Controversial FAA program serves just 153 communities at a cost of $200 million

Introduction

The latest short-term funding extension for the Federal Aviation Administration leaves intact a small but costly program that has been criticized for decades by government auditors.

Created in 1978 as a part of the Airline Deregulation Act , the Essential Air Service subsidy was designed as a 10-year initiative to help rural airports likely to be left without routes as commercial aviation converted to a market-driven system. In most cases, the program limits assistance to isolated communities more than a 70-mile drive from the nearest major hub airport, which could be subsidized at a rate of less than $200 per passenger.

But EAS has persisted almost 25 years past its original congressionally mandated expiration date. It now serves 153 communities and costs some $200 million a year.

With growing political and economic pressure to reduce spending, some in Washington are focusing renewed attention on a subsidy program that, for example, has allowed constituents of Senate Majority Leader Harry Reid, D-Nev., to fly from Ely, Nev., to Denver for as little as $70 — even though the cost of each ticket to taxpayers is reportedly $4,107 . A standoff over the program was at the root of a two-week FAA shutdown this summer and threatened earlier this week to shutter the agency again. A clean extension of the FAA passed the Senate Thursday night, averting the potential for a second shutdown.

“The effectiveness of [EAS] as anything other than enabling commercial airports to remain afloat is questionable, since the goal of the program was to help airports transition away from federal subsidies for air carrier service,” said Sen. Tom Coburn, R-Okla., in his “Back in Black” deficit reduction plan , published in July. “Taxpayers should not be expected to subsidize air service indefinitely.”

While EAS is a vital support program for Alaska communities with no other transportation options, there are also 109 airports in the lower 48 states that still benefit from the long-lived subsidy. These include Hagerstown, Md., an hour and a half drive from both Washington and Baltimore with a reported per ticket subsidy of $191, and Jonesboro, Ark., where the Transportation Department estimates taxpayers are on the hook $840 for every ticket even though it’s only 79 miles from Nashville.

The persistence of the subsidy “is a classic example of a small but vocal constituency trumping a large and unfocused majority – most folks don’t know about the Essential Air Service,” said Douglas Holtz-Eakin, president of the conservative American Action Forum and a former chief of the Congressional Budget Office. “Every administration knows this is a bad policy, but it’s not worth all the political pain you have to go through to [cut it]. It’s exactly the right size to live on like this.”

But others contend that current political realities may have altered the dynamic. “By any standard, you can’t justify the cost to benefit ratio here,” said Norman J. Ornstein, an expert on congressional politics at the conservative American Enterprise Institute. Although this is not “a program in the billions,” he said, “the pressure and the squeeze on almost every area of discretionary spending is such that even the smaller items are going to come under more scrutiny.”

A troubled history

The Government Accountability Office first highlighted problems with EAS in 1983, five years after the program was launched. In a review of the 1984 budget, GAO noted that “the 88 small communities receiving subsidized air service are not making progress toward achieving self-sustaining air service, and carriers will abandon or substantially reduce service to most of the communities when the program ends.” It recommended that Congress allow “greater flexibility to consider the merits of increasing or decreasing subsidies to selected communities in order to help develop an air service market or to discontinue subsidies to communities not supporting air service.”

Although the program was designed to expire in 1988, it was extended for a decade and then made permanent in 1996. In subsequent years, light passenger loads and a reduction in the number of airlines willing to participate led to higher costs for EAS, the GAO found in a 2000 review. “Between 1995 and 1999, the level of EAS funding for subsidized service increased substantially although the total number of communities that required subsidies decreased,” auditors said. “Changes and consolidation in the airline industry have likely affected the cost of providing air service to smaller communities,” they explained.

Subsidies rose 41 percent for service to communities outside of Alaska during the mid-90s while the number of EAS passengers fell by 4 percent, the GAO found. And by 1999, the percentage of seats filled on these subsidized flights had fallen to 15 percent on average. Commercial planes during that year averaged a 71 percent load factor.

President George W. Bush targeted the program for cuts in 2007, 2008, and 2009, but each time was overruled by Congress. In the final budget he helped craft, Bush requested only the $50 million per year EAS is guaranteed by law. Congress pushed the program’s budget up to nearly $137 million, House aides told iWatch News.

In President Barack Obama’s first year in office, he requested a $55 million funding increase for EAS. Congress delivered that and more, pushing the program’s budget up to $200 million in 2010, according to the Congressional Research Service.

In a July 2009 GAO report, auditors warned that “current conditions raise concerns about whether the program can continue to operate as it has.” It noted that the number of carriers providing subsidized air service had fallen from 34 in 1987 to just 10. At the same time, the number of communities receiving the subsidy had increased to 102. The load factor on EAS flights had increased since 2000 to an average of 37 percent, but the percentage of seats filled by paying customers on unsubsidized flights had also increased to about 80 percent.

A month later, the Congressional Budget Office also weighed eliminating the program in its annual budget options report. Eliminating EAS would reduce outlays by $99 million in 2010 and by $599 million over five years, the CBO found. In its rationale for cutting the subsidy, the CBO cited the intended 10-year timetable for the program and its high cost per passenger. “If states or communities derive benefits from subsidized air service, they could provide the subsidies themselves,” the report suggested.

Most recently, the program was listed in a 2011 GAO report on reducing redundant government programs. That review found that some $24 million per year could be saved if service was terminated in communities within 125 highway miles of a medium- or large-hub airport; EAS assistance has generally been available to communities more than 70 miles from bigger hubs that could not otherwise attract commercial air service.

The 2011 report also recommended considering bus or air taxi service in some places and smaller aircraft in others. A study released Monday by the American Bus Association supports this suggestion: It found taxpayers could save up to $89 million a year if the U.S. subsidized bus service instead of flights for 38 communities that are within 150 miles of major hub airports.

Support from both parties

In spite of this litany of research questioning the effectiveness of the subsidy in the lower 48 states, EAS has long enjoyed strong bipartisan support . As recently as 2009, 22 senators — 17 Democrats, five Republicans — signed off on a letter requesting additional subsidies from Peter Orszag, the former director of the Office of Management and Budget. They asked that the Obama administration’s budget “reflect the priority of the Essential Air Service program to rural America, and the vital nature of the program in connecting communities across this country.”

“If you’re looking at these remote airports in rural areas, you’re talking about rural states that have Republicans as well as Democrats,” explained Orstein. “Until this year, this [program] has not had a strong ideological or partisan edge to it.”

That changed in July when EAS was targeted for cuts by House Transportation and Infrastructure Committee Chairman John Mica, R-Fla., in a short-term FAA extension that was due to run out Friday at midnight. It was the 21^st short-term extension since 2007, when the last full FAA authorization expired – and the first acrimonious enough to lead to a shutdown.

Mica’s restrictions would have cut subsidies to airports within 90 miles of a large or medium-hub airport, effectively eliminating Ely, Nev., and 12 other high-subsidy airports from the program. Those new limitations were similar to restrictions included in multi-year FAA authorization bills that have actually passed both the House and Senate in recent months; however, those bills have not yet been reconciled in a conference committee, necessitating the need for more short-term extensions.

Many Democrats bristled at Mica’s attempt to insert EAS cuts and new restrictions on airline industry labor rules into a short-term funding bill. “EAS is a smart use of limited resources to support rural communities,” said Jay Rockefeller, D-W.Va., chairman of the Senate transportation committee, in a USA Today editorial. He accused the Republican House of holding the FAA hostage in order to restrict workers’ rights.

Neither side backed down before the deadline and so on July 23, the FAA partially closed down. Nearly 4,000 agency employees and 70,000 contract workers were furloughed for two weeks at a cost of more than $350 million in lost airplane ticket tax revenue.That’s more than the $16.5 million per year that Mica hoped to save on the $200 million-a-year EAS program.

The dispute was only resolved when Transportation Secretary Ray LaHood announced that he had the ability to overrule the EAS cuts, clearing the way for the Senate to pass the House’s version of that short-term funding measure on Aug. 5 — thus ending the shutdown. Since then, LaHood has begun issuing orders prohibiting termination of service at the 13 airports that would likely be affected by Mica’s provision. With that short-term funding measure about to expire, lawmakers moved this week to enact a new extension — one that includes more money for Essential Air Service.

Transportation experts say the battle may yet be repeated, because there’s no guarantee that lawmakers will succeed in passing a full, long-term authorization. “It’s hard to see a long-term bill happening. This labor issue is just real tough,” said Loren Smith, a transportation and labor expert at Capital Alpha Partners, a political research firm. “The most likely scenario is that we just keep getting extensions through the end of 2012. The elections winners can come back in 2013 and then you have the opportunity to hash out a long-term deal.”

And that’s “the only way you’re going to get rid of [EAS subsidies in the lower 48 states]” Ornstein said. The cuts have to be “a part of a larger package deal.” While that may not occur in this legislative session, Ornstein said, he “would be very surprised if it basically lived on intact.”