7696 Federal Register /Vol. 64, No. 30/Tuesday, February ... · 7696 Federal Register/Vol. 64, No. 30/Tuesday, February 16, 1999/Notices DEPARTMENT OF TRANSPORTATION Federal Aviation

7696 Federal Register / Vol. 64, No. 30 / Tuesday, February 16, 1999 / Notices

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

[Docket No. 28472]

Policy and Procedures Concerning theUse of Airport Revenue

AGENCY: Federal AviationAdministration (FAA) DoTACTION: Policy statement.

SUMMARY: This document announces thefinal publication of the Federal AviationAdministration policy on the use ofairport revenue and maintenance of aself-sustaining rate structure byFederally-assisted airports. Thisstatement of policy (‘‘Final Policy’’) wasrequired by the Federal AviationAdministration Authorization Act of1994, and incorporates provisions of theFederal Aviation AdministrationReauthorization Act of 1996. The FinalPolicy is also based on consideration ofcomments received on two notices ofproposed policy issued by the FAA inFebruary 1996, and December 1996,which were published in the FederalRegister for public comment. The FinalPolicy describes the scope of airportrevenue that is subject to the Federalrequirements on airport revenue use andlists those requirements. The FinalPolicy also describes prohibited andpermitted uses of airport revenue andoutlines the FAA’s enforcement policiesand procedures. The Final Policyincludes an outline of applicable record-keeping and reporting requirements forthe use of airport revenue. Finally, theFinal Policy includes the FAA’sinterpretation of the obligation of anairport sponsor to maintain a self-sustaining rate structure to the extentpossible under the circumstancesexisting at each airport.DATES: This Final Policy is effectiveFebruary 16, 1999.FOR FURTHER INFORMATION CONTACT: J.Kevin Kennedy, Airport ComplianceSpecialist, Airport Compliance Division,AAS–400, Office of Airport Safety andStandards, 800 Independence Avenue,SW., Washington, DC 20591, telephone(202) 267–8725; Barry L. Molar,Manager, Airport Compliance Division,AAS–400, Office of Airport Safety andStandards, 800 Independence Avenue,SW., Washington, DC 20591, telephone(202) 267–3446.SUPPLEMENTARY INFORMATION:

Outline of Final Policy

The Final Policy implements thestatutory requirements that pertain tothe use of airport revenue and themaintenance of an airport rate structure

that makes the airport as self-sustainingas possible. The Final Policy generallyrepresents a continuation of basic FAApolicy on airport revenue use that hasbeen in effect since enactment of theAirport and Airway Improvement Act of1982 (AAIA), currently codified at 49U.S.C. § 47107(b). The FAA issued acomprehensive statement of this policyin the Notice of Proposed Policy datedFebruary 26, 1996 (Proposed Policy),and addressed four particular issues inmore detail in the Supplemental Noticeof Proposed Policy dated December 18,1996 (Supplemental Notice). The FinalPolicy includes provisions required bythe Federal Aviation AdministrationAuthorization Act of 1994, Public Law103–305 (August 23, 1994) (FAAAuthorization Act of 1994), and theAirport Revenue Protection Act of 1996,Title VIII of the Federal AviationAdministration Reauthorization Act of1996, Public Law 104–264 (October 9,1996), 110 Stat. 3269 (FAAReauthorization Act of 1996). The FinalPolicy also includes changes adopted inresponse to comments on the ProposedPolicy and Supplemental Notice.

The Final Policy contains ninesections. Section I is the Introduction,which explains the purpose for issuingthe Final Policy and lists the statutoryauthorities under which the FAA isacting.

Section II, ‘‘Definitions,’’ definesfederal financial assistance, airportrevenue and unlawful revenuediversion.

Section III, ‘‘Applicability of thePolicy,’’ describes the circumstancesthat make an airport owner or operatorsubject to this Final Policy.

Section IV, ‘‘Statutory Requirementsfor the Use of Airport Revenue,’’discusses the statutes that govern theuse of airport revenue.

Section V, ‘‘Permitted Uses of AirportRevenue,’’ describes categories andexamples of uses of airport revenue thatare considered to be permitted under 49U.S.C. 47107(b). The discussion is notintended to be a complete list of allpermitted uses but is intended toprovide examples for practicalguidance.

Section VI, ‘‘Prohibited Uses ofAirport Revenue,’’ describes categoriesand examples of uses of airport revenuenot considered to be permitted under 49U.S.C. 47107(b). The discussion is notintended to be a complete list of allprohibited uses but is intended toprovide examples for practicalguidance.

Section VII, ‘‘Policies RegardingRequirement for a Self-SustainingAirport Rate Structure,’’ describespolicies regarding the requirement that

an airport maintain a self-sustainingairport rate structure. This is a newsection of the policy, which providesmore complete guidance on the subjectthan appeared in either the ProposedPolicy or Supplemental Notice.

Section VIII, ‘‘Reporting and AuditRequirements,’’ addresses therequirement for the filing of annualairport financial reports and therequirement for a review and opinion onairport revenue use in a single auditconducted under the Single Audit Act,31 U.S.C. §§ 7501–7505.

Section IX, ‘‘Monitoring andCompliance,’’ describes the FAA’sactivities for monitoring airport sponsorcompliance with the revenue-userequirements and the requirement for aself-sustaining airport rate structure andthe range of actions that the FAA maytake to assure compliance with thoserequirements. Section IX also describesthe sanctions available to FAA when asponsor has failed to take correctiveaction to cure a violation of the revenue-use requirement.

Background

Governing Statutes

Four statutes govern the use of airportrevenue: the AAIA; the Airport andAirway Safety and Capacity ExpansionAct of 1987; the FAA Authorization Actof 1994; and the FAA ReauthorizationAct of 1996. These statutes are codifiedat 49 USC 47101, et seq.

Section 511(a)(12) of the AAIA, partof title V of the Tax Equity and FiscalResponsibility Act, Public Law 97–248,(now codified at 49 USC 47107(b))established the general requirement foruse of airport revenue. As originallyenacted, the revenue-use requirementdirected public airport owners andoperators to ‘‘use all revenues generatedby the airport * * * for the capital oroperating costs of the airport, the localairport system, or other local facilitieswhich are owned or operated by theowner or operator of the airport anddirectly related to the actualtransportation of passengers orproperty.’’

The original revenue-use requirementalso contained an exception, or‘‘grandfather’’ provision, permittingcertain uses of airport revenue for non-airport purposes that predate the AAIA.

The Airport and Airway Safety andCapacity Expansion Act of 1987, PublicLaw 100–223 (December 30, 1987),narrowed the permitted uses of airportrevenues to nonairport facilities that are‘‘substantially’’ as well as directlyrelated to actual air transportation;required local taxes on aviation fuelenacted after December 30, 1987, to be

VerDate 05-FEB-99 10:37 Feb 12, 1999 Jkt 183247 PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 E:\FR\FM\16FEN2.XXX pfrm08 PsN: 16FEN2

7697Federal Register / Vol. 64, No. 30 / Tuesday, February 16, 1999 / Notices

spent on the airport or, in the case ofstate taxes on aviation fuel, stateaviation programs or noise mitigation onor off the airport; and slightly modifiedthe grandfather provision.

The FAA Authorization Act of 1994Act included three sections regardingairport revenue.

Section 110 added a policy statementto Title 49, Chapter 471, ‘‘AirportDevelopment,’’ concerning thepreexisting requirement that airports beas self-sustaining as possible, 49 USC§ 47101(a)(13).

Section 111 added a new sponsorassurance requiring airport owners oroperators to submit to the Secretary andto make available to the public anannual report listing all amounts paidby the airport to other units ofgovernment, and the purposes for thepayments, and a listing of all servicesand property provided to other units ofgovernment and the amount ofcompensation received. Section 111 alsorequires an annual report to theSecretary containing information onairport finances, including the amountof any revenue surplus and the amountof concession-generated revenue.

Section 112(a) requires the Secretaryto establish policies and procedures thatwill assure the prompt and effectiveenforcement of the revenue-userequirement and the requirement thatairports be as self-sustaining as possible.

Section 112(b) amends 49 USC§ 47111, ‘‘Payments under project grantagreements,’’ to provide the Secretary,with certain limitations, to withholdapproval of a grant application or a newapplication to impose a PassengerFacility Charge (PFC) for violation of therevenue-use requirement. Section 112(c)authorizes the Secretary to impose civilpenalties up to a maximum of $50,000on airport sponsors for violations of therevenue retention requirement. Section112(d) requires the Secretary, inadministering the 1994 AuthorizationAct’s revenue diversion provisions andthe AIP discretionary grants, to considerthe amount being lawfully divertedpursuant to the grandfathering provisionby the sponsor compared to the amountbeing sought in discretionary grants inreviewing the grant application.Consequently, in addition to theprohibition against awarding grants toairport sponsors that have illegallydiverted revenue, the FAA considers thelawful diversion of airport revenues byairport sponsors under the grandfatherprovision as a factor militating againstthe distribution of discretionary grantsto the airport, if the amounts beinglawfully diverted exceed the amounts solawfully diverted in the airport’s firstyear after August 23, 1994.

Section 112(e), which amended theAnti-Head Tax Act, 49 USC§ 40116(d)(2)(A), prohibits a State,political subdivision, or an authorityacting for a State or political subdivisionfrom collecting a new tax, fee, or chargewhich is imposed exclusively upon anybusiness located at a commercial serviceairport or operating as a permittee of theairport, other than a tax, fee, or chargeutilized for airport or aeronauticalpurposes.

Title VIII of the FAA ReauthorizationAct of 1996 included new provisions onthe use of airport revenue. Among otherthings, section 804 codifies thepreexisting grant-assurance basedrevenue-use requirement as 49 U.S.C.§ 47133. Section 804 also expands theapplication of the revenue-userestriction to any airport that is thesubject of Federal assistance.

Section 805, codified as 49 U.S.C.§ 47107(m) et seq., requires recipients ofFederal assistance for airports who aresubject to the Single Audit Act toinclude a review and opinion on airportrevenue use in single audit reports.

Under section 47107(n), the Secretary,acting through the Administrator of theFAA, will perform fact finding andconduct hearings in certain cases; maywithhold funds that would haveotherwise been made available underTitle 49 of the U.S. Code to a sponsorincluding another public entity ofwhich the sponsor is a member entity,and may initiate a civil action underwhich the sponsor shall be liable for acivil penalty, if the Secretary receives areport disclosing unlawful use of airportrevenue. Section 47107(n) also includesa statute of limitations that prevents therecovery of funds illegally divertedmore than six years after the illegaldiversion occurs. The Secretary is alsoauthorized to recover civil penalties inthe amount of three times theunlawfully diverted airport revenueunder 49 U.S.C. § 46301(n)(5).

Section 47107(o) requires theSecretary to charge a minimum annualrate of interest on the amount of anyillegal diversion of revenues. Interest isdue from the date of the illegaldiversion.

Section 47107(l)(5) imposes a statuteof limitation of six years after the dateon which the expense is incurred forrepayment of sponsor claims forreimbursement of past expenditures andcontributions on behalf of the airport. Asponsor may claim interest on theamount due for reimbursement, but onlyfrom the date the Secretary determinesthat the airport owes a sponsor.

Procedural History

In response to provisions in the 1994Authorization Act, the FAA issued theProposed Policy. (61 FR 7134, February26, 1996) After reviewing all commentsreceived in response to the notice, theFAA issued the Supplemental Notice onDecember 11, 1996, and requestedfurther public comment. (61 FR 66735,December 18, 1996) Although the FAApublished both documents as proposedpolicies, both notices stated that theFAA would apply the policies inreviewing revenue-use issues pendingpublication of a final policy.

The Department received 32comments on the Proposed Policy andreceived 50 comments on theSupplemental Notice. Comments werereceived from airport owners andoperators, airline organizations, transitauthorities, and affected businesses andorganizations. Most of the commenterswere airport owners and operators. TheAirport Council International-NorthAmerica and the American Associationof Airport Executives also providedcomments supporting the sponsor/operator positions. Two major groupscommented on behalf of the airlines—the Air Transport Association ofAmerica and the International AirTransport Association.

The Aircraft Owners and PilotsAssociation and the National AirTransportation Association commentedon behalf of the general aviation andprivate aircraft owners. AOPA wasprimarily concerned with sponsor/airport accountability and the promptand effective enforcement of therevenue diversion prohibitions.

Several port authorities, transitauthorities, environmental groups, otherpublic interest groups, tradeassociations, private businesses andindividuals commented on a variety ofspecific issues.

The following discussion ofcomments is organized by issue ratherthan by commenter. Issues are discussedin the order they arise in the FinalPolicy. Airport proprietors and theirrepresentatives who took similarpositions on an issue are collectivelyreferred to as ‘‘airport operators.’’Airlines and airline trade associationsare referred to as ‘‘air carriers’’ when theorganizations took common positions.The summary of comments is intendedto represent the general divergence orcorrespondence in commenters’ viewson various issues. It is not intended tobe an exhaustive restatement of thecomments received.

In addition, many comments on theoriginal notice of proposed policy wereaddressed in the supplemental notice.



Those comments are not addressedagain in this discussion.

The FAA considered all commentsreceived, even if they are notspecifically identified in this summary.

Discussion of Comments by Issue

1. Applicability

a. Applicability of Policy to PrivatelyOwned Airports

In accordance with the statutes ineffect at the time it was published, theProposed Policy applied only to publicagencies that had received AIP grantsfor airport development. The ProposedPolicy included a specific statement thatit did not apply to privately ownedairports that had taken AIP grants whileunder private ownership. TheSupplemental Notice did not modifythese provisions.

The Comments: A public interestgroup concerned about reducing airportnoise and mitigating its impactsrecommended that the policy shouldapply to operators of privately ownedairports.

Final Policy: The new statutoryprovision added by the ReauthorizationAct of 1996, governing the restriction onthe use airport revenue, 49 U.S.C.§ 47133, does not differentiate betweenpublicly or privately owned airports.The statute applies to all airports thathave received Federal assistance. Underthe AAIA certain privately-ownedairports that are available for public useare eligible to receive airportdevelopment grants. As a result, anyprivately owned airport that receives anAIP grant after October 1, 1996, (theeffective date of the FAAReauthorization Act of 1996), is subjectto the revenue use requirements. Theapplicability section of the Final Policy,Section III, is modified to reflect theexpansion of the revenue-userequirement to include privately-ownedairports.

b. Applicability of Policy to Publiclyand Privately Owned Airports Subject toFederal Assistance

As a result of the same change in thelaw, recipients of Federal assistanceprovided after October 1, 1996, otherthan AIP grants, are also subject to therevenue-use restrictions. However, theReauthorization Act of 1996 did notdefine Federal assistance, and thelegislative history does not provideguidance on the meaning of this term.In addition, it did not explicitly addressthe status of airports that receivedFederal assistance other than AIPairport development grants beforeOctober 1, 1996, and therefore were notalready bound by the revenue use

restrictions. These issues are addressedin the Final Policy, based on the FAA’sreview of the statute, its legislativehistory and relevant judicial decisions.

Applicability of the revenue-userequirement under § 47133 depends onthe definition of the term ‘‘Federalassistance.’’ In the absence of guidancein the statute and legislative history, theFAA has relied on the interpretationgiven to the similar term ‘‘Federalfinancial assistance’’ in Federalregulations and court decisions. 28 CFRpart 41, ‘‘Implementation of ExecutiveOrder 12250, Non-discrimination on theBasis of Handicap in Federally AssistedPrograms,’’ section 41.4(e) establishesthe definition of ‘‘Federal financialassistance’’ for all Federal agenciesimplementing § 504 of theRehabilitation Act of 1973, 29 U.S.C.§ 794. That definition is in turn subjectto the limitation of the Department ofTransportation v. Paralyzed Veterans,477 U.S. 597 (1986) (ParalyzedVeterans), which specifically addressedthe issue of whether certain facilitiesand services provided by the FAA inmanaging the national airspace systemconstituted federal assistance. Thatdecision held that the provision of airnavigation services and facilities toairlines by the FAA did not make thecommercial airline passenger service aFederally assisted program within themeaning of § 504.

The FAA’s interpretation of the term‘‘Federal assistance’’ is included inSection II of the Final Policy,Definitions. The Final Policy’sdefinition of ‘‘Federal assistance’’adapts the generalized language of 28CFR § 41.4(e) to the specificcircumstances of airports receivingFederal support and reflects the holdingof the Paralyzed Veterans decision. Thedefinition lists as Federal Assistance thefollowing:

(1) Airport development and noisemitigation grants;

(2) Transfers, under various statutoryprovisions, of Federal property at nocost to the airport sponsors; and

(3) Planning grants related to aspecific airport.

Under this definition, FAAinstallation and operation ofnavigational aids and FAA operation ofcontrol towers are not consideredFederal assistance, based on theSupreme Court decision in ParalyzedVeterans. Similarly, the FAA does notconsider passenger facility charges(PFCs) to be Federal assistance eventhough PFCs may be collected only withapproval of the FAA.

Airport development and noisemitigation grants are considered Federalassistance because they apply to a

specific airport, and that airport is,therefore, ‘‘subject to Federalassistance’’ under the statute. Transfersof Federal property to an airport areconsidered Federal assistance becausethey also apply to a specific airport.Planning grants may apply to a specificairport or may be more general innature. Under § 47133, the FAAconsiders only planning grants relatedto a specific airport to be Federalassistance.

However, not all airports that are thesubject of Federal assistance arenecessarily bound to the revenue-useassurance simply by the passage of§ 47133. Established Federal grant lawprevents a statute from being construedto modify unilaterally the terms ofpreexisting grant agreements absent aclear showing of legislative intent to doso. Bennett v. New Jersey 470 U.S. 632(1985), 84 L.Ed 2d 572, 105 S.Ct. 1555.Neither the statutory language nor itslegislative history indicates an intent byCongress to apply § 47133 to impose therevenue-use requirement on airportsthat were not already subject to it. Bycontrast, a recent example ofCongressional intent to modifypreexisting grant agreements exists in§ 511(a)(14) of the Airport and AirwayImprovement Act of 1982, 49 USC App.2210(a)(14), which was recodified at 49USC 47107(c)(2)(B). That subsection,which was added to the AAIA in 1987,established requirements for thedisposal of land acquired with Federalgrants that is no longer needed forairport purposes. The statute by itsterms applied to an ‘‘airport owner oroperator [who] receives a grant beforeon or after December 31, 1987’’ for thepurchase of land for airportdevelopment purposes. This languagedemonstrated a clear Congressionalintent to modify preexisting grantagreements. The language of § 47133and its legislative history lacks any suchexpress direction.

Therefore, the FAA does not interpret§ 47133 to impose the revenue-userequirements on an airport that was notalready subject to the revenue-useassurance on October 1, 1996. Anairport that had accepted SurplusProperty from the Federal government,but did not have an AIP grant in placeon October 1, 1996, would not besubject to the revenue-use requirementby operation of § 47133. If that airportaccepted additional Federal property oraccepted an AIP grant on or afterOctober 1, 1996, the airport would besubject to the revenue-use requirement.As discussed below, by operation of§ 47133, the revenue-use requirementwould remain in effect as long as theairport functioned as an airport.



For airports that were already subjectto the revenue-use requirement onOctober 1, 1996, and those that becomesubject to the requirement after thatdate, the effect of § 47133 is to extendthe duration of the requirementindefinitely. This application is notexplicit in the statute and reference tothe legislative history of the statute isnecessary to determine congressionalintent and the specific meaning andapplication of the statutory language.The legislative history of § 47133 makesit clear that Congress enacted § 47133 toextend the duration of the revenue-userequirement for airports that are alreadysubject to it. In describing an earlierversion of § 47133, the Committee onTransportation and Infrastructure of theHouse of Representatives stated that thereason for the change was because‘‘revenue diversion burdens interstatecommerce even if the airport is nolonger receiving grants. In recognition ofthis fact, the bill applies the exact samerevenue diversion prohibition toairports that have a FAA certificate[modified to airports that are subject toFederal assistance in conference] as nowapplied to airports that receive AIPgrants. For the most part, these will bethe same airports.’’ H.R. Rep. 104–714(July 26, 1996) at 38, reprinted at 1996US Code, Congressional andAdministrative News at 3675. Thereport further stated that broadening theprohibition would ‘‘make it clear that anairport cannot escape this prohibition[on revenue diversion] by refusing toaccept AIP grants[;]’’ remove ‘‘thisperverse incentive to refuse AIP grants* * *[;].’’ and ‘‘once again [encourage]all airports to use available Federalmoney to increase safety, capacity, andreduce noise.’’ Id.

Any airport that had an outstandingAIP grant agreement in effect on October1, 1996, was already bound to the samerevenue use assurance that is containedin § 47133. Because § 47133 is extendingthe duration of an existing obligation,there is no conflict with the principle ofFederal grant law outlined above.

c. Relationship of Final Policy toAirport Privatization

In the applicability and definitionsection of the Proposed Policy, the FAAstated that proceeds from the sale of theentire airport as well as from individualparcels of land would be considered asairport revenue. The FAA also statedthat it did not intend ‘‘to effectively barairport privatization initiatives,’’ andthat the FAA would take into account‘‘the special conditions and constraintsimposed by the fact of a change inownership of the airport.’’ 61 Fed. Reg.at 7140. The FAA proposed to remain

‘‘open and flexible in specifyingconditions on the use of revenue thatwill protect the public interest andfulfill the requirements and objectives of§ 47107(b) without unnecessarilyinterfering with the appropriateprivatization of airport infrastructure.’’Id.

Airport operators: A number of airportoperators expressed concern that theguidance in the Proposed Policy was tooambiguous to encourage privatizationand might discourage privatizationinitiatives. One operator suggested thatthe FAA should take a flexible approachto the proceeds of a privatizationtransaction when an airport’sconcession revenues are sufficient toallow a public owner to use some salesproceeds for nonairport purposeswithout increasing fees charged toaeronautical users and withoutcontinuing a need for Federal subsidy.Another airport operator suggested thatthe financial terms of a transactionwould reflect the local circumstances inwhich the transaction was negotiatedand recommended that the FAA accountfor this fact in reviewing revenuediversion claims.

Air carriers: ATA adamantly opposedthe sale or transfer of a public useairport in a situation when such anaction would cause airport revenue tobe taken off the airport. ATA believesthat the FAA does not have theflexibility or the statutory authority torequire anything less than 100%compliance under 49 USC § 47107(b).

General aviation: The AOPA isconcerned that the policy gives theimpression that airport privatization is afully resolved issue. The AOPA believesthat the policy must avoid anyimplication that the issue is resolved orthat the FAA endorses privatization.

Other commenters: Three publicinterest organizations addressed theissue of privatization from differentperspectives. A group concerned withpreventing and mitigating airport noisesuggests that the FAA must ensure thatadequate funds remain available to meetcurrent and future airport noisemitigation needs. This grouprecommended that, before approving atransfer, the FAA should conduct athorough audit of the airport’scompliance with noise compatibilityrequirements, plans, and promises, andthat the FAA should assess theadequacy of resources to address noisecompatibility problems. The FAAshould also require enforcementmechanisms to ensure implementationof noise compatibility and mitigationmeasures as a condition of the sale ortransfer.

Two other groups supported a policythat does not discourage airportprivatization. One of these suggestedthat the FAA consider defederalizationof airports. The comments regardingdefederalization are beyond the scope ofthis proceeding, because they wouldrequire statutory changes.

Final Policy: The Final Policy adoptsthe basic approach of the ProposedPolicy toward privatization, with somelanguage changes for clarity andreadability. In addition, the Final Policyexplicitly acknowledges the AirportPrivatization Pilot Program.

Guidance on the process for obtainingFAA approval of the sale or lease of anairport is contained in FAA Order5190.6a, Airport ComplianceRequirements. The Final Policy is notintended to modify the process in anyway. FAA approval is required for anytransfer, including those betweengovernment entities. The Final Policymakes clear, however, that in processingan application for approval the FAAwill: (a) treat proceeds from the sale orlease as airport revenue; and (b) applythe revenue-use requirement flexibly,taking into consideration the specialconditions and constraints imposed bya change in ownership of the airport.For example, as is noted in the FinalPolicy, if the owner of a single airportis selling the airport, it may beinappropriate to require the seller tosimply return the proceeds to theprivate buyer to use for operation of theairport.

The FAA requires the transferdocument to bind the new operator toall the terms and grant assurances in thesponsor’s grant agreement. The FAAretains sufficient authority and powerthrough its grant assurances to ensurecompliance by the new owner with allof its obligations, including any grant-based obligations relating to mitigationof environmental impacts of the airport;to conduct sponsor audits and to takeother appropriate action to ensure thatthe airport is self-sustaining.

The Final Policy’s approach toprivatization does not represent, as ATAsuggests, less than 100 percentcompliance with the revenue-userequirement. The FAA agrees with theATA that we cannot waive thatrequirement. Rather, the FAA hascommitted to exercise its authority tointerpret the requirement in a flexibleway to account for the uniquecircumstances presented by a change ofownership.

The Final Policy is not anendorsement of privatization and it doesnot resolve the policy debate aboutprivatization. FAA will continue toreview the sale or lease of an airport on



a case-by-case basis, including transfersproposed under the AirportPrivatization Pilot Program, 49 U.S.C.47134, created by § 149 of the FAAReauthorization Act of 1996. Thedemonstration program authorizes theFAA to exempt five airports fromFederal statutory and regulatoryrequirements governing the use ofairport revenue. Under the program, theFAA can exempt an airport sponsorfrom its obligations to repay Federalgrants, to return property acquired withFederal assistance, and to use theproceeds of the sale or lease exclusivelyfor airport purposes. The latterexemption is also subject to approval bythe air carriers serving the airport.

The FAA notes the concerns that therevenue-use requirement maydiscourage privatization. Congressaddressed this prospect by enacting thePrivatization Pilot Program, whichauthorizes the FAA to grant exemptionsfrom sections 47107(b) and 47133 topermit the sponsor to use sales or leaseproceeds for nonairport purposes, oncertain conditions. That exemptionwould not be required unless sales orlease proceeds were airport revenue. Inaddition, the FAA will consider theunique circumstances—financial andotherwise—of individual transactions indetermining compliance with section47107(b), and this should address tosome degree the commenters’ concernsabout privatization.

d. Effect of § 47133 on Return onInvestment for Private Airport Ownersor Operators That Accept FederalAssistance

By extending the revenue-userequirement to privately-ownedairports, § 47133 requires the FAA toconsider a new issue—the extent towhich a private owner that assumes therevenue-use obligation may becompensated from airport revenue forthe ownership of the airport. Section47133 prohibits all such private airportowners or operators from using airportrevenue for any purpose other than thecapital and operating costs of theairport. However, the FAA does notconsider section 47133 to precludeprivate owners or operators from beingpaid or reimbursed reasonablecompensation for providing airportmanagement services. Private operators,presently, provide airport managementservices at a number of airports. Inmany cases, these airports are publiclyowned and subject to the revenue-userequirement. The private operator isproviding these services under someform of contract with the public owner.These services are considered part of theoperating cost of the airport owner, and

the fees can be paid from airportrevenue.

It is reasonable to equate privateoperators managing publicly ownedairports with private owner/operatorsmanaging privately owned or leasedairports. To avoid any confusion of theissue, reasonable compensation formanagement services provided by theowner of a privately-owned airport isidentified as a permitted use of airportrevenue in the Final Policy.

Private airport owners may typicallyexpect a return on their capitalinvestment. Such investment could beconsidered a capital cost of the airport.In the case of private owners oroperators of airports who have assumedthe revenue-use obligation, thatobligation would limit the ability to usethe return on capital invested in theairport for nonairport purposes. Inparticular, the FAA expects privateowners to be subject to the samerequirements governing a self-sustainingairport rate structure and the recovery ofunreimbursed capital contributions andoperating expenses from airport revenueas public sponsors. Under section47107(l)(5), private sponsors—likepublic sponsors—may recover theiroriginal investment within the six-yearstatute of limitation. In addition, theyare entitled to claim interest from thedate the FAA determines that thesponsor is entitled to reimbursementunder section 47107(p). Any otherprofits generated by a privately-ownedairport subject to section 47133 (aftercompensating the owner for reasonablecosts of providing management services)must be applied to the capital andoperating costs of the airport.

This interpretation is required byprovisions of 49 U.S.C. 47134, theairport privatization pilot program.Section 47134 authorizes the FAA togrant exemptions from the revenue-userequirement to permit the privateoperator to ‘‘earn compensation fromthe operations of the airport.’’ Thisexemption would not be necessary ifsection 47133 did not restrict thefreedom of the private owner of aFederally-assisted airport to use theprofits from the investment in theairport for nonairport purposes. Thisinterpretation does not unreasonablyburden private owners, because theyreceive a benefit (in the form of eitherFederal property added to the airport orFederal grant funds) in exchange forassuming the restrictions on the use oftheir profit.

e. Grandfather ProvisionsThe Proposed Policy included a

discussion of the grandfather provisionsof section 47107(b) in the section on

permitted uses of airport revenue. Thatdiscussion included a list of examplesof financing obligations and statutoryprovisions that had been previouslyfound by the Department ofTransportation to confer grandfatherstatus.

The Comments: Two airport operatorscommented on this issue. One is anairport operator whose status under thegrandfather provisions was underconsideration by the FAA when theProposed Policy was published. Itsconcerns were addressed by the FAA’sconsideration of its individual situation.

The second commenter is airportoperator already established as agrandfathered airport operator. Thiscommenter recommends that the FinalPolicy continue to recognize the rightsof grandfathered airports.

Final Policy: The Final Policycontinues to recognize the rights ofgrandfathered airport owners set forth attitle 49 U.S.C. 47107(b)(2) and 47133.To qualify an airport for grandfatheredstatus, the statute requires that localcovenants, assurances or governing lawspre-dating September 2, 1982, mustspecifically pledge the use of airportgenerated revenues to support not onlythe airport but also the general debtobligations or other facilities of theowner or operator. However, the FinalPolicy is modified to reflect therequirement in the 1996 FAAReauthorization Act that the FAAconsider the increase in grandfatheredpayments of airport revenue as a factormilitating against the award ofdiscretionary grants.

f. Applicability to Non-municipalAirport Authorities

Lehigh-Northampton AirportAuthority (LNAA): LNAA asserted thatthe airport revenue-use requirementdoes not allow FAA to regulate airporttransactions with non-governmentalparties and does not empower FAA tooverride state and local laws governingthe use of airport revenue for airportmarketing and promotional activities.The commenter advanced a number ofarguments as to why FAA does not haveauthority to restrict such transactions.First, Congress has shaped the revenuediversion statute to identify financialirregularities in dealings between anairport enterprise account and anotherunit of government. The statute does notcontemplate FAA regulation of airportfinancial relationships with non-government parties. Second, Congressdid not intend the ‘‘capital or operatingcosts’’ language in the revenue diversionstatute to authorize a new Federalregulatory scheme to narrow the typesor levels of airport expenditures beyond



what is legal under applicable state andlocal law. Third, there is not a statutoryrequirement for FAA to regulate airportexpenditures for community events orcharitable contributions in the absenceof facts suggesting that suchexpenditures are the result of undueinfluence by a governmental unit.

The LNAA currently has a casepending before the FAA under FAR Part13, in which certain expenditures thatLNAA characterizes as marketing andpromotional expenses are beingexamined for consistency with therevenue-use requirement. LNAA’sassertions with respect to its ownpromotional activities will be addressedby the FAA in that proceeding. To theextent that LNAA’s practices wereinconsistent with this Final Policy,LNAA will have an opportunity to arguethat the Final Policy should not beapplied to its situation.

The general issues of the use ofairport revenue for marketing andpromotional expenses and charitabledonations are discussed separatelybelow.

The FAA is not modifying theapplicability of the Final Policy basedon LNAA’s other concerns. Thelanguage of section 47107(b) explicitlystates that revenue generated by theairport may only be expended for thecapital or operating costs of the airportor local airport system; it contains nolimiting language concerning ‘‘financialirregularities.’’ The statute furtherdefines expenditures for generaleconomic development and promotionas unlawful use of airport revenue,providing specific authority overtransactions that do not involvetransfers of airport revenue to othergovernmental entities. See 49 U.S.C.47107(l)(2). This provision grantsauthority for regulation of expendituresfor charitable and community-usepurposes.

In addition, the Congressionalmandate to establish policies andprocedures to ‘‘assure the prompt andeffective enforcement’’ of the revenueuse and self-sustainability requirements(49 U.S.C. 47107(l)(1)) providesstatutory authority to adopt moredetailed guidance on permitted andprohibited uses of airport revenue.Many airport operators have expressedconcern over the difficulty ofresponding to OIG findings of unlawfulrevenue use without clear and specificFAA guidance on permitted andprohibited practices.

Finally, the grandfathering provisionestablishes Congressional intent toprohibit certain airport revenuepractices authorized by state or locallaw that do not satisfy the specific

requirements of the grandfatherprovisions of the AAIA.

2. Definition of Airport Revenue

a. Proceeds From Sale of AirportProperty

The Proposed Policy includedproceeds from the sale of airportproperty in the proposed definition ofairport revenue. No distinction wasmade between property acquired withairport revenue and property acquiredwith other funds provided by thesponsor. In the explanatory statement,the FAA discussed alternatives it hadconsidered, including limiting thedefinition to property acquired withairport revenue. (61 FR 7138) The FAAalso stated that a sponsor would be ableto recoup any funds it contributed tofinance the acquisition of airportproperty as an unreimbursed capitalcontribution.

Airport operators: Airport operatorsobjected to defining proceeds from thesale of airport property as airportrevenue. ACI/AAAE argued that thedefinition would reduce incentives forairport sponsors to pursue legitimateairport endeavors. One airport operatorargued that the definition constitutes atransfer of wealth from the taxpayers tothe airport users, and that cities wouldbe less willing to contribute to futureairport projects. Another individualoperator argued that the policy shouldnot apply to property acquired with thesponsor’s own funds and to propertyacquired with airport revenue before1982. This airport operator furtherargues that application of the policy toproperty acquired before 1982 amountsto a taking of airport property withoutjust compensation and withoutCongressional authorization. Finally,this operator argued that the proposeddefinition appears to contradict aportion of the FAA ComplianceHandbook, Order 5190.6A (October 2,1989), Paragraph 7–18, that states thereis no required disposition of netrevenues from sale or disposal of landnot acquired with Federal assistance.

Air carriers: The ATA commentedthat the use of airport revenue forrepayment of contributions from prioryears should be limited. According toATA, reimbursements should bepermitted only when the sponsor andairport enter into a written agreementconcerning the terms of reimbursementbefore the service or expenditure isprovided.

Other commenters: A public interestorganization opposed the treatment ofproceeds from the sale of airportproperty as airport revenue. Thiscommenter argued that the sponsor, as

the principal provider of airport’s landand capital, has a legitimate claim tocash-out the value of its investmentsand to use the proceeds for otherpurposes.

The Final Policy: The Final Policydoes not modify the treatment ofproceeds from the sale, lease or otherdisposal of airport property. Proceedsfrom the sale lease or other disposal ofall airport property are consideredairport revenue subject to the revenue-use requirement and this policy, unlessthe property was acquired with Federalfunds or donated by the Federalgovernment. While proceeds fromdisposal of Federally-funded andFederally-donated property are alsoairport revenue, these proceeds aresubject to separate legal requirementsthat are even more restrictive than therevenue-use requirement.

As discussed in the Proposed Policy,this definition is consistent with thelanguage of the original version ofsection 47107(b), which applies to ‘‘allrevenues generated by the airport.’’

In addition, the Airport PrivatizationPilot Program, 49 U.S.C. 47134, permitsthe FAA to grant exemptions from therevenue-use requirements to permit asponsor to keep the proceeds from a saleor lease transaction, but only to theextent approved by 65 percent of the aircarriers. An exemption would not berequired unless the proceeds from thesale or lease of the entire airport wereairport revenue within the meaning ofsection 47107(b) and 47133. Since theproceeds from the sale of an entireairport are airport revenue, it followsthat the proceeds from the sale ofindividual pieces of airport property arealso airport revenue.

Further, section 47107(l)(5)(A)establishes a six-year period duringwhich sponsors may claimreimbursement for their capital andoperating contributions. This limitationon seeking reimbursement could beavoided through the process ofdisposing of airport property, if theproceeds of sales were not themselvesconsidered airport revenue. Throughsection 47107(l)(5)(A) Congress hasdefined the rights of airport owners andoperators to recover their investments inairport property for use for nonairportpurposes. Subject to the six-year statuteof limitations, the sponsor is entitled touse airport revenues for reimbursementof such contributions. Section 47107(p)provides that a sponsor may also claiminterest if the FAA determines that asponsor is entitled to reimbursement,but interest runs only from the date onwhich the FAA makes thedetermination. As discussed below, theFinal Policy provides flexibility to



structure future contributions to permitreimbursement over a longer period oftime in order to promote the financialstability of the airport. The six-yearlimitation, which is incorporated in theFinal Policy, also addresses ATA’srequest for a time limit on the airportowner or operator’s ability to claimrecoupment for past unreimbursedrequests.

The FAA does not accept thesuggestion that the definition is anunauthorized taking of sponsor propertywithout just compensation. First, asnoted, the definition is supported by the1996 FAA Reauthorization Act, whichincluded an express provision for anexemption from the revenue userestriction for sale and lease proceeds.Second, all airport sponsors, includingthe airport commenters, voluntarilyagreed to their restrictions on the use ofairport revenue when they acceptedgrants-in-aid under the AIP program.Finally, the definition does not deprivethe commenter of its property. Theproceeds from the disposal will stillflow to the commenter sponsor to beused for a legitimate local publicpurpose—operation and development ofthe commenter’s airport.

The FAA acknowledged in theProposed Policy that existing FAAinternal orders contain provisions onthe status of proceeds from the disposalof airport property that are inconsistentwith this Final Policy. As stated in theProposed Policy, this inconsistencydoes not preclude the FAA fromdefining proceeds from the disposal ofairport property as airport revenue inthis Final Policy. Rather, ‘‘the Policytakes precedence, and the orders will berevised to reflect the policies in thisstatement.’’ 61 FR 7138. In addition, theprovisions in the FAA internal ordersare in conflict with the 1996 FAAReauthorization Act. Because of thisstatutory conflict, the FAA cannotcontinue to apply them.

b. Revenue Generated by Off-airportProperty

The Proposed Policy defined asairport revenue the revenue received forthe use of property owned andcontrolled by a sponsor and used forairport-related purposes, but not locatedon the airport.

Airport operators: The ACI–NA/AAAE and two individual airportoperators objected to this definition ofairport revenue. The ACI–NA/AAAEstated that revenues received from off-airport activities should ordinarily notbe counted as airport revenue. Oneairport operator argued that thisdefinition is inconsistent with thestatutory definition of airport in the

AAIA. The other airport operator (theState of Hawaii) is especially concernedabout revenue generated by off-airportduty fee shops.

No other comments were received.Final Policy: The Final Policy does

not modify the definition of airportrevenue as it pertains to off-airportrevenue. This definition is consistentwith FAA’s prior interpretation, whichhas defined as airport revenue therevenues received by the airport owneror operator from remote airport parkinglots, downtown airport terminals, andoff-airport duty free shops.

After enactment of the originalrevenue-use requirement, the FAAinitiated an administrative action torequire the State of Hawaii to use itsrevenue from off-airport duty free salesin a manner consistent with section47107(b). In response, Congressamended the revenue-use requirementto provide a specific and limitedexemption to the State of Hawaii topermit up to $250 million in off-airportduty-free sales revenue to be used forconstruction of highways that are part ofthe Federal-Aid highway system andthat are located in the vicinity of anairport. See, 49 U.S.C. § 47107(j). Thestatutory exemption would only benecessary if the revenue from off-airportduty free shops is airport revenuewithin the meaning of the statute.

c. Royalties From Mineral ExtractionThe Proposed Policy included

royalties from mineral extraction onairport property earned by a sponsor asairport revenue.

Airport operators: One airportoperator objected to including revenuefrom the sale of sponsor-owned mineral,natural, or agricultural products orwater to be taken from the airport in thedefinition of airport revenue. Theoperator stated that the retention ofmineral rights as airport property wouldrepresent a windfall to the airport at thesponsor’s expense; that the ProposedPolicy is contrary to congressionalintent and that it would take, withoutcompensation, valuable property rightsfrom the sponsor. The operator alsocited a prior decision where FAAconcluded the production of natural gasat Erie, Pennsylvania, does not serveeither the airport or any airtransportation purpose. The royaltiesgenerated by such production weredetermined to be outside the scope ofthe revenue-use requirement.

Final Policy: The Final Policy retainsthe proposed definition of airportrevenue to include the sale of sponsor-owned mineral, natural, agriculturalproducts or water to be taken from theairport. On further review of the Erie

interpretation in this proceeding, theFAA no longer considers the analogydrawn in that interpretation—betweenmineral extraction and operation of aconvention center or water treatmentplant—to be appropriate. Rather,mineral and water rights represent apart of the airport property and itsvalue. Just as proceeds from the sale orlease of airport property constituteairport revenue, proceeds from the saleor lease of a partial interest in theproperty—i.e. water or mineral rights—should also be considered airportrevenue. The FAA will not require anairport owner or operator to reimbursethe airport for past mineral royaltypayments used for nonairport purposesbased on the Erie interpretation.However, all airport owners andoperators will be required to treat thesepayments as airport revenueprospectively, starting on thepublication date of the Final Policy.

With respect to agricultural products,the FAA has always treated leaserevenue from agricultural use of airportproperty as airport revenue, even if thatrevenue is calculated as a portion of therevenue generated by the crops grownon the airport property. The definitionin the Final Policy will assure that theairport gets the full benefit ofagricultural leases of airport property,regardless of the form of compensationit receives for agricultural use of airportproperty.

The FAA does not consider thisinterpretation to create a taking ofairport owner or operator property. Asdiscussed in other contexts, thelimitation on the use of airport revenuewas voluntarily undertaken by theairport operator upon receiving AIPgrants. In addition, the revenuesgenerated by these activities will stillflow to the sponsor for its use for alegitimate local governmental activity,the operation and development of itsairport.

d. Other Issues

The Final Policy includes adiscussion of the requirement of 49U.S.C. § 40116(d)(2)(A). This provisionrequires that taxes, fees or charges firsttaking effect after August 23, 1994,assessed by a governmental bodyexclusively upon businesses at acommercial service airport or uponbusinesses operating as a permittee ofthe airport be used for aeronautical, aswell as airport purposes. This additionis included, at the suggestion of acommenter, to comply with thestatutory provision, which was enactedas section 112(d) of the 1994 FAAAuthorization Act.



3. Permitted Uses of Airport Revenue

a. Promotion/marketing of the AirportCongress, in the FAA Authorization

Act of 1994, permitted the use of airportrevenues for promotion of the airport byexpressly prohibiting ‘‘use of airportrevenues for general economicdevelopment, marketing, andpromotional activities unrelated toairports or airport systems.’’ TheSupplemental Proposed Policy citedthis law and recognized that manyairport sponsors engage in some form ofpromotional effort, to encourage use ofthe airport and increase the level ofservice. Accordingly, the SupplementalNotice provided that ‘‘[a]irport revenuemay be used for * * * [c]osts ofactivities directed toward promotingpublic and industry awareness of airportfacilities and services, and salary andexpenses of employees engaged inefforts to promote air service at theairport.’’ 61 FR 66470.

However, the preamble to theSupplemental Notice stated thatpromotional/marketing expendituresdirected toward regional economicdevelopment, rather than specificallytoward promotion of the airport, wouldnot be considered a permitted use ofairport revenue. In addition, the FAAproposed to prohibit the use of airportrevenue for a direct purchase of airservice or subsidy payment to aircarriers because the FAA does notconsider these payments to be capital oroperating costs of the airport.

Airport operators: In their commentsto the original proposed policy, ACI–NA/AAAE requested that FAA establisha ‘‘safe harbor,’’ or a maximum dollaramount (perhaps based on a percentageof airport costs), under which an airportcould spend airport revenue on certainpromotional and marketing activities.Greater percentage amounts would beallowed for the costs of airport-specificactivities, while lower amounts wouldbe allowed for joint efforts forcampaigns and organizations that havebroader, regional marketing missions.

Several airport operators supportedthis ‘‘safe harbor’’ concept in theircomments to the docket for the originalProposed Policy. One such commenter,without reference to ACI/AAAE’sremarks, suggested a cap of 5% of anairport’s budget as a ‘‘safe harbor’’ formarketing expenses that are not directlyrelated to the airport or airport system.Furthermore, this commenter wouldlimit the use of airport revenue to amaximum share of 20 percent of theoverall cost of any joint-project budget.

ACI/AAAE did not pursue theconcept of ‘‘safe harbor’’ in theircomments to the docket for the

Supplemental Policy, focusing insteadon the discretion of the airport operatorto use reasonable business judgment todetermine potential benefits to theairport. Several airports concurred withthe ACI–NA/AAAE position, and oneairport operator added that joint-marketing expenses, if reasonable andclearly related to aviation, should beconsidered an operating cost of theairport.

The ACI/AAAE and severalindividual airport operators commentedthat an airport cannot be distinguishedfrom the region served by the airport.ACI/AAAE commented that the policyshould permit reasonable spending formarketing of communities and regionsbecause airports are not ultimatedestinations of passengers. Therefore,airport operators must be free to makea reasonable attempt to increaserevenues by investing in the promotionof their community as a destination.

Some airports specifically opposedthe ATA’s suggestion of a cap, describedbelow.

Air carriers: In its comments to theSupplemental Notice, the ATAmentioned the concept of a maximum or‘‘cap’’ under which expenditures wouldbe considered reasonable, but wouldapply it to efforts to promote theservices of the airport itself. The ATAwould have the policy prohibit entirelythe use of airport revenue for thepromotion of regional development,because ‘‘expenditures by an airport topromote local or regional economicdevelopment—as opposed to theservices and functionality of anairport—should not be consideredlegitimate airport costs.’’ In regard tocooperative or joint-marketing expenses,the ATA focused on airportparticipation in joint-marketing of newairline services, suggesting that theseactivities be limited to a 60-daypromotional period. ATA also warnedagainst abuses of cooperative marketing,in particular programs that result inpromotion of a particular airline.

The ATA rejected the airport positionthat use of airport revenue to fundregional promotional activities isacceptable, because airports themselvesare not destinations. They stated,‘‘[l]ocal governments that are alsoairport sponsors should not bepermitted to pass off local and regionalpromotional activities in order to chargesuch costs to an airport. Indeed, manycivic organizations and chambers ofcommerce undertake such activitiesdirectly, since continued economicdevelopment directly benefits the localbusinesses that constitute suchorganizations.’’

The Final Policy: The FAA hasmodified the provisions on permitteduses of airport revenue in regard topromotion and marketing in the FinalPolicy. The FAA has applied thesections 47107(b) and 47107(l) todetermine to what extent various kindsand amounts of promotional andmarketing activities can be consideredlegitimate operating costs of the airport.The permitted uses of airport revenuefor marketing and promotion are splitinto two paragraphs, V.A.2 and V.A.3.,in the Final Policy—one addressingcosts that may be fully paid with airportrevenue, and one addressing costs thatmay be shared. The issues of generaleconomic development, direct subsidiesof air carriers, the waiving of fees toairport users and airport participation inairline marketing and promotion isfurther addressed in Section VI.

The Final Policy provides, underV.A.2, that expenditures for thepromotion of an airport, promotion ofnew air service and competition at theairport, and marketing of airportservices are legitimate costs of anairport’s operation. These expendituresmay be financed entirely with airportrevenue, and the expenditures mayinclude the costs of employees engagedin the promotion of airport services. Inaddition, cooperative airport-airlineadvertising of air service at the airportmay be financed with airport revenue,with or without matching funds. TheFAA is prepared to rely on airportmanagement to assure that the level ofexpenditures for such purposes wouldbe reasonable in relation to the airport’sspecific financial situation. In addition,cooperative airport-airline advertising ofair service must be conducted incompliance with applicable grantassurances prohibiting unjustdiscrimination in providing access tothe airport.

For other advertising and promotionalactivities, such as regional ordestination marketing, airport revenuemay be used to pay a share of the costsonly if the advertising or promotionalmaterial includes a specific reference tothe airport. The share must bereasonable, based on the benefits to theairport of participation in the activity.The FAA construes the prohibition on‘‘use of airport revenues for generaleconomic development, marketing, andpromotional activities unrelated toairports or airport systems’ to precludethe reliance on airport managementjudgment to support the use of airportrevenue for general destinationadvertising containing no references tothe airport. Likewise, the prohibitionprecludes adoption of a safe-harbor



provision for general promotionalexpenses.

Except as discussed above, the FinalPolicy does not limit the amounts ofairport revenue that can be spent for allpermitted promotional marketing andadvertising activities. The FAA expectsthat expenditure of airport revenues forthese purposes would be reasonable inrelation to the airport’s specificfinancial situation. Disproportionatelyhigh expenditures for these activitiesmay cause a review of the expenditureson an ad hoc basis to verify that allexpenditures actually qualify aslegitimate airport costs. Examples ofpermissible and prohibitedexpenditures are included in the FinalPolicy itself.

b. Reimbursement of Past ContributionsThe Proposed Policy permitted airport

revenue to be used to reimburse asponsor for past unreimbursed capital oroperating costs of the airport. TheProposed Policy did not include a limiton how far back in time a sponsor couldgo to claim reimbursement, inaccordance with the law in effect at thetime. In addition, the Preamble notedthat the FAA had not to date permitteda sponsor to claim reimbursement formore than the principal amount actuallycontributed to the airport. The FAArequested comment on whether the FAAshould permit recoupment of interest oran inflationary adjustment or whether,in the case of contributed land,recoupment should be based on currentland values.

Airport operators: ACI–NA/AAAEand a number of individual airportoperators supported recoupment ofinterest or inflation adjustment onprevious contributions or subsidies tothe airport.

Air carriers: The ATA objected to theProposed Policy and commented thatrecoupment should be subject to anumber of requirements to preventabuses.

The Final Policy: After the proposedpolicy was issued, Congress enactedlegislation to limit the use of airportrevenue for reimbursement of pastcontributions, and to limit claims forinterest on past contributions. 49 U.S.C.§§ 47107(l)(5), 47107(p). The FinalPolicy incorporates these statutoryprovisions. Based on Congressionalintent evidenced by the legislativehistory of these provisions, airportrevenue may be used to reimburse asponsor only for contributions orexpenditures for a claim made afterOctober 1, 1996, when the claim ismade within six years of thecontribution or expenditure. Inaddition, a sponsor may claim interest

only from the date the FAA determinesthat the sponsor is entitled toreimbursement, pursuant to section47107(p). The FAA interprets thesestatutory provisions to apply tocontributions or expenditures madebefore October 1, 1996, so long as theclaim is made after that date.

If an airport is unable to generatesufficient funds to repay the airportowner or operator within six years, theFinal Policy permits repayment over alonger period, with interest, if thecontribution is structured anddocumented as an interest bearing loanto the airport when it is made. Theinterest rate charged to the airportshould not exceed a rate that thesponsor received for other investmentsat the time of the contribution.

c. Donations of Airport Revenue toCharitable/Community ServiceOrganizations

The Supplemental Proposed Policyaddressed the use of airport property forpublic recreational purposes, andaddressed the use of airport funds tosupport community activities and forparticipation in community events. TheFAA proposed that the use of airportrevenue for such donations would notbe considered a cost of operating theairport, unless the expenditure isdirectly related to the operation of theairport. For example, expenditures tosupport participation in the airport’sfederally approved disadvantagedbusiness enterprise program would beconsidered permissible as supporting ause directly related to the operation ofthe airport. In contrast, expenditures tosupport a sponsor’s participation in acommunity parade would not beconsidered to be directly related to theoperation of the airport.

Airport operators: ACI–NA/AAAEcontended that the expenditure ofairport revenue for community orcharitable purposes is appropriate andshould be recognized as legitimate.Airports, regardless of their size, type,and certification or lack thereof, areimportant members of their localcommunities and, therefore, must beable to maintain their prominent, highlyvisible roles in their respectivecommunities. Airports are regarded bytheir communities as local businessenterprises and, consequently, areexpected to contribute to local non-profit charitable concerns in the samemanner as other local businessenterprises.

Individual airport operators generallysupported the position of ACI–NA/AAAE, although some individualoperators acknowledged that somelimitation on the expenditures may be

appropriate. One suggested a deminimis standard; another proposed a‘‘safe harbor’’ based on a percentage ofthe airport’s total budget. Another urgedthat airport owners/operators beallowed leeway to make contributions ofairport funds, in reasonable amountsand consistent with the localcircumstances, and to use airportproperty for charitable purposes on thesame basis.

Other airport operators commentedthat the Final Policy should givecomparable treatment to the use ofairport funds and airport property forcommunity goodwill by recognizing thelimited use of airport revenue to supportcharitable and community organizationsas a legitimate operating cost of theairport.

Air carriers: Air carriers did notcomment specifically on charitablecontributions, although theycommented extensively on the use ofairport property for community orcharitable purposes. Generally the aircarriers suggested that use of airportproperty should be subject to strictconditions to avoid abuse.

Other commenters: An advocacygroup in support of a particular airportcommented that, in order for an airportto be as self-sustaining as possible, theuse of each income dollar is critical, andthat federally assisted airports must befully responsive to the citizens of thecommunity by providing information onthe use of airport funds.

Final Policy: The Final Policygenerally follows the approach of theSupplemental Notice. Airport fundsmay be used to support communityactivities, or community organizations,if the expenditures are directly andsubstantially related to the operation ofthe airport. In addition, the policyprovides explicitly that where theamount of the contribution is minimal,the airport operator may consider the‘‘directly and substantially related to airtransportation’’ standard to be met if thecontribution has the intangible benefitof enhancing the airport’s acceptance inlocal communities impacted by theairport.

Expenditures that are directly andsubstantially related to the operation ofthe airport qualify inherently asoperating costs of the airport. The FAArecognizes that contributions forcommunity or charitable purposes canprovide a direct benefit to the airportthrough enhanced communityacceptance, but that benefit is intangibleand not quantifiable. Where the amountof the contribution is minimal, the valueof the benefit will not be questioned aslong as there is a reasonable connectionbetween the recipient organization and



the benefit of community acceptance forthe airport.

However, if there is no clearrelationship between the charitable orcommunity expenditure and airportoperations, the use of airport revenuemay be an expenditure for the benefit ofthe community, rather than an operatingcost of the airport. The differenttreatment of the use of airport funds(direct payments to charitable andcommunity organizations) and the useof airport property (less than FMVleases for charitable or communitypurposes) is grounded in the applicablelaws: the revenue-use requirement(section 47107(b)), which governs theuse of airport funds, provides far lessflexibility than the requirement for aself-sustaining rate structure (section47107(a)(13)), which applies to the useof airport property.

Examples of permitted and prohibitedexpenditures are included in the FinalPolicy.

d. Use of Airport Revenue to Fund MassTransit Airport Access Projects

The Supplemental Proposed Policyaddressed in Part VII.C., thecircumstances in which an airportsponsor could provide airport propertyat less than fair market value to a transitoperator. The Supplemental ProposedPolicy did not address the use of airportrevenue to finance the construction oftransit facilities. That issue, however,was raised in the comments.

Airport Operators: Two airportoperators supported the use of airportrevenue for the construction of transitfacilities. One commenter stated that anairport should be permitted to useairport revenues and assets to providemass transit service to on-airportcommercial uses. Another commenterreferred to the AIP Handbook, FAAOrder 5100.38A § 555, which providesAIP project eligibility for rapid transitfacilities.

Air carriers: Air carriers did notspecifically discuss the use of airportrevenue to finance transit facilities.However, as discussed below, theyobjected to providing airport propertyfor transit facilities at nominal leaserates.

Other Commenters: Two commentersrepresenting transit operator interestssupported the expenditure of airportrevenues to finance transit facilities. Atransit operator stated that in order tocreate a better balance between transitand highway interests, transit facilitiesshould be totally eligible expenses, paidfor in the same manner as other roadand parking enhancements. A transittrade association urged the FAA to takeappropriate actions to ensure that

passenger fees and other airportrevenues are widely eligible to fund arange of airport surface transportationmodes, including public transportation.

The FAA also received extensivecomments on providing airport propertyfor use by transit providers at less thanFMV rents. These comments areaddressed separately below.

Final Policy: The Final Policy hasbeen modified to provide guidance onthe use of airport revenues to financeairport ground access projects. TheFinal Policy states that airport revenuemay be used for the capital or operatingcosts of such a project if it can beconsidered an airport capital project, oris part of a facility owned or operatedby the airport sponsor and directly andsubstantially related to airtransportation of passengers or property,relying directly on the statutorylanguage of § 47107(b).

As an example, the Final Policysummarizes the FAA’s decision on theuse of airport revenue to financeconstruction of the rail link betweenSan Francisco International Airport andthe Bay Area Rapid Transit (BART) railsystem extension running past theairport. In that decision, the FAAapproved the use of airport revenues topay for the actual costs incurred forstructures and equipment associatedwith an airport terminal building stationand a connector between the airportstation and the BART line. Thestructures and equipment were locatedentirely on airport property, and weredesigned and intended exclusively foruse of airport passengers. The BARTextension was intended for theexclusive use of people travelling to orfrom the airport and included designfeatures to discourage use by throughpassengers. Based on theseconsiderations, the FAA determinedthat the possibility of incidental use bynonairport passengers did not precludeairport revenues from being used tofinance 100 percent of the otherwiseeligible cost items. For purposes of thisanalysis, the FAA considered ‘‘airportpassengers’’ to include airport visitorsand employees working at the airport.

4. Accounting Issues

a. Principles for Allocation of IndirectCosts

Based on the comments to theProposed Policy, the FAA addressed theprinciples of indirect cost allocation inits Supplemental Notice. TheSupplemental Notice made clear thatthe allocation of indirect costs isallowable under 49 USC § 47107(b), andthat no particular method of costallocation will be required, including

OMB Circular A–87. To ensure,however, that indirect costs are limitedto allowable capital and operating costs,the FAA proposed to apply certaingeneral principles and prohibitions tothe allocation of costs. TheSupplemental Notice did not limitsignificantly the development of localcost allocation methodologies, orinterfere with the application ofGenerally Accepted AccountingPrinciples (GAAP) and other accountingindustry recognized standards.

In the Supplemental Notice, the FAAstated that it would expect that aFederally approved cost allocation planthat complied with OMB Circular A–87or other Federal guidance and wasconsistent with GAAP would bereasonable and transparent, and wouldgenerally meet the requirements ofsection 47107(b). However, the use of aFederally approved cost allocation plandoes not rule out the possibility that aparticular cost item allowable underthat guidance would be in violation ofthe airport revenue retentionrequirement if allocated to the airport.

The Supplemental Notice alsorequired specifically that indirect costallocations be applied consistentlyacross departments to the sponsoringgovernment agency, and not unfairlyburden the airport account. The generalsponsor cost allocation plan could notresult in an over-allocation to anenterprise fund. In addition, the sponsorwould have to charge comparable users,such as enterprise accounts, for indirectcosts on a comparable basis.

Lastly, the Supplemental Noticeproposed to prohibit the allocation ofgeneral costs of the sponsoringgovernment to the airport. However, thisprohibition would not affect direct orindirect billing for actual servicesprovided to the airport by localgovernment.

Airport Operators: Generally, airportoperators agreed with the proposal toacknowledge that the allocation ofindirect costs as allowable under 49USC § 47107(b), and to provide that noparticular allocation methodology,including OMB Circular A–87, berequired.

One airport operator requested theFAA to further clarify that it is notimposing on airport sponsors all of thespecific elements of OMB CircularA–87.The operator was concerned that thestatement in the Supplemental Noticethat the FAA ‘‘believe[s] the specificprinciples identified by the OIG are anappropriate construction of the revenueretention requirement’’ may lead toconfusion over whether adherence toOMB Circular A–87 is mandatory for



allocating costs to be paid by airportrevenue.

Several airport operators wereconcerned that the FAA would notaccept the allocation of costs inaccordance with a Federally-approvedcost allocation plan, but could reviewthe plan to ensure that allocation ofspecific cost items meet the specialrevenue retention requirements. Forexample, one airport operatorcommented that the FAA’s approachwould impose on airport sponsorsburdens and requirements in excess ofthe detailed requirements of OMB-Circular A–87, which are designed toensure a reasonable and consistent costallocation system. The airport proprietorproposed that such compliance with afederally-approved cost allocation planbe considered sufficient to satisfy therevenue retention requirement.

Another airport operator proposedthat the FAA revise the policy to clarifythat a specific cost, as opposed to a typeof cost, cannot be treated as both adirect and an indirect cost. The airportoperator offered as an example a city-owned and operated airport at whichsome police services are provided byofficers assigned exclusively to theairport and other services are providedby general duty police officers. Thecommenter suggested that it should bepermissible to charge the airport for theofficers assigned exclusively to theairport as a direct cost and to charge forthe general duty officers as an indirectcost allocation.

Additionally, this commenterproposed revising the policy to clarifythat costs that are chargeable to one citydepartment on a direct basis may becharged to other city departments on anindirect basis. The airport operatoroffered an example in which police areexclusively assigned to a city-ownedairport, but are not exclusively assignedto other city departments. Thecommenter argued that it would bereasonable to charge the airport forpolice services as a direct cost, and tocharge the other departments as anindirect cost allocation.

Several airport operators were alsoconcerned that the supplemental policyimplied that a local cost allocation planmust provide that all users for a servicebe billed equally. For example, ACI-NAand AAAE suggested that therequirement for consistent applicationshould be interpreted to require thelocal government to go through theexercise of assessing indirect costsagainst all governmental departments,including those wholly funded by thatgovernmental entity. Likewise, anairport operator requested that the FAAclarify that the supplemental policy

does not mean that an airport sponsormust actually bill all of its General Fundagencies for certain municipal costs inorder to be able to charge such costs toits airports. All of those airportproprietors that expressed concern overthis proposed policy generallycommented that this issue wasconsidered and rejected by theDepartment of Transportation in theSecond Los Angeles InternationalAirport Rates Proceeding, Docket OST–95–474. According to the airportproprietors, the DOT recognized that inmany cases sponsor agency operationsare paid from a common General Fund.Under those circumstances, it isillogical and unnecessary for oneGeneral Fund agency to bill anotherGeneral Fund agency for municipalservices.

One airport operator proposed thatthe word ‘‘equally’’ be removed fromVII.B.4 of the proposed policy. Thecommenter urged that the FAA allowairport sponsors the flexibility toallocate costs to various users on areasonable, equitable basis relative tothe benefits received, even thoughspecific users may sometimes be treateddifferently. Returning to its example ofpolice services, the commentersuggested that if the sponsor choosesnot to charge a housing authority forcosts of a special police unit assigned tothat authority, it should be of noconcern to the FAA as long as thosecosts are not then charged to the airport.

Another airport operator argued thateach of its proprietary departments areunique and governed by different CityCharter provisions; that they makedifferent uses of city services; and havedifferent financial arrangements withthe sponsor’s general fund. Thiscommenter argued that treating thedepartments the same for cost allocationpurposes because the departments areenterprise funds would, therefore, serveno valid purpose.

Several airport operators disagreedwith FAA’s proposed policy to prohibitthe indirect cost allocation of generalcosts of government. Severalcommenters stated that the proposedpolicy would reverse longstandingpractice at many airports and could beinconsistent with federally-approvedcost allocation plans, which provide forthe allocation of a share of indirect costsof various local government functions.One airport operator argued that there isno statutory basis for prohibiting theallocation of general costs ofgovernment, other than costs forparticular identified services.

Finally, one airport operatorcommented that the proposed policydoes not sufficiently clarify the

appropriate allocations for fire andpolice stations that do not serve theairport exclusively. The airport operatorproposed that policy explicitly permit asponsor to allocate costs based on theintended purpose and value of thestation to the airport, not its actual use.The airport operator argues that a moreflexible approach could betterimplement the applicable statutoryprovision that prohibits ‘‘directpayments or indirect payments, otherthan payments reflecting the value ofservices and facilities provided to theairport.’’

Airlines: ATA supports the proposedpolicy clarification that no particularcost allocation methodology for indirectcosts is preferred.

The Final Policy: The Final Policyreflects a different and simplifiedapproach to indirect cost allocation thatis intended to facilitate development ofpermissible cost allocation plans andthe review of those plans in the singleaudit process. The Final Policy specifiesthat the cost allocation plans must beconsistent with Attachment A of OMBCircular A–87. Attachment A sets forthgeneral principles for developing costallocation plans. Those principles areessentially a restatement of theprinciples proposed in theSupplemental Policy. By referring toAttachment A, the Final Policyestablishes a standard that is wellunderstood by airport cost accountantsand by airport operators’ independentauditors. The Final Policy does notrequire compliance with the otherattachments to OMB Circular A–87,which include more rigid requirementsand defines categories of grant recipientcosts that are eligible and ineligible forreimbursement with Federal grantfunds.

The Final Policy continues to specifythat the costs allocated must themselvesbe eligible for expenditure of airportrevenue under section 47107(b).Attachment A to OMB Circular A–87provides principles for cost allocationmethodologies. The cost items that maybe charged to airport revenue aredetermined by the requirements ofsection 47107(b). Therefore, sponsors,and the FAA, cannot rely solely oncompliance with OMB Circular A–87 toassure that the costs items charged tothe airport in a Federally approved costallocation plan are consistent withsection 47107(b).

The Final Policy continues to specifythat the airport must not be chargeddirectly and indirectly for the samecosts. The FAA is not persuaded thatthe example of police services offeredby an airport sponsor requires amodification of this requirement. This



provision is not intended to precludeboth the direct and indirect billing inthe situation cited by the commenter—where police services are provided tothe airport on both an exclusive-use anda shared-use basis. In the cited example,it would be preferable to bill for policeexclusively assigned to the Airport on adirect cost basis. It would be impossible,however, to bill for the shared-usepolice without engaging in some form ofindirect cost allocation. The FAA didnot intend the supplemental policy topreclude treatment of police services asboth direct and indirect costs in thesecircumstances, only to preclude doublebilling on both a direct and indirectbasis, for the same police costs.

Similarly, with respect to the secondexample of police services where theairport receives exclusive-use policeservices and other sponsor departmentsreceive shared-use police services, theFAA did not intend the SupplementalNotice to preclude disparate billingmethodologies. Inherent in AttachmentA is that comparable units of asponsoring government makingcomparable uses of the sponsor’sservices should have costs allocated andbilled in a comparable fashion. Theclarification noted above should addressthis situation as well. In the secondexample sited, the FAA would considerthe sponsor departments receivingshared-use police services not to becomparable to the airport receivingexclusive use police services.

The Final Policy also provides thatthe allocation plan must not burden theairport with a disproportionate share ofallocated costs, and requires that allcomparable units of the airport owner oroperator be billed for indirect costsbilled to the airport. The FAA isunwilling to accept the suggestion thatcomparable users of a service maysometimes be treated differently forbilling purposes, so long as the costsattributed to one unit of government arenot then charged to the airport. TheFAA believes that such practices wouldresult in an unfair burden being placedupon the airport simply because of theairport’s ability to pay.

This provision, however, is notintended to require a sponsor’s GeneralFund activities to bill other GeneralFund activities for indirect costs that areproperly allocable to those activities, ifthe airport is billed. The policy is clearthat comparable billing for services isrequired only for comparable users.

Enterprise funds need not be treatedas comparable to units of a sponsoringgovernment financed from the sponsor’sgeneral fund, and comparable billingbetween enterprise funds and otherunits of government is not required.

While the FAA may presume thatenterprise funds are comparable to eachother, an airport sponsor is free todemonstrate that particular enterprisefunds are sufficiently different inmaterial ways—such as the way theyconsume sponsor services or theiroverall financial relationships with thesponsor—to justify different practices incharging for indirect costs. The FinalPolicy does not further definecomparability because decisions oncomparability will depend on thespecific circumstances of a sponsor. TheFinal Policy also explicitly permits theallocation of general costs ofgovernment and central services costs tothe airport, if the cost allocation plansmeets the Final Policy’s requirements.As specified in the Final Policy,however, the allocation of these costs tothe airport may require special scrutinyto assure that the airport is not beingburdened with a disproportionate shareof the allocated costs.

In addition, the FAA continues torecognize that use of airport revenue topay some expenses not normallyconsidered to be allowable pursuant toOMB Circular A–87, such as fire andpolice services, is consistent with therevenue retention requirement. If suchcosts are allocated as an indirect cost inaccordance with the Final Policy, theywill be considered by the FAA asacceptable charges.

The Final Policy is modified to permitthe allocation of certain categories of asponsor’s general cost of government asan indirect charge to the airport. Suchcharges include indirect expenses of theOffice of Governor of a State, Statelegislatures, offices of mayors, countysupervisors, city councils, etc. Anairport owner’s or operator’s centralservice costs may also be allocated tothe airport. The Final Policy specifiesthat allocation of these categories ofcosts to the airport may require specialscrutiny to assure that the airport is notbeing burdened with a disproportionateshare of the costs.

The FAA proposed to prohibit theallocation of all general costs to theairport on the grounds that the paymentof such costs with airport revenuewould be inconsistent with the purposeof the revenue use restriction—to avoidsubsidy of general sponsorgovernmental activity. It is clear fromthe comments that airports routinelypay for a share of the general costs thelegislative and executive branches of thegovernmental unit of which the airportis a part under cost allocation plansprepared in accordance with GAAP.Further, the comments demonstrate thatthe payment of legislative and executivebranch costs by airport revenue can be

justified as a cost of the airport becausethe legislative and executive brancheshave direct, tangible oversight andcontrol responsibilities for the airport,and their activities provide directbenefits to the airport, such as in theareas of funding, capital development,and marketing.

In addition, under the Final Policy,the costs of shared-use facilities must beallocated to all users of the facility, evenif the original purpose of constructingthe facility was to provide exclusive useor benefit to the airport. While asponsor-owned facility may haveoriginally been established for thebenefit of the airport, the FAA believesthat the purpose of the facility canchange from time to time based on localcircumstances and that allocation ofcosts should be based on currentpurpose, as well as use. The FAA mayconsider a number of factors indetermining current purpose, includingcurrent use, design and functionality.

b. Standard of Documentation for theReimbursement of Cost of Services andContributions to Government Entities

In its administration of airportagreements, the FAA is not normallyconcerned with the internalmanagement or accounting proceduresused by airport owners. As a matter ofpolicy and procedure, the FAA hasconsistently required thatreimbursement of capital and operatingcosts of an airport made by agovernment entity must be clearlysupportable and documented.

Neither the Proposed Policy nor theSupplemental Notice explicitlydiscussed a standard of documentationthat must be achieved for a sponsor toclaim reimbursement for services and/orcontributions it provided to the airport.However, events subsequent to theissuance of both documents indicate aneed for FAA to provide specificguidance on the standard ofdocumentation that will support theexpenditure of airport revenues.

In the examination of a possiblediversion of airport revenue by the Cityof Los Angeles at Los AngelesInternational, Ontario, Van Nuys andPalmdale Airports (FAA Docket No. 16–01–96), the FAA reviewed theunderlying documentation which theCity of Los Angeles offered to supportthe payment of approximately $31million in airport revenue to the LosAngeles’ general fund as thereimbursement of sponsor contributionsand services provided to the airport. Inthe Director’s Determination datedMarch 17, 1997, the FAA stated itsstandard of documentation to justifysuch reimbursements. Accordingly, the



FAA is including that standard in theFinal Policy.

The Final Policy requires thatreimbursements for capital andoperating costs of the airport made by agovernment entity, both direct andindirect, be supported by adequatedocumentary evidence. Adequatedocumentation consists of underlyingaccounting records and corroboratingevidence, such as invoices, vouchersand cost allocation plans, to support allpayments of airport revenues to othergovernment entities. If this underlyingaccounting data is not available, theFinal Policy allows reimbursement to agovernment entity based on auditedfinancial statements, if such statementsclearly identify the expenses as havingbeen incurred for airport purposesconsistent with the Final Policystatement. In addition, the Final Policyprovides that budget estimates are not asufficient basis for reimbursement ofgovernment entities. Budget estimatesare just that—estimates of projectedexpenditures, not records of actualexpenditures. Therefore, budgetestimates cannot be relied on asdocumentary evidence to show that thefunds claimed for reimbursement wereactually expended for the benefit of theairport.

Indirect cost allocation plans,however, may use budget estimates toestablish pre-determined indirect costallocation rates. Such estimated ratesmust, however, be adjusted to actualexpenses in the subsequent accountingperiod.

5. Prohibited Uses of Airport Revenue

a. Impact Fees/Contingency Fees

The Proposed Policy prohibited thepayment of impact fees assessed by anonsponsoring governmental body thatthe airport sponsor is not obligated topay or that exceed such fees assessedagainst commercial or othergovernmental entities. TheSupplemental Notice did not modifythis provision. The term ‘‘impact fees’’was not defined in the Proposed Policy.

Airport operators: One Florida airportsponsor stated that impact fees shouldbe allowable to either a sponsoring ornon-sponsoring governmental body.Another commented that the languagereferring to a ‘‘non-sponsoring’’governmental body was vague andconfusing. Within the state of Florida,impact fees are typically administeredby a non-sponsoring government body.It was stated that the wording did notseem to prohibit impact fee paymentswhen assessed by a ‘‘sponsoring’’agency, or impact fees that an airportsponsor is obligated to pay.

The Final Policy: For clarity, the FinalPolicy is modified to delete thereference to ‘‘non-sponsoring’’governmental body and to delete thereference to fees the sponsor is notobligated to pay. In addition, the FAAis adding a statement that in appropriatecircumstances, airport revenue may beused to reimburse a governmental bodyfor expenditures that the imposinggovernment will incur as a result of on-airport development, based on actualexpenses incurred.

The effect of the deletions is tobroaden the prohibition to all impactfees, within the meaning of the termused in the policy statement. As such,the deletions are consistent with thestatutory prohibition on payment ofairport revenues that do not reflect thevalue of services or facilities actuallyprovided to the airport. Until agovernmental unit undertakes theactivity for which the impact fee isintended to compensate, it is impossibleto know with certainty whether theimpact fee is an accurate reflection ofthe cost of the activity attributable to theairport or its value to the airport, oreven that the activity will occur. Thissituation is true regardless of both thestatus of the governmental unit asairport sponsor and the status of the feeas discretionary. The FAA understandsthat many local laws or regulationsauthorizing impact fees do not requirethe fees to be spent to mitigate oraccommodate the results of the airportaction that triggers the fee. The FAA hasno basis for assuring the payment ofimpact fees would be consistent withthe purpose of section 47107(b)—toprevent an airport sponsor who receivedFederal assistance from using airportrevenues for expenditures unrelated tothe airports.

The broader prohibition is consistentwith applicable FAA policies.Longstanding FAA policy has permitteda sponsor to claim reimbursement fromairport revenue only for ‘‘clearlysupportable and documented charges,* * * supported by documentedevidence.’’ FAA Order 5190.6A, par. 4–20.a(2)(c)(ii). An impact fee assessedbefore the imposing governmentincurred any expenses to accommodateairport growth would not meet thisstandard.

In addition, a standard ofdocumentation required by the FinalPolicy applies to all expenditures ofairport revenues subject to section47107(b), including impact feepayments. That standard requires thatexpenditures of airport revenues besupported by data on the actual costsincurred for the benefit of the airport,not by budget or other estimates, which

impact fees essentially are. The FinalPolicy will allow submission of thoseassessed fees resulting from theproposed development when theamount of the fees become fullyquantifiable, as provided for in SectionIV of the Final Policy, followingimplementation by the imposinggovernment of the mitigation measuresfor which the impact fee is assessed. Atthat time, the FAA can best determinewhether the fees assessed against airportrevenue satisfy the requirements ofsection 47107(b) and this policy. Inunusual circumstances, the FAA maypermit a prepayment of estimatedimpact fees at the commencement of amitigation project, if the funds arenecessary to permit the mitigationproject to go forward, so long as thereis a reconciliation process that assuresthe airport is reimbursed for anyoverpayments, based on actual projectcosts, plus interest.

However, the Final Policy does takeinto account the potential that an airportoperator may be required by state orlocal law to finance the costs ofmitigating the impact of certain airportdevelopment projects undertaken by theairport sponsor. Therefore, whereairport development causes agovernment agency to take an action,such as constructing a new highwayinterchange in the vicinity of theairport, airport revenues may be usedequal to the prorated share of the cost.In all cases, the action must be shownto be necessitated by the airportdevelopment. In the case ofinfrastructure projects, such impactmitigation must also be located in thevicinity of the airport. This proximityrequirement is not being applied to allmitigation measures because somemitigation measures—especially certainenvironmental mitigation measures—may not occur in the vicinity of theairport.

The Final Policy also acknowledgesthe possibility that an airport operatormay be bound by local or state law touse airport revenue to pay an impact feethat is prohibited by this policy. TheFinal Policy states that the FAA willconsider any such local circumstancesin determining appropriate correctiveaction.

b. Subsidy of Air CarriersAs discussed in Section V ‘‘Permitted

Uses,’’ the Supplemental Noticeacknowledged the fact that Congress, inthe 1994 FAA Authorization Act,effectively authorized the use of airportrevenue for promotion of the airport byexpressly prohibiting ‘‘use of airportrevenues for general economicdevelopment, marketing, and



promotional activities unrelated toairports or airport systems.’’ At the sametime, that statutory provision alsolimited the scope of acceptablepromotional activity.

In the Supplemental Notice, the FAAproposed new policy language that moreclearly addressed the kinds ofpromotional and marketing activitiesthat are and are not legitimate operatingcosts of the airport under 47107(b). Inthe Supplemental Notice, SectionVIII(I), the FAA proposed that ‘‘[d]irectsubsidy of air carrier operations’’ is aprohibited use of airport revenuebecause it is not considered a cost ofoperating the airport. The FAA drew adistinction between methods ofencouraging new service. SupplementalNotice proposed to allow the use ofairport revenue to encourage passengersto use the airport through promotionalactivities, including cooperativepromotional activities with airlines andto allow airport operators to enhance theviability of new service through feeincentives, on the one hand. As noted,the FAA proposed to prohibit the use ofairport revenue to simply buy increaseduse of the airport by paying an aircarrier to operate aircraft, on the other.The FAA considered the formeractivities to be a permitted expenditurefor the promotion and marketing of theairport and the latter to be a prohibitedexpenditure for general economicdevelopment. The FAA explained in thepreamble to the Supplemental Noticethat neither promotional activities norpromotional fee discounts would beconsidered a prohibited direct subsidyof airline operations. 61 FR at 66738.

Airport operators: In their commentson the Supplemental Notice, ACI–NA/AAAE state that, generally, anexpenditure or activity should not beconsidered revenue diversion if there isa reasonable expectation that such anexpenditure or activity will benefit theairport. Furthermore, they note that thelaw does not single out direct air carriersubsidy or fee waivers for morestringent scrutiny than other marketingactivities. This argument in favor of thereasonable business judgement of theairport management should be appliedto the use of airport revenue forpromotion and marketing not unrelatedto the airport, including direct aircarrier subsidies and fee waivers. ACI/AAAE stated ‘‘both forms of financialassistance should be permitted, if anairport has a reasonable expectation thatthe subsidy will benefit the airport andthe subsidy or discount is madeavailable on a non-discriminatorybasis.’’

ACI/AAAE further stated that there isno real distinction between direct

subsidy and fee waivers, as well as nonebetween direct subsidy and the residualairport costing methodologies, makingthe distinction in the policy illogical.They predicted that the proposed policyis likely to promote detrimental effects,including eliminating air service tosome small airports, increasingcongestion at dominant hubs at theexpense of medium-sized airports,reducing potential competition andraising fares.

Several individual airport operatorsconcurred with the ACI–NA/AAAEposition. One operator commented thatany subsidies should be permitted, aslong as the airport remains self-sustaining and the subsidies are notincluded in airline costs in calculatinglanding fees, terminal rents and otheruser charges.

Another airport operator, the LNAA,which is engaged as a party in a 14 CFRPart 13 investigation regarding itsformer air carrier subsidy program,commented that there is no realdifference between an airport making adirect subsidy to an air carrier orwaiving fees.

Two airport operators expresseddifferent views. One operator agreedthat airport revenues should not be usedto subsidize new air carrier servicebecause the practice of subsidizationcould lead to destructive competitionfor air service among airports. Anotherairport operator stated that it ‘‘does notcurrently engage in nor does itcontemplate any form of direct subsidyto air carriers in exchange for airservice.’’ This operator considers theSupplemental Notice to provideadequate flexibility to airport operatorsto foster and promote air servicedevelopment.

Air carriers: The ATA stronglyopposed the assertion that directsubsidies of airline operations withairport revenue may be considered to beoperating costs of the airport and wouldextend the prohibition to indirectsubsidies. They argued that thedistinction in the proposed policy thatallows fee waivers under certaincircumstances, but prohibits directsubsidy is illogical. Both result inrevenue diversion, whether thebeneficiary is ‘‘a start up carrier, a newentrant in a market, or an existingcarrier at an airport.’’ The ATA furthercommented, in connection with jointmarketing endeavors, that thepermissible ‘‘promotional period’’should be defined, as should the scopeof permissible marketing activities.

The Final Policy: The FAA hasclarified the policy provision on thedirect subsidy of air carriers with airportrevenue; however, the prohibition

remains, as does the distinction betweendirect subsidy and the waiving of feesand the joint promotion of new service.The FAA has applied the test of section47107(b) to determine to what extentvarious kinds and amounts ofpromotional and marketing activitiescan be considered legitimate operatingcosts of the airport.

In pursuit of uniformity, the FAA hasintegrated references to the section onthe permitted uses of airport revenue, aswell as to the section on self-sustainability, to assist airport operatorsin pursuing reasonable strategies topromote the airport and provideincentives to encourage new air service.Among other things, marketing of airservice to the airport, and expendituresto promote the airport to potential airservice providers can be treated asoperating costs of the airport. Of course,support for marketing of air service tothe airport must be providedconsistently with grant assurancesprohibiting unjust discrimination.

The setting of fees is a recognizedmanagement task, based on a number ofconsiderations, including the airportmanagement’s assessment of theservices needed by airport consumers,and the airport management’sassessment of the financialarrangements necessary to secure thatservice. The FAA has consistentlymaintained that fee waivers or discountsinvolving no expenditure of airportfunds raise issues of compliance withthe self-sustaining rate structurerequirement, not the revenue-userequirement. The Final Policy therefore,permits fee waivers and discountsduring a promotional period. Thewaiver or discount must be offered to allusers that are willing to provide the typeand level of new service that qualifiesfor the promotional period. The Policylimits the fee waiver or discount topromotional periods because of therequirement that the airport maintain aself-sustaining airport rate structure. Inaddition, indefinite fee waivers ordiscounts could raise questions ofcompliance with grant assurancesprohibiting unjust discrimination. TheFinal Policy does not define a permittedpromotional period. There is too muchvariation in the circumstances ofindividual airports throughout thecountry to permit adoption of a singlenational definition of a suitablepromotional period.

In contrast, the direct payment ofsubsidies to airline involves theexpenditure of airport funds and henceraises questions under the revenue-userequirements. The FAA continues tobelieve that the costs of operatingaircraft, or payments to air carriers to



operate certain flights, are notreasonably considered an operating costof an airport. In addition, payment ofsubsidy for air service can be viewed asgeneral regional economic developmentand promotion, rather than airportpromotion. Use of airport revenue forthese purposes is expressly prohibitedunder the terms of the 1994 FAAAuthorization Act. The Final Policydoes not preclude a sponsor from usingfunds other than airport revenue to payairline subsidies for new service, and itdoes not preclude other communityorganizations— such as chambers ofcommerce or regional economicdevelopment agencies—from funding aprogram to support new air service.Therefore, the Final Policy maintainsthe distinction between direct subsidyof air carriers and the waiving of fees,and prohibits the former.

6. Policies Regarding the Requirementfor a Self-Sustaining Rate Structure

As noted in the summary, the FinalPolicy contains a separate section on therequirement that an airport maintain arate structure that makes the airport asself-sustaining as possible under thecircumstances at the airport, to providemore comprehensive guidance in asingle document. The 1994 FAAAuthorization Act directed the FAA toadopt policies and procedures to assurecompliance with both the revenue usesand self-sustaining airport rate structurerequirement. The general guidancerepeats the guidance appearing in theDepartment of Transportation PolicyStatement Regarding Airport Rates andCharges, 61 FR 31994 (June 21, 1996).The Final Policy interprets the basicrequirement and addresses exceptionsto the basic rule for leases of airportproperty at nominal or less-than fairmarket value (FMV) to specificcategories of users.

Each federally assisted airport owner/operator is required by statute and grantassurance to have an airport fee andrental structure that will make theairport as self-sustaining as possibleunder the particular airportcircumstances, in order to minimize theairport’s reliance on Federal funds andlocal tax revenues. The FAA hasgenerally interpreted the self-sustainingassurance to require airport sponsors tocharge FMV commercial rates fornonaeronautical uses of airportproperty. However, in the case ofaeronautical uses, user charges are alsosubject to the standard ofreasonableness. In applying the twostandards together for aeronauticalproperty, the FAA has considered itacceptable for an airport operator tocharge fees to aeronautical users that are

less than FMV, but more than nominalcharges. The FAA defines ‘‘aeronauticaluse’’ as any activity which involves,makes possible, or is required for theoperation of aircraft, or whichcontributes to or is required for thesafety of such operations. PolicyStatement Regarding Airport Fees,Statement of Applicability, 61 FR at32017.

Many entities lease airport propertyfor aeronautical and nonaeronauticaluses at nominal lease rates. The FAAhas determined that nominal leases tomany of these entities is consistent withthe requirement to maintain a self-sustaining airport rate structure. TheFinal Policy provides specific guidanceregarding nominal leases for sixcategories of users. This guidance isdiscussed below.

a. Use of Property at Less Than FMV forCommunity/Charitable/Recreational Use

Airport operators: The ACI–NA/AAAE agree with the general conclusionthat use of airport property forcommunity and charitable purposes atless than FMV should be permissible.However, they argued that the criterialisted in the Supplemental Notice aretoo narrow. Other criteria should beconsidered, and an airport should berequired to provide no more than onejustification. The ACI–NA/AAAEspecifically mentioned aeronauticalhigher education institutions and not-for-profit air and space museums asadditional permitted uses, based on H.R.Rep. 104–714, 104th Cong. 2nd Sess. at39 (1996) reprinted in 1996 USCC.A.N.3676.

Individual airport operators alsorequested more flexibility in variousforms. One operator suggested that theSupplemental Notice establishes anunnecessary two-part test which manycommunity uses of airport property willfail to satisfy. Another operator arguedthat such airport property use shouldnot be limited to temporaryarrangements, e.g., parks and baseballfields, which indicates that only usesthat allow property to be returned ratherquickly to the airport inventory wouldbe permitted.

In contrast, another airport operatorsuggested that, in order to place lessburden on the airport operator, suchuses should be limited in scope and thatthe below-market value amount that anairport operator could charge for suchusage should be established as somepercentage of the appraised value of theproperty.

Air carriers: The ATA agrees inprinciple with the concept of limiteduse of airport property for certainspecified community purposes at less

than FMV. However, ATA stated thatthe Supplemental Notice lacksspecificity and that its applicationwould consequently be inconsistentwith the self-sustaining and revenue-userequirements. The ATA proposed tonarrow the first element of the standardto permit contribution of property if theproperty is put to a general public usedesired by the local community and theuse does not adversely affect thecapacity, safety or operations of theairport. The ATA would narrow thesecond test by permitting the use ofproperty that is expected to generate nomore than minimal revenue, which theATA would define as minimal revenueequal to or less than 20 percent ofrevenue that could be earned by similarairport property in commercial or aircarrier use. When the property could beexpected to earn more than this definedminimal amount, the ATA wouldpermit less than FMV rental if therevenue earned by the community useapproximates the revenue that wouldotherwise be generated.

The ATA would also require that thecommunity use be subject to periodicreview and renewed justification andthat the airport proprietor retainabsolute discretion to reclaim theproperty for airport use.

Other commenters: A member of theUnited States House of Representativesexpressed concern that the policy, ifadopted as proposed, does not providesufficient flexibility to airport operatorsto be good neighbors within theircommunity. This commenter suggestedthat in rural areas, requiring communityorganizations to pay FMV could reduceairport revenue as paying communityorganizations are forced off of theairport by higher rents and no newtenants are found.

Final Policy: The Final Policygenerally permits below-FMV-rental ofairport property for community uses,but generally limits the uses to propertythat is not potentially capable ofproducing substantial income and notneeded for aeronautical use. Consistentwith the suggestions of the ATA, thepermitted community uses of suchproperty will be limited to those that arecompatible with the safe and efficientoperation of the airport and which arefor general local use. In addition, thecommunity use should not precludereuse of the property for airportpurposes, if the airport operatordetermines that such reuse will providegreater benefits to the airport than thecontinued community use. Leases toprivate, non-profit organizationsgenerally will be required to be atmarket rates unless the sponsor candemonstrate a ‘‘community goodwill’’



purpose to the lease, or can demonstratea benefit to aviation and the airport, asdiscussed below.

While the Final Policy states thatproperty provided for community use atno charge should be expected toproduce no more than minimal revenue,we are not adopting a definition ofminimal. For property that is capable ofgenerating more than minimal revenue,a sponsor could charge less than FMVrental rates for community use, if therevenue earned from the community useapproximates that revenue that couldotherwise be generated. Providing suchproperty for community use at nocharge would not be appropriate.

The FAA has determined that thisapproach to community use strikes anappropriate balance between the needsof the airport to be a good neighbor andthe Federal requirements on the use ofairport revenue and property. Thisformulation provides substantialflexibility to airport operators. At thesame time, the self-sustainingrequirement and the policy goal of therevenue-use requirement justify somelimitation on local discretion in thisarea.

The requirement that community usenot preclude reversion to airport use isbased on both the self-sustainingrequirement and the airport sponsor’sbasic AIP obligation to operate a grant-obligated airport as an airport.

Under the Final Policy, the lease ofairport property to a unit of thesponsoring government fornonaeronautical use at less than fairmarket value is considered a prohibitedrevenue diversion unless one of thespecific exceptions permitting below-market rental rates applies. If asponsor’s use of airport propertyqualifies as community use, and theother requirements for community-useleases are satisfied, the FAA would notobject to a lease at less than fair marketvalue. Qualified uses could include parkor recreational uses or other publicservice functions. However, such usewould be subject to special scrutiny toensure that the requirements for below-FMV community use is satisfied. Thecommunity use provision of the FinalPolicy does not apply to airportproperty used by a department orsubsidiary agency of the sponsoringgovernment seeking an alternative sitefor the sponsor’s general governmentalpurposes at less-than-commercial value.For example, a city cannot claim thecommunity use exception for a nominalvalue lease of airport property for amunicipal vehicle maintenance garage.Such usage, while beneficial to thetaxpaying citizens of the sponsoringgovernment, would be difficult to justify

as benefiting the airport by improvingthe airport’s acceptance in thecommunity.

b. Not for Profit Aviation MuseumsThe DOT OIG has cited instances in

which an aviation museum at afederally assisted airport is leasingairport property at less than a fairmarket rental rate. In clarifying therevenue diversion prohibitionsrecommended for inclusion in the FAAAuthorization Act of 1996, the HouseTransportation and InfrastructureCommittee urged the FAA to take aflexible approach to the lease of airportproperty at below-market rates to not-for-profit air and space museumslocated on airport property. H.R. Rep.No. 104–714, 104th Cong. 2nd Sess. at39 (1996) reprinted in 1996U.S.C.C.A.N. 3676 (House Report). TheCommittee recommended that this typeof rental arrangement should not beconsidered revenue diversion because ofthe contribution that such museumsmake to the understanding and supportof aviation.

One airport operator commented thatlong-term, less-than-market value rentalarrangements, particularly forleaseholds encompassing permanentfacilities, should be permitted whensuch arrangements serve a clear andvaluable aviation-related purpose. Thiscomment could include aviationmuseums.

One operator of a not-for-profitaviation museum urged the FAA topermit nominal rate leases. Thisoperator stated that a FMV-based leasefor its museum property would doubleits current operating budget.

The Final Policy: The Final Policypermits airport operators to chargereduced rental rates and fees, includingnominal rates, to not-for-profit aviationmuseums, to the extent that thereduction is reasonably justified by thetangible and intangible benefits to theairport or civil aviation. This provisionrecognizes the potential for aviationmuseums to provide benefits to theairport by stimulating understandingand support of aviation, consistent withthe suggestion contained in the HouseReport, U.S.C.C.A.N. 3676. Benefits tothe airport may include any in-kindservices provided to the airport andairport users by the aviation museum.The limitation to not-for profit museumsis consistent with the requirement for aself-sustaining airport rate structure,because there is no reason to give for-profit aviation museums preferentialtreatment over other commercialaeronautical activities. All for-profitaeronautical activities provide somebenefit to the airport, by making it more

attractive for potential airport users. Ifthis benefit were a sufficient reason topermit reduced rental rates tocommercial aviation businesses on aroutine basis, the requirement for a self-sustaining airport rate structure wouldbe virtually unenforceable.

The Final Policy permits but does notrequire below-market rental rates,including nominal rates. The airportoperator is free to treat a qualifiedaviation museum as it would any otheraeronautical activity in setting rentalrates and other fees to be paid by themuseum.

c. Aeronautical Higher EducationPrograms

The DOT OIG has cited instances inwhich aeronautical secondary and post-secondary education programs atfederally assisted airports are leasingairport property at less than a fairmarket rental rate.

In the House Report, 1996U.S.C.C.A.N. 3676, the HouseTransportation and InfrastructureCommittee also urged the FAA to takea flexible approach to aeronauticalhigher education programs located onairports. The Committee recognized thatsome federally obligated airports haveleased property to non-profit, accreditedcollegiate aviation programs, and thatfacilitating these programs will helpbuild a base of support for airportoperations by giving students, who willbe the future users of the nationalairspace system, easy access to aviationfacilities.

The Final Policy: The Final Policypermits reduced rental rates, includingnominal rates, to not-for-profitaeronautical secondary and post-secondary education programsconducted by accredited educationalinstitutions, to the extent that thereduction is justified by tangible orintangible benefits to the airport or tocivil aviation. This treatment is justifiedfor the same reason that reduced rentalrates and fees to certain aviationmuseums are permitted. Again, thebenefits may include in-kind servicesprovided to the airport and airportusers. As with aviation museums, theeducational institution and educationprogram must be not-for-profit. For-profit aviation education, such as flight-training, is a standard commercialaeronautical activity at many airports.Permitting reduced rental rates and feesto for-profit aviation educationprograms would seriously underminecompliance with the self-sustainingrequirement and could raise questionsof compliance with the grant assurancesprohibiting unjust discrimination.



The Final Policy permits but does notrequire below-market rental rates,including nominal rates. The airportoperator is free to treat a qualified not-for-profit aeronautical educationprogram as it would any otheraeronautical activity in setting rentalrates and other fees to be paid by theeducation program.

d. Civil Air Patrol LeasesReduced-rental leases, including

nominal leases, to the Civil Air Patrol/United States Air Force Auxiliary (CAP)at a number of airports have also beencriticized in OIG audits. As a result ofthis criticism, some airport operatorshave been seeking higher rents from theCAP when leases have come up forrenewal.

In its comments, the CAP contendsthat the current standard airportindustry practice of permitting CAP useof airport property for a nominal rentconfers substantial benefits to theairport and, in general, to the aviationcommunity. The CAP, therefore,requests that a policy be adopted whichwould formally permit CAP units tocontinue to occupy facilities onfederally obligated airports at a nominalrent, whether under formal leasearrangements, or otherwise, at thediscretion of the airport owner/operator.

The Final Policy: The Final Policypermits reduced rental rates and fees toCAP units operating at the airport, inrecognition of the benefits to the airportand benefits to aviation similar to thoseprovided by not-for-profit aviationmuseums and aeronautical secondaryeducation programs. As with other not-for profit-aviation entities, the reductionmust be reasonably justified by benefitsto the airport or to civil aviation. In-kindservices to the airport and airport usersmay be considered in determining thebenefits that the CAP unit provides. Inaddition, this treatment of the CAP,which has been conferred with thestatus of an auxiliary to the UnitedStates Air Force, is not identical to thetreatment provided to military units inthe Final Policy, as discussed below, butis consistent with that treatment.

The reduced rental rates and fees areavailable only to those CAP unitsoperating aircraft at the airport. For CAPunits without aircraft, a presence at theairport is not critical. The airportoperator can accommodate those CAPunits with property that is not subject toFederal requirements on maintaining aself-sustaining rate structure, withoutcompromising the effectiveness of theCAP units. Of course, if such unitsprovide in-kind services that benefit theairport, the value of those services maybe recognized as an offset to FMV rates.

The Final Policy permits but does notrequire nominal rental rates. The airportoperator is free to treat a qualified not-for-profit aeronautical CAP lease as itwould any other aeronautical activity insetting rental rates and other fees to bepaid by the education program.

e. Police/Firefighting Units OperatingAircraft at the Airport

Many airports host police or fire-fighting units operating aircraft (oftenhelicopters). The OIG has frequentlycriticized reduced rate or no-cost leasesto these units of government asinconsistent with the self-sustaining andrevenue-use requirements.

The Final Policy requires the airportoperator to charge reasonable rentalrates and fees to these units ofgovernment. In effect, these units ofgovernment must be treated the same asother aeronautical tenants of the airport.This treatment is consistent with thepolicy’s general approach towarddealings between units of government—fees should be set at the level thatwould be produced by arm’s-lengthbargaining. The treatment is alsojustified because police and fire-fightingaircraft units provide benefits to thecommunity as a whole, and notnecessarily to the airport. However, aswith other police and fire-fighting unitslocated at an airport, the policy doesallow rental payments to be offset toreflect the value of services actuallyprovided to the airport by the police andfire-fighting aircraft units.

f. Use of Property by Military UnitsThe US Air Force Reserve and the Air

National Guard both have numerousflying units located on federallyobligated, public-use airports. Themajority of these aircraft-operating unitsare located on leased property atcivilian airports established on formermilitary airport land transferred by theUS Government to the airport owner/operator under the Surplus Property Actof 1944, as amended, or under otherstatutes authorizing the conveyance ofsurplus Federal property for use as apublic airport. Frequently, the favorablelease terms were contemplated inconnection with the transfer of theformer military property and may havebeen incorporated in propertyconveyance documents as obligations ofthe civilian airport sponsor. As withother reduced-rate leases, thesearrangements have been criticized inindividual OIG audits.

The Final Policy: The Final Policyprovides that leasing of airport propertyat nominal lease rates to military unitswith aeronautical missions is notinconsistent with the requirement for a

self-sustaining rate structure. TheDepartment of Defense (DOD) has asubstantial investment in facilities andinfrastructure at these locations, and itsoperating budgets are based on theexistence of these leases. Moving thosefacilities upon expiration of a lease orthe payment of FMV rent for facilities tosupport military aeronautical activitiesrequired for national defense and publicsafety would be beyond the capability ofthe DOD without additional legislationand enlargement of the DOD operatingbudget. In all of the enactments on theself-sustaining rate structurerequirement and use of airport revenueand the accompanying legislativehistory, the FAA can find no indicationthat Congress intended the airportrevenue requirements to be applied in away to disrupt the United States’defense capabilities or add significantlyto the cost of maintaining thosecapabilities. Moreover, Congressspecifically charged the FAA, in 49U.S.C. § 47103, with developing anational plan of integrated airportsystems (NPIAS) to meet, among otherthings, the country’s national defenseneeds. Inclusion in the NPIAS is aprerequisite for eligibility for AIPfunding. Thus, Congress clearlycontemplated a military presence atcivil airports. Therefore, the FAA willnot construe the requirement for a self-sustaining airport rate structure toprohibit nominal leases to military unitsoperating aircraft at an airport.

The Final Policy permits but does notrequire nominal rental rates. The airportoperator is free to treat a qualifiedmilitary unit as it would any otheraeronautical activity in setting rentalrates and other fees to be paid by themilitary unit.

7. Lease of Airport Property at LessThan FMV for Mass Transit Access toAirports

The Supplemental Notice proposedthat airport property could be madeavailable at less than fair rental value forpublic transit terminals, rights-of-way,and related facilities, without beingconsidered in violation of therequirements governing airport finances,under certain conditions. The transitsystem would have to be publiclyowned and operated (or privatelyoperated by contract on behalf of thepublic owner) and the transit facilitiesdirectly related to the transportation ofair passengers and airport visitors andemployees to and from the airport.Twenty-one responses addressed thisissue.

Airport commenters: The airportoperators concur with the principle ofmaking airport land available for mass



transit at rates below fair market value.ACI–NA/AAAE stated that thedetermination to use airport property fora transit terminal, transit right-of-way,or related facilities at less than fairrental value is consistent with the grantassurance requiring airports to be self-sustaining.

Air carriers: The ATA asserted thatFAA has exceeded its statutoryauthority in the proposal. ATA’sconsiders transit facilities to be likecommercial business enterprises,because they occupy airport propertyand charge their customers for theirservices. ATA also stressed that airporttransit facilities are non-aeronauticalfacilities which are not ‘‘directly andsubstantially related to the airtransportation of passengers orproperty.’’

Other commenters: Transit operators,including a transit operator tradeassociation generally supported theposition in the Supplemental Notice.

Another commenter stated thatmaking airport property available at lessthan fair market rental value or makingairport revenue available for transitfacilities equates to the airport paying ahidden taxation. This commenterargued that it was not the intention ofCongress, when it passed the AAIA, tohave grant funds used to subsidize,either directly or indirectly, any activitythat provides no benefit to air travel.

The Final Policy: The Final Policyincorporates the provision proposed inthe Supplemental Notice, with atechnical correction to include transitfacilities use for the transportation ofproperty to or from the airport. The FAAdoes not consider public transitterminals to be the equivalent ofcommercial business enterprises.Rather, they are more like public andairport roadways providing groundaccess to the airport. Generallyspeaking, the FAA does not construe theself-sustaining assurance to require anairport owner or operator to charge forroadways and roadway rights-of-way atFMV.

Moreover, even though publicly-owned transit systems chargepassengers for their services, theygenerally operate at a loss and aresubsidized by general taxpayer revenue.Charging fair market value for on airportfacilities would thus burden generaltaxpayers with the costs of providingfacilities used exclusively by transitpassengers visiting the airport.Therefore, a requirement to charge FMVwould not further the purpose of theself-sustaining assurance—to avoidburdening local taxpayers with the costof operating the airport system.

a. Private Transit

ACI–NA/AAAE and four airportoperators commented that privatetransit operators should have treatmentequal to public transit operators. Theyargued that the concepts of public-private partnerships, and privatizationof transportation facilities, may berealities in the not-too-distant future.Moreover, private ownership would notdetract in the least from the functionsidentified in the Notice for thesefacilities, such as bringing passengers toand from the airport. They also notedthat the language in the AIP Handbook(Order 5100.38A, Section 6) does notspecifically exclude private operators.The language states transit facilities willbe allowable provided they willprimarily serve the airport.

One state Department ofTransportation also urged that reducedrental rates should be offered toprivately-owned and operated transitsystems on the same basis as publicly-owned systems.

Final Policy. The Final Policy retainssome distinctions between privately andpublicly owned systems. In general,privately-owned systems are moreanalogous to other groundtransportation providers—private taxisand limousine services, rental carcompanies—and even private parkinglot operators. These entities arecommercial enterprises that operate forprofit and are a significant source ofrevenue for the airport. Mostimportantly, they are not supported bygeneral taxpayer funds, and chargingFMV would not raise questions ofburdening local taxpayers with the costof the airport.

However, the FAA is aware that, inmany communities with no publicly-owned bus systems or very limitedsystems, privately-owned bus systemsfulfill the role of providing publictransit services to the airport.Accordingly, the FAA is revising theFinal Policy to permit an airportoperator to provide airport property atless than FMV rates to privately-ownedsystems in these limited circumstances.

b. Airport Passengers

Nine airport commenters addressedthe proposed requirement that transitfacilities be directly related to thetransportation of air passengers andairport visitors and employees to andfrom the airport to qualify for less-than-FMV rentals. The commenters arguethat the provision is too narrow byrestricting the transit service to air-passengers and airport visitors andemployees. One airport operator statesthat airport sponsors must have the

flexibility to build airport transitsystems that principally serve airportpassengers, employees and other usersbut which may also secondarilytransport some nonairport users. Twoairport operators with general-use railtransit systems planned or operating onor near their airports argue that theairport benefits from improved groundaccess, reduced traffic congestion andimproved air quality of general usesystems and that rent-free propertyshould, therefore, be provided to generaluse systems.

Final Policy: The Final Policyincorporates the language of theSupplemental Notice. That languagedoes not preclude any use of transitfacilities constructed on airport propertyby nonairport passengers if the propertyis to be leased at less-than-FMV. Therequirement that the facilities be‘‘directly related’’ to the airport does notequate to a requirement that thefacilities be ‘‘exclusively used’’ forairport purposes. However, if theintended use of a facility is notexclusive airport use, some rentalcharge may be necessary to reflect thebenefits provided to the general public.The determination on whether thefacilities are ‘‘directly related’’ will bemade on a case-by-case basis.

It appears that some of the concernabout this issue was generated by thelanguage in the preamble, whichreferred to transit facilities ‘‘necessaryfor the transportation of air passengers,airport visitors and airport employees toand from the airport.’’ The preambleoffered a maintenance/repair facility asan example of facilities that would notqualify. The FAA is not convinced thatthe benefits to the airport of having suchfacilities on the airport is sufficient tojustify less-than-FMV rental rates.However, as noted, the FAA does notconstrue the policy language ‘‘facilitiesdirectly related the transportation of[airport passengers]’’ to require that thefacilities be used exclusively by airportpassengers.

8. Military Base Conversions IssuesIn its comments to the Proposed

Policy, one airport operator argued thatusing airport revenue to assist indevelopment of revenue-generatingproperties on former military bases thatare converted to civil airports shouldnot be considered a prohibited use ofrevenue.

In addition, ACI–NA/AAAE state thata base closure and conversion to civilianuse often results in the existence ofsignificant recreational facilities onproperty owned by an airport. In regardto these facilities on converted militarybases, ACI/AAAE stated, ‘‘[a] leasing

VerDate 12-JAN-99 16:47 Feb 12, 1999 Jkt 183247 PO 00000 Frm 00019 Fmt 4701 Sfmt 4703 E:\FR\FM\16FEN2.XXX pfrm02 PsN: 16FEN2


arrangement whereby a municipalityassumes all liability and operatingexpenses in exchange for a no-revenuelease is beneficial to the airport andshould not be prohibited.’’

Final Policy: The Final Policyprovides for no special treatment ofconverted military bases with respect toairport revenue use, and no specialprovisions are included in the finalpolicy.

The FAA policy on the use of publicand recreational use of property will beconsistently applied to airports whetheror not they are former military bases.Ordinarily, airport revenue may not beused to finance the costs of public andrecreational facilities at the airport, justas airport revenue may not be used todevelop other facilities not needed forthe airport, even if those facilities willgenerate revenue for the airport. Inaddition, unless the recreationalfacilities qualify under the community-use exception, the airport operatorwould be expected to receive FMV-based rental payments for therecreational or public property.Operational costs borne by amunicipality as a result of a baseconversion can be considered in theanalysis of whether a reduced rent isjustified by tangible or intangiblebenefits to the airport.

9. Enforcement Policy, Whether toImpose Civil Penalty Even if Funds areReturned

The Proposed Policy provided that ifthe FAA received information thatimproper use of airport revenue hadoccurred, the FAA would investigate thematter and attempt to resolve the issueinformally. The matter could beresolved if the sponsor persuaded theFAA that the use of airport revenue wasnot improper, or if the sponsor tookcorrective action (which usually wouldinvolve crediting the diverted amount tothe airport account with interest). Theproposed policy provided that the FAAwould propose enforcement action onlyif the FAA made a preliminary findingof noncompliance and the sponsor hadfailed to take corrective action. TheProposed Policy outlined theenforcement actions available to theFAA as of the date of publication. Theactions included: (1) withholding ofnew AIP grants and payments underexisting grants (49 USC §§ 47111(e) and(d), respectively); (2) withholding ofnew authority to impose PFCs (49 USC47111(e)); (3) withholding of all Federaltransportation funds appropriated inFiscal Years 1994 and 1995 (as providedin the Department of Transportationappropriation legislation for thoseyears); (4) assessment of civil penalties

not to exceed $50,000 (49 USC § 46301);and (5) initiation of a civil action tocompel compliance with the grantassurances (49 USC § 47111(f)).

The Proposed Policy outlined theadministrative procedural rulesapplicable to airport compliance mattersat the time of publication, 14 C.F.R.,Part 13 ‘‘Investigation and EnforcementProcedures.’’

Airport operators: ACI–NA and AAAEstrongly urged the FAA to provide inthe final policy that remittance of anydiverted amounts, together withassociated interest, should be sufficientto ‘‘cure’’ instances of revenuediversion, regardless of how thoseinstances come to the attention of theFAA. In particular, a non-airport partyshould not be given the capacity,through the filing of a formal compliant,to eliminate an airport’s ability to curethe problem.

Air carriers: ATA suggested that theproposed policy should bestrengthened, backed up by a strongerenforcement policy and aggressivemonitoring and vigorous enforcementaction. ATA additionally argued thatFAA should promulgate one rule thatsets forth in detail the substantiverequirements regarding revenueretention and diversion and a separatecompliance and enforcement policydocument.

ATA objected that the proposedpolicy continues to provide a passivemonitoring procedure and this approachis not sufficient to provide prompt andefficient enforcement. IATA objectedthat the Proposed Policy does notpromote prompt or effectiveenforcement.

ATA suggested that the FAA establisha formal compliance monitoring andinspection program that includescompliance monitoring and audits/inspections similar to those it conductsat certificated airlines, such as for drugand alcohol testing. Further, ATA statedthat FAA’s enforcement policy shouldresult in civil penalties being assessedwith the same vigor with which they areassessed against airlines for allegedregulatory violations. In addition, ATAurged that FAA should maintain thethreat of assessing civil penalties foreach day an airport or sponsor is inviolation of the revenue-userequirement and for each day a sponsorfails to repay amounts determined tohave been diverted unlawfully. IATAsimilarly supported assessment of themaximum civil penalty for eachinstance of unlawful revenue use.

The Final Policy: After publication ofthe Proposed Policy, the FAAReauthorization Act of 1996 mandatednew remedies for improper use of

airport revenues and new compliancemonitoring programs. The Final Policyhas been modified to reflect the newrequirements. Implementation of therequirements will result in more activeand systematic monitoring of airportrevenue use and more systematicresolution of questionable airportpractices, as requested by the ATA andthe IATA. It should be noted that theFAA had already assumed a more activerole in monitoring through theimplementation of the financialreporting requirements of the 1994 FAAAuthorization Act.

In accordance with the requirementsof the 1996 FAA Reauthorization Act,the Final Policy reflects the clearcongressional intent that the FAA focuscompliance efforts on the lawful use ofairport revenue. The FAA will use allmeans at its disposal to monitor andenforce the revenue-use requirementsand will take appropriate action when apotential violation is brought to theFAA’s attention by any means. To detectwhether airport revenue has beendiverted from an airport, the FAA willuse four primary sources of information:(1) the annual airport financial reportssubmitted by the sponsor; (2) findingsfrom a single audit conducted inaccordance with OMB Circular A–133(including the audit review and opinionrequired by the 1996 ReauthorizationAct); (3) investigation following a third-party complaint, and, (4) DOT Office ofInspector General audits.

The FAA will seek penalties for thediversion of airport funds if the airportsponsor is not willing to correct thediversion and make restitution, withinterest, in a timely manner. Thisapproach is consistent with the FAA’sobjective of achieving compliance witha sponsor’s obligations. Moreover, it isconsistent with section 805 of the 1996Reauthorization Act, which provides forimposition of administrative and civilpenalties only after a sponsor has beengiven an opportunity to take correctiveaction and failed to do so.

10. Form of Policy

As is reflected in the Proposed Policyand Supplemental Notice, the FAAproposed to implement section 112 ofthe 1994 Act by publishing a policystatement, rather than adopting aregulation.

The Comments: The ATA argued thatthe FAA should promulgate a regulationestablishing substantive requirementsfor use of airport revenue and a separateenforcement policy. The ATA arguedthat a substantive regulation willprovide more clarity on prohibited andpermitted practices and be less



susceptible to conflicts overinterpretation.

The AOPA also raised concerns overthe prompt and effective enforcement ofairport revenue diversion within theterms of this Proposed Policy.

The Final Policy: The FAA willpublish policy guidance on airportrevenue use and enforcement as a policyrather than as a regulation. Section 112of the 1994 FAA Authorization Actdirects the Secretary to ‘‘establishpolicies and procedures’’ to assure‘‘prompt and effective enforcement’’ ofthe revenue retention grant assurances,which clearly contemplates the issuanceof a policy statement for this purpose.

As discussed in connection withspecific issues, the wide variation inairport situations makes it impracticalfor the FAA to promulgate standardswith the specificity and inflexibilityurged by ATA. Moreover, a regulation isnot required to obtain compliance withthe revenue-use requirement. Airportsare obligated by the statutory assurancein AIP grant agreements pursuant to§ 47107(b)(2), or directly under § 47133,and rulemaking is not required toimplement those statutes.

On the issue raised by ATA andAOPA concerning the prompt andeffective enforcement mechanism toaddress specific revenue diversionissues, the FAA had been using 14 CFRPart 13. However, on December 16,1996, 14 CFR Part 16, Rules of Practicefor Federally Assisted AirportProceedings, took effect. Part 16established new investigation andenforcement procedures for airportcompliance matters, includingcompliance with the revenue-userequirement. Part 16 includes timedeadlines and processes to assure thatFAA promptly and effectivelyinvestigates and adjudicates specificairport compliance matters involvingFederally Assisted Airports. The FAAconsiders the procedural requirementsof the Reauthorization Act of 1996 to beself-executing and will apply thestatutory provisions in the case of anyconflict with Part 16. However, the FAAis in the process of revising Part 16 toincorporate those new proceduralrequirements.

Paperwork Reduction ActRequirements

The Office of Management and Budget(OMB) has previously approved,pursuant to the Paperwork ReductionAct, the annual airport financial reportsdescribed in Section VIII.A of the FinalPolicy under OMB Number 2120–0569.

Policy StatementFor the reasons discussed above, the

Federal Aviation Administration adoptsthe following statement of policyconcerning the use of airport revenue:

Policies and Procedures Concerning theUse of Airport Revenue

Table of ContentsSection I—IntroductionSection II—Definitions

A. Federal Financial AssistanceB. Airport RevenueC. Unlawful Revenue DiversionD. Airport Sponsor

Section III—Applicability of the PolicyA. Policy and Procedures on the Use of

Airport Revenue and State or LocalTaxes on Aviation Fuel

B. Policies and Procedures on theRequirement for a Self-SustainingAirport Rate Structure

C. Application of the Policy to AirportPrivatization

Section IV—Statutory Requirements for theUse of Airport Revenue

A. General Requirements, 49 USC§§ 47107(b) and 47133

B. Exception for Certain PreexistingArrangements (Grandfather Provisions)

C. Application of 49 USC § 47133D. Specific Statutory Requirements for the

Use of Airport RevenueE. Passenger Facility Charges and Revenue

DiversionSection V—Permitted Uses of Airport

RevenueA. Permitted Uses of Airport RevenueB. Allocation of Indirect CostsC. Standard of Documentation for the

Reimbursement to Government Entitiesof Costs of Services and ContributionsProvided to Airports

D. Expenditures of Airport Revenue byGrandfathered Airports

Section VI—Prohibited Uses of AirportRevenue

A. Lawful and Unlawful RevenueDiversion

B. Prohibited Uses of Airport RevenueSection VII—Policies Regarding Requirement

for a Self-Sustaining Airport RateStructure

A. Statutory RequirementsB. General Policies Governing the Self-

Sustaining Rate Structure AssuranceC. Policy on Charges for Nonaeronautical

Facilities and ServicesD. Providing Property for Public

Community PurposesE. Use of Property by Not-for-Profit

Aviation OrganizationsF. Use of Property by Military UnitsG. Use of Property for Transit ProjectsH. Private Transit Systems

Section VIII—Reporting and AuditRequirements

A. Annual Financial ReportsB. Single Audit Review and Opinion

Section IX—Monitoring and ComplianceA. Detection of Airport Revenue DiversionB. Investigation of Revenue Diversion

Initiated Without Formal ComplaintC. Investigation of Revenue Diversion

Precipitated by Formal Complaint

D. The Administrative EnforcementProcess

E. Sanctions for NoncomplianceF. Compliance with Reporting and Audit

Requirements

Section I.—Introduction

The Federal Aviation Administration(FAA) issues this document to fulfill thestatutory provisions in section 112 ofthe Federal Aviation AdministrationAuthorization Act of 1994, Pub.L. No.103–305, 108 Stat. 1569 (August 23,1994), 49 USC 47107(l), and FederalAviation AdministrationReauthorization Act of 1996, Public Law104–264, 110 Stat. 3213 (October 9,1996), to establish policies andprocedures on the generation and use ofairport revenue. The sponsor assuranceprohibiting the unlawful diversion ofairport revenues, also known as therevenue-use requirement, was firstmandated by Congress in 1982. Simplystated, the purpose of that assurance,now codified at 49 USC §§ 47107(b) and47133, is to provide that an airportowner or operator receiving Federalfinancial assistance will use airportrevenues only for purposes related tothe airport. The Policy Statementimplements requirements adopted byCongress in the FAA ReauthorizationActs of 1994 and 1996, and takes intoconsideration comments received on theinterim policy statements issued onFebruary 26, 1996, and December 18,1996.

Section II—Definitions

A. Federal Financial Assistance

Title 49 USC § 47133, which tookeffect on October 1, 1996, applies theairport revenue-use requirements of§ 47107(b) to any airport that hasreceived ‘‘Federal assistance.’’ The FAAconsiders the term ‘‘Federal assistance’’in § 47133 to apply to the followingFederal actions:

1. Airport development grants issuedunder the Airport Improvement Programand predecessor Federal grant programs;

2. Airport planning grants that relateto a specific airport;

3. Airport noise mitigation grantsreceived by an airport operator;

4. The transfer of Federal propertyunder the Surplus Property Act, nowcodified at 49 USC § 47151 et seq.; and

5. Deeds of conveyance issued underSection 16 of the Federal Airport Act of1946, under Section 23 of the Airportand Airway Improvement Act of 1970,or under Section 516 of the Airport andAirway Improvement Act of 1982(AAIA).



B. Airport Revenue

1. All fees, charges, rents, or otherpayments received by or accruing to thesponsor for any one of the followingreasons are considered to be airportrevenue:

a. Revenue from air carriers, tenants,lessees, purchasers of airport properties,airport permittees making use of airportproperty and services, and other parties.Airport revenue includes all revenuereceived by the sponsor for the activitiesof others or the transfer of rights toothers relating to the airport, includingrevenue received:

i. For the right to conduct an activityon the airport or to use or occupyairport property;

ii. For the sale, transfer, or dispositionof airport real property (as specified inthe applicability section of this policystatement) not acquired with Federalassistance or personal airport propertynot acquired with Federal assistance, orany interest in that property, includingtransfer through a condemnationproceeding;

iii. For the sale of (or sale or lease ofrights in) sponsor-owned mineral,natural, or agricultural products orwater to be taken from the airport; or

iv. For the right to conduct an activityon, or for the use or disposition of, realor personal property or any interesttherein owned or controlled by thesponsor and used for an airport-relatedpurpose but not located on the airport(e.g., a downtown duty-free shop).

b. Revenue from sponsor activities onthe airport. Airport revenue generallyincludes all revenue received by thesponsor for activities conducted by thesponsor itself as airport owner andoperator, including revenue received:

i. From any activity conducted by thesponsor on airport property acquiredwith Federal assistance;

ii. From any aeronautical activityconducted by the sponsor which isdirectly connected to a sponsor’sownership of an airport subject to 49U.S.C. §§ 47107(b) or 47133; or

iii. From any nonaeronautical activityconducted by the sponsor on airportproperty not acquired with Federalassistance, but only to the extent of thefair rental value of the airport property.The fair rental value will be based onthe fair market value.

2. State or local taxes on aviation fuel(except taxes in effect on December 30,1987) are considered to be airportrevenue subject to the revenue-userequirement. However, revenues fromstate taxes on aviation fuel may be usedto support state aviation programs or fornoise mitigation purposes, on or off theairport.

3. While not considered to be airportrevenue, the proceeds from the sale ofland donated by the United States oracquired with Federal grants must beused in accordance with the agreementbetween the FAA and the sponsor.Where such an agreement gives the FAAdiscretion, FAA may consider thispolicy as a relevant factor in specifyingthe permissible use or uses of theproceeds.

C. Unlawful Revenue Diversion

Unlawful revenue diversion is the useof airport revenue for purposes otherthan the capital or operating costs of theairport, the local airport system, or otherlocal facilities owned or operated by theairport owner or operator and directlyand substantially related to the airtransportation of passengers or property,when the use is not ‘‘grandfathered’’under 49 U.S.C. § 47107(b)(2). When ause would be diversion of revenue butis grandfathered, the use is consideredlawful revenue diversion. See SectionVI, Prohibited Uses of Airport Revenue.

D. Airport Sponsor

The airport sponsor is the owner oroperator of the airport that acceptsFederal assistance and executes grantagreements or other documents requiredfor the receipt of Federal assistance.

Section III—Applicability of the Policy

A. Policy and Procedures on the Use ofAirport Revenue and State or LocalTaxes on Aviation Fuel

1. With respect to the use of airportrevenue, the policies and procedures inthe Policy Statement are applicable toall public agencies that have received agrant for airport development sinceSeptember 3, 1982, under the Airportand Airway Improvement Act of 1982(AAIA), as amended, recodified withoutsubstantive change by Public Law 103–272 (July 5, 1994) at 49 § U.S.C. 47101,et seq., and which had grant obligationsregarding the use of airport revenue ineffect on October 1, 1996 (the effectivedate of the FAA Authorization Act of1996). Grants issued under thatstatutory authority are commonlyreferred to as Airport ImprovementProgram (AIP) grants. The PolicyStatement applies to revenue uses atsuch airports even if the sponsor has notreceived an AIP grant since October 1,1996.

2. With respect to the use of state andlocal taxes on aviation fuel, this PolicyStatement is applicable to all publicagencies that have received an AIPdevelopment grant since December 30,1987, and which had grant obligationsregarding the use of state and local taxes

on aviation fuel in effect of October 1,1996.

3. Pursuant to 49 U.S.C. § 47133, thisPolicy Statement applies to any airportfor which Federal assistance has beenreceived after October 1, 1996, whetheror not the airport owner is subject to theairport revenue-use grant assurance, andapplies to any airport for which theairport revenue-use grant obligation isin effect on or after October 1, 1996.Section 47133 does not apply to anairport that has received Federalassistance prior to October 1, 1996, anddoes not have AIP airport developmentgrant assurances in effect on that date.

4. Requirements regarding the use ofairport revenue applicable to aparticular airport or airport operator onor after October 1, 1996, as a result ofthe provisions of 49 U.S.C. § 47133, donot expire.

5. The FAA will not reconsideragency determinations andadjudications dated prior to the date ofthis Policy Statement, based on theissuance of this Policy Statement.

B. Policies and Procedures on theRequirement for a Self-SustainingAirport Rate Structure

1. These policies and proceduresapply to the operators of publiclyowned airports that have received anAIP development grant and that havegrant obligations in effect on or after theeffective date of this policy.

2. Grant assurance obligationsregarding maintenance of a self-sustaining airport rate structure in effecton or after the effective date of thispolicy apply until the end of the usefullife of each airport development projector 20 years, whichever is less, exceptobligations under a grant for landacquisition, which do not expire.

C. Application of the Policy to AirportPrivatization

1. The Airport Privatization PilotProgram, codified at 49 U.S.C. § 47134,provides for the sale or lease of generalaviation airports and the lease of aircarrier airports. Under the program, theFAA is authorized to exempt up to fiveairports from Federal statutory andregulatory requirements governing theuse of airport revenue. The FAA canexempt an airport sponsor from itsobligations to repay Federal grants, inthe event of a sale, to return propertyacquired with Federal assistance and touse the proceeds of the sale or leaseexclusively for airport purposes. Theexemptions are subject to a number ofconditions.

2. Except as specifically provided bythe terms of an exemption grantedunder the Airport Privatization Pilot



Program, this policy statement appliesto a privatization of airport propertyand/or operations.

3. For airport privatizationtransactions not subject to an exemptionunder the Pilot Program:

FAA approval of the sale or othertransfer of ownership or control, of apublicly owned airport is required inaccordance with the AIP sponsorassurances and general governmentcontract law principles. The proceeds ofa sale of airport property are consideredairport revenue (except in the case ofproperty acquired with Federalassistance, the sale of which is subjectto other restrictions under the relevantgrant contract or deed). When the saleproposed is the sale of an entire airportas an operating entity, the request maypresent the FAA with a complextransaction in which the disposition ofthe proceeds of the transfer is only oneof many considerations. In its review ofsuch a proposal, the FAA wouldcondition its approval of the transfer onthe parties’ assurances that the proceedsof sale will be used for the purposespermitted by the revenue-userequirements of 49 U.S.C. §§ 47107(b)and 47133. Because of the complexity ofan airport sale or privatization, theprovisions for ensuring that theproceeds are used for the purposespermitted by the revenue-userequirements may need to be adapted tothe special circumstances of thetransaction. Accordingly, thedisposition of the proceeds would needto be structured to meet the revenue-userequirements, given the specialconditions and constraints imposed bythe fact of a change in airportownership. In considering andapproving such requests, the FAA willremain open and flexible in specifyingconditions on the use of revenue thatwill protect the public interest andfulfill the objectives and obligations ofrevenue-use requirements, withoutunnecessarily interfering with theappropriate privatization of airportinfrastructure.

4. It is not the intention of the FAAto effectively bar airport privatizationinitiatives outside of the pilot programthrough application of the statutoryrequirements for use of airport revenue.Proponents of a proposed privatizationor other sale or lease of airport propertyclearly will need to consider the effectsof Federal statutory requirements on theuse of airport revenue, reasonable feesfor airport users, disposition of airportproperty, and other policiesincorporated in Federal grantagreements. The FAA assumes that theproposals will be structured from theoutset to comply with all such

requirements, and this proposed policyis not intended to add to theconsiderations already involved in atransfer of airport property.

Section IV—Statutory Requirements forthe Use of Airport Revenue

A. General Requirements, 49 U.S.C.§§ 47107(b) and 47133

1. The current provisions restrictingthe use of airport revenue are found at49 U.S.C. §§ 47107(b), and 47133.Section 47107(b) requires the Secretary,prior to approving a project grantapplication for airport development, toobtain written assurances regarding theuse of airport revenue and state andlocal taxes on aviation fuel. Section47107(b)(1) requires the airport owneror operator to provide assurances thatlocal taxes on aviation fuel (except taxesin effect on December 30, 1987) and therevenues generated by a public airportwill be expended for the capital oroperating costs of—

a. The airport;b. The local airport system; orc. Other local facilities owned or

operated by the airport owner oroperator and directly and substantiallyrelated to the air transportation ofpassengers or property.

B. Exception for Certain PreexistingArrangements (Grandfather Provisions)

Section 47107(b)(2) provides anexception to the requirements of Section47107(b)(1) for airport owners oroperators having certain financialarrangements in effect prior to theenactment of the AAIA. This provisionis commonly referred to as the‘‘grandfather’’ provision. It states:

Paragraph (1) of this subsection does notapply if a provision enacted not later thanSeptember 2, 1982, in a law controllingfinancing by the airport owner or operator, ora covenant or assurance in a debt obligationissued not later than September 2, 1982, bythe owner or operator, provides that therevenues, including local taxes on aviationfuel at public airports, from any of thefacilities of the owner or operator, includingthe airport, be used to support not only theairport but also the general debt obligationsor other facilities of the owner or operator.

C. Application of 49 U.S.C. § 471331. Section 47133 imposes the same

requirements on all airports, privately-owned or publicly-owned, that are thesubject of Federal assistance. Subsection47133(a) states that:

Local taxes on aviation fuel (excepttaxes in effect on December 30, 1987) orthe revenues generated by an airportthat is the subject of Federal assistancemay not be expended for any purposeother than the capital or operating costsof—

(a) the airport;(b) The local airport system; or(c) Other local facilities owned or

operated by the person or entity thatowns or operates the airport that isdirectly and substantially related to theair transportation of persons orproperty.

2. Section 47133(b) contains the samegrandfather provisions as section47107(b).

3. Enactment of section 47133resulted in three fundamental changesto the revenue-use obligation, asreflected in the applicability section ofthis policy statement.

a. Privately owned airports receivingFederal assistance (as defined in thispolicy statement) after October 1, 1996,are subject to the revenue-userequirement.

b. In addition to airports receivingAIP grants, airports receiving Federalassistance in the form of gifts ofproperty after October 1, 1996, aresubject to the revenue-use requirement.

c. For any airport or airport operatorthat is subject to the revenue-userequirement on or after October 1, 1996,the revenue-use requirement appliesindefinitely.

4. This section of the policy refers tothe date of October 1, 1996, because theFAA Authorization Act of 1996 is by itsterms effective on that date.

D. Specific Statutory Requirements forthe Use of Airport Revenue

1. In section 112 of the FAAAuthorization Act of 1994, 49 U.S.C.§ 47107(l)(2) (A–D), Congress expresslyprohibited the diversion of airportrevenues through:

a. Direct payments or indirectpayments, other than paymentsreflecting the value of services andfacilities provided to the airport;

b. Use of airport revenues for generaleconomic development, marketing, andpromotional activities unrelated toairports or airport systems;

c. Payments in lieu of taxes or otherassessments that exceed the value ofservices provided; or

d. Payments to compensate non-sponsoring governmental bodies for losttax revenues exceeding stated tax rates.

2. Section 47107(l)(5), enacted as partof the FAA Authorization Act of 1996,provides that:

(A) Any request by a sponsor to anyairport for additional payments forservices conducted off of the airport orfor reimbursement for capitalcontributions or operating expensesshall be filed not later than 6 years afterthe date on which the expense isincurred; and

(B) Any amount of airport funds thatare used to make a payment or



reimbursement as described insubparagraph (a) after the date specifiedin that subparagraph shall be consideredto be an illegal diversion of airportrevenues that is subject to subsection(n).

3. 49 U.S.C. § 40116(d)(2)(A) provides,among other things, that a State,political subdivision of a State orauthority acting for a State or a politicalsubdivision may not: ‘‘(iv) levy orcollect a tax, fee or charge, first takingeffect after August 23, 1994, exclusivelyupon any business located at acommercial service airport or operatingas a permittee of such an airport otherthan a tax, fee or charge wholly utilizedfor airport or aeronautical purposes.’’

E. Passenger Facility Charges andRevenue Diversion

The Aviation Safety and CapacityExpansion Act of 1990 authorized theimposition of a passenger facility charge(PFC) with the approval of theSecretary.

1. While PFC revenue is notcharacterized as ‘‘airport revenue’’ forpurposes of this Policy Statement,specific statutory and regulatoryguidelines govern the use of PFCrevenue, as set forth at 49 U.S.C. 40117,‘‘Passenger Facility Fees,’’ and 14 CFRPart 158, ‘‘Passenger Facility Charges.’’(For purposes of this policy, the terms‘‘passenger facility fees’’ and ‘‘passengerfacility charges’’ are synonymous.)These provisions are more restrictivethan the requirements for the use ofairport revenue in 49 U.S.C. 47107(b), inthat the PFC requirements provide thatPFC collections may only be used tofinance the allowable costs of approvedprojects. The PFC regulation specifiesthe kinds of projects that can be fundedby PFC revenue and the objectives theseprojects must achieve to receive FAAapproval for use of PFC revenue.

2. The statute and regulations prohibitexpenditure of PFC revenue for otherthan approved projects, or collection ofPFC revenue in excess of approvedamounts.

3. As explained more fully belowunder enforcement policies andprocedures in Section IX, ‘‘Monitoringand Compliance,’’ a final FAAdetermination that a public agency hasviolated the revenue-use provisionprevents the FAA from approving newauthority to impose a PFC untilcorrective action is taken.

Section V—Permitted Uses of AirportRevenue

A. Permitted Uses of Airport RevenueAirport revenue may be used for:1. The capital or operating costs of the

airport, the local airport system, or other

local facilities owned or operated by theairport owner or operator and directlyand substantially related to the airtransportation of passengers or property.Such costs may include reimbursementsto a state or local agency for the costsof services actually received anddocumented, subject to the terms of thispolicy statement. Operating costs for anairport may be both direct and indirectand may include all of the expenses andcosts that are recognized under thegenerally accepted accountingprinciples and practices that apply tothe airport enterprise funds of state andlocal government entities.

2. The full costs of activities directedtoward promoting competition at anairport, public and industry awarenessof airport facilities and services, new airservice and competition at the airport(other than direct subsidy of air carrieroperations prohibited by paragraphVI.B.12 of this policy), and salary andexpenses of employees engaged inefforts to promote air service at theairport, subject to the terms of thispolicy statement. Other permissibleexpenditures include cooperativeadvertising, where the airport advertisesnew services with or without matchingfunds, and advertising of general orspecific airline services to the airport.Examples of permitted expenditures inthis category include: (a) a Superbowlhospitality tent for corporate aircraftcrews at a sponsor-owned generalaviation terminal intended to promotethe use of that airport by corporateaircraft; and (b) the cost of promotionalitems bearing airport logos distributed atvarious aviation industry events.

3. A share of promotional expenses,which may include marketing efforts,advertising, and related activitiesdesigned to increase travel using theairport, to the extent the airport share ofthe promotional materials or effortsmeets the requirements of V.A.2. aboveand includes specific information aboutthe airport.

4. The repayment of the airport owneror sponsor of funds contributed by suchowner or sponsor for capital andoperating costs of the airport and notheretofore reimbursed. An airport owneror operator can seek reimbursement ofcontributed funds only if the request ismade within 6 years of the date thecontribution took place. 49 U.S.C.47107(l).

a. If the contribution was a loan to theairport, and clearly documented as aninterest-bearing loan at the time it wasmade, the sponsor may repay the loanprincipal and interest from airportfunds. Interest should not exceed a ratewhich the sponsor received for otherinvestments for that period of time.

b. For other contributions to theairport, the airport owner or operatormay seek reimbursement of interest onlyif the FAA determines that the airportowes the sponsor funds as a result ofactivities conducted by the sponsor orexpenditures by the sponsor for thebenefit of the airport. Interest shall bedetermined in the manner provided in49 U.S.C. 47107(o), but may be assessedonly from the date of the FAA’sdetermination.

5. Lobbying fees and attorney fees tothe extent these fees are for services insupport of any activity or project forwhich airport revenues may be usedunder this Policy Statement. See SectionVI: Prohibited Uses of Airport Revenue.

6. Costs incurred by governmentofficials, such as city council members,to the extent that such costs are forservices to the airport actually receivedand documented. An example of suchcosts would be the costs of travel forcity council members to meet with FAAofficials regarding AIP funding for anairport project.

7. A portion of the general costs ofgovernment, including executive officesand the legislative branches, may beallocated to the airport indirectly undera cost allocation plan in accordancewith V.B.3. of this Policy Statement.

8. Expenditure of airport funds forsupport of community activities,participation in community events, orsupport of community-purpose uses ofairport property if such expenditures aredirectly and substantially related to theoperation of the airport. Examples ofpermitted expenditures in this categoryinclude: (a) the purchase of tickets foran annual community luncheon atwhich the Airport director delivers aspeech reviewing the state of the airport;and (b) contribution to a golftournament sponsored by a ‘‘friends ofthe airport’’ committee. The FAArecognizes that contributions forcommunity or charitable purposes canprovide a direct benefit to the airportthrough enhanced communityacceptance, but that a benefit of thatnature is intangible and notquantifiable. Where the amount ofcontribution is minimal, the value of thebenefit will not be questioned as long asthere is a reasonable connectionbetween the recipient organization andthe benefit of local communityacceptance for the airport. An exampleof a permitted expenditure in thiscategory was participation in a localschool fair with a booth focusing onoperation of the airport and careeropportunities in aviation. Theexpenditure in this example was $250.

9. Airport revenue may be used forthe capital or operating costs of those



portions of an airport ground accessproject that can be considered an airportcapital project, or of that part of a localfacility that is owned or operated by theairport owner or operator and directlyand substantially related to the airtransportation of passengers or property,including use by airport visitors andemployees. The FAA has approved theuse of airport revenue for the actualcosts incurred for structures andequipment associated with an airportterminal building station and a railconnector between the airport stationand the nearest mass transit rail line,where the structures and equipmentwere (1) located entirely on airportproperty, and (2) designed and intendedexclusively for the use of airportpassengers.

B. Allocation of Indirect Costs1. Indirect costs of sponsor services

may be allocated to the airport inaccordance with this policy, but theallocation must result in an allocation tothe airport only of those costs thatwould otherwise be allowable under 49U.S.C. § 47107(b). In addition, thedocumentation for the costs must meetthe standards of documentation statedin this policy.

2. The costs must be allocated undera cost allocation plan that meets thefollowing requirements:

a. The cost is allocated under a costallocation plan that is consistent withAttachment A to OMB Circular A–87,except that the phrase ‘‘airport revenue’’should be substituted for the phrase‘‘grant award,’’ wherever the latterphrase occurs in Attachment A;

b. The allocation method does notresult in a disproportionate allocation ofgeneral government costs to the airportin consideration of the benefits receivedby the airport;

c. Costs allocated indirectly under thecost allocation plan are not billeddirectly to the airport; and

d. Costs billed to the airport under thecost allocation plan must be similarlybilled to other comparable units of theairport owner or operator.

3. A portion of the general costs ofgovernment, such as the costs of thelegislative branch and executive offices,may be allocated to the airport as anindirect cost under a cost allocationplan satisfying the requirements setforth above. However, the allocation ofthese costs may require special scrutinyto assure that the airport is not payinga disproportionate share of these costs.

4. Central service costs, such asaccounting, budgeting, data processing,procurement, legal services, disbursingand payroll services, may also beallocated to the airport as indirect costs

under a cost allocation plan satisfyingthe requirements set forth above.However, the allocation of these costsmay require special scrutiny to assurethat the airport is not paying adisproportionate share of these costs.

C. Standard of Documentation for theReimbursement to Government Entitiesof Costs of Services and ContributionsProvided to Airports

1. Reimbursements for capital andoperating costs of the airport made by agovernment entity, both direct andindirect, must be supported by adequatedocumentary evidence. Documentaryevidence includes, but is not limited to:

a. Underlying accounting data such asgeneral and specialized journals,ledgers, manuals, and supportingworksheets and other analyses; andcorroborating evidence such as invoices,vouchers and indirect cost allocationplans, or

b. Audited financial statements whichshow the specific expenditures to bereimbursed by the airport. Suchexpenditures should be clearlyidentifiable on the audited financialstatements as being consistent withsection VIII of this policy statement.

2. Documentary evidence to supportdirect and indirect charges to the airportmust show that the amounts claimedwere actually expended. Budgetestimates are not sufficient to establisha claim for reimbursement. Indirect costallocation plans, however, may usebudget estimates to establish pre-determined indirect cost allocationrates. Such estimated rates should,however, be adjusted to actual expensesin the subsequent accounting period.

D. Expenditures of Airport Revenue byGrandfathered Airports

1. Airport revenue may be used forpurposes other than capital andoperating costs of the airport, the localairport system, or other local facilitiesowned or operated by the sponsor anddirectly and substantially related to theair transportation of passengers orproperty, if the ‘‘grandfather’’ provisionsof 49 U.S.C. § 47107(b)(2) are applicableto the sponsor and the particular use.Based on previous DOT interpretations,examples of grandfathered airportsponsors may include, but are notlimited to the following:

a. A port authority or state departmentof transportation which owns oroperates other transportation facilitiesin addition to airports, and which havepre-September 3, 1982, debt obligationsor legislation governing financing andproviding for use of airport revenue fornon-airport purposes. Such sponsorsmay have obtained legal opinions from

their counsel to support a claim ofgrandfathering. Previous DOTinterpretations have found the followingexamples of pre-AAIA legislation toprovide for the grandfather exception:

b. Bond obligations and cityordinances requiring a five percent‘‘gross receipts’’ fee from airportrevenues. The payments were institutedin 1954 and continued in 1968.

c. A 1955 state statute for theassessing of a five percent surcharge onall receipts and deposits in an airportrevenue fund to defray central serviceexpenses of the state.

d. City legislation authorizing thetransfer of a percentage of airportrevenues, permitting an airport-aircarrier settlement agreement providingfor annual payments to the city of 15percent of the airport concessionrevenues.

e. A 1957 state statutorytransportation program governing thefinancing and operations of a multi-modal transportation authority,including airport, highway, port, railand transit facilities, wherein staterevenues, including airport revenues,support the state’s transportation-related, and other, facilities. The fundsflow from the airports to a statetransportation trust fund, composed ofall ‘‘taxes, fees, charges, and revenues’’collected or received by the statedepartment of transportation.

f. A port authority’s 1956 enabling actprovisions specifically permitting it touse port revenue, which includesairport revenue, to satisfy debtobligations and to use revenues fromeach project for the expenses of theauthority. The act also exempts theauthority from property taxes butrequires annual payments in lieu oftaxes to several local governments andgives it other corporate powers. A 1978trust agreement recognizes the use of theauthority’s revenue for debt servicing,facilities of the authority, its expenses,reserves, and the payment in lieu oftaxes fund.

2. Under the authority of 49 U.S.C.§ 47115(f), the FAA considers as a factormilitating against the approval of anapplication for AIP discretionary funds,the fact that a sponsor has exercised itsrights to use airport revenue fornonairport purposes under thegrandfather clause, when in the airport’sfiscal year preceding the date ofapplication for discretionary funds, theFAA finds that the amount of airportrevenues used for nonairport purposesexceeds the amount used for suchpurposes in the airport’s first fiscal yearending after August 23, 1994, adjustedby the Secretary for changes in theConsumer Price Index of All Urban



Consumers published by the Bureau ofLabor Statistics of the Department ofLabor.

Section VI—Prohibited Uses of AirportRevenue

A. Lawful and Unlawful RevenueDiversion

Revenue diversion is the use ofairport revenue for purposes other thanthe capital or operating costs of theairport, the local airport system, or otherlocal facilities owned or operated by theairport owner or operator and directlyand substantially related to the airtransportation of passengers or property,unless that use is grandfathered under49 U.S.C. § 47107(b)(2) and the use doesnot exceed the limits of the ‘grandfather’clause. When such use is sograndfathered, it is known as lawfulrevenue diversion. Unless the revenuediversion is grandfathered, the diversionis unlawful and prohibited by therevenue-use restrictions.

B. Prohibited Uses of Airport RevenueProhibited uses of airport revenue

include but are not limited to:1. Direct or indirect payments that

exceed the fair and reasonable value ofthose services and facilities provided tothe airport. The FAA generallyconsiders the cost of providing theservices or facilities to the airport as areliable indicator of value.

2. Direct or indirect payments that arebased on a cost allocation formula thatis not consistent with this policystatement or that is not calculatedconsistently for the airport and othercomparable units or cost centers ofgovernment.

3. Use of airport revenues for generaleconomic development.

4. Marketing and promotionalactivities unrelated to airports or airportsystems. Examples of prohibitedexpenses in this category includeparticipation in program to providehospitality training to taxi drivers andfunding an airport operator’s floatcontaining no reference to the airport, ina New Years Day parade.

5. Payments in lieu of taxes, or otherassessments, that exceed the value ofservices provided or are not based on areasonable, transparent cost allocationformula calculated consistently for othercomparable units or cost centers ofgovernment;

6. Payments to compensate non-sponsoring governmental bodies for losttax revenues to the extent the paymentsexceed the stated tax rates applicable tothe airport;

7. Loans to or investment of airportfunds in a state or local agency at lessthan the prevailing rate of interest.

8. Land rental to, or use of land by,the sponsor for nonaeronautical

purposes at less than fair rental/marketvalue, except to the extent permitted bySectionVII.D of this policy.

9. Use of land by the sponsor foraeronautical purposes rent-free or fornominal rental rates, except to theextent permitted by Section VII.E of thispolicy.

10. Impact fees assessed by anygovernmental body that exceed thevalue of services or facilities provided tothe airport. However, airport revenuemay be used where airport developmentrequires a sponsoring agency to take anaction, such as undertakingenvironmental mitigation measurescontained in an FAA record of decisionapproving funding for an airportdevelopment project, or constructing aground access facility that wouldotherwise be eligible for the use ofairport revenue. Payments of impactfees must meet the general requirementthat airport revenue be expended onlyfor actual documented costs of itemseligible for use of airport revenue underthis Policy Statement. In determiningappropriate corrective action for animpact fee payment that is notconsistent with this policy, the FAAwill consider whether the impact feewas imposed by a non-sponsoringgovernmental entity and the sponsor’sability under local law to avoid payingthe fee.

11. Expenditure of airport funds forsupport of community activities andparticipation in community events, orfor support of community-purpose usesof airport property except to the extentpermitted by this policy. See Section V,Uses of Airport Revenue. Examples ofprohibited expenditures in this categoryinclude expenditure of $50,000 tosponsor a local film society’s annualfilm festival; and contribution of $6,000to a community cultural heritagefestival.

12. Direct subsidy of air carrieroperations. Direct subsidies areconsidered to be payments of airportfunds to carriers for air service.Prohibited direct subsidies do notinclude waivers of fees or discountedlanding or other fees during apromotional period. Any fee waiver ordiscount must be offered to all users ofthe airport, and provided to all usersthat are willing to provide the same typeand level of new services consistentwith the promotional offering. Likewiseprohibited direct subsidies do notinclude support for airline advertisingor marketing of new services to theextent permitted by Section V of thisPolicy Statement.

Section VII—Policies RegardingRequirement for a Self-SustainingAirport Rate Structure

A. Statutory Requirements49 U.S.C. § 47107(a)(13) requires

airport operators to maintain a scheduleof charges for use of the airport: ‘‘(A)that will make the airport as self-sustaining as possible under thecircumstances existing at the airport,including volume of traffic andeconomy of collection.’’

The requirement is generally referredto as the ‘‘self-sustaining assurance.’’

B. General Policies Governing the Self-Sustaining Rate Structure Assurance

1. Airport proprietors must maintaina fee and rental structure that in thecircumstances of the airport makes theairport as financially self-sustaining aspossible. In considering whether aparticular contract or lease is consistentwith this requirement, the FAA and theOffice of the Inspector General (OIG)generally evaluate the individualcontract or lease to determine whetherthe fee or rate charged generatessufficient income for the airportproperty or service provided, ratherthan looking at the financial status ofthe entire airport.

2. If market conditions or demand forair service do not permit the airport tobe financially self-sustaining, the airportproprietor should establish long-termgoals and targets to make the airport asfinancially self-sustaining as possible.

3. At some airports, market conditionsmay not permit an airport proprietor toestablish fees that are sufficiently highto recover aeronautical costs andsufficiently low to attract and retaincommercial aeronautical services. Insuch circumstances, an airportproprietor’s decision to charge rates thatare below those needed to achieve aself-sustaining income in order to assurethat services are provided to the publicis not inherently inconsistent with theobligation to make the airport as self-sustaining as possible in thecircumstances.

4. Airport proprietors are encouraged,when entering into new or revisedagreements or otherwise establishingrates, charges, and fees, to undertakereasonable efforts to make theirparticular airports as self sustaining aspossible in the circumstances existing atsuch airports.

5. Under 49 U.S.C. § 47107(a)(1) andthe implementing grant assurance,charges to aeronautical users must bereasonable and not unjustlydiscriminatory. Because of the limitingeffect of the reasonablenessrequirement, the FAA does not considerthe self-sustaining requirement torequire airport sponsors



to charge fair market rates toaeronautical users. Rather, for charges toaeronautical users, the FAA considersthe self-sustaining assurance to besatisfied by airport charges that reflectthe cost to the sponsor of providingaeronautical services and facilities tousers. A fee for aeronautical users setpursuant to a residual costingmethodology satisfies the requirementfor a self-sustaining airport ratestructure.

6. In establishing new fees, andgenerating revenues from all sources,airport owners and operators should notseek to create revenue surpluses thatexceed the amounts to be used forairport system purposes and for otherpurposes for which airport revenuesmay be spent under 49 U.S.C.§ 47107(b)(1), including reasonablereserves and other funds to facilitatefinancing and to cover contingencies.While fees charged to nonaeronauticalusers are not subject to thereasonableness requirement or theDepartment of Transportation Policy onairport rates and charges, the surplusfunds accumulated from those fees mustbe used in accordance with 49 U.S.C.§ 47107(b).

C. Policy on Charges forNonaeronautical Facilities and Services

Subject to the general guidance setforth above and the specific exceptionsnoted below, the FAA interprets theself-sustaining assurance to require thatthe airport receive fair market value forthe provision of nonaeronauticalfacilities and services, to the extentpracticable considering thecircumstances at the airport.

D. Providing Property for PublicCommunity Purposes

Making airport property available atless than fair market rental value forpublic recreational and othercommunity uses, for the purpose ofmaintaining positive airport-communityrelations, can be a legitimate function ofan airport proprietor in operating theairport. Accordingly, in certaincircumstances, providing airport landfor such purposes will not beconsidered a violation of the self-sustaining requirement. Generally, thecircumstances in which below-marketuse of airport land for communitypurposes will be considered consistentwith the grant assurances are:

1. The contribution of the airportproperty enhances public acceptance ofthe airport in a community in theimmediate area of the airport; theproperty is put to a general public usedesired by the local community; and thepublic use does not adversely affect the

capacity, security, safety or operationsof the airport. Examples of acceptableuses include public parks, recreationfacilities, and bike or jogging paths.Examples of uses that would not beeligible are road maintenanceequipment storage; and police, firedepartment, and other governmentfacilities if they do not directly supportthe operation of the airport.

2. The property involved would notreasonably be expected to produce morethan de minimis revenue at the time thecommunity use is contemplated, andthe property is not reasonably expectedto be used by an aeronautical tenant orotherwise be needed for airportoperations in the foreseeable future.When airport property reasonably maybe expected to earn more than minimalrevenue, it still may be used forcommunity purposes at less than FMVif the revenue earned from thecommunity use approximates therevenue that could otherwise begenerated, provided that the otherprovisions of VII. D. are met.

3. The community use does notpreclude reuse of the property forairport purposes if, in the opinion of theairport sponsor, such reuse will providegreater benefits to the airport thancontinuation of the community use.

4. Airport revenue is not to be usedto support the capital or operating costsassociated with the community use.

E. Use of Property by Not-for-ProfitAviation Organizations

1. An airport operator may chargereduced rental rates and fees to thefollowing not-for-profit aviationorganizations, to the extent that thereduction is reasonably justified by thetangible or intangible benefits to theairport or to civil aviation:

a. Aviation museums;b. Aeronautical secondary and post-

secondary education programsconducted by accredited educationalinstitutions; or

c. Civil Air Patrol units operatingaircraft at the airport;

2. Police or fire-fighting unitsoperating aircraft at the airport generallywill be expected to pay a reasonable ratefor aeronautical use of airport property,but the value of any services providedby the unit to the airport may be offsetagainst the applicable reasonable rate.

F. Use of Property by Military Units

The FAA acknowledges that manyairports provide facilities to militaryunits with aeronautical missions atnominal lease rates. The FAA does notconsider this practice inconsistent withthe requirement for a self-sustainingairport rate structure. Military units

with aeronautical missions may includethe Air National Guard, aviation units ofthe Army National Guard, U.S. AirForce Reserve, and Naval Reserve airunits operating aircraft at the airport.Reserve and Guard units typically havean historical presence at the airport thatprecedes the Airport and AirwayImprovement Act of 1982, and provideservices that directly benefit airportoperations and safety, such as snowremoval and supplementary ARFFcapability.

G. Use of Property for Transit ProjectsMaking airport property available at

less than fair market rental for publictransit terminals, right-of-way, andrelated facilities will not be considereda violation of 49 U.S.C. §§ 47107(b),47133 or 47107(a)(13) if the transitsystem is publicly owned and operated(or operated by contract on behalf of thepublic owner), and the facilities aredirectly and substantially related to theair transportation of passengers orproperty, including use by airportvisitors and employees. A lease ofnominal value in the circumstancesdescribed in this section would beconsidered consistent with the self-sustaining requirement.

H. Private Transit SystemsGenerally, private ground

transportation services are charged as anonaeronautical use of the airport. Incases where publicly-owned transitservices are extremely limited andwhere a private transit service (i.e., bus,rail, or ferry) provides the primarysource of public transportation, makingproperty available at less than fairmarket rental to this private servicewould not be considered inconsistentwith 49 U.S.C. §§ 47107(b), 47133 or47107(a)(13).

Section VIII—Reporting and AuditRequirements

The Federal Aviation AdministrationAuthorization Act of 1994 established anew requirement for airports to submitannual financial reports to theSecretary, and the Act required theSecretary to compile the reports and tosubmit a summary report to Congress.The Federal Aviation ReauthorizationAct of 1996 established a newrequirement for airports to include, aspart of their audits under the SingleAudit Act, a review and opinion on theuse of airport revenue.

A. Annual Financial ReportsSection 111(a)(4) of the 1994

Authorization Act, 49 U.S.C.§ 47107(a)(19), requires airport ownersor operators to submit to the Secretary



and to make available to the public anannual financial report listing in detail(1) all amounts the airport paid to othergovernment units and the purposes forwhich each payment was made, (2) allservices and property the airportprovided to other government units andcompensation received for each serviceor unit of property provided.Additionally, Section 111(b) of the 1994Authorization Act requires a report, foreach fiscal year, in an uniformsimplified format, of the airport’ssources and uses of funds, net surplus/loss and other information which theSecretary may require.

FAA Forms 5100–125 and 126 havebeen developed to satisfy the abovereporting requirements. The forms mustbe filed with the FAA 120 days after theend of the sponsor’s fiscal year.Extensions of the filing date may begranted if audited financial informationis not available within 120 days of theend of the local fiscal year. Requests forextension should be filed in writingwith the FAA Airport ComplianceDivision, AAS–400.

B. Single Audit Review and Opinion1. General requirement and

applicability. The Federal AviationReauthorization Act of 1996, Section805; 49 U.S.C. § 47107(m) requirespublic agencies that are subject to theSingle Audit Act, 31 U.S.C. § 7501–7505, and that have received Federalfinancial assistance for airports toinclude, as part of their single audit, areview and opinion of the publicagency’s funding activities with respectto their airport or local airport system.

2. Federal Financial Assistance. Forthe purpose of complying with 49U.S.C. § 47107(m), Federal financialassistance for airports includes anyinterest in property received, by apublic agency since October 1, 1996, forthe purpose of developing, improving,operating, or maintaining a publicairport, or an AIP grant which was inforce and effect on or after October 1,1996, either directly or through a stateblock grant program.

3. Frequency. The opinion will berequired whenever the auditor underOMB Circular A–133 selects an airportimprovement program grant as a majorprogram. In those cases where theairport improvement program grant isselected as a major program therequirements of 49 U.S.C. § 47107(m)will apply.

4. Major Program. For the purposes ofcomplying with 49 U.S.C. § 47107(m),major program means an airportimprovement program grant determinedto be a major program in accordancewith OMB Circular A–133, § 520 or an

airport improvement program grantidentified by FAA as a major program inaccordance with OMB A–133 § 215(c);except additional audit costs resultingfrom FAA designating an airportimprovement program grant as a majorprogram are discussed at paragraph 9below.

5. FAA Notification. When FAAdesignates an airport improvementprogram grant as a major program, FAAwill generally notify the sponsor inwriting at least 180 days prior to the endof the sponsor’s fiscal year to have thegrant included as a major program in itsnext Single Audit.

6. Audit Findings. The auditor willreport audit findings in accordance withOMB Circular A–133.

7. Opinion. The statutory requirementfor an opinion will be considered to besatisfied by the auditor’s reportingunder OMB Circular A–133.Consequently when an airportimprovement program grant isdesignated as a major program, and theaudit is conducted in accordance withOMB Circular A–133, FAA will acceptthe audit to meet the requirements of 49USC § 47107(m) and this policy.

8. Reporting Package. The SingleAudit reporting package will bedistributed in accordance with therequirements of OMB Circular A–133. Inaddition when an airport improvementprogram grant is a major program, thesponsor will supply, within 30 daysafter receipt by the sponsor, a copy ofthe reporting package directly to theFAA, Airport Compliance Division(AAS–400), 800 Independence Ave. SW20591. The FAA regional offices maycontinue to request the sponsor toprovide separate copies of the reportingpackage to support their administrationof airport improvement program grants.

9. Audit Cost. When an opinion isissued in accordance with 47107(m) andthis policy, the costs associated with theopinion will be allocated in accordancewith the sponsor’s established practicefor allocating the cost of its SingleAudit, regardless of how the airportimprovement program grant is selectedas a major program.

10. Compliance Supplement.Additional information about thisrequirement is contained in OMBCircular A–133 Compliance Supplementfor DOT programs.

11. Applicability. This requirement isnot applicable to (a) privately-owned,public-use airports, including airportsaccepted into the airport privatizationprogram (the Single Audit Act governsonly states, local governments and non-profit organizations receiving Federalassistance); (b) public agencies that donot have a requirement for the single

audit; (c) public agencies that do notsatisfy the criteria of paragraph B.1 and2; above; and Public Agencies that didnot execute an AIP grant agreement onor after June 2, 1997.

Section IX—Monitoring andCompliance

A. Detection of Airport RevenueDiversion

To detect whether airport revenue hasbeen diverted from an airport, the FAAwill depend primarily upon foursources of information:

1. Annual report on revenue usesubmitted by the sponsor under theprovisions of 49 U.S.C. § 47107(a)(19),as amended.

2. Single audit reports submitted,pursuant to 49 U.S.C. § 47107(m), withannual single audits conducted under31 U.S.C. §§ 7501–7505. Therequirement for these reports isdiscussed in Part IX of this policy.

3. Investigation following a thirdparty complaint filed under 14 CFR.Part 16, FAA Rules of Practice forFederally Assisted Airport Proceedings.

4. DOT Office of Inspector Generalaudits.

B. Investigation of Revenue DiversionInitiated Without Formal Complaint

1. When no formal complaint hasbeen filed, but the FAA has anindication from one or more sourcesthat airport revenue has been or is beingdiverted unlawfully, the FAA willnotify the sponsor of the possiblediversion and request that it respond tothe FAA’s concerns. If, after informationand arguments submitted by thesponsor, the FAA determines that thereis no unlawful diversion of revenue, theFAA will notify the sponsor and take nofurther action. If the FAA makes apreliminary finding that there has beenunlawful diversion of airport revenue,and the sponsor has not taken correctiveaction (or agreed to take correctiveaction), the FAA may issue a notice ofinvestigation under 14 CFR § 16.103.

If, after further investigation, the FAAfinds that there is reason to believe thatthere is or has been unlawful diversionof airport revenue that the sponsorrefuses to terminate or correct, the FAAwill issue an appropriate order under 14CFR § 16.109 proposing enforcementaction. However, such action will ceaseif the airport sponsor agrees to returnthe diverted amount plus interest.

2. Audit or investigation by the Officeof the Inspector General. An indicationof revenue diversion brought to theattention of the FAA in a report of auditor investigation issued by the DOTOffice of the Inspector General (OIG)



will be handled in accordance withparagraph B.1 above.

C. Investigation of Revenue DiversionPrecipitated by Formal Complaint

When a formal complaint is filedagainst a sponsor for revenue diversion,the FAA will follow the procedures in14 CFR Part 16 for notice to the sponsorand investigation of the complaint. Afterreview of submissions by the parties,investigation of the complaint, and anyadditional process provided in aparticular case, the FAA will eitherdismiss the complaint or issue anappropriate order proposingenforcement action.

If the airport sponsor takes thecorrective action specified in the order,the complaint will be dismissed.

D. The Administrative EnforcementProcess

1. Enforcement of the requirementsimposed on sponsors as a condition ofthe acceptance of Federal grant funds orproperty is accomplished through theadministrative procedures set forth in14 CFR part 16. Under part 16, the FAAhas the authority to receive complaints,conduct informal and formalinvestigations, compel production ofevidence, and adjudicate matters ofcompliance within the jurisdiction ofthe Administrator.

2. If, as a result of the investigativeprocesses described in paragraphs B andC above, the FAA finds that there isreason to proceed with enforcementaction against a sponsor for unlawfulrevenue diversion, an order proposingenforcement action is issued by the FAAand under 14 CFR 16.109. That sectionprovides for the opportunity for ahearing on the order.

E. Sanctions for Noncompliance1. As explained above, if the FAA

makes a preliminary finding that airportrevenue has been unlawfully divertedand the sponsor declines to take thecorrective action, the FAA will proposeenforcement action. A decision whetherto issue a final order making the actioneffective is made after a hearing, if ahearing is elected by the respondent.The actions required by or available tothe agency for enforcement of theprohibitions against unlawful revenuediversion are:

a. Withhold future grants. TheSecretary may withhold approval of anapplication in accordance with 49 USC§ 47106(d) if the Secretary provides thesponsor with an opportunity for ahearing and, not later than 180 days

after the later of the date of the grantapplication or the date the Secretarydiscovers the noncompliance, theSecretary finds that a violation hasoccurred. The 180-day period may beextended by agreement of the Secretaryand the sponsor or in a special case bythe hearing officer.

b. Withhold approval of themodification of existing grantagreements that would increase theamount of funds available. Asupplementary provision in section 112of the 1994 Authorization Act, 49 USC§ 47111(e), makes mandatory not onlythe withholding of new grants but alsowithholding of a modification to anexisting grant that would increase theamount of funds made available, if theSecretary finds a violation after hearingand opportunity to cure.

c. Withhold payments under existinggrants. The Secretary may withhold apayment under a grant agreement for180 days or less after the payment is duewithout providing for a hearing.However, in accordance with 49 USC§ 47111(d), the Secretary may withholda payment for more than 180 days onlyif he or she notifies the sponsor andprovides an opportunity for a hearingand finds that the sponsor has violatedthe agreement. The 180-day period maybe extended by agreement of theSecretary and the sponsor or in a specialcase by the hearing officer.

d. Withhold approval of anapplication to impose a passengerfacility charge. Section 112 also makesmandatory the withholding of approvalof any new application to impose apassenger facility charge under 49 USC§ 40117. Subsequent to withholding,applications could be approved onlyupon a finding by the Secretary thatcorrective action has been taken andthat the violation no longer exists.

e. File suit in United States districtcourt. Section 112(b) provides expressauthority for the agency to seekenforcement of an order in Federalcourt.

f. Withhold, under 49 USC§ 47107(n)(3), any amount from fundsthat would otherwise be available to asponsor, including funds that wouldotherwise be made available to a State,municipality, or political subdivisionthereof (including any multi-modaltransportation agency or transit agencyof which the sponsor is a memberentity) as part of an apportionment orgrant made available pursuant to thistitle, if the sponsor has failed toreimburse the airport after receivingnotification of the requirement to do so.

g. Assess civil penalties.(1) Under section 112(c) of Public Law

103–305, codified at 49 USC § 46301(a)and (d), the Secretary has statutoryauthority to impose civil penalties up toa maximum of $50,000 on airportsponsors for violations of the AIPsponsor assurance on revenue diversion.Any civil penalty action under thissection would be adjudicated under 14CFR Part 13, Subpart G.

(2) Under section 804 of Public Law104–264, codified at 49 USC§ 46301((a)(5), the Secretary hasstatutory authority to obtain civilpenalties of up to three times theamount of airport revenues that are usedin violation of 49 USC §§ 47107(b) and47133. An action for civil penalties inexcess of $50,000 must be brought in aUnited States District Court.

(3) The Secretary may, under 49 USC§ 47107(n)(4), initiate a civil action forcivil penalties in the amount equal tothe illegal diversion in question plusinterest calculated in accordance with49 USC § 47107(o), if the airport sponsorhas failed to take corrective actionspecified by the Secretary and theSecretary is unable to withholdsufficient grant funds, as set forth above.

(4) An action for civil penalties underthis provision must be brought in aUnited States District Court. TheSecretary intends to use this authorityonly after the airport sponsor has beengiven a reasonable period of time, aftera violation has been clearly identified tothe airport sponsor, to take correctiveaction to restore the funds or otherwisecome into compliance before a penaltyis assessed, and only after otherenforcement actions, such aswithholding of grants and payments,have failed to achieve compliance.

F. Compliance With Reporting andAudit Requirements

The FAA will monitor airport sponsorcompliance with the Airport FinancialReporting Requirements and SingleAudit Requirements described in thisPolicy Statement. The failure to complywith these requirements can result inthe withholding of future AIP grantawards and further payments underexisting AIP grants.

Issued in Washington, DC on February 8,1999.Susan L. Kurland,Associate Administrator for Airports.[FR Doc. 99–3529 Filed 2–11–99; 8:45 am]BILLING CODE 4910–13–P


Documents

7696 Federal Register /Vol. 64, No. 30/Tuesday, February ... · 7696 Federal Register/Vol. 64, No. 30/Tuesday, February 16, 1999/Notices DEPARTMENT OF TRANSPORTATION Federal Aviation