Introduction

The Airline Deregulation Act of 1978 (P.L. 95-504) granted U.S. passenger airlines almost total freedom to determine which domestic markets to serve and what airfares to charge. With the advent of deregulation, there were concerns that small communities would lose air service because airlines would shift their operations to serve larger and often more profitable markets. To address these concerns, Congress established the Essential Air Service (EAS) program in the Airline Deregulation Act to ensure continuous air service to small communities.

Initially, approximately 746 communities were eligible. However, not all eligible communities required EAS subsidies. Some communities have been receiving unsubsidized service because air carriers have been willing to offer service without subsidy; some have been receiving subsidized service under EAS from the very beginning; others initially supported unsubsidized service, but later sought subsidies, or vice versa; some were subsidized but later lost their eligible status and are no longer in the program.

Over time, Congress has tightened the conditions under which communities can receive subsidized air service. Nonetheless, program expenditures have increased sharply, more than doubling in inflation-adjusted terms between 2008 and 2014. As of June 1, 20152016. At the end of FY2016, a total of 159173 communities received subsidized EAS service.

Legislative History

Section 419 of the Federal Aviation Act,¹ as amended by the Airline Deregulation Act (P.L. 95-504) in 1978, established a program to continue airline service to small communities. The program was initially seen as transitional, and was set to expire after 10 years. This program was originally administered by the Civil Aeronautics Board (CAB), whose duties were later transferred to the U.S. Department of Transportation (DOT). The Airline Deregulation Act authorized the Civil Aeronautics BoardCAB to require carriers to continue providing scheduled service at eligible communities after deregulation,² with subsidies if necessary.

The Airline Deregulation Act made communities receiving scheduled air service from a certificated carrier on October 24, 1978, eligible for EAS benefits. At that time, there were 746 eligible communities, including 237 in Alaska and 9 in Hawaii. According to a DOT estimate, fewer thannearly 300 of these 746 communities received subsidized service under EAS at any timesome point between 1979 and 2015.

As the original 10-year expiration date approached in 1988, Congress extended EAS for another 10 years. In the Federal Aviation Reauthorization Act of 1996 (P.L. 104-264), Congress removed the 10-year time limit, extending the program indefinitely.³

For the first 12 years of the program, the sole criterion for EAS eligibility was whether the community was receiving scheduled air service on October 24, 1978, the date that the Airline Deregulation Act was signed into law. Over the following years, Congress and DOT havehas worked to limit the scope of the program, mostly by eliminating subsidy support for communities within a specified driving distance of a major hub airport.

The Department of Transportation and Related Agencies Appropriations Act, of 2000 (P.L. 106-69, §332), enacted two EAS eligibility requirements, prohibiting subsidies to carriers for service provided to (1) communities in the 48 contiguous states that are located fewer than 70 highway miles from the nearest large or medium hub airport,; or (2) communities that require a per-passenger subsidy rate in excess of $200, unless such point is greater than 210 miles from the nearest large or medium hub airport.

In 2003, the Vision 100—Century of Aviation Reauthorization Act (P.L. 108-176, §405) directed DOT to establish Community and Regional Choice Programs as alternatives to the traditional EAS service. In the following year, DOT established two pilot programs designed to allow communities to explore options that better suit their transportation needs while keeping costs under control. EAS eligibility requirements were not changed. For more on these two pilot programs, see the section "Measures to Shrink the Program."

TheIn 2011, the Airport and Airway Extension Act of 2011, Part IV (P.L. 112-27, Part IV) prohibited DOT from providing EAS to communities with annual per-passenger subsidies of over $1,000, regardless of their distance from the nearest hub airport. Also in 2011, the Consolidated and Further Continuing Appropriations Act, 2012 (P.L. 112-55), waived the requirement that carriers provide EAS flights using aircraft with 15 or more seats, allowing the use of smaller planes where passenger counts are low.

The FAAFederal Aviation Administration Modernization and Reform Act of 2012 (P.L. 112-95) adopted additional EAS reform measures, including Section 421, which amended the definition of an "EAS eligible place"⁴ to require a minimum number of daily enplanements. The 2012 act also provided that for locations outside of Alaska and Hawaii to remain EAS-eligible, they must have participated in the EAS program at some time between September 30, 2010, and September 30, 2011. This officially overrode the original list of eligible communities (except for those in Alaska and Hawaii) and capped the number of communities that are eligible for EAS. The FAA Extension, Safety, and Security Act of 2016 (P.L. 114-190) reauthorized the program through FY2017 without modification.

Current Eligibility Requirements

Except in Alaska and Hawaii, an EAS-eligible place is now defined as a community that, between September 30, 2010, and September 30, 2011, either received EAS for which compensation was paid or received from the incumbent carrier a 90-day notice of intent to terminate EAS, following which DOT required itthe carrier to continue providing service to the community (known as "holding in" the carrier). Starting October 1, 2012, no new communities can enter the program should they lose their unsubsidized service, except in Alaska and Hawaii. Airports that were formerly eligible but did not receive subsidized service during the specified year are no longer eligible for subsidized service, and may not reenter the program.

A community receiving subsidy during FY2011 remains eligible for EAS subsidy if

• it is located more than 70 miles from the nearest large or medium hub airport;
• it requires a rate of subsidy per passenger of $200 or less, unless the community is more than 210 miles from the nearest hub airport;
• the average rate of subsidy per passenger was less than $1,000 during the most recent fiscal year at the end of each EAS contract, regardless of the distance from a hub airport; and
• it had an average of 10 or more enplanements per service day during the most recent fiscal year, unless it is more than 175 driving miles from the nearest medium or large hub airport, or unless DOT is satisfied that any decline below 10 enplanements is temporary.

EAS Communities in Alaska and Hawaii

Communities in Alaska and Hawaii are generally exempt from almost all EAS eligibility requirements, except one measure established by the Consolidated Appropriations Act, of 2014 (P.L. 113-76), and the Continued Appropriations Resolution, of 2015 (P.L. 113-164). Both laws directed that no EAS funds "shall be used to enter into a new contract with a community located less than 40 miles from the nearest small hub airport before the Secretary has negotiated with the community over a local cost share."

This requirement does not affect any Alaska EAS communities, since none is within 40 miles of the nearest small hub airport. However, one community in Hawaii, Kamuela, may be affected when its current service agreement expires in 2017at the end of FY2017, if the cost-sharing requirement for communities within 40 miles of a small hub is adopted in future legislation.

Alaska

There were 237 Alaska communities on the original list of EAS-eligible communities. As of June 1, 2015, 44At the end of FY2016, 61 communities in Alaska received subsidized service (see Appendix B), leaving 194176 unsubsidized communities eligible for EAS subsidies. This represents a considerable increase from the 44 subsidized communities in 2015. The increase is due to additional Alaskan communities requesting subsidized service, which is allowed by law. Diomede, a community in Alaska that was not on the original list, is receiving service from EAS funds via Air Transportation to Noneligible Places (ATNEP, 49 U.S.C. §41736), a program under which a state or local government may propose to the Secretary of Transportation that DOT provide compensation to an air carrier to serve a place that is not EAS-eligible, with a 50% local share.⁵ The number of passengers served by EAS flights in Alaska is not readily available; the EAS program office does not compile this information as there are no requirements regarding minimum enplanement figures or per-passenger subsidies in Alaska.

Hawaii

As of July 1, 2015, there areAt the end of FY2016, two communities in Hawaii, Kalaupapa and Kamuela, receivingreceived subsidized service under EAS (see Appendix A). There were nine on the original list of EAS communities, not counting Kalaupapa, thatwhich came into the EAS program via ATNEP and later became a permanent EAS community with the 2012 Federal Aviation Administration (FAA)FAA reauthorization.⁶

Program Administration

The EAS program is administered by the Office of the Secretary of Transportation, which determines the minimum level of service required at each eligible community by specifying

• a hub through which the community is linked to the national passenger airline network;
• a minimum number of round trips and available seats that must be provided to that hub;
• certain characteristics of the aircraft to be used; and
• the maximum permissible number of intermediate stops to the hub.

In general, DOT subsidizes two to four round trips a day with small aircraft from an EAS community to a large or medium hub airport.

Selection of EAS Carriers

DOT issues a request for proposals (RFP) to all scheduled carriers to provide service to an eligible community, and institutes a carrier selection proceeding using a bid system. The departmentIt is required by law to use the following four key criteria when considering carriers' proposals to provide subsidized service to EAS communities:⁷

• service reliability;
• contractual and marketing arrangements with a larger carrier at the hub;
• interline arrangements with a larger carrier at the hub; and
• community views.

The RFPs advise air carriers that their proposals for subsidy should be submitted on a sealed bid, "best and final" basis, and set forth the level of service (frequency, aircraft size, and potential hubs) that would be appropriate for the community given its location and traffic history. DOT typically receives one to three proposals per RFP. Once the carrier proposals are received, DOT formally solicits the views of the community as to which carrier and option it prefers.

After receiving the community'scommunities' input, DOT issues a decision designating the selected air carrier and specifying the service pattern (routing, frequency, and type of aircraft), annual subsidy rate, and effective period of the rate. DOT generally establishes two-year EAS service contracts, which allow for regularallows for frequent bidding and givegives communities andas well as DOT flexibility to switch carriers.

Payment Procedures

DOT pays the air carriers in arrears at the end of every month. Carriers submit invoices based on the number of flights actually completed in conformance with the contract. They are paid according to the per-flight rate established in the contract, not according to passenger numbers.

If ad hoc service adjustments are made because of operational exigencies, the carrier reports those deviations on its invoice, and DOT makes appropriate adjustments in payment to the carrier.

EAS Hold-In Authority

By statute, if the air carrier serving an EAS community wants to discontinue service, it must first file a 90-day notice of its intent to suspend service. Hold-in authority prevents the incumbent carrier from suspending service until a replacement carrier begins service. On average, DOT issues 25 to 50 hold-in notices per year.

During the 90-day period, DOT will try to find a carrier willing to enter the market on a subsidy-free basis. If unsuccessful, DOT issues an order prohibiting the suspension and requesting proposals for replacement service, either with or without subsidy.

If it was serving an EAS-eligible community without subsidy, the incumbent carrier is eligible for compensation for being held in after the end of its original 90-day notice period. If the held-in carrier was already serving a community with EAS subsidy, it would continue to receive the same subsidy rate for six months, at which time it would be eligible for a rate increase.⁸

Program Costs

The EAS program is funded from overflight fees paid to FAAthe Federal Aviation Administration by foreign aircraft that transit U.S. airspace without landing in or taking off from the United States.⁹ Since FY2002, Congress has supplemented the overflight fees with discretionary annual appropriations of varying size.

Figure 1. Annual EAS Expenditures, 1985-2014 2016

Source: U.S. Department of Transportation. NoteNotes: Inflation adjustment based on Bureau of Economic Analysis Price Index for Government Consumption Expenditures and General Government Gross Output, National Income and Product Accounts Table 3.10.4, Line 12. 12, "Federal consumption expenditures."

Figure 1 shows that total EAS program expenditures have increased sharply over time. In constant 20142016 dollars, spending has increased 600% since 1996, and 123132% since 2008. Spending has spiked on two occasions, one after the 2001 terrorist attacks that temporarily disrupted the aviation market and led to an economic downturn, and the other in 2008 and 2009, when oil prices rose sharply during a deep recession.

The FAA Modernization and Reform Act of 2012 sought to reduce discretionary spending on EAS through FY2015. Section 428 authorized appropriations for the discretionary portion of EAS funding of $143 million for FY2012, $118 million for FY2013,; $107 million for FY2014,; and $93 million for FY2015. However, the law also authorized all overflight fee revenues, rather than just the $50 million provided historically, to be made immediately available to the EAS program. This has had the effect of increasing total funding availableoutlays for EAS subsidies.

The Consolidated and Further Continuing Appropriations Act, of 2015 (P.L. 113-235), provided $263 million in total EAS funding for FY2015, including $108 million in funding from overflight fees and $155 million in discretionary appropriations. DOT requested total funding of $283 million for FY2016. Annual EAS funding from FY2012 to FY2016appropriation. The FAA Extension, Safety, and Security Act of 2016 (P.L. 114-190) reauthorized the program at the existing level through FY2017. EAS received total funding of $283 million for FY2016. The President's preliminary FY2018 budget proposed to eliminate the discretionary appropriation for the program.¹⁰ Annual EAS funding from FY2012 to FY2017 is shown in Table 1.

Between FY2012 and FY2015, annual EAS expenditures rose 36%; DOT has proposed a further 7.6% increase for FY2016s: A full FY2017 appropriation has not been enacted. P.L. 114-223 extended funding through December 9, 2016; P.L. 114-254 further extended funding at the FY2016 level through April 28, 2017. The funding level in this table is based on the FY2017 continuing resolution prorated for the entire FY2017. FY2017 overflight fee collections are based on overflight fees already collected as of February 2017 and the projected additional collections for the remainder of FY2017. Between FY2012 and FY2016, annual EAS expenditures rose nearly 47% in nominal dollars, and DOT has projected a further $5 million increase for FY2017. These increases have occurred despite the numerous measures Congress has adopted over the years to contain program spending. Certain features of the program may have contributed to the rising costs:

• challenge of controlling costs: Few carriers may bid for any particular EAS contract. Although in some instances two or three carriers may offer proposals in response to an RFP, in many cases there is only one proposal with no competing bid, providing little incentive for the carrier to minimize its subsidy request.
• Subsidy cost is not among the four major factors DOT is required by statute to consider when evaluating bids.
• DOT is required by statute to consider the views of the community when selecting a carrier to provide subsidized service. If more than one carrier is proposing to offer service, local officials are under no obligation to favor the proposal that entails the lowest cost to the federal government.
• While the law sets forth minimum requirements for EAS service,¹⁰ typically two daily round trips six days a week to a hub airport with convenient connecting service to a substantial number of destinations, it does not limitThe law¹¹ does not limit a community's subsidized flights to a single route. According to DOT data, approximately 15More than 30 of the 159173 EAS communities havehad subsidized flights to more than one hub airport in FY2016.
• Although eligibility for EAS service, except in Alaska and Hawaii, depends in part on an airport's distance from the nearest large or medium hub airport, the law does not specify that the EAS-subsidized flights must serve that hub. In an unknown number of cases, subsidized flights link EAS communities with more distant airports rather than with the nearest hub, perhaps at greater cost to the government.
• For technical reasons or because of its own operational needs, a carrier may utilize a plane for an EAS flight that is larger than necessary for the traffic on the route, incurring higherhigh per-passenger costs. DOT estimates that 20%- to 25% of EAS communities are served by aircraft that are larger than passenger numbers might require. According to recent2014 testimony by the Government Accountability Office (GAO), EAS flights, on average, had 49% of their seats filled with paying passengers in 2013, versus an average of 83% for all domestic flights.¹¹
• Air carriers may not seek12 Costs per passenger may be high because air carriers may lack an incentive to maximize the number of passengers on a flight. Once a carrier and DOT have signed a contract agreeingagreed on the subsidy amount for a flight, the carrier is free to set fares as it desires. The carrier may find it more profitable to charge higherhigh fares to relatively few passengers than to maximize the passenger load with lower fares. All other things equal, this would result in a higher subsidy cost per passenger.

In 2014In FY2016, EAS subsidies in the contiguous 48 states plus Puerto Rico ranged from $109 to more than $977778 per passenger. DOT does not have readily available data allowing calculation of changes in individual communities' per-passenger subsidy rates over time.

Two tables at the end of this report provide information about subsidies to individual EAS communities as of June 2015September 30, 2016. Appendix A provides a list of the subsidized communities in the contiguous 48 states, Hawaii, and Puerto Rico. Appendix B lists the subsidized EAS communities in Alaska.

Measures to Shrink the Program

Over the years, Congress has sought to limit the scope of the EAS program, mostly by eliminating subsidy support for communities within a reasonable driving distance of a major hub airport and by imposing a cap on the per-passenger subsidy. Although numerous communities have been removed from the program, these efforts generally have not containedhave generally failed to contain overall spending on EAS.

Some provisions in the 2012 FAA reauthorization may counteracteffect since the passage of the 2012 FAA reauthorization (P.L. 112-95) could delay, if not negate, the law's attempt to shrink the program. For example, Section 426(c) provides thatauthorizes the Secretary of TransportationDOT, subject to the availability of funds, mayto grant waivers to communities exceeding the $200 subsidy-per-passenger cap on a case-by-case basis; Section 421(e) authorizes an unlimited number of waivers that may be granted, on an annual basis, to communities not meeting the minimum daily enplanement requirement; and Section 425 permits restoration of EAS eligibility to a community determined ineligible for subsidized EAS once these conditions are met.

70-Mile Rule

The Department of Transportation and Related Agencies Appropriations Act, of 2000 2000 (P.L. 106-69), prohibited DOT from subsidizing carriers that provide EAS flightsservice to communities in the 48 states plus Puerto Rico that are located fewer than 70 highway miles from the nearest large or medium hub airport. As a result, a few communities lost eligibility to receive EAS subsidy, including Hagerstown, MD, which is within 70 driving miles of Washington Dulles International Airport, and Lancaster, PA, which is within 70 driving miles of Philadelphia International Airport.¹²13 However, Section 409 of the Vision 100—Century of Aviation Reauthorization ActVision 100 (P.L. 108-176) allowed these two communities to petition DOT to review their mileage determinations. Based on certifications from the governor of each state that thesetheir communities were more than 70 miles from the nearest medium or large hub via the "most commonly used route," DOT order 2017-3-14 reinstated both communities' eligibility for EAS subsidy through the end of FY2007.¹³

Since then, the "most commonly used route" standard has been extended multiple times, leaving both communities eligible for subsidized flights. The annual per-passenger subsidy in 2014FY2016 was approximately $580241 for Hagerstown, which has EAS flights to Dulles, and $619 for Lancaster, which has EAS flights to Dulles and to Pittsburgh International Airport and $379 for Lancaster, both of which have EAS flights to both Baltimore-Washington International Airport and Pittsburgh International Airport. $1,000 Subsidy Cap A 2011 law, the Airport and Airway Extension Act (P.L. 112-27), further limited EAS subsidies to $1,000 per passenger, regardless of the distance from the nearest hub airport, except for communities in Alaska and Hawaii. This resulted in eight communities with per-passenger subsidy over $1,000 becoming ineligible: Alamogordo/Holloman Air Force Base, NM; Ely, NV; Lewistown, MT; Miles City, MT; Kingman, AZ; Great Bend, KS; Huron, SD; and Worland, WY. Unlike other EAS statutory requirements, the $1,000-per-passenger subsidy limit may not be waived by the Secretary of Transportation.

$200 Subsidy Cap

During the late 1980s and early 1990s, EAS program eligibility requirements were revised by Congress and DOT in response to insufficient program funding. The Dire Emergency Supplemental Appropriations and Transfers, Urgent Supplementals, and Correcting Enrollment Errors Act of 1989 (P.L. 101-45) prohibited DOT from subsidizing air service after September 30, 1989, to and from any EAS point in the contiguous 48 states for which subsidy exceeded $300 per passenger. As a result, six communities became ineligible for subsidized EAS service.¹⁴

This $300 cap was lowered to $200 for FY1990 in the Department of Transportation and Related Agencies Appropriations Act, 1990 (P.L. 101-164)P.L. 101-164, and that cap was repeated in several later appropriations acts through the 1990s. It was made permanent by the Department of Transportation and Related Agencies Appropriations Act, of 2000,¹⁵16 which set a maximum subsidy of $200 per passenger, except in Alaska and Hawaii, unless the community is more than 210 miles from the nearest hub airport. DOT has routinely provided notice of this statutory mandate to communities that appeared to be at risk of exceeding the cap, with the expectation that they would work with prospective EAS air carriers to keep the subsidy per passenger below the $200 cap. Between 1990 and 2006, 33 communities lost their eligibility because their per-passenger EAS subsidy exceeded the $200 maximum.

In late 2006, there were no communities whose subsidies were over the $200 cap. For the following eight years, DOT stopped enforcing the $200 cap in response to a number of shocks that affected the EAS program during that time. These included the cessation of operations by four air carriers in 2008, prolonged lapses in scheduled service at more than 35 EAS communities, and higher subsidy requests from carriers resulting from higher fuel prices.¹⁶

$1,000 Subsidy Cap

A 2011 law, the Airport and Airway Extension Act of 2011, Part IV (P.L. 112-27), further limited EAS subsidies to $1,000 per passenger, regardless of the distance from the nearest hub airport, except for communities in Alaska and Hawaii. Five communities with per-passenger subsidy over $1,000 have become ineligible for program: Alamogordo/Holloman Air Force Base, NM; Ely, NV; Kingman, AZ; Lewistown, MT; and Miles City, MT. Unlike other EAS statutory requirements, the $1,000-per-passenger subsidy limit may not be waived by the Secretary of Transportation17 On May 20, 2016, DOT issued order 2016-5-17, finding 30 communities had exceeded the $200-per-passenger subsidy cap in FY2015. Among these 30 communities, eight had experienced service hiatus and received waivers from DOT (order 2016-8-21). The remaining 22 communities all submitted petitions for a waiver and eventually received waivers, per DOT order 2016-11-8. All continue to receive subsidized EAS service or remain eligible to participate in the community and regional choice pilot programs.

Minimum Daily Enplanement

The FAA Modernization and Reform Act of 2012 amended 49 U.S.C §41731(a)(1)(B) to change the definition of "eligible place" for EAS, such that a community must maintain an average of 10 or more enplanements per day to be eligible. This requirement, however, does not apply to locations in Alaska and Hawaii or to communities more than 175 driving miles away from the nearest large or medium hub airport.¹⁹18 The Secretary of Transportation may also waive, on an annual basis, the 10-enplanement requirement if a community demonstrates to the Secretary's satisfaction that its low daily enplanement level is caused by a temporary decline in enplanements.²⁰

On April 24, 2014, DOT issued a tentative order²¹20 indicating its intention to enforce the 10-passengers-per-day rule. Based on FY2013 EAS data, this would have ended subsidized service to 13 communities: Athens, GA; Bradford, PA; El Centro, CA; Fort Dodge, IA; Franklin/Oil City, PA; Greenville, MS; Hagerstown, MD; Jackson, TN; Lancaster, PA; Kingman, AZ; Macon, GA; Merced, CA; and Muscle Shoals, AL.

All the communities except Athens, GA, filed petitions for waivers. On September 26, 2014, DOT issued Orderorder 2014-9-21, granting these 12 communities temporary waivers. TheseDOT indicated that these communities' compliance with the 10-passengers-per-day requirement willwould be reassessed based on FY2015 data.

In May 2015, DOT issued aanother tentative order²²21 indicating its intention to enforce the 10-passengers-per-day rule based on FY2014 data. This could affectwould have affected subsidized service to three communities: Mason City, IA; Show Low, AZ; and Victoria, TX. Petitions from these three communities contesting this tentative order were filed by the deadline of June 18, 2015. A final decision from DOT is pending.

Cost Sharing If Near a Small Hub

The Consolidated Appropriations Act, 2014, and the Continued Appropriations Resolution, 2015,All three communities filed petitions for a waiver. DOT granted waivers to all three, per order 2015-11-19. In DOT order 2016-5-17, mentioned previously, DOT found that in FY2015, 12 of the 30 communities that had exceeded the $200 subsidy cap also failed to meet the requirement of at least 10 enplanements per day. Four communities were in the group of eight that had experienced service hiatus. DOT order 2016-8-21 granted waivers to these communities. The remaining eight communities filed for and were granted waivers by DOT order 2016-11-8. They continue to receive subsidized EAS service or remain eligible to participate in the community and regional choice pilot programs. Cost Sharing If near a Small Hub The Consolidated Appropriations Act, 2014 and the Continued Appropriations Resolution, 2015 directed that no EAS funds "shall be used to enter into a new contract with a community located less than 40 miles from the nearest small hub airport before the Secretary has negotiated with the community over a local cost share." This requirement does not exempt communities in Alaska and Hawaii. ItThis may affect threetwo communities currently receiving EAS subsidies that are within a 40-mile distance of a small hub airport—Lancaster, PA;²³ Pueblo, CO; and Kamuela, HI, and Kamuela, HI.²² Kamuela's current EAS contract expires on September 30, 2017. In February 2017, DOT issued order 2017-2-4, with the cost-sharing provision, requesting proposals from carriers. Lancaster is also subject to cost sharing, but the multiple short eligibility extensions made DOT unable to go through the regular request-for-proposal process. DOT indicated that it would negotiate a new contract with a cost-sharing provision when the contract expires on September 30, 2017, provided Lancaster remains eligible.

Community and Regional Choice Pilot Programs

Section 405 of the Vision 100—Century of Aviation Reauthorization Act directed DOT to establish certain Community and Regional Choice Programs to provide communities with alternatives to the traditional EAS service. In the following year, 2004, DOT established two pilot programs: the Alternate Essential Air Service Pilot Program (Alternate EAS)²⁴23 and the Community Flexibility Pilot Program.²⁵24 All communities receiving subsidized EAS at the time of application can participate.

Alternate EAS allows communities to forgo subsidized EAS for a prescribed amount of time in exchange for a grant to spend on options that may better suit their transportation needs. These options include more frequent air service with smaller aircraft, on-demand air taxi service, scheduled or on-demand surface transportation, or purchasing an aircraft. The maximum grant amount may not exceed the annual EAS subsidy. Currently, Alternate EAS has threesix participants: Beckley, WV; Manistee/Ludington, MIClarksburg/Fairmont, WV; Macon, GA; Manistee/Ludington, MI; Parkersburg, WV/Marietta, OH; and Victoria, TX. All three have been receiving scheduled charter service except Macon, GA, whose inaugural charter service is scheduled for June 2017. Participating communities still need to meet the statutory eligibility criteria for EAS. One of them, Victoria, TX, has been notified that its alternate service is not meetingdid not meet the 10-passengers-per-day requirement in FY2015 but was granted a waiver by DOT order 2016-11-8.

The other pilot program, the Community Flexibility Pilot Program, is also known as the "buyout program." It allows as many as 10 communities that are receiving subsidized EAS to forgo EAS for 10 years in exchange for a grant equal to no more than two years' EAS subsidy. The grant can be used for a wide range of airport projects. There has been no participant in this program.

Issues and Options

The rate of increase in EAS spending remains a central issue of concern to Congress. However, program spending should be examined in conjunction with the number of communities served. According to a GAO report, 95 communities received subsidized EAS service in 1995 and 150 in 2008.²⁶ In 20142016, this number was 159173 (see Appendix A).

Nevertheless, the growth rate of average subsidy per EAS community over the years has been significant. GAO testimony noted that the average annual EAS subsidy in non-Alaska communities nearly doubled, from $1 million per community in 2002 to $1.9 million in 2013.²⁷ In 20142016, the average EAS subsidy in non-Alaskan communities was more than $2.1nearly $2.5 million per community.²⁸

In addition to the multiple contributing factors previously discussed, government regulations could alsomay affect the provision of air service to small communities. For example, a 2013 FAA pilot qualification rule²⁹ increased the qualification requirements for airline pilots. Many pilots working for regional airlines did not meet the new minimum qualifications. According to GAO, 11 of the 12 regional airlines it interviewed reported difficulties finding sufficient numbers of qualified pilots over the previous year, and some limited or canceled service to some smaller communities because of pilot shortages.³⁰ The rules seem likely to force small carriers to raise salaries in order to attract qualified pilots, potentially raising EAS subsidy costs as well.³¹

In a 2009 report, GAO offered a number of options for modifying the EAS program:³²

• limiting program eligibility to communities participating as of a specified date;
• allowing carriers more flexibility inon type of aircraft and/or service frequency;
• awarding long-term EAS agreements and incorporating financial incentives;
• allowing renegotiation of EAS agreements;
• consolidating EAS flights at regional airports;
and
• focusing EAS service on the most remote communities.

The first three options were adopted and included in federal laws. GAO also suggested that a multimodal approach to providing connections to hub airportsprovide financial assistance could potentially be more responsive to communities' needs.³³ It reiterated this recommendation in its 2014 report, suggesting that multimodal solutions, such as bus service to large airports or air taxi service to connect eligible communities to large airportscommunities, could be more cost-effective than the current EAS program.³⁴

Despite the changes that have been made to limit communities' eligibility for EAS and to permit the use of smaller aircraft, it appears that eligible communities, air carriers, and DOT may lack incentives to minimize program expenditures. It is not clear whether theThe changes adopted in recent years, including in the FAA Modernization and Reform Act of 2012, will provehave not proven effective in controlling program costs.

EAS traditionally has been authorized in laws reauthorizing FAAthe Federal Aviation Administration and other civil aviation programs. The current authorization act expires September 30, 20152017. EAS is likely to be among the subjects of debate as Congress considers extending the current law or writing a new authorization act.

Appendix A. Subsidized EAS Outside of Alaska

Appendix B. Subsidized EAS in Alaska

Author Contact Information

Footnotes