service would end. Several factors may help explain why some small communities, especially nonhubs, face relatively limited air service. First, small communities can become cost-cutting targets of air carriers because they are often a carrier’s least profitable operation. Consequently, many network carriers have cut service to small communities, replaced by regional carriers. Second, the “Commuter Rule” that FAA enacted in 1995 brought small commuter aircraft under the same safety standards as larger aircraft—a change that made it more difficult to economically operate smaller aircraft, such as 19-seat turboprops. For example, the Commuter Rule required commuter air carriers that flew aircraft equipped with 10 or more seats to improve ground deicing programs and carry additional passenger safety equipment. Additionally, the 2001 Aviation and Transportation Security Act instituted the same security requirements for screening passengers at smaller airports as it did for larger airports, sometimes making travel from small airports less convenient than it had been. Third, regional carriers have used fewer turboprops in favor of regional jets, which had a negative effect on small communities that have not generated the passenger levels needed to support regional jet service. Finally, many small communities experience passenger “leakage”—that is, passengers choosing to drive longer distances to larger airports instead of using closer small airports. Low-cost carriers have generally avoided flying to small communities but have offered low fares that encourage passengers to drive longer distances to take advantage of them. Mr. Chairman, although less than the 405 communities served with the help of EAS subsidies in 1980, the number of communities served by EAS has grown over the past 10 years, as has the amount of funds appropriated for the program. As shown in table 1, for fiscal year 2007, EAS is providing subsidies to air carriers to serve 145 communities—an increase of 50 communities over the 1997 low point. The funding for EAS has also grown from $25.9 million in 1997 to $109.4 million in 2007. Excluding Alaska, this amounts to an average of about $754,500 per EAS community in fiscal year 2007. Appendix I lists EAS communities and their current subsidy amounts. While the total number of communities receiving service through EAS subsidies has generally increased, some communities have dropped from the program. For example, according to DOT officials 11 communities that had EAS subsidized service in 2006 were no longer in the program in 2007. Four of these were terminated by DOT because their subsidy rose above the EAS cap—Bluefield, WV; Enid, OK; Moses Lake, WA; and Ponca City, OK. Seven communities secured non-subsidized service. These communities included Hana, HI; Kalaupapa, HI; Kamuela, HI; Pierre, SD; Riverton, WY; Rock Springs, WY; and Sheridan, WY. The level of subsidy per passenger at EAS communities varies greatly. At some locations, the level of subsidy per passenger is modest. For example, in 2006, of the 110 airports receiving EAS service for which data were available, 30 communities had subsidies of less than $50 per passenger. Some communities with relatively low subsidies per passenger included Escanaba, MI ($12.96) and Morgantown, WV ($13.68) both with almost 36 passengers per day. In contrast, 30 communities also had subsidies per passenger greater than $200. The highest subsidy at that time was $677 for Brookings, SD, and Lewistown, MT had an average subsidy of almost $473. These two areas had fewer than 3 passengers per day. Airports may maintain EAS service when subsidies exceed $200 dollars if they are more than 210 highway miles from a large or medium hub. As would be expected, a low number of passengers are associated with high subsidies. Of the 110 airports receiving EAS service for which data were available, 17 airports had fewer than 5 passengers per day. Such airports typically have a subsidy per passenger greater than $200—15 of the 17 exceed the $200 threshold. Communities with less than 5 passengers per day also constitute half those with subsidies exceeding $200 (15 of 30). In contrast, 47 communities had at least 20 passengers per day, more than the capacity of a single 19-seat aircraft flight. All 47 of these airports had subsidies of less than $100 per passenger. See Appendix II for EAS Subsidies per Enplanement. DOT and industry officials we interviewed raised questions about the future of the EAS service as currently provided. As of April 1, 2007, 12 regional air carriers served the subsidized communities in the continental United States. The carriers serving the communities in the continental United States typically used turboprop aircraft seating 19 passengers, whereas in Alaska and Puerto Rico, the most commonly used aircraft seated 4 to 9 passengers. DOT and industry officials pointed out that 19-seat aircraft are no longer being manufactured, and some of the current EAS carriers appear to be migrating to the use of larger aircraft. DOT officials noted that EAS carriers are getting out of the business that uses 19-seat aircraft, and are moving into larger aircraft. In addition, industry consultants noted that as the current fleet of 19-seat aircraft ages, maintenance costs will likely rise, which will make operating 19-seat aircraft more expensive. Because 19- seat aircraft are the backbone of EAS service in the contiguous 48 states, their aging or discontinuation would significantly affect the program. Figure 2 shows an example of a 19-seat Turbo Prop aircraft commonly used to provide EAS service. Finally, DOT and industry officials with whom we spoke were not convinced that the emerging technology of Very Light Jets (VLJs) could fill this gap, especially in the short term. They noted that current business models discussed for VLJs did not anticipate their use for the kind of small communities served by EAS. DOT did provide a SCASDP grant to Bismarck, ND for developing a business model for point to point, reservation responsive air service using VLJs. The grantee has developed the business plan; however, given the lack of operating VLJs, they changed the type of aircraft the business would use until the aircraft become more available. We will be completing a more comprehensive report on VLJs for the subcommittee later this year. Mr. Chairman, we found that SCASDP grantees pursued several goals and strategies to improve air service, and that air service was sustained after the grant expired in a little less than half of the 23 completed projects in 2005—the time of our initial review. The DOT IG’s office began reviewing completed grants in March 2007 which should provide more information on the results of completed grants. Although the program has seen some success, the number of applications for SCASDP grants has declined for a variety of reasons. At the time of our initial review of SCASDP, in 2005, it was too soon to determine the overall effectiveness of the program because there was not much information available about the “post” grant period. Once awarded, it may take several years for grants to be implemented and completed. There have been 182 grant awards made in the 5 years of the program. Of these, 74 grants are completed as of April 1, 2007—34 from 2002, 19 from 2003, and 21 from 2004. No grants from 2005 or 2006 are yet completed. In addition, as of April 4, 2007, DOT had terminated seven grants it initially awarded. See Appendix III for a list of all SCASDP grants from 2002 through 2006. Our review of the 23 projects completed by September 30, 2005, found some successful results. The kinds of improvements in service that resulted from the grants included adding an additional air carrier, destination, or flights; or changing the type of aircraft serving the community. In terms of numbers, airport officials reported that 19 of the 23 grants resulted in service or fare improvements during the life of the grant (see fig.3). In addition, during the course of the grant, enplanements rose at 19 of the 23 airports. After the 23 SCASDP grants were completed, 14 resulted in improvements that were still in place. Three of these improvements were not self-sustaining; thus 11 self-sustaining improvements were in place after the grants were completed. Since our review of the 23 completed projects, 51 more have been completed for a total of 74. We reviewed the fifty-nine available final reports. A review of the grantees’ final reports for these projects indicated that 48 increased enplanements as a result of their SCASDP grant. For SCASDP grants DOT awarded from 2002 though 2004, we surveyed airport officials to identify the goals they had for their grants. We found that grantees had identified a variety of project goals to improve air service to their community. These goals included adding flights, airlines, and destinations; lowering fares; upgrading the aircraft serving the community; obtaining better data for planning and marketing air service; increasing enplanements; and curbing the loss of passengers to other airports. (See fig. 4 for the number and types of project goals identified by airport directors.) Finally, in our 2005 report, we recommended DOT evaluate the SCASDP grants after more were completed to identify promising approaches and evaluate the effectiveness of the program. DOT officials told us that they asked the DOT IG to conduct such a study, which the IG began in March 2007. DOT expects to have preliminary observations available by the middle of May. Results from this work may help identify potential improvements and “lessons learned.” To achieve their goals, grantees have used many strategies, including subsidies and revenue guarantees to the airlines, marketing, hiring personnel and consultants, and establishing travel banks in which a community guarantees to buy a certain number of tickets. (See fig. 5.) In addition, other strategies that grantees have used are subsidizing the start- up of an airline, taking over ground station operations for an airline, and subsidizing a bus to transport passengers from their airport to a hub airport. Incorporating marketing as part of the project was the most common strategy used by airports. Some airline officials said that marketing efforts are important for the success of the projects. Airline officials also told us that projects that provide direct benefits to an airline, such as revenue guarantees and financial subsidies, have the greatest chance of success. According to these officials, such projects allow the airline to test the real market for air service in a community without enduring the typical financial losses that occur when new air service is introduced. They further noted that, in the current aviation economic environment, carriers cannot afford to sustain losses while they build up passenger demand in a market. The outcomes of the grants may be affected by broader industry factors that are independent of the grant itself, such as a decision on the part of an airline to reduce the number of flights at a hub. Since the inception of the program, there has been a steady decline in the number of applications. In 2002 (the first year SCASDP was funded) DOT received 179 applications for grants; and by 2006 the number of applications had declined to 75. Grant applications for 2007 are not due until April 27, 2007. According to a DOT official, almost all applications arrive on the last day, so the number of 2007 applications cannot be estimated at this time. DOT officials said that the past decline was, in part, a consequence of several factors, including: (1) many eligible airport communities had received a grant and were still implementing projects at the time; (2) the airport community as a whole was coming to understand the importance DOT places on fulfilling the local contribution commitment part of the grant proposal; and (3) statutory changes in 2003 that prohibited communities or consortiums from receiving more than one grant for the same project, and that established the timely use of funds as a priority factor in awarding grants. According to DOT officials, DOT has interpreted that a project is the “same project” if it employs the same strategy. For example, once a community has used a revenue guarantee, it cannot use a revenue guarantee on another project. A DOT official noted that, with many communities now completing their grants, they may choose to apply for another grant. Some communities have received second grants; however DOT officials indicate first time applicants get more weight in the grant selection process. Revisiting selection criteria may increase the access to SCASDP grants and increase service to small communities. Mr. Chairman, let me now turn to a discussion of options both for the reform of EAS and the evaluation of SCASDP. I raise these options, in part, because they link to our report on the challenges facing the federal government in the 21st century, which notes that the federal government’s long-term fiscal imbalance presents enormous challenges to the nation’s ability to respond to emerging forces reshaping American society, the United States’ place in the world, and the future role of the federal government. In that report, we call for a more fundamental and periodic reexamination of the base of government, ultimately covering discretionary and mandatory programs as well as the revenue side of the budget. In other words, Congress will need to make difficult decisions including defining the role of the federal government in various sectors of our economy and identifying who will benefit from its allocation of resources. Furthermore, given that we have reported that subsidies paid directly to air carriers have not provided an effective transportation solution for passengers in many small communities, these programs may be ones for which Congress may wish to weigh options for reforming EAS and assess SCASDP’s effectiveness once DOT completes its review of the program. In previous work, we have identified options for enhancing EAS and controlling cost increases. These options include targeting subsidized service to more remote communities than is currently the case, improving the matching of capacity with community use, consolidating service to multiple communities into regional airports, and changing the form of federal assistance from carrier subsidies to local grants; all of these options would require legislative changes. Several of these options formed the basis for reforms passed as part of Vision-100. For various reasons these pilot programs have not progressed, so it is not possible to assess their impact. Let me now briefly discuss each option, stressing at the outset that each presents potential negative, as well as positive, impacts. The changes might positively affect the federal government through lowered federal costs, and participating communities through increased passenger traffic at subsidized communities, and enhanced community choice of transportation options. Communities that could be negatively affected might include those in which passengers receive less service or might lose scheduled airline service. One option would be to target subsidized service to more remote communities. This option would mean increasing the highway distance criteria between EAS-eligible communities and the nearest qualifying airport, and expanding the definition of qualifying nearby airports to include small hubs. Currently, to be eligible for EAS-subsidized service, a community must be more than 70 highway miles from the nearest medium- or large-hub airport. In examining EAS communities, we found that, if the distance criterion were increased to 125 highway miles and the qualifying airports were expanded to include small-hub airports with jet service, 55 EAS-subsidized communities would no longer qualify for subsidies—and travelers at those communities would need to drive to the nearby larger airport to access air service. Limiting subsidized service to more remote communities could potentially save federal subsidies. For example, we found that about $24 million annually could be saved if service were terminated at 30 EAS airports that were within 125 miles of medium- or large-hub airports. This estimate assumed that the total subsidies in effect in 2006 at the communities that might lose their eligibility would not be obligated to other communities and that those amounts would not change over time. On the other hand, the passengers who now use subsidized service at such terminated airports would be inconvenienced because of the increased driving required to access air service at the nearest hub airport. In addition, implementing this option could potentially negatively impact the economy of the affected communities. The administration’s reauthorization proposal also would prioritize isolated communities, but in a somewhat different way. Under its approach, if insufficient funding for all communities exists, the communities would be ranked in terms of driving distance to a medium or large hub, with the more isolated communities receiving funding before less isolated communities. This change would protect isolated communities, but could result in subsidies being terminated for communities with relatively low per passenger subsidies. Another option is to better match capacity with community use. Our past analysis of passenger enplanement data indicated that relatively few passengers fly in many EAS markets, and that, on average, most EAS flights operate with aircraft that are largely empty. In 2005, the most recent year for which data are available, 17 EAS airports averaged fewer than 5 passenger boardings per day. To better match capacity with community use, air carriers could reduce unused capacity—either by using smaller aircraft or by reducing the number of flights. Better matching capacity with community use could save federal subsidies. For instance, reducing the number of required daily subsidized departures could save federal subsidies by reducing carrier costs in some locations. Federal subsidies could also be lowered at communities where carriers used smaller—and hence less costly—aircraft. On the other hand, there are a number of potential disadvantages. For example, passenger acceptance is uncertain. Representatives from some communities, such as Beckley, West Virginia, told us that passengers who are already somewhat reluctant to fly on 19-seat turboprops would be even less willing to fly on smaller aircraft. Such negative passenger reaction may cause more people to drive to larger airports—or simply drive to their destinations. Additionally, the loss of some daily departures at certain communities would likely further inconvenience some passengers. Lastly, reduced capacity may have a negative impact on the economy of the affected community. Another option is to consolidate subsidized service at multiple communities into service at regional airports. For example, in 2002 we found that 21 EAS subsidized communities were located within 70 highway miles of at least one other subsidized community. We reported that if subsidized service to each of these communities were regionalized, 10 regional airports could serve those 21 communities. Regionalizing service to some communities could generate federal savings. However, those savings may be marginal, because the total costs to serve a single regional airport may be only slightly less than the cost to serve other neighboring airports. The marginal cost of operating the flight segments to the other airports may be small in relation to the cost of operating the first flight. Another potential positive effect is that passenger levels at the proposed regional airports could grow because the airline(s) would be drawing from a larger geographic area, which could prompt the airline(s) to provide better service (i.e., larger aircraft or more frequent departures). There are also a number of disadvantages to implementing this option. First, some local passengers would be inconvenienced, since they would likely have to drive longer distances to obtain local air service. Moreover, the passenger response to regionalizing local air service is unknown. Passengers faced with driving longer distances may decide that driving to an altogether different airport is worthwhile, if it offers better service and air fares. As with other options, the potential impact of regionalization on the economy of the affected communities is unknown. Regionalizing air service has sometimes proven controversial at the local level, in part because regionalizing air service would require some communities to give up their own local service for the potentially improved service at a less convenient regional facility. Even in situations where one airport is larger and better equipped than others (e.g., where one airport has longer runways, a superior terminal facility, and better safety equipment on site), it is likely to be difficult for the other communities to recognize and accept surrendering their local control and benefits. Some industry officials to whom we spoke indicated regional airports made sense, but selecting the airports would be highly controversial. Another option is to change carrier subsidies into local grants. We have noted that local grants could enable communities to match their transportation needs with individually tailored transportation options to connect them to the national air space system. As we previously discussed, DOT provides grants to help small communities to enhance their air service via SCASDP. Our work on SCASDP identified some positive aspects of the program that could be beneficial for EAS communities. First, for communities to receive a SCASDP grant, they had to develop a proposal that was directed at improving air service locally. In our discussion with some of these communities, it was noted that this approach required them to take a closer look at their air service and better understand the market they serve—a benefit that they did not foresee. In addition, in some cases developing the proposal caused the airport to build a stronger relationship with the community. SCASDP also allows for flexibility in the strategy a local community can choose to improve air service, recognizing that local facts and circumstances affect the chance of a successful outcome. In contrast, EAS has one approach—a subsidy to an air carrier. However, there are also differences between the two programs that make the grant approach problematic for some EAS communities; these differences should be considered. First, because SCASDP grants are provided on a one-time basis, their purpose is to create self-sustaining air service improvements. The grant approach is therefore best applicable where a viable air service market can be developed. This viability could be difficult for EAS communities to achieve because, currently, the service they receive is not profitable unless there is a subsidy. While some EAS communities might be able to transition to self-sustaining air service through use of one of the grants, for some communities this would not be the case. Such communities would need a new grant each year. In addition, the grant approach normally includes a local cash match, which may be difficult for some EAS communities to provide. This approach could systematically eliminate the poorest communities, unless other sources of funds—such as state support or local industry support—could be found for the match, or some provision for economically distressed communities is made. Congress authorized several pilot programs and initiatives designed to improve air service to small communities in Vision-100. These programs and initiatives have not progressed for various reasons. In two cases, communities have not indicated interest in the programs. In one instance Congress decided to prevent DOT from implementing the program. In three cases, DOT officials cited a lack of sufficient funds to implement the programs. Vision-100 authorized the Community Flexibility Pilot Program, which requires the Secretary of Transportation to establish a program for up to 10 communities that agree to forgo their EAS subsidy for 10 years in exchange for a grant twice the amount of one year’s EAS subsidy. The funds may be used to improve airport facilities. DOT has solicited proposals for this program; however, according to a DOT official, no communities expressed any interest in participating. This is likely because no community was willing to risk the loss of EAS subsidies for 10 years in exchange for only 2 years of funding. Likewise, the Alternate Essential Air Service Pilot Program, which allows the Secretary of Transportation to provide assistance directly to a community, rather than paying compensation to the air carrier, elicited no interest from communities. Under the pilot program, communities could provide assistance to air carriers using smaller aircraft, on-demand air taxi service, provide transportation services to and from several EAS communities to a single regional airport or other transportation center, or purchase aircraft. The administration’s draft FAA reauthorization bill would repeal these pilot programs. Another program, the EAS Local Participation Program, allows the Secretary of Transportation to select no more than 10 designated EAS communities within 100 miles, by road, of a small hub (and within the contiguous states) to assume 10 percent of their EAS subsidy costs for a 4- year period. However, Congress has prohibited DOT from obligating or expending any funds to implement this program since Vision-100 was enacted. The administration’s draft FAA reauthorization bill would repeal this pilot program. Three additional initiatives authorized by Vision-100 have not been implemented, in part due to a lack of dedicated funding. Section 402 of Vision-100 allows DOT to adjust carrier compensation to account for significantly increased costs to carriers. For example, an air carrier that has a contract to provide air service can apply for an adjustment due to an increase in its costs. If this increase is granted, the air carrier has increased its revenue without having to competitively bid for the contract. The initiative also provided for a reversal of this adjustment if the costs subsequently declined. DOT officials indicated that a concern they have with this initiative is that an air carrier could win a 2-year contract with a low estimate, and open it again to obtain more funds without facing competition. Also, the Section 410 marketing incentive program, which could provide grants up to $50,000 to EAS communities to develop and execute a marketing plan to increase passenger boardings and usage of airport facilities, was not implemented. DOT officials explained that with the uncertainty of the number of communities that would need EAS subsidies and the cost of those subsidies, using EAS subsidy funding for this marketing incentive program could put the subsidies at risk. One industry group suggested dedicated funding might improve the use of this program. The administration’s draft FAA reauthorization bill would repeal this marketing incentive program. Finally, Section 411 of Vision-100 authorized the creation of a National Commission on Small Community Air Service to recommend how to improve commercial air service to small communities and the ability of small communities to retain and enhance existing air service. This provision was likewise not implemented because funds were not specifically appropriated, according to DOT officials. Such a commission may have been helpful in developing approaches to deal with difficult policy decisions, such as regionalizing air service. DOT plans to host a symposium to bring industry experts together to identify regulatory barriers and develop ideas for improving air service to small communities which may be a step in the right direction. DOT officials acknowledge that this symposium should be held soon to inform reauthorization deliberations. In 2005, we recommended that DOT examine the effectiveness of SCASDP when more projects are complete; and the DOT IG recently began this evaluation. Since our report, an additional 48 grants have been completed and DOT will be able to examine the results from these completed grants. Such an evaluation should provide DOT and Congress with additional information about not only whether additional or improved air service was obtained, but whether it continued after the grant support ended. In addition, our prior work on air service to small communities found that once financial incentives are removed, additional air service may be difficult to maintain. This evaluation should provide a clearer and more complete picture of the value of this program. Any improved service achieved from this program could then be weighed against the cost to achieve those gains. In conducting this evaluation, DOT could find that certain strategies the communities used were more effective than others. For example, during our work, we found some opposing views on the usefulness of certain strategies for attracting improved service. DOT officials could use the results of the DOT IG’s evaluation to identify strategies that have been effective in starting self-sustaining improvements in air service and they could share this information with other small community airports and, perhaps, consider such factors in its grant award process. In addition, DOT might find some best practices and could develop some lessons learned from which all small community airports could benefit. For example, one airport used a unique approach of assuming airline ground operations such as baggage handling and staffing ticket counters. This approach served to maintain airline service of one airline and in attracting additional service. In addition, the SCASDP program has shown that there is a strong demand on the part of small community airports to improve enplanements through various marketing strategies. Successful marketing efforts could increase enplanements, thus driving down the per passenger subsidy. Sharing information on approaches like these that worked (and approaches that did not) may help other small communities improve their air service, perhaps even without federal assistance. In conclusion, Mr. Chairman, Congress is faced with many difficult choices as it tries to help improve air service to small communities, especially given the fiscal challenges the nation faces. Regarding EAS, I think it is important to recognize that for many of the communities, air service is not—and might never be—commercially viable and there are limited alternative transportation means for nearby residents to connect to the national air transportation system. In these cases, continued subsidies will be needed to maintain that capability. In some other cases, current EAS communities are within reasonable driving distances to alternative airports that can provide that connection to the air system. It will be Congress’ weighing of priorities that will ultimately decide whether this service will continue or whether other, less costly options will be pursued. In looking at SCASDP, I would emphasize that we have seen some instances in which the grant funds provided additional service, and some in which the funds did not work. Enough experience has now been gained with this program for a full assessment, and with that information the Congress will be in a position to determine if the air service gains that are made are worth the overall cost of the program. I would be pleased to answer any questions that you or other Members of the Subcommittee may have at this time. For further information on this testimony, please contact Dr. Gerald L. Dillingham at (202) 512-2834 or dillinghamg@gao.gov. Individuals making key contributions to this testimony and related work include Robert Ciszewski, Catherine Colwell, Jessica Evans, Colin Fallon, Dave Hooper, Alex Lawrence, Bonnie Pignatiello Leer, and Maureen Luna-Long. Airport Finance: Preliminary Analysis Indicates Proposed Changes in the Airport Improvement Program May Not Resolve Funding Needs for Smaller Airports. GAO-07-617T Washington, D.C.: March 28, 2007. Commercial Aviation: Programs and Options for the Federal Approach to Providing and Improving Air Service to Small Communities. GAO-06- 398T Washington, D.C.: September 14, 2006. Airline Deregulation: Reregulating the Airline Industry Would Reverse Consumer Benefits and Not Save Airline Pensions. GAO-06-630 Washington, D.C.: June 9, 2006. Commercial Aviation: Initial Small Community Air Service Development Projects Have Achieved Mixed Results. GAO-06-21 Washington, D.C: November 30, 2005 Commercial Aviation: Survey of Small Community Air Service Grantees and Applicants. GAO-06-101SP. Washington, D.C.: November 30, 2005 Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms of Underlying Structural Issues. GAO-05-945 Washington, D.C.: September 30, 2005 Commercial Aviation: Legacy Airlines Must Further Reduce Costs to Restore Profitability. GAO-04-836 Washington, D.C.: August 11, 2004 Commercial Aviation: Issues Regarding Federal Assistance for Enhancing Air Service to Small Communities. GAO-03-540T. Washington, D.C.: March 11, 2003 Federal Aviation Administration: Reauthorization Provides Opportunities to Address Key Agency Challenges. GAO-03-653T. Washington, D.C.: April l0, 2003 Commercial Aviation: Factors Affecting Efforts to Improve Air Service at Small Community Airports. GAO-03-330 Washington, D.C.: January 17, 2003 Commercial Aviation: Financial Condition and Industry Responses Affect Competition. GAO-03-171T. Washington, D.C.: October 2, 2002. Options to Enhance the Long-term Viability of the Essential Air Service Program. GAO-02-997R. Washington, D.C.: August 30, 2002. Commercial Aviation: Air Service Trends at Small Communities Since October 2000. GAO-02-432. Washington, D.C.: March 29, 2002. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: Congress established two key programs to help support air service to small communities--the Essential Air Service (EAS) providing about $100 million in subsidies per year and the Small Community Air Service Development Program (SCASDP) that provides about $20 million per year in grants. As part of its reauthorization of the Federal Aviation Administration (FAA), the Congress is examining the status and outcomes of these programs. This testimony discusses (1) the history and challenges of the EAS program, (2) the implementation and outcomes of the SCASDP and (3) options for reforming EAS and SCASDP. The testimony is based on previous GAO reports, interviews with Department of Transportation officials and industry representatives as well as program updates. EAS subsidies support air service to many small communities that would likely not have service if EAS subsidies are discontinued. Since 1997, funding for EAS has increased from $25.9 million in 1997 to $109.4 million in 2007 and the number of communities has generally increased. The federal government is spending a median of about $98 per passenger, with subsidies ranging from about $13 to $677 per passenger. Concerns exist about the costs of the program, particularly given the federal government's long-term structural fiscal imbalance. In addition, according to industry representatives, the number of air carriers flying aircraft suitable for EAS communities may decrease, raising concerns about the availability of appropriate aircraft to provide small community air service in the future. SCASDP grantees have used their grants to pursue a variety of goals and have used a variety of strategies, including marketing and revenue guarantees, to improve air service. Our analysis of the 23 grants completed by October 1, 2005, found that air service was sustained after the grant expired in a little less than half of the projects. Finally, although the program has seen some success, the number of applications for SCASDP grants has declined--from 179 in 2002 to 75 in 2006. As we have reported, options for reforming EAS, such as consolidating service into regional airports might make the program more efficient, but also could reduce service to some communities. Further, Congress may be able to use some "lessons learned" from marketing and other successful SCASDP strategies that may help it make the current programs more effective.