FAA DID NOT ENSURE REVENUE WAS 

MAXIMIZED AT

DENVER INTERNATIONAL AIRPORT

Federal Aviation Administration

Report Number: AV-2011-057

Date Issued: February 28, 2011
U.S. Department of

Memorandum

Transportation

Office of the Secretary

of Transportation

Office of Inspector General

Subject: ACTION: FAA Did Not Ensure That

Revenue Was Maximized at

Denver International Airport 

Federal Aviation Administration

Report Number AV-2011-057

Date: February 28, 2011

From: Jeffrey B. Guzzetti

Assistant Inspector General

 for Aviation and Special Program Audits

Reply to 

Attn. of: JA-10

To: Federal Aviation Administrator

Federal law1 requires that airport sponsors receiving Federal grant funds establish

an airport facility fee and rental structure2 to make the airport as self-sustaining as 

possible. Also, sponsors must use airport revenues only for airport capital and 

operating costs. Use of airport revenue contrary to Federal law is a revenue 

diversion. Since 1991, the Office of Inspector General has identified over 

$375 million in airport revenues that airport sponsors improperly used or did not 

collect. In 1999,

3

For fiscal years 2006 through 2008, the Federal Aviation Administration (FAA)

awarded the Denver airport sponsor $40.5 million in Airport Improvement 

Program (AIP) grants. In fiscal year 2009, the airport was awarded $12 million in 

American Recovery and Reinvestment Act funding. The objective of this review 

was to assess the effectiveness of FAA’s oversight in ensuring (1) the airport is as 

self-sustaining as possible and obtains fair market value for land sales and (2) the 

sponsor uses airport revenues only for airport purposes in accordance with Federal 

law. These revenues include those from the sale of the Stapleton International 

Airport (Stapleton) property. The Stapleton airport was closed and replaced by the 

Denver airport in February 1995. We conducted this review between July 2008 

we identified over $2.4 million in diversions and uncollected 

airport revenues at Denver International Airport. 

 1 The Airport and Airway Improvement Act of 1982, as amended and codified in Title 49 United States Code Section 

47107(b). 2 Airports can charge landing fees, rental charges, and other service fees for use of airport facilities. 3 OIG Report Number AV-1999-052, “Use of Airport Revenue, Denver International Airport,” January 27, 1999. 

OIG reports are available on our website at www.oig.dot.gov.
2

and November 2010 in accordance with generally accepted government auditing 

standards prescribed by the Comptroller General of the United States. Exhibit A 

details our objectives, scope and methodology, and related audits. Exhibit B lists 

the stakeholders visited or contacted. 

RESULTS IN BRIEF

While FAA is responsible for the effective oversight of airport revenues, it has 

allowed the City’s property manager to dispose of Stapleton land at an estimated 

loss of at least $71 million in revenue that would have greatly increased the 

airport’s self-sustainability. FAA grant agreements, Federal law, and a Stipulated 

Agreement between the City and airlines4 require fair market value for Stapleton 

property. However, FAA allowed the purchase price of land parcels to be 

determined based on appraised values established in 1999,5

FAA oversight was not effective in ensuring proper use of airport revenues. 

Specifically, the 1999 appraisal reduced the Stapleton land value by more than 

50 percent to offset (1) district fees

despite evidence of 

increasing property values. If the parcels had been sold for their fair market value 

at the time of transfer the City’s property manager would have received 

considerably more for each sale. For example, in 2004, the City’s property 

manager provided one parcel to the developer for $385,684 even though the land 

was actually worth $3 million according to the deed issued at the time.

6

 4 In 2000, the City and airlines entered into an agreement stipulating terms for the disposition of Stapleton. The 

Stipulated Agreement contains provisions requiring fair market value according to Federal law. Signatory airlines to 

the Stipulated Agreement included American Airlines, American Trans Air, Continental Airlines, Delta Air Lines, 

Federal Express Corporation, Northwest Airlines, Trans World Airlines, United Air Lines, and US Airways.

that the developer agreed to pay for 

redevelopment and (2) funding the City anticipated it would need to build 

infrastructure, which the developer agreed to cover up front with reimbursement 

plus 10 percent interest. By reducing the land value, the City, in effect, diverted 

airport revenue to fund redevelopment, parks, and infrastructure—a federally 

prohibited non-airport purpose. We estimate that $40.5 million of the $71 million 

in lost revenue was the result of diverted funds from Stapleton property sales for 

non-airport purposes. While FAA questioned the appropriateness of the 

reductions, it accepted the appraisal. This contradicted FAA grant conditions 

requiring that revenues from land sales be used to pay Denver airport’s 

outstanding bond debt, which was approximately $4.1 billion in 2009. 

5 The appraisal report was issued in 2000 by the City’s appraiser, but the appraisal determined the value of Stapleton 

land as of December 1999. We refer to the appraisal as the 1999 appraisal in this report. 6 These fees are known as “impact fees” paid to a Title 32 district. This is a special district (created pursuant to 

Title 32 of the Colorado Revised Statutes) for the purpose of funding and carrying out the design, development, 

construction, and maintenance of the infrastructure.
3

We are recommending that FAA redirect its oversight and take specific actions to 

ensure the Denver airport receives fair market value for Stapleton property, is 

reimbursed for lost revenue, and uses revenue in accordance with Federal law. 

BACKGROUND 

On February 28, 1995, Stapleton International Airport closed due to capacity 

constraints and was replaced by the Denver International Airport. With the 

closure of Stapleton, the City was charged with disposing of more than 4,000 acres 

of land by either redeveloping the site or having a bulk land and improvements 

sale. The City chose to redevelop the property. The City began planning for 

Stapleton’s redevelopment in the late 1980s and finalized its Stapleton 

Development Plan in March 1995. The plan provides for a 30- to 40-year 

conversion of the property to a series of mixed-use communities connected by an 

extensive system of open space and transportation improvements. To facilitate the 

disposal and redevelopment of the Stapleton site, the plan recommended that the 

city create a non-profit entity to provide management, sales, leasing, and 

contracting functions. In July 1995, the City created the Stapleton Development 

Corporation (SDC) to fill this role.

In 1998, SDC selected Forest City Enterprises as master developer for the project, 

awarding it the exclusive right to negotiate the purchase of Stapleton property. 

Under SDC’s written agreement with the City, SDC is selling Stapleton property 

at the 1999 baseline appraisal value, adjusted every 6 months using the Consumer 

Price Index (CPI).7

Generally, Forest City acquires the property, installs the infrastructure, and then 

sells it to a homebuilder or commercial developer. In addition to the 

2,935 developable acres, 1,116 acres will be converted into parks and open space. 

Forest City is not responsible for developing the parks and open space; instead, it 

provides the funding for this development through payment of an impact fee to a 

Title 32 district, which was created to fund and carry out the design, development, 

construction, and maintenance of infrastructure. 

 Since 2001, Forest City has acquired more than 1,400 of the 

total 2,935 developable acres. Forest City has until December 2025 to obtain the 

remaining developable property.

The redevelopment of Stapleton was not without controversy. In 1995, the airlines 

filed a formal complaint with FAA alleging the City intended to divert millions of 

airport revenue to finance Stapleton’s redevelopment. Subsequently, the City filed 

suit to require three airlines—United, Delta, and Continental—to remediate 

environmental contamination of Stapleton property. In 2000, to resolve these 

issues, the City and airlines entered into an agreement stipulating terms for the 

 7 The Consumer Price Index is developed by the U.S. Department of Labor’s Bureau of Labor Statistics.
4

disposition of Stapleton (Stipulated Agreement). The City and airlines agreed that 

Stapleton remediation would be paid for with $15 million from the three airlines 

named in the City’s suits and $105 million from airport revenues. Upon execution 

of the Stipulated Agreement, the City and the airlines jointly moved to dismiss the 

complaint before FAA. FAA then dismissed the complaint. Table 1 shows an 

abbreviated timeline of events associated with land sales at Stapleton (see 

exhibit C for a more expansive timeline).

Table 1. Timeline of Major Events

Event Date

Stapleton International Airport closes and Denver International 

Airport opens.

February 1995

City finalizes Stapleton Redevelopment Plan March 1995

City creates SDC July 1995

Forest City selected as Master Developer for Stapleton November 1998

Effective date of Stipulated Agreement between Airlines and the 

City which set terms and conditions for using airport revenue for 

disposal of Stapleton land

January 1999

Stapleton appraisal performed 

(valuing the land as of December 1999)

January 2000

FAA accepts the appraisal April 2000

First sale of property from SDC to Forest City April 2001

Source: OIG analysis of various airport, City, and FAA documents.

FAA DID NOT ENSURE OPTIMAL VALUE WAS OBTAINED FOR 

STAPLETON PROPERTY 

We estimate that the Denver airport has lost at least $71 million in revenues due to 

ineffective FAA oversight of the Stapleton disposition. Even though the City 

planned to transfer the property and receive payment over a 25-year period, FAA 

allowed the City to sell Stapleton property based on values established in a 1999 

appraisal without the option to take advantage of any potential increases in real 

estate prices. Despite indications that prices on land parcels did not represent their 

true value, FAA has not revisited how the Stapleton land is priced. Property tax 

assessments, Stapleton sales transactions, and sales of comparable properties have 

shown that the appraisal significantly underestimated Stapleton land appreciation. 

FAA Did Not Exercise Effective Oversight of Land Sales, Resulting in 

Lost Airport Revenue

FAA’s ineffective oversight allowed Stapleton land to be sold for less than fair 

market value. This is despite multiple Federal requirements, legal agreement 

provisions, and FAA guidance that applied to the Stapleton land disposition. 

Specifically:
5

• Grant agreements between the City and the FAA require that the City should 

dispose of all Stapleton International Airport property at fair market value. 

• Federal law (Public Law 100-223, 1987) requires that the City receive fair 

market value for the sale of Stapleton property. 

• The Stipulated Agreement between the City and the Airlines requires, “that the 

sale of Stapleton property shall be for not less than the appraised fair market 

value, including any price adjustment mechanism....” Although FAA is not a 

party to the Stipulated Agreement and not legally bound to enforce it, FAA 

stated that it used the agreement to guide its efforts in place of its own policies

in overseeing the disposition of Stapleton. FAA regional policy8

• FAA Order 5190.6A, or the FAA Airport Compliance Requirements dated 

October 2, 1989, provides guidance to FAA personnel to ensure airport 

sponsors’ compliance with Federal obligations such as grant assurances and 

other Federal law. The FAA Order stated that the sponsor will dispose of land 

at fair market value when no longer needed for airport purposes. 

was 

developed early in Stapleton’s redevelopment and disposition timeline in 

anticipation of the high visibility of the redevelopment project. The policy 

outlined the roles and responsibilities of the FAA Airport District Office and 

reiterated the requirements set forth in the grant agreements relating 

specifically to Stapleton. The policy states that the grant assurances require 

Stapleton to be disposed of at the fair market value and charges the Airport 

District Office with ensuring this is done.

In September 2009, FAA revised its Order which now states that 

“. . . the airport account must receive fair market value (FMV) compensation 

for all deletions of airport real property from the airport . . . even if the sponsor 

does not sell the property or sells the property below fair market value.” Thus, 

even if the City, as airport sponsor, does not receive fair market value from the 

sale of Stapleton land to the developer, the City should provide fair market 

value to the Denver airport (the current airport account). The City does not 

have to modify its agreements with the developer in order to pay the airport 

fair market value.

Although many definitions of fair market value exist, the one used by the City’s 

appraiser for Stapleton defined it as:

the most probable price which a property should bring in a 

competitive and open market under all conditions requisite to a fair 

 8 Compliance Policy 95-04 was the initial version of the policy that was issued in July 1995 but was later updated and 

replaced by Compliance Policy 99-02 in April 1999.
6

sale, the buyer and seller each acting prudently and knowledgeably, 

and assuming the price is not affected by undue stimulus. Implicit in 

this definition is that the consummation of a sale is at a specified date 

and the passing of title from seller to buyer.9

All of Stapleton’s property was last appraised in 1999 after SDC selected Forest 

City Enterprises as its development partner. As directed by the airport, the

company that appraised Stapleton land applied questionable deductions that 

reduced the value of the entire Stapleton property of 4,051 acres (2,935 acres of 

developable land and 1,116 acres of open space) by more than 50 percent—from 

$162 million to $76 million—and affected the Denver airport’s ability to collect 

the revenue it should have from the land sales. For this reason, we do not believe 

that the 1999 appraisal represents true fair market value. The property was then 

divided up into districts based on “highest and best use” (i.e., industrial, 

commercial, retail, and residential) with different appraised values per acre for 

each district. 

Because FAA accepted the 1999 appraisal of Stapleton and did not enforce the 

above requirements, the price Forest City paid for the property was still well 

below fair market value. For example, on January 30, 2004, Forest City obtained

a 10.65-acre land parcel for $385,694. The price was calculated using the 

December 1999 baseline value plus the applicable CPI adjustment (for this parcel, 

11.4 percent). We compared the price that Forest City paid for the parcel and the 

actual fair market value recorded in the 2004 warranty deed and found that the 

parcel was actually worth $3 million—or 678 percent more than what Forest City 

paid (see figure below). 

 9 This definition is contained in Federal Register Volume 55, No. 163, or “Title XI of the Federal Financial 

Institutions Reform, Recovery, and Enforcement Act of 1989.”
7

Figure. Example of a Parcel of Stapleton Property

Purchased Well Below the Fair Market Value

Source: OIG analysis of December 17, 1999, appraisal and January 30, 2004, land sale and warranty deed.

Since 1999 the City Has Not Received Fair Market Value for the Sales 

of Stapleton Property 

FAA’s oversight of Stapleton property focused on monitoring land sales to ensure 

that land parcels were not sold twice and did not include any determination of 

whether the airport received fair market value for the property. As agreed to with 

the City, SDC has sold the Stapleton property at the 1999 baseline appraisal value, 

adjusted every 6 months using the CPI. When the Purchase Agreement between 

Forest City and SDC was amended in February 2000, no adequate mechanism was 

included to consider the likely increases in real estate values over time. While 

adjustments based on the CPI reflect changes in the value of a dollar, they neither 

accurately indicate price swings in real estate nor represent fair market value. The 

CPI simply measures the changes in the price of goods and services purchased for 

consumption by urban households but does not include real estate.

Also, officials in the City’s Assessors Office stated that the CPI had not kept up 

with the appreciation values of Stapleton’s property based on the Office’s property 

tax assessments of Stapleton land. Airport officials contend that this fixed-price 

structure, based on the 1999 appraisal, was necessary to sell the land because a 

redevelopment of this magnitude was unprecedented and presented “high risk” to 

the airport. While we agree that there were risks involved in redeveloping 

Stapleton, we would not characterize the redevelopment as unprecedented or high 

risk for the following reasons:

• First, a development the size of Stapleton is not unprecedented. Since the first 

Base Realignment and Closure in 1988, military installations transferred to 

local governments have undergone redevelopments the size and scope of 

 $3,000,000

 $346,125 $385,694

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

 Value per Appraisal

 December 17, 1999 

Forest City Purchase Price

January 30, 2004

 Fair Market Value

 Per Warranty Deed

 January 30, 2004

 
8

Stapleton. For example, Mather Air Force Base, a 5,700 acre plus piece of 

property located 12 miles east of downtown Sacramento, CA, was closed in 

1993 and transferred to the County of Sacramento in 1996 and has since 

become a thriving cargo airport, commerce center, and upscale residential area 

and parklands. A few years later, McClellan Air Force Base, a nearly 3,500-

acre piece of property also located about 12 miles from downtown Sacramento, 

was closed in 2001 and has since become a vibrant mixed-use redevelopment 

area.

• Second, Stapleton is in a prime location in Denver’s metropolitan area, and 

early in Stapleton’s development timeline (before SDC began managing the 

redevelopment) there were indications that Stapleton’s value would appreciate 

significantly. For example, the first sale of Stapleton property occurred in 

March 1995; approximately 28 acres were sold for $350,000, and the 

purchaser immediately resold 18.6 acres for $410,000. We spoke with realtors 

who all agreed that the first sale is the most difficult, but the value of 

subsequent sales would increase with demand. 

• Third, the potential for increased value was also evident when SDC began 

accepting proposals to find a master developer for the property. SDC received 

interest from 20 companies and 11 formal proposals, suggesting that the 

rewards of Stapleton redevelopment were considered worth the risk. 

• Fourth, all of Forest City’s trunk infrastructure costs10

• Finally, the Stapleton developer, Forest City, has continually resold land 

parcels for significantly more than it paid to SDC. For example, from April 

2001 to May 2008, SDC provided 1,416 acres to Forest City for $45.6 million. 

After building the infrastructure, Forest City resold only a portion of these 

1,416 acres for more than $300 million during the same period. Although 

infrastructure added value to the land, it does not justify the disparity between 

for Stapleton have been 

reimbursed, with 10-percent interest, by the City, relieving Forest City of the 

biggest risk it would face with a redevelopment of this size—not being able to 

recoup the cost of infrastructure through future sales of developed property. In 

effect, Forest City is rewarded twice under this arrangement: first, by paying a 

reduced price for the property based on the expectation that it would pay for 

the funding shortfall and second, by the City absorbing all trunk infrastructure

costs. The only remaining risk to Forest City was to sell its property, which it 

has been successful in doing. 

 10 Forest City constructed “trunk infrastructure,” which is defined as improvements that are constructed and installed 

over multiple land parcels. Examples of trunk infrastructure include public schools, police stations, water 

distribution lines, and storm water collection lines.
9

the sales price to Forest City and the amount that Forest City received through 

re-sale of the property. 

Yet, despite all of these indications that Stapleton land was being disposed of for 

less than its value, FAA did not ensure maximum revenue for Stapleton land sales. 

Table 2 below shows the disparity between the purchase price of Stapleton land 

and the comparable value of undeveloped land in the Denver metropolitan area 

between April 2001 and August 2008.11

Table 2. Stapleton Land Sales vs. Comparable Land Sales

Year 

Number of 

Stapleton Acres 

Transferred to 

Developer 

Value of 

Comparable 

Property

Stapleton

Purchase 

Price

Revenue Lost 

On Stapleton 

Land 

2008 45.4 $4,575,804 $1,045,034 ($3,530,769)

2007 107.9 $15,918,545 $3,059,155 ($12,859,390)

2006 124.3 $9,009,765 $3,354,047 ($5,655,719)

2005 47.6 $8,303,295 $1,721,529 ($6,581,766)

2004 317.7 $39,523,087 $10,041,864 ($29,481,224)

2003 215.9 $17,774,592 $7,270,196 ($10,504,396)

2002 16.5 $2,866,277 $583,910 ($2,282,367)

2001 75.0 $1,667,167 $1,800,372 $133,205 

Totals 950.4 $99,638,532 $28,876,107 ($70,762,425)

Source: OIG analysis of Stapleton property sales to Forest City and comparable property sales 

provided by an independent Denver metropolitan area consultant specializing in real estate 

development. 

Our estimate of lost revenue shown in the table is for only 950 of the 1,400 acres 

sold to the developer below fair market value. Therefore, we estimate that the 

total dollar amount of lost revenue, as of August 2008, actually exceeds

$71 million (see exhibit D for full analysis of lost revenue as a result of sales 

below fair market value). Specifically, using the City’s price structure 

(1999 appraisal price plus the CPI adjustment), sales of the entire 2,935 acres of 

developable Stapleton property would have amounted to $91 million in August 

2008. Yet, the comparable property sales information we obtained for only 

950 acres of the property Forest City received from April 2001 to August 2008 

showed that portion alone was worth $99.6 million.

While FAA officials state that they took steps consistent with applicable laws, 

regulations, and FAA policies, they recognize the need to reexamine how the land 

disposal was conducted and agree that there may be lessons learned. Nevertheless, 

if FAA continues to allow land to be sold pursuant to the 1999 agreement through 

2025, the airport will continue to lose tens of millions of dollars in future 

revenues.

 11 We obtained these comparables from an independent consultant, specializing in real estate development in the 

Denver metropolitan area. 
10

FAA DID NOT EFFECTIVELY OVERSEE AND ENFORCE 

SPECIFIC AIRPORT REVENUE USE REQUIREMENTS 

FAA oversight was not effective in ensuring proper use of airport revenues. 

Specifically, FAA permitted the City to reduce the value of Stapleton land by 

50 percent in the 1999 appraisal. The deductions were applied to offset impact 

fees and financing costs that the developer would pay for parks, open space, and 

infrastructure—a federally prohibited purpose for airport revenues. As a result, 

we estimate that $40.5 million was diverted from airport use to fund Stapleton’s 

redevelopment between April 2001 and May 2008.

The company that appraised the Stapleton land in 1999 was directed by the airport 

to apply the following questionable deductions to the land value. 

• Impact Fees: Per the February 2000 Purchase Agreement between Forest City 

and SDC, Forest City pays an impact fee of $15,000 per acre of developable 

land to Park Creek Metropolitan District. The district uses those funds to 

develop parks and open space. The total value of the impact fee—

$44 million—was deducted from the fair market value of the Stapleton 

property.

• Infrastructure Costs: The City anticipated a shortfall would occur in its 

infrastructure funding during the first 4 years of Stapleton’s redevelopment. 

The shortfall would be covered by developer advances in the form of loans to 

the City, for which the developer would be reimbursed plus 10 percent interest. 

Even though the City planned to reimburse the developer, the projected 

shortfall amount was still deducted from the appraised land value to offset the 

developer advances; we estimate these deductions totaled about $40 million.

To date, all developer advances have been reimbursed. (Exhibit E contains our 

calculations of deductions and the appraiser’s determination of Stapleton’s 

value as well as calculations of current and projected revenue diversions.)

FAA initially questioned the appropriateness of these deductions but still accepted 

the appraisal. The sum of the deductions from impact fees ($44 million) and 

infrastructure costs ($40 million) illustrates that if the remainder of the land is 

transferred pursuant to the agreement with Forest City, revenue diversions as a 

result of these deductions will total $84 million.

Further, the deduction for the infrastructure funding shortfall not only allows the 

City to use Stapleton revenue to develop parks and open space, which is 

prohibited, it also allows the developer to (1) obtain property at a reduced price, 

(2) earn additional revenue, and (3) resell the property for significantly more than 

it paid. The only party not benefiting from this arrangement is the Denver airport, 

which has lost millions in potential revenue on the discounted sale of Stapleton 
11

property. According to FAA grant conditions, this revenue should have been used 

to pay Denver airport’s outstanding bond debt, which was approximately 

$4.1 billion as of December 31, 2009, with a total annual debt service (principal 

and interest) of about $348.5 million. Grant conditions between the City and FAA 

that apply specifically to the Denver airport also state that Stapleton proceeds must 

be used to fund the airport’s development costs. 

Moreover, in a 1995 letter to the airport, FAA explicitly prohibited the use of 

Stapleton’s revenues to fund the redevelopment costs of parks and open space. 

FAA further advised that discussions regarding how to handle infrastructure 

investments should occur among the City and County of Denver, FAA, and the 

airlines. 

Revenue diversions had been a contentious issue between the airlines and City in

1995 and continued to be until 2000 when the airlines and City entered into the 

Stipulated Agreement. The agreement details amounts and purposes for which 

airport revenue can be expended at Stapleton and specifically addresses impact 

fees by stating that “any impact fee imposed be over and above the appraised fair 

market value, including any adjustments. [emphasis added]” According to a major 

airline’s legal counsel, who was also one of the principal authors of the Stipulated 

Agreement, the intent of this provision was to prevent any impact fee from being 

deducted from the appraised fair market value. 

In our 1999 report, we also cautioned FAA against allowing airport revenue to be 

used for Stapleton’s redevelopment. Specifically, we stated, “FAA needs to 

establish controls over the amount of Airport revenues being expended for 

Stapleton’s disposal and ensure that Airport revenues are not diverted to the 

sponsor’s urban renewal program.” In response, FAA stated it would take action 

to better monitor Denver airport revenue expenditures related to Stapleton and 

limit the use of that revenue to eligible airport costs. FAA also stated it would 

accomplish this through an agreement with the City, as sponsor, and the carriers, if 

possible. In its August 2000 follow-up letter, FAA noted that the signed 

Stipulated Agreement was “a significant step towards answering the OIG’s 

concerns about the timeliness of the disposition process and the use of airport 

funds at the Stapleton site.”

It is evident that FAA has neither strictly followed its own guidance nor ensured 

that the City abided by the Stipulated Agreement, which set clear limitations on 

the City’s use of airport revenue to develop Stapleton. 

CONCLUSION

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

airlines and airports underscore the need for vigilant oversight of revenue use. 
12

Because FAA did not effectively oversee the sale of Stapleton land, the airport has 

lost and will continue to lose revenues that could be used to reduce its reliance on 

Federal funding and lower its debt from the issuance of bonds. If these practices 

continue until the developer acquires all of the Stapleton property, airport revenue 

diversions from the deductions of land value in the 1999 appraisal will total about 

$84 million. Given the magnitude of lost revenues to the Denver airport, FAA 

should act quickly to ensure the City provides fair market value to the airport for 

the remaining Stapleton property, reimburses the airport for lost revenue, and uses 

revenue in accordance with Federal law.

RECOMMENDATIONS

We recommend that FAA’s Acting Assistant Administrator for Airports:

1. For future airport closures, require more than one appraisal, use of indices 

other than CPI, and/or other methods to determine fair market value of large 

land sales when the land is transferred from the airport sponsor to the buyer 

over an extended period of time. 

2. Evaluate the current funding of the development of parks, open space, 

infrastructure, or any other federally prohibited diversions associated with 

Denver airport revenue and take action to cease such funding.

3. Assess the revenue diversions identified in our analysis of the sale of 

Stapleton property and seek full recovery as necessary, plus interest, of those

diversions and any others identified by FAA.

4. Assess the difference between the amount that the Denver airport will 

receive from future sales of Stapleton property and the fair market value at 

the time of the sales and explore ways the City can provide the difference. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL

RESPONSE

We discussed the results of our review with FAA’s Director, Office of 

Compliance and Field Operations on May 26, 2010, and provided FAA with our 

draft report on August 3, 2010. After issuing our draft report, we met with FAA’s 

Acting Associate Administrator for Airports and staff on September 8, 2010, to 

discuss their concerns with the results of our review. Based on that meeting, we 

made changes, where appropriate, to the draft report to address FAA’s comments

and provided FAA with our revised draft report on November 28, 2010. We 

received the Agency’s formal response on January 6, 2011, which is included in 

its entirety at the appendix. FAA nonconcurred with our findings and all four 

recommendations. Therefore, we consider them as open and unresolved and 
13

request that FAA reconsider its responses to the findings and recommendations 

and provide a course of action that would meet the intent of the recommendations, 

as discussed below. 

As stated in our report, FAA allowed the City to lock into a long-term agreement 

that did not maximize airport revenue. While we acknowledge that changes in the 

real estate market cannot be predicted with certainty, the volatility of this market is 

well known. Yet, the agreement—that FAA allowed—permits the developer, not 

the airport, to reap the potential benefits of the changing market while the airport 

incurs the risks. The agreement freezes the base price for the property at 1999 

values for 25 years and provides an adjustment only for inflation with the use of 

the CPI as a price escalator. However, the CPI only measures the changes in the 

price of goods and services purchased for consumption by urban households but 

does not include real estate. Consequently, if real estate prices dramatically 

increase, as they did in Denver, the City must still sell land parcels at the 1999 

price and therefore receives far less than the fair market value at the actual time of 

sale. On the other hand, during periods where the market remains flat, the 

developer can protect itself by timing purchases over 5-year intervals. The 

agreement also benefits the developer through a reduced land price for its loans to 

the City to develop trunk infrastructure, through the City’s repayments of those 

loans plus interest, and through an additional land price reduction to offset an 

impact fee of $15,000 per acre to develop parks and open space.

We contend that FAA’s oversight was not adequate to ensure that the airport fully 

benefited from the sale of Stapleton property. We also note that while FAA 

nonconcurred with our findings and recommendations, its response indicated an 

acknowledgement that the guidance and processes regarding these types of largescale land disposals should be reexamined to maximize airport revenue.

Recommendation 1: FAA stated there was no need to require multiple appraisals 

on all future airport closures as the results could be the same as at Stapleton. FAA 

also stated that it was proper to permit the use of CPI as an escalator in 

determining the value of each parcel of Stapleton property purchased by the 

developer. In future sales of this nature, FAA stated it would evaluate which price 

escalator to use and recommend the one most appropriate depending on the 

circumstances of the disposal. 

Our recommendation did not require multiple appraisals in all cases as FAA’s 

comments suggest. The recommendation states that “more than one appraisal” is 

an option to determine fair market value but not the only option. The 

recommendation also includes “use of indices other than the CPI and/or other 

methods to determine fair market value.” Further, as stated previously, CPI does 

not measure changes in real estate prices, and we disagree that its use was 
14

appropriate to compensate for the shortcomings of an agreement that locked the 

City into a 25-year deal that froze the value of the land at 1999 prices. 

Recommendation 2: FAA states that the development of parks and open space is 

not a revenue diversion but rather a requirement under existing City ordinances 

and therefore a matter of following the law. We understand that the development 

of parks and open space is required per City ordinance and the cost should be 

borne by the project developer. However, we question the decision to reduce 

Stapleton’s fair market value, per acre, per district, to fund this development and 

conclude that by doing so $84 million in revenue that should have gone to Denver 

International Airport to pay down bond debt will instead be used to develop the 

Stapleton property.

Finally, FAA has taken liberty in how it assigns infrastructure costs (trunk 

infrastructure plus impact fees) to Forest City. FAA states Forest City is obliged 

to independently fund $294 million in infrastructure costs and, in fact, has already 

done so. We disagree. There is no question that Forest City is to pay an impact 

fee of $15,000 per acre at time of purchase or $44 million in total at the 

completion of the project. However, the fair market value of each acre was 

reduced by the same amount in the appraisal. So, in effect, the payment and 

reduction offset one another. The remaining trunk infrastructure cost is being 

funded from another source (the Denver Urban Renewal Authority), and our 

review indicated that Forest City has been reimbursed, with interest, for all 

advances. Additionally, FAA states that trunk infrastructure costs are independent 

of the $79 million purchase price of Stapleton property. We disagree. Stapleton’s 

fair market value per acre, per district was reduced by trunk infrastructure costs of 

about $84 million.

Recommendation 3: FAA states that no revenue diversions occurred as a result 

of the sale of Stapleton property and any attempt to seek full recovery of the 

diversions would be unlawful. FAA notes that it would be impractical to attempt 

to seek full recovery on the sale of Stapleton property and likened it to a seller of a 

residence asking the buyer for more money 10 years after the sale because the 

residence had increased in value. However, this scenario does not apply to 

Stapleton. Unlike a house sale, individual parcels of Stapleton property were 

transferred over time with the fair market value being determined by the 1999 

appraised value plus CPI at the time of transfer. Our analysis of comparable 

properties sold during that time as well as discussions with the City Assessors 

Office show that this pricing method did not reflect fair market value. We do not 

state in the report that the City must go back to the buyer (the developer) and ask 

for more money as FAA’s comments suggest. Rather, as FAA’s own guidance 

states, an airport sponsor is responsible for paying fair market value to an airport, 

regardless of the amount of money the airport sponsor receives from the sale of 
15

land from a buyer or developer. As stated in our report, the City does not have to 

modify its agreements with the developer in order to pay the airport fair market 

value. 

Further, FAA’s response did not address the source of the revenue diversions we 

identified. Those revenue diversions related directly to the deductions in fair 

market value of Stapleton that were applied to offset impact fees and financing 

costs that Forest City would pay for open space, parks, and infrastructure—a 

federally prohibited purpose for airport revenue. This occurred regardless of other 

comparable land sales at the time. Moreover, the Stipulated Agreement, which 

FAA maintains it conformed to, is explicit on what airport revenues can be 

expended at Stapleton and specifically addresses impact fees by stating that “any 

impact fee imposed [must] be over and above the appraised fair market value, 

including any adjustments. [emphasis added]” 

Recommendation 4: FAA states that all parties entered into the sale of Stapleton 

property based on the best information available at the time of the sale on 

February 15, 2000, and there are neither differences to explore nor any future 

compensation due from the City. We disagree. Sales of Stapleton property prior 

to the execution of the Amended and Restated Stapleton Purchase Agreement 

between SDC and Forest City clearly demonstrate that real estate values were 

increasing and would increase subsequent to the February 2000 Agreement. In 

fact, the City was aware of this condition as indicated by the example we provided 

in the report regarding the first sale of Stapleton property in 1995. This was one 

of many examples of land sales that we reviewed during our work that supports 

our analysis of fair market value. 

ACTION REQUIRED

We consider all four recommendations open and unresolved and request that FAA 

reconsider its responses to the findings and recommendations and provide a course 

of action within 30 days that would meet the intent of the recommendations.

We appreciate the courtesies and cooperation of FAA and representatives of the 

City and airport during this audit. If you have any questions concerning this 

report, please contact me at (202) 366-0500 or Scott Macey, Program Director, at 

(415) 744-0434.

#

cc: FAA Chief of Staff

Acting Associate Administrator for Airports

Anthony Williams, AAE-001

Martin Gertel, M-1
Exhibit A. Objectives, Scope, Methodology, and Prior Audit 

Coverage

16

EXHIBIT A. OBJECTIVES, SCOPE, METHODOLOGY, AND PRIOR 

AUDIT COVERAGE

We conducted this performance audit from July 2008 to November 2010 in 

accordance with generally accepted government auditing standards prescribed by 

the Comptroller General of the United States. The audit steps were designed and 

completed to provide reasonable assurance of detecting abuse or illegal acts. 

Objective:

The objective of this review was to assess the effectiveness of FAA’s oversight in 

ensuring (1) the airport is as self-sustaining as possible and obtains fair market 

value for land sales and (2) the sponsor uses airport revenues only for airport 

purposes in accordance with Federal law. These revenues include those from the 

sale of the Stapleton International Airport (Stapleton) property.

Scope and Methodology:

To achieve our audit objective, we reviewed Denver International Airport 

transactions. Those transactions also included the transactions resulting from the 

disposition of Stapleton International Airport (Stapleton), which was closed and 

replaced by the Denver International Airport on February 28, 1995. Specifically, 

the audit team:

1) Identified and analyzed the laws and regulations regarding proper use of 

airport revenue, airport disposal, and fair market value concepts. 

2) Obtained and analyzed key legal documentation, contracts, appraisal reports, 

and other correspondence and documentation pertaining to the Stapleton 

redevelopment and disposition. 

3) Interviewed the FAA Airport District Office personnel, FAA Headquarters 

personnel, Denver airport accounting and legal staff, City & County of 

Denver personnel, local Denver real estate experts, and airline trade groups. 

4) Toured the Denver airport property to identify companies with

non-aeronautical leases at the airport. Of the 20 entities identified, we 

randomly selected 9 entities with such leases as of July 2008 and reviewed 

each lease to determine whether the airport was receiving fair rental value. 

5) Reviewed and analyzed all Stapleton property sales that occurred from 

March 1995 through August 2008. We conducted an analysis of Stapleton 

property sales to Forest City and comparable property sales between April 

2001 and August 2008 provided by an independent consultant who 
Exhibit A. Objectives, Scope, Methodology, and Prior Audit 

Coverage

17

specializes in real estate development in the Denver metropolitan area. Of 

the approximately 1,400 acres of land sold between April 2001 and August 

2008, the consultant provided us comparable unimproved land sales 

corresponding to 950 acres of Stapleton land sales that we used to make our 

comparison. In order to make a direct comparison between Stapleton and the 

comparables, we chose only those sales of unimproved land.

6) Conducted transaction testing of select payments of shared services between 

the City and County of Denver and the airport for 2006, 2007, and 2008. We 

selected 10 of 14 departments to review, generally including those 

departments with larger dollar payments. Of the more than $82 million in 

payments from 2006 through 2008, the payments we selected for review 

totaled more than $49 million.

7) Conducted testing of selected cost items allocated to the Denver airport per 

the City’s 2006 cost allocation plan. We examined the following cost 

categories: Legal Services, Auditors Office, Career Service Training, Small 

Business Opportunities, Public Works (Fleet Maintenance), Technology 

Services, Central Services (Office Services), Police Department, and Fire 

Department. We selected these categories to review for the following 

reasons: (1) 100 percent of the costs were allocated to the airport; 

(2) payments for direct costs were used to offset indirect costs; and/or 

(3) direct costs were not captured to show how they were offsetting indirect 

costs. Of the $36.1 million allocated to the airport per the cost allocation plan, 

we examined over $32 million of these costs.

8) Reviewed the working papers of the CPA firm, BKD, LLP, for their coverage 

of the Denver airport in the 2006 and 2007 single audit. 

Prior Audit Coverage:

Office of Inspector General Report AV-1999-052, “Use of Airport Revenue, 

Denver International Airport,” January 27, 1999. This report found that the 

sponsor (1) used airport revenues to develop Stapleton property beyond that 

necessary to dispose of the property, (2) used airport revenues for prohibited 

purposes, and (3) did not maintain a fee and rental structure sufficient to make the 

airport as self-sustaining as possible. All of our recommendations were closed by 

November 29, 2000.
18

Exhibit B. Stakeholders Visited or Contacted

EXHIBIT B. STAKEHOLDERS VISITED OR CONTACTED

FAA

• FAA Headquarters, Washington, DC 

• Northwest-Mountain Region 

• Airport District Office, Denver, Colorado 

City and County of Denver

• Department of Law 

• Assessor’s Office 

• Stapleton Development Corporation 

Denver Airport

• Department of Law 

• Internal Audit 

• Division of Business and Technology

Denver Real Estate Groups 

• Transwestern 

• Bowes & Company 

Industry/Airline Groups

• Air Transport Association 

• Denver Airport Airlines Affairs Committee 
19

Exhibit C. Timeline of Significant Events and Documents

EXHIBIT C. TIMELINE OF SIGNIFICANT EVENTS AND DOCUMENTS
20

Exhibit D. Amount of Lost Revenue From the Disposition of 

Stapleton Property for Less Than Fair Market Value, April 2001 

Through August 2008

EXHIBIT D. AMOUNT OF LOST REVENUE FROM THE 

DISPOSITION OF STAPLETON PROPERTY FOR LESS THAN 

FAIR MARKET VALUE, APRIL 2001 THROUGH AUGUST 2008 

YEAR LAND 

TRANSFERRED 

TO 

DEVELOPER

(Stapleton)

COST PER ACRE

Stapleton Comparable

COST PER ACRE 

DIFFERENCE

(Stapleton Price minus

Comparable Price)

REVENUE LOST ON 

STAPLETON PARCEL

ACRES 

SOLD 

(Stapleton)

2008 $17,961 $42,708 ($24,747) ($261,328) 10.56

2008 $27,540 $52,569 ($25,029) ($359,542) 14.365

2008 $27,366 $150,214 ($122,848) ($1,216,318) 9.901

2008 $17,847 $177,936 ($160,089) ($1,693,582) 10.579

2007 $38,669 $116,000 ($77,331) ($309,324) 4

2007 $27,366 $142,727 ($115,361) ($647,983) 5.617

2007 $38,669 $181,347 ($142,678) ($177,063) 1.241

2007 $27,366 $83,273 ($55,907) ($3,134,258) 56.062

2007 $27,057 $366,013 ($338,956) ($1,272,780) 3.755

2007 $27,057 $380,000 ($352,943) ($1,953,187) 5.534

2007 $37,734 $80,048 ($42,314) ($273,814) 6.471

2007 $26,704 $228,687 ($201,983) ($5,090,982) 25.205

2006 $37,338 $285,395 ($248,057) ($2,212,420) 8.919

2006 $26,421 $64,725 ($38,304) ($463,249) 12.094

2006 $26,421 $130,679 ($104,258) ($727,304) 6.976

2006 $37,334 $197,378 ($160,044) ($252,709) 1.579

2006 $25,940 $47,045 ($21,105) ($2,000,036) 94.766

2005 $36,655 $228,681 ($192,026) ($1,153,692) 6.008

2005 $25,940 $154,640 ($128,700) ($284,774) 2.2127

2005 $25,940 $130,000 ($104,060) ($313,012) 3.008

2005 $36,655 $188,193 ($151,538) ($4,616,454) 30.464

2005 $42,134 $78,285 ($36,151) ($213,833) 5.915

2004 $36,036 $89,501 ($53,465) ($763,106) 14.273

2004 $42,279 $47,000 ($4,721) ($15,046) 3.187

2004 $42,143 $73,169 ($31,026) ($2,871,363) 92.547

2004 $16,549 $7,789 $8,760 $211,405 24.133

2004 $16,549 $43,328 ($26,779) ($612,061) 22.856

2004 $16,535 $86,108 ($69,573) ($2,163,999) 31.104

2004 $16,715 $439,270 ($422,555) ($21,217,332) 50.212

2004 $42,344 $68,165 ($25,821) ($2,049,723) 79.382

2003 $36,215 $50,014 ($13,799) ($433,744) 31.433

2003 $25,276 $455,466 ($430,190) ($7,297,743) 16.964

2003 $25,276 $162,602 ($137,326) ($2,310,373) 16.824

2003 $25,769 $33,229 ($7,460) ($240,891) 32.291

2003 $41,760 $42,000 ($240) ($8,615) 35.894

2003 $35,716 $38,298 ($2,582) ($213,030) 82.506

2002 $35,576 $174,892 ($139,316) ($977,998) 7.02

2002 $35,117 $172,191 ($137,074) ($1,304,369) 9.5158

2001 $24,004 $22,228 $1,776 $133,205 75.003

REVENUE LOST ON STAPLETON SALES ($70,762,425)
Exhibit E. Deductions from Stapleton Land Value and Airport Revenue 

Diversions

21

EXHIBIT E. DEDUCTIONS FROM STAPLETON LAND VALUE AND 

AIRPORT REVENUE DIVERSIONS

The final appraised value of Stapleton was derived by using questionable deductions that 

decreased the fair market value by more than 50 percent. Table E-1 below shows the two 

different approaches the appraiser used to calculate the value of Stapleton land. The 

sales comparison approach is based on sales of comparable properties, and the 

development approach uses future cash flows (i.e., estimated revenues and expenses 

generated by the development) to determine the property value. 

With both approaches, the land value was about $162 million prior to deductions for 

impact fees and infrastructure costs. After the deductions were taken, the appraiser 

concluded the final value of the land was $76 million. In both valuation approaches, at 

least $84 million was subtracted from Stapleton’s value.

Table E-1. Calculation of Deductions and

Appraiser’s Determination of Stapleton’s Value

Adjustments Sales Comparison 

Approach

Development Approach

Fair Market Value $162,000,000 $161,500,000

Less: Impact Fee

Infrastructure

Total Adjustments

($44,000,000)

($45,000,000)

($89,000,000)

($44,000,000)

($40,000,000)

($84,000,000)

Reduced Fair Market 

Value

$73,000,000 $77,500,000

The company performing the appraisal concluded the value should fall somewhere 

between the two approaches and set the value at $76,000,000.

Source: OIG analysis of final appraisal report dated January 27, 2000 

As shown in table E-2 below, revenue diversions totaled $40.5 million from April 2001 

to May 2008 from impact fees and infrastructure costs. The City Attorney’s Office 

provided documentation showing the developer purchased 1,416 acres of Stapleton 

property and paid $21.2 million (1,416 x $15,000) in impact fees during this time period. 

This represents the portion of the impact fee deduction shown in table E-1 that is 

attributable to actual sales. We calculated the rate of infrastructure cost attributable to 

each acre of land by dividing the infrastructure deduction by the total number of acres the 

developer is expected to purchase ($40 million12/2,935 acres = $13,62913

 12 The two appraisal methods reduced the fair market value by $40 million and $45 million. Consistent with principles of 

conservative estimates, we used the lesser amount in our calculation. 

). By applying 

this rate to the number of acres purchased by the developer, we calculated as of May

2008, $19.3 million ($13,629 x 1,416 acres) was diverted for infrastructure costs.

13 $13,628.62 was rounded to $13,629.
Exhibit E. Deductions from Stapleton Land Value and Airport Revenue 

Diversions

22

Table E-2. Revenue Diversions April 2001 to May 2008

From the Sale of Stapleton Property

Total Acres of Stapleton Property Purchased 

by Forest City as of May 2008:

1,416 acres 

Multiplied by: 

Impact Fee Rate of $15,000 per acre 

Infrastructure Cost Rate of $13,629 per acre

 

$21,200,000 

$19,300,000

Total Amount of Revenue Diversions

for Non-Airport Use $40,500,000

Source: OIG calculations based on sales of Stapleton property to Forest City. 

Note: Totals are rounded.

While table E-2 above shows revenue diversions based on actual property sales, table E-3 

shows the potential total revenue diversions resulting from impact fee and infrastructure 

deductions, from April 2001 through December 2025, after all the property has been sold 

to the developer. The developer is expected to purchase a total of 2,935 acres. By 

multiplying the per acre rates for the impact fee ($15,000) and infrastructure cost 

($13,629) by 2,935 we determined that total revenue diversions will exceed $84 million, 

if the remainder of the land is transferred pursuant to the agreement with Forest City.

Table E-3. Potential Revenue Diversions 

From the Sale of All Stapleton Property

Total Acres of Stapleton Property Available for 

Purchase by Forest City through 2025

2,935 acres 

Multiplied by: 

Impact Fee Rate of $15,000 per acre 

Infrastructure Cost Rate of $13,629 per acre 

 

$44,025,000 

$40,000,000

Total Amount of Potential Revenue Diversions 

From the Sale of Stapleton Property $84,025,000

Source: OIG calculations based on final appraisal report dated January 27, 2000. 

Note: Totals are rounded.
Appendix. Agency Comments

23

APPENDIX. AGENCY COMMENTS

Federal Aviation

Administration

Memorandum

Date: Jan 6, 2011

To: Lou E. Dixon,

Principle Assistant Inspector General for Audit and Evaluation

From: Clay Foushee, Director, Audit and Evaluation, AAE-1

Prepared by: Randall Fiertz, Director of Airport Compliance and Field Operations, ACO-1

Subject: FAA Response to OIG Report: Use of Airport Revenue at Denver

International Airport, Project No. 08A3007 AOOO

While the OIG report presents an extensive review of issues and offers considerable

opinion on the sale of land that once comprised Denver's Stapleton International Airport,

it is fundamentally flawed in its opinions relating to the sale and its proceeds. The

transaction was complex in its execution, as one might expect in a sale of over 4,000 acres

of land, some of which had considerable environmental remediation issues. However, in

simple terms, the land was indeed sold in 2000, based on market prices and expectations

at that time. Under the terms of the sale, the price was set in full compliance with

applicable FAA guidance, regulation, Federal, state and local law, and based upon

professional appraisal at the time. Ten years after the sales agreement was executed, the

OIG concluded that proceeds should have been greater. This is not reasonable as this

conclusion is based largely on land sales that transpired in more recent years under

entirely different circumstances. The criticism of the sales price for a 10 year-old

transaction, as asserted in the OIG report, is analogous to selling one's house and 10 years

later returning to the purchaser with demands for additional funds, armed with the clarity

of hindsight for a period of time in which prices appreciated considerably.

During the course of the OIG’s efforts we met to convey our concerns from a legal and

programmatic basis. During those discussions, we offered considerable documentation of

the legal and programmatic bases of the sale. We appreciate the OIG’s consideration and

participation in those meetings, and are grateful for those areas of the report where these

efforts helped to achieve a meeting of the minds. We remain willing to continue a

dialogue with the OIG if it could be constructive in achieving a better understanding of the

subject land sale and its basis.
Appendix. Agency Comments

24

Recommendation 1. For future airport closures, require more than one appraisal, use of

indices other than CPI, and/or other methods to determine fair market value of large land

sales, when the land is transferred from the airport sponsor to the buyer over an extended

period of time.

The FAA does not concur that the OIG report demonstrates sufficient rationale for FAA to

create the recommended blanket requirement for multiple appraisals. The specific aspects

of FAA's handling of the Stapleton disposition, which were in accord with all

requirements in place at the time, do not provide a sufficient basis for creating this

requirement. Further, there is no evidence presented that would indicate that the outcome

would be any different 10 years later with such a requirement in place.

The FAA acknowledges that large complex land disposals are worthy of careful

consideration, especially those airport closures associated with an AIP-funded

replacement airport. Therefore, the FAA will examine its guidance and processes with

regard to these types of large scale land disposals and ensure that it reflects best

management practices with regard to the valuation of closed and replaced airport property.

FAA will ensure its guidance provides clear direction as to when a second appraisal

should be performed, and identify what if any other actions should be performed to

determine the fair value for this kind of large complex disposal. We will circulate draft

guidance for review within one year of the OIG's issuance of its report.

With specific regard to Stapleton, the issues that the OIG finds with the appraisal

(including the timing of development drawdowns, the use of Consumer Price Index (CPI)

to value those drawdowns, and allowance for open space and infrastructure costs) would

have been common conditions included in any second appraisal of this sale. Open space

and infrastructure were specific terms of the sale and were integral in assessing the fair

market value (FMV) of the property. The City of Denver (City) and the FAA insisted that

these terms be addressed in the appraisal. The City of Denver selected Bowes and

Company because they were well qualified to conduct such an appraisal, and the FAA

concurred with the selection.

Due to the structure of the Stapleton disposal, which included individual parcel draw

downs over a period of years, the airport sponsor and FAA recognized the need to include

a logical and reasonable price escalator in the contract. The February 15, 2000 contract

with the purchaser, Forest City Development, applied the CPI to the price of future

property draw downs. The agreement provides for the value of the property to be

escalated by the CPI at the time Forest City takes possession. The parties to the contract

agreed to use the CPI because it protects the February 15,2000 sales price from inflation,

while not penalizing the developer for adding value as it develops the site with office

buildings, retail shops and residences. This development will add value to the adjoining

vacant parcels awaiting disposal under the contract by virtue of their proximity to

developed sites. In addition, Forest City's risks were and still are significant. The

developer must invest its own funds up front which it cannot recoup until it sells the site.

Since it was proper for all parties to the contract to consider the value gained from

entrepreneurial risk, it was proper for the FAA to permit the use of the CPI.

With regard to escalator clauses for future airport disposals, FAA endeavors to ensure that
Appendix. Agency Comments

25

the airport sponsor achieves the full benefit from the sale consistent with all applicable

requirements, while retaining the flexibility to structure the transaction to attract private

investment. As a result, there is a continuing need to use appropriate price escalators. In

any future sales of this nature, FAA will evaluate which price escalators to use and

recommend the one most appropriate depending on the specific circumstances of a

project.

Recommendation 2. Evaluate the current funding of the development of parks, open

space, infrastructure, or any other federally prohibited diversions, associated with Denver

airport revenue, and take action to cease such funding.

The FAA does not concur with this recommendation as FAA does not agree that the set-aside

of acreage for parks and open space, and the development of this space is unlawful

revenue diversion. Set-aside of acreage for parks and open space was necessary for the

contract to comply with City ordinances in place at the time of the sale. Consequently, the

set-aside was a matter of following the law, not a revenue diversion as the report indicates.

As such, it was appropriate for the February 15, 2000 Stapleton Purchase Agreement to

include provisions that ensure the agreement is in accord with the law.

The appraisal shows the land set-aside is proportionate to similar projects in the Denver

area. The Stapleton set-aside is .11 acres per residential unit, Highlands Ranch is .34

acres per residential unit, and the former Lowry Air Base is .19 acres per residential unit.

In addition, the appraisal presents a national survey that shows .12 acres per residential

unit. Furthermore, the OIG did not take into account the geography of the set aside land,

which includes lakes and streams. Such land is not suitable for development and is

appropriate for including in a set-aside.

The funding for the development of parks and open space was laid out in the purchase

agreement. The agreement requires Forest City to pay $294,000,000 upfront for trunk

infrastructure costs (see table). That amount is made up of two components-the system

development fee of $44,025,000 and local tax increment financing $249,975,000. The

system development fee is not subject to rebate, so Forest City must pay that entire

amount. Forest City will be eligible for a rebate of a portion of the local tax increment

financing, after the property is developed, sold, and on the tax rolls. Forest City will be

responsible for independently funding $90,000,000 of those costs. So, Forest City's 

nonreimbursed portion of the trunk infrastructure cost is the $44,025,000 plus the

$90,000,000 for a total of $134,025,000.

In addition, trunk infrastructure costs are independent of the purchase price of the

property, which was $79,400,000, and the purchase price is the only funding which the

FAA should be monitoring. The $79,400,000 is airport revenue and is placed in the

account of the Denver International Airport. The $294,000,000 that Forest City expended

for trunk infrastructure as part of the sales agreement is not airport revenue, so there

would be no reason for the FAA to evaluate the use of that money. Since those funds are

outside of the regulatory authority, the FAA would be acting outside of its authority to

conduct a review of those funds.
Appendix. Agency Comments

26

Recommendation 3. Assess the revenue diversions identified in our analysis of the sale

o/Stapleton property and seek full recovery as necessary, plus interest, of those diversions

and any other identified by FAA.

The FAA does not concur that revenue diversions occurred as a result of the sale of the

Stapleton property. The price increases identified in the OIG report are transactions that

took place after the contract of sale to Forest City, which was executed on February 15,

2000. Asking the City to recoup funds based on price escalations after the sale is like the

seller of a residence asking the buyer for more money ten years after the sale because the

residence has increased in value over that time. Such a request would neither be lawful

for the seller of a residence, nor would it be lawful for the City to apply that condition to

the Stapleton transactions.

While not fully recognized in the report, the sale was completed on that date in full

accordance with laws and requirements. The OIG draft report fails to acknowledge the

binding nature of the sale. The appraisal preceding the sale established the FMV, which

the City adjusts by the CPI as the parcels are taken down for development by Forest City.

The City uses CPI as the escalator to ensure the sales price is adjusted by the general rise

in prices. Prior to the completion of the sale, all parties to the contract agreed that new

appraisals for each parcel would not be appropriate because the new appraised value

would reflect increased value from Forest City's surrounding developments and

infrastructure improvements. The FAA agreed that Forest City was entitled to those

increased values, since they were the result of Forest City's efforts.

The sale also conformed to the Stipulated Agreement between the City and the air carriers.

The Stipulated Agreement required the City to obtain FMV from the sale of the property

and for the proceeds from the sale to be credited to the airport account. The City did

receive FMV at the time of sale, February 15, 2000, which was $79,400,000 and based on

the January 27, 2000 appraisal. The City receives payment, plus CPI, as Forest City

draws down tracts for development. The City credits the proceeds from the draw downs

to the airport account. The OIG however focused on trunk infrastructure investments and

called those investments revenue diversion, citing in particular the $42,025,000 for parks

and wetland development. Infrastructure development however is independent of the

purchase price. It is not airport revenue and is outside of the FAA's regulatory authority.

Also, the OIG does not address the reason for the development draw downs. With the

closing of Stapleton International Airport, the City had to determine the best way to

develop the 4,051 acre site. One alternative would have been for the City to assume the

role of developer and sell parcels to contractors, who would then develop their sites in

accordance with their individual strategies. The second alternative was to sell the entire

site to one developer and have it developed in accordance with a coherent master plan.

The City, with FAA's approval, chose the second option because it did not have the

expertise or resources to develop the entire site. It concluded that a single developer

would bring a greater overall sales price and a more balanced development. When the

City chose the second option, it created the need for the draw downs because the acreage

was too large to develop at one time.

The appraisal was conducted by a qualified appraiser who established the raw land value

of the Stapleton property, which the FAA reviewed and found to be satisfactory. The
Appendix. Agency Comments

27

draft OIG report asks that we ignore the purchase agreement and treat each drawdown as

though it were a new sale using a current FMV. Since subsequent transactions are outside

FAA's regulatory authority, there is no way for the FAA to invoke the revenue-use statute

for these transactions.

If prices had unexpectedly fallen after February 15, 2000, and had Forest City invested in

infrastructure, this seemingly lucrative investment could have resulted in a loss. The

potential for declining real estate values is real and has been demonstrated over the last

few years. When the City sold the land in February 15, 2000, it opted out of the risk of

real estate price fluctuations. Forest City assumed the risks in return for gaining the

potential reward (or loss). The FAA concurred with the $79,400,000 sales price as the

current FMV of the land, which the CPI protects from general price increases.

Consequently, there is no revenue diversion and no funds to recoup.

Recommendation 4. Assess the difference between the amount that the Denver airport

will receive from future sales of Stapleton property and the fair market value at the time of

the sales and explore ways the City can provide the difference.

The FAA does not concur with this recommendation. As discussed in response to the

previous recommendations, the sale of the Denver Stapleton property was completed on

February 15, 2000. Prior to the sale, an expert appraisal established FMV and all parties

agreed to this value in the binding contract. The sale agreement included provisions for

future land draw downs by the developer at an inflation adjusted price. There is no

difference to make up and there are no further sales planned. As discussed above, the

FAA does not have the authority to apply the revenue diversion statutes to the increases in

property values that occur after the date of sale, which is the date that Forest City assumed

the risk of its capital investment succeeding, or failing.

Also, on February 15, 2000, the Denver Airport account took the capital to invest in its

new airport, while ceding the risks associated with the Stapleton parcel to Forest City.

Finally, we note that the FAA, any airport sponsor, nor any professional appraiser can

foresee future fluctuations in the economy or any specific real estate market. As is clear

from recent economic developments, many parties entered into transactions to acquire and

hold land that have not been successful investments. All parties entered into the sale of

the Stapleton property based on the best information available at the time of the sale on

February 15, 2000, and there is neither difference to explore, nor any future compensation

due from the City of Denver, nor other parties to the sales contract.
Appendix. Agency Comments

28

Cost to Develop the Stapleton Site

For Residential and Business Use

Developer’s 

Upfront 

Costs 

Tax 

Increment 

Financing 

and Special 

Tax Districts 

Developer’s 

Cost After Tax 

Rebates*

Forest City Purchase Price $79,400,000 $0 $79,400,000 

Trunk Infrastructure-major 

arterials, park and open space 

improvements, the proposed 

interchange, and major utilities, to 

be paid for with a combination of 

System Development Fees and 

Tax Increment Financing.

System Development Fee-Also

called the Impact Fee $44,025,000 $0 $44,025,000 

Tax Increment Financing $249,975,000 $159,975,000 $90,000,000 

 Total Trunk Infrastructure $294,000,000 $159,975,000 $134,025,000 

In-Tract Infrastructure-the cost 

for neighborhood streets, alleys, 

and extension of utilities to 

individual sites to be paid with 

taxes raised from special tax 

districts and by the developer 

picking up the expected shortfall.

 Special Tax Districts $225,000,000 $225,000,000 $0 

Expected Shortfall $110,000,000 $0 $110,000,000 

 Total In-Tract Infrastructure $335,000,000 $225,000,000 $110,000,000 

Total-Purchase Price, Trunk 

Infrastructure, and In-Tract 

Infrastructure

$708,400,000 $384,975,000 $323,425,000 

Developable Acres 2,935 2,935 2,935 

Cost Per Developable Acre $241,363 $131,167 $110,196 

*The Developer must initially pay the total cost ($241,363) per acre. Later after the property is developed 

and on the tax rolls, the Developer will be eligible for rebates ($131,167 per acre) from tax increment

financing and special tax districts. However the tax increment financing and the special tax districts will not

cover all the infrastructure costs. The cost to the Developer after rebates will be $110,196 per acre.