Office of Inspector General

Audit Report

MORE RIGOROUS OVERSIGHT IS NEEDED 

TO ENSURE VENICE MUNICIPAL AIRPORT 

LAND SALES AND LEASES ARE USED 

APPROPRIATELY

Federal Aviation Administration

Report Number: AV-2011-180

Date Issued: September 29, 2011
U.S. Department of

Memorandum

Transportation

Office of the Secretary

of Transportation

Office of Inspector General

Subject: ACTION: More Rigorous Oversight Is Needed To 

Ensure Venice Municipal Airport Land Sales and 

Leases Are Used Appropriately

Federal Aviation Administration

Report Number AV-2011-180

Date: September 29, 2011

From: Jeffrey B. Guzzetti

Assistant Inspector General

 for Aviation and Special Program Audits

Reply to 

Attn. of: JA-10

To: Federal Aviation Administrator

In fiscal year 2010, the Federal Aviation Administration (FAA) provided airports 

nationwide over $3.4 billion in Airport Improvement Program (AIP) funding. As 

required by Federal law, recipients of AIP funds must ensure that airports are as 

self-sustaining as possible and use airport revenues only for airport capital and 

operating costs. FAA, in turn, is responsible for effective oversight of airport

revenue. 

Over the last 30 years, FAA, our office, and the Government Accountability 

Office (GAO) have identified serious airport revenue use problems at Venice 

(Florida) Municipal Airport. In September 2009, at the request of former Senator 

George LeMieux, we evaluated concerns regarding the Venice Municipal Airport 

and identified issues warranting a more detailed review of how the City of Venice, 

the airport sponsor, uses airport revenue. Accordingly, our audit objective was to 

evaluate whether FAA’s oversight ensures that the City of Venice is using airport 

revenues only for appropriate purposes and that the airport is as self-sustaining as 

possible. We conducted the audit from June 2010 through March 2011 in 

accordance with Government auditing standards prescribed by the Comptroller 

General of the United States. Exhibit A details our audit scope and methodology.

RESULTS IN BRIEF

FAA has not ensured that the City of Venice used airport revenue for appropriate 

purposes or that the airport is as self-sustaining as possible. For example, in 1998 
2

and 2004, FAA permitted the City (as both the airport sponsor and the provider of 

municipal functions)1 to transfer airport properties to itself at prices below fair 

market value (FMV).

2 Agency policy requires that airport property be sold at 

FMV. Yet, FAA approved these transactions even though the associated property 

appraisals were generally 2 to 10 years old and the combined sales price was 

$1.1 million below the appraised value3 and $5.2 million below the tax assessed 

value.4 In addition, Federal law requires that airport revenue be used only for the 

airport’s capital and operating costs. However, FAA’s oversight did not prevent 

the City from misallocating lease revenue and parking lot improvement costs. 

Specifically, over a 21-year period, the City diverted over $1.5 million in airport 

lease revenue to maintain a municipal fishing pier and indirectly charged the 

airport too much for parking lot improvements. These revenue losses also 

undermine the airport’s compliance with the Federal requirement that airports be 

as self-sustaining as possible. Had FAA required the City to establish an equitable 

means of allocating airport property sales and leases and parking lot improvement 

costs, as much as $6.7 million in lost revenue could have been used to improve the 

airport’s self-sufficiency5

We made five recommendations to improve FAA’s oversight of airport property 

sales and the Venice airport’s self-sustainability. FAA concurred or partially 

concurred with all our recommendations, but we are requesting that the Agency 

reconsider its position for three of them, particularly its interpretation of FAA’s 

Revenue Use Policy.

or cover 3 years of airport operating expenses. 

BACKGROUND

Venice Municipal Airport (the airport) was built in 1942 as a U.S. Army Air Force 

training base. Between 1947 and 1964, the Federal Government transferred the 

property comprising the current airport and surrounding properties to the City of 

Venice, which now owns and operates the airport. Between 1984 and 2006, FAA 

awarded the City more than $5.3 million for 11 AIP grants for purposes such as 

improving runways and taxiways and revising the airport’s master plan and airport 

layout plan.

 1 Other City functions include maintaining the City fishing pier, owning parks, and operating utilities. 2 We identified similar issues in a recently completed audit of Stapleton Airport land sales in Denver, CO, where 

parcels were sold for less than FMV. See OIG Report Number AV-2011-057, “FAA Did Not Ensure Revenue Was 

Maximized At Denver International Airport,” February 28, 2011. OIG reports are available on our Web site at 

http://www.oig.dot.gov. 3 The $1.1 million figure is based on appraisals of airport property that FAA provided. FAA agreed to lower the 

property values because the City argued that the property was "environmentally sensitive." 4 According to appraisers hired by the City, appraised values are typically 10 to 20 percent higher than tax assessed 

values. 5 An example of airport self-sustainability is reducing or eliminating the City’s need for Federal AIP grants.
3

As the airport sponsor, the City must comply with U.S. law and FAA policy, 

including the Surplus Property Act of 1944; the Airport and Airway Improvement 

Act of 1982; FAA Order 5190.6B, “Airport Compliance Manual,” and FAA’s 

Revenue Use Policy.6

FAA is responsible for advising airport sponsors and providing oversight to ensure 

that they comply with Federal obligations regarding airport revenue, selfsustainability, and other matters. The Agency ordinarily oversees revenue use and 

self-sustainability by approving the sales of airport property and by concurring 

with non-aeronautical leases—both of which must be at FMV. FAA also inspects 

airport sponsors’ compliance with Federal airport obligations and investigates 

allegations of non-compliance by airport sponsors.

Specifically, the City must receive FMV for the nonaviation use (i.e., lease or sale) of donated land (i.e., transferred from the U.S. 

Government) and use the revenue for the airport’s capital or operating costs in 

accordance with AIP grant assurances.

Over the past 30 years, the City’s use of airport revenue has been the subject of 

multiple Federal reviews. In 1978, FAA conducted a review7 that identified 

several non-aeronautical leases between the airport and various tenants that were 

below FMV. In 1993, we reported that the City of Venice under-collected 

$2.4 million in airport revenue due to leasing property below FMV.8 In 1999, 

GAO reported9 that the airport had lost at least $25 million due to leases with rates

below FMV. From 2002 to 2004, FAA investigated allegations of revenue 

diversion regarding the City’s lease of airport property to a golf association but did 

not conclude that diversion occurred.10

FAA DID NOT EXERCISE EFFECTIVE OVERSIGHT OF VENICE 

AIRPORT LAND SALES AND LEASES 

Finally, in 2009, FAA inspected the City’s 

compliance with Federal land-use requirements and identified several potential 

issues that the Agency is actively pursuing (e.g., non-aeronautical uses of airport 

property, problematic leases, safety, and maintenance deficiencies).

FAA did not ensure that all Venice airport property sales and lease transactions 

followed Federal requirements and FAA policy. In particular, FAA accepted

flawed property appraisals and did not validate that the property was 

environmentally sensitive11

 6 “Policy and Procedures Concerning the Use of Airport Revenue,” 64 Federal Register 7696, February 16, 1999.

and therefore of limited value. In addition, FAA did 

7 In multiple letters dated 1978, FAA instructed the City to compensate the airport account for 6 years of payments 

that were below FMV. The leases were with the City, Sarasota County, and the Venice Golf Association. 8 OIG Report Number R4-FA-3-724, “Airport Revenue Accountability, City of Venice, Florida,” July 22, 1993. 9 GAO Report Number RCED-99-109, “General Aviation Airports Unauthorized Land Use Highlights Need for

Improved Oversight and Enforcement,” May 7, 1999. 10 However, based on FAA's investigation, the City increased the lease from $160,000 per year to $180,000 per year. 11 The City claimed that 15 acres of onsite wetlands and wildlife habitat restricted development of this property.
4

not require the City to establish an equitable agreement for dividing restaurant 

lease revenue and parking lot development costs between the City and the airport. 

As a result, the airport lost significant revenue that could have been applied to 

operations costs to increase the airport’s self-sustainability. 

FAA Did Not Ensure Airport Property Was Sold for Fair Market Value

Federal law and FAA policy require that airports receive FMV for all sales or 

transfers of airport property. However, from 1998 to 2004, FAA approved the 

transfer of three airport properties to the City for amounts below FMV, as 

illustrated by table 1. By transferring these properties for less than FMV, FAA and 

the City did not comply with the Surplus Property Act of 1944, FAA’s Airport 

Revenue Use Policy, and FAA Order 5190.6A. Moreover, FAA did not follow 

Agency policy, which requires a current appraisal (i.e., within 6 months)12 by a 

certified appraiser, and did not ensure that the sales were conducted in an impartial 

manner.13

Table 1. Venice Property Transfers/Sales, 1998–2004

 

Parcel Acres

Date 

Sold

Appraisal 

Date Sale Price

Appraisal 

Value Difference

Brohard Park 40 1998 1994 $165,000 $1,200,000 $1,035,000

Chuck Reiter Field 9 1998 1996 $250,000 $279,000 $29,000

Wastewater 

Treatment Site 7 2004 1994 $214,000 $266,000 $52,000

Totals 56 $629,000 $1,745,000 $1,116,000

Source: OIG analysis of airport property appraisals

The combined sales price for these properties was $1.1 million below appraised 

value and $5.2 million below tax assessed value.14 This deficit resulted in a 

diversion of airport revenue that could have been used to fund up to 3 years of the 

airport operating expenses or to pay for other, much needed airport 

improvements.15

 12 Although FAA policy does not define “current,” the Agency's general practice, or “rule of thumb,” is that appraisals 

should be no more than 6 months old, according to Office of Airports, Southern Region, and Orlando Airports 

District Office officials.

Unfortunately, FAA cannot recover these funds because the 

transactions occurred more than 6 years ago—the statute of limitations established 

13 FMV is based on an impartial transaction in which unrelated parties act in their own best interests. 14 While FAA does not use tax assessments to establish a property’s FMV, such assessments are a standard part of the 

Florida State appraisal process and a useful point of comparison with property appraisals. 15 In December 2010, Venice applied for a $4.7 million grant to rehabilitate runway 4/22.
5

by law.16

Moreover, since the City requested these transfers and acted as both the buyer and 

seller, there was an inherent conflict of interest in determining the “highest and 

best” sales price or FMV for these properties. When an airport sponsor purchases 

airport land to be used for other purposes (such as city parks or utilities), it is 

critical that the transactions be conducted in an impartial manner. This is 

particularly important with Venice, since the City intends to purchase additional 

airport property.

Nevertheless, the losses undermined the airport’s self-sustainability and 

increased its need for AIP grants.

The following provides a detailed explanation of the three property transactions 

(shown in table 1).

 Brohard Park: In June 1998, FAA approved the City’s purchase of 40 acres 

of airport beachfront property for $165,000 to create a public park. This price 

was only 14 percent of the property’s 4-year-old appraised value of

$1.2 million17

FAA approved the low sale price based on a letter from the City stating that 

the airport land was environmentally sensitive and not practical to develop 

for purposes other than a park.

and only 4 percent of the 1998 tax assessed value of 

$4,677,349. FAA approved this sale even though the City did not provide a 

map of the property being released, demonstrate how the release would be 

more beneficial than keeping the property for rental income, or describe the 

release’s benefit to civil aviation—as required by FAA policy. In addition, 

the appraisal was for a 73-acre parcel, so the lack of a survey map or legal 

description made it impossible to know whether the transferred property of 

40 acres matched the appraised property. 

18

 16 49 U.S.C.§ 47107(n)(7) states that “No person may bring an action for the recovery of funds illegally diverted . . . 

6 years after the date on which the diversion occurred.”

However, FAA did not validate this claim 

by requiring an environmental assessment or a current, independent 

appraisal. As a result, FAA failed to ensure the airport received FMV. 

Specifically, FAA allowed the City to use seven properties to establish a 

sales price for Brohard Park, even though those properties were not on 

beachfront land like Brohard Park. The seven properties were also 

environmentally restricted and therefore inappropriate comparisons. In 

particular, Brohard Park includes a commercial restaurant and a waste-water 

treatment facility, demonstrating that environmental sensitivity did not 

prevent the property's development, including the subsequent expansion of 

the restaurant and associated parking.

17 The appraised value per acre was $30,000, which is $2.2 million for 73 acres or $1.2 million for 40 acres. 18 The letter responded to an FAA request that the City provide additional support for the sale price and the property’s 

environmental sensitivity.
6

 Chuck Reiter Field: In February 1998, FAA approved the City’s purchase 

of a 9.15-acre baseball park on airport property for $250,000. This price was 

$29,000 less than a 1996 amended appraisal19 and 85 percent of the 1998 tax 

assessed value of $292,916. In addition, the map included in the appraisal 

was for 8.2 acres and FAA’s deed of release was for 9.15 acres. The City 

requested this release to end recurring compliance problems after Federal 

reviews in 1978 and 1993 determined that the airport was not receiving fair 

market rent for this property.20 In approving this transfer, FAA did not 

comply with its own policy because (1) there was no demonstrated benefit 

for transferring the property instead of keeping it for rental income,21

 Venice Beach Wastewater Treatment Site: In February 2004, FAA 

approved the City’s purchase of seven additional acres of airport beachfront 

property for about $214,000 to develop another park, known as Tramonto 

Vista Park. The price was below FMV at just 80 percent of the property’s 10-

year old appraised value and only 26 percent of the 2004 tax assessed value 

of $836,000. FAA accepted the City’s sales price based on a list of the values 

of 27 environmentally protected properties purported to be comparable to this 

property; however, these properties were not good comparisons because they 

did not have the same highest and best use

(2) the 

acreage on the deed of release did not match the appraisal, and (3) the 

purchase was at a price below FMV. 

22

Given these past practices at Venice airport, we have concerns that additional 

airport property may be transferred at less than FMV. For example, FAA and the 

City of Venice have proposed releasing the following two airport properties: 

as Tramonto Vista Park and 

were not on the Gulf of Mexico. In addition, FAA did not follow Agency 

policy in requiring that the sponsor provide (1) a current, independent 

appraisal, (2) documentation supporting transfer over retention of the 

property for rental income, or (3) consistent maps of the property. FAA also 

identified this latter issue in its 2009 Land Use Inspection and directed the 

City to provide an accurate survey. 

 Maxine Barritt Park: This park is adjacent to Tramonto Vista Park and 

consists of 12 acres of beachfront property, including a pond, walkway, and 

several beach look-out platforms. The pond, which is leased to the City 

Utilities Department, generates at least $54,000 per year for the airport. In 

anticipation of acquiring this land, the City hired an appraiser who 

 19 The 1996 amendment updated Chuck Reiter Field’s FMV as approximately $279,000. 20 In 1978 FAA instructed the City to compensate the airport $16,268 for diverted revenue, and in 1993 our office 

determined the rent was $13,104 below fair market rent. 21 The appraised rental value was less than the existing lease to a baseball league for $25,484 per year and did not 

include any value for a City water tower and other leases. 22 Highest and best use is whatever the property could be used for that would produce the highest value or income.
7

determined that 4 of the 12 acres (land) have a FMV of $585,000 and that the 

remaining 8 acres (the pond) have no value. The appraisal, however, may 

have undervalued the property because it did not (1) consider the highest and 

best use of the land, (2) include the rental income or improvements on the 

property, or (3) independently verify the maps and legal description.23

 Sharky’s on the Pier: In an October 2009 letter, FAA suggested that the 

City sell airport property being used for a beachfront restaurant, “Sharky’s on 

the Pier,” to end recurring complaints and compliance problems regarding 

this property. The City received appraisals of this property in 1994, 2006, and 

2010, following reviews by our office and FAA. However, these appraised 

values are not only inconsistent, but also appear excessively low when 

compared to the tax assessed values (see Table 2). For example, the last two 

appraisals

Finally, the appraised value appears low at 29 percent of the property’s 2010 

tax assessed value of $2 million.

24 include limited scope, hypothetical zoning, and inappropriate 

comparisons to inland properties. They were also significantly lower than the 

tax assessed values, which show a consistent growth. In addition, appraisal 

values have fluctuated significantly, with the 2010 appraisal being much 

lower than one performed 16 years earlier (see table 2 below). FAA has 

indicated that it shares our concerns and will request a review of the 2010 

appraisal.25

Table 2. Appraisals vs. Tax Assessed Values for Sharky’s Property, 

1994–2010

 

Year

Appraisal Values

(for 1 acre)

Tax Assessed 

Value (for 1 acre)

1994 $725,000 $805,860

2006 $217,800 $1,524,816

2010 $482,209 $3,268,127

Source: OIG analysis

These two property transfers will be required to comply with the Surplus Property 

Act, FAA Order 5190.6B, and FAA’s Revenue Use Policy. However, these 

policies lack explicit guidance to ensure the airport receives FMV when the airport 

sponsor acts as both the buyer and seller of airport property. FAA has indicated 

 23 Each of these steps are part of the Florida guidelines for a standard appraisal report and required by FAA policy. 24 The 2006 and 2010 appraisals were conducted by the same appraiser. 25 A review appraisal is an independent review of an existing appraisal to determine its validity and accuracy.
8

that it is currently reviewing its land release policy in such cases, and may require 

a review or second appraisal for unique properties,such as Sharky’s.26

FAA Did Not Prevent the City from Misusing Airport Revenue

Although FAA identified and is addressing a number of lease issues as part of its 

land use inspection, two significant issues remain relating to Sharky's restaurant 

and associated parking. Specifically, we found that the City, over a 21-year period, 

failed to provide the airport its fair share of revenue from the restaurant lease, 

resulting in the airport losing over $1.5 million. In addition, the City may be 

indirectly charging the airport too much for parking lot improvements. These 

losses occurred primarily because FAA has not required the City and the airport to 

establish an equitable agreement for distributing restaurant lease revenue and 

allocating improvement costs for parking lot renovations. As a result, the airport 

has less revenue to ensure self-sustainability. 

Insufficient Lease Revenue from Sharky’s: We determined that since 1989 the 

City has underfunded the airport in excess of $1.5 million from the Sharky’s lease 

(see table 3). This occurred because FAA has interpreted its Revenue Use Policy 

as limiting airport revenue to only FMV land rent, as opposed to also including a 

portion of Sharky’s gross proceeds. Over a 21-year period, the City received about 

$4.7 million in revenue for the lease, which includes land rent and a percentage of 

the restaurant’s gross receipts. The City distributed about $3.3 million to its Pier 

Fund (which helps maintain the City’s fishing pier) and about $1.4 million to the 

airport. In contrast, we estimate that the airport should have received nearly 

$2.9 million of the lease, due to the restaurant being located mostly on airport 

property.

27

Table 3. Potential Underpayments to Airport Fund from the Sharky’s Lease, 

1989–2010 

Payments City Estimate

(Millions)

OIG Estimate

(Millions)

Amount Owed $1.6 $2.9

Amount Paid $1.4 $1.4

Amount Underpaid $0.2 $1.5

Source: OIG analysis of City financial data

 26 As a result of our February 2011 audit report regarding airport revenue at Denver International Airport, FAA is in 

the process of amending its guidance for land appraisals and disposals and will likely require a second appraisal for 

large or unusual properties. (See OIG Report Number AV-2011-057, “FAA Did Not Ensure Revenue Was 

Maximized at Denver International Airport,” February 28, 2011.) 27 Prior to the 1998 transfer of airport property to the City for Brohard Park, 100 percent of the restaurant and 

associated parking spaces were located on airport property. Since that time, we estimate—using survey maps and the 

2008 lease—that the airport’s share of the land used by the restaurant and associated parking has dropped to around 

50 percent. 
9

The funds were distributed in this manner based on a series of actions taken by the 

City. Specifically:

• From 1986, the City leased airport property to the Pier Group Inc. to operate 

“Sharky’s on the Pier.”

• Under two separate leases (i.e., 1986 and 2008), the Pier Group agreed to pay 

the City ground rent and a percentage of the gross receipts from the 

restaurant, but neither lease specifies any revenue for the airport.

• In 1998, the City passed a resolution28 with the concurrence of FAA's 

Southern Region requiring the City Pier Fund to pay the Airport Fund 

$72,00029

• In September 2008, the City determined that the airport was entitled to onethird of the entire lease proceeds, based on an estimate that Sharky’s and its 

parking lot occupies one-third of airport property and two-thirds of City 

property.

per year plus Consumer Price Index adjustments.

FAA’s Southern Region reviewed the City’s one-third distribution in a 2009 land 

use inspection report.30 The review addressed the lease and revenue distribution 

and accurately identified that less than one-third of the lease proceeds has actually 

been deposited in the Airport Fund. The Region also concluded that this 

distribution of lease proceeds could be contrary to grant assurances31

While the Southern Region’s land use inspection raised the possibility of the 

airport receiving additional revenue from the Sharky’s lease, FAA’s Compliance 

Division has stated that it only requires that the airport receive FMV land rent. 

and may be a 

revenue diversion. Yet, the land use inspection did not examine whether the City’s 

one-third estimate was an appropriate basis for distributing the lease revenue. 

Conversely, based on our analysis of airport survey and boundary maps as well as 

the current lease, we conclude that since 1998, approximately half of the land used 

by the restaurant and associated parking is on airport property. As a result, the 

airport should receive a larger share of the lease revenue, which would help 

maintain the airport’s self-sustainability.

 28 We identified a number of problems with the 1998 resolution. First, it was based on an outdated 1994 property 

appraisal. Second, it did not accurately identify the airport property involved. Third, it did not explain the roles and 

responsibilities of all key stakeholders (i.e., the airport, city, and restaurant owner). Finally, FAA and the City did 

not seek to update the resolution to comply with FAA’s 1999 Revenue Use Policy and to establish an equitable 

distribution of lease proceeds and capital improvements between the key stakeholders that protects the selfsustainability of the airport. 29 The $72,000 rent was based on a 1994 appraisal, which established fair market rent as $72,500 per year. 30 FAA raised various concerns about the distribution of airport revenue in its 2009 land use report, “Land Use 

Inspection Report, Venice Municipal Airport, Venice, FL,” August 10, 2009. This report, however, made no mention 

of the parking lot improvements. 31 Under grant assurance 25, Airport Revenues, airport sponsors agree that all revenues generated by the airport will be 

expended by it for the capital or operating costs of the airport; the local airport system; or other facilities which are 

owned or operated by the owner or operator of the airport.
10

Since the 1998 resolution, revenues derived from the Sharky’s lease have been 

deposited by the City into its Pier Fund, part of which is then transferred to the 

Airport Fund as compensation for the use of airport property. Despite the concerns 

raised by the Southern Region, FAA’s Compliance Division considers this use of 

Sharky’s lease revenues appropriate, arguing that the Revenue Use Policy does not 

dictate that the Airport Fund receive more than fair market land rent for nonaeronautical land.32

We disagree with the Compliance Division’s position about the additional lease 

proceeds. According to FAA’s Revenue Use Policy, all rent for activities 

occurring on airport property is considered airport revenue. Specifically, airport 

revenue includes “... all ... rents ... accruing to the (airport) sponsor for any ... 

revenue from ... tenants ... of airport property....” In our opinion, the City’s 

distribution of the entire Sharky’s lease revenue (i.e., both the ground rent and a 

percentage of gross receipts) to the Pier Fund—which later distributes some funds 

to the Airport Fund—is inappropriate because it allows an airport sponsor to 

benefit by using airport revenue for non-airport projects and compromises the 

future self-sustainability of the airport.

The Division officials also stated that the airport is not entitled 

to additional lease proceeds (i.e., from the restaurant’s gross receipts) because it 

does not share in the risk of entering into and managing the lease.

While we estimate that the airport has been underpaid over $1.5 million from the 

Sharky’s lease, only $493,070 (plus interest) in questioned costs33

Excessive Parking Lot Renovation Costs: 

The City indirectly charged the airport too 

much for renovations to the parking lot serving 

Sharky’s, the fishing pier, and Brohard Park. 

In May 2008, the City finished renovations

totaling $1,380,647, which transformed a 

gravel lot into a paved parking lot with 

373 spaces. As illustrated in table 4, the Pier 

Group Inc. contributed $615,000 to the 

improvements, leaving an outstanding balance 

of $765,647, which the City distributed 

could be 

returned to the airport fund (see exhibit B) because of the 6-year statute of 

limitations on recovering unlawful diverted revenue. In addition, we estimate that, 

over a 5-year period, about $426,329 in future funds (see exhibit C) could be put 

to better use if the City distributed lease proceeds in accordance with the 

percentage of leased property that is airport owned.

 32 FAA also states that the Sharky’s lease is unique because airport property leases typically are only for land rent. 33 According to the Inspector General Act of 1978, a questioned cost is an alleged violation of law, grant, contract, or 

policy regarding the expenditure of funds.

Table 4. City’s Allocation of 

Renovation Costs

Methodologies

Dollar 

Amount

Pier Group $615,000

Airport $255,216

City $510,431

Total $1,380,647

Source: OIG analysis of City data
11

between itself and the airport. The City calculates that the airport is responsible for 

$255,216 of the cost, based on its determination that one-third of the property 

needed for Sharky’s is on airport property. While this is one of several methods 

for distributing the improvement costs, we believe the most accurate and equitable 

approach—if the airport shares in the gross receipts from the restaurant—would 

involve charging the airport only about one-seventh ($117,000) of the 

improvements, since one-seventh (57 of the 373) of the parking spaces are actually 

on airport land. This method is also consistent with the Revenue Use Policy, 

which requires that expenditures not exceed the fair and reasonable value of the 

services provided the airport.

While the City maintains that no airport funds were withdrawn to pay for the 

renovations, it calculated the airport share to be $255,216, and offset most of these 

costs by reducing the amount of lease revenue deposited into the airport fund.

34

CONCLUSION

Nevertheless, as a result of this arrangement, the airport ended up paying for a 

disproportionate share of the parking lot renovations. This situation occurred, in 

part, because FAA and the City did not establish a fair and equitable agreement for 

allocating Sharky’s lease revenue and capital improvements costs, such as those 

associated with the parking lot renovations.

The budget constraints now facing FAA and the financial strains on the Nation’s 

airlines and airports underscore the need for vigilant oversight of airport revenue 

use. Because FAA did not effectively oversee the lease and sale of property at 

Venice, the airport has lost and will continue to lose revenues that could be used to 

reduce its reliance on Federal funding. Of particular concern is the adverse effect 

on the sale price when the airport sponsor is both the seller and buyer of airport 

properties—an area that FAA policies currently do not explicitly address. FAA 

must strengthen both its oversight and its policy to ensure that airports are as selfsustainable as possible and that the airport sponsors do not misuse revenues from 

sales and leases at the airport’s—and taxpayers’—expense.

 34 In August 2011, Venice City officials reiterated that no airport funds were used to pay for the parking lot 

renovations. However, on at least two occasions in July 2010, a senior City official explained and provided OIG 

auditors documentation showing that funds due the airport fund were offset by the $255,216 in parking lot 

improvement costs. 
12

RECOMMENDATIONS

We recommend that FAA:

1. Strengthen Agency policy to ensure that transfers of airport property acquired 

through Federal assistance are based on independent certified appraisals 

performed within 6 to 12 months of the transfer and reviewed by an 

independent real estate professional, especially when the parcel is unusual or 

the transfer is between an airport and its sponsor. 

2. Require the City to complete the independent review appraisal of the 

property used by the Sharky’s restaurant if sold, and any subsequent transfers 

of airport property.

3. Assess the revenue diversions or self-sustainability issues involving the 

distribution of Sharky’s lease revenue and parking lot renovation costs and 

seek full recovery, plus interest on the $493,070 in questioned costs 

identified by our office (see exhibit B) and any other improperly allocated 

revenue identified by FAA. 

4. Work with the City of Venice to develop an appropriate allocation of future 

rent revenue from Sharky’s over the remaining term of the lease and the cost 

of subsequent capital improvements such as parking lot renovations, that 

protects the self-sustainability of the airport.

5. Assess the adequacy of the Agency’s policies and procedures for overseeing 

the transfer or lease of large or unusual airport properties to ensure that 

sponsor agreements are fair and equitable and protect the airport’s selfsustainability.

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE

We discussed the results of our review with officials from FAA’s Airport 

Compliance Division on March 23, 2011 and provided the Agency our draft report 

on July 27, 2011. We received FAA’s formal response on September 21, 2011, 

and have included it as an appendix to this report. In its response, FAA concurred 

with four recommendations and partially concurred with the fifth. Overall, FAA’s 

response meets the intent of recommendations 1 and 2, and we consider these 

recommendations resolved but open until the Agency completes its planned

actions. We also ask that FAA provide us a target date for the completion of its 

actions for recommendation 2. 
13

For recommendations 3, 4, and 5, FAA’s response and planned actions only 

partially meet the intent of our recommendations, and we are asking that the 

Agency reconsider its responses. Specifically:

• FAA partially concurred with recommendation 3, stating that it would assess 

revenue diversion and self-sustainability questions regarding the Sharky’s 

property. However, the Agency disagreed with our interpretation of the 

Agency’s Revenue Use Policy, stating that this policy only requires that the

airport receive fair market rental value for the Sharky’s property. The Agency 

did not explain why all the lease revenue is not airport revenue, as stated in 

Section II of the Revenue Use Policy. Considering the sizable lease revenue 

that the City did not distribute to the airport, we believe this matter merits 

reconsideration. In effect, the City rents the Sharky’s property from the airport 

at one rate and leases it to a third party at a higher rate. We are also concerned 

about the precedent that this situation sets. Other airport sponsors could 

establish a similar mechanism, allowing them to siphon off airport lease 

revenue that could better be applied to ensuring the self-sustainability of the 

airports. Accordingly, we request that FAA reconsider its interpretation and 

application of the Revenue Use Policy. 

• FAA concurred with recommendation 4, stating that the airport should avoid 

all costs associated with the Sharky’s property and that the airport 

administrator should not help manage it. While we agree that the airport should 

not manage this property, we disagree with the Agency’s approach to 

addressing this recommendation, which is tied to its response to 

recommendation 3: FAA believes the airport is only due fair market land rent

instead of the full rent revenue from the airport property. As a result, we 

request that FAA reconsider its position in response to recommendation 4.

• FAA concurred with recommendation 5 and stated that it is assessing practices 

for the disposal or lease of large properties and planning to complete a draft 

policy in February 2012. While this assessment should help improve FAA 

oversight, FAA’s response does not adequately address smaller, atypical 

airport properties, such as those belonging to the Venice airport. FAA states 

that additional oversight for these properties may not be justified on a costbenefit basis. While we agree that FAA needs to be judicious with its 

resources, we think that airports with a history of compliance issues and other 

unique attributes, such as Venice, would benefit from the improved oversight 

practices that the Agency is developing. Therefore, we request that the Agency 

reconsider its position in response to recommendation 5.
14

ACTIONS REQUIRED 

FAA’s proposed action for recommendation 1 is responsive, and we consider it 

addressed but open pending completion of the planned action. For 

recommendation 2, we are asking FAA to provide us a target completion date for 

its review of the Sharky’s property appraisal. For recommendations 3, 4, and 5, we 

are asking the Agency to reconsider its position. We request that FAA provide us 

this additional information within 30 days. 

We appreciate the courtesies and cooperation of FAA and City of Venice 

representatives during this audit. If you have any questions concerning this report, 

please contact me at (202) 366-0500 or Darren Murphy, Program Director, at 

(206) 220-6503.

# 

cc: FAA Deputy Administrator

Acting Assistant Administrator for Airports

Anthony Williams, ABU-100

Martin Gertel, M-1
15

Exhibit A. Scope and Methodology

EXHIBIT A. SCOPE AND METHODOLOGY

We conducted this performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform 

the audit to obtain sufficient, appropriate evidence to provide a reasonable basis 

for our findings and conclusions based on our audit objective. We believe that the 

evidence obtained provides a reasonable basis for our findings and conclusions. 

We conducted the audit between June 2010 and March 2011 and included such 

tests of procedures and records as we considered necessary, including those 

providing reasonable assurance of detecting abuse and illegal acts.

To determine whether FAA oversight ensures that the City is using airport 

revenues for appropriate purposes, we interviewed officials from the City, Airport, 

and FAA’s Compliance Division, Southern Regional Office, the Orlando Airport 

District Office (ADO), as well as airport tenants and community interest groups. 

We then reviewed FAA, City, and Airport policies and procedures on revenue use 

to ensure the airport sponsor complied with AIP grant assurances and Federal land 

use requirements. To identify prior audit findings, we analyzed consolidated 

annual financial statements, single audits, OIG reports, and GAO reports.

To assess whether airport funds were used for the capital and operating costs of 

the airport, we reviewed a statistical sample of 53 airport payments equaling 

$145,894 which were pulled from a total population of 1,303 payments 

representing $5,571,284. We relied on data maintained in the City accounting 

system and verified its accuracy during testing of sampled transactions. To verify 

that funds were expended in accordance with AIP grants agreements, we reviewed 

all grant files at the Orlando ADO and the supporting documentation for the four 

most recent AIP grants at the City of Venice. To assess whether there is a basis for 

allocating costs and whether the methodology is consistently applied, we analyzed 

the most recent cost allocation plans for fiscal years 2005, 2006, and 2007. To 

obtain an interpretation of FAA’s Revenue Use Policy regarding the definition of 

airport revenue, we met with legal counsel from our office and the Office of the 

Secretary and reviewed relevant policy and Federal law.

To determine whether the airport was receiving FMV for land sales, we reviewed 

FAA and City documents including property appraisals, deeds, surveys, maps, and 

tax assessed values of airport land, and interviewed FAA and City officials, as 

well as two Florida real estate appraisers and the Sarasota County Tax Assessor’s 

Office. We reviewed the appraisals to determine whether they were independent, 

based on comparable sales, and considered the highest and best use of the 

property. To assess whether the sales price was appropriate, we compared the sales 

price with the appraised and tax assessed values. 
16

Exhibit A. Scope and Methodology

To determine whether FAA oversight ensures that Venice Municipal Airport is as 

self-sustaining as possible, we obtained and reviewed non-aeronautical and 

aeronautical lease agreements and Consumer Price Index adjustments to determine 

the proper rental payments owed the airport. To confirm where non-aeronautical 

leases are issued at FMV we compared the appraised value to the rental amount 

outlined in the lease. Further, to confirm whether the airport fund receives funds as 

required in the lease agreements, we obtained the lease deposits from the City and 

compared the deposits to the amounts required in the lease agreements.

To determine the universe of airport property, we interviewed ADO and airport 

officials and analyzed City and airport files, including quit-claim deeds, survey 

maps, appraisals, and airport layout plans. We then toured the airport and 

compared the airport property to existing leases to identify parcels without a 

current lease. We also interviewed the surveyor hired by the City for the 

2010 survey of airport property. We reviewed FAA policy and interviewed 

ADO officials to determine if a lease was required. To quantify the airport’s 

percentage of land leased for Sharky’s restaurant and to validate the proper 

distribution of revenues between the City and the airport we relied on the expertise 

of OIG engineers to analyze leases, maps, property boundaries, and a 1998 City 

resolution.
17

Exhibit B. Underpayments to Airport Fund

EXHIBIT B. UNDERPAYMENTS TO AIRPORT FUND

Time Frame

Total Lease 

Proceeds

Total 

Deposits to 

Airport 

Fund 

Estimated 

Amount Due 

Airport 

Fund35

Total Underpayment to 

Airport Fund

1989–1990 $60,434.00 $19,320.00 $60,434.00 ($41,114.00)

1990–1991 $71,108.50 $19,320.00 $71,108.50 ($51,788.50)

1991–1992 $95,812.00 $21,252.00 $95,812.00 ($74,560.00)

1992–1993 $127,501.55 $21,252.00 $127,501.55 ($106,249.55)

1993–1994 $137,994.00 $21,252.00 $137,994.00 ($116,742.00)

1994–1995 $153,793.00 $21,252.00 $153,793.00 ($132,541.00)

1995–1996 $155,121.00 $36,000.00 $155,121.00 ($119,121.00)

1996–1997 $163,498.00 $72,000.00 $163,498.00 ($91,498.00)

1997–1998 $173,551.00 $72,000.00 $173,551.00 ($101,551.00)

1998–1999 $179,211.00 $73,584.00 $89,605.50 ($16,021.50)

1999–2000 $203,026.00 $75,056.00 $101,513.00 ($26,457.00)

2000–2001 $221,789.00 $76,557.00 $110,894.50 ($34,337.50)

2001–2002 $224,553.00 $78,089.04 $112,276.50 ($34,187.46)

2002–2003 $235,737.00 $79,650.00 $117,868.50 ($38,218.50)

2003–2004 $252,297.00 $81,243.00 $126,148.50 ($44,905.50)

2004–2005 $290,882.00 $82,868.04 $145,441.00 ($62,572.96)

2005–2006 $342,430.00 $85,353.96 $171,215.00 ($85,861.04)

2006–2007 $370,081.00 $95,000.04 $185,040.50 ($90,040.46)

2007–2008 $393,507.00 $97,850.04 $196,753.50 ($98,903.46)

2008–2009 $394,327.00 $97,850.04 $197,163.50 ($99,313.46)

2009–2010 $407,268.00 $147,255.00 $203,634.00 ($56,379.00)

Total 

2004–2010 $2,198,495.00 $606,177.12 $1,099,247.50 ($493,070.38)

Total 

1989–2010 $4,653,921.05 $1,374,004.16 $2,896,367.05 ($1,522,362.89)

 35 Prior to 1998, the airport contributed 100 percent of the land leased to the Pier Group, Inc. (owners of Sharky’s 

restaurant). This amount dropped to around 50 percent after FAA approved the transfer of airport land to the City for 

Brohard Park in 1998.
18

Exhibit C. Future Underpayments to Airport Fund

EXHIBIT C. FUTURE UNDERPAYMENTS TO AIRPORT FUND

Time Frame

Total Lease 

Proceeds

Total 

Deposits to 

Airport Fund 

Estimated 

Amount Due 

Airport Fund

Total Underpayment to 

Airport Fund36

2010–2011 $435,884.71 $143,841.96 $217,942.36 ($74,100.40)

2011–2012 $466,504.86 $153,946.60 $233,252.43 ($79,305.83)

2012–2013 $499,268.42 $164,758.58 $249,634.21 ($84,875.63)

2013–2014 $534,325.43 $176,327.39 $267,162.72 ($90,835.32)

2014–2015 $571,836.43 $188,706.02 $285,918.22 ($97,212.19)

Total 

2010–2015 $2,507,819.86 $827,580.55 $1,253,909.93 ($426,329.38)

 36 We based our estimate on the following: (1) 5-year average of the increase restaurant’s gross receipts, (2) 50 percent 

of the lease involves airport property, and (3) the City's previous practice of allocating one-third of the lease rent to 

the airport fund.
19

Exhibit D. Major Contributors to this Report

EXHIBIT D. MAJOR CONTRIBUTORS TO THIS REPORT

Darren Murphy Program Director

Name Title

Jerrold Savage Project Manager 

Deborah Kloppenburg Senior Auditor

Andrew Sourlis Analyst 

Wayne Summers Auditor

Teri Vogliardo Analyst 

Seth Kaufman Senior Counsel

Aron Wedekind Engineer

Sandy DeLost Information Technology Specialist 

Andrea Nossaman Writer-Editor

Audre Azuolas Writer-Editor
Appendix. Agency Comments.

Appendix. Agency Comments

Federal Aviation

Administration

Memorandum

Date: 

To: Jeffrey B. Guzzetti, Assistant Inspector General for Aviation and Special 

Program Audits 

 

From: H. Clayton Foushee, Director, Office of Audit and Evaluation, AAE-1 

Subject: OIG Draft Report: FAA Did Not Exercise Effective Oversight of Land 

Sales and Leases at Venice Municipal Airport Federal Aviation 

Administration 

The Federal Aviation Administration (FAA) has a long history of conducting careful 

oversight of Venice Municipal Airport (VNC) including analyses of its unique land use 

and financial issues. During the past several years, FAA oversight has balanced the many 

demands on its limited airport office resources with sufficient focus on the complicated 

details involved at VNC, in an effort to ensure that VNC remains in compliance with its 

Federal obligations. The FAA has conducted various reviews and investigations at VNC 

including an airspace compatibility audit, an Airport Layout Plan alternatives analysis, 

and formal and informal complaint investigations. As a result, the FAA has counseled 

the City of Venice on numerous occasions with regard to such issues as reasonable access 

to aeronautical leases, aeronautical access, maintaining airport pavements, and airport 

runway configurations. In some cases, the FAA has denied the requests of the City, and 

these actions have preserved the utility of VNC for aeronautical uses. 

In addition to these activities, in May 2009, the FAA conducted an extensive Land-Use 

Inspection at VNC. The FAA issued its report in August 2009, preceding the initiation of 

the OIG review in 2010. FAA’s inspection identified many of the issues now included in 

the Office of Inspector General (OIG) report with regard to leases. We required the City 

of Venice to respond to our concerns, including the concern on leasehold valuations 

discussed further below. 
Appendix. Agency Comments

2

Background

The circumstances at VNC are unusual. The VNC properties are beachfront parcels with 

development restrictions and environmental degradation, including an archaic wastewater 

treatment plant. One parcel constitutes a lease of beachfront property that is closely 

integrated with a city-built, owned and maintained, 700-foot long fishing pier extending 

into the Gulf of Mexico and along with an associated restaurant, bar, and bait shop 

concession -- Sharkey’s on the Pier -- operated by Venice Pier Group, Inc. [Figure 1.] 

This exclusive concession is located partly on the Venice Fishing Pier.

Figure 1 Venice Fishing Pier over the Gulf of Mexico with Bait and Snack Shop operated by 

Sharkey’s on the Pier.

The Revenue Use Policy allows the FAA to conclude that an airport sponsor is compliant 

with the Revenue Use Policy and Federal law if it demonstrably receives no less than fair 

market value (FMV) for a lease or sale of an asset paid into the airport account. The 

FAA policy recognizes that it is common for airport sponsors to lease or sell airport 

property37 for non-aviation purposes. Airport sponsors must only allow land uses that are 

compatible, or do not interfere, with aviation activity, including commercial, industrial, 

or agricultural uses that produce revenue for the airport account. FAA requirements on 

land disposals include similar compatibility restrictions for land uses after a disposal. 

The appraised value of airport properties should consider the value effects of compatible 

land-use restrictions in light of FAA’s policy and practice with regard to financial self-

 37 The Federal Government transferred VNC to the City in the 1940s. As such, the airport property is subject to 

Federal Surplus Property obligations, in addition to its obligations under the City’s Federal AIP grant assurances. 
Appendix. Agency Comments

3

sustainability requirements.38 FAA requires the sale price or lease of airport property, 

including surplus property, to be at the FMV of the land. The FMV of airport property is 

the highest current market price of the land to be sold for compatible use and 

development with the adjoining airport. On the one hand, the FAA wants the sponsor to 

pursue compatible land-uses for aeronautical activity as its prime obligation. On the 

other hand, the FAA wants the sponsor to pursue financial benefits to the airport. As a 

matter of policy, the FAA has settled on the airport account receiving fair market value of 

airport compatible uses as the standard for compliance. 

FAA Agrees with Land Valuation and Disposal Issues but Disagrees with the OIG’s 

Conclusions with regard to VNC Lease Revenue

Based upon its experience with VNC through its oversight activities, the FAA agrees 

with some recommendations of the OIG report, including improving policies regarding 

the timing of airport sponsor land disposals and land appraisal, requiring review 

appraisals in certain circumstances of land disposal or lease, and reviewing the future 

valuation of property and allocation of some lease revenues at VNC. However, the FAA 

disagrees with the OIG’s interpretation of certain facts at VNC with regard to the 

application of long-standing FAA policy. 

For example, although the report alleges that the City diverted lease revenue to maintain 

the municipal fishing pier, the FAA neither knows of any investment of airport account 

funds into the construction or maintenance of the Venice Fishing Pier, nor does the report 

provide any evidence of such investment. Further, the OIG report asserts that the airport 

should have received more gross receipts proceeds, in addition to FMV rent, from a 

restaurant/bar/bait shop concession at the Venice Fishing Pier on and adjacent to airport 

property. The FAA believes that this conclusion may be based upon a misinterpretation 

of FAA policy. Specifically, the airport account is not required under FAA’s Policy and 

Procedures Concerning the Use of Airport Revenues (Revenue Use Policy) to collect 

both FMV rent and a percentage of gross revenue. 

RECOMMENDATIONS AND RESPONSES

OIG Recommendation 1. Strengthen Agency policy to ensure that transfers of airport 

property acquired through Federal assistance are based on independent certified 

appraisals performed within 6 to 12 months of the transfer and reviewed by an 

independent real estate professional, especially when the parcel is unusual or the 

transfer is between an airport and its sponsor. 

FAA Response: Concur. The FAA is working to refine appraisal requirements for land 

sales and transfers. We recognize that the market value of land is “as-of a specific date of 

a sale,” and as a result of an “arms length” transaction and meeting other FMV criteria. 

Comparable land sales are adjusted for changed market conditions from the sale date of a

 38 This is also the standard for revenue retention requirements under the Revenue Use Policy, Sections VI and VII. 
Appendix. Agency Comments

4

property in the past to the date of value of the appraisal. For example, more recent sales 

prices provide more reliable indicators of actual market value. 

For internal land transfers between the airport and agencies of the airport owner, the 

FAA is considering requiring all applicants to set a settlement date and to set the sales 

price based on a current appraisal (and appraisal review as needed) with a date of value 

within 6 to 12 months of the proposed transfer date. The setting of a reasonable 

settlement date will assist the FAA and airport sponsors to better manage the many 

transactions of smaller monetary value. FAA intends to complete a draft of its revised 

requirements by February 28, 2012.

OIG Recommendation 2. Require the City to complete the independent review 

appraisal of the property used by the Sharkey’s restaurant if sold, and any subsequent 

transfers of airport property. 

FAA Response: Concur. The FAA requested a review appraisal based upon the 

agency’s 2009 land use inspection and received a review appraisal from the City dated 

April 13, 2011. The FAA is reviewing the appraisal, but has not received an application 

for release, sale and disposal of the Sharkey’s on the Pier parcel. The FAA agrees that 

the Sharkey’s on the Pier parcel should be priced at FMV if sold to the City’s Pier Fund 

or sold to Sharkey’s on the Pier leaseholder.

OIG Recommendation 3. Assess the revenue diversions or self-sustainability issues 

involving the distribution of Sharkey’s lease revenue and parking lot renovation costs 

and seek full recovery as necessary, plus interest of the $493,070 in questioned costs 

identified by our office (see exhibit B) and any other improperly allocated revenue 

identified by FAA. 

FAA Response: Partially Concur. The FAA concurs that it should further assess the 

questions of revenue diversion and/or self-sustainability involving the Sharkey’s on the Pier

parcel lease arrangement on the margins. However, the FAA does not accept the OIG 

report’s interpretation of FAA policy or its allocation of the Sharkey’s on the Pier parcel’s 

costs and revenues cited in the draft report.

The FAA disagrees with the OIG report’s specific finding that the airport should have 

received more of Sharkey’s on the Pier gross receipts proceeds in addition to FMV rent. 

The airport account is not required under FAA’s Revenue Use Policy to collect both

FMV rent and a percentage of gross revenue. Accordingly, the FAA concludes that an 

airport sponsor is compliant with the Revenue Use Policy and Federal law if it 

demonstrably receives no less than FMV for assets duly attributed to the airport account. 

[See Revenue Use Policy, Section VII.]

Commonly, rent structures for retail concessions can be either FMV rent or a minimum 

annual guarantee (MAG) with a percentage rent based upon sales volume. In the former, 

the landlord’s role is passive and the transaction is based strictly on the use of property, 

with the landlord assuming no risk. The landlord receives FMV rent whether the business

is successful or a failure. In the latter, percentage rents with MAGs provide for revenue 
Appendix. Agency Comments

5

sharing, and the landlord’s rent is based upon the concessionaire’s ability to generate 

sales volume and grow the business. Landlords tend to set MAGs at a lower level than 

FMV rent, with an initial objective of covering the property’s costs. By setting a low 

MAG, the landlord expects to participate in the concessionaire’s success as sales volume 

increases and the business grows. Conversely, if the concessionaire is unsuccessful, the 

landlord bears the financial risk and the potential loss of revenue. 

While some airports may have the expertise to manage this type of risk, many clearly do 

not. Therefore, it is longstanding FAA policy that airport development is better served by 

requiring, at minimum, the use of the less financially risky FMV rent-based approach. 

This arrangement allows airports to focus on the management and development of the 

airport business and avoiding exposure to non-aviation businesses. The FAA does 

recognize, in the case of VNC, that the airport is receiving FMV rent and shares in some 

additional revenue generated by Sharkey’s on the Pier. However, the FAA does not 

agree that the Revenue Use Policy requires that airports receive both FMV rent and a 

percentage of gross receipts.

Figure 2 Access to the fishing pier is integrated into Sharkey's on the Pier's leasehold.

We are concerned about the implications of the OIG’s argument that all rents for the use 

of non-aeronautical airport property, accruing to the airport owner in its role as operator 

of a municipal enterprise, should be considered airport revenue. Based upon the OIG’s 

premise, airport sponsors could no longer lease land to other municipal enterprise 

departments without assuming an additional burden for the operation of that business. 

Such an undertaking would require airport managers to develop or hire personnel with 

expertise in operating convention centers, animal shelters, golf courses, wastewater 

treatment plants, etc.

The FAA does not believe that the airport should pay for any of the parking lot 

renovations because airport revenue should not be used to support the capital or operating 

costs associated with a non-aviation use of airport property. As such, FAA will seek 

reimbursement to the airport account of all airport revenue invested in the parking lot. 
Appendix. Agency Comments

6

Since the airport account is receiving a set rent, with escalators, based on FMV, it should 

not be burdened with investments that serve to increase the gross receipts of the 

Sharkey’s on the Pier concession and the pier itself. The city, through its Pier Fund, is 

building, operating, and maintaining the pier. The City is taking the risk of the relative 

success of the pier concession as part and parcel of the pier operation. 

OIG Recommendation 4. Work with the City of Venice to develop an appropriate 

allocation of future rent revenue from Sharkey’s over the remaining term of the lease and 

the cost of subsequent capital investment such as parking lot renovations, that protects 

the self-sustainability of the airport. 

FAA Response: Concur. The FAA has determined that the best strategy for VNC is to 

avoid all costs associated with the one-acre parcel Sharkey’s on the Pier Parcel, allowing 

the Pier Fund to absorb the cost and risk of financing non-airport related capital 

improvements, including the capital and operating costs of the pier site. Requiring that 

airport managers be involved in managing all enterprises, no matter how unrelated to 

aviation, or how capital intensive, is not sound Federal policy for airports. Allowing the 

Pier Fund to finance and operate the pier and to collect some gross receipts rent from 

Sharkey’s on the Pier as the sole concessionaire for the pier is a reasonable financial 

arrangement that is in accord with FAA policy. This structure requires the concessionaire 

to contribute to the costs of providing the attraction (fishing pier). However, this option 

should reflect FMV for airport property, and it should not assess capital costs to the 

airport account for improvements that assist the revenue potential of the pier concession. 

OIG Recommendation 5. Assess the adequacy of the Agency’s policies and procedures 

for overseeing the transfer or lease of large or unusual airport properties to ensure that 

sponsor agreements are fair and equitable and protect the airport’s self-sustainability. 

FAA Response: Concur. The FAA acknowledges that the disposal or lease of large, 

complex or unusual parcels are worthy of careful consideration. Therefore, in 

conjunction with the FAA’s review and redrafting of internal guidance on best practices 

with regard to the valuation of closed and replaced airport property that necessarily 

involves relatively large parcels (entire closed airports), the FAA is assessing its 

practices. This guidance will address when to require a second appraisal for this kind of 

large, complex and/or unusual disposal. FAA anticipates completing a draft of internal 

guidance for review by February 28, 2012. Further, the FAA is considering adopting 

standard procedures for related matters including a schedule for required appraisals, 

establishment of a settlement date for transactions between the sponsor and itself, and a 

standard memorandum of agreement to review the timeline for the appraisal, the transfer, 

and for verified financial payments to the airport account.

However, for smaller transactions, such as the subject of the draft report, additional 

scrutiny may prove difficult to justify on a cost/benefit basis. While the circumstances 

surrounding the VNC are particularly unique, in light of its location near the beach, from 

a system-wide perspective, FAA has in place the types of controls including on-site 

financial reviews of commercial service airports that are sufficient to ensure that nonairport use of airport property affords the airport fund FMV compensation in accord with 
Appendix. Agency Comments

7

FAA policy. Based upon the available information, the type of situation at VNC is 

insufficient, in and of itself, to justify any significant increase in oversight, or a 

significant revision of policy considering finite airport oversight resources. 

During the course of the audit, we met with the OIG audit team to convey our concerns 

from a legal and programmatic basis. We appreciate the OIG’s consideration and 

participation in those meetings and are grateful for those areas where these efforts helped 

to achieve a consensus.