Federal Real Property: GSA Needs to Strengthen Oversight of Its Delegated Leasing Program

As the federal government's landlord, GSA is authorized to lease property to accommodate federal agencies. It can also delegate this authority to other agencies, though GSA is still responsible for overseeing the delegated leasing program. However, prior audits found problems with delegated leasing, including excessive rental rates and insufficient documentation to support that the government received a fair and reasonable price for the lease.

GAO was asked to review GSA's delegated leasing program. This report examines: 1) GSA's efforts to reform its delegated leasing program; 2) the extent to which GSA assesses agencies' policies, procedures, and performance in managing their delegated leasing activities; and 3) the extent to which GSA ensures delegated leases meet requirements. GAO reviewed federal statutes and regulations, and GSA's guidance and data on delegated leases. To illustrate how GSA approves and oversees delegated leases, GAO judgmentally reviewed 17 delegated leases selected to include lease contract value, type of lease, and agencies with high number of delegated leases. GAO interviewed officials from GSA and the four agencies associated with GAO's selected delegated leases.

The General Services Administration (GSA) has taken steps to reform its delegated leasing program, but data reliability issues remain. For example, GSA created GSA's Real Estate Exchange (G-REX) to centralize delegated lease requests and approvals, but GAO found G-REX had incorrect information on lease rental values and rates—reporting rates 12 times higher than they actually were. Moreover, GAO found that GSA was not annually reconciling data between G-REX and the government-wide real property database, per GSA's own procedures. GSA officials said that their past efforts to fully reconcile the data were unsuccessful but acknowledged there may be ways to compare the data to improve the reliability of both datasets. Until GSA clarifies what it can do to partially reconcile the data sets, it is not obtaining the intended benefits of this data validation exercise.

GSA does not know if agencies have the ability to manage their delegated leasing activities because it does not regularly assess their policies and procedures, or their performance in meeting GSA's management goals, such as avoiding extensions. GSA procedures state that GSA will consider the agency's organizational structure and ability to meet certain GSA performance measures prior to granting requests for delegated leasing authority. Moreover, federal internal control standards call for agencies to design control activities to better manage the program. However, GSA officials said that GSA relies on the agencies to oversee their own delegated leases. Nevertheless, GAO found instances of inadequate policies and procedures at one agency in managing its delegated leasing activities. Further, all 4 agencies had delegated leases that were in holdover status (occupying a space beyond the expiration of the lease term), which violates program requirements. Because GSA does not regularly assess agencies' procedures or performance, it cannot ensure that agencies are effectively managing their delegated leasing activities.

GSA cannot ensure that the leases agencies execute under delegated authority meet program requirements and are within the authority granted because it lacks key procedures to do so. GAO found that GSA had only reviewed 1 percent of the post lease award documents agencies had submitted, and in some cases, agencies had not submitted required documentation. GSA officials said the agencies are responsible for ensuring that documents are submitted and requirements are met. However, a risk-based assessment of a selection of delegated leases' post award documents can provide assurances that agencies comply with existing regulations and prevent potential fraud, waste, and abuse. Because GSA did not have a process to systematically review these documents, GSA is unable to ensure that delegated leases meet requirements and that agencies are positioned to prevent fraud, waste, or abuse.

GAO recommends that GSA (1) reconcile its databases; (2) regularly assess agency procedures for managing delegated leasing, (3) track agency performance, and (4) develop a review process for post lease award documents. GSA agreed with the recommendations.

As the main landlord and leasing agent for the federal government, the  General Services Administration (GSA) is authorized to acquire space  from private building owners for use by federal tenant agencies. GSA  leases space in 8,681 buildings or other assets and maintains a total  inventory of more than 370 million square feet of workspace for 1.1 million  federal employees, plus support contractors. In addition, GSA may  delegate its leasing authority to other agencies if GSA determines it is in  the government’s best interest. Currently, GSA has delegated such  authority to 18 departments and independent government offices, which  have used this authority to execute an additional 5,600 delegated leases,  at a total annual rent of about $985 million. When GSA delegates its  leasing authority to other agencies, GSA is still responsible for overseeing  the overall delegated leasing program. When not properly managed,  delegated leases run the risk of not being cost effective for the federal  government. In 2007, we and the GSA Office of the Inspector General  (OIG) identified problems with the delegated leasing program, such as  excessive rental rates and insufficient documentation to support that the  government received a fair and reasonable price. GSA responded to our  recommendations by instituting reforms to enhance its management and  oversight of the delegated leasing program.

You asked us to review GSA’s delegated leasing program, including  reforms made and remaining challenges. This report examines: (1) the  efforts GSA has made to reform its delegated leasing program since  2007; (2) the extent to which GSA assesses agencies’ policies,  procedures, and performance in managing their overall delegated leasing  activities; and (3) the extent to which GSA ensures leases procured with  GSA’s delegated authority meet requirements.

To assess the efforts GSA has made to reform its delegated leasing  program since 2007, we reviewed prior GSA and GAO reports on this  program, GSA regulations, policies, and manuals related to the program,  particularly those issued since 2007. We reviewed the development of  GSA’s Real Estate Exchange (G-REX)—GSA’s tool to track the lease  delegation application and approval process and store key post award  documents. To determine if the G-REX data for fiscal year 2016 to fiscal  year 2018 were reliable, we looked for outliers and incomplete data. We  also compared the G-REX data with the Federal Real Property Profile  (FRPP) Management System, which is the government-wide real property  database administered by GSA that includes data on all federally  occupied spaces, including those leased using delegated authority from  GSA, to understand if delegated leases in G-REX matched FRPP annual  data for a selection of delegated leases, as described below. While we  note some data quality issues with G-REX in our report, we concluded  that the G-REX data are sufficiently reliable for our purposes of reporting  the number of lease extensions and the number of leases reviewed by  GSA. We also interviewed GSA officials on their reforms and data  validation efforts. Finally, we compared GSA’s efforts to the Standards for  Internal Control in the Federal Government, in particular, the use of  quality information for making decisions.

To determine the extent to which GSA assesses agencies’ policies,  procedures, and performance in managing their delegated leasing  activities, we reviewed related GSA procedures and interviewed GSA  officials about GSA’s methods for reviewing agencies’ policies,  procedures, and performance in managing their delegated leasing  activities, including their performance in meeting requirements and  meeting GSA management goals. We compared these methods to GSA’s  procedures for overseeing the delegated leasing program and federal  internal control standards on designing control activities. We selected the  design of a control environment principle because it related to GSA’s  ability to review agencies’ procedures for managing their delegated  leasing activities.

To determine the extent to which GSA ensures delegated leases meet  requirements, we assessed GSA’s process for reviewing post award  documents by reviewing GSA policy and internal procedures documents  and comparing GSA’s process for reviewing post award documents  against these documented procedures. Specifically, we determined  whether GSA had a process in place to review post award documents  submitted to ensure that delegated leases met requirements and were  free of fraud, waste, and abuse. We compared GSA’s process to leading  practices we previously identified on managing fraud risk.

In addition, for all three objectives, we selected a non-probability sample  of 17 delegated leases to provide an illustration of how GSA has  implemented its policies and procedures for the delegated leasing  program. We selected 10 of these leases from G-REX from fiscal year  2016 to fiscal year 2018, and 7 from the FRPP. We selected the 17  leases based on the following criteria: delegated lease authority requests granted since January 1, 2016;  leases with relatively high total rent amounts;  leases from agencies that had a high numbers of delegated leases;  and  the type of authority used for the lease (preferring general purpose  lease delegations since they are the most common).

In addition, for the 7 FRPP leases, we selected delegated leases with  start dates of January 1, 2016 or later to improve the probability of  being able to find the lease in G-REX, since many older leases were  not recorded in G-REX.

For these 17 delegated leases, we reviewed supporting documentation  and attempted to match lease data found in G-REX with the same lease  in FRPP. Regarding these 17 delegated leases, we interviewed the four  agencies that had requested the associated delegation of leasing  authority: the U.S. Department of Agriculture (USDA); the Department of  the Interior (DOI) (one of our selected delegated leases was from the  Bureau of Land Management (BLM)); the Department of Veterans Affairs  (VA); and the Department of Commerce (Commerce), (one of our  selected delegated leases was from the National Oceanic and  Atmospheric Administration (NOAA)). We reviewed selected agencies’  procedures and methods for collecting and compiling documentation  supporting delegated leases. We reviewed documentation agencies are  required to upload after awarding the delegated lease and how GSA  reviewed the supporting documentation to determine its sufficiency. We  also interviewed GSA officials responsible for reviewing delegated leasing  authority requests for our selected leases. While the findings from our  selected leases are not generalizable, they illustrate how GSA is  implementing the delegated leasing program.

We conducted this performance audit from March 2018 to June 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

As the landlord for the federal government, GSA acquires space on  behalf of federal agencies through new construction and leasing. In this  capacity, GSA leases space in 8,681 buildings or other assets and  maintains a total inventory of more than 370 million square feet of  workspace for 1.1 million federal employees, plus support contractors.  Furthermore, GSA is authorized by law to enter into lease agreements for  up to 20 years and is permitted to obligate funds for its multiyear leases  one year at a time.

GSA can delegate its leasing authority to agencies if GSA determines it is  in the government’s best interest. Agencies may request this delegation  of authority when they believe they can obtain the lease more efficiently  than GSA. GSA grants three types of delegations of leasing authority,  depending on the intended use of the leased space:

General purpose – types of space that might be needed by almost  any agency, such as office or warehouse space;

Categorical – specific types of space that might be needed by some  agencies, such as for antennas, depots, or docks; and

Special purpose – types of space designated for 13 specified  agencies, such as laboratories for the Department of Health and  Human Services or office space in or near stockyards for USDA.

GSA’s FMR Bulletin C-2, issued in 2014, (the 2014 Bulletin) provides  usage and reporting requirements for delegations of leasing authority.  Many of these requirements restate or elaborate on various requirements  in statute and regulation. All delegations of leasing authority, including  general purpose, categorical, and special purpose space delegations, are  covered by the 2014 Bulletin. Agencies are responsible for compliance  with all applicable requirements when using delegated leasing authority.  Agencies must also conform with the requirements of any delegation  approval from GSA. The requirements can include limits on square  footage or the length of the lease.

Although GSA delegates its leasing authority to other agencies, it acts as  a guarantor for the leases in the event of a default by an agency. GSA  officials said that there have not been any defaults to date.

The process to apply for delegated leasing authority and then obtain a  delegated lease is outlined in figure 1 below.

GSA Has Reformed its Delegated Leasing Program, but Data Issues Remain

GSA Has Made Efforts to Reform its Delegated Leasing Program

In 2007, GAO found that GSA’s delegated leasing program  documentation was incomplete, inconsistent, unclear, and outdated.  Specifically, we found that GSA’s lease delegation process lacked certain  management controls, such as current written policies and procedures. In  addition, the GSA OIG found that some delegated leases had excessive  rental rates and inadequately documented lease files, primarily due to  customer agencies’ lack of expertise. Further, 56 percent of the lease files  reviewed by the OIG contained insufficient documentation to support that  the federal government received a fair and reasonable price.

In response to problems identified in GAO and GSA reviews, GSA  reformed its lease delegation program by clarifying requirements,  documenting policies and procedures, and centralizing data  management. In 2007, GSA issued new requirements for the delegated  leasing program in the FMR Bulletin 2008-B1 (2008 Bulletin). For  example, the 2008 Bulletin instructed GSA and the agencies on the  proper submission of documents to GSA; and required agencies to have  an organizational structure in place to support the delegation of authority,  and to ensure compliance with all applicable laws, regulations, and GSA  directives governing the lease acquisition.

In 2014, GSA began using a new electronic system—G-REX—to review  and process applications for delegations of leasing authority. Requesting  agencies began electronically submitting pre-authorization and post  award documents to G-REX. In 2014, GSA re-emphasized and updated  the requirements applicable to GSA leasing delegations in its 2014  Bulletin, which continued to be in effect when this report was issued.

GSA Continues to Address Data Quality Issues

GSA continues to address data quality issues that persist in spite of its  reform efforts. These data quality issues affect GSA’s ability to monitor its  delegated leasing program. First, we found that when information is  compiled, the G-REX system overstates the total delegated lease  contract values by 12 times higher than they actually were for every  delegated lease in the G-REX system. This occurred because it multiplied  annual rents by the number of months of the lease, instead of by the  number of years. For example, for a lease with an annual rent of  $2,300,000 and a lease term of 48 months, the calculated total contract  value was $110,400,000 instead of the $9,200,000 total contract value it  should have had for the 4 year lease. GSA officials confirmed this error  and corrected it during the course of our review. Second, we also found  data errors in G-REX resulting in approved delegated leasing projects  with annual rental rates higher than they actually were. For example, we  found a data entry within G-REX for an approved delegated lease with a  total lease rental rate several times higher than the average annual rent  rate. After reviewing the lease file, GSA officials confirmed that the rental  rate was incorrectly entered by the user into G-REX. We also found two  G-REX data entries for approved delegated leasing projects with 25 year  lease terms. General purpose delegated leases can only be for terms of  up to 20 years. GSA officials confirmed that both identified leases were  within the authorized delegated leasing parameters but that the data  entries were inaccurate due to a system error within G-REX that  incorrectly calculated the renewal options.

GSA officials said that they are aware of some data quality issues with  the G-REX system and are working to address them in an updated  version, which they plan to launch later in 2019. Officials said that the  new version of G-REX will include more business rules to prevent missing  data and identify anomalies. Further, uploading required post award  documents is not currently a mandatory action in G-REX. Instead, G-REX  sends automatic reminder emails to agencies if these documents have  not been uploaded. To address this issue, GSA officials said that the new  version of G-REX would improve the post award document upload  process. As we discuss later in this report, we found that selected  agencies did not always submit all required post award documents.

GSA Has Not Annually Reconciled G-REX and FRPP Data

While GSA is taking steps to improve the G-REX system, it does not  reconcile FRPP and G-REX data. Specifically, the 2014 Bulletin states  that GSA will perform an annual reconciliation of data between FRPP and  G-REX. GSA officials described the annual reconciliation as an  oversight procedure that would help ensure that GSA has an accurate  listing of delegated leases by comparing FRPP data with the centralized  records on delegated leases (currently stored in G-REX).

According to GSA officials, they tried to fully reconcile the two databases  in 2014 but were unable to do so. GSA officials stated that while they  could identify certain specific discrepancies between FRPP and G-REX,  conducting a full reconciliation of the two databases has many degrees of  complexity. Specifically, G-REX does not include all delegated leases, in  part, because not all existing delegated leases migrated into G-REX from  the prior GSA leasing system. In addition, GSA officials said FRPP and  G-REX do not directly match because each database serves different  purposes. Specifically, FRPP is a single comprehensive database that  contains information on federal real property worldwide, updated  annually. In contrast, G-REX is considered a business process  management software application and is primarily used by GSA to  process and capture lease delegation applications, according to GSA  officials. GSA officials now report that, even though the 2014 Bulletin still  calls for the annual reconciliation of data in G-REX and FRPP, they  believe fully reconciling the two datasets would have little, if any, value,  and currently have no intentions to do so.

The Standards for Internal Control in the Federal Government state that  improving the reliability of data could help agencies better manage  programs. For example, in this case, agencies could utilize real property  data to measure performance and inform decision-making to ultimately  improve the cost effectiveness and efficiency of their real property  portfolio. Moreover, although FRPP data quality could be improved,  FRPP can still provide reliable background information on GSA’s federal  real property portfolio. Since agencies are required to report data to  FRPP on all leased assets acquired under a delegation from GSA, FRPP  may provide GSA with useful information on an agency’s delegated  leases, in addition to what is included in G-REX.

We recognize the challenges posed by attempting to fully reconcile G- REX and FRPP. However, the 2014 Bulletin does not explicitly state GSA  will perform a full reconciliation. GSA could partially reconcile G-REX and  FRPP by doing some cross-data comparison. For example, had GSA  cross-verified G-REX and FRPP data, even on a case-by-case basis, it  could have potentially caught and addressed the data quality issues we  found in G-REX earlier. Some comparison of G-REX with the relevant  data in FRPP could improve the reliability, and thereby the usefulness, of  both data sets. For example, GSA officials said that GSA could, in theory,  begin comparing leases reported in FRPP as being awarded with  delegated authority against G-REX’s record of delegated leases. A partial  reconciliation like this could identify leases possibly acquired without  delegated leasing authority or other data quality issues and GSA could  then take steps to increase the reliability of the G-REX data. Until GSA  clarifies its position on what efforts it will take to reconcile G-REX and  FRPP, GSA is potentially losing opportunities to enhance its oversight  and is operating at odds with its own procedures.

GSA Does Not Know if Agencies Have the Policies and Procedures to Appropriately Manage Their Delegated Leasing Activities GSA Does Not Regularly Assess Whether Agencies Have Policies and Procedures to Effectively Manage Delegated Leasing Activities

We found that GSA has not designed control activities that would allow it  to regularly determine the adequacy of requesting agencies’ policies and  procedures to manage their delegated leasing activities. Instead, GSA  officials said that they expect agencies to have the capacity to manage  their delegated leases until evidence suggests otherwise and said GSA  assesses agencies’ activities on an ad hoc basis. For example, GSA  officials said that GSA audited USDA and Bureau of Indian Affairs (BIA)  because of tips from outside sources. Agencies requesting a delegation  of leasing authority must submit, among other things, an organizational  structure and staffing plan to support the delegation that identifies trained  and experienced staff to support delegated leasing activities.

In our review, we found that not all selected agencies had sufficient  policies and procedures to manage their own delegated leases. For  example, GSA’s ad hoc review of USDA’s delegated leases found  significant oversight issues. Specifically, GSA found that USDA had  awarded seven leases without a delegation of authority. In addition,  USDA was unable to locate the executed lease for one of the delegated  leases we reviewed. USDA officials said the agency has learned from  experiences like this one and is currently developing better policies and  procedures to prevent this from happening again. For example, USDA  has centralized leasing oversight between two bureaus and plans to  annually review selected delegated leases. Moreover, GSA’s ad hoc  review of BIA’s delegated leases found that BIA had also leased property  without delegated authority. Further, GSA’s 2012 audit of post award  documents found that BIA had some delegated leases that had expired,  and some exceeded the space threshold of 19,999 square feet. As a  result of its review, GSA did not grant BIA any new delegated leasing  authority until its OIG completed its findings and BIA responded with a  corrections plan that corrected these deficiencies, according to GSA.

GSA’s 2014 Bulletin states that GSA will review the adequacy of the  requesting agency’s organizational structure and staffing proposed for the  delegation; and whether the requesting agency has complied with all  applicable laws, executive orders, regulations, OMB Circulars, and  reporting requirements under previously authorized delegated leases.  Further, according to federal standards for internal control, management  should design control activities to achieve objectives and respond to risks.  Control activities are the actions management establishes through  policies and procedures to achieve objectives and respond to risks in the  internal control system. Accordingly, agencies with delegated leasing  authority should have an appropriate organizational structure and  effective policies and procedures to support the delegation and to ensure  compliance with applicable laws and other requirements, both of which  help agencies manage their delegated leasing activities.

If GSA had designed control activities to regularly review each agency’s  policies and procedures for managing its delegated leases, GSA officials  could have known earlier that an agency lacked the ability to manage its  delegated leases and possibly delayed granting additional delegations of  leasing authority until the agency had demonstrated their ability to  manage its delegated leasing activities. GSA officials said assessing an  agency’s policies and procedures to manage delegated leasing activities  when reviewing the agency’s individual application for a delegation of  leasing authority is not practical. GSA officials noted that it would become  a repetitive and unproductive process to review an agency’s policies and  procedures each time they applied for delegated leasing authority as the  same agencies are requesting delegated leasing authority for many  leases and an agency’s policies and procedures would not change with  each new application. However, GSA could assess agencies’ policies and  procedures for managing delegated leasing activities at regular intervals,  such as annually or biennially. Because GSA is not following its own  procedures set out in the 2014 Bulletin, or designing control activities that  would allow it to assess, at regular intervals, agencies’ ability to manage  their own delegated leasing activities, GSA cannot ensure that it is  providing this authority to agencies that can manage it effectively.

GSA Does Not Track Agencies’ Performance in Meeting GSA Management Goals

GSA does not track agencies’ performance toward meeting GSA’s  management goals, which is inconsistent with the 2014 Bulletin and GSA  policy. GSA has three key management goals for tracking the success of  the delegated leasing program:  1.  Delegated leases should have lease rates that are at or below private  sector rates over half the time, according to GSA’s annual  performance plan. The 2014 Bulletin states that, prior to granting the  agency’s request for a leasing delegation, GSA will consider the  demonstrated ability of the requesting agency to meet or exceed this  published performance measure for the cost of leased space, among  other things.  2.  Delegated leases should not extend into holdover status. The 2014  Bulletin states that a lease in holdover status, or an agency occupying  a building or space with no lease because it has expired, is in violation  of the lease delegation authority.   3.  Delegated leases should not be extended unless necessary to avoid a  holdover. GSA’s leasing desk guide states that short-term lease  extensions should only be used as a last resort because they typically  cost more, among other reasons.

The post award documents that agencies submit into G-REX do not allow  GSA to track agencies’ performance in meeting these management  goals. For example, G-REX does not calculate when lease rates are at or  below private sector rates. GSA officials said that GSA does not track the  performance of agencies with delegated leasing authority against these  three management goals because it is primarily the agencies’  responsibility to ensure they meet them. However, the four agencies with  delegated leases that we reviewed did not always meet GSA’s three  goals.

Officials from two of the agencies we interviewed said that they were  unaware of GSA’s performance cost metric for negotiating lease rates at  or below private sector rates or that it applied to delegated leases.  Consequently, the agency officials did not know if they met it. Since  neither G-REX nor the agencies with delegated authority track lease rates  in this way, GSA does not know if agencies are meeting GSA’s  performance cost metric or, more simply stated, if agencies are  negotiating cost-effective lease rates.

Regarding holdovers, we found all four agencies in our review were  experiencing holdovers, which raises questions about how effective their  policies are to prevent them. For example, USDA does not use its lease  expiration data in an effective manner to track expiring leases to submit  lease delegation applications, according to GSA’s audit of USDA  delegated leases. Consequently, USDA had one quarter (1,100 of 4,000)  of its delegated leases in holdover status in the past 24 months,  according to the GSA report. Furthermore, according to our analysis of  agency data, all four selected agencies have expired delegated leases  where the agency either has a standstill agreement with the landlord, or is  simply in holdover status. For example, VA had approximately 10  percent of its delegated leases in holdover status in fiscal year 2018.

Regarding extensions, according to G-REX data, almost half of all  approved delegated lease authority requests from fiscal year 2016 to  fiscal year 2018 were for lease extensions, which goes against GSA’s  goals. Officials from three of the four agencies in our review said that they  use extensions because they need more time to develop the agency’s  space need requirements for a new delegated lease, and they might not  have the time to do so before the current delegated lease’s expiration  date. GSA staff stated that if an agency has a large number of  extensions or holdovers, it denotes that the agency may not be  monitoring its leases and as a result is not fully aware of expiring  delegated leases. Tenant agencies agree that lease extensions are often  not in the best financial interest of the federal government because they  are not open to competition, according to this previous work. For  example, the USDA’s delegated lease site in Coquille, Oregon was  extended without competition for 45 years. USDA officials agreed this  was not in the best financial interest of the federal government and that  delegated leases should be opened for competition after 20 years.

Lease extensions and expired leases in holdover or standstill status are  inefficient and costly for the federal government for two reasons. First,  without competition among landlords, an agency may be unable to meet  the goal of negotiating a lease rate at or below the private sector rate.  Second, we have previously reported that the short-term nature of  holdovers and standstill agreements creates uncertainties, which can  make it challenging for agencies to plan and budget for space needs and  difficult for lessors to secure financing. Moreover, we have reported that  holdovers can create an adversarial relationship with building owners,  prompt concerns about an agency’s portfolio management, and create  unnecessary uncertainty for relevant stakeholders. We also noted that  holdovers and standstills occur for a variety of reasons, including  challenges finalizing space requirements, tenant agency labor shortages,  and the sometimes lengthy duration of the leasing process.

Absent procedures to regularly track the performance of agencies with  delegated leasing authority to ensure cost effectiveness and limit the use  of extensions, holdovers, and standstill agreements, GSA cannot ensure  that these agencies are meeting the management goals of the delegated  leasing program. When previously reviewing GSA’s management of its  own portfolio, we found that tracking and monitoring several measures  over the life cycle of the lease acquisition process may help reduce the  overall number of holdovers and extensions. For example, using a  tracking tool to alert management of delegated leases approaching their  expiration date could help to reduce the reliance on extensions and to  prevent holdovers and standstill agreements. Regularly tracking agencies’  ability to meet key management goals would alert GSA to holdovers and  heavy use of extensions that are not cost effective and may warrant  additional oversight.

GSA Cannot Ensure That Individual Delegated Leases Met Requirements

GSA requires that agencies submit an acquisition plan for their lease  when requesting delegated leasing authority, but GSA does not  systematically ensure that the subsequently executed leases follow those  plans and meet program requirements. Agencies submit an acquisition  plan along with other documents in order to request delegated leasing  authority. GSA officials told us that they review requests for delegated  leasing authority by verifying that all required information and documents  are uploaded into G-REX and that a lease consistent with the acquisition  plan would meet program requirements. GSA officials noted, however,  that the acquisition plan is strictly a planning tool and that the terms and  conditions are subject to change when finalizing the lease. When  approving a request for delegated leasing authority, GSA issues an  executive summary and approval letter to the agency identifying the  parameters of the leasing authority delegated, such as space limits.

Once the agency with delegated leasing authority awards the lease, the  agency is required to upload to G-REX certain post award documentation,  including the executed lease, within 30 days. These documents provide  insight on final lease terms such as square footage, lease expiration date  and cost, which may differ from the acquisition plans agencies submitted  when applying for delegated leasing authority.

We have previously identified risk-based assessment and mitigation as  leading practices for providing assurances to managers that they are  complying with existing legislation, regulations, and standards and  effectively preventing, detecting, and responding to potential fraud, waste,  and abuse. Assessing a selection of delegated leases’ post award  documents could serve as an early warning system for managers to help  mitigate or promptly resolve issues through corrective actions and ensure  compliance with existing legislation, regulations, and standards.

However, GSA officials said that they do not have a process in place to  systematically review post award documents from delegated leases to  determine whether the lease awarded met program requirements and  were within the authority granted in the approval letter. We found that as  of November 2018, GSA had reviewed approximately one percent of the  post award documents agencies submitted into G-REX, according to G- REX data. GSA officials told us they had not developed a system for  reviewing post award documents because GSA views it as primarily the  responsibility of the agency with the delegated authority to ensure they  comply with the 2014 Bulletin’s post award requirements. Further,  according to GSA officials, GSA’s primary role in the lease delegation  process is to review and approve requests for delegated leasing authority.  As a result, GSA officials have determined that regularly reviewing post  award documents is not the best use of their already constrained  resources. However, GSA’s reliance on agencies to comply with all  requirements absent any mechanism to ensure post award accountability  could allow agencies to lease space outside of the delegated authority  granted to them. GSA’s previously mentioned, ad hoc audits of USDA  and BIA delegated leases reinforced the need for strengthened oversight  to ensure that leases meet requirements, as both audits found problems.  For example, the DOI’s OIG confirmed in 2014 GSA’s findings that BIA  approved $32.7 million in delegated lease agreements that exceeded  GSA square footage and purchase approval limits.

GSA’s review of USDA’s delegated leases also found that approximately  540 lease files were missing the awarded lease documents in G-REX. In  addition, the review found that no file, in its sample of 27 lease files, had  all the required documents uploaded in G-REX. Furthermore, among  our selected delegated leases, we found instances of agencies not  uploading post award documents to G-REX after the lease was awarded.  For example, one delegated lease file in our sample was still missing the  executed lease over 2 years after the lease was signed. If post award  documents are not uploaded as required, GSA may not even have the  documentation necessary to determine if a delegated lease met program  requirements and was within the authority granted.

Even if all post award documents are uploaded, GSA still cannot verify  that the leases were executed within the parameters of the granted  delegated leasing authority and in accordance with program requirements  without a systematic process for reviewing post award documentation.  For example, as noted above, if GSA assessed a selection of delegated  leases’ post award documents, it may have identified the missing  executed lease and other deficiencies noted above and been able to  notify the agency. Further, GSA cannot ensure that agencies are  preventing fraud, waste, or abuse.

GSA oversees the delegated leasing program and is a guarantor of the  government’s monetary obligations under a delegated lease in the event  of default. However, if not properly managed, delegated leases run the  risk of not being cost effective for the federal government. GSA has taken  some actions to address previously identified issues with the program, but  its current oversight and management of the program is compromised by  a lack of key processes that make it unable to ensure the program is  working as intended.

Because GSA has not determined how to reasonably reconcile G-REX  and FRPP data, pursuant to its own procedure, it is missing oversight  opportunities, such as finding leases with annual rent or lease terms that  do not meet program requirements. Additionally, without a way to  regularly assess agencies’ policies and procedures to manage their  delegated leasing activities or track their performance in meeting key  management goals, GSA cannot be sure agencies can sufficiently  manage their leases or secure cost-effective rates. Periodic reviews of an  agency’s ability to manage its delegated leasing activities would help  GSA ensure that it is providing this authority to agencies that can manage  it effectively and efficiently. Finally, without a systematic process for  monitoring a selection of submitted post award documents to help identify  and promptly resolve issues and ensure compliance with existing  legislation, regulations, and standards, GSA cannot ensure that delegated  leases comply with the terms of the delegation and the program is free  from fraud, waste, and abuse.

We are making the following four recommendations to GSA  The Administrator of GSA should take steps to reconcile G-REX and  FRPP to the extent practical. (Recommendation 1)

The Administrator of GSA should develop a process for assessing at  regular intervals, such as annually, agencies’ policies and procedures for  managing their delegated leasing activities. (Recommendation 2)

The Administrator of GSA should develop a process that would allow  GSA to track agencies’ progress in meeting GSA management goals,  such as cost effective lease rates, and avoiding holdovers.  (Recommendation 3)

The Administrator of GSA should develop a systematic, risk-based  process for monitoring a selection of submitted post award documents.  (Recommendation 4)

We provided a draft of this product to GSA, VA, USDA, Interior, and  Commerce for review and comment. In its comments, reproduced in  appendix I, GSA concurred with the recommendations. GSA and USDA  provided technical comments, which we incorporated as appropriate. VA,  Interior, and Commerce did not have comments.

We are sending copies of this report to the appropriate congressional  committees, the Administrator of the General Services Administration,  and other interested parties. In addition, the report is available at no  charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-2834 or RectanusL@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.

Appendix I: Comments from the U.S. General Services Administration

Appendix II: Contact and Staff Acknowledgements

Lori Rectanus, (202) 512-2834 or RectanusL@gao.gov.

In addition to the individual named above, other key contributors to this  report were Keith Cunningham, Assistant Director; Sarah Jones, Analyst  in Charge; Eli Albagli; Lacey Coppage; Josh Ormond; Colleen Taylor;  Michelle Weathers; and Elizabeth Wood.

Usually, the General Services Administration buys or leases the real estate that federal agencies use for offices, labs, etc. However, GSA delegates some of its leasing authority to agencies. GSA is supposed to ensure that those leases' rental values and rates are fair and reasonable.

Our recommendations address several issues we found:

GSA could better identify and correct errors that we found in its database

GSA doesn't know if agencies are managing their leases in a cost-effective way

GSA doesn't systematically review delegated lease documents, so it can't be sure that delegated leases meet requirements


Commercial Aviation: Effects of Changes to the Essential Air Service Program, and Stakeholders' Views on Benefits, Challenges, and Potential Reforms

Congress established EAS as part of the 1978 deregulation of the U.S. airline industry. Through the EAS program, DOT provides subsidies to airlines to make service available to communities that airlines would otherwise not serve. Since 2010, several statutory changes have limited eligibility for EAS subsidies by, among other things, changing eligibility requirements. In spite of these changes, program costs have continued to rise, prompting questions about whether additional modifications should be made.

A provision in the Federal Aviation Administration Reauthorization Act of 2018 directed GAO to examine several aspects of the EAS program. This report discusses, among other objectives, (1) how federal laws enacted since 2010 have affected air service to communities funded through the program; and (2) challenges that communities and air carriers face with EAS, and options for reform.

GAO reviewed relevant federal laws, DOT orders, and DOT program data. GAO also interviewed representatives, such as airport managers and local government officials, from 17 communities that have participated in EAS; representatives from 10 of the 11 air carriers that participate in the program; and DOT officials. This report focuses on the EAS program as it operates in the contiguous United States, as there are different rules for EAS in Alaska and Hawaii.

Statutory changes since 2010 have reduced the number of communities eligible for subsidized air service through the Essential Air Service (EAS) program; however, the Department of Transportation (DOT) granted waivers to most of the communities that applied, resulting in little change in the number of communities receiving EAS. In 2012, statutory changes limited eligibility for the program in the contiguous United States to those communities receiving EAS in fiscal year 2011. Further statutory changes set a maximum average per-passenger subsidy, and a minimum number of passengers, that some communities would have to meet to retain eligibility. DOT also resumed enforcing the $200 per-passenger subsidy cap for certain communities. While these changes limited eligibility, in some cases the changes also gave DOT the option of providing waivers—most of which DOT granted. Thus, as noted, the overall number of communities receiving EAS remained about the same; however, EAS expenditures increased from $161 million in fiscal year 2010 to $277 million in fiscal year 2018 (see figure). DOT officials said this increase was due, in part, to factors affecting the entire airline industry, such as increased labor wages.

Community officials and air carriers GAO interviewed cited several challenges associated with EAS and suggested options for reform. For example, some carriers said it was difficult to find and retain pilots due to an insufficient supply of qualified pilots. At the same time, pilot wages have increased, making it difficult to provide quality service without exceeding the subsidy caps. Some carriers and community officials noted that the $200 subsidy cap has not changed for several years to account for inflation or these increased costs. To address these and other challenges, stakeholders suggested a number of options, such as indexing the $200 subsidy cap to inflation or allowing communities that lost eligibility to re-apply for the program. Several of these reforms would result in additional program costs.

As part of the 1978 deregulation of the U.S. airline industry, Congress  established the Essential Air Service (EAS) program to ensure that  communities continued to have access to the nation’s air transportation  system. To accomplish this access, the Department of Transportation  (DOT) selects air carriers willing to provide commercial air service with  subsidies to eligible communities that would not otherwise receive it.  During fiscal year 2018, the program received $288 million in  appropriations, and at the end of fiscal year 2018, 108 communities were  receiving service under the program in the contiguous United States, and  65 communities were receiving service in Alaska and Hawaii. We have  previously reported that Congress should consider re-examining the  program’s objectives, given changes in the airline industry and other  factors. Since 2010, several legislative changes have been enacted that  have limited access to EAS subsidies by, among other things, changing  eligibility requirements. Despite these changes, program costs have  continued to rise, prompting questions about whether additional  modifications should be made to EAS to make it more cost-effective and  to improve service to small communities.

Section 452 of the FAA Reauthorization Act of 2018 includes a provision  for us to examine the EAS program. This report discusses: what EAS communities and available studies indicate is the economic  effect of air service on small communities; how federal laws enacted since 2010 and DOT’s issuance of waivers  have affected EAS and air service to communities funded through the  program; and  challenges that selected communities and air carriers face with EAS  and options they identify for EAS reform.

To address all three objectives, we interviewed representatives, such as  airport managers and local government officials, from 17 selected  communities who have participated in EAS within the contiguous United  States. Of these communities, 14 are currently part of the EAS program,  and three were previously eligible to receive subsidized air service  through the EAS program. We selected these communities based on  several factors, including that those selected provide a mix of  communities that participated in the Alternate Essential Air Service  (AEAS) program and those that did not, a mix of those that received  waivers and those that did not, a range in the distance from larger  airports, and geographic dispersion throughout the contiguous United  States. We asked community representatives about the economic effect  of air service on the local economy, the effect of statutory changes since  2010 on air service to their communities, actions they have taken to  increase enplanements or reduce ticket prices, the challenges they  currently face in the EAS program, and options for future reform of the  program. See appendix I for a list of communities we interviewed.

To determine what available studies indicate regarding a link between air  service and the economies of small communities, we reviewed 13  economic studies that examined whether the availability and extent of air  service was associated with economic growth in a local area. We  identified these studies based on search results using the keywords  “airport”, “air service” and “airline service”, in conjunction with “proximity”,  “distance”, or “access” and “community”, “region”, or “rural”, and “airport”,  “air service”, and “airline service” in conjunction with “economic  development” from databases such as ProQuest®, ProQuest Dialog®,  Scopus, Nexis®, and EBSCO Information Services. Out of our larger  search results, we identified 13 relevant studies. We focused primarily on  studies that were empirical and published between 2008 and 2018. By  using varied model structures and techniques, most of the studies we  reviewed examined whether the level of airline activity—such as  enplanements or number of flight departures—appeared to influence local  economic factors. Economic factors analyzed in these studies included  growth in population and employment as well as the level or growth of  per-capita income and regional economic output. For each of the 13  identified studies, an economist reviewed the study and prepared a  summary of the findings that were elicited from the study. Then the  studies and findings were then reviewed by a senior social science  analyst. In addition, for the 6 studies where we cite specific findings, a  second economist conducted an additional review to verify the  appropriateness of the study.

To determine how federal laws enacted since 2010 and the issuance of  waivers have affected EAS and air service to communities funded  through the program, we reviewed relevant federal laws and DOT orders  to identify changes since 2010 related to EAS and to determine the  number of communities that lost eligibility as a result of those changes.  We reviewed appropriations and expenditures data to determine how  EAS funding levels have changed since 2010. While we did not  independently assess the accuracy of the data, we compared the data to  previously reported figures and presented the data to relevant  stakeholders; we determined the data to be reliable for our purposes. We  also reviewed waivers that DOT has granted to EAS-subsidized  communities to determine how many waivers DOT granted and the  reasons it did so, and we interviewed DOT officials to obtain information  about the process used to grant waivers.

To identify the challenges that communities and air carriers face with EAS  and options that exist for EAS reform, we interviewed representatives of  communities as described above as well as representatives of 10 of the  11 air carriers that are currently providing EAS in the contiguous United  States. We requested interviews with all 11 air carriers; 10 agreed to be  interviewed and one declined. (See appendix I for a list of the air carriers  we interviewed.) We also interviewed DOT officials to determine how  DOT selects air carriers to provide EAS and to identify the steps DOT  takes to oversee air carrier performance.

We conducted this performance audit from November 2018 to December  2019 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

The Airline Deregulation Act of 1978, which established the EAS  program, specifies that if DOT determines that air service will not be  provided without subsidy, DOT shall use EAS program funds to award a  subsidy to a carrier willing to provide service. As of October 1, 2018, 108  communities within the contiguous United States (as well as 65 in Alaska  and Hawaii) were receiving EAS (see fig.1).

To be eligible for EAS, a community must: be located more than 70 miles from the nearest large or medium hub  require a subsidy per passenger of $200 or less, unless the  community is more than 210 miles from the nearest large or medium  hub airport or unless DOT decides to issue a waiver; have a subsidy per passenger of 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; have had an average of 10 or more enplanements per service day  during the most recent fiscal year, unless the community 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; and have received subsidized EAS in fiscal year 2011 or were provided a  90-day termination notice by an air carrier, and the Secretary required  the air carrier to continue such service to the community.

EAS is funded through appropriations from a combination of discretionary  funding provided through annual appropriations acts, and overflight fees,  which are collected by the Federal Aviation Administration (FAA) from  foreign aircraft traveling over U.S. airspace without taking off or landing in  the United States. Historically, the amount of overflight fees provided to  EAS has been $50 million per year, but the FAA Modernization and  Reform Act of 2012 directed that all overflight fees be directed to EAS, an  action that which resulted in an increased proportion of the program being  funded by overflight fees (see fig. 2).

The minimal level of service each community is required to receive—the  minimum number of roundtrips and passenger seats that must be  provided, certain characteristics of aircraft to be used, and the maximum  number of permissible stops to a medium or large hub airport—are all  established in law. In general, current law requires that an EAS carrier  provide the following:  service to a hub airport, defined as an FAA-designated medium- or  large-hub airport;  two daily round trips, 6 days a week, with not more than one  intermediate stop to the hub;  flights at reasonable times taking into account the needs of  passengers with connecting flights and at prices that are not  excessive compared to prices of other air carriers for like service  between similar places;  service in an aircraft with an effective capacity of at least 15  passengers, under certain circumstances, unless the affected  community agrees in writing to the use of smaller air craft;  service in an aircraft with at least two engines and using two pilots;  and  service with pressurized aircraft under certain circumstances.

DOT awards contracts to individual air carriers to serve EAS communities  on a rolling basis throughout the year. According to DOT officials, DOT  takes the following steps:

DOT issues a request for proposals to all carriers to provide air  service to an eligible community.

Air carriers submit proposals that include the size of the aircraft to be  used, the frequency of service, potential hubs, and the amount of  subsidy required. Air carriers request subsidies at a level to cover the  difference between their projected revenues and expenses, and to  provide a profit. While there are no limits on the amount of subsidy  that a carrier can request in its proposal, a community can become  ineligible for EAS if the annual subsidy exceeds $1,000 per passenger  regardless of distance from the nearest hub airport or $200 per  passenger if it is located fewer than 210 miles from the nearest large  or medium hub airport.

DOT reviews the proposals and selects an air carrier to provide air  service to the community, generally for a contract period ranging from  2 to 5 years. When selecting air carriers to provide service to EAS  communities, DOT is directed by statute to consider five factors:  service reliability, contracting and marketing arrangements with a  larger carrier at the hub, “interline agreements” with a larger carrier  at the hub, whether the air carrier has included a plan in its proposal  to market its service to the community, and user preferences. In  addition, the Secretary may consider the relative subsidy  requirements of the carriers. By statute, the subsidy is set at an  amount to cover the difference between the carrier’s projected costs  of operation and its expected passenger revenues, while providing the  carrier with a profit element typically equal to 5 percent of total  operating expenses.

DOT awards a contract and pays air carriers based on the number of  flights completed in the prior month. Air fares on EAS routes are set at the  air carrier’s discretion without input from DOT.

In 2003, the Vision 100—Century of Aviation Reauthorization Act  established the AEAS, which 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. For example, a  community under AEAS may use the grant to purchase an aircraft to  meet transportation needs or may receive some flexibility on operating  requirements. Under AEAS, the community must still adhere to EAS eligibility requirements, and the maximum annual grant amount may not  exceed the annual EAS subsidy at the time of application to the program  or what DOT would pay to maintain EAS at the eligible community. For  example, if an air carrier received a subsidy of $1 million per year to serve  a community and the community decides to leave EAS and enter AEAS,  then the grant amount to the community under AEAS may not be more  than $1 million per year. As of September 2019, 8 of the 108 EAS  communities in the contiguous United States were participating in the  AEAS.

In addition, federal funds are available to support airports—including  airports that receive subsidized EAS—through the Airport Improvement  Program (AIP). AIP grants are awarded to public entities to make capital  improvements—such as runway and taxiway improvements. The level  of AIP funding that an airport receives is based on the number of annual  enplanements at the airport. For fiscal year 2018, airports with 10,000 or  more passengers were entitled to at least $1 million; airports with  between 8,000 and 10,000 passengers were entitled to $600,000, and  airports with fewer than 8,000 passengers were eligible for $150,000.  Thus, the number of enplanements at an airport receiving subsidized EAS  may affect the amount of AIP funds for which the airport is eligible.

EAS Can Provide a Number of Benefits to Communities

Officials from the 14 communities receiving EAS that we interviewed cited  several economic benefits of the local air service they receive:

Economic development, including the ability to attract and retain  businesses and professionals: When asked what benefits they  received from local air service, officials from all 14 communities  mentioned that having access to reliable air service through EAS was  crucial for economic development in their community, including the  ability to attract and retain businesses and professionals. In three of  the communities, officials told us that the first question a business  asks when deciding to locate to the area is if air service is available.

Increased tourism to the community: When asked about benefits,  officials in 6 of the 14 communities mentioned that EAS helps to bring  tourists to the community. One community official told us that having  access to air service through EAS was a key factor in the community’s  being selected to host the Boy Scout Jamboree, which brought 8,000  volunteers and 45,000 Boy Scouts to the area.

Creation of jobs related to air service: Officials from 4 of the 14  communities also mentioned that EAS brought jobs related to air  service to the community, including TSA personnel, airport  employees, airline employees, and concessionaire employees such  as those at fixed-based operators and airport restaurants. In  addition, some community officials told us that having air service in  the community creates other types of jobs and supports area  industries, such as hotels, restaurants, and rental car companies.

Further, community officials told us that EAS provides other benefits in  addition to economic benefits. Officials from 11 of the 14 communities  mentioned that EAS allows residents to more easily travel and be  connected to the rest of the world. Officials in 3 communities said that  residents use EAS to travel to larger cities for medical services that are  not available locally, such as procedures and appointments with  specialists.

Officials whom we interviewed in three communities that lost eligibility for  subsidized EAS told us that losing air service has had a negative  economic effect. For example, officials in one community told us that the  lack of air service has decreased the ability of local businesses, hospitals,  and colleges to recruit for professional-level jobs, such as physicians and  professors, who have travel needs to maintain proficiency in their field. An  official from another community told us that losing EAS led to decreased  enplanements, which, in turn, reduced the amount of AIP funding that the  airport receives. With less AIP funding, the airport is not able to pay for  improvements that would attract or enable air carriers to serve the  community.

Most of the studies we reviewed found there to be a correlation between  aviation activity and economic development. Specifically, several of the  findings indicate that greater aviation activity in a region is correlated with  some increase in the growth in population, employment, or per capita  incomes. The size of the influence in these findings was relatively small  but statistically significant. For example, one study found that a 1 percent  rise in passengers per capita was associated with 0.055 percent rise in  output per capita and another study found that a 10 percent increase in  number of nonstop destinations served from an airport was associated  with a 0.13 percent increase in employment and a 0.2 percent increase in  average wage.

One study that specifically examined the effect of subsidized air service  found that the availability of EAS was related to a small but statistically  significant increase in per-capita income in the local market. Specifically,  this study found that a 1 percent increase in traffic at an airport receiving  subsidized EAS was related to a 0.12 percent increase in per-capita  income. Further, another study that focused solely on small airports  found airport activity was associated with higher per-capita income, while  another study found that more rural areas experienced an even greater  benefit of nearby aviation activity than did more urban areas. However,  two of the studies we reviewed found that the effect of aviation activity on  local economic factors may be greater in areas with larger airports, which  tend to be in larger metro areas, than in areas with smaller airports.

Statutory Changes Have Limited Communities’ EAS Eligibility, but Nearly One-Third of Communities in the Program Continue to Receive Service through Waivers

Since 2010, Changes Limited Communities’ EAS Eligibility and Increased Flexibility of Air Carriers’ Operations

Since 2010, four statutory changes and a change in DOT’s enforcement  policy have limited the number of communities that are eligible to receive  EAS. (See app. II for a detailed list of statutory changes.)

The Airport and Airway Extension Act of 2011 prohibited DOT from  continuing to provide subsidies to communities with annual per- passenger EAS subsidies of over $1,000, regardless of their distance  from the nearest hub airport.

The FAA Modernization and Reform Act of 2012 removed eligibility for  communities within 175 miles of a large- or medium-hub airport that  do not have an average of least 10 enplanements per day during the  most recent fiscal year, unless DOT grants them a waiver.

The FAA Modernization and Reform Act of 2012 removed EAS  eligibility for communities that did not receive EAS between  September 30, 2010, and September 30, 2011, thus preventing  further growth of the program. This limitation does not apply to Alaska  and Hawaii. The number of communities that would otherwise be  eligible for service if not for this provision is unknown. We are aware  of at least one community that lost eligibility based on this  requirement. However, DOT has not been able to determine how  many communities fall into this category due to a number of  complicating factors, including an unclear count of the number of  communities that were initially eligible for EAS in January 1979 and  changes in eligibility in the intervening years.

The Consolidated Appropriations Act of 2014 and subsequent  appropriations acts required the Secretary of Transportation to  negotiate a local cost share with communities located less than 40  miles from the smallest hub airport before entering into a new contract  using EAS subsidies. Two communities in the contiguous United  States—Pueblo, Colorado and Lancaster, Pennsylvania—were  initially subject to this provision. Currently, Lancaster, Pennsylvania  is the only community in the contiguous United States subject to the  provision.

In October 2014, DOT issued a Notice of Enforcement Policy stating  that it would start enforcing the annual subsidy-per-passenger cap of  $200 for communities located less than 210 miles from a medium- or  large-hub airport after September 30, 2015, thereby limiting the  number of communities eligible for EAS in 2016. However, DOT may  grant a waiver to communities that have not met the cap.

We also identified two statutory changes since 2010 that increased the  flexibility of air carriers’ operations for the EAS program, and one that  automatically grants waivers for the $200 subsidy-per-passenger cap to  communities that meet certain requirements.

The Consolidated and Further Continuing Appropriations Act of 2012  and subsequent appropriations acts eliminated the requirement that  aircraft providing service under the EAS program have a minimum 15- seat passenger capacity. Officials from about half (8 of 17) of the  communities that we interviewed were in favor of the elimination of  this requirement. As a result of this change, the number of EAS  communities in the contiguous United States receiving service with  eight- or nine-seat aircraft increased from 23 percent (25 of 107  communities) in 2010 to 47 percent (50 of 107 communities) in  2019.

The FAA Reauthorization Act of 2018 explicitly allowed the Secretary  of Transportation to consider the flexibility of current operational dates  and airport accessibility when issuing requests for proposal of EAS at  seasonal airports. DOT had already been considering seasonal  service for some communities. Two of the communities that we  interviewed—Bar Harbor, ME, and Cody, WY—have seasonal EAS  because the number of passengers fluctuates during different times of  the year.

The FAA Reauthorization Act of 2018 required DOT to automatically  grant waivers for annual subsidy-per-passenger cap of $200 if (1) a  community’s subsidy per passenger for a fiscal year is lower than any  of the previous 3 fiscal years or (2) if the subsidy per passenger for a  fiscal year is less than 10 percent higher than the highest subsidy per  passenger for the previous 3 fiscal years. The Secretary may only  waive this subsidy cap once per community. According to DOT, it  began implementing this provision in 2019 using fiscal year 2018  data.

As described earlier, DOT is allowed to waive some eligibility  requirements. DOT can grant waivers to communities for (1) not meeting  the 10-enplanements per-day requirement or (2) exceeding the $200  subsidy-per-passenger cap in the prior fiscal year.

There are several steps that DOT generally follows when granting EAS  waivers:

DOT collects information from the prior fiscal year to determine which  communities no longer meet EAS eligibility requirements.

DOT issues a “show cause” order that directs the EAS community or  other interested persons to submit information to show why DOT  should not terminate the eligibility of the community.

The communities that are listed in the “show cause” order may  provide DOT with information demonstrating that they met EAS  requirements or submit a petition to DOT that demonstrates that the  community’s failure to meet eligibility requirements is a temporary  situation in order to retain eligibility. If the community does not provide  new information to demonstrate that they met EAS requirements or  submit a petition, then the community’s eligibility for EAS is  terminated.

DOT then issues a final order that changes its initial determination,  grants a waiver to the community, or terminates the community’s  eligibility for EAS. If a community disagrees with DOT’s decision to  terminate eligibility, it may submit a petition for restoration.

While Some Communities Lost Eligibility for EAS since 2010, DOT Granted Most Waiver Requests, Enabling Many EAS Communities to Continue to Receive EAS

As a result of these changes in statute and enforcement policy, 12  communities lost eligibility for EAS since 2010 and either were not eligible  for a waiver, did not apply for one, or applied for a waiver and were not  granted one (see table 1).

While some communities lost eligibility for EAS, many communities that  did not meet eligibility requirements since 2014 continue to receive EAS  because they were granted at least one waiver from DOT. From fiscal  year 2014 through fiscal year 2019, DOT granted a total of 110 waivers to  37 communities—about one-third of the number of communities currently  in the program (see fig. 3). The number of communities that received  waivers in recent years has increased during this time period, in part due  to DOT’s decision to enforce the $200 subsidy-per-passenger cap. DOT  granted waivers to 15 communities because they experienced a hiatus in  service during the year that resulted in the community’s not meeting the  10 average daily enplanements requirement or exceeding the $200  subsidy-per-passenger cap.

Of the communities that petitioned for waivers, DOT granted waivers to all  but three—Jamestown, NY; Franklin/Oil City, PA; and Hagerstown, MD.

Jamestown did not meet the 10 enplanements per-day requirement  and exceeded the $200 subsidy cap in fiscal year 2016. DOT officials  did not grant a waiver to Jamestown because they did not think there  was sufficient evidence that Jamestown would ever have enough  service to meet eligibility requirements.

Franklin/Oil City has not met the 10 enplanements per-day  requirement in each year since fiscal year 2013 and has exceeded the  $200 subsidy cap in each year since fiscal year 2015. DOT did not  grant a waiver to Franklin/Oil City because of its continued non- compliance with these requirements and its proximity to a medium  hub airport. Pittsburgh International Airport is 85 driving miles away. In  September 2019, Franklin/Oil City filed a petition to DOT for  reconsideration. DOT denied the petition.

Hagerstown has not met the 10 enplanements per-day requirement  since fiscal year 2013 (except fiscal year 2016), and has exceeded  the $200 subsidy cap each fiscal year since fiscal year 2015. DOT did  not grant a waiver to Hagerstown because of its proximity to a large  hub airport— Hagerstown is less than 70 miles from Washington  Dulles International Airport—and the fact that there was not sufficient  evidence to indicate that Hagerstown would be able to meet eligibility  requirements in the future. In August 2019, Hagerstown filed a  petition to DOT for reconsideration. DOT denied the petition, and  Hagerstown filed suit to challenge the decision in federal court.

Athens, GA, which did not meet the 10-enplanements per-day  requirement, was eligible to submit a waiver request but did not do so.

While The Number of Communities Receiving EAS Has Remained Relatively Stable Since 2010, Program Expenditures Have Increased by About 70 Percent

The number of communities in the contiguous United States receiving  EAS changed little since the beginning of fiscal year 2010 to the  beginning of fiscal year 2018—from 104 on October 1, 2009, to 109 on  October 1, 2017. However, program expenditures for EAS communities in  the contiguous United States have increased from approximately $161.3  million in fiscal year 2010 to $276.9 million in fiscal year 2018—an  increase of nearly 72 percent (see fig.4). Some of the increased program  expenditures were due to increased costs of certain critical resources  over the last several years, such as pilots’ salaries. However, even when  total expenditures are adjusted for the effect of inflation, expenditures still  rose substantially. Notably, we found a nearly 50 percent increase in  spending that is not accounted for by the general rise in prices over these  years, despite a roughly consistent number of communities served by the  program.

According to DOT officials, some of the cost increase is related to factors  that also affected the rest of the airline industry, such as increased costs  for pilots, flight crew, and mechanics. For example, in 2018 we found that  compensation for commercial airline pilots has increased in recent years,  most noticeably in new-hire compensation at regional airlines. Our  analysis of Bureau of Labor Statistics data from 2012 through 2017  showed that the median wages in the pilot occupation increased by  approximately 2.4 percent per year, while wages for all occupations  increased by about 1 percent per year over this period.

DOT officials told us that other factors contributing to increased program  costs are more specific to EAS. For example, some regional airlines that  serve EAS communities have experienced financial difficulties, and in  some cases, contracts with new carriers have increased in price to factor  in costs associated with replacing the previous carrier’s service. DOT  officials noted that larger air carriers that serve many markets have more  options available to help offset industry-wide cost increases, such as  increasing fares on more commercially viable routes, whereas some of  the smaller carriers that primarily service EAS markets have fewer  options on the revenue side to offset cost increases.

EAS Program Stakeholders Cited Challenges to Retaining Eligibility and Suggested Options for Reform

Communities and Air Carriers Reported Challenges That Include Maintaining Quality Air Service and Dealing with a Shortage of Qualified Pilots to Serve EAS Routes

Community officials and air carriers that we interviewed described several  challenges they face with regard to maintaining viable service. Many of  these challenges compound each other.

Quality of Service: According to officials from the communities we  interviewed, an air carrier provides good quality service to an EAS  community when the service is reliable (i.e., flights are on time, at  convenient times, and are not frequently cancelled), offers connections to  multiple locations, and includes benefits such as the ability to easily catch  a connecting flight and check bags to the final location. Some community  officials also said good quality service involves seamless connections to  large hubs with regional jets. When a carrier does not provide what  communities and passengers see as quality service, the number of  enplanements decreases because people stop using the service. As a  result, the carrier may decrease the number of flights per day to make the  service financially viable. However, the reduction in frequency could  further degrade the quality of service. Carrier representatives explained  that many factors affect the quality of service carriers are able to provide  and communities explained that unreliable service can result in several  problems for them.

Decline in Enplanements: Officials in most of the communities (15 of  17) said that a lack of quality service from the carrier had been a  challenge and in many instances (14 of 17) had led residents to opt to  travel to an alternative larger airport for service. The resulting decline  in the number of enplanements can put a community at risk of losing  EAS eligibility because it may not be able to achieve an average of at  least 10 enplanements per service day or stay under the $200  subsidy-per-passenger cap. Officials from one community said that its  EAS carriers’ cancelled flights and lack of interline agreements with  mainline airlines had resulted in customers choosing to drive 80 miles  to fly out of a large hub airport rather than use the local airport.

Providing Service within Subsidy Caps: Four of the carriers we  interviewed said that increased costs—such as those resulting from  increased pilot wages—make it difficult to provide service within the  subsidy caps, which have not been increased to account for inflation.  An official from one carrier said that factors such as the increasing  costs for pilots and an insufficient number of aircraft operating with  less than 50 seats make it difficult for a community airport to comply  with the $200 subsidy-per-passenger cap. According to  representatives of the carrier, in some instances, they are paying their  pilots 75 percent more than they were 5 years ago. They said that to  compensate, the carrier may have to raise fares, a step that could  lead to losing passengers and potentially put communities at risk of  losing eligibility for EAS.

Loss of Customers’ Confidence: Three of the carriers we interviewed  said that when they were selected to replace carriers that had not  provided reliable service to a community, it took time to regain the  community’s confidence and attract people to use their EAS air  service. If these air carriers had not been able to regain the  community’s confidence and increase enplanements, the community  may have lost eligibility for EAS.

Loss of AIP Funding: A decline in the number of enplanements may  also lead to a reduction in AIP funding available to the airport. AIP  funding is important for small communities that have fewer financial  resources than large- or medium-sized airports. AIP funding can  help airports make improvements that could attract more business,  such as from commercial and business aviation.

Pilot shortage: Aviation stakeholders have voiced concerns that there is  an insufficient supply of qualified pilots to support current and future  demand from U.S. regional and mainline airlines. In May, 2017, the  Working Group on Improving Air Service to Small Communities found that  as a result of the pilot shortage, there were too few pilots to fly all the EAS  routes. In June 2018, we found that labor market indicators for the pilot  occupation were consistent with the existence of a pilot shortage.  Carriers and community officials that we interviewed cited the following as  issues related to the pilot shortage.

Difficulty Retaining Pilots: Officials from 6 of the 10 carriers we  interviewed said that it has been a challenge to retain sufficient pilots  to provide the air service they have committed to providing under  EAS. Pilots often start their careers with smaller air carriers that may  serve EAS communities, and after a few years in the business, pilots  are hired by larger airlines offering higher pay and more opportunities  for advancement. Officials from 3 of the 10 carriers we interviewed  said that they have responded to the pilot shortage by operating eight-  or nine-seat aircraft under Part 135 regulations, which allows them  to use pilots that have less flight time as first-officers. This increases  the pool of pilots who can fill first-officer positions and gives these  pilots the opportunity to build flight hours toward their Airport  Transport Pilot license.

Reduced Service Quality: Officials from 15 of the 17 communities we  spoke with said that a shortage of pilots has been a challenge.  Specifically, the pilot shortage has resulted in a reduction in service  quality for some EAS communities because the air carrier has not  been able to attract enough pilots to provide reliable service. Six of 17  communities told us that their enplanements declined and that some  had lost service for a period of time due to a lack of pilots. For  example, an official from one community said their carrier ended  service to the community in 2014 due the industry-wide pilot shortage.

Airport costs: Air carriers must pay fees to use airport facilities. Fees are  charged for landing, counter and gate space, parking, and other airport  facilities. These varied fees are part of carriers’ operating costs. Officials  from 3 of the 10 carriers we talked to said that these airport costs may be  difficult to cover because carriers serving the EAS program use relatively  smaller aircraft with fewer passengers, and therefore, the carrier must  charge more per passenger to cover the costs. For example, an official  from one carrier we interviewed said that a community wanted to have an  EAS flight that flew into Las Vegas; however, the airport in Las Vegas  charged a single-aisle 9-seat aircraft the same landing fee as any other  single-aisle aircraft, some of which can hold hundreds of passengers.

Production and supply of small aircraft: Because there is a lack of  availability of aircraft between 19 and 50 seats, in some cases, DOT,  airlines, and communities have to choose service with a plane that is  either too small or too large for demand. Manufacturers have said they  are generally not producing this size aircraft because there is less  demand and higher costs since they must certify them under Part 25  regulations for scheduled commercial service as opposed to the lower  costs incurred under Part 23 regulations.

Insufficient or Excess Capacity: Officials from 12 of the 17  communities we interviewed said that the declining production and  supply of 19- to 50-seat aircraft has been a challenge for the EAS  program. Officials from 2 communities we interviewed said they have  moved to larger 50-seat aircraft, which means the communities might  have too much capacity. On the other hand, officials from 11 of the 17  communities we interviewed expressed concerns about receiving  service from a carrier that operates aircraft with less than 15 seats  because, according to six communities we spoke with receiving air  service from a carrier that only operates eight- or nine-seat aircraft  may not provide sufficient capacity to allow the community to fulfill the  EAS annual enplanement requirements, and thus, the community  could lose eligibility for EAS. In addition, officials from 5 of the 17  communities were concerned that some people have an aversion to  or difficulty getting into small aircraft that could deter them from using  the service.

Financial Effects on Air Carriers: Officials from 5 of the 10 carriers we  interviewed said that the lack of available aircraft between 19 and 50  seats is a challenge. For example, an official from one carrier was  concerned that operating eight- or nine-seat aircraft may limit their  ability to serve EAS communities whose enplanements are increasing  because the carriers would have to add seat capacity either through  increased frequency of flights or larger aircraft they do not currently  own in order to decrease the subsidy-per-passenger costs. However,  if the carrier uses an aircraft with 50 or more seats, the carrier must  have sufficient increasing demand to fill that plane on a regular basis  to justify the capital expenditure and increased costs to operate.  Furthermore, according to officials from another air carrier, eight- or  nine-seat aircraft were not designed to operate with the frequency that  small carriers are using them, which can reduce reliability and  increase maintenance and operating costs.

Driving Distance Calculation: While communities that we interviewed  cited several specific benefits of the local air service they receive, as  previously discussed, some expressed concerns about specific aspects of  the program. Officials from 5 of the 17 communities we interviewed said  that DOT’s calculation of the shortest driving distance between the  community and the nearest large- or medium-hub can affect their  eligibility requirements. DOT relies on the driving distance calculation to determine which communities are subject to the 10-enplanement and  $200 subsidy-cap requirements. According to community officials, the  easiest, safest, and quickest route from the community to the airport may  be further than what DOT has calculated as the shortest driving distance,  which could make the community exempt from these requirements. For  example, one community official we spoke with told us that most people  in the community take the expressway to the nearest hub airport, which is  further from the center of the community to the airport than the two-lane  route DOT uses in its calculation. An official from another community we  interviewed said that DOT should take into account the time required to  drive the route and the safety of the roadway when calculating the  distance for EAS eligibility. The official explained that the route should  take 2 hours to drive but often takes much longer due to traffic and  delays, and expressed concerns that the route is very dangerous.

Carrier Contracts: Contracts in the EAS program are in the form of DOT  Orders announcing the carrier selected to serve a route and the subsidy  awarded to the carrier. The Orders contain information such as the  annual subsidy rate, the time frame for service, and various carrier  requirements. Officials from 6 of the 17 communities we interviewed said  that the structure of DOT’s contracts with EAS carriers can present a  challenge because the communities feel they provide little to no leverage  over a carrier that provides unreliable service. Officials from five  communities said that EAS contracts do not include performance  requirements or have penalties if the carrier does not meet service quality  standards or targets. As previously discussed, officials from 15 of the 17  communities we interviewed told us that they had not received quality  service at some point in the EAS program, which can result in declining  enplanements and, ultimately, the community losing eligibility for the EAS  program. However, if a community wants to have DOT cancel a contract,  the community might lose air service if there is not another carrier  interested in providing service.

DOT has stated that the EAS program already provides financial  incentives for carriers to provide reliable service. For example, DOT  states that its “no fly, no pay” policy encourages carriers to complete flights because DOT reimburses carriers only for flights that they actually  operated. Further, DOT also believes that carriers have financial  incentives to increase completion rates above the rate estimated in their  proposals. Because carriers frequently account for predictable flight  cancellations they have an incentive to beat their estimate. Furthermore,  carriers have the financial incentive to provide quality service to avoid  losing enplanements and maintain a financially viable service.

Stakeholders Suggested Several Options for Changing the EAS Program to Improve Service, but Some Would Likely Increase Costs

The communities and air carriers we interviewed suggested potential  reforms to EAS that they believed would improve service to their  communities. Several of these changes would likely result in increased  program costs.

Change the subsidy cap: Officials from two communities and four  carriers we interviewed said that the $200 per-passenger-subsidy cap  should be changed, either by indexing the cap to inflation or  increasing the cap temporarily for a community to allow a carrier more  flexibility to develop a market for new service in a community or to  account for higher labor costs. Since the subsidy cap is established in  statute, revising it would require a legislative change. An official from  one community said that increasing the cap for inflation would allow a  carrier to use a larger aircraft, thereby improving use of the airport.  One air carrier official said the cap needs to be increased to reflect  rising labor costs. In its October 2014 notice of enforcement policy,  DOT said that while it recognized the cap has not kept pace with  inflation, the requirements of the statute did not provide DOT with the  discretion to adjust the subsidy cap amount or refrain from  enforcement. However, DOT issued waivers to 34 communities that  did not meet the $200 subsidy cap from 2014 through 2019.

If the subsidy cap were tied to inflation since its inception in 2000, the  cap would be $283 in 2018. Of the 55 communities that were subject  to the subsidy cap in 2018 because they are within 210 miles of a  medium- or large-hub airport, 39 were under the subsidy cap and 16  exceeded it. Our analysis shows that if the subsidy cap were adjusted  for inflation, an additional 10 communities would fall under the subsidy  cap, and only 6 communities would exceed it. See figure 5.

Renegotiate EAS agreements: Officials from 3 of the 10 carriers we  interviewed said they should be permitted to request additional funds  from DOT during the course of a contract. In 2009, we reported that  allowing air carriers to renegotiate EAS contracts in response to rising  costs would enable carriers to continue rather than file a Notice of  Termination. As previously discussed, carriers we interviewed cited  airport and operating costs as challenges they have encountered over  the course of an EAS contract. Legislation passed in 2003 explicitly  provided DOT with the option of adjusting the subsidy paid to an EAS  carrier if the carrier’s expenses substantially increased. However,  DOT officials said that to date no carrier has petitioned for such an  increase.

Revise DOT’s calculation of the driving distance: As mentioned  earlier, to determine whether an EAS community is subject to the 10- enplanement-per-day and subsidy-cap requirements, DOT must  determine the shortest driving distance from the center of the  community to the nearest large- or medium-hub airport. Officials from  four of 17 communities we interviewed suggested that DOT adjust its  calculation to account for local factors, such as the time required to  drive the shortest route, the condition of the road, and the most  common route that members of the community use to get to the  nearest large- or medium-hub airport. Considering these factors could  result in communities not being subject to the limit on eligibility of  requiring an annual subsidy per passenger of $200 or less, if the more  commonly used or faster route is more than 210 miles from the  nearest large or medium hub airport.

Allow communities to regain eligibility: Officials from two communities  and two carriers we interviewed suggested that subject to the  availability of funds, communities that lost eligibility for the EAS  program should be allowed to regain it if they are having difficulty  obtaining air service without a subsidy. Officials from one community  and one carrier we interviewed said communities that lost EAS  eligibility as a result of unreliable service from their carrier should not  be penalized by losing EAS program eligibility. According to DOT,  they consider such circumstances when deciding to grant a  community a waiver. In other instances, communities lost eligibility  because they were not receiving EAS in fiscal year 2011. An official  from one carrier suggested communities that regain eligibility could  pay a co-share of the subsidy costs, possibly limiting the effect on the  cost of the program.

Some of the options that communities and carriers suggested, such as  revising DOT’s process for carrier selection and restructuring DOT’s  contracts with carriers could address the challenges in the EAS program  but not necessarily increase program costs.

Revise DOT’s process for carrier selection: Officials from 3 of the 17  communities and 4 of the 10 carriers we interviewed suggested that  DOT adjust its method for carrier selection to account for factors such  as the carrier’s financial viability, ability to comply with enplanement  requirements, and agreements with mainline carriers, as well as the  number of available pilots and mechanics in order to ensure that  carriers are capable of providing good service to EAS communities. In  addition, officials from one community also suggested that DOT give  more weight to community preferences regarding carrier selection.  While DOT is required to consider factors such as service reliability,  interline agreements, and carrier financial and operating fitness when  selecting a carrier, most of the communities we interviewed cited the  quality of service they have received through the EAS program as a  challenge.

Include performance measures in DOT’s contracts with air carriers:  Officials from four communities and one carrier suggested that DOT  include performance measures in EAS contracts to ensure carriers  are held accountable for providing a given level of service and subject  to penalties for not meeting service quality targets. For example, one  community official suggested that on-time performance and  percentage of flights cancelled could be included as performance  measures for EAS carriers. Officials from three communities and one  carrier suggested that DOT include more requirements for service to  EAS communities. For example, DOT could require that EAS carriers  provide service to large-hub airports and have agreements with  mainline carriers that could enhance quality of service; however, an  official from one air carrier told us the carrier was reluctant to enter  into agreements with smaller air carriers that serve EAS communities  because they did not want their reputation to be negatively affected if  the air carrier did not provide reliable service. An official from another  carrier suggested that it is beneficial for carriers to enter into longer  contracts because they can spend more time building the air service  market for the communities they serve rather than renewing contracts.  The officials said that for longer contracts DOT should include  performance measures that require the carrier to provide a minimum  level of reliable service or lose the route.

Limit airport fees for EAS carriers: Officials from 3 of the 10 carriers  we interviewed thought DOT should limit fees airports charge to EAS  flights, such as landing fees and gate charges in order to increase the  financial viability of EAS routes. Airport fees can be based on any  number of factors including weight and number of seats on the  aircraft. According to FAA’s policy on establishing airport charges, it  recognizes airports are allowed to charge fees to help ensure their  financial viability and at the same time those fees should be  reasonable and not unjustly discriminatory. FAA’s policy further  indicates that the issue of rates and charges is best addressed at the  local level by agreement between users and airports.

Change EAS from a carrier subsidy program to a community grant  program: Officials from three communities we interviewed thought that  similar to AEAS, DOT could consider providing a grant to a  community in lieu of traditional EAS to allow the community more  control over the service they receive. For example, an official from  one community said that they liked the additional control the AEAS  program has given the community over the service and that AEAS  gives the community more weight with the carrier when there is a  complaint about the service. Officials from three air carriers told us  that a potential downside to this option is that it would be more  complicated because carriers would need to work with individual  communities for payment instead of just DOT. In addition, officials  from three communities told us that they lack the technical expertise  needed to effectively administer such a program.

We provided a draft of this report to DOT for review and comment. DOT  provided technical comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Transportation, and other interested parties.  In addition, the report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report please contact  me at 202-512-2834 or vonaha@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix III.

Appendix I: List of Entities GAO Interviewed

Appendix II: Federal Laws Enacted Since 2010 That Affect the Essential Air Service Program

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact above, Cathy Colwell (Assistant Director);  Stephanie Purcell (Analyst in Charge); Amy Abramowitz; David Hooper;  Bonnie Pignatiello Leer; John Mingus; Dominic Nadarski; Malika Rice;  Pamela Snedden; Laurel Voloder; and Elizabeth Wood made key  contributions to this report.

The Department of Transportation subsidizes airline service to communities that would not be profitable to serve.

Laws and program policy regarding community eligibility have changed since 2010, but the number of participants has stayed about the same. For example, in 2014, DOT started enforcing the annual $200-per-passenger subsidy cap. Subsidies ended for a few communities with higher costs, but many got waivers.

Community officials and airlines cited challenges to keeping communities eligible, such as operating under a subsidy cap while labor costs rise. They suggested options for reform, including adjusting subsidy caps for inflation.