Before I discuss these issues in detail, let me sketch the background of air service to small communities and these programs. Air service to many small communities has declined in recent years, particularly after the September 11, 2001 attacks. As of 2005, scheduled departures at small-, medium-, and large-hub airports had largely returned to 2000 levels. However, departures from nonhub airports continued to decline—the number of departures declined 17 percent at nonhub airports between July 2000 and July 2005. Small-hub airports actually had more scheduled departures in July 2005 than in July 2000, a fact that clearly distinguishes them from nonhub airports. 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to small communities and regional carriers now operate at many small communities where the network carriers have withdrawn. 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 who 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 had reduced the use of 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, 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 communities served by air carriers before deregulation would continue to receive a certain level of scheduled air service. In general, the act guaranteed continued 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. Under the Airline Deregulation Act, EAS was scheduled to sunset, or end, after 10 years. In 1987, Congress extended the program for another 10 years, and in 1998, it eliminated the sunset provision, thereby permanently authorizing EAS. Funding for EAS comes 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 can appropriate additional funds from the general fund on an annual basis. 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). Federal law also defines the service that subsidized communities are to receive under EAS. For example, carriers providing EAS flights are required to use aircraft with at least 15 seats unless the community seeks a waiver. In addition, flights are to occur at “reasonable times” and at prices that are “not excessive.” EAS operations to communities in Alaska are subject to different requirements (e.g., carriers may use smaller aircraft). Air carriers apply directly to DOT for EAS subsidies. Air carriers set the subsidy application process in motion when they file a 90-day notice of intent to suspend or terminate service. If no air carrier is willing to or able to profitably provide replacement air service without a subsidy, DOT solicits proposals from carriers who are willing to provide service with a subsidy. DOT requires that air carriers submit historical and projected financial data, such as projected operating expenses and revenues, sufficient to support a subsidy calculation. DOT then reviews these data in light of the aviation industry’s pricing structure, the size of aircraft required, the amount of service required, and the number of projected passengers who would use this service in the community. Finally, 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. Turning now to SCASDP, Congress authorized SCASDP 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. DOT also considers many other relevant factors in making decisions on projects, and the final selection of projects is at the discretion of the Secretary of Transportation. (See app. I for a list of the factors used in DOT selections.) 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. Consortiums are considered one project for the purpose of this program. Inclusion of small hubs for eligibility means that some relatively large airports qualify for this program. For example, Buffalo Niagara International Airport in Buffalo, New York, and Norfolk International Airport in Norfolk, Virginia, are eligible for the program; these airports enplaned over 2.4 million and over 1.9 million passengers in 2005, respectively. In contrast, small nonhub airports, such as those in Moab, Utah (with about 2,600 enplanements) or Owensboro, Kentucky (with about 3,600 enplanements) are also eligible. SCASDP grants are also available in the 50 states, the District of Columbia, Puerto Rico, and U.S. territories and possessions. As shown in appendix II, DOT’s awards have been geographically spread out—covering all states except Delaware, Hawaii, Maryland, New Jersey, and Rhode Island. To date, no communities in Delaware or Rhode Island have applied for a grant. Appendix III includes information on all SCASDP grants awarded as of August 31, 2006. Mr. Chairman, demand for EAS subsidies has been growing over the past 10 years, as has the amount of funds appropriated for the program. As shown in table 1, for fiscal year 2006, EAS is providing subsidies to air carriers to serve 154 communities—an increase of 57 communities over the 1997 low point. The funding for EAS has also grown from $25.9 million in 1997 to $109.4 million in 2006. This amounts to an average of about $720,000 per EAS community in fiscal year 2006. Appendix II includes a map showing the locations of current EAS communities and appendix IV lists EAS communities and their current subsidy amounts. In addition, in recent years, the number of communities and states receiving EAS funding has increased. Since 1998, when a $50 million funding level was established, eight additional states now have EAS communities. These states include Alabama, Georgia, Kentucky, Maryland, Mississippi, Oregon, Tennessee and Virginia. Excluding Alaska, where different program rules apply, four states now have had significant increases in the total number of communities served by EAS, compared to 1998. The number of EAS communities in Pennsylvania increased by five, West Virginia and Wyoming increased by four, and New York increased by three. These states are now among the largest participants in the program, in terms of the number of communities served. In 2004, slightly more than 1 million passengers enplaned at airports that received EAS-subsidized service—about 0.15 percent of the more than 706 million passenger enplanements in the United States that year. As of May 1, 2006, 13 regional air carriers served the subsidized communities in the continental United States, and 15 served those in Alaska, Hawaii, and Puerto Rico. The carriers serving the communities in the continental United States typically used turboprop aircraft seating 19 passengers, whereas in Alaska, Hawaii, and Puerto Rico, the most commonly used aircraft seated 4 to 9 passengers. If EAS subsidies were removed, air service may end at many small communities. EAS subsidies have helped communities that were served by air carriers before deregulation continue to receive scheduled air service. Since air carriers have to show financial data to support a subsidy calculation, it is likely that if the subsidy is no longer available commercial air service would also end. Furthermore, according to a DOT official, once a community receives subsidized air service it is rare for an air carrier to offer to provide unsubsidized air service.