[Senate Hearing 109-1140]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 109-1140
 
                           RURAL AIR SERVICE

=======================================================================

                                HEARING

                               before the

                        SUBCOMMITTEE ON AVIATION

                                 OF THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 14, 2006

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation



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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
             Kenneth R. Nahigian, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director
                                 ------                                

                        SUBCOMMITTEE ON AVIATION

                    CONRAD BURNS, Montana, Chairman
TED STEVENS, Alaska                  JOHN D. ROCKEFELLER IV, West 
JOHN McCAIN, Arizona                     Virginia, Ranking
TRENT LOTT, Mississippi              DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          BYRON L. DORGAN, North Dakota
OLYMPIA J. SNOWE, Maine              BARBARA BOXER, California
GORDON H. SMITH, Oregon              MARIA CANTWELL, Washington
JOHN ENSIGN, Nevada                  FRANK R. LAUTENBERG, New Jersey
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        E. BENJAMIN NELSON, Nebraska
JIM DeMINT, South Carolina           MARK PRYOR, Arkansas


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 14, 2006...............................     1
Statement of Senator Burns.......................................     1
Statement of Senator Dorgan......................................     4
Statement of Senator Lott........................................     3
Statement of Senator E. Benjamin Nelson..........................     6
    Letters from Essential Air Service communities in response to 
      rural air service..........................................     7
Statement of Senator Pryor.......................................    12
Statement of Senator Rockefeller.................................     2

                               Witnesses

Dillingham, Gerald L., Director, Physical Infrastructure Issues, 
  U.S. Government Accountability Office..........................    19
    Prepared statement...........................................    20
Kaercher, Hon. Douglas, County Commissioner, Hill County, 
  Montana; on Behalf of the President, Montana Association of 
  Counties (MACo),;National Association of Counties..............    56
    Prepared statement...........................................    58
Malarkey, Faye, Vice President, Legislative Affairs, Regional 
  Airline Association............................................    47
    Prepared statement...........................................    49
Reynolds, Michael W., Acting Assistant Secretary for Aviation and 
  International Affairs, Department of Transportation............    12
    Prepared statement...........................................    15
Torgerson, John, Deputy Commissioner of Aviation, Department of 
  Transportation and Public Facilities, State of Alaska..........    53
    Prepared statement...........................................    55


                           RURAL AIR SERVICE

                              ----------                              


                      THURSDAY, SEPTEMBER 14, 2006

                               U.S. Senate,
                          Subcommittee on Aviation,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:03 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Conrad Burns, 

Chairman of the Subcommittee, presiding.

            OPENING STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. The Subcommittee on Aviation will come to 
order.
    And this morning I want to thank everybody for coming in on 
this important topic, especially for the Senator from West 
Virginia and to Montana. We'll examine the importance of rural 
air service. The hearing will review progress achieved by 
Essential Air Service and Small Community Air Service 
Development programs. We will look at the obstacles to which--
the accomplishment of the program goals, and we'll consider 
suggestions for improvement in upcoming aviation 
reauthorization legislation coming up, which we're just a year 
away.
    This committee, and Congress as a whole, has long been 
concerned about the benefits of preserving airline service to 
small and rural communities. When we deregulated the airlines, 
in the late 1970s, we also created the Essential Air Service 
program to ensure that communities receiving service before 
deregulation would continue to receive service through the 
transition.
    In addition, in 2000--year 2000, we authorized the Small 
Community Air Service Development Pilot Program to provide 
additional tools to help small communities enhance their air 
service. This is a topic near and dear to us in rural States 
like Montana. Montana has eight EAS communities, and many of 
them do not have any other form of public transportation 
serving their community. Driving nearly 4 hours from Sidney, 
Montana, to Billings, Montana, just isn't an option for those 
most in need of medical attention. The service is aptly named, 
and it is essential.
    My state is not the only state who benefits from this 
service, and Congress has recognized the importance of aviation 
connectivity over the years. In fact, civil aviation has become 
an integral part of rural U.S. economy. It is a key factor in 
maintaining economic growth and a high quality of life. 
Together with telecommunication advancements, civil aviation 
has enabled many Montana communities to enter the mainstream of 
the--global commerce.
    Rural communities gain tremendous economic benefit from 
their ability to attract and retain businesses, attract 
visitors, and provide vital medical facility access. These 
are--arguments are not lost on me, and the rural air service 
will continue to be a focal point of this Committee. We have 
our work cut out for us in the upcoming reauthorization debate, 
and I think we have the opportunity to provide a solid 
foundation and adequate funding stream for rural air service 
for many years to come. And I look forward to the ideas and 
hearing the testimony today.
    I'm joined today, very ably, my good friend from West 
Virginia. Senator Rockefeller, if you have an opening 
statement, you may make it, sir, and thank you for coming.

           STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Rockefeller. Thank you, Chairman Burns. And I thank 
you for having this--as we always open our statements, right? 
Thank you for having this hearing.
    As the Chairman indicated, we're approaching the 30th year 
of airline deregulation. I remember so vividly that United, 
Eastern, and American had large jets that came into Charleston 
and other places. And within 3 or 4 weeks of deregulation, they 
were gone. Now, there's no question that deregulation helped 
large urban communities and ushered in a new era of prosperity, 
but it meant a loss of service and convenience and, often, 
higher prices, always higher prices, for West Virginia, 
Mississippi, and Montana's rural communities.
    I recognize that we're not going back to the days of 
regulation, so that's--we're too global for that, and I 
understand that. And I know that millions of Americans in urban 
areas really have benefited, and that it's tremendously 
important for them. That's a large part of our economy, and to 
say that you represent a rural state and ignore everything else 
is not modern. Sometimes we feel that way, but it's not modern.
    But I think that Congress does have an obligation to 
protect the rural parts of our country, just like when the 
interstates were built, that was considered a national system. 
They went through rural areas, they went through urban areas; 
it was all the same. They had to be treated the same. That's 
the future with broadband service. That was the future, 
actually, with railroads, back in the latter part of the 19th 
century.
    I've always been a very strong supporter of making sure 
that the Federal Government is a partner with local 
communities--and help them address their air service needs. I 
think that's part of our responsibility.
    I helped author the Small Community Air Service Development 
Program in 2000--the Chairman made reference to that--with a 
few of my colleagues on this committee. I worked with Senator 
Lott to make changes in the Essential Air Service program in 
the last FAA reauthorization effort. Unfortunately, these two 
programs have not received support from the Administration, or 
adequate funding from the Congress itself.
    This has to change. I believe that Congress must provide a 
more stable funding source for small community air service 
programs. As this committee begins consideration of an FAA 
reauthorization bill next year, I will work to make sure that 
the Essential Air Service program and the Small Community Air 
Service program have a dedicated source and a robust source of 
funding that is not reliant on the annual whims of the 
appropriating process. If Congress moves to adopt a user-fee 
system, for example, to fund the aviation system, I will 
propose a Small Community Air Service fee to fund the Essential 
Air Service brand and the Small Community Air Service 
Development Program. If Congress retains the existing financing 
structure, I will seek other options to fund these critical 
programs.
    I know this will be an uphill fight. I don't care. 
Everything's an uphill fight when it comes to aviation and 
transportation in rural states. We're all accustomed to it, and 
we never give up, whether it's captive shippers or anything 
else.
    I know that no one in the industry wants to pay more in 
fees, but this is a question of fundamental fairness and the 
Nation's safety. We cannot continue to have a two-tiered system 
in aviation. The benefits of airline deregulation were not 
evenly distributed. We understood that. And it's come to be 
even more true than we thought. And so, finding ways to fund 
programs to mitigate this--these differences are very 
important.
    In my judgment, over the last 30 years since airline 
deregulation, Congress has really done--slowly just walked away 
from its commitment to making sure that small and rural 
communities remain connected to the national aviation system; 
hub and spokes, whatever you want to call it. Next year in the 
FAA bill, Congress has a chance to recognize, and to correct, 
that problem, and I am going to fight for that.
    Senator Burns. Senator Lott?

                 STATEMENT OF HON. TRENT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. Well, thank you, Mr. Chairman, for having 
this very important hearing. It should be noted the Senators 
who are attending are bipartisan and are from Mississippi, 
Montana, North Dakota, Nebraska, Arkansas, and West Virginia, 
all small rural states, and this is a very important issue for 
all----
    Senator Burns. Turn your microphone on, there, if you 
would, please.
    Senator Lott. Well----
    Senator Burns. There you go.
    Senator Lott.--I was--well, I was going to praise you. 
That's why you wanted it on at this point.
    I want to thank you, Mr. Chairman, for having the hearing. 
This is a very important hearing for the Senators here, and, I 
think, for the country.
    I want to urge the witnesses here today to provide 
leadership in this area, but in the aviation area, in 
particular, and in general. Transportation is a key component 
of the future economic development of this country. Americans 
are mobile. We're going to move around. And we're going to get 
air service, and it has to include the rural areas or--under 
the current system, or we'll get it some other way.
    I have worked on AIR-21, Vision 2000, worked on the 
reauthorization bills, have been very aggressive in pushing the 
programs that are important to our rural communities, including 
the Essential Air Service program, which I have one airport in 
my state that participates in, and the Small Community Air 
Service Development Program, which has turned out to be a real 
plus.
    I'm not going to get too critical today of the 
Administration, but I do want to say I don't think the 
Administration has paid enough attention to aviation. I've 
enjoyed working with Marion Blakey at FAA, but, frankly, you're 
not forward-leaning, we're pulling you. We have to--we have to 
come up with these programs, we have to authorize the funding, 
and then we have to do the funding, because the Administration, 
year after year, doesn't ask for the funding. And I'm tired of 
that, and I'm embarrassed about it. You know, unless you can 
get from Montana to these major hubs, unless you get from 
Mississippi to Atlanta, you know, you're going to cut the 
number of people and the opportunities for half the country 
out. And so, I think we should support these programs. I think 
we should fund them completely. And I think the Administration 
needs to get off its royal--and start really aggressively 
pushing transportation--lanes, trains, planes, ports, and 
harbors, the whole package, because if we don't, we're going to 
fall--we're going to fall behind in this world competition.
    So, I appreciate what you're trying to do. I know a little 
bit about the witnesses here today. And I hope you'll take that 
message back. I just spoke to the nominee for the Department of 
Transportation, and urged her to make it clear that we're going 
to have an aggressive transportation plan. And the plans don't 
begin in New York and L.A.; they begin in Charleston, West 
Virginia, and, you know, Montana, and Jackson, Mississippi. So, 
just keep that in mind.
    Thank you very much, Mr. Chairman.
    Senator Burns. Thank you, Senator Lott. And that's a nice 
message to send.
    Mr. Reynolds, thank you. We'd like to welcome you back. We 
can remember when you served on--oh, Senator Dorgan is here. My 
goodness. North Dakota. Yes, you can turn your refrigerated 
truck off when you go--when you cross North Dakota.
    Senator Dorgan. Mr. Chairman, I will forego any Montana 
humor.
    [Laughter.]
    Senator Dorgan. We have all those Montana jokes in North 
Dakota that all of us have heard. And, Mr. Chairman, you've 
heard them all, as well, so I won't do that today. But thank 
you for recognizing me.
    Senator Burns. Sorry--I'm sorry about that. I apologize.

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. I appreciate your holding this hearing. And 
I want to just make a couple of opening comments.
    I appreciate the comments made by my two colleagues, 
Senator Lott and Senator Rockefeller. And I did not hear your 
opening statement, Mr. Chairman, but I assume that it follows 
in the same vein. I know that you have worked with me and many 
others for a long while on these issues.
    But let me just--let me make this comment. The airlines in 
this country--notwithstanding the issue of rural service, the 
airlines are struggling, for a lot of reasons. There's a spike 
in the price of jet fuel and terrorist threat and security and 
so on. Airlines are struggling. But whether in good times or 
bad times, whether airlines are struggling or doing well, there 
is an overriding issue of service to rural areas, and that's 
what I believe this hearing is attempting to get at. And let me 
describe it. We went through, in this town, a deregulation 
fever. And, you know, people walked around here with sweat on 
their brow and shortness of breath talking about how quickly we 
could deregulate everything. So, we deregulated the airlines 
and the railroads. And the result is, the rural areas of this 
country got the short end of the stick. And I think 
deregulation has provided powerful benefits if you live in one 
of America's biggest cities. You have multiple opportunities to 
find different carriers at different and competitive prices to 
fly almost anywhere. And God bless you, good for you. But part 
of this country was left behind, and that is not what should 
happen on services that are essential. And I believe 
transportation services are essential.
    Now, let me describe who was left behind. Mississippi would 
have its stories. West Virginia, Montana would have their 
stories. And North Dakota would have its stories. I have 
previously brought to this committee room a picture of the 
world's largest cow. Now, probably no one in this room has seen 
the world's largest cow except me. It actually has a name; it's 
called Salem Sue. Salem Sue sits on a very large hill. Salem 
Sue is a Holstein cow sitting on a hill overlooking New Salem, 
North Dakota. So, I said, with a picture of this cow, the 
largest cow in the world--that's--metal cow, I should say--the 
world's largest cow and Mickey Mouse. I had two large posters. 
I said, ``Now, depending on which one you wanted to see, here's 
the cost of getting there. You could travel half as far from 
Washington, D.C., to North Dakota to see the world's largest 
cow, or you could travel twice as far from Washington, D.C., to 
go see Mickey Mouse in Disneyland. Now, here are your choices. 
You can travel half as far to see the world's largest cow, and 
pay twice as much, or you can pay twice as far--twice as much, 
rather--excuse me, you can travel twice as far and pay half as 
much to go to Disneyland.''
    Now, if someone just looked at that, they say, ``Well, what 
on Earth is going on here? That's just stupid.'' Yes, it is 
stupid. We say, in this country, ``Oh, but depending on where 
you live, you can travel twice as far and pay half as much, or, 
if you live somewhere else, particularly in a rural area, then 
you're going to get stuck paying twice as much for traveling 
half the distance.''
    I'm just telling you, by definition that leaves a part of 
this country behind. It says to someone who wants to do 
business in Montana, West Virginia, Mississippi, or North 
Dakota, ``By the way, when you move your plant here, make sure 
you understand, your transportation costs are going to be a lot 
higher, because it costs a lot more to fly from our area to the 
major metropolitan areas.'' That's what deregulation has given 
us.
    Now, I don't know that I know all the answers on how to 
address this. I know some of them. But I think the need to hold 
this hearing, and to do it routinely and repeatedly until we 
find a way to adjust deregulation, is urgent. We deregulated, 
and now what we have are large carriers retreating into large 
metropolitan areas, where they dominate service in those areas. 
So, we now have deregulated monopolies in regional areas. I'm 
telling you, I don't think--that might work for some parts of 
the country, and God bless them, but it sure on Earth doesn't 
work for rural areas of this country. I think it systematically 
cheats rural travelers. And so--rural State travelers, I should 
say.
    I want the airlines to do well, but I also want all 
Americans to have reasonable access, at decent, competitive 
prices, to good airline service. And that is not now the case.
    Let me just finish with one final point with a chart.
    Senator Rockefeller. What about the cow?
    Senator Dorgan. The--well, the cow's still there, and I'd 
invite all my colleagues----
    [Laughter.]
    Senator Dorgan.--to pay twice as much to travel half as far 
to see Salem Sue.
    In the meantime, I've put up here an airline ticket that 
shows I can get on an airline here in Washington and fly to Los 
Angeles, California, and it's going to cost me $224.50, but I 
can fly half as far and go to Fargo, North Dakota, and pay 
three times as much. That's my choice today. A heck of a 
choice. And, you know, if you went to your constituents, any of 
us, and said, ``You know, we've got a new pricing scheme that 
we've agreed to with respect to deregulation, travel half as 
far and pay three times as much, and we'd like you to just chew 
on that and see what you think,'' I think I know what the 
crescendo of voices would say, coming from rural areas in this 
country. They'd say, ``Hell, no, that doesn't make sense for 
this country. That's not fair to a major portion of this 
country.''
    So, Mr. Chairman, having said all that, I'm pleased that 
you've called this hearing. I'm pleased to be here with my 
colleagues from rural states--Arkansas, Nebraska, Mississippi, 
West Virginia. We need to work together to find ways to address 
these issues. More competition, lower prices. That'll be a 
fairer situation for people who live in rural parts of this 
country.
    Senator Burns. Well, in the competition area--and, as you 
well know, most of our--we don't--they don't even have to 
compete with bus or train service; there's little or no public 
transportation at all.
    Senator Nelson?

             STATEMENT OF HON. E. BENJAMIN NELSON, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Ben Nelson. Thank you, Mr. Chairman. Appreciate 
very much your holding this hearing.
    And I, like Senator Dorgan, am very concerned about rural 
air service for Nebraska, in particular, but for our rural 
parts of our country. Rural air service is obviously a very 
important issue in states like ours, and certainly like 
Nebraska. Our largest airport in Nebraska is only 20 gates, and 
most of our airport runways are surrounded by cornfields. So, 
as you can imagine, this is a big issue for my constituents.
    And I'd like to quickly give you a picture of aviation in 
Nebraska. We have 83 public-use airports in the state, and, of 
those, only two in the eastern part of the state, Omaha and 
Lincoln, have scheduled air-carrier jet service. That leaves 81 
communities that must rely on general aviation support or 
Essential Air Service subsidies. Charter operations are 
concentrated in the east, so general aviation support is very 
limited in communities in central and western Nebraska. As you 
can see, our seven EAS communities are critical for the people 
living in rural Nebraska to have access to the Nation's 
aviation system.
    And in anticipation of this hearing, I contacted a number 
of our Essential Air Service communities to get their thoughts 
on rural air service; specifically, the Essential Air Service 
and Small Community Air Service Development Program. And I'd 
like to highlight for the Committee portions of the responses 
I've received. And, Mr. Chairman, I would ask unanimous consent 
to submit these letters from these communities for the record.
    Senator Burns. Without objection.
    [The information referred to follows:]

                                 Alliance Municipal Airport
                                   Alliance, NE, September 12, 2006
Hon. E. Benjamin Nelson,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

    Dear Senator Nelson:

    On behalf of the City of Alliance I would like to express our 
support for continuation of the Essential Air Service and the Small 
Community Air Service Development Grant Programs. The benefit to the 
Alliance Municipal Airport provided through these programs supports the 
economic vitality of the region.
    We are currently developing our Instrument Landing System (ILS) in 
order to better serve our traveling public, air carriers, and general 
aviation customers. Continued development of air services is vital to 
the growth of our community. The availability of commercial flights 
provides much needed access to the area for both business and leisure 
activities. The presence of the Alliance Municipal Airport, and the 
funding that supports it, is a vital part of our community development 
and way of life.
    We thank you for your support of Essential Air Service and the 
Small Community Air Service Development Grant Programs.
        Sincerely,
                                    Richard C. Cayer, P.E.,
                                                   Airport Manager.
                                 ______
                                 
                          Central Nebraska Regional Airport
Hon. E. Benjamin Nelson,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.
                      Re: Comments on Essential Air Service

    Dear Senator Nelson:

    Thank you for the opportunity for me to comment on my views of 
rural air service. As an Executive Director for the Central Nebraska 
Regional Airport, a rural airport, I am deeply concerned about this 
very issue.
    Senator Nelson, as I have expressed to you on several occasions, 
rural America is the true essence of what has made this country a 
strong and prosperous country. Rural America represents the true 
backbone of this country with its agriculture production such as corn, 
soybeans, wheat, beef, and more recently in the State of Nebraska, 
ethanol production. We are now seeing in Nebraska, a diversification to 
not only agriculture, but we are seeing a tremendous growth in 
industry, goods, and services.
    In order to continue this diversification, communities like Grand 
Island, rely on air service to fly in and out the business travelers 
from all parts of the world. Essential Air Service has provided that 
very bridge to the outside world in order for rural communities to 
continue to grow and prosper. It is vitally important to keep this 
program in place!
    I would like to take a moment to commend the staff at the 
Department of Transportation that administers the Essential Air Service 
program. I do not envy the tough job they have ``juggling'' $110 
million dollars between 120 plus communities. The DOT takes a 
``beating'' from Airport Directors like myself when the community is 
given air service that is viewed as ``not viable.''
    In further reviewing the Essential Air Service program, it is 
important to keep in mind the viability of the air service proposals. 
We all could spend hours debating what ``viable'' air service is. This 
is why community input is so valuable and should be given more 
consideration by the DOT. As an Airport Director, I feel it is 
important to solicit public input. Public input helped my board members 
and I make our recommendation to the DOT as to the air service that is 
desired and more importantly, supported by the local population. My 
goal as an airport is to wean off of the Essential Air Service program. 
I believe this should be the goal for all airports that are on EAS 
subsidies. I would caution the Senate Commerce Committee the lowest 
cost proposals submitted by the airlines are not always the best for 
sustaining long-term viable air service. The DOT needs to consider the 
public input more and what proposal is going to benefit the community 
in the long run!
    I feel the Small Community Air Service Development Grant Program is 
a great program for small communities. I do have some concerns about 
the size of some ``small communities'' that have received this grant in 
the past. I definitely support this program as long as it is for small 
communities!
    In closing, I would be honored to testify as a representative of 
small airports. I feel the decisionmakers in Washington, D.C., need to 
face Airport Directors of rural airports to hear our concerns. The 
direct dialogue is crucial for all of us so decisions are made on 
factual testimonies from those of us working in ``Heartland U.S.A.''
        Sincerely submitted,
                                   Michael J. Olson, A.A.E,
                                        Executive Airport Director.
                                 ______
                                 
 Nebraska Department of Aeronautics--Airport Advisory Board
                                     McCook, NE, September 12, 2006
Hon. E. Benjamin Nelson,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

    Dear Senator Nelson:

    As a Commissioner for the Nebraska Department of Aeronautics and 
Chairman of the McCook, Nebraska Airport Advisory Board, I am annually 
concerned about the continued funding for the Essential Air Service and 
the Small Community Air Service Development Grant Programs. Without the 
funding provided by these programs to communities in Nebraska, reliable 
air service and the means to promote it would no longer exist. Not only 
is it a problem for our state, but for all of the other ``Fly Over'' 
states in the country. Public transportation would continue to be 
threatened with permanent loss of commercial air service. Demographics 
and rural economies' conditions restrict the profitable operations of 
the airlines serving these communities. Over the years we have seen 
several airlines fail in their attempt to achieve profitability.
    Not only does this service provide our cities public 
transportation, it also benefits rural economic development and 
visiting medical personnel from our state's major hospitals. Without 
commercial air service available, many of these patients would be 
required to commute long distances to major medical facilities. I fully 
understand the pressure to eliminate both programs. However, living in 
one of these isolated communities, I fully understand that these 
programs are all that allows us to commute to the rest of the world.
    Thank you for your time and consideration of these important 
issues.
        Sincerely,
                                            Douglas F. Vap,
                                                      Commissioner.
                                 ______
                                 
                                             City of McCook
                                     McCook, NE, September 13, 2006
Hon. E. Benjamin Nelson,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

    Dear Senator Nelson:

    The citizens of Southwest Nebraska would like to thank you for your 
continued hard work to try and secure appropriate funding for Essential 
Air Service and the Small Community Air Service Development Grant 
Program. As you well know, funding for Essential Air Service is vital 
to the continuation of passenger air service at McCook Regional 
Airport. Having access to commercial air service is crucial to the 
economic stability to communities like McCook and without this service 
it would make recruiting new businesses very difficult. A statement 
that I have recently heard is that economic development does not come 
by bus or train, it comes by air. This statement could not be more 
true. As we have seen, without the assistance of EAS, it would not be 
profitable for an airline to operate in rural communities; thus 
eliminating this essential need.
    Again, thank you for your continued support of Southwest Nebraska 
and especially your current effort to secure appropriate funding for 
Essential Air Service and the Small Community Air Service Development 
Grant Program for rural America.
        Cordially,
                                             Kyle Potthoff,
                                             Public Works Director.
                                 ______
                                 
                          Western Nebraska Regional Airport
                                Scottsbluff, NE, September 28, 2006
Hon. E. Benjamin Nelson,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

    Dear Senator Nelson:

    We apologize for the late arrival of this support letter to you for 
the Essential Air Service Program as well as the Small Community 
Development Grant Program.
    As you are well aware. whether it is in Nebraska or any other 
state, these programs are vital for the survival of small communities 
across the United States. Small airports provide an important service 
to individuals living outside of big cities. Continued funding of the 
Essential Air Service Program is the only way airlines could possibly 
continue to provide air service from smaller airports to the large 
multi-airline airports.
    The Small Community Development Block Grant Program is another 
program that is very necessary to continue to provide for the 
possibility of the start-up of new airlines and for the ability for 
small communities to advertise and promote economic development for 
their community or better yet their region that they are providing air 
service for.
    Western Nebraska genuinely thanks you for your continued support of 
these very important programs for small communities and the flying 
public to continue to receive these valuable services.
        Very truly yours,
                                         Donald E. Overman,
                                  Airport Authority Board Chairman.
                                 ______
                                 
                         Nebraska Department of Aeronautics
                                    Lincoln, NE, September 12, 2006
Mr. Doug Vap,
109 East N Street,
McCook, NE.
                                                    Re: EAS

    Doug:

    In response to your request for our thoughts on EAS, please 
consider the financial impact--not just to the traveler; but the 
communities at large. Some critical figures come to mind.
    We have 83 public use airports in the state. Of those, only two 
(Omaha & Lincoln) have scheduled, air-carrier jet service. That leaves 
81 communities that must rely on general aviation support or EAS 
subsidies. Charter operations, too, are concentrated in the east; so 
general aviation support is severely limited in those communities in 
the central and western regions of the state.
    In order to effectively recruit new industry, we absolutely must 
maintain a strong network of airports and access to those airports 
(scheduled service). I'm sure you are well aware of the old adage, 
``New industry does not come to town in a Greyhound Bus.'' In recent 
years we have upgraded our Nebraska airports at the rate of 
approximately $30 million a year. That's considerable investment to 
ignore. Our communities have been strong supporters on air travel. In 
many cases, it represents their lifeline to government, industry and, 
of course, medical care. Communities like Chadron, Alliance, and McCook 
come to mind immediately.
    Aviation's Impact on Nebraska can, in fact, be quantified. A recent 
NDA-commissioned study cited a direct impact of 29,400 jobs and $681.3 
million in payroll (including tenants, construction and visitors). And, 
these figures do not include the ``multiplier,'' which inflates the 
numbers considerably. So, before we cut back on this program, we must 
consider both the immediate impact on our people and the potentially 
drastic impact on the future vitality of our communities. The media 
recently claimed that Nebraska was the seventh best state to welcome 
new industry. That's assuming we have reasonable access, and right now, 
the best we have relies on EAS subsidy. Don't forget the ``Greyhound 
bus''!
        Respectfully,
                                      Stuart E. MacTaggart,
                                                          Director.

    Senator Ben Nelson. Now, McCook, Nebraska, my hometown, 
only 70 miles south of the Chairman's wife's hometown of North 
Platte, says, ``Having access to commercial air service is 
crucial to the economic stability to communities like McCook, 
and, without this service, it would make recruiting new 
businesses very difficult.'' Economic development does not come 
by bus or train, it comes by air.
    And from Grand Island, Nebraska, ``Communities like Grand 
Island rely on air service to fly in business travelers from 
all parts of the world. Essential Air Service has provided that 
very bridge to the outside world in order for rural communities 
to grow and prosper.''
    From Scottsbluff, Nebraska, Essential Air Service and the 
Small Community Air Service Development Program are, ``vital 
for the survival of small communities across the United States. 
Small airports provide an important service to individuals 
living outside of big cities. Continued funding of Essential 
Air Service is the only way airlines could possibly continue to 
provide air service from smaller airports to largest--to large 
multi-airline airports.''
    So, from Alliance, Essential Air Service, ``supports the 
economic vitality of the region. Continued development of air 
services is vital to the growth of our community.''
    And from the Nebraska Department of Aeronautics, air 
service in rural communities, ``represents their lifeline to 
government, industry, and medical care.''
    I highlight these comments in an effort to make the point 
that air service is an economic development issue for rural 
America. Supporting rural air service means supporting economic 
growth. And this is why I have opposed the administration's 
efforts each budget cycle to cut funding for EAS and the Small 
Community Air Service Development Program. It means cutting 
access and opportunity for rural areas.
    I'll end this statement by telling you about yet another 
Essential Air Service community in Nebraska, Chadron, Nebraska. 
Earlier this year, after the President released his budget that 
cut EAS funding, I received a letter from the City Manager of 
Chadron urging me to continue to support the Essential Air 
Service program. He explained that the City of Chadron was in 
negotiations to secure a call-center operation that would 
ultimately employ over 100 full-time employees in Chadron, the 
population of which is about 5,000. A hundred full-time 
employees in Chadron is a major economic development boost. One 
of the vital factors in the company's decision to expand its 
operations in Chadron is the presence of commercial air 
service. So, I share this story with the Committee as a 
tangible example of what commercial air service means to our 
small rural communities. Cutting air service equates to 
eliminating economic development opportunities and jobs to the 
communities. And that's why I'll continue to fight for funding 
for Essential Air Service and the Small Community Air Service 
Development Program.
    I hope, as we consider the FAA authorization bill in the 
coming months, the administration will work with this Committee 
to find constructive, workable ways to ensure these communities 
do not lose this critical service.
    Thank you, Mr. Chairman.
    Senator Burns. Senator Nelson, other than Scottsbluff, 
North Platte, probably Kearney, and Grand Island----
    Senator Ben Nelson. And McCook.
    Senator Burns.--and McCook--does Alliance and Chadron 
also--do they fall----
    Senator Ben Nelson. Chadron does. Alliance doesn't.
    Senator Burns. Alliance does not?
    Senator Ben Nelson. Oh, Alliance--excuse me--Alliance still 
does, yes, right.
    Senator Burns. OK.
    Senator Ben Nelson. Exactly. It's Norfolk that no longer--
--
    Senator Burns. OK.
    Senator Ben Nelson. Yes. Yes.
    Senator Burns. I say that, just in--so I'm--to alert 
everybody that I'm, sort of, familiar----
    Senator Ben Nelson. You're----
    Senator Burns.--with what you speak.
    Senator Ben Nelson. You are very impressive.
    Senator Burns. Yes, sir.
    Senator Pryor?

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman. Thank you for doing 
this. I don't have an opening statement. I'd rather get on to 
the witnesses. Thank you.
    Senator Burns. Thank you. And thank you for your--for your 
great statement.
    [Laughter.]
    Senator Burns. Mr. Reynolds, welcome back. I can remember 
the days you were on this very Subcommittee. And the Chairman 
found out that you were going to come back, and so he spruced 
the place up. I thought he'd done a fairly nice job of that. 
And we look forward to your comments this morning, and thank 
you for coming.

 STATEMENT OF MICHAEL W. REYNOLDS, ACTING ASSISTANT SECRETARY 
     FOR AVIATION AND INTERNATIONAL AFFAIRS, DEPARTMENT OF 
                         TRANSPORTATION

    Mr. Reynolds. Thank you very much, Mr. Chairman. Thank you 
for inviting me to this hearing.
    With your permission, I will summarize my prepared 
statement, which I ask be made part of the record.
    Senator Burns. Without objection. And all witnesses can do 
that this morning.
    Mr. Reynolds. Thank you, sir.
    I appreciate the opportunity to discuss with you air 
service to small communities and the two programs administered 
by the Department of Transportation that deal specifically with 
such service; namely, the Essential Air Service program and the 
Small Community Air Service Development Program.
    It is clear that air service in this country has changed 
dramatically over the past several years. Many of the changes 
have been positive. The growth of low-fare carriers, for 
example, has made affordable air transportation available to 
millions of people across the country. While this is a good 
development for consumers overall, we recognize that it can 
create challenges for some small communities, because many 
consumers are willing to drive to places with a broader array 
of air service options, making it more difficult for some 
individual airports to sustain their own traffic levels. This 
leakage can result in a struggling community airport, but not 
necessarily consumers who lack access to the national air 
transportation system.
    The challenge that we face is one of adjusting the programs 
in an efficient and effective manner to account for such 
changes. All of us, including the Federal Government, as well 
as the states and the communities themselves, need to re-
examine the way we approach small community air service.
    Recognizing that Federal Government involvement in smaller 
community air service has not kept pace with changes in the 
industry, we have initiated some important reevaluations of the 
programs that we manage.
    Let me first address the EAS program. The laws governing 
this program have not changed significantly since its inception 
28 years ago, notwithstanding the dramatic changes that have 
taken place in the airline industry. As currently structured, 
the EAS program acts only as a safety net for small communities 
receiving subsidized air service by providing threshold levels. 
Unfortunately, this approach does not help communities attract 
self-sustaining, unsubsidized air service. With this in mind, 
the Administration proposed very fundamental and substantial 
changes of the program in the last FAA reauthorization 
proposal, as well as in the last several budget requests. Those 
changes were based on our extensive experience dealing with the 
communities and the carriers involved with the program, 
recommendations from both of these constituencies, as well as 
studies by the GAO that were geared toward finding the answer 
to successful service at small communities.
    Two major themes came through repeatedly: the need for 
greater participation in addressing--the need for greater 
participation by communities in addressing their air service 
issues, and the desire for greater flexibility in doing so.
    Currently, a community's eligibility for inclusion in the 
EAS program is based only on whether it had scheduled air 
service at the time of deregulation. Once subsidized air 
service was established, there was little incentive for active 
community involvement to help ensure that the air service being 
subsidized would ultimately be successful. As a result of these 
and many other factors, EAS-subsidized flights are frequently 
not well-patronized, and our funds are not being used as 
efficiently or effectively as possible.
    Under the Administration's proposal, communities are being 
asked to become partners in the financing of their air 
services, but, in exchange, are given a much bigger role in 
determining the nature of those air services.
    In addition to the traditional EAS schedule of two or three 
roundtrips a day to a hub, the communities would have 
alternatives, including charter flights, air taxi services, 
ground transportation links, or perhaps regionalized air 
services. Community financial participation of 10 percent, 25 
percent, or 50 percent in the costs of the services would be 
determined by the degree of isolation from access to the 
national air transportation system.
    We believe that this approach would allow the Department to 
provide the most isolated communities with air service that is 
tailored to their individual needs. Importantly, it provides 
communities in the program greater participation, control, and 
flexibility over how they meet their air service needs, and a 
far greater incentive to promote the success of those services.
    It is important to note the continued growth in the size 
and cost of the EAS program to taxpayers over time. Before the 
terrorist attacks of September 11, the Department was paying 
subsidies for 108 communities, and the budget had been a flat 
$50 million a year. We are now subsidizing service at 149 
communities, and our budget is $110 million for the current 
fiscal year. For these and other reasons, an approach along the 
lines proposed by the administration is needed to more directly 
address small community air service issues, and the Department 
is fully prepared to work with this Committee in that effort.
    On our other program, the Department is now in its fifth 
year of administering the Small Community Air Service 
Development Program, which provides grants to smaller 
communities to address air service and fare issues. For Fiscal 
Year 2006, the funding for the program is $10 million, and just 
last month we announced this year's 25 grant recipients. In 
previous years, the funding level had been at about $20 
million.
    Following statutorily-mandated selection criteria, we have 
made many awards to communities throughout the country and 
authorized a wide variety of projects, seeking both to address 
diverse types of problems presented and to test communities' 
different ideas about how to solve them.
    Over the past 4 years, the Department has made 150 grant 
awards. Our experience, to date, with this program demonstrates 
the great interest and desire of communities to tackle their 
air service challenges head-on, and to contribute substantially 
to meet those challenges.
    Communities have been very successful in implementing their 
authorized grant projects, and we have been monitoring the 
progress of all of them. However, because the majority of 
projects involve activities over 2- to 4-year periods, only 
some of them are now at the point of completion.
    Beyond implementation, the true test of success will be if 
improvements are sustained when the grant projects have 
concluded. As more grant awards are completed, we will review 
the results to determine if they can offer insight into helping 
smaller communities with their air service challenges.
    The Federal Government, however, is only one piece of the 
equation. States and communities will need to review their air 
service in the context of the changed industry structure and 
service patterns to seek fresh, new solutions to maximize their 
air service potential, including regional and intermodal 
approaches and expansion of public-private partnerships to meet 
these challenges.
    In closing, Mr. Chairman, I can assure you that the 
Department is committed to implementing its small community air 
service programs in the best and most efficient manner, thereby 
helping smaller communities meet some of the challenges they 
face in obtaining and retaining air service. We look forward to 
working with you, and the members of this subcommittee, and the 
Full Committee, as we continue to work toward these objectives.
    Thank you, and I will be happy to answer any of your 
questions.
    [The prepared statement of Mr. Reynolds follows:]

 Prepared Statement of Michael W. Reynolds, Acting Assistant Secretary 
  for Aviation and International Affairs, Department of Transportation
    Mr. Chairman, thank you for inviting me to this hearing. I 
appreciate the opportunity to discuss with you air service to small 
communities, and the two programs administered by the Department of 
Transportation that deal specifically with such service, namely the 
Essential Air Service (EAS) program and the Small Community Air Service 
Development Program. I can assure you that the Department is committed 
to implementing its small community air service programs in the best 
and most efficient manner and thereby helping smaller communities meet 
the challenges that they face in obtaining and retaining air service.
    It is clear that air service in this country has changed 
dramatically over the past several years. Many of these changes have 
been very positive. The growth of low-fare carriers, for example, has 
made affordable air transportation available to millions of people 
across the country. The number of air travelers has expanded 
dramatically, as hundreds of passengers have taken advantage of the low 
fares that have become more widely available. While this is a good 
development overall for consumers, we recognize that it can create new 
challenges for some small communities. With a greater number of service 
choices available, particularly those involving lower fares, many 
consumers are willing to drive to places with a broader array of air 
service options, making it more difficult for some individual airports 
to sustain their own traffic levels. There are, for example, some 
communities receiving EAS assistance within ready driving distance of 
two or three major airports. This ``leakage'' can result in a 
struggling community airport, but not necessarily consumers who lack 
access to the national air transportation system.
    Another challenge is the change in aircraft used by carriers that 
serve small communities. Many commuter carriers have been replacing 
their 19-seat aircraft with 30-seat aircraft, due to the increased 
costs of operating the smaller planes and larger carriers' reluctance 
to offer code-sharing on 19-seaters. This trend began at least 10 years 
ago and has continued. There are now fewer and fewer 19-seat aircraft 
in operation as many carriers have up-gauged to 30-seat aircraft, and, 
in some cases, even regional jets. As a result, many small communities 
that cannot support this larger size of aircraft are being left without 
air service. Additionally, the rise in the cost of jet fuel has made 
all carriers more cost-conscious and more selective in initiating new 
service and maintaining service where yields are low. Finally, some 
changes have occurred in response to the terrorist attacks of September 
11, 2001. Many consumers, leisure and business, have changed their 
travel patterns and carriers have altered the structure of their 
airline services. Generally, this has meant carriers abandoning the 
smaller markets, as evidenced by the fact that we have received notices 
to suspend service at more than 100 communities since September 11. In 
addition, the financial condition of the network carriers has added 
further uncertainty for their regional code-share partner service.
    The challenge that we face is one of adjusting the programs to 
account for these changes in an efficient and effective manner, giving 
appropriate and balanced recognition to the reasonable needs of the 
communities, the carriers, the consumers, and the taxpaying public at 
large. Mr. Chairman, I do not use the word ``challenge'' lightly. All 
of us--the Federal Government that manages programs affecting service 
at small communities, as well as the states and the communities 
themselves--need to reexamine the way we approach small community air 
service.
    We at the Department of Transportation have recognized for a while 
now that the way the Federal Government helps small communities address 
air service concerns has not kept pace with the changes in the industry 
and the way service is now provided in this country. For that reason, 
we have initiated some important reevaluations of the programs that we 
manage. I want to share with you today what we have done and are doing 
to address this issue.
    As you know, the Department administers two programs dealing with 
air service at small communities. The EAS program provides compensation 
to air carriers to provide air service at certain statutorily-mandated 
communities. The Small Community Air Service Development Program, which 
was established by Congress in 2000 under the AIR-21 legislation, 
provides Federal grants-in-aid to help small communities address their 
air service and airfare issues. While initially established as a pilot 
program, it was reauthorized through FY 2008 in Vision 100.
Essential Air Service Program
    Let me first address the EAS program. The laws governing our 
administration of the EAS program have not changed significantly since 
its inception 28 years ago, notwithstanding the dramatic changes that 
have taken place in the airline industry. As currently structured, the 
EAS program acts only as a safety net for small communities receiving 
subsidized air service by providing threshold levels of air service. 
While ensuring some service, this approach does little to help 
communities attract self-sustaining unsubsidized air service, as 
evidenced by the fact that once a community receives subsidized air 
service it is rare for an air carrier to come in offering to provide 
unsubsidized air service. The goal of our proposed changes to the EAS 
program is to end this dependency and to give communities the ability 
to obtain transportation services more tailored to the communities' 
needs.
    With this in mind, the Administration proposed very fundamental and 
substantial changes to the program in its last FAA reauthorization 
proposal, as well as in the last several budget requests. Those changes 
were based on our extensive experience dealing with the communities and 
the carriers involved with the program, recommendations from both of 
these constituencies, as well as studies by the Government 
Accountability Office (GAO) that were geared toward finding ``the 
answer'' to successful service at small communities. Two major themes 
came through repeatedly--the need for greater participation by 
communities in addressing their air service issues, and the desire for 
greater flexibility in doing so.
    The Administration's proposed revisions to the EAS program would, 
for the first time since the program was established in 1978, require 
communities to be stakeholders in the air service they receive and thus 
have a vested interest in its success. With the proposed reforms, the 
Administration would also ensure that the small communities most in 
need would be able to maintain access to the national air 
transportation system.
    Currently, a community's eligibility for inclusion in the EAS 
program is based only on whether it was listed on a carrier's 
certificate on the date the program was enacted--October 24, 1978. Once 
subsidized service was established, there was little incentive for 
active community involvement to help ensure that the service being 
subsidized would ultimately be successful. I can tell you anecdotally 
that a number of EAS communities do not even display their subsidized 
EAS flights on their Internet homepages, but some in the past have 
shown the availability of air service at nearby hubs, especially if it 
is low-fare service. As a result of these and other factors, EAS-
subsidized flights are frequently not well patronized and our funds are 
not being used as efficiently or effectively as possible.
    Under the Administration's proposal, communities are asked to 
become partners in the financing of their air services, but in exchange 
are given a much bigger role in determining the nature of that service. 
As a result, currently-eligible communities would remain eligible, but 
would have an array of new transportation options available to them for 
access to the national air transportation system. In addition to the 
traditional EAS schedule of two or three round trips a day to a hub, 
the communities would have the alternatives of charter flights, air 
taxi service, or ground transportation links. Regionalized air service 
might also be possible, where several communities could be served 
through one airport, but with larger aircraft or more frequent flights.
    Under the Administration's proposals, community participation would 
be determined by the degree of its isolation from access to the 
national air transportation system. The most remote communities (those 
greater than 210 miles from the nearest large or medium hub airport) 
would be required to provide only 10 percent of the total EAS subsidy 
costs. Communities that are within a close drive of major airports 
would not qualify for subsidized air service, but could receive 
subsidies constituting 50 percent of the total costs for providing 
surface transportation links to that service. Specifically, communities 
within: (a) 100 driving miles of a large or medium hub airport, (b) 75 
miles of a small hub, or (c) 50 miles of a non-hub with jet service 
would not qualify for subsidy for air service. All other EAS 
communities would have to cover 25 percent of the subsidy costs 
attributable to the provision of air service.
    The proposed small-hub and non-hub criteria are important. Under 
current law, communities located within 70 miles of a large or medium 
hub are not eligible for subsidized air service because they have 
nearby, attractive alternatives. Given the growth of air services in 
this country since deregulation, our proposal simply recognizes that 
the same principle should apply for communities located near small hubs 
and non-hubs offering jet service.
    We believe that this approach would allow the Department to provide 
the most isolated communities with air service that is tailored to 
their individual needs. Importantly, it provides communities in the 
program greater participation, control, and flexibility over how to 
meet their air service needs, and a far greater incentive to promote 
the success of those services.
    Congress has also recognized the need for reform and made some 
changes in the reauthorization bill, Vision 100. One program is the 
Community Flexibility Pilot Program. It allows up to ten communities to 
receive a grant equal to 2 years' worth of subsidy in exchange for 
their forgoing their EAS for 10 years. The funds would have to be used 
for a project on the airport property or to improve the facilities for 
general aviation, but no communities have volunteered for that program. 
Another program is the Alternate Essential Air Service Program. The 
thrust of this program is that, instead of paying an air carrier to 
serve a community as we typically do under EAS, communities could apply 
to receive the funds directly--provided that they have a plan as to 
exactly how they would use the funds to the benefit of the communities' 
access to air service. The law gives great flexibility in that regard. 
For example, funds could be used for smaller aircraft but more frequent 
service, for on-demand air taxi service, for on-demand surface 
transportation, for regionalized service, or to purchase an aircraft to 
be used to serve the community. The Department issued an order 
establishing that program in the Summer of 2004, but to date no 
communities have applied. I cannot tell you for sure why, but my guess 
is that part of it is that it is just human nature to resist change. 
More importantly, while there have been criticisms that the EAS program 
does not provide optimum service, I do think that the communities have 
gotten very comfortable in knowing that they are guaranteed their two 
or three round trips a day no matter what, i.e., EAS is viewed as an 
absolute entitlement whether the communities invest any time and effort 
in supporting the service or not.
    With respect to the EAS program, it is important to note the 
continued growth in both the size and cost of the program to taxpayers 
over time. As a point of reference, before the terrorist attacks of 
September 11, the Department was paying subsidies for 75 communities 
(plus 32 in Alaska) and the budget had been flat at $50 million a year. 
We are now subsidizing service at 110 communities (plus 39 in Alaska) 
and our budget is $110 million for Fiscal Year 2006. Currently, there 
are approximately 70 communities that are eligible for EAS subsidy 
under the parameters of the existing statute that are served by one 
carrier without subsidy support. As most of these communities would be 
eligible for subsidy if the last carrier requested to stop service, 
this represents a significant potential liability. Moreover, should 
more eligible communities now served by multiple carriers get down to 
service by a single carrier, the number of communities on the verge of 
requiring subsidy support could increase further. That is why an 
approach along the lines proposed by the Administration is needed to 
more directly address small community air service issues and the 
Department is fully prepared to work with this committee in that 
effort.
Small Community Air Service Development Program
    The Department is now in its fifth year of administering the Small 
Community Air Service Development Program. Under current law, the 
Department can make a maximum of 40 grants in each fiscal year to 
address air service and airfare issues, although no more than four 
grants each year can be in any one state. Until 2006, Congress provided 
$20 million in each year for this program. In 2006, the funding for the 
program is $10 million.
    On January 20, the Department issued an order requesting that 
communities interested in receiving a grant under the Small Community 
Air Service Development Program for Fiscal Year 2006 file their 
applications by April 7. The Department received 75 applications 
seeking nearly $33 million. On August 10, the Department selected 25 
communities for grant awards and we are currently working to complete 
the individual grant agreements with the selected communities.
    Our experience to date with this program demonstrates the great 
interest and desire of communities to tackle their air service 
challenges head on and to contribute substantially to meeting those 
challenges. The Department has received as many as 180 applications for 
the opportunities available, although that level has dropped to 
approximately 100 applications per year as the number of grant 
recipients has increased. In each year, between 2002 and 2005, the 
Department has made at least 35 grant awards, and in Fiscal Year 2004, 
the Department made an additional six grant awards using unspent funds 
from prior years' completed or terminated grants. This year the 
Department issued 25 grant awards.
    Following statutorily mandated selection criteria, we have made 
many awards to communities throughout the country and authorized a wide 
variety of projects, seeking both to address the diverse types of 
problems presented and test communities' different ideas about how to 
solve them. Some of these projects include a new business model to 
provide ground handling for carriers at the airport to reduce station 
costs, financial assistance for a new airline to provide regional 
service, expansion of low-fare services, a ground service 
transportation alternative for access to the Nation's air 
transportation system, aggressive marketing and promotional campaigns 
to increase ridership at airports, and revenue guarantees, subsidies, 
and other financial incentives to reduce the risk to airlines for 
initiating or expanding service at a community. For the most part, 
these projects extend over a period of two to 4 years.
    This program differs from the traditional EAS program in a number 
of respects. First, the funds go to the communities rather than 
directly to an airline serving the community. Second, the financial 
assistance is not limited to air carrier subsidy, but can be used for a 
number of other efforts to enhance a community's service, including 
advertising and promotional activities, studies, and ground service 
initiatives. Third, communities design their own solutions to their air 
service and airfare problems and seek financial assistance under the 
program to help them implement their plans. Fourth, while not a 
requirement for participation, most communities provide a portion of 
the cost of the activity receiving financial assistance.
    Over the past 4 years, the Department has made 150 grant awards. 
Communities have been very successful in implementing their authorized 
grant projects. Overall, more than 90 percent of the grant recipients 
have implemented their authorized projects and we expect that pattern 
to continue.
    For example, new services have been inaugurated at many 
communities; others have received increased frequencies or services 
with larger aircraft. Several communities have begun targeted and 
comprehensive marketing campaigns to increase use of the services at 
the local airport and to attract additional air carrier services. We 
have been monitoring the progress of all of the communities as they 
proceed with the implementation of their projects. However, because the 
majority of the projects involve activities over a two-to-four-year 
period, only now are some of them at the point of completion.
    One test of success will be if the improvements achieved are 
sustained when the grant projects have concluded. As more grant awards 
are completed, we will review the results of those grants to determine 
if they can offer greater insight into helping smaller communities with 
their air service challenges. An important goal of the Small Community 
Program is to find solutions to air service and airfare problems that 
could serve as models for other small communities.
    As you know, the GAO recently concluded a review of the Small 
Community Program. They too have recognized that it is difficult to 
draw any firm conclusions as to the effectiveness of the Small 
Community Program in helping communities address their service issues 
because many grant projects are still in process. Of the grant projects 
that had been completed, the GAO concluded that the results were mixed 
because not all of the grants resulted in improvements that were 
achieved and sustained after the grant funding was exhausted.
    The GAO noted that nearly 80 grants were scheduled to be completed 
by the end of this year and they recommended that the Department review 
the results of these grants before the program is considered for 
reauthorization beyond 2008. The Department concurred with GAO's 
recommendation and indicated that it would conduct such a review before 
the reauthorization process. In conjunction with that analysis, we hope 
to learn not only from the projects that succeeded, but also from those 
that did not. Both will inform our review of the program and the 
guidance that we may be able to develop for the benefit of small 
communities overall from a larger group of completed grants under this 
relatively new program.
    The Federal Government, however, is only one piece of the equation. 
States and communities will also need to review their air service in 
the context of the changed industry structure and service patterns to 
seek fresh, new solutions to maximize their air service potential, 
including regional and intermodal approaches and expansion of public-
private partnerships to meet these challenges.
    In closing, Mr. Chairman, let me reaffirm the Department's 
commitment to implementing the DOT's small community air service 
programs in the best and most efficient manner. We look forward to 
working with you and the members of this Subcommittee and the full 
Committee as we continue to work toward these objectives. Thank you 
again. This concludes my prepared statement. I will be happy to answer 
any of your questions.

    Senator Burns. Thank you very much, Mr. Reynolds.
    Mr. Dillingham, welcome back. We appreciate your coming 
this morning, and we look forward to your testimony. Thank you.

               STATEMENT OF GERALD L. DILLINGHAM,

           DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES,

             U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Dillingham. Thank you, Chairman Burns, Senator 
Rockefeller, and Senator Lott.
    My testimony today will discuss three issues: first, the 
development and impact of the Essential Air Service program; 
second, our review of the Small Community Air Service 
Development Program; and, third, I will offer some options that 
could possibly lead to more effective use of scarce Federal 
resources for both programs.
    With regard to the development and impact of the EAS 
program, our studies have shown that over the last decade a 
growing number of communities have received subsidies under the 
EAS program. In Fiscal Year 1997, there were 95 communities 
receiving subsidies. There are 159 communities receiving 
subsidies this fiscal year. During this time, the Federal 
funding for the program has also risen by more than four-fold, 
nearly $26 million in Fiscal Year 1997, to just over $109 
million this fiscal year. In addition, we found that over time 
the average subsidy per community and per passenger has 
increased substantially. The average subsidy for an EAS 
community was about $834,000 in Fiscal Year 2006, and the 
subsidy per passenger ranged from a low of about $12 to a high 
of over $600.
    The principal impact of the EAS program has been consistent 
with its legislative objective of providing Federal subsidies 
to eligible communities to ensure that they continue to have 
access to air services. However, based on passenger traffic, it 
could be argued that the program is not providing the quality 
of services or fares to attract local passenger traffic. Our 
work further suggests that if the subsidies were removed, air 
services would end at many of these communities.
    With regard to the status of the Small Community Program, 
as Mr. Reynolds has pointed out, during the time the program 
has been operating, there have been over 150 grants awarded. To 
date, 56 grants, or about 31 percent of the grants, have been 
completed. Our review of the program, which was completed late 
last year, was based on 23 grants that were completed at that 
time. Therefore, our review does not provide a comprehensive 
evaluation of the program, but a snapshot in time.
    For those 23 completed grants, we found that the majority 
of those communities--that is, 19 of the 23--have reported 
service or fare improvements, as well as an increase in the 
number of enplanements. Charleston, West Virginia, provides an 
example of a successful project, where their grant enabled 
Charleston to add a new carrier and a new nonstop service to 
Houston. Some of the other community initiatives included 
offering revenue guarantees to airlines, marketing activities, 
and taking over ground station operations.
    Mr. Chairman, another important consideration in evaluating 
a grants program is what happens after the grant money goes 
away. For the grants we reviewed, we found that after the grant 
was completed, the majority of communities reported that the 
improvement was still in place. And those improvements that 
remained after the completion of the grant, the majority of 
them were self-sustaining.
    Mr. Chairman, although the results that we are reporting 
for the Small Community Program are generally positive, let me 
reiterate that these results are not necessarily representative 
of the total program.
    Now I want to turn to a discussion of actions and options 
to address the more cost-effective use of scarce Federal 
resources for these programs.
    Our written testimony provides some details on legislative 
options that could make the EAS program more cost effective. 
These options include targeting subsidized service to the more 
remote communities; two, better matching capacity with 
community use; three, consolidating service to multiple 
communities and to regional airports; and, finally, changing 
the form of Federal assistance from carrier subsidies to local 
grants.
    Mr. Chairman, Senator Rockefeller, I want to point out that 
although these options may make EAS more cost-effective, they 
could also result in reduced services to some areas.
    In looking at the Small Community Program, we've said that 
when enough grants have been completed and DOT has evaluated 
them, Congress will be in a better position to determine if the 
air service gains that are made are worth the overall cost of 
the program. This kind of information can be very useful when 
Congress considers the reauthorization of this program in 2008, 
and could also result in identifying lessons learned from 
successful projects.
    In the final analysis, the Congress is faced with many 
difficult choices as it tries to help maintain and improve air 
services to small communities, especially given the very large 
fiscal challenges the Nation faces as a whole. I think it is 
important to recognize that for many small communities, air 
service is not, and might never be, commercially viable. 
Furthermore, in many cases, such as in the State of Montana, 
there are limited alternative means for small-community 
residents to connect to the national air transportation system. 
And in States like Alaska and Hawaii, where other modes of 
transportation are somewhat limited, continued subsidies will 
likely be needed to maintain that connection.
    It will be the Congress's weighing of priorities that will 
ultimately decide whether or not these air-service programs 
will continue in their current form or some type of modified 
form, or whether other less costly options will be pursued.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Dillingham follows:]

    Prepared Statement of Gerald L. Dillingham, Director, Physical 
      Infrastructure Issues, U.S. Government Accountability Office
    Mr. Chairman and Members of the Subcommittee:
    We appreciate the opportunity to testify today on issues related to 
the Federal approach to providing air service to small and under-served 
communities. Over the last decade, significant changes have occurred in 
the airline industry that have affected service to small communities. 
Service to small communities decreased as a result of the weak 
financial condition of the airline industry that was exacerbated by the 
events of September 11, 2001. Some network carriers are still facing 
challenging financial conditions which can negatively affect small 
community air service.\1\ For example, small communities may become 
cost-cutting targets because they are often the carrier's least 
profitable operation. This, as well as other changes, have challenged 
small communities to obtain adequate commercial air service at 
reasonable prices.\2\
    Two key Federal programs help support air service to small 
communities--the Essential Air Service (EAS) program and the Small 
Community Air Service Development Program (SCASDP).\3\ EAS, established 
after airline deregulation in 1978, is designed to ensure that small 
communities that received scheduled passenger air service before 
deregulation continue to have access to the Nation's air transportation 
system. In Fiscal Year 2006, Congress appropriated about $109 million 
to the Department of Transportation (DOT) for EAS. For Fiscal Year 
2007, the administration requested that $50 million be allocated for 
the program and paid for by overflight fees,\4\ while both the House 
and Senate Appropriations Committees are proposing $117 million for the 
program. Congress established SCASDP in 2000 and has appropriated $20 
million annually from 2002 through 2005 for DOT to award up to 40 
grants each year to communities that have demonstrated air-service 
deficiencies or higher-than-average fares. However, in Fiscal Year 
2005, DOT transferred $5 million of these funds from SCASDP to EAS.\5\ 
For Fiscal Year 2006, Congress authorized $10 million. For Fiscal Year 
2007, the administration proposed no funding for SCASDP while the House 
and Senate Appropriations Committees are proposing $20 million and $10 
million, respectively. In addition, we have reported that it was too 
early to assess the effectiveness of SCASDP and have raised questions 
about the current structure of EAS.
    While the airline industry has been facing fiscal challenges, the 
Federal Government's financial condition and long-term fiscal outlook 
also deteriorated. We have reported on the Nation's long-term fiscal 
imbalances and the need for a fundamental and periodic reexamination of 
the base of government, ultimately covering discretionary and mandatory 
programs as well as the revenue side of the budget.\6\ In light of 
these challenges, we have identified some options for reforming EAS and 
recommended that DOT evaluate SCASDP.
    My testimony today will discuss: (1) the development and impact of 
EAS, (2) the status of SCASDP, and (3) options for reforming EAS and 
evaluating SCASDP. My statement is based primarily on the body of 
research that we have conducted related to these programs, program 
updates, and recent interviews with (and data from) key stakeholders. 
We obtained information on the status of projects from the Office of 
the Secretary (OST). Based on assessments conducted during previous 
reviews, we concluded that the data are reliable for the purposes of 
this report. Appendix V contains a list of our related testimonies and 
reports. We conducted our work on EAS from March through December 2002, 
and our work on SCASDP from September 2004 through October 2005, in 
accordance with generally accepted government auditing standards.
    In summary:

   In recent years, a growing number of communities have 
        received subsidies under EAS--expanding from 95 communities in 
        Fiscal Year 1997 to 152 in Fiscal Year 2006. Similarly, funding 
        for EAS has risen more than four-fold over this 10-year 
        period--from $25.9 million in Fiscal Year 1997 to $109.4 
        million in Fiscal Year 2006. In addition, EAS funds were used 
        to subsidize about 1 million passenger enplanements in 2004--
        about 0.15 percent of the Nation's 706 million annual passenger 
        enplanements.\7\ It is possible that air service might end at 
        many of these communities, if these subsidies were removed.

   Our recent review of SCASDP found that the number of grant 
        applications was declining, grantees were pursuing a variety of 
        goals and strategies for supporting air service, and completed 
        grants had mixed results. Specifically, we found that the 
        number of applications for SCASDP has declined--from 179 in 
        2002 to 75 in 2006. We also found that the goals grantees are 
        pursuing include trying to add flights and destinations, or 
        trying to obtain lower fares. The different strategies grantees 
        are employing to improve air service in their communities 
        include offering subsidies or revenue guarantees to airlines, 
        marketing, hiring personnel, and conducting studies. Finally, 
        although we could not assess the effectiveness of the program, 
        since few projects--23 of 157--had been completed at the time 
        of our review, we found the results of the completed projects 
        were mixed. Of the 23 projects, 11 had implemented a self-
        sustaining improvement to air service, while the remaining 12 
        had not.

   To ensure the effective use of scarce resources, these 
        programs need to be examined and options for program 
        improvement need to be addressed. We have previously reported 
        on some options for changing EAS to potentially make it more 
        cost-effective. These options include: (1) targeting subsidized 
        service to more remote communities, (2) better matching 
        capacity with community use, (3) consolidating service to 
        multiple communities into regional airports, and (4) changing 
        the form of the Federal assistance from carrier subsidies to 
        local grants. These changes require legislative action. 
        Although these options might make EAS more cost-effective, they 
        could also reduce service to some areas. In 2003, the Vision 
        100--Century of Aviation Reauthorization Act, (Vision 100) 
        provided for several alternative programs for EAS communities. 
        However, these programs have not progressed due, in part, to a 
        lack of response from EAS communities.

    Regarding SCASDP, as we recommended, DOT plans to conduct a 
comprehensive evaluation of completed projects after Fiscal Year 2006. 
The results of such an evaluation will be useful when Congress 
considers the reauthorization of this program in 2008 and could result 
in identifying ``lessons learned'' from successful projects. These 
lessons could be shared with other small communities that are trying to 
improve air service, and, if needed, to reform and refocus the program.
Background
    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.\8\ 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.\9\ 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.\10\ 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.\11\
    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.\12\ 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.\13\ 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).\14\ Federal law also defines the service that subsidized 
communities are to receive under EAS.\15\ 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.\16\ 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.\17\
    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),\18\ to help small communities enhance their 
air service. AIR-21 authorized the program for Fiscal Years 2002 and 
2003, and subsequent legislation \19\ 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.\20\ (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.
Number of Airports and Amount of EAS Subsidies Has Been Growing
    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.\21\ 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.

               Table 1: EAS Program Appropriations and Communities Served, Fiscal Years 1992-2006
----------------------------------------------------------------------------------------------------------------
                                                                                    Total EAS appropriations (in
                    Fiscal year                         Number of communities                millions)
----------------------------------------------------------------------------------------------------------------
1992                                                                         130                          $38.6
1993                                                                         126                           38.6
1994                                                                         112                           33.4
1995                                                                         107                           33.4
1996                                                                          97                           22.6
1997                                                                          95                           25.9
1998                                                                         101                           50.0
1999                                                                         100                           50.0
2000                                                                         106                           50.0
2001                                                                         115                           50.0
2002                                                                         123                          113.0
2003                                                                         126                          101.8
2004                                                                         140                          101.7
2005                                                                         146                          101.6
2006                                                                         154                          109.4
----------------------------------------------------------------------------------------------------------------
Source: DOT

    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.\22\ 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. Finally, in previous work, we reported that subsidies paid 
directly to air carriers have not provided an effective transportation 
solution for passengers in many small communities.\23\
The Small Community Grant Program Has Had Mixed Results
    Mr. Chairman, our previous work was not able to evaluate the 
overall effectiveness of SCASDP; however, we found that SCASDP grantees 
pursued several goals and strategies to improve air service, and that 
the projects have obtained mixed results. In addition, the number of 
applications for SCASDP has declined each year.
    As shown in Figure 1, 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. DOT officials said that this 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 a fulfilling the 
local contribution commitment part of the grant proposal; and (3) 
legislative 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.\24\ There have been 182 grant awards made in the 5 years of the 
program. Of these, 56 grants are now completed--34 from 2002, 15 from 
2003, and seven from 2004.\25\ Finally, as of August 31, 2006, DOT had 
terminated seven grants it initially awarded.\26\



    Although at the time of our review it was too soon to determine the 
overall effectiveness of the program, our review of the 23 projects 
completed by September 30, 2005, found mixed 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. In addition, during the 
course of the grant, enplanements rose at 19 of the 23 airports. 
However, after the 23 SCASDP grants were completed, 11 grants resulted 
in improvements that were self-sustaining. Three additional 
improvements were still in place, although not self-sustaining; thus 14 
improvements were in place after the grants were completed. (See Fig. 
2.)



    Charleston, West Virginia provides an example of a successful 
project. With the aid of a SCASDP grant, Charleston was able to add a 
new carrier and new nonstop service to a major market, Houston. At the 
time of our review, and after the grant was completed, this service was 
continuing at the level the grant provided.
    Finally, for SCASDP grants awarded from 2002 though 2004, we 
surveyed airport officials to identify the types of project 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. 3 for the 
number and types of project goals identified by airport directors.)



    To achieve these 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. 4.) In addition, grantees have subsidized the start-up of an 
airline, taken over ground station operations for an airline, and 
subsidized 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.



Options Exist for Reforming EAS and Evaluating SCASDP
    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 previous 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.\27\ In our previous 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 light of these 
challenges, Congress may wish to weigh options for reforming EAS and 
obtaining additional information about SCASDP's effectiveness--
information that could be obtained if DOT follows our recommendation to 
evaluate the program's effectiveness once more grant projects have been 
completed.

Examine Options for Enhancing EAS
    In previous work, we have identified options for enhancing the 
effectiveness of EAS and controlling cost increases. These options 
include targeting subsidized service on 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 premature to assess their 
impact. Let me now briefly discuss each option, stressing at the outset 
that each presents potential negative, as well as positive, effects. 
The positive effects might include lowered Federal costs, increased 
passenger traffic at subsidized communities, and enhanced community 
choice of transportation options. Potential negative effects might 
include increased passenger inconvenience and an adverse effect on 
local economies that may lose scheduled airline service.

Targeting Subsidized Service to More Remote Communities
    The first option would be to target subsidized service to more 
remote communities. This 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. We found that, if the distance 
criterion was increased to 125 highway miles and the qualifying 
airports were expanded to include small-hub airport 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.\28\
    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. For 
instance, officials from some communities, such as Brookings, South 
Dakota, told us that they are able to attract and retain local 
businesses because of several factors relating to the quality-of-life 
there--with one important factor being its scheduled air service.

Better Matching Capacity With Community Use
    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. 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. Carriers could use smaller aircraft. For example, we reported 
that from 1995 to 2002, total passenger traffic dropped at 9 of 24 EAS 
communities where carriers added flight frequencies.
    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, like Beckley and Bluefield, 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. Last, reduced 
capacity may have a negative impact on the economy of the affected 
community.\29\

Consolidating Subsidized Service Provided to Multiple Communities Into 
        Service at Regional Airports
    Another option is to consolidate subsidized service at multiple 
communities into service at regional airports. As of July 1, 2002, 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 two or three neighboring airports. For example, in 
2002, DOT provided $1.9 million in annual subsidies to Air Midwest, 
Inc., to serve Ogdensburg and Massena, New York, with stops at another 
EAS-subsidized community (Watertown, New York) before arriving at its 
final destination of Pittsburgh, Pennsylvania. According to an official 
with Air Midwest, the marginal cost of operating the flight segments to 
Massena and Ogdensburg are small in relation to the cost of operating 
the flight from Pittsburgh to Watertown. 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, 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. Additionally, as with other 
options, the potential impact 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 hypothetical benefits of 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 onsite), it is 
likely to be difficult for the other communities to recognize and 
accept surrendering their local control and benefits.

Changing Carrier Subsidies to Local Grants
    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 service 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, in order for 
communities to receive a Small Community 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 
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 one case 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 the 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 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. In addition, the grant program 
normally includes a local cash match, which may be difficult for some 
EAS communities to provide. This could systematically eliminate the 
poorest communities, unless other sources of funds--such as state 
support or local industry support--could be found.

Vision 100 Small Community Programs Have Not Progressed
    In Vision 100, Congress authorized several programs relevant to 
small communities. These programs have not progressed for various 
reasons. The Alternate Essential Air Service Pilot Program allows the 
Secretary of Transportation to provide assistance directly to a 
community, rather than paying compensation to an air carrier. Under the 
pilot program, communities could provide assistance to air carriers 
using smaller aircraft, fund on-demand air taxi service, provide 
transportation services to and from several EAS communities to a single 
regional airport or other transportation center, and purchase aircraft. 
Vision 100 also 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 the EAS subsidy. The 
funds may be used to improve airport facilities. (The grants can be 
used for things other than general aviation.) DOT has solicited 
proposals for projects in both of these programs. However, according to 
a DOT official, no communities expressed any interest in participating 
in these programs. Finally, 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.

Evaluate the Effectiveness of SCASDP Before Reauthorization
    We recently recommended that DOT examine the effectiveness of this 
program when more projects are complete. \30\ Such an evaluation would 
provide DOT and Congress with information about whether additional or 
improved air service was not only obtained, but whether it continues 
after the grant support has ended. This may be particularly important 
since our work on the limited number of completed projects found that, 
11 of 23 grantees reported that the improvements were self-sustaining 
after the grant was complete. In addition, our prior work on the air 
service to small communities found that once financial incentives are 
removed, additional air service may be difficult to maintain. Since our 
report, an additional 33 grants have been completed and DOT's plans to 
examine the results from these completed grants 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. This information will be 
important as Congress considers the reauthorization of this program in 
2008.
    In addition to the benefit of providing Congress with information 
upon which to evaluate the merits of SCASDP, the evaluation would 
likely have additional benefits. In conducting this evaluation, DOT 
could potentially 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 travel banks \31\ and some 
marketing strategies as incentives for attracting improved service. As 
DOT officials identify strategies that have been effective in starting 
self-sustaining improvements in air service, 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 the 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 to attract additional service from 
another airline. Sharing information on approaches like this 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 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. 
When enough experience has been gained with this program, 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.

 Appendix I: Additional Department of Transportation Selection Factors 
                           for SCASDP Grants
                        service-related factors
    1. How many carriers are serving the community?
    2. How many destinations are served?
    3. What is the frequency of flights?
    4. What size aircraft service the community?
    5. Has the level of service been increasing or decreasing over the 
past 3 years?
    6. Have enplanements been increasing or decreasing over the past 3 
years?
    7. Is the Metropolitan Statistical Area population increasing or 
decreasing?
    8. Is the per-capita income increasing or decreasing?
    9. Are the number of businesses in the area increasing or 
decreasing?
    10. What is the proximity to larger air service centers?
    11. What is the quality of road access to other air service 
centers?
    12. Does the community lack service in identified top origin and 
destination markets?
    13. Is the proposal designed to provide:

   First air service;
   Second carrier service;
   New destinations;
   Larger aircraft; or
   More frequent flights?

    14. If this is an air service project, has the community selected a 
carrier that is willing and committed to serve?
    15. If this is an air service project, does the community have a 
targeted carrier that would serve?

        Source: GAO table based on DOT information.

                        project-related factors
    1. Do demographic indicators and the business environment support 
the project?
    2. Does the community have a demonstrated track-record of 
implementing air service development projects?
    3. Does the project address the stated problem?
    4. Does the community have a firm plan for promoting the service?
    5. Does the community have a definitive plan for monitoring, 
modifying, and terminating the project, if necessary?
    6. Does the community have a plan for continued support of the 
project if self-sufficiency or completion is not attained after the 
grant expires?
    7. If it is mainly a marketing proposal, does the community have a 
firm implementation plan in place?
    8. Is the applicant a participating consortium?
    9. Is the project innovative?
    10. Does the project have unique geographical traits or other 
considerations?
    11. Is the amount of funding requested reasonable compared with the 
total amount of funding available?
    12. Is the local contribution reasonable compared with the amount 
requested?
    13. Can the project be completed during the funding period 
requested?
    14. Is the applicant a small hub now?
    15. Is the applicant a large nonhub now?
    16. Is the applicant a small nonhub now?
    17. Is the applicant currently subsidized through Essential Air 
Service?
    18. Is the project for marketing only?
    19. Is the project a study only?
    20. Does the project involve intermodal services?
    21. Is the project primarily a carrier incentive?
    22. Is the project primarily air fare focused?
    23. Does the project involve a low-fare service provider?
    24. Does the proposal shift costs from the local or state level to 
the Federal level?
    25. Does the proposal show that proximity to other service would 
detract from it?
    26. Is the applicant geographically close to a past grant 
recipient?

        Source: GAO table based on DOT information.
  Appendix II: Essential Air Service Airports and Small Community Air 
                  Service Development Program Grantees


        Appendix III: Status of SCASDP Grants Awarded, 2002-2006

                                                 2002 Grant Year
----------------------------------------------------------------------------------------------------------------
                                                                                         Status as of August 31,
                                        Location                          Grant amount             2006
----------------------------------------------------------------------------------------------------------------
            1.  Abilene, TX                                                     $85,010                Completed
            2.  Akron/Canton, OH                                                950,000                Completed
            3.  Aleutians East Borough, AK                                      240,000                Completed
            4.  Asheville, NC                                                   500,000                Completed
            5.  Augusta, GA                                                     759,004               Terminated
            6.  Baker City, OR                                                  300,000               Terminated
            7.  Beaumont/Port Arthur, TX                                        500,000                Completed
            8.  Bellingham, WA                                                  301,500                  Ongoing
            9.  Binghamton, NY                                                  500,000                Completed
           10.  Bismarck, ND                                                  1,557,500                  Ongoing
           11.  Brainerd, St Cloud, MN                                        1,000,000                Completed
           12.  Bristol/Kingsport/Johnson City, TN                              615,000                Completed
           13.  Cape Girardeau, MO                                              500,000                Completed
           14.  Casper, Gillette, WY                                            500,000               Terminated
           15.  Charleston, WV                                                  500,000                Completed
           16.  Chico, CA                                                        44,000                Completed
           17.  Daytona Beach, FL                                               743,333                Completed
           18.  Fort Smith, AR                                                  108,520                Completed
           19.  Fort Wayne, IN                                                  398,000                Completed
           20.  Hailey, ID                                                      600,000                Completed
           21.  Lake Charles, LA                                                500,000                Completed
           22.  Lake Havasu City, AZ                                            403,478                Completed
           23.  Lamar, CO                                                       250,000                Completed
           24.  Lynchburg, VA                                                   500,000                Completed
           25.  Manhattan, KS                                                   388,350                Completed
           26.  Marion, IL                                                      212,694                Completed
           27.  Mason City, IA                                                  600,000               Terminated
           28.  Meridian, MS                                                    500,000                Completed
           29.  Moab, UT                                                        250,000                Completed
           30.  Mobile, AL                                                      456,137                Completed
           31.  Paducah, KY                                                     304,000                Completed
           32.  Presque Isle, ME                                                500,000                Completed
           33.  Rapid City, SD                                                1,400,000                Completed
           34.  Reading, PA                                                     470,000                Completed
           35.  Rhinelander, WI                                                 500,000                Completed
           36.  Santa Maria, CA                                                 217,530                Completed
           37.  Scottsbluff, NE                                                 950,000                Completed
           38.  Somerset, KY                                                     95,000                Completed
           39.  Taos/Ruidoso, NM                                                500,000                Completed
           40.  Telluride, CO                                                   300,000                Completed
                                                                        ----------------------------------------
    Total.....                                                              $19,999,056
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of DOT data.


                                                 2003 Grant Year
----------------------------------------------------------------------------------------------------------------
                                                                                         Status as of August 31,
                                        Location                          Grant amount             2006
----------------------------------------------------------------------------------------------------------------
            1.  Aguadilla, PR                                                  $626,700                  Ongoing
            2.  Aleutians East Borough, AK                                       70,000                  Ongoing
            3.  AZ Consortium, AZ                                             1,500,000                  Ongoing
            4.  Bakersfield, CA                                                 982,513                  Ongoing
            5.  Bangor, ME                                                      310,000                  Ongoing
            6.  Charleston, SC                                                1,000,000               Terminated
            7.  Cut Bank, MT                                                     90,000                Completed
            8.  Dickinson, ND                                                   750,000                Completed
            9.  Dothan, AL                                                      200,000                Completed
           10.  Dubuque, IA                                                     610,000                  Ongoing
           11.  Duluth, MN                                                    1,000,000                  Ongoing
           12.  Elmira, NY                                                      200,000                  Ongoing
           13.  Erie, PA                                                        500,000                Completed
           14.  Fresno, CA                                                    1,000,000                  Ongoing
           15.  Friday Harbor, WA                                               350,000                Completed
           16.  Gainesville, FL                                                 660,000                Completed
           17.  Grand Island, NE                                                380,000                  Ongoing
           18.  Greenville, MS                                                  400,000               Terminated
           19.  Gunnison, CO                                                    200,000                Completed
           20.  Joplin, MO                                                      500,000                  Ongoing
           21.  Knoxville, TN                                                   500,000               Terminated
           22.  Laredo, TX                                                      400,000                  Ongoing
           23.  Lewiston-Nez Perce, ID                                          675,000                  Ongoing
           24.  Mountain Home (Baxter), AR                                      574,875                  Ongoing
           25.  Muskegon, MI                                                    500,000                Completed
           26.  NC Consortium, NC                                             1,200,000                  Ongoing
           27.  Owensboro, KY                                                   500,000                  Ongoing
           28.  Parkersburg-Marietta, WV/OH                                     500,000                  Ongoing
           29.  Pierre, SD                                                      150,000                Completed
           30.  Redmond, OR                                                     515,000                Completed
           31.  Savannah, GA                                                    523,495                Completed
           32.  Shreveport, LA                                                  500,000                Completed
           33.  Staunton, VA                                                    100,000                  Ongoing
           34.  Taos Consortium, NM                                           1,400,000                Completed
           35.  Tupelo, MS                                                      475,000                Completed
           36.  Victoria, TX                                                     20,000                Completed
                                                                        ----------------------------------------
    Total.....                                                              $19,862,583
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of DOT data


                                                 2004 Grant Year
----------------------------------------------------------------------------------------------------------------
                                                                                         Status as of August 31,
                                        Location                          Grant amount             2006
----------------------------------------------------------------------------------------------------------------
            1.  Albany, GA                                                     $500,000                  Ongoing
            2.  Alpena, MI                                                      583,046                  Ongoing
            3.  Beckley/Lewisburg, WV                                           300,000                  Ongoing
            4.  Bloomington, IL                                                 850,000                  Ongoing
            5.  Butte, MT                                                       360,000                  Ongoing
            6.  Champaign-Urbana, IL                                            200,000                Completed
            7.  Charlottesville, VA                                             270,000                  Ongoing
            8.  Chattanooga, TN                                                 750,000                  Ongoing
            9.  Clarksburg/Morgantown (reallocation), WV                        372,286                  Ongoing
           10.  Columbus, MS                                                    260,000                  Ongoing
           11.  Del Rio, TX                                                     318,750                  Ongoing
           12.  Dubois, PA                                                      400,000                  Ongoing
           13.  Eau Claire, WI                                                  500,000                  Ongoing
           14.  Elko, NV                                                        222,000                Completed
           15.  Evansville/South Bend, IN                                     1,000,000                  Ongoing
           16.  Farmington, NM                                                  650,000                  Ongoing
           17.  Hot Springs (reallocation), AR                                  195,000                Completed
           18.  Huntsville, AL                                                  479,950                Completed
           19.  Kalamazoo, MI                                                   500,000                  Ongoing
           20.  Lafayette, LA                                                   240,000                  Ongoing
           21.  Latrobe, PA                                                     600,000                  Ongoing
           22.  Lebanon, NH                                                     500,000                  Ongoing
           23.  Lincoln, NE                                                   1,200,000                  Ongoing
           24.  Logan City, UT                                                  530,000                  Ongoing
           25.  Marquette, MI                                                   700,000                  Ongoing
           26.  McCook/North Platte, NE                                         275,000                  Ongoing
           27.  New Haven, CT                                                   250,000                  Ongoing
           28.  Pocatello, ID                                                    75,000                Completed
           29.  Redding/Arcata, CA                                              500,000                  Ongoing
           30.  Richmond, VA                                                    950,000                  Ongoing
           31.  Rutland (reallocation), VT                                      240,000                  Ongoing
           32.  Salem, OR                                                       500,000                  Ongoing
           33.  Santa Rosa, CA                                                  635,000                  Ongoing
           34.  Sarasota, FL                                                  1,500,000                  Ongoing
           35.  Sioux City, IA                                                  609,800                  Ongoing
           36.  Sioux Falls, SD                                                 350,000                  Ongoing
           37.  Steamboat Springs, CO                                           500,000                  Ongoing
           38.  Sumter, SC                                                       50,000                Completed
           39.  Syracuse (reallocation), NY                                     480,000                  Ongoing
           40.  Tyler, TX                                                        90,000                  Ongoing
           41.  Visalia (reallocation), CA                                      200,000                  Ongoing
           42.  Walla Walla, WA                                                 250,000                  Ongoing
           43.  Waterloo, IA                                                    550,000                  Ongoing
           44.  Wilkes-Barre/Scranton, PA                                       625,000                Completed
           45.  Worcester (reallocation), MA                                    442,615                  Ongoing
           46.  Youngstown, OH                                                  250,000                  Ongoing
                                                                        ----------------------------------------
    Total.....                                                              $21,803,447
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of DOT data.
Note: Program funds from 2002 and 2003 were reallocated to six cities in 2004.


                                                 2005 Grant Year
----------------------------------------------------------------------------------------------------------------
                                                                                         Status as of August 31,
                                        Location                          Grant amount             2006
----------------------------------------------------------------------------------------------------------------
            1.  Aberdeen, SD                                                   $450,000                  Ongoing
            2.  Alexandria, LA                                                  500,000                  Ongoing
            3.  Bradford, PA                                                    220,000                  Ongoing
            4.  CA Consortium, CA                                               245,020                  Ongoing
            5.  Cedar City, UT                                                  155,000                  Ongoing
            6.  Durango, CO                                                     750,000                  Ongoing
            7.  Fargo, ND                                                       675,000                  Ongoing
            8.  Florence, SC                                                    500,000                  Ongoing
            9.  Great Falls, MT                                                 220,000                  Ongoing
           10.  Greenville, NC                                                  450,000                  Ongoing
           11.  Gulfport/Biloxi, MS                                             750,000                  Ongoing
           12.  Hancock/Houghton, MI                                            516,000                  Ongoing
           13.  Hibbing, MN                                                     485,000                  Ongoing
           14.  Huntington, WV                                                  500,000                  Ongoing
           15.  Idaho Falls, ID                                                 500,000                  Ongoing
           16.  Ithaca, NY                                                      500,000                  Ongoing
           17.  Jacksonville, NC                                                500,000                  Ongoing
           18.  Killeen, TX                                                     280,000                  Ongoing
           19.  Knox County, ME                                                 555,000                  Ongoing
           20.  Lawton/Ft. Sill, OK                                             570,000                  Ongoing
           21.  Macon, GA                                                       507,691                  Ongoing
           22.  Marathon, FL                                                    750,000                  Ongoing
           23.  Marshall, MN                                                    480,000                  Ongoing
           24.  Massena, NY                                                     400,000                  Ongoing
           25.  Modesto, CA                                                     550,000                  Ongoing
           26.  Monterey, CA                                                    500,000                  Ongoing
           27.  Montgomery, AL                                                  600,000                  Ongoing
           28.  Oregon/Washington Consortium, OR/WA                             180,570                  Ongoing
           29.  Rockford, IL                                                  1,000,000                  Ongoing
           30.  Ruidoso, NM                                                     600,000                  Ongoing
           31.  Somerset, KY                                                    950,000                  Ongoing
           32.  Stewart (Newburgh), NY                                          250,000                  Ongoing
           33.  Vernal, UT                                                       40,000                  Ongoing
           34.  Williamsport, PA                                                500,000                  Ongoing
           35.  Wyoming Consortium, WY                                          800,000                  Ongoing
                                                                        ----------------------------------------
    Total.....                                                              $17,429,281
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of DOT data.


                             2006 Grant Year
------------------------------------------------------------------------
                                  Location                 Grant amount
------------------------------------------------------------------------
               1.  Abilene, TX                                  $465,100
               2.  Big Sandy Region, KY                           90,000
               3.  Brunswick, GA                                 500,000
               4.  Cedar Rapids, IA                              200,000
               5.  Chico, CA                                     472,500
               6.  Fairbanks, AK                                 500,000
               7.  Gallup, NM                                    600,000
               8.  Garden City/Dodge City/Liberal, KS            150,000
               9.  Gary, IN                                      600,000
              10.  Grand Forks, ND                               350,000
              11.  Harrisburg, PA                                400,000
              12.  Jackson, MS                                   400,000
              13.  Jamestown, NY                                 150,000
              14.  Jamestown/Devil's Lake, ND                    100,000
              15.  Kalispell, MT                                 450,000
              16.  Longview, TX                                  225,000
              17.  Lynchburg, VA                                 250,000
              18.  Melbourne, FL                                 800,000
              19.  Monroe, LA                                     50,000
              20.  Montrose, CO                                  450,000
              21.  North Bend, OR                                400,000
              22.  Palmdale, CA                                  900,000
              23.  Springfield, IL                               390,000
              24.  Toledo, OH                                    400,000
              25.  Tuscaloosa, AL                                400,000
                                                         ---------------
    Total........                                             $9,692,600
------------------------------------------------------------------------
Source: DOT data.

     Appendix IV: Essential Air Service Communities and Subsidies 
                           as of May 1, 2006

   Table 2: Essential Air Service (EAS) Communities in the Contiguous
                 United States, Hawaii, and Puerto Rico
------------------------------------------------------------------------
     States and communities         May 1, 2006 annual subsidy amounts
------------------------------------------------------------------------
ALABAMA
    Muscle Shoals                                             $1,364,697
------------------------------------------------------------------------
ARIZONA
    Kingman                                                    1,001,989
    Page                                                       1,057,655
    Prescott                                                   1,001,989
    Show Low                                                     779,325
------------------------------------------------------------------------
ARKANSAS
    El Dorado/Camden                                             923,456
    Harrison                                                     923,456
    Hot Springs                                                1,385,183
    Jonesboro                                                    923,456
------------------------------------------------------------------------
CALIFORNIA
    Crescent City                                                816,025
    Merced                                                       696,788
    Visalia                                                      450,000
------------------------------------------------------------------------
COLORADO
    Alamosa                                                    1,083,538
    Cortez                                                       853,587
    Pueblo                                                       780,997
------------------------------------------------------------------------
GEORGIA
    Athens                                                       392,108
------------------------------------------------------------------------
HAWAII
    Hana                                                         774,718
    Kamuela                                                      395,053
    Kalaupapa                                                    331,981
------------------------------------------------------------------------
ILLINOIS
    Decatur                                                      954,404
    Marion/Herrin                                              1,251,069
    Quincy                                                     1,097,406
------------------------------------------------------------------------
IOWA
    Burlington                                                 1,077,847
    Fort Dodge                                                 1,080,386
    Mason City                                                 1,080,386
------------------------------------------------------------------------
KANSAS
    Dodge City                                                 1,379,419
    Garden City                                                1,733,997
    Great Bend                                                   621,945
    Hays                                                       1,540,392
    Liberal                                                    1,008,582
    Manhattan/Ft. Riley                                          487,004
    Salina                                                       487,004
------------------------------------------------------------------------
KENTUCKY
    Owensboro                                                  1,127,453
------------------------------------------------------------------------
MAINE
    Augusta/Waterville                                         1,065,475
    Bar Harbor                                                 1,065,475
    Presque Isle                                               1,116,423
    Rockland                                                   1,065,475
------------------------------------------------------------------------
MARYLAND
    Hagerstown                                                   649,929
------------------------------------------------------------------------
MICHIGAN
    Escanaba                                                     290,952
    Ironwood/Ashland, WI                                         409,242
    Iron Mountain/Kingsford                                      602,761
    Manistee/Ludington                                           776,051
------------------------------------------------------------------------
MINNESOTA
    Chisholm/Hibbing                                           1,279,329
    Thief River Falls                                            777,709
------------------------------------------------------------------------
MISSISSIPPI
    Laurel/Hattiesburg                                         1,100,253
------------------------------------------------------------------------
MISSOURI
    Cape Girardeau                                             1,147,453
    Columbia/Jefferson City       Order 2006-4-6 requested proposals for
                                                 Columbia/Jefferson City
    Fort Leonard Wood                                            683,201
    Joplin                                                       755,762
    Kirksville                                                   840,200
------------------------------------------------------------------------
MONTANA
    Glasgow                                                      922,103
    Glendive                                                     922,103
    Havre                                                        922,103
    Lewistown                                                    922,103
    Miles City                                                   922,103
    Sidney                                                     1,306,313
    West Yellowstone                                             247,122
    Wolf Point                                                   922,103
------------------------------------------------------------------------
NEBRASKA
    Alliance                                                     655,898
    Chadron                                                      655,898
    Grand Island                                               1,198,396
    Kearney                                                    1,166,849
    McCook                                                     1,502,651
    North Platte                                                 870,504
    Scottsbluff                                                  494,887
------------------------------------------------------------------------
NEVADA
    Ely                                                          784,463
------------------------------------------------------------------------
NEW HAMPSHIRE
    Lebanon                                                      998,752
------------------------------------------------------------------------
NEW MEXICO
    Alamogordo/Holloman           Order 2006-3-26 requested proposals on
                                                      an emergency basis
    Carlsbad                                                     599,671
    Clovis                                                       859,057
    Hobbs                                                        519,614
    Silver City/Hurley/Deming                                    859,057
------------------------------------------------------------------------
NEW YORK
    Jamestown                                                  1,217,414
    Massena                                                      585,945
    Ogdensburg                                                   585,945
    Plattsburgh                                                  753,964
    Saranac Lake                                                 753,964
    Watertown                                                    585,945
------------------------------------------------------------------------
NORTH DAKOTA
    Devils Lake                                                1,329,858
    Dickinson                                                  1,697,248
    Jamestown                                                  1,351,677
------------------------------------------------------------------------
OKLAHOMA
    Enid                                                         636,279
    Ponca City                                                   636,279
------------------------------------------------------------------------
OREGON
    Pendleton                                                    649,974
------------------------------------------------------------------------
PENNSYLVANIA
    Altoona                                                      893,774
    Bradford                                                   1,217,414
    DuBois                                                       643,818
    Johnstown                                                    464,777
    Lancaster                                                  1,611,707
    Oil City/Franklin                                            683,636
------------------------------------------------------------------------
PUERTO RICO
    Mayaguez                                                     688,551
    Ponce                                                        622,056
------------------------------------------------------------------------
SOUTH DAKOTA
    Brookings                                                  1,039,364
    Huron                                                      1,039,364
    Pierre                                                       449,912
    Watertown                                                  1,211,589
------------------------------------------------------------------------
TENNESSEE
    Jackson                                                    1,179,026
------------------------------------------------------------------------
TEXAS
    Victoria                                                     510,185
------------------------------------------------------------------------
UTAH
    Cedar City                                                 1,068,608
    Moab                                                         783,608
    Vernal                                                       555,771
------------------------------------------------------------------------
VERMONT
    Rutland                                                      849,705
------------------------------------------------------------------------
VIRGINIA
    Staunton                                                     650,123
------------------------------------------------------------------------
WASHINGTON
    Ephrata/Moses Lake                                         1,698,922
------------------------------------------------------------------------
WEST VIRGINIA
    Beckley                                                      977,858
    Clarksburg/Fairmont                                          306,109
    Greenbrier/Lewisburg/White                                   540,579
     Sulphur Springs
    Morgantown                                                   306,109
    Parkersburg                                                  439,115
    Princeton/Bluefield                                          977,858
------------------------------------------------------------------------
WYOMING
    Laramie                                                      397,400
    Riverton                                                     394,046
    Rock Springs                                                 390,488
    Sheridan                                                     336,701
    Worland                                                      797,844
------------------------------------------------------------------------
Source: DOT.


                    Table 3: Alaskan EAS Communities
------------------------------------------------------------------------
           Community                    May 1, 2006 annual subsidy
------------------------------------------------------------------------
Adak                                                          $1,617,923
Akutan                                                           350,381
Alitak                                                           106,054
Amook Bay                                                         16,622
Atka                                                             336,303
Cape Yakataga                                                     30,920
Central                                                           61,421
Chatham                                                            6,433
Chisana                          Order 2006-4-13 held in 40-Mile Air and
                                                     Requested Proposals
Circle                                                            61,421
Cordova                                                        1,763,179
Elfin Cove                                                       108,297
Excursion Inlet                                                    9,212
Funter Bay                                                         6,433
Gulkana                                                          199,839
Gustavus                                                         732,217
Healy Lake                                                        51,781
Hydaburg                                                          54,733
Icy Bay                                                           30,920
Karluk                                                            38,880
Kitoi Bay                                                         16,622
Manley                                                            24,768
May Creek                                                         69,759
McCarthy                                                          69,759
Minto                                                             24,768
Moser Bay                                                         16,622
Nikolski                                                         173,603
Olga Bay                                                          16,622
Pelican                                                          108,297
Petersburg                                                       732,217
Port Alexander                                                    48,746
Port Bailey                                                       16,622
Port William                                                      16,622
Seal Bay                                                          16,622
Uganik                                                            15,715
West Point                                                        16,622
Wrangell                                                         732,217
Yakutat                                                        1,763,179
Zachar Bay                                                        16,622
------------------------------------------------------------------------
Source: DOT.

Related GAO Products
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.
Proposed Alliance Between American Airlines and British Airways Raises 
            Competition Concerns and Public Interest Issues. GAO-02-
            293R Washington, D.C.: December 21, 2001.
``State of the U.S. Commercial Airlines Industry and Possible Issues 
            for Congressional Consideration,'' Speech by Comptroller 
            General of the United States David Walker. The 
            International Aviation Club of Washington: November 28, 
            2001.
Financial Management: Assessment of the Airline Industry's Estimated 
            Losses Arising From the Events of September 11. GAO-02-133R 
            Washington, D.C.: October 5, 2001.
Commercial Aviation: A Framework for Considering Federal Financial 
            Assistance. GAO-01-1163T Washington, D.C.: September 20, 
            2001.
Aviation Competition: Restricting Airline Ticketing Rules Unlikely to 
            Help Consumers. GAO-01-832 Washington, D.C.: July 31, 2001.
Aviation Competition: Challenges in Enhancing Competition in Dominated 
            Markets. GAO-01-518T Washington, D.C.: March 13, 2001.
Aviation Competition: Regional Jet Service Yet to Reach Many Small 
            Communities. GAO-01-344 Washington, D.C.: February 14, 
            2001.
Airline Competition: Issues Raised by Consolidation Proposals. GAO-01-
            402T Washington, D.C.: February 7, 2001.
Aviation Competition: Issues Related to the Proposed United Airlines-US 
            Airways Merger. GAO-01-212 Washington, D.C.: December 15, 
            2000.
Essential Air Service: Changes in Subsidy Levels, Air Carrier Costs, 
            and Passenger Traffic. RCED-00-34 Washington, D.C.: April 
            14, 2000.
ENDNOTES
    \1\ The U.S. network carriers are Alaska Airlines, American 
Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines, 
United Airlines, and US Airways.
    \2\ The Nation's commercial airports are categorized into four main 
groups based on annual passenger enplanements--large hubs, medium hubs, 
small hubs, and nonhubs. The 30 large hubs and 37 medium-hub airports 
together enplaned about 89 percent of the almost 703 million U.S. 
passengers in 2004. In contrast, the 69 small hubs enplaned about 8 
percent, and the 374 nonhub airports enplaned about 3 percent of U.S. 
passengers.
    \3\ Small community airports also receive other financial support 
from the Federal Government. For example, under the Airport Improvement 
Program small airports receive certain funds for addressing capital 
improvement needs--such as for runway or taxiway improvements.
    \4\ Overflight fees are user fees for air traffic control services 
provided by the Federal Aviation Administration (FAA) to aircraft that 
fly over, but do not land in the United States, as authorized by the 
Federal Aviation Reauthorization Act of 1996 (Pub. L. 104-264).
    \5\ The Emergency Supplemental Appropriations Act for Defense, the 
Global War on Terror, and Tsunami Relief, 2005, Pub. L. No. 109-13, 
recognized that the funds appropriated for EAS may not be sufficient to 
meet the service needs of communities encompassed by that program. The 
Emergency Supplemental Appropriations Act provided that the Secretary 
of Transportation could transfer ``such sums as may be necessary to 
carry out the Essential Air Service program from any available amounts 
appropriated to or directly administered by the Office of the 
Secretary.''
    \6\ GAO, 21st Century Challenges: Reexamining the Base of Federal 
Government. GAO-05-325SP. (Washington, D.C.: 2005). February 2005.
    \7\ The analysis is based on 2004 national enplanement data--the 
most recent data available.
    \8\ A network carrier operates a significant portion of its flights 
using at least one hub where connections are made for flights on a 
spoke system. Regional carriers provide service from small communities 
primarily using regional jets to connect the network carriers' hub-and-
spoke system.
    \9\ Code of Federal Regulations Title 14 Part 121 (14 CFR Part 121) 
provides details on aircraft certification requirements for aircraft 
that operate scheduled service with 10 or more seats. The Commuter Rule 
was instituted with 60 Fed. Reg. 65832, December 20, 1995.
    \10\ Aviation and Transportation Security Act, Section 110 of Pub. 
L. 107-71, 115 Stat. 597 (2001).
    \11\ Low-cost carriers follow a business model that may include 
point- to-point service between high-density city pairs, a standardized 
fleet with high aircraft utilization, low fares, and minimal onboard 
service.
    \12\ Special provisions guaranteed service to Alaskan communities.
    \13\ Subsidies are used to cover the difference between a carrier's 
projected revenues and expenses and to provide a minimum amount of 
profit.
    \14\ The average subsidy per passenger does not equate to a 
specific portion of a passenger's ticket price paid for by EAS funds. 
Ticket pricing involves a complex variety of factors relating to the 
demand for travel between two points, the supply of available seats 
along that route, competition in the market, and how air carriers 
choose to manage and price their available seating capacity.
    \15\ 49 U.S.C. 41732.
    \16\ DOT officials said that they check the reasonableness of the 
cost and revenue information received from the air carriers against 
other data reported to DOT and in documents filed with the Securities 
and Exchange Commission.
    \17\ At any time throughout the year, an air carrier providing 
unsubsidized service to an EAS-eligible community can file a notice to 
suspend service if the carrier determines that it can no longer provide 
profitable service, thus triggering a carrier selection case. In 
addition, after DOT selects an air carrier to provide subsidized 
service, that agreement is subject to renewal, generally every 2 years, 
at which time other air carriers are permitted to submit proposals to 
serve that community with or without a subsidy.
    \18\ Pub. L. 106-181.
    \19\ Vision 100, Pub. L. 108-176
    \20\ DOT must give priority consideration to communities that: (1) 
have air fares higher than average for all communities, (2) provide a 
portion of the cost of the project from local sources other than 
airport revenues, (3) have--or plan to establish--a public-private 
partnership to facilitate air carrier service to the public, (4) will 
provide material benefits to a broad segment of the public that has 
limited access to the national air transportation system, and (5) will 
use the assistance in a timely manner.
    \21\ The highest number of communities served during the program's 
history was 405 in 1980.
    \22\ DOT did not have ridership data available for all EAS 
communities.
    \23\ GAO, Commercial Aviation: Factors Affecting Efforts to Improve 
Air Service at Small Community Airports, GAO-03-330 (Washington, D.C.: 
2003). January 17, 2003.
    \24\ The authorizing legislation provides one limitation on the 
timing of expenditures. If funds are used to subsidize air service, the 
subsidy cannot last more than 3 years. However, the time needed to 
obtain the service is not included in the subsidy time limit. The 
legislation does not limit the timing of expenditures for other 
purposes. In Fiscal Year 2005, DOT issued an order specifying that in 
general, grant funds should be expended within 3 years.
    \25\ We considered a grant to be complete when the activities 
associated with the grant were finished and FAA had made final 
reimbursements of allowable costs.
    \26\ According to DOT officials, the agency only initiated the 
termination for the grant awarded to Casper/Gillette, Wyoming. The 
communities awarded the other six grants requested the termination of 
the grants.
    \27\ GAO-05-325SP.
    \28\ This information was current as of January 2006.
    \29\ As we reported in our 2002 report, although scheduled 
commercial air service is positively correlated with local economic 
activity, we were unable to locate reliable studies that describe the 
extent to which scheduled commercial air service is directly 
responsible for economic development in small communities in the United 
States (i.e., whether air service precedes, follows, or develops 
simultaneously with local economic activity).
    \30\ GAO, Initial Small Community Air Service Development Projects 
Have Achieved Mixed Results, GAO-06-21 (Washington, D.C.: Nov. 2005).
    \31\ Businesses or individuals deposit or promise future travel 
funds to a carrier providing new or expanded service. Contributing 
businesses and individuals can then draw down from this account.

    Senator Burns. Thank you, Mr. Dillingham. We appreciate 
that.
    Senator Rockefeller has a pressing appointment coming up, 
and I would forego my time and yield to the Senator from West 
Virginia.
    Senator Rockefeller. Mr. Chairman, you're, typically, very, 
very kind.
    Let me ask two questions at once. The first one will be to 
you, Mr. Dillingham, and the second one will be to both of you.
    The GAO has reviewed the Essential Air Service program--
you've discussed that at length--in a series of reports, and 
your testimony reiterates policy options. All of these options 
are predicated on reducing the Federal Government's obligation 
to the program, it seems to me. I know that inadequate and 
unreliable service, and the use of small turboprop aircraft, 
are two reasons why a lot of people don't want to fly from EAS 
communities. Has the GAO ever examined the impact of providing 
substantially more resources in the program--I don't care about 
OMB, I care about what you think--so that air service would be 
provided for larger aircraft--not big jets, but, you know, 
regional or simply just larger turboprop--and with more 
frequent service? That's the one to you.
    To both of you, so I get them both out, GAO notes in its 
testimony that the EAS programs that Senator Lott and I 
included in the last FAA bill have been largely unused. GAO 
only vaguely notes that this is for a variety of reasons. It 
happens to be totally untrue, incidentally, in West Virginia, 
where it's turned a number of our airports completely around. 
Could you please explain why these initiatives were not acted 
upon by the Department of Transportation, why communities did 
not take advantage of them, to the extent that that's correct?
    Mr. Dillingham. I'll take a shot at my question, Senator 
Rockefeller.
    We, at GAO, have not examined the potential for what would 
happen with larger aircraft, but what we can say is that based 
on what Mr. Reynolds referred to as ``leakage,'' the fact that 
people have a tendency to drive some distance so that they 
could connect with low-fare carriers and larger aircraft, one 
could hypothesize that you would perhaps draw more people if 
the people were there to take advantage of the service.
    Another thing that we have found, in looking----
    Senator Rockefeller.--point out that Huntington, West 
Virginia, and Charleston, have proved that--your statement is 
flat-out wrong? People used to drive--16 percent of our 
passenger traffic used to drive to Cincinnati to get out on 
Southwest, cheaper. What we started doing was--and using AIDP 
and others for this--using--advertising airports as if they 
were products. You've got to advertise. People stopped driving 
to Cincinnati and started getting on those airplanes, which 
then increased our service.
    Mr. Dillingham. Yes, sir. I would not disagree with you 
because in our study of the Small Community Program and EAS, we 
found that marketing was a major factor in bringing passengers 
to the airport.
    There's no one size that fits all. There have been some 
success cases, based on a number of factors, but it's also the 
case that people generally are not as happy, I would say, to 
ride the smaller aircraft. So, I would assume that the opposite 
would hold true, as well, that a larger aircraft would, in 
fact, attract more passengers. It's up to the airline whether 
they can make that choice to have a larger aircraft, and the 
cost associated with it.
    Senator Rockefeller. OK.
    Mr. Reynolds. Senator Rockefeller, we--there were several 
programs that were in Vision 100--the Alternate Program, and 
the Community Flexibility Program. The Department did establish 
both programs. In this case, no communities ever sought to 
participate. I think our view is that communities feel 
comfortable with the service they have, and they weren't 
necessarily willing to take risks to try something different, 
in terms of the EAS communities, if it meant leaving what they 
have and trying something new. Of course, some EAS communities 
have applied for Small Community grants, and have received 
those, and we've had some results there that are positive.
    Senator Rockefeller. But doesn't that make the point? 
Doesn't that discount what you've said in your first sentence?
    Mr. Reynolds. No. I mean, I----
    Senator Rockefeller. I mean, people have been used to 
getting EAS-level funding for so many years that you might 
speculate that, well, OK, we're stuck with that. I'm suggesting 
another option: more money.
    Mr. Reynolds. Well, with respect to more money, I think 
that--I mean, I was just saying that the programs--we have 
implemented the programs, but no none has come. In those cases, 
it was--take, for example, 2 years in a lump--2 years of EAS 
subsidies in a lump sum, and make some improvements at your 
airport, for example. That was one of the other--that was one 
of the programs. And the other was trying to take advantage of 
maybe doing air taxis or alternate services. None of them 
involved, necessarily, doing marketing along the lines of the 
Small Community Air Service Development Program, which is a--
pretty much a part of every single grant that we give. The 
marketing does----
    Senator Rockefeller. My time is out----
    Mr. Reynolds.--yield benefits.
    Senator Rockefeller.--but I would simply point out what I 
think was the thrust, maybe, of where you're coming from, and I 
hope I'm wrong, that--you said if people don't see an 
improvement, because there isn't any more funding, they will 
start making more and more negative decisions. The--obviously, 
the option I'm suggesting is more funding for EAS and more 
funding for AIDP, because, let me tell you, where AIDP is 
applied, it makes an enormous difference, not just in 
marketing, but in airport improvement--facilities, gateways, 
things of that sort.
    Thank you, Mr. Chairman.
    Senator Burns. Thank you, Senator Rockefeller.
    Along that same line, Mr. Reynolds, it's come to the 
attention of this committee, and--that the EAS program has 
incurred accounts with substantial unliquidated obligations. 
Could you please explain to this committee what is the 
situation right now, and has the Department--what they've done 
to correct this accounting--and give us some idea on some of 
those unliquidated obligations.
    Mr. Reynolds. Certainly, Mr. Chairman.
    After the terrorist attacks of September 11, the EAS 
carriers were in especially bad financial situations, as were 
most airlines. Without some form of across-the-board relief, 
many EAS carriers probably would have shut down, leaving many 
communities, of course, without any kind of service. To prevent 
that, the Department issued an order granting all subsidized 
EAS carriers an across-the-board rate increase. The increase 
was based on a formula that was subject to retroactive 
adjustment and finalization, based on actual financial results. 
To protect the program, the full liability was obligated. So, 
as we ended up settling the open rates over time, we were able 
to negotiate lower rates--and sometimes significantly lower. As 
a result, there were many accounts with substantial 
unliquidated obligations, because we assumed sort of a worst-
case scenario as to what the carriers might need, but were able 
to resolve rates that were much less than that, in the end.
    Also, we've had an internal effort to improve our financial 
management of the program, and that revealed additional 
unliquidated obligations.
    Normally, when an order for a subsidized air service is 
created, the maximum amount that could ever be claimed is 
obligated for the given fiscal year. Frequently, carriers don't 
claim all of that money, for a variety of reasons. Because we 
pay air carriers based on completed flights, they don't 
necessarily complete every single flight--sometimes for 
weather, mechanical reasons, or a variety of other reasons--
thus, over time, funds remain unliquidated obligations for 
periods of prior performance.
    Recently, we sent close-out letters going back several 
years to close-out these old contracts and ensure that we can 
now start de-obligating funds. To ensure this doesn't happen 
again, we're including language in EAS contracts going forward, 
so that the de-obligations can happen as a matter of course. Of 
course, 9/11 is--we certainly hope--a one-off situation, but we 
are in the process of de-obligating these monies right now, and 
hopefully they will be back in the account very soon.
    Senator Burns. Mr. Dillingham, are you aware of this 
accounting situation? And have you fully reviewed the 
situation?
    Mr. Dillingham. Mr. Chairman, we were not aware of that 
accounting situation. It recently came to our attention.
    Senator Burns. Do you plan to do--do you plan to look at 
it?
    Mr. Dillingham. Yes, sir, we do.
    Senator Burns. I think the Committee needs a full report on 
that. And we may have to formally, probably, request it from 
you before you take action, but I would suggest that that be 
done.
    In the last FAA reauthorization bill, there were some 
additional--some Small Community Programs, including the 
Alternate Essential Air Service Pilot program and the Community 
Flexibility Pilot program. Mr. Reynolds, why have these 
programs not been successful? And have you--and have you filled 
out a full report on that, and give some information to the 
Committee why they have not succeeded, as planned?
    Mr. Reynolds. Certainly, Mr. Chairman. I think I touched 
upon this in answer to Senator Rockefeller's----
    Senator Burns. Yes.
    Mr. Reynolds.--Senator Rockefeller's question. We 
established the programs. We solicited community input or 
applications, and no one came calling, essentially. Again, I 
think it's a matter of carriers--I mean, communities being very 
comfortable with what they have. The Essential Air Service is 
an entitlement. I don't think they wanted to take a risk in 
trying something new and potentially have a different form of 
service, or that, if it didn't work out, that they would be 
without their air service, which, of course, a great many of 
them feel is very critical.
    So, that's--you know, it's difficult to determine exactly 
what's in everyone's minds as to why they chose not to try to 
pursue these--I mean, one of the--one of the programs was 
authorized, but has been blocked in legislation at other times. 
But the two to which you were referring, we--again, we 
solicited applications, and no one ever came calling. So----
    Senator Burns. Would you like to comment on that, Mr. 
Dillingham?
    Mr. Dillingham. I'd like to underline something that Mr. 
Reynolds said. The new programs aren't incentivized enough to 
make the communities take advantage of it. And I think if you 
look at these programs and see if there's some way to better 
incentivize them, in spite of the risk-adverse nature of some 
of the communities, it might have a better chance of success.
    I would also suggest trying to find out specifically from 
the communities why they have not expressed interest in these 
programs, so you have more information with which to assess the 
programs.
    Senator Burns. Well, I think, you know, when we go into the 
reauthorization next year, we should have full accountability 
of that, and, if some changes are made, to make it, you know, 
more flexible or whatever it takes, we should take a look at 
that.
    At the end of the month, this subcommittee will have a 
hearing on new aircraft that are coming in to be used around 
the country. We'll look at very light jets, air taxis, and 
other aviation modes. Do you anticipate, either one of you, 
any--anticipate new evolutions in aviation and what effect they 
might have on our small communities and their air service?
    Mr. Reynolds. I think that it's very difficult to predict 
the future in terms of what new aircraft or technologies might 
produce. I certainly think that if there are more options 
available to consumers everywhere, whether that's smaller rural 
communities or others, that that can be a good thing. Of 
course, if people are using smaller jets as air taxis, and they 
would be, normally, business passengers that might fly 
scheduled service, that might have another effect. But I think 
until we see these types of aircraft or these things in the 
marketplace, we just really won't know.
    Senator Burns. It's my opinion that we're taking a look at 
that--Congress is--and I think I would probably ask you to be 
pretty agile, looking on that.
    Mr. Dillingham, would you like to comment on that? Because 
we're seeing some effects on it over in the FAA part of our 
responsibility.
    Mr. Dillingham. Chairman Burns, we are just getting 
underway with a study looking at the impact of very light jets 
and unmanned aircraft on the system, both from a safety 
perspective, as well as from a capacity perspective. So, we 
won't be ready to testify at your hearing at the end of the 
month, but we'd certainly be willing to work with your staff to 
have you as a part of the study that we're undertaking.
    Senator Burns. Well, we're sure looking at that, because 
there are big changes happening out there, and I think there 
are a lot of things that neither we know--this committee--or 
Congress knows. And you're dealing with some unknowns, also.
    Mr. Reynolds, we added an additional $15 million a year to 
the FY 2007-2008 for EAS programs. I'm sure that you're using 
the money.
    Mr. Reynolds. If we need the money, sir, we will take 
advantage of it. We have--internally, we are taking steps to 
ensure that if it's needed, we will be able to have access to 
it in a timely fashion.
    Senator Burns. You mentioned some new approaches, in your 
opening statement. And with the upcoming year and the FAA 
reauthorization, regarding EAS, I would hope that you'd be a 
participant in those ideas as we move forward with the--with 
reauthorization. And we'd look for your cooperation.
    Also, we believe that these communities adequately market 
the service. And what can we do to improve the relationship? I 
think you brought up one thing, where people are starting to 
advertise their airports rather than the service. And I would 
subscribe to that.
    And so, that's all the questions I have for this panel. I 
would just like to thank you, and--both of you, for your 
cooperation. And as we move into next year and reauthorization, 
I'm sure we'll be calling on you with some more technical 
information. Any information that we might not think we need, 
and you can collect, why, it would certainly be appreciated. 
And I thank you for coming this morning.
    And we'll go to our--we'll go to our next--we'll go to our 
next panel.
    Mr. Dillingham. Thank you, Mr. Chairman.
    Senator Burns. And you're excused. Thank you very much.
    Mr. Reynolds. Thank you.
    Senator Burns. Chairman Stevens wanted to make this 
hearing, this morning. He is managing the port security bill 
now on the floor of the Senate. And he may have some record--he 
may have some questions for you in--to be submitted for the 
record, so I thank you--if either one of you could respond to 
those questions, it would certainly be appreciated.
    Mr. Reynolds. Absolutely, Mr. Chairman.
    Senator Burns. Thank you.
    Now, on our second panel, we'll hear from Ms. Faye 
Malarkey, Vice President of Legislative Affairs of Regional 
Airline Association, here in Washington; John Torgerson, Deputy 
Commissioner of Aviation, Department of Transportation, from 
Anchorage, Alaska; and Doug Kaercher, Hill County Commissioner, 
and--the National Association of Counties--and he comes from 
Havre, Montana.
    Hill County, you're getting a new--you're getting a new 
store up there. I was through there the other day, and----
    Mr. Kaercher. I would say it's about----
    Senator Burns. Yes?
    Mr. Kaercher.--about 70 percent completed.
    [Laughter.]
    Senator Burns. You're--Havre is on the move.
    We look forward now to Ms. Malarkey and Regional Airline 
Association. We look forward to your testimony. Thank you for 
coming this morning, by the way.

    STATEMENT OF FAYE MALARKEY, VICE PRESIDENT, LEGISLATIVE 
             AFFAIRS, REGIONAL AIRLINE ASSOCIATION

    Ms. Malarkey. Thank you, Mr. Chairman, Members of the 
Subcommittee.
    Senator Burns. You might want to pull that microphone up to 
you and turn it on. We want to hear your----
    Ms. Malarkey. Thank you.
    Senator Burns. You bet.
    Ms. Malarkey. Thank you, Mr. Chairman.
    My name is Faye Malarkey, and I'm Vice President of 
Legislative Affairs with the Regional Airline Association, or 
RAA. RAA represents regional airlines providing short- and 
medium-haul scheduled airline service connecting smaller 
communities with hub airports.
    Of the 664 commercial airports in the Nation, fully 479 are 
served exclusively by regional airlines. In other words, at 72 
percent of our Nation's commercial airports, passengers rely on 
regional airlines for their only source of scheduled air 
transportation.
    As we have heard, the Department of Transportation 
currently subsidizes service to more than 150 rural communities 
that would not otherwise receive scheduled air service, through 
the EAS program. With your permission, it is on this program 
that I would like to focus my spoken remarks today.
    In the 5 years since the attacks of September 11, 2001, a 
comparison of nonstop flights to and from airports in the lower 
48 United States illustrates that the most dramatic service 
losses have occurred in rural communities. Airports with 
between one and three daily enplanements, for instance, have 
seen a 21-percent decline in daily departures since September 
2001. Thirteen of these airports have lost service altogether. 
Likewise, airports with between three and six daily flights 
since September 2001 have experienced a 33-percent decline in 
departures, with eight such airports losing service altogether.
    Since 9/11, approximately 40 additional communities have 
been forced into the EAS programs, and, in the past several 
months alone, four EAS communities have lost air service 
altogether.
    One of the single greatest factors accounting for these 
losses, as you know, has been the staggering increase in fuel 
prices. Carriers negotiate in good faith with the DOT to 
determine EAS subsidy rates that remain in effect for 2 years. 
EAS carriers must, therefore, project revenues and costs over 
this entire 2-year time-frame--no easy task, considering 
today's volatile cost environment.
    In cases of unexpected cost increases, EAS carriers 
currently lack a mechanism to renegotiate rates and must 
instead enter into the unpalatable process of filing 
termination notices in order to seek compensation rates that 
cover their increased costs.
    One of the fundamental tenets of the EAS program holds that 
no carrier should be expected to serve any market unprofitably. 
Yet, in these cases carriers are forced to continue service for 
180 days at a financial loss, while DOT reopens the competitive 
bidding process.
    Given this scenario, fuel cost increases remain the single 
most dramatic factor behind service reductions. Take the case 
of Merced, California, one of DOT's noted success stories of 
2005. While the carrier involved with the market engaged in 
rigorous cost savings, was able, initially, to double the 
traffic forecast in its original EAS proposal, escalating fuel 
costs ultimately caused the carrier to file 90-day notices at 
Merced, as well as Visalia, California, and Ely, Nevada. And, 
in doing so, it noted, ``Scenic's need to terminate service at 
these airports stems primarily from fuel-cost escalations that 
have undermined the economic viability of the carrier's EAS 
operations. As a consequence Scenic has decided to refocus its 
resources on its historical aerial sightseeing operations, and 
discontinue scheduled service operations.''
    Under the leadership of this Committee, Congress addressed 
this issue in Section 402 of Vision 100 by affording DOT a 
rate-indexing mechanism by which it could make real-time rate 
adjustments during periods of significantly increased costs. 
There is little doubt that situations like the one with Scenic 
Airlines in Merced, Visalia, and Ely could have been prevented, 
had Section 402 actually been implemented. Unfortunately, DOT 
has been unwilling to implement this program, to date. RAA, 
therefore, respectfully asks that Congress include language in 
the expected FAA bill to mandate DOT's cooperation in making 
real-time rate adjustments for extraordinary cost increases. 
Further, RAA requests an audit on unspent annual EAS funds, and 
requests that any leftover funds are redirected to the EAS 
program in order to make real-time retrospective rate 
adjustments.
    RAA stands ready to help Congress enact further EAS program 
reforms as the next FAA reauthorization approaches. We 
understand that a rewrite of the eligibility criteria may 
become necessary. These decisions, however, should be based on 
rational factors and not due to a funding crisis at the DOT.
    The most important thing, therefore, Congress could do 
right now to help EAS communities is to ensure the $117 million 
funding level included in both House and Senate DOT spending 
bills this year remains intact as the appropriation bills near 
completion. We also ask that Congress ensure whatever criteria 
are applied toward eligibility reform, they be applied 
consistently, with an eye toward enhancing the program and 
protecting rural air service.
    The proposal detailed by my colleague this morning would 
severely cut the EAS program, effectively forcing out a third 
of the communities that now use the program. Their 
recommendation sets up a complicated reform that takes the 
``air'' out of Essential Air Service, telling residents of 
smaller communities that convenient, reliable air service is a 
luxury they can't have.
    We share with this committee an understanding of the 
critical role air service plays in driving the economies of 
smaller communities, and request the Committee's assistance in 
helping us reject such draconian program cuts.
    Part of the nature of the EAS program, as you know, is that 
carriers compete rigorously for contracts. Even in cases where 
an incumbent carrier desires to continue serving a given 
market, DOT has the right to select another carrier. The 
current practice, where DOT holds carriers in a market for 30-
day increments of time, is untenable. This practice means a 
carrier cannot sell tickets in the EAS market beyond 30 days, 
yet it also cannot make plans to utilize its aircraft 
elsewhere. We urge Congress to end this unfair practice by 
mandating that DOT adopt a date-certain component for allowing 
incumbent carriers to exit markets where service is awarded to 
a new carrier.
    We are eager to work together with this committee and with 
Congress as it takes up the issue of the EAS program reform, 
and we urge Congress to enact measures aimed at enhancing 
service to the smallest communities, rather than espousing 
proposed funding cuts that, however well intentioned, can only 
serve to undermine small community air service.
    Mr. Chairman, thank you very much for the opportunity to 
testify today and for your continued support of this program.
    [The prepared statement of Ms. Malarkey follows:]

   Prepared Statement of Faye Malarkey, Vice President, Legislative 
                 Affairs, Regional Airline Association

Introduction and Background
    Good morning. Mr. Chairman and members of the Subcommittee, on 
behalf of the 42 airline members of the Regional Airline Association, 
thank you for inviting me to appear before you today to discuss issues 
related to rural air service in general and the Essential Air Service 
program in particular. We see this as a timely opportunity to lay the 
groundwork for our common objectives for the Essential Air Service 
program in advance of next year's Federal Aviation Administration 
Reauthorization and we thank the Committee for holding the hearing at 
this time.
    My name is Faye Malarkey and I am Vice President of Legislative 
Affairs with the Regional Airline Association, or RAA. RAA represents 
regional airlines providing short and medium-haul scheduled airline 
service, connecting smaller communities with larger cities and hub 
airports operating 9 to 68 seat turboprop aircraft and 30 to 108 seat 
regional jets. RAA's member airlines transport 97 percent of total 
regional airline industry passengers. Of the 664 commercial airports in 
the Nation, fully 479 are served exclusively by regional airlines. In 
other words, at 72 percent of our Nation's commercial airports, 
passengers rely on regional airlines for their only source of scheduled 
air transportation.
    The Department of Transportation currently subsidizes service to 
approximately 140 rural communities across the country, which would not 
otherwise receive scheduled air service, through the Essential Air 
Service Program, or EAS, which was enacted as part of the Airline 
Deregulation Act of 1978. The EAS program was crafted to guarantee that 
small communities served by certificated air carriers before 
deregulation would maintain a minimum level of scheduled air service 
after deregulation.
    The program has been in effect each year since 1978 at various 
funding levels and has undergone several eligibility criteria 
adjustments, taking into account distance from nearby hub airports and 
other factors. Most recently, in Fiscal Year 2006, the EAS program was 
funded at $110 million. Current versions of both House and Senate DOT 
spending bills have funded EAS at $117 million. RAA applauds this 
committee in particular for actively working with appropriators to 
secure these funding levels. We remain committed to working with 
Congress to ensure that the EAS program continues to receive 
appropriate funding.
    Before returning to this subject, I would like to provide some 
background information on regional airline service. As you know, most 
regional airlines operate in partnership with the major airlines under 
code-sharing agreements. In fact, in 2005, 99 percent of the 151 
million passengers transported by regional carriers traveled on code-
sharing airlines. Code-sharing agreements, which provide benefits for 
passengers, regional and major airlines, have two broad methods of 
revenue sharing. The first, prevalent among larger regional carriers 
operating regional jets, occurs when a major and regional airline enter 
into a ``fee-for-departure'' or ``capacity buy'' agreement where the 
major compensates the regional airline at a predetermined rate for 
flying a specific schedule. Within this arrangement are operational 
standards for customer service, on-time performance and baggage 
handling requirements as well as incentives rewarding excellent 
performance.
    A second arrangement, common to smaller, turboprop operators, 
occurs when major airlines pay regional airlines a portion of passenger 
ticket revenue. This is referred to as ``pro-rate'' or ``shared 
revenue'' flying. While regional airlines with pro-rate agreements are 
most vulnerable to cost increases and the recent fuel cost crisis, it 
is important to note that fee-for-departure carriers also suffer when 
fuel costs increase this dramatically. Even if the regional airline is 
compensated by the major airline for fuel costs, the majors must take 
those increased costs and the market's profitability into consideration 
when route and capacity decisions are made. Major carriers have no 
choice but to eliminate regional routes that lose money for long 
periods, even if those routes contribute some connecting revenues to 
the mainline system. In some cases, this means the fee-for-departure 
carriers finds itself forced to park aircraft.
    Regional airlines are providing critical service to smaller 
communities with airplanes that use much less fuel than larger 
aircraft. Turboprop aircraft are among the most fuel efficient aircraft 
for short-haul routes and RJs have some of the most modern, fuel 
efficient engines in the airline industry. Like our major airline 
counterparts, regional carriers have sought to minimize fuel burn by 
tankering fuel, lowering cruise speeds, safely altering approach 
procedures and reducing onboard weight, making every effort to manage 
escalating fuel costs with an eye toward conservation. Nonetheless, 
fuel remains the second highest cost for airlines, ranking just behind 
labor.
    As you know, most of the major airlines are experiencing some of 
the most daunting challenges in the history of the industry. They 
cannot afford to continue unprofitable routes and when this service is 
discontinued, regional airlines and passengers in small communities 
suffer as well.
Small Community Air Service
    With the anniversary of the 9/11 attacks just days behind us, a 
look at the implications of these events 5 years later shows the most 
deleterious air service reductions have occurred among rural 
communities. According to data compiled by Back Aviation solutions, a 
comparison of the total number of nonstop flights to and from the 
contiguous 48 United States illustrates the most dramatic service 
losses in rural communities. Among the smallest airports, such as those 
with between one and three departures per day, there has been a 21 
percent decline in daily departures between September 2001 and 
September 2006. Thirteen of these airports have lost service 
altogether. Airports with between three and six daily flights in 
September 2001 have experienced a 33 percent decline in departures with 
eight such airports losing service altogether.
    It is within the context of this decrease in rural air service that 
we begin to take up the issue of reforming the Essential Air Service 
program during the upcoming FAA Reauthorization process.
Essential Air Service
    Because of increasing costs and continuing financial pressures in 
the aviation industry, at least 40 additional communities have been 
forced into the EAS program since September 11, 2001. In the past 
several months alone, four EAS communities have lost air service. One 
of the single greatest factors accounting for these losses is the 
staggering and continuous increase in fuel prices.
    As you know, the Essential Air Service program is administered by 
the Department of Transportation, where ``best and final'' competitive 
proposals are submitted by regional carriers. The Department selects 
carriers and establishes EAS subsidy rates based on that bidding 
process. If a carrier is the only airline serving an EAS-eligible 
community and wishes to exit the market, DOT regulations require that 
carrier to file a 90-day service termination notice. DOT holds that 
carrier in the market during this period, while a subsidy eligibility 
review or competitive bidding process is undertaken. Likewise, carriers 
operating EAS-subsidized routes must also file a 90-day service 
termination--subject to even more onerous hold-in policies--in order to 
trigger a rate renegotiation if costs increase significantly during the 
lifetime of the rate agreement.
    As part of the EAS application process, carriers negotiate in good 
faith with DOT on subsidy rates that remain in effect for 2 years. EAS 
carriers must project revenues and costs over this two-year time-
frame--no easy task in today's volatile cost environment. In cases of 
unexpected cost increases, EAS carriers lack a mechanism to renegotiate 
rates and must instead enter into the unpalatable process of filing 
notice to terminate service in 90 days in order to begin the process 
for seeking compensation rates that cover increased costs. This 
inevitably causes ill-will between an airline and the community, in 
some cases fostering a sense of unreliability that ultimately 
undermines the use of the air service and further drives up subsidy 
rates as fewer passengers traveling causes air fares to climb.
    One of the fundamental tenets of the Essential Air Service program 
held that no carrier should be expected to serve any market at a loss. 
Yet, in cases of unexpected cost increases, carriers are unable to 
provoke rate changes without filing such service termination notices, 
after which each carrier must continue to provide the service, at a 
loss, for 180 days while DOT opens the competitive bidding process.
    Fuel cost increases remain the single-most dramatic factor behind 
service reductions. Take the case of Merced, California, one of the 
DOT's noted success stories of 2005. While the carrier involved with 
the market engaged in rigorous cost savings and was able to initially 
double the traffic forecast in its original EAS proposal, escalating 
fuel costs ultimately caused the carrier to file 90 day notices at 
Merced as well as Visalia, California, and Ely, Nevada, noting:

        ``Scenic's need to terminate service at [Merced/Visalia/Ely] 
        stems primarily from fuel cost escalations that have undermined 
        the economic viability of the carriers' EAS operations. As a 
        consequence, Scenic has decided to refocus its resources on its 
        historical aerial sightseeing operations and discontinue 
        scheduled-service operations.''

    Congress addressed this issue in Section 402 of Vision 100, the 
Century of Aviation Reauthorization Act, by affording DOT a rate 
indexing mechanism by which it could make real-time subsidy rate 
adjustments during periods of significantly increased costs. With an 
eye to preventing deliberate cost underestimation, Congress included an 
index where ``significant increase'' is defined as a 10 percent 
increase in unit costs that persists for two or more consecutive 
months. There is little doubt that situations like the one with Scenic 
Airlines and Merced/Visalia/Ely could have been prevented had Section 
402 been implemented to curb the grave financial consequences that EAS 
carriers are experiencing as a result of serving markets at a loss due 
to climbing fuel prices.
    Unfortunately, DOT has been unwilling to implement the program to 
date, citing a lack of specific appropriations for the activity. RAA 
therefore respectfully asks that Congress include language in the 
expected FAA bill to mandate DOT's cooperation in making real-time rate 
adjustments for cost increases. Further, RAA requests that Congress 
request an audit on unspent, obligated funds and that any leftover 
funds be redirected to the EAS program in order to make real-time, 
retrospective rate adjustments to carriers facing cost increases 
relative to section 402 of Vision-100.

Eligibility Criteria
    RAA stands ready to help Congress enact further EAS program reforms 
as the next FAA reauthorization takes place. We understand that a 
rewrite of the eligibility criteria may become necessary as some of the 
rules set nearly three decades ago may no longer apply. These 
decisions, however, should be based on rational factors and not a 
funding crisis at DOT. The most important thing Congress could do right 
now to help passengers in EAS communities and the airlines serving them 
is to ensure the $117 million funding level included in both House and 
Senate DOT spending bills remains intact as the FY07 appropriations 
bills near completion.
    Next, as we consider a potential eligibility criteria rewrite, we 
ask that Congress ensure whatever criteria is applied to these 
decisions be applied consistently and with an eye toward enhancing the 
program and protecting rural air service. We also ask that any 
community reductions be revenue-neutral. In other words, subsidies 
recovered from any communities losing eligibility should not be 
diverted from the EAS program but, instead, should be reinvested in the 
program to help increase frequency along other viable routes. Given the 
correlation between increased frequency and increased enplanements, 
such a reinvestment could actually serve to help some communities 
reduce or eliminate their subsidy reliance altogether.

Cost Sharing Recommendations
    As you know, the past several Presidential budget requests have 
proposed severe cuts to the EAS program and would establish a $50 
million cap on program expenditures as well as strip the program of its 
entitlement status. The Administration would create three community 
categories based on hub airport distance and would establish cost-
sharing criteria that would likely dismantle the program. EAS 
communities within 100 miles to large hub airports, 75 miles to small-
hub airports, or 50 miles to airports with jet service would lose 
commercial air service and receive only 50 percent of previous funding 
for surface transportation use only. Communities less than 210 miles to 
a large or medium hub would receive a 25 percent funding cut. 
Communities more than 210 miles would experience a 10 percent funding 
cut.
    This proposal would severely cut and potentially dismantle the EAS 
program as funding would fall by $59 million, effectively forcing out a 
third of the communities that now use the program. The recommendation 
sets up a complicated reform that takes the ``air'' out of Essential 
Air Service, telling residents of smaller communities that convenient, 
reliable air service is a luxury they can't have; instead suggesting 
surface alternatives.
    We share with this committee an understanding of the critical role 
air service plays in driving the economies of smaller communities and 
request the Committee's assistance in helping us protect rural 
communities against EAS program cuts that would undermine the program.
Date Certain for Market Exit
    Part of the nature of the Essential Air Service program, as you 
know, is that carriers compete rigorously for contracts. Even in cases 
where an incumbent carrier desires to continue serving a given market, 
DOT has the right to select another carrier to serve that market. In 
these cases, where DOT awards the service to a new carrier, DOT must 
give the incumbent carrier a date certain when it may exit the market, 
without exception. The current practice, where DOT holds the carrier in 
markets in 30 day increments, is untenable. This practice means a 
carrier cannot sell tickets in the EAS market beyond 30 days, nor can 
it make plans to utilize its aircraft elsewhere. We urge Congress to 
end this unfair situation by mandating that DOT adopt a date-certain 
component for incumbent carrier market exits when it selects an 
alternate carrier to serve the market.

Per Passenger Subsidy Cap Adjustments
    Within the past 2 months, four communities, including Enid and 
Ponca City, OK, Moses Lake, WA, and Bluefield/Princeton, WV, have lost 
service because of the per-passenger subsidy cap in place for EAS 
markets. This subsidy cap was set at $200 per passenger in 1990 and has 
not been indexed for inflation since that time. Even without factoring 
in increasing fuel costs, some carriers are concerned that the subsidy 
cap is outdated and does not account for the true cost of providing air 
service to rural communities. While the Association has not yet taken a 
position on this issue, we request that any discussion of EAS reform 
also examine the benefits and alternatives to adjusting the subsidy cap 
to account for inflation as well as to consider a mechanism for 
indexing the cap for inflation on an annual basis.
    We are eager work together with Congress in order to enact 
meaningful reforms to the EAS program and urge the Congress to enact 
measures aimed at enhancing service to the smallest communities rather 
than espousing proposed funding cuts that, however well intentioned, 
can only serve to undermine small community air service.

Other Rural Air Service Impacts
Aviation Security Fee Increases
    As you know, the aviation security fee would increase by 120 
percent to $5.50 under recent Administration proposals, capped at $8 
for one-way travel and at $16 for round-trips under the budget 
proposal. We applaud this Committee for its actions in opposing such 
increases and its understanding that this tax increase jeopardizes 
airline jobs and flights to small and medium-size communities. 
Passengers traveling to rural communities would be disproportionately 
impacted because regional flights mean multiple flight segments and 
more tax occurrences.
    The new tax would raise the cost of air travel rise by an estimated 
$1.5 billion a year and would bring the total Federal security tax on 
airlines to $4.7 billion. Such tax increases would only serve to 
further divert resources away from airlines, already struggling to 
provide service to small and rural communities. This tax increase will 
raise fares for travel to rural communities and makes this service even 
more expensive for carriers, putting air service to rural communities 
at risk.
    We therefore urge Congress to continue to reject security fee 
increases that would jeopardize rural air service.

Demand Management
    At LaGuardia, service to small communities and other regional 
airline service will be jeopardized if FAA adopts its proposal to 
discourage the use of smaller aircraft at La Guardia. Although Congress 
decreed that La Guardia should be open to all flights serving small and 
non-hub airports in 2000, FAA cut back the number of these LaGuardia 
flights to reduce congestion caused by the popularity of service 
between La Guardia and these small communities. Rather than encouraging 
service to smaller communities with smaller aircraft at La Guardia as 
Congress directed, however, FAA is now proposing to create average 
aircraft size requirements that would limit small aircraft and the 
small cities they serve at La Guardia.
    Although the proposed rules contain options for protecting small 
community air service, one of the proposals would expand overall small 
community service at La Guardia, and one of the options would protect 
service only for smaller communities within 300 miles of La Guardia. 
The more small community service protected under the proposals, the 
greater the average aircraft size required for other flights at La 
Guardia, thereby encouraging the reduction of competition on routes 
served with small aircraft. This is likely to create monopoly routes 
along routes where competition exists today and could serve to 
eliminate service altogether on other routes.
    We therefore ask Congress to exercise its oversight as FAA 
continues through the rulemaking process to ensure that carriers are 
not be penalized, in terms of fees or slots at La Guardia, for using 
smaller airplanes to serve smaller communities. Such actions at La 
Guardia, which will likely set the precedent for other airport demand 
management models, limit service and fare choices of passengers in 
small or medium-sized cities. Regional passengers pay the same aviation 
taxes and fees as other travelers and should not face higher ticket 
prices or limited travel options because we failed to modernize and 
expand the airport and airway system.

Conclusion
    Mr. Chairman, thank you for the opportunity to testify on this 
important issue today and thank you and the Committee for continuing to 
afford us this opportunity to shape and protect a program that is 
important to both our constituencies. I look forward to responding to 
your questions at the conclusion of the panel.

    Senator Burns. Thank you. And thank you for your time and 
your testimony. We look forward to working with you, too, as we 
move into the FAA reauthorization.
    Mr. Torgerson, the man sitting next to you, I would imagine 
you might have some roots in Hill County, Montana, because we 
have some Torgersons down there in that part of the world.
    Mr. Torgerson. I'm not sure, Mr. Chairman.
    Senator Burns. You're from Alaska? You're the Deputy 
Commissioner of Aviation, Department of Transportation, and we 
look forward to your testimony. Thank you for coming today and 
making the long trip.

 STATEMENT OF JOHN TORGERSON, DEPUTY COMMISSIONER OF AVIATION, 
 DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, STATE OF 
                             ALASKA

    Mr. Torgerson. Thank you, Mr. Chairman.
    My name is John Torgerson. I've resided in Alaska since 
1950, so aviation in the rural part of Alaska and America are 
part of my line.
    To Alaska, aviation is a critical transportation mode that 
provides the basic necessities of life. In rural Alaska, air 
transportation is the sole method of transportation to get to 
the doctor, the dentist, and, in some communities, even the 
grocery store. Some Alaskans even rely on daily air service to 
attend school. Every morning and evening, the kids in South 
Naknek load into a Piper Cherokee Six aircraft to fly to 
school. School programs around the state routinely fly students 
to school events, because there are no road connections.
    The State of Alaska owns and operates 260 airports. We have 
two large international airports located in Anchorage and 
Fairbanks. We have 258 community-class airports located across 
the state, from as far north as Barrow, to Ketchikan in the 
south, and Adak, in the east. To put that in perspective to the 
United States, it would be like flying from Michigan to 
Florida, and then from Florida to California.
    The small communities of rural Alaska, which most depend on 
the Essential Air Service, are the very communities that are 
not connected by roads to the rest of our state. Thirty-nine 
Alaska communities are currently receiving the Essential Air 
Service program, with 14 separate air carriers providing that 
service. One carrier provides jet service to six communities, 
and the other 39 communities are serviced by smaller propeller 
aircraft. The aircraft used includes Cessna 185s, Beavers on 
floats, and even a Grumman Goose.
    Over the last 3 years, the amount of funds administered 
under the Essential Air Service program to Alaska air carriers 
has increased less than the general rate of inflation, despite 
higher inflation and fuel costs. During this same period of 
time, the total number of passengers using Essential Air 
Service has increased from 69,770 to 73,133.
    In 2002, the GAO indicated that further fiscal discipline 
may be necessary, and identified four options to control costs 
and improve the program's stability.
    First, targeted subsidized service to more remote 
communities. That is exactly what happens in Alaska. Most of 
our Alaskan rural communities are completely dependent on air 
service, because the state has only 4,732 miles of paved road. 
In comparison, the State of Virginia has over 70,000 miles of 
paved road.
    Second, much better capacity--or better match capacity with 
community use by increasing the use of smaller aircraft. Again, 
this is exactly what happens in Alaska. As I've already stated, 
only six of our Essential Air Service communities receive jet 
service. The others are serviced by some of the smallest 
aircraft in commercial use. Alaska air carriers regularly use 
planes that only hold three passengers. The citizens of Akutan 
rely on the Grumman Goose, last built in 1947, for their 
Essential Air Service.
    The third recommendation from the GAO was to consolidate 
service into regional airports. Again, this is exactly what 
happens in Alaska. Essential Air Service programs subsidize the 
movement of passengers and freight from 39 small communities to 
one of nine primary regional airports.
    Fourth, change the form of Federal assistance from carrier 
subsidies to local grants. Alaskans believe the program is 
working well and request no changes in this funding method be 
made. Basically, most of these smaller communities don't have 
the staff to administer a program, if one was made available to 
them.
    Mr. Chairman, Alaska and her rural communities rely every 
day on Essential Air Service. We know that it is well-
administered, and are happy with the program, as it is 
regulated today.
    Just some comments on the Small Community Air Development 
Grant. Mr. Chairman, we applied for a grant in April of 2006 
and was awarded $500,000 to foster the diversified air service 
to Fairbanks. Having just completed this process, I'll provide 
a few of my impressions of the program.
    First, the program creates public-private partnerships. It 
fosters interagency and community partnerships by encouraging 
the local match and involvement in the marketing and strategy 
plan to attract new and diversified air service.
    It creates competition, provides funding to a new air 
service in challenging markets that either do not have air 
service or have a monopolistic service that is unnecessarily 
penalized as a customer.
    It fosters economic development. New or diversified air 
service results in additional travel from both local and 
recipient communities, bolstering their economies, allowing for 
expanded routing and competitive fares that fosters an increase 
in travel.
    It has--the program has great administrative support from 
start to finish; clear and relatively simple process from the 
application through the award; excellent support from 
knowledgeable DOT staff. We have received immediate responses 
to all our questions and our concerns in regard to the program 
and its structure.
    From Alaska's perspective, we have high expectations that 
this program will attract service for a new city pair, increase 
the economic opportunities for our communities, and add 
diversity to the traveling public.
    Mr. Chairman, thank you for the opportunity to comment, and 
I'd be glad to take your questions.
    [The prepared statement of Mr. Torgerson follows:]

Prepared Statement of John Torgerson, Deputy Commissioner of Aviation, 
  Department of Transportation and Public Facilities, State of Alaska

    Good Morning Mr. Chairman and members of the Committee.
    You have requested testimony on the purpose, importance, obstacles, 
and possible reforms for the U.S. Department of Transportation's 
Essential Air Service, and the Small Community Air Service Development 
program.
    To Alaskans, aviation is the critical transportation mode that 
provides the basic necessities of life. In rural Alaska, air 
transportation is the sole method of transportation to get to the 
doctor, dentist, and, in some communities, even the grocery store. Some 
Alaskans even rely on daily air service to attend school. Every morning 
and evening kids in South Naknek load into a Piper Cherokee Six 
aircraft to fly to school. Schools programs around the state routinely 
fly students to school events because there are no road connections.
    The State of Alaska owns and operates 260 airports:

        2 large international airports located in Anchorage and 
        Fairbanks.

        258 community class airports located across the state from as 
        far north as Barrow to Ketchikan in the south and Adak in the 
        east. This distance, is the same as flying from Michigan to 
        Florida, and then to California.

    A vast majority of these communities are land locked and not 
connected by any road link. The small communities of rural Alaska, 
which most depend on the Essential Air Service program, are the very 
communities that are not connected by roads to the rest of the state.
    Thirty-nine Alaska communities are currently receiving Essential 
Air Service, with fourteen separate air carriers providing that 
service. One carrier provides jet service to six communities and the 
other thirty-three communities are serviced by smaller propeller 
aircraft. The aircraft used, include Cessna 185s, Beaver floatplanes 
and even Grumman Goose.
    Over the last 3 years, the amount of funds administered under the 
Essential Air Service program to Alaskan air carriers have increased 
less than the general rate of inflation, despite greater inflation in 
fuel costs. During this same time period the total number of passengers 
using Essential Air Service has increased from 69,770 to 73,133.
    In 2002 the GAO indicated that further fiscal discipline may be 
necessary and identified four options to control costs and improve the 
program's sustainability.
    First, target subsidized service to more remote communities. That 
is exactly what is happening in Alaska. Most of Alaska's rural 
communities are completely dependent on air service because the state 
has only 4,732 miles of paved roads. In comparison, the State of 
Virginia has over 70,000 miles of paved roads.
    Second, better match capacity, with community use, by increasing 
the use of smaller aircraft. Again, this is exactly what we are doing 
in Alaska. As I have already stated, only six of our Essential Air 
Service communities receive jet service. The others are served by some 
of the smallest aircraft in commercial use. Alaskan air carriers 
regularly use planes that can only hold three passengers. The citizens 
of Akutan rely on a Grumman Goose, last built in 1947, for their 
Essential Air Service.
    Third, consolidate service into regional airports. Again, this is 
exactly what happens in Alaska. The Essential Air Service program 
subsidizes the movement of passengers and freight from the 39 smaller 
community class airports to one of nine primary regional airports.
    Fourth, change the form of Federal assistance from carrier 
subsidies, to local grants. Alaskans believe the program is working 
well and request that no changes in the funding method be made.
    Mr. Chairman, Alaska and her rural communities rely everyday on the 
Essential Air Service program, we know that it is well administered and 
are happy with the program as it is regulated today.
Small Community Air Service Development Grant
    Mr. Chairman, I was also asked to testify about the Small Community 
Air Service Development Grant program. The State of Alaska applied for 
a grant in April 2006 and was awarded $500,000 to foster diversified 
air service to Fairbanks. Having just completed this process, I will, 
provide you with my impressions of the program:JLW
    Creates Public-Private Partnerships: Fosters interagency and 
community partnerships by encouraging a local match and involvement in 
the marketing strategic plan to attract new and diversified air 
service.
    Creates Competition: Provides funding for new air service in 
challenging markets that either do not have air service and/or 
monopolistic service that unnecessarily penalizes the customer.
    Fosters Economic Development: New and/or diversified air service 
results in additional travel for both local and recipient communities--
boosting their economy. Allows for expanded routing and competitive 
fares that fosters an increase in travel opportunities for all types of 
travelers.
    Supportive Program from Start to Finish: Clear and relatively 
simple process from the application through the award. Excellent 
support from knowledgeable DOT staff. We have received immediate 
responses to all questions and/or concerns in regards to the program 
and its structure.
    From an Alaskan perspective, we have high expectations that this 
program will attract service for a new city pair, increase the economic 
opportunity for the communities, and add diversity for the traveling 
public.
    Mr. Chairman, Thank you for the opportunity to comment today.
    I would be glad to answer any questions that you and the Committee 
might have.

    Senator Burns. Thank you. We thank you.
    And I'm sorry I mispronounced your name, Commissioner. 
Kaercher, I guess it is. Is that correct?
    Mr. Kaercher. Much closer, but you're not the only one that 
misses it.
    [Laughter.]
    Senator Burns. Thank you for coming and making the trip. We 
look forward to your testimony.

          STATEMENT OF HON. DOUGLAS KAERCHER, COUNTY 
COMMISSIONER, HILL COUNTY, MONTANA; ON BEHALF OF THE PRESIDENT, 
MONTANA ASSOCIATION OF COUNTIES (MACo); NATIONAL ASSOCIATION OF 
                            COUNTIES

    Mr. Kaercher. Good morning. Chairman Burns, my name is Doug 
Kaercher. I am a County Commissioner from Hill County, Montana. 
I am here representing Hill County, the Montana Association of 
Counties, as its President, and the National Association of 
Counties. I want to thank you, Senator Burns and the rest of 
the Committee, for the invitation to testify on Essential Air 
Service.
    Essential Air Service is extremely important to NACo 
members from rural areas, to Hill County, to the seven 
additional communities in Montana that receive EAS, and to the 
approximately 143 other communities in 36 states, such as 
Alaska, Hawaii, West Virginia, Maine, and North Dakota, that 
have EAS.
    In a nutshell, EAS keeps these communities linked to the 
rest of America. It provides a link for citizens to travel to 
larger communities plus a link to the Nation and the world 
through the hub airports that EAS connects. EAS plays a key 
role in local communities by attracting and retaining 
businesses that depend on commercial air service; in 
healthcare, by enabling our citizens to easily access 
sophisticated healthcare that is often absent in rural 
communities; and by making the business of government work 
better when elected officials, such as myself, can fly to the 
state capital to confer with key state officials.
    When the Commerce Committee, in 2007, considers the 
reauthorization of Federal airports and aviation programs, we 
urge you to extend EAS and provide an authorized level of 
funding that is adequate to meet the demands and costs of the 
program.
    The Havre City-County Airport is located in Hill County and 
is jointly administered by a City-County Board. Big Sky 
Airlines has EAS service to Billings, Montana, and flies into 
and out of Havre twice daily, Monday through Friday, and once a 
day on Saturday and Sunday, using a 19-passenger turboprop 
aircraft. This service carried 2,973 passengers in 2005.
    What does commercial service mean to our region? Hill 
County, with a population of about 17,000, is 250 miles from 
Billings, the commercial, financial, and healthcare hub of 
Montana. Without EAS service, our economic development efforts 
would be seriously hampered. Often, the first question we get 
when recruiting industry is whether we have passenger air 
service. It is unlikely that a company would locate in our 
community if the closest good air service was a 2-hour drive. 
Our current employers depend on EAS. Havre is the home of a 
Burlington Northern Santa Fe Railroad regional headquarters and 
a General Electric repair facility. These two large 
corporations are constantly flying their employees in and out. 
A substantial amount of oil and gas exploration is taking place 
in Hill County and the adjoining region, with many workers 
using Big Sky Airlines. Montana State University is located in 
Havre. The air service makes it easier for faculty, students, 
and visitors to take advantage of the university.
    Because of declining number of acres in agriculture 
production, the agriculture equipment dealers in our community 
are fewer, and farmers and ranchers are dependent upon Big Sky 
to ship those needed parts to keep their equipment running in a 
timely fashion.
    Billings is the medical capital of Montana, where our 
citizens go for specialized and advanced medical care. EAS 
service makes it possible for citizens in rural communities 
such as ours to take advantage of the type of medical care that 
is easily accessible to residents of metropolitan areas. EAS 
allows an individual in need of such critical care to avoid a 
10-hour roundtrip drive to Billings.
    EAS also allows citizens and elected officials in Hill 
County to better participate in government. As a County 
Commissioner, I need to travel frequently to our state capital 
in Helena to work with the legislature, state agencies, and the 
state association of counties. EAS flies to Billings, where I 
make a connection on Big Sky to Helena. How many elected 
officials and citizens are going to make that 420-mile 
roundtrip to talk to a legislator?
    We have a substantial Native-American population in Hill 
County, and the residents of Rocky Boy's Reservation use EAS to 
go on training programs and attend meetings throughout the 
region and this Nation. EAS makes democracy in Montana a little 
more accessible.
    There are seven other EAS communities in Montana, and 
members of the Commerce Committee need to understand Montana to 
understand why we have so many EAS-subsidized air service 
communities. Montana is the fourth-largest state in the Union, 
and the distances between communities are substantial. Our 
state is 255 miles by 630 miles. Imagine, from Wolf Point, 
Montana, an EAS community, it is 317 miles to Billings, or 5 
hours in a car. That's about the distance from Hartford, 
Connecticut, to Washington, D.C., or St. Louis to Chicago. If 
you want to get to Helena, the distance is 412 miles, or 8 
hours. Just think about a 10-hour road trip to see a medical 
specialist, or a 16-hour trip to visit the state capital.
    From Glasgow, the drive to Billings is 277 miles, or 6 
hours, and 363 miles, or 7 hours, to Helena.
    The other EAS communities are also long distances from 
Billings. From Glendive, it's 222 miles; from Sidney, 272 
miles; from Miles City, it's 146 miles.
    West Yellowstone, our eighth EAS community, has a service 
on Sky West to Salt Lake City, on a seasonal basis.
    Without EAS, there would be no alternatives to these long 
drives--no Amtrak, no bus service. To a varying degree, this 
describes all of the approximately 150 communities currently 
served by EAS, about 115 in the continental United States, 
Hawaii, and Puerto Rico, and 35 in Alaska. In Montana, the EAS 
subsidy is about $7 million per year, which provides air 
service to nearly 60 percent of Montana's population. Those of 
us that live in rural Montana believe this is a small price to 
pay to keep the citizens of small and rural communities 
connected. The current total cost of EAS program is about $110 
million, with about $60 million coming from the general fund. 
For $110 million a year, we have been able to keep 150 rural 
communities linked to the rest of America. That's a great 
investment.
    Mr. Chairman, this concludes my testimony. I'd be happy to 
answer any questions.
    [The prepared statement of Mr. Kaercher follows:]

Prepared Statement of Hon. Douglas Kaercher, County Commissioner, Hill 
  County, Montana; on Behalf of the President, Montana Association of 
           Counties (MACo); National Association of Counties

    Good morning, Chairman Burns and Members of the Subcommittee on 
Aviation. My name is Doug Kaercher and I am a County Commissioner in 
Hill County, Montana. I am here representing Hill County, the Montana 
Association of Counties (MACo) as its President, and the National 
Association of Counties (NACo). *
---------------------------------------------------------------------------
    * The National Association of Counties (NACo) is the only national 
organization that represents county governments in the United States. 
Founded in 1935, NACo provides essential services to the Nation's 3,066 
counties. NACo advances issues with a unified voice before the Federal 
Government, improves the public's understanding of county government, 
assists counties in finding and sharing innovative solutions through 
education and research, and provides value-added services to save 
counties and taxpayers money. For more information about NACo, visit 
www.naco.org.
---------------------------------------------------------------------------
    I want to thank Senator Burns, and the rest of the Committee for 
the invitation to testify on Essential Air Service.
    Essential Air Service (EAS) is extremely important to NACo members 
from rural areas, to Hill County, to the seven additional communities 
in Montana that receive EAS service, and to the approximately 143 other 
rural communities in 36 states, such as Alaska, Hawaii, West Virginia, 
Maine, and North Dakota, that have EAS air service. In a nutshell, EAS 
keeps these communities linked to the rest of America. It provides a 
link for citizens to travel to the larger communities plus a link to 
the Nation and world through the hub airports that EAS connects to. EAS 
plays a key role in local communities by attracting and retaining 
businesses that depend on commercial air service, in heathcare by 
enabling our citizens to more easily access sophisticated healthcare 
that is often absent in rural communities, and by making the business 
of government work much better when elected officials, such as myself; 
can fly to the state capital to confer with key state officials. When 
the Commerce Committee in 2007 considers the reauthorization of the 
Federal airport and aviation programs, we urge you to extend EAS and 
provide an authorized level of funding that is adequate for meeting the 
demands and cots of the program.
    The Havre City-County Airport is located in Hill County and is 
jointly administered by a City-County Board. Big Sky Airlines has EAS 
service to Billings and flies into and out of Havre twice daily Monday 
through Friday and once a day on Saturday and Sunday using a 19 
passenger turboprop aircraft. This service carried 2,973 passengers in 
2005. What does commercial service mean to our region? Hill County, 
with a population of about 17,000, is 250 miles from Billings, the 
commercial, financial, and healthcare hub of Montana. Without EAS 
service, our economic development efforts would be seriously hampered. 
Often the first question we get from recruiting industry is whether we 
have passenger air service. It is unlikely that a company would locate 
in our community if the closest good air service was a 2-hour drive. 
Our current employers depend on EAS. Havre is the home of a Burlington 
Northern Santa Fe Railway regional headquarters and a General Electric 
repair facility and these two large corporations are constantly flying 
their employees in and out. A substantial amount of oil and gas 
exploration is taking place in Hill County and the adjoining region 
with many industry workers using Big Sky. Montana State University 
Northern is located in Havre and air service makes it easier for 
faculty, students and visitors to take advantage of the university. 
Because of declining number of acres in agricultural production, the 
agricultural equipment dealers in our community are fewer and farmers 
and ranchers are dependent on Big Sky to ship those needed parts to 
keep their equipment running in a timely fashion.
    Billings is the medical capital of Montana, where our citizens go 
for specialized and advanced medical care. EAS service makes it 
possible for citizens in a rural community such as ours to take 
advantage of the type of medical care that is easily accessible to 
residents of metropolitan areas. EAS allows an individual in need of 
such critical care to avoid a 10 hour round trip drive to Billings.
    EAS also allows the citizens and elected officials in Hill County 
to better participate in government. As a County Commissioner I need to 
travel frequently to our state capital in Helena to work with the 
legislature, state agencies and our state association of counties. EAS 
flies to Billings where I can make a connection on Big Sky to Helena. 
How many elected officials and citizens are going to make that 420-mile 
roundtrip by car to talk with a legislator? We have a substantial 
Native American population in Hill County and the residents of Rocky 
Boy's Reservation use EAS to go to training programs and attend 
meetings throughout the region. EAS makes democracy in Montana a little 
more accessible.
    There are seven other EAS communities in Montana and members of the 
Commerce Committee need to understand Montana to understand why we have 
so many EAS subsidized air service communities. Montana is the 4th 
largest state in area and the distances between communities are 
substantial. Our state is 255 miles by 630 miles. Imagine, from Wolf 
Point, Montana, an EAS community, it is 317 miles to Billings or 5 
hours. That's about the distance from Hartford, Connecticut to 
Washington, D.C. or St. Louis to Chicago. If you want to get to Helena, 
the distance is 412 miles or 8 hours. Just think about a 10-hour roa 
trip to see a medical specialist or a 16-hour trip to visit the state 
capital. From Glasgow the drive to Billings is 277 miles or 6 hours and 
363 miles or 7 hours to Helena. The other EAS communities are also long 
distances from Billings. From Glendive it's 222 miles, from Sidney it's 
272 miles, from Miles City it's 146 miles. West Yellowstone, our eighth 
EAS community, has service on Sky West to Salt Lake City on a seasonal 
basis. Without EAS, there would be no alternative to these long 
drives--no Amtrak and no Greyhound service. To a varying degree, this 
describes all the approximately 150 communities currently served with 
EAS service--about 115 in the continental United States, Hawaii and 
Puerto Rico and 35 in Alaska.
    In Montana, the EAS subsidy is about $7 million per year, which 
provides air service to nearly 60 percent of Montana's population. 
Those of us who live in rural Montana believe this is a small price to 
pay for keeping the citizens of small and rural communities connected. 
The current total cost of the EAS program is about $110 million a year, 
with about only $60 million coming from the general fund. For $110 
million a year, we have been able to keep 150 rural communities linked 
to the rest of America. That's a great investment.
    Mr. Chairman, this concludes my testimony. I would be happy to 
answer any questions you or other Members of the Subcommittee have.

    Senator Burns. Thank you very much.
    I have another way of describing how big our state is. From 
the Yaak, which is up in the northwest corner of the state, to 
Alzada, which is down in the southeast part of the state, it is 
further than it is from Chicago to Washington, D.C. And we have 
folks who live in every corner in--of the state, and it's a 
truly remarkable kind of place.
    Ms. Malarkey, have you--you heard the--Mr. Reynolds talk 
about new formulas being considered by the Department of 
Transportation, and maybe a new approach in taking that. Do you 
agree with some of those? And does--is it time that we take a 
look at reforms to be made in the program?
    Ms. Malarkey. Yes, our Association stands ready to look at 
those reforms, and would like to provide leadership in that 
area. We recognize that it's been about three decades since 
these were written. And, of course, some of the eligibility 
criteria do need to be reevaluated.
    With this said, our largest concerns centers on program 
funding. Our first priority, with respect to program reform, is 
to ensure that potential eligibility rewrites do not end up 
diverting money away from the program in the long-term. Any 
money that's moved around as a result of program reform should 
actually be reinvested in the program.
    Some of the things that we think could be particularly 
helpful would be increasing frequency along some routes where 
the community has seen some viability. We need to be sure the 
funding is there for the program, overall. If we start to talk 
about possible incentives to increase use, such as marketing 
programs, we must ensure that the base program is fully funded 
first.
    Senator Burns. Mr. Torgerson, Alaska is a huge state. We 
can't even hold a candle to you. You heard the Assistant 
Secretary. Do you have a--do you have some opinion on what--his 
testimony, this morning?
    Mr. Torgerson. Mr. Chairman, when I was researching my 
facts for this hearing, I found a 2002 GAO report which 
basically stipulated the four points that were reiterated 
earlier this morning. I believe that Alaska is the poster child 
for those four points.
    So, does the program need some reforms? I believe it 
probably does. I mean, finding a stable funding source so that 
we're not scrambling every year to know if we're in or out of 
the program; you know, inflation-proofing, and some of the 
other things.
    But everything else, I'd have to wait and see what was 
proposed by the Department before I would really be able to 
give a qualified answer.
    Senator Burns. With regard to--you say you have some 
communities that do not have staff to deal with the grant 
programs. Does your Department in Anchorage--do you assist 
those people in preparing those grants, and help them manage 
those grants, where they don't have enough staff to do so 
themselves?
    Mr. Torgerson. Mr. Chairman, my Department does not, but we 
do have a Department of Commerce and Economic Development and 
Community Advocacy who do receive grants and do things for 
those communities, some of those communities. But a lot of 
these don't really have--they have community councils, they 
don't necessarily have, you know, a government, per se, or 
there might be tribal entities that are there.
    Senator Burns. Did you--but has that--have you given any 
thought to that, of helping those folks out?
    Mr. Torgerson. Well, there's--we do, all the time, as a 
state, but, of course, this program hasn't had a requirement 
that it would go down to a community level. If there was such a 
requirement, I'm sure the state would step up and work either 
through the Department of Transportation--it would take a 
legislative change for us to be able to do that, but primarily 
through the Department of Commerce, they would probably step up 
and do something.
    Senator Burns. Mr. Kaercher, I would imagine that Havre 
would serve, what, Liberty and Blaine Counties, along with Hill 
County, in that--your airport there. What can we do, or what 
can you do, in order to increase your ridership out of Havre, 
Montana?
    Mr. Kaercher. Well, I believe Hill County and the City-
County Airport has been pretty progressive in funding their 
airport improvements, as far as keeping the airport up and in 
good shape. We've just recently finished a terminal upgrade. 
But I believe our airport's in good shape; it looks nice. I 
think that gives confidence to the riders that come up to the 
airport. But I believe, through our Chambers of Commerce and 
certainly through our universities, just in that marketing 
alone, and trying to promote this service, a lot has been done 
just to get those in our region to use our air service.
    Senator Burns. Now, the flights out of--let's say, out of 
Havre, do they have intermediate stops before you get to 
Billings?
    Mr. Kaercher. Yes, sir, they stop in Lewistown.
    Senator Burns. Lewistown. No--and--OK. What if you had one 
that stopped in Helena?
    Mr. Kaercher. I think our ridership would probably double 
if it was to go that direction. Besides Billings being a 
regional hub for financial and healthcare, Helena is certainly 
the governmental hub of Montana, and a lot of our residents and 
businesspeople make that trip to Helena on a regular basis.
    Senator Burns. Have you--have--do you--is the--is Big Sky--
are they open for some dialogue on--when they--when you talk 
about schedules and service?
    Mr. Kaercher. As far as I know, sir, that dialogue is 
actually pretty new with Big Sky, but I believe they are 
starting to look at that side of the riders.
    Senator Burns. Also, I guess, whenever we start talking 
about the reauthorization of the FAA, I would hope that some of 
the ideas that you put forward, say, as a result of this 
hearing, and some ideas, new ideas, and some reform ideas, that 
we have to--I think, in some areas, we have to think outside 
the box, and--in order to serve some of our areas. The 
improvement on the program, knowing that funds are going to be 
tight again, as far as the Federal Government and subsidies are 
concerned--but--well, I happen to believe that this is very, 
very important, and some new ideas, some reform ideas on how we 
can serve it better, maybe increase our ridership, and take 
care of--I know parts is a big thing for--in our state, as you 
well know, and so, we will continue to work on that.
    But always keep a little notebook of things, of how we 
could improve it. And as we march down this--this business of 
reauthorization of FAA, we'll keep those ideas in mind. And I 
want to thank you for your testimony.
    We'll leave the--just like it's--I stated a while ago, 
Chairman Stevens wanted to be here this morning. He's managing 
a bill on the floor now. We're going to have a vote here at 
11:30, and it looks like we've timed it pretty good. But I 
thank you for your testimony and making the long trip, because 
it's very, very important that this town understands the 
challenges that we face in states where we have large distances 
and no alternative transportation other than air, and it be--it 
would fall under the subsidization plan of the Essential Air 
Service. So, I thank you for your testimony, and I will--and 
your testimony will be taken very, very seriously as we move 
forward.
    If you will--if the other members of this committee want to 
ask you questions, why, keep your record open, reply to the 
Committee and the individual Senator, I would certainly 
appreciate that.
    That is just about all I have. We will leave--we'll leave 
the record open for a week, and I thank you for your testimony.
    This committee is adjourned.
    [Whereupon, at 11:26 a.m., the hearing was adjourned.]

                                  
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