The act guaranteed that communities served by air carriers before  deregulation would continue to receive a certain level of scheduled air  service. 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. 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. 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. 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. However, after the 23 SCASDP grants were completed,  11 grants resulted in improvements that were self-sustaining. We found that grantees had identified a variety of project goals to  improve air service to their community. 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. 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. Moreover, the  passenger response to regionalizing local air service is unknown. 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. 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. This information will be important as Congress considers the  reauthorization of this program in 2008. 12. Commercial Aviation: Initial Small Community Air Service  Development Projects Have Achieved Mixed Results. GAO-05-945 Washington, D.C.:  September 30, 2005. Commercial Aviation: Factors Affecting Efforts to Improve Air Service  at Small Community Airports. Essential Air Service: Changes in Subsidy Levels, Air Carrier Costs, and  Passenger Traffic.
Why GAO Did This Study

Over the last decade, significant changes have occurred in the airline industry. Network carriers are facing challenging financial conditions and low-cost carriers are attracting passengers away from some small community airports. These changes, and others, have challenged the ability of small communities to attract adequate commercial air service. In response to these challenges, Congress has established two key funding programs--the Essential Air Service (EAS) and the Small Community Air Service Development Program (SCASDP)--to help small communities retain or attract air service. However, the sustainability of such funding could be affected by the federal government's fiscal imbalance. In addition, GAO reports have raised questions about how these programs support commercial air service to small communities. Given this environment, this testimony discusses (1) the development and impact of EAS, (2) the status of SCASDP and (3) options for reforming EAS and evaluating SCASDP. The testimony is based on previous GAO research and interviews related to these programs, along with program updates.

What GAO Found

The EAS program guarantees that communities that were served by air carriers before deregulation continue to receive a certain level of scheduled air service, under certain conditions. A growing number of communities are receiving subsidies under this program and funding for the EAS program has risen more than four-fold over the past 10 years. The federal subsidies have resulted in continued air service to the EAS communities, but if the subsidies were removed, air service might end at many of these communities. SCASDP grantees have used their grants to pursue a variety of goals and have used a variety of strategies, including marketing and revenue guarantees, to improve air service. The program has had mixed results: 11 of the 23 projects completed as of September 30, 2005, showed self-sustaining improvements to air service; while the remaining 12 grantees either discontinued the improvement or the improvement was not self-sustaining. Finally, the number of applications for SCASDP grants has declined--from 179 in 2002 to 75 in 2006. There are options for reforming EAS such as consolidating service into regional airports, which might make it more cost-effective, but also could reduce service to some communities. In 2003, Congress established several programs as alternatives for EAS, but these programs have not progressed. The Department of Transportation has agreed to evaluate completed SCASDP projects, an effort that will be useful when Congress considers the reauthorization of this program in 2008; this could also identify "lessons learned" from successful projects.