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.