# Presentation: 910827

## Land, Rights and Revenue

**Compliance and Airport Revenue Issues**
** **

- Hershey Airports Conference 2007

- David Cushing, Airport Compliance Officer

- March 8, 2007

## PRIME OBLIGATION

**4-15. ****AVAILABILITY ****OF LEASED SPACE.**
- 	The prime obligation of the owner of a federally-assisted airport is to operate it for the use and benefit of the public.  Airport Compliance Handbook, p. 22
- An airport’s mission is AERONAUTICS.  Therefore, this means that you must make your prime obligation to manage the assets of your airport in the civil aviation interests of the public.

## PRIME OBLIGATION

- Pursue, support and, perhaps, subsidize aeronautical use.
- The AIP program intends to LOWER the costs of aeronautical activity at your Airport.
- All other, non-aeronautical uses of land (primarily lease and use agreements) need to be a “good deal” supporting the sponsor’s PRIME Obligation**.  **

## An airport is a collection of land-use rights

**Aeronautical use**
- Common use
- Exclusive use
- Other access
- Aeronautical support
**Non-aeronautical, REVENUE producing use**
- Municipal, development, financial, community use
- These must be a “good deal” for the airport.

## Grant Assurance 5, Rights and Powers

- The Airport sponsor will not take any action which would operate to deprive it of any of the rights and powers necessary to perform any or all of the assurances in the grant agreement

## Grant Assurance 22, Economic Discrimination

- The sponsor will make its airport available as an airport for public use on reasonable terms and without unjust discrimination to all types, kinds and classes of aeronautical activities, including commercial activities offering services to the public at the airport.

## Grant Assurance 24, Fee and Rental Structure

- The airport will maintain a fee and rental structure that will make the airport as self-sustaining as possible.

## Grant Assurance 25,Airport Revenues

- All revenue generated by the airport...
**Used for the capital or operating costs of the airport, the local airport system, or local facilities owned or operated by the owner or operator of the airport **_**and**_** which are directly and substantially related to the actual air transportation of passengers or property.**

## Airport Revenuesubject to the Revenue Use Policy

***INCLUDES...***
**Fees, charges, rents for using airport property.**
**Proceeds from the sale of airport property not acquired with federal funds.**
**Sale or lease of mineral rights on airport property.**
**State or local taxes on aviation fuel (except taxes in effect on December 30, 1987).**

## Some...Permitted Uses of Airport Revenue

**Capital and operating costs.**
**Noise mitigation projects.**

**Marketing expenses to promote the airport.**
**Repayment of loans.**
**Lobbying fees; Attorney fees; Official travel.**
**Community activities in support of the airport.**

## Some...Prohibited Uses of Airport Revenue

**Payments exceeding value;**
**Payments under an inconsistent cost allocation plan;**
**General Economic Development;**
**Marketing unrelated to airport;**

**Compensation for lost revenue exceeding tax rate;**
**Investments below prevailing rate of return;**
**Free or reduced rate land rental to sponsor;**
**Direct air carrier subsidy.**

## Problem Areas

**General economic development.  Non-aero, third-party development at less than FMV or a deal that’s not ‘good.’**
**Rent-free or below fair market value land furnished to the sponsor. **
**Community-use.**

## Hey, this isn’t easy

- Run the airport to benefit the public, like a utility.
- Run efficiently, with good business and financial practices
- Exist within the broader economic climate and circumstances:
- Land market, leased-space market and real estate and development practices
- Not all lease and development deals are bad.  But this presentation is about problem areas.

## Land transactions, including sales and leases, must be in accordance with your Prime Obligation to serve the aeronautical interests of the public.Don’t transfer more rights to the use of land than are needed to pursue a proposed commercial aeronautical interest.  Don’t transfer non-aero rights that create incompatibility with current or future aeronautical uses or that don’t represent a FMV return on the land rights transferred. 

## Problem Area 1: Economic Development and Land

- JOBS--   no land for jobs.
- Leasing or selling at below fair market value.
***	******Airport must receive Fair Market Value for non-aeronautical leases.***
***	******Must be ‘good deal’ for Prime Obligation. ***

## Fair Market Value

- Fair Market Value:
*Non-aeronautical uses and leases.*
*Sale of airport property. *
- Reasonable, not unjustly discriminatory:
*Aeronautical lease and use **	**	**	**agreements.*
*Grey-area, development deals for aeronautical purposes.*

## Airport Land Sales & Non Aero Leases

- Require Fair Market Value.
- No ‘release’ from obligation to obtain Fair Market value.
- FMV is a condition to be met in order to allow obligation to operate the property for airport use (aero or revenue production).
**No Chicken and Egg releases**
- Land is a Capital Asset for airport use in pursuit of the Prime Obligation.  Generally, the FAA looks to convert one capital asset (land), to another capital asset (aeronautical capacity).***  ***

## Proceeds from Land Sales 

***MUST GO BACK TO THE AIRPORT AND BE USED FOR THE CAPITAL OR OPERATING COSTS OF THE AIRPORT ***
***Additional restrictions on use of proceeds if:***
***Property is surplus property***
***Property is grant land property ***

## Land Sale Requirements 

***	******	******	******Since Airport land sales will only be for non-Airport uses, we require protections to the airport from potential incompatible uses of this airport-adjacent property.***
***	******	******Avigation Easements***
***	******	******Right of Flight***
***	******	******Hazard Prevention***
***	******	******	***

## Aeronautical Uses  (Leases)

*FAA will not normally release property for sale for an aeronautical use.  No Through-the-Fence.*
*Other pitfalls in agreements:*
*	**	**Length of term *
*	**	**Inability of Sponsor to make other uses*
*	**	**	**(restrictive agreements) *
*	**	**Adjacencies (planning issues)*
*	**	**Rights-of-first refusal*
*	**	**Lack of escalation in lease rates**	**	**	**	**	*

## Sponsors should retain their rights!

An airport sponsor should use caution when entering into agreements with developers.

Their mission may not be inline with yours and could be a threat to your mission!

your mission is to develop your property in a way that ensures the services your users need are being adequately provided

- An airport sponsor should use caution when entering into agreements with developers.
- Their mission may not be inline with yours and could be a threat to your mission!
- your mission is to develop your property in a way that ensures the services your users need are being adequately provided

- Developers

## Residential airpark on or adjacent to the airport

Development that could restrict future aeronautical use/activity

Development which would deprive airport of its property rights

**Development that could restrict future aeronautical use/activity**
**Development which would deprive airport of its property rights**

**Some development pitfalls**

## Leases

Don’t provide for a longer term than needed for the improvement contemplated in the development deal.

If developer is developing aeronautical facilities, sponsor must retain rights to provide reasonable access and rates and to prevent an exclusive right.    

- Don’t provide for a longer term than needed for the improvement contemplated in the development deal.
- If developer is developing aeronautical facilities, sponsor must retain rights to provide reasonable access and rates and to prevent an exclusive right.

- Developers

## Problem Area 2:Reduced Rent Land to Sponsor

**Rent-free or reduced rent for sponsor (municipal) use is Revenue Diversion and is prohibited. **
**Benefits provided to the sponsor for non-aero use of Airport land must be compensated to the AIRPORT account**
**Aeronautical Uses of the airport by the sponsor can be had at a reasonable rate that is consistent with other aeronautical rates.**

## Some Municipal Uses

- Fire Department
- Police Department
***	******	****Some offsetting value to the airport*
- Public Works
- Animal Control
- Municipal Golf Course
*	**Usually no offsetting value to the airport*

## Problem Area 3:Community Use

- Below market use of airport property for community/charitable purposes, to maintain positive airport community relations is OK if:
- Community use provides tangible or intangible benefits to the airport  AND
- the property is not expected to produce substantial income, AND
- It can be retrieved for aero use or a higher return.

## COMMUNITY INVOLVEMENT

**Use of airport funds to support community/charitable activities is not OK, unless the expenditure is directly related to operation of the airport.**

## One more Problem Area:Aeronautical vs. Non Aeronautical

*Sometimes tenants make non-aeronautical use of aeronautical space rented at less the FMV.  *
*Potential compliance problem.*
*Sometimes sponsors mix uses.*
*ALP and conveyance documents should be consulted and adhered to.  *

## Well, one last Problem Area:Transfer of Sponsorship

**Sale of an entire airport must not apply a hidden financial burden to airport users.  **
**In most cases, this means you can’t transfer an obligation to the new sponsor that doesn’t already exist upon the airport.  **
**Sales proceeds are airport revenue.**

## One last exception:Pilot Privatization Program

**This topic is outside the scope of this presentation.  **
**Contact your Airports District Office for a referral.  **