UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C. AIR TRANSPORT ASSOCIATION OF AMERICA, INC. d/b/a AIRLINES FOR AMERICA, ALASKA AIRLINES, INC., AMERICAN AIRLINES, INC., ATLAS AIR, INC., FEDERAL EXPRESS AIRLINES, HAWAIIAN AIRLINES, INC., HORIZON AIR, JETBLUE AIRWAYS INC., SOUTHWEST AIRLINES CO., UNITED AIR LINES, INC., UNITED PARCEL SERVICE CO., and AIR CANADA, Complainants,

v. PORT OF PORTLAND, OREGON, Respondent. FAA Docket No. 16-16-04

REPLY OF COMPLAINANTS AIR TRANSPORT ASSOCIATION OF AMERICA, INC., D/B/A AIRLINES FOR AMERICA, ET AL . TO PORT OF PORTLAND ANSWER Designated for service of process: David Berg Vice President & General Counsel Doug Mullen Assistant General Counsel Air Transport Association of America, Inc. d/b/a Airlines for America 1275 Pennsylvania Avenue, N.W. Suite 1300 Washington, D.C. 20004 (202) 626-4234 Email: dberg@airlines.org dmullen@airlines.org Counsel for Complainants Dated: May 25, 2016 Roy Goldberg Steptoe & Johnson LLP 1330 Connecticut Avenue, N.W. Washington, D.C 20036 (202) 429-8028 Email:rgoldberg@steptoe.comi TABLE OF CONTENTS Page INTRODUCTION AND SUMMARY ..........................................................................................2 ARGUMENT ...................................................................................................................... ............8 I. CHARACTERIZING THE O FFSITE STORMWATER MANAGEMENT AND SUPERFUND REMEDIATION FEES AS AIRPORT “OPERATING COSTS” IS CONTRARY TO THE STATUTORY PROHIBITIONS AGAINST DIVERSION OF AIRPORT REVENUE...........................................................................................8 A. The Plain Language of the Federa l Statutes Demonstrates that the Imposition of the Fees Constitutes Unlawful Revenue Diversion. ....................................................................................................8 B. The Legislative History Behind the Prohibitions Against Diversion of Airport Revenue Further Demonstrates why the Fees are Unlawful. ....................................................................................12 C. Congress Did Not Exempt Fees Imposed by Local Governments that Do Not Own or Operate the Airport. .....................17 D. There is No Merit to the Port’s Argument that Imposition of the Fees Does Not Violate Federal Law. ................................................18 II. TREATING THE OFFSITE STORMWATER MANAGEMENT AND REMEDIATION FEES AS AIRPORT “OPERATING COSTS” IS CONTRARY TO THE FAA REVENUE USE POLICY. ...........................19 III. THE NON-FINAL JULY 30, 2015 LETTER FROM FAA DOES NOT OFFER ANY LAWFUL REASON FOR EXEMPTING THE FEES FROM THE PROHIBITIONS AGAINST DIVERSION OF AIRPORT REVENUE.........................................................................................32 IV. THE OFFSITE STORMWA TER MANAGEMENT AND SUPERFUND REMEDIATION FEES ARE NOT AUTHORIZED BY FEDERAL ACCOUNTING REGULA TIONS OR STANDARDS. ................34 V. THE OFFSITE STORMWA TER MANAGEMENT AND SUPERFUND REMEDIATION F EES ARE NOT “OPERATING COSTS” PURSUAN T TO PORT BO ND ORDINANCE 155..........................39 VI. THE OFFSITE STORMWA TER MANAGEMENT AND SUPERFUND REMEDIATION FEES ARE UNLAWFUL TAXES RATHER THAN APPROPRIATE USER FEES. ............................................44 VII. THE FEES ARE NOT AUTHORIZED BY THE ANTI-HEAD TAX ACT. ......................................................................................................................47 CONCLUSION .................................................................................................................... ........48ii LIST OF EXHIBITS

1. Declaration of D. Kirk Shaffer 2. Declaration of Norwood (“Woody”) Jackson, Jr. A. C.V. 3. Declaration of Joan N. Stern, Esq. A. C.V. B. Port of Portland Bond Ordinance No. 155 4. “Airport Revenue Diversion,” Hearing be fore the Subcommittee on Aviation, Committee on Commerce, Science and Transportation, U. S. Senate, Senate Hearing 104-629 (May 1, 1996).iii TABLE OF AUTHORITIES Page(s) C ASES Acree v. Republic of Iraq , 370 F.3d 41 (D.C. Cir. 2004) .................................................................................................. ...9 Bolt v. City of Lansing , 459 Mich. 152, 587 N.W.2d 264 (1998) ..................................................................................46 Chizek v. Port of Newport , 252 Or. 570, 450 P.2d 749 (1969) ...........................................................................................45 City and County of Denver v. Continental Air Lines, Inc., 712 F. Supp. 834 (D. Colo. 1989) ............................................................................................48 City of Santa Monica v. FAA, 631 F.3d 550 (D.C. Cir. 2011) ................................................................................................. 18 Cmty. Housing Mgmt. Corp. v. City of New Rochelle, 381 F. Supp. 2d 313 (S.D.N.Y. 2005) ......................................................................................46 FDA v. Brown and Williamson Tobacco Corp ., 529 U.S. 120 (2000) ........................................................................................................... ........9 Fulton Cty. Taxpayers Ass’ n v. City of Atlanta , No. 1999CV05897, 1999 WL 1102795 (Ga. S uper. Ct. Sept. 22, 1999) ................................46 Gates v. Syrian Arab Republic , 580 F. Supp. 2d 53 (D.D.C. 2008) .............................................................................................9 Geier v. Am. Honda Motor Co., 529 U.S. 861 (2000) ........................................................................................................... ......19 Hillsborough Cty. v. Automated Med. Labs., Inc., 471 U.S. 707 (1985) ........................................................................................................... 18, 19 Knapp v. City of Jacksonville, OR , 342 Or. 268, 151 P.3d 143 (2007) ...........................................................................................45 Southwest Airlines Co. v. TSA , 554 F.3d 1065 (D.C. Cir. 2009) ...............................................................................................1 0 United States v. Morton , 467 U.S. 822 (1984) ........................................................................................................... ........9iv Westwood Apex v. Contrera s, 644 F.3d 799 (9th Cir. 2011) .................................................................................................. .10 A GENCY P ROCEEDINGS In the Matter of Revenue Diversion by the City of Los Angeles at Los Angeles International, Ontario, Van Nuys, and Palmdale Airport , FAA Docket 16-01-96, 1997 FAA LEXIS 1535 (1997) .........................................................26 S TATUTES 49 U.S.C. § 40116 ............................................................................................................. .............47 49 U.S.C. § 40116(b) .......................................................................................................... ...........47 49 U.S.C. § 40116(e) .......................................................................................................... .......7, 47 49 U.S.C. § 47107(b) .......................................................................................................... ... passim 49 U.S.C. § 47107(b)(1) ....................................................................................................... ...........8 49 U.S.C. § 47107(k) .......................................................................................................... ...........20 49 U.S.C. § 47107(k)(2)(A) ...................................................................................................3 , 4, 10 49 U.S.C. § 47107(k)(2)(B) ...............................................................................................11, 1 4, 15 49 U.S.C.§§ 47133 ............................................................................................................. ......17, 48 49 U.S.C. § 47133(a) .......................................................................................................... ... passim 49 U.S.C. § 47133(c) .......................................................................................................... ...........17 O.R.S. § 307.090(1) ........................................................................................................... ............44 L EGISLATIVE M ATERIALS Airport Revenue Diversion,” Hearing befo re the Subcommittee on Aviation of the Committee on Commerce, Science and Transportation , 104 th Congress, S. Hrg. 104- 629 (May 1, 1996).............................................................................................................. ......13 H. Rep. No. 104-714 (1996) .............................................................................................. 12-13 , 17 F EDERAL R EGISTER Audit Requirements for Federal Awards , 78 Fed. Reg. 78,589 (Dec. 26, 2013) .....................34, 18 Passenger Facility Charge (PFC) Program : Eligibility of Ground Access Projects Meeting Certain Criteria , 81 Fed. Reg. 26,6111 (May 3, 2016) ....................................... 22-23v Policy and Procedures Concerni ng the Use of Airport Revenue , 64 Fed. Reg. 7696 (Feb. 16, 1999) ..................................................................................................................... ..... passim C ODE OF F EDERAL R EGULATIONS 2 C.F.R. Part 225 ............................................................................................................. ..........6, 34 2 C.F.R. § 200.225 ............................................................................................................ . 34, 36-37 2 C.F.R. § 225.45(b) .......................................................................................................... ............35 14 C.F.R. Part 16.............................................................................................................. ..............33 14 C.F.R. § 16.23(e)........................................................................................................... ..............1 I NTERNET Federal Accounting Standard Advisory Handbook, http://files.fasab.gov/pd ffiles/2015_fasab_handbook.pdf ........................................................39 Fran Spielman, Alderman seeks $1 surcharge on air travelers to fund police hiring ,”Chicago Sun Times (Oct. 14, 2015) ,http://chicago.suntimes.com/chicagopolitics/7/71/1023944/alderman-proposes-1-s urcharge-airline-passengers-bankrollpolice-hiring ................................................................................................................. ............31 O THER A UTHORITIES Audit Report – FAA Oversight is Inadequate To Ensure Proper Use of Los Angeles International Airport Revenue for Police Services and Maximization of Resources , AV-2014-035, Office of Inspector General, U.S. Department of Transportation (April 8, 2014) ...................................................................................................................... ..............29 FAA Airport Compliance Manua l, FAA Order 5190.6B (2009) ...................................................28UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C.

AIR TRANSPORT ASSOCIATION OF AMERICA, INC. d/b/a AIRLINES FOR AMERICA, ALASKA AIRLINES, INC., AMERICAN AIRLINES, INC., ATLAS AIR, INC., FEDERAL EXPRESS AIRLINES, HAWAIIAN AIRLINES, INC., HORIZON AIR, JETBLUE AIRWAYS INC., SOUTHWEST AIRLINES CO., UNITED AIR LINES, INC., UNITED PARCEL SERVICE CO., and AIR CANADA, Complainants,

v. PORT OF PORTLAND, OREGON, Respondent. FAA Docket No. 16-16-04

REPLY OF COMPLAINANTS AIR TRANS PORT ASSOCIATION OF AMERICA, INC., D/B/A AIRLINES FOR AMERICA, ET AL. TO PORT OF PORTLAND ANSWER Pursuant to 14 C.F.R. § 16.23(e), Complainants Air Transport Association of America, Inc., d/b/a Airlines for America (“A4A”), Alaska Airlines, Inc., American Airlines, Inc., Atlas Air, Inc., Fedex Express Airlines, Hawaiian Airl ines, Inc., JetBlue Airways, Inc., Southwest Airlines Co., United Airlines, In c., United Parcel Service Co., a nd Air Canada (“Complainants”) submit this reply to the “Answer” of the Respond ent Port of Portland (the “Port”) filed April 15, 2016 (the “Port Answer”). 1

1 By order dated April 22, 2016, FAA extended Comp lainants’ time to file this Reply until May 25, 2016.2 INTRODUCTION AND SUMMARY Nothing in the Port Answer refutes the fact that, by requiring the airlines at PDX to pay the Offsite Stormwater Management Fees and th e Superfund Remediation F ees (collectively, the “Fees”), and remitting the proceeds to the City of Portland (the “City”), the Port is violating federal statutes against diversi on of airport revenue; federal Gran t Assurance 25 - in which the Port promised not to divert ai rport revenue from the Portland In ternational Airport (“PDX” or “Airport”); and the FAA’s Policy and Procedures Concerning the Use of Airport Revenue, 64 Fed. Reg. 7696 (Feb. 16, 1999) (“Revenue Use Policy”). As set forth in the Complaint and not rebutted by the Port, the Fees are not being used to provide any services or facilities to the Airport . By including the Fees in the airline rates and charges and forwarding the paid Fees to the City, the Port is dive rting airport revenue (specifically, the Fees) from the Airport and in to the coffers of a separate government entity which is using the money for proj ects external to the Airport. The Port makes no allegation that the City is “managing the stormwater runoff” at the Airport, or that the Superfund investigation and cleanup relating to the Willamette River in

downtown Portland includes “sto rmwater runoff and sewer overflow” originating from the Airport. Instead, the Port’s pro ffered defense to the allegation of revenue diversion is to engage in a game of semantics by asserting that (1) because the Fees relate to the treatment of water by a city government, they are properly classified as “utility” charges, (2) u tility fees are properly included within the definition of “operating costs,” and (3) payment of fees that are classified as “operating costs” does not constitu te airport revenue diversion. The fundamental fallacy in the Port’s rationale is that it ignores the un assailable fact that the Fees are not being imposed by the City in exchange for any se rvices or facilities that are actually provided to the Airport . In order not to constitute unla wful diversion of airport revenue,3 the charges in question must be for “operating costs” of the Airport . However, the Fees represent “operating costs” of the City for projects unrelated to the Airport. The fact that the Fees are “operating costs” is i rrelevant given that they are not Airport “operating costs.”

1. The Port’s argument that the Offsite Stormwater Management and Superfund Remediation Fees are “operating costs” of PDX is contrary to 49 U.S.C. § 47133(a), which states that “the revenues generated by an airport that is the subject of Federal assistance may not be expended for any purpose ot her than the capital or operating costs of – (1) the airport ; (2) the local airport system; or (3) any other local faci lity that is owned or operated by the person or entity that owns or operates the airport that is directly and substantially related to the air transportation of passengers or property .” (Emphasis added); see also 49 U.S.C. § 47107(b) (same language required to be agreed to by ai rports in Grant Assurances). The Offsite Stormwater Management and Superfund Remediat ion Fees are not “ope rating costs” of the Airport and also are not “directly and substantiall y related to the air tran sportation of passengers or property.” The term “operating cost” cannot be interpreted and app lied in a manner that ignores the clear directive in sections 47133(a) and 47107(b)(1) for payments to third parties to

be “ directly and substantially related to the air transportation of passengers or property .” In addition, 49 U.S.C. § 47107(k)(2)(A) makes it clear that payments made by the airport to a third party (such as the City) must “ reflect[] the value of servic es and facili ties provided to the airport .” (Emphasis added). The Offsite Stormwater Management and Superfund

Remediation Fees do not reflect “the value of serv ices and facilities provi ded to” PDX. The Fees are not being imposed in connection with any servic es or facilities provided to PDX. Rather the

services and facilities related to the Fees are excl usively for City of Portland projects external to the Airport.4 The Port asserts that the Fees “are among vari ous utility charges the Port incurs as a consequence of owning a nd operating the Airport.” 2 But this characterization is irrelevant as nowhere does the Port maintain that the “utility charges” in question (i.e., the Fees) are imposed in exchange for the provision of any services or facilities by the City to the Airport . The Port does not actually contend that the Fees are imposed to compensate the City for services received or for operating or maintaining any aspect of the Airport, much le ss provide any supporting evidence for such a position. Rather, the undisputed evidence is that the Fe es are used to pay for City expenses relating to the operation and mainte nance of offsite stormwater and environmental investigation and re mediation projects entirely external to the Airport

. The Port’s assertion that “the Port is not being singled out for some sort of special assessment” (Answer, at 2) is irrelevant. There is no exception to the la ws against diversion of airport revenue merely because th e fees are also being paid by non- Airport entities. Unless the fees being charged to the airport are in exchange for services or facilities provided to the airport, the fees constitute unlawful diversion of airport revenue.

The Port also contends that the Offsite Stormwater Management Fees help pay for cleaning of “streets (and highways)” that “are used by origin and destination passengers, as well as Airport and Airport tenant employees, for traveling to and from the Airport.” 3 Once again,

this is irrelevant. The relevant federal statutes require that the payments of airport-generated

revenue be tied to costs in curred to operate the airport or be “directly and substantially related to the air transportation of passengers or property,” 49 U.S.C. § 47133(a), § 47107(b), or be in exchange for “ services and facilities provided to the airport ,” § 47107(k)(2). Services

2 Port Answer, at 2.

3 Port Answer, at 2-3.5 provided to roadways outside of the Airport for genera l public benefit do not fall into any of these narrow categories.

2. Treating the Fees as PDX “operating costs” is also contrary to the FAA Revenue Use Policy. Among other things, paymen ts of airport revenues may not “ exceed the fair and

reasonable value of those services a nd facilities provided to the airport. ” 4 The Fees are not imposed in exchange for any se rvices or facilities provided to PDX . Kirk Shaffer, a former FAA Associate Administrator for Airports and general counsel of Nashville Inte rnational Airport, has 30 years' experience in the U.S. commercial aviati on industry, and particular expertise in federal policies and industry practice re lating to airports and their relationships with airlines. 5 Mr. Shaffer’s opinion is that the imposition by the City of the Off-Site Stormwater Management and Superfund Remediation Fees on the Airport and its airline tenants constitutes unlawful diversion of Airport revenue in violat ion of the Revenue Use Policy. 6 Mr. Shaffer categorically rejects the

Port’s assertion that the Fees cons titute “operating costs” of PDX: In order to constitute an airpor t operating cost, a fee must be imposed in exchange for a service or facility actually provided to, or being used by, the airport. The Fees are not operating costs of the Airport because they are not imposed in exchange for any service or facility actually provided to or used by the Airport

. Rather, the Fees relate to servic es and facilities that are being provided external to, and not for use by, the Airport. 7

3. The July 30, 2015 letter from FAA official Randy Fiertz (Complaint Ex 12), on which the Port places great reliance, does not support imposition of the Fees at PDX. Mr.

4 Section VI(B)(1), 64 Fed. Reg. at 7720 (emphasis added).

5 “Declaration of D. Kirk Shaffer” (“Sha ffer Decl.”), Exhibit 1 hereto, ¶¶ 1, 11-12.

6 Shaffer Decl. ¶ 4.

7 Id. (emphasis added).6 Fiertz’s characterization of the Fees as a “legal obligation incident to the airport’s possessory interest in land” is expressly non-final, refl ects solely his personal opinion, and cannot be squared with the prohibition in federal statutes, Grant Assurance 25, and the Revenue Use Policy against the Airport being charged fees for services it does not receive.

4. The Fees also are not allocable to the Ai rport based on the criteria described in 2 C.F.R. Part 225 (formerly OMB Circular A-87), and therefore are not an allowable use of Airport revenue. Exhibit 2 to this Reply is the Declaration of Norw ood (“Woody”) Jackson, Jr. (“Jackson Decl.”). Mr. Jackson is a certified public accountant with 40 years of knowledge of, and experience with, generally accepted acco unting principles (“GAAP”), and regulations, requirements, policies, and practic es relating to federa lly funded projects and contracts, and the accounting regulations and related documents con cerning allocation of costs referenced by FAA in its Revenue Use Policy. 8 His experience includes serving as the Deputy Contro ller at the U.S. Office of Management and Budget (“OMB”), Of fice of Federal Financial Management, and being a partner at the ac counting firm KPMG LLP. 9 Mr. Jackson opines that the Offsite Stormw ater Management Fees and the Superfund

Remediation Fees are not an allowable use of Ai rport revenues because they are not imposed in exchange for the provision of any services or facilities by the City to the Airport. The expenses incurred by the City for the management of offsite stormwater located outside the Airport, and the investigation and remediation of a Superfund site not involvi ng the Airport, do not represent

8 Jackson Decl. ¶ 1.

9 Jackson Decl. ¶ 5 and Exhibit A thereto.7 services to the Airport for purpos es of allocating costs under the controlling principles, policies, law and guidance materials. 10

5. There is equally no merit to the Port’s asse rtion that the Fees are Airport operating expenses pursuant to Bond Ordi nance 155 (the “Bond Ordinance”). 11 As set forth in the Declaration of Joan N. Stern (a public financ e attorney with 40 year s’ experience) (“Stern Decl.”) (Exhibit 3 hereto), neither the Bond Ordi nance nor custom and practice in the bond industry supports treating the Fees as Airport operating costs or expe nses. The fact that section 13.1(g) of the Bond Ordinance includes “costs of u tility services” in the definition of “Costs of Operation and Maintenance” is irrele vant with regard to the Fees. In order for utility charges to constitute “operating costs” or “operating expenses ” of the Airport, the utility services must be actually provided to the Airport. However, the Fees are not being imposed in exchange for any services actually provided to the Airport. Rath er, the services in ques tion are being provided to the Portland, Oregon municipalit y, and for projects and operations completely external to the Airport. The Fees are not “operating costs” or “operating expenses” und er the Bond Ordinance.

6. In addition, the Fees may not be imposed on the airlines at PDX because they are unlawful taxes rather than appropriate user fees . Furthermore, pursuant to Section VI(B)(5) of the Revenue Use Policy, payments “in lieu of ta xes” may not “exceed the value of services provided.” Because the City provides no services whatever to the Airport, in may not impose any fees “in lieu of taxes.” Finally, the Fees are not authorized by the Anti-Head Tax Act because they do not fall within any of the limited ex ceptions for charges under the AHT A, 49 U.S.C. § 40116(e). The

10 Jackson Decl. ¶ 4.

11 The Port’s Answer attaches some excerpt s from the Bond Ordinance. The entire Bond Ordinance is attached as Exhib it B to the Stern Declaration.8 Fees do not constitute property taxe s, net income taxes, franchise taxes, or sales or use taxes on the sale of goods or services; or reasonable rental charges, landi ng fees, or other service charges for using airport facilities of an airport owned or operated by that taxing entity. In sum, the Fees are not “operating costs” of the Airport and, therefore, may not be paid to the City with Airport revenues, including the rate s and charges paid by the airlines at PDX. If FAA were to rule that use of Airport revenues to pay the Offsite Stormwater Management and Superfund Remediation Fees does not constitute unlawful diversion of Airport revenues, it would be contrary to federal statutes (49 U.S.C. § 47133(a) and §§ 47107(b) and (k)), FAA’s own Revenue Use Policy and Grant Assurance 25, and would be arbitrary and capricious, an abuse of discretion, and ot herwise contrary to law.

ARGUMENT CHARACTERIZING THE OFFSITE STORMWATER MANAGEMENT AND I. SUPERFUND REMEDIATION FEES AS AIRPORT “OPERATING COSTS” IS CONTRARY TO THE STATUTORY PR OHIBITIONS AGAINST DIVERSION OF AIRPORT REVENUE. The Port’s proffered rational for requiring the airlines to pay the Fees – characterizing the Fees as “operating costs” of the Airport – is cont rary to the plain meaning of the federal statutes which prohibit diversion of airport revenue. The Plain Language of the Federal Statutes Demonstrates that the A. Imposition of the Fees Constitu tes Unlawful Revenue Diversion. To begin with, 49 U.S.C. § 47133(a) states that “the revenues generated by an airport that is the subject of Federal assist ance may not be expended for any purpose other than the capital or operating costs of – (1) the airport ; (2) the local airport system; or (3) any other local facility that is owned or operated by the person or enti ty that owns or operates the airport that is directly and substantially related to the air tr ansportation of passengers or property .” (Emphasis added). The same prohibition is set forth in 49 U.S.C. § 47107(b)(1). The Offsite Stormwater9 Management and Superfund Remediation Fees are not “operating costs” of the Airport and also are not “directly and substantially related to th e air transportation of pa ssengers or property.” Therefore, using Airport revenue s to pay the Fees clearly viol ates the plain language of 49 U.S.C. § 47133(a) and § 47107(b). The term “operating cost” cannot be interprete d and applied in a manner that ignores the clear directive in sections 47133( a) and 47107(b)(1) for payments to related entities to be

“ directly and substantially related to the ai r transportation of passengers or property .” Congress dictated that payments be limited to the capital or operating costs of the airport. The statutory language allows airport payments to be made to an entity other than the airport, provided that the recipient is “owned and operated” by the same entity that owns and operates the airport. And even then, the payments to the related entity are not permitted unless the amounts are “directly and substa ntially related to the air transportati on of passengers or property.” Given this context and framework, a cost canno t be deemed to be an airport “operating cost” unless, at a minimum, it is “directly and s ubstantially related to the air transportation of passengers or property.” St atutes are to be construe d as a whole, with all provisions considered.

See United States v. Morton , 467 U.S. 822, 828 (1984) (“We do not , however, constr ue statutory phrases in isolation; we r ead statutes as a whole”); FDA v. Brown and Williamson Tobacco Corp ., 529 U.S. 120, 133 (2000) (“It is a fundamental canon of stat utory construc tion that the

words of a statute must be read in their cont ext and with a view to their place in the overall statutory scheme”) (citation and internal quotation marks omitted); Acree v. Republic of Iraq , 370 F.3d 41, 52 (D.C. Cir. 2004) 12 (it is a “cardinal rule that a st atute is to be read as a whole

12 Superseded by statute – Gates v. Syrian Arab Republic , 580 F. Supp. 2d 53 (D.D.C. 2008).10 since the meaning of statutory la nguage, plain or not, depends on context” and in interpreting a statute a court must “consider not only the bare mean ing of the critical word or phrase but also its placement and purpose in the statutory scheme”) (citations and internal quotation marks omitted); Westwood Apex v. Contrera s, 644 F.3d 799, 804 (9th Cir. 2011 ) (it is “inappropriate to construe a statute by reading relate d clauses in isolation or taking parts of a whole statute out of their context”). The Port contends that although section 47133(a) and 47107(b) do not define the term “operating costs,” the “ordinary or natural meani ng” of the term includes the Fees because they “were enacted and are billed as utility charges.” 13 This argument not onl y ignores the statutory language “directly and substantiall y related to the air transporta tion of passengers or property,” but it also omits the existence of the airport as modifying the term “operating costs.” It is patently not sufficient that the costs in question may be characte rized as “utility charges” or “utility fees” in some general sense. In orde r not to result in unlawful revenue diversion, the utility charges or fees must be for a service or facility actually provided to the Airport

. See 49 U.S.C. § 47107(k)(2)(A) (the policies and procedur es against diversion of airport revenue “shall prohibit, at a minimum . . . (A) Direct payments or indirect payments, other than payments reflecting the value of services and facilities provided to the airport ”) (emphasis added). To construe “operating costs” as broader than co sts linked to running the Airport is legally

erroneous. See, e.g., Southwest Airlines Co. v. TSA , 554 F.3d 1065, 1069-70 (D.C. Cir. 2009) (faulting TSA for attempting to construe the stat utory phrase “screening passengers” broadly to

include “the entire se t of activities undertaken to promote passenger sa fety” rather than its

13 Port Answer, at 23.11 intended meaning within the context of the statut e: namely, “the proce ss of searching airline passengers at an airport security checkpoint”). Examination of the sample bill from the City to the Port dated June 4, 2014, and provided as Exhibit 3 to the July 1, 2014 letter from David Berg to DOT General Counsel Kathryn Thomson (Complaint Exhibit 10), makes it clear that the Offsite Stormwater Management and Superfund Remediation Fees are not linked to a ny service actually provided to the Airport. These charges appear separate from the wate r and sewer charges, which are based on meter readings for the actual provision of water and sewer services to the Airport. By contrast, the Fees are not based on any actual ut ilization of any services or f acilities by the Airport. Rather, they are based solely on the fact that the Airport purportedly account s for 33,772,000 square feet of impervious area in the City. 14 Moreover, Congress has made it clear that the polic ies and procedures against diversion of airport revenue also must prohi bit “use of airport revenues for general economic development, marketing, and promotional acti vities unrelated to airports or airport systems .” 49 U.S.C. § 47107(k)(2)(B) (emphasis adde d). So, the fact that the fees may promote the general economic development of a city in which an airpor t is located, or marketing and promotional activities, is insufficient to justify th e imposition of the fees for activities “unrelated to airports or airport systems.”

14 Exhibit 1 to the Port Answer is the “Declara tion of B. Jonas Biery” (April 14, 2016) (“Biery Decl.”). The Biery Declaration pr ovides no support for finding that the Fees are lawful. Biery is the “Business Services Manager for the Bureau of Environmental Services (‘BES’).” Biery Decl. ¶ 1. He does not appear to have any invol vement with the Airport and his declaration does not even purport to offer any evid ence to suggest that the Fees are related to any costs actually incurred to provide any service or facility to the Airport

.12 The Legislative History Behind the Prohibitions Against Diversion B. of Airport Revenue Further Demonstrates why the Fees are Unlawful. The legislative history behind the prohibitions against diversion of airport revenue fully supports Complainants’ position and contravenes the Port’s attempt to justify its payment of the Fees. In the 1990s Congress became very frus trated with FAA’s failure to enforce the prohibition against diversion of ai rport revenue, and made it clear that the laws were intended to ensure that revenues generated by an airport rema ined on the airport, rather than used for nonairport projects. In 1996, the Committee on Transportation and Infrastructure of the U.S. House of Representatives stated that it “continue[d] to ha ve significant concerns about the diversion of airport revenues for non-airport purposes and the failure of the FAA to take timely and firm

action in some cases.” 15 The law against revenue diversion was deemed necessary by the Committee because “[g]iven that most airport user s do not vote in the area of the airport but are merely visiting or making connections, it was fear ed that local officials would be tempted to raise airport fees rather than local taxes [so] those fees could be used for non-airport projects.” 16 “The revenues diversion prohibition ensures that any money raised at the airport will be spent on the airport. In light of the important safety, s ecurity, capacity, and noise mitigation needs at most airports, it is vital that the money is spent in this way.” 17

The House Committee also stated that the “revenue diversion prohibition was . . . imposed in recognition of the fact that money is fungible. Congress did not want an airport to

15 H. Rep. No. 104-714, at 37 (1996).

16 Id.

17 Id. at 37-38.13 receive an AIP grant for a specifi c project and then divert a like amount of money off the airport for a non-airport purpose. The re venue diversion prohibition ensu res that all airport and AIP money is used for airport purposes.” 18 The House Committee stated: [I]t is not merely the integrity of AIP grants that causes the Committee’s concern about revenue di version. Ultimately, it is the passenger who must pay when airpor t revenue is diverted. When an airline’s rates and charges are increased to make up for the revenue lost by the diversion, the higher cost is ultimately passed on to the passenger. Therefor e, revenue diversion burdens interstate commerce even if the airport is no longer receiving grants. 19

The Committee further stated: “I n the Committee’s view, revenue di version is harmful whether it takes the form of a direct payment from the airpor t to a non-airport entity or an indirect payment such as the inclusion of AIP grant or PFC reve nue in the gross revenue of the airport for the purposes of calculating that airport’ s rent to another political entity.” 20 During a U.S. Senate hearing on May 1, 1996, th e problems of airport revenue diversion,

and the lack of FAA enforcement of the prohibition against reve nue diversion, were fully aired. 21

Senator John McCain stated: The current disturbing trend of unlawful airport revenue diversion must stop. Recent audits conducted by the Inspector General’s Office of the Department of Transportation, finding more than $170 million in revenue diversion from 1992 to 1995, have revealed far too many local governm ents are attempting to solve

18 Id. at 38.

19 Id.

20 Id.

21 “Airport Revenue Diversion,” Hearing before the Subcommittee on Aviation of the Committee on Commerce, Science and Transportation , 104 th Congress, S. Hrg. 104-629 (May 1, 1996), Exhibit 4 hereto.14 their fiscal problems by taking money away from their airports and using it for non-airport purposes

. 22 Senator McCain added that “The Inspector Ge neral audit shows that many city and county governments blatantly disregard Fe deral law that prohib its airport revenue di version to pay for city services on the backs of air travelers.” 23 The Senator further stated: For example, airport revenue – that is, money that air carriers, the traveling public and others pay wh en using airport facilities – has been wrongfully used to sponsor an Orange Bowl party, cosponsor local golf tournaments, purchase tickets for State legislators to attend the Orange Bowl and a Miami Dol phins game, support local softball teams, fund floats for the Tourname nt of Roses Parade, acquire land not needed for airport purposes, pa y for highway projects that do not facilitate access to an airport, construct an activity center and develop a community park not relate d to an airport, and reimburse lobbyist fees for work on issues co ntrary to the airport’s interest. 24

Senator McCain also stated that “Because airports are meant to be self-sustaining, and because it is intended that federal grant money to airports must be used for air port purposes, Congress has had a long-standing policy that diversion of airport revenues to local governments for non-airport purposes is illegal.” Id. at 3. See also id. at 4 (Statement of Sen. Pressler) (“The bar against diversion also was imposed to en sure federal funds remained at airports. Because money is extremely fungible, an airport could receive an AI P grant for a specific pr oject and them simply

divert that or a like amount of other money for a non-airport related project. Simply put, the prohibition on revenue diversion was intended by Congress to ensure AIP money is truly used for airport improvement ”) (emphasis added); id. at 5 (Statement of Sen. Ford) (“When we created the airport grant pr ogram, it was decided th at if we are going to provide Federal

22 Id. at 1 (emphasis added).

23 Id. at 2.

24 Id. at 2.15 funds, moneys collected from landing fees and ot her sources should be used to build and expand

the facilities. We did not want to give Federal grants to airpor ts and then have those airports write checks to pay for non-airport services.”) The DOT Inspector General testifie d before the U.S. Senate that: FAA certainly has not done enough to stop revenue diversion. Airport revenue is being used fo r city politics, mayors offices, dinners, country clubs, lobbyists, lawy ers, Rose Bowl Parade floats, and a visit by the Pope, to name only a few. Yet local governments run to the Federal Government to get money from the aviation trust fund to keep the airport going and to make needed airport improvements. Thus, you are r obbing the aviation users who pay into the trust fund to pay for thos e city functions that the city political leaders and the city taxpayers do not have the fortitude to tax and pay for themselves. Airports have become this country’s latest cash cow, and the victims are the flying public, once again, also the airlines who pay additional fees and taxes

. 25 The Inspector General added that her office “had to conclude, unfortunately, that, at least to date, the FAA has not had the necessary for titude for enforcement on this issue.” 26 Moreover, “the floodgates” of revenue diversion had “been ope ned by many reasons – by FAA inaction, by bizarre non-opinions that have been issued by the Department of Transportation, and by the approval of more and more diversion schemes. ” 27 These words – spoken by the DOT Inspector General two decades ago – are fully applicable to FAA’s failure to date to take act ion to prevent the Port from engaging in revenue diversion through payment of the Fees to the C ity (and the related imposition of such costs on the PDX airlines). It is once again only thr ough a “bizarre non-opinion” (the Randy Fiertz letter

25 Id . at 7 (emphasis added).

26 Id. at 7.

27 Id . (emphasis added).16 of July 30, 2015) that FAA could attempt to jus tify what is undeniably diversion of Airport

revenue because of the Fees. The Port asserts that “Complainants fail to show how the Airport could operate efficiently if the City failed to manage stormwater on the City’s rights-of-way.” 28 However, this proffered rationalization for imposition of the Fees on the Airport would create an exception to the prohibition against airport reve nue diversion that could easily “swallow the rule.” There are

an infinite number of conditions that could im pact the usefulness of roadways located throughout the City and external to the Airport – under the Port’s position, the Airport can be saddled with a portion of all categories of expenses relati ng to upkeep of the roadway network throughout Portland. This would be directly contrary to the prohibition agai nst revenue diversion. In any event, it is the City which would have the burden of proving that the Airport cannot operate efficiently without the offs ite stormwater management and Superfund remediation provided (and charge d) by the City and the City has not (and cannot) meet that burden. Moreover, even if it coul d make such a showing (which it cannot), it would not change the plain fact that the Fees are being used for se rvices and facilities being provided external to the Airport and, therefore, constitute unlawful diversion of airport revenue. The Port also contends that Complainants are asking FAA to “second-guess” as “to the value and benefit of the service provided.” 29 This is not correct. The facts are undisputed that the City is not providing any service to the Airport in exchange for the Fees. There is, therefore, no judgment to be made as to “v alue” or “benefit” of services which are not actually being provided to the Airport . Indeed, this argument underscores w hy Congress insisted that airports

28 Port Answer, at 33.

29 Port Answer, at 33-34.17 clearly receive services for airport operations or services that directly and substantially relate to the air transportation of passengers or property to payments to non-owner governmental bodies, so that questions about “valu e” or “benefit” are avoided. Congress Did Not Exempt Fees Imposed by Local Governments C. that Do Not Own or Operate the Airport. Additionally, there is no merit to the Port’s argument that Congress did not intend for 49 U.S.C. § 47133(a) to apply to lo cal governments that do not own or operate an airport, except for the narrow category of “aviation fuel taxes.” 30 The overriding purpose of section 47133 was to stop the diversion of revenue from airports to local governments. See, e.g. , H. Rep. No. 104-714, at 37 (“The Committee continues to have signifi cant concerns about the diversion of airport revenues for non-airport purposes . . . . Indeed, the controversy about various payments by the Los Angeles International Airport to the City continues . . . .”) (emphasis added). When Congress said that the “revenues diversion proh ibition ensures that any money raised at the airport will be spent on the airport” ( id .), it was not limiting its concern to the owners and operators of airports. Congress was well aware of the political pressure cities and counties can bring to bear on local airports to funnel money off-airport to shore up local finances. That Congress intended to apply the ban to st ate and local governmental entities which do not own or operate an airport is further demons trated by 49 U.S.C. § 47133( c), which states that “Nothing in this section may be c onstrued to prevent the use of a State tax on aviation fuel to support a State aviation program or the use of ai rport revenue on or off the airport for a noise mitigation purpose.” (Emphasis added) If Congress did not think the revenue diversion prohibition in section 47133 appl ied beyond airport owners and ope rators, it would not have created this narrow exception from the revenue diversion prohibition for certain taxes imposed

30 Port Answer, at 33.18 by state governments – which generally do not own and operate airports – to be expended for state aviation programs and noise mitigation purposes. See 78 Fed. Reg. at 69,792 (“The provisions permitting certain uses of a ‘state ta x’ in section 47107(b)(3) and 47133(c) would be unnecessary and meaningless unle ss state taxes were included in the requirements”).

There is No Merit to the Port’s Ar gument that Imposition of the D. Fees Does Not Violate Federal Law. Finally, the FAA should reject the Port’s argum ent that a ruling in favor of the airlines would unlawfully interfere with the City’s “his toric police powers” beca use federal law does not preempt Ordinance 185610 and the Fees. 31 This argument raises a “red herring.” Complainants are not making a preemption argument and FAA does not need to find that the federal laws and policies against diversio n of airport revenue preempt Ordi nance 185610 and the Fees in their entirety to find the Fees constitute unlawful revenue diversion. But that does not give th e Port (and the City) carte blanche to require the Airport and its airlines to pay charges to the City where, as is the case here, there are no services or facilities that are provided in exchange for the Fees. The Port’s collection and remi ssion of the Fees to the City violates its obligations unde r Grant Assurance 25. That findi ng alone would moot the Port’s argument that the Fees are not preempted. See, e.g., City of Santa Monica v. FAA, 631 F.3d 550, 559 (D.C. Cir. 2011) (“Having held that the FAA did not act arbitrarily or capriciously when it concluded that the [Santa Monica] ordinance was in consistent with [the City of Santa Monica’s] contractual obligations under gran t assurance 22,” there was no need for the court “to consider the preemption issue”).

31 Port Answer, at 33.19 For its preemption argument, the Port cites Hillsborough Cty. v. Automated Med. Labs., Inc., 471 U.S. 707, 715 (1985). There, the Court held that federal regulations governing collection of blood plasma from paid donors did not preempt local ordinances governing collection of blood plasma from paid donors. The Court stated that for a local law to be preempted by a federal regulation, there must be “a showing of implicit pre-emption of the whole field, or of a conflict between a particular local provision and the federal scheme, that is strong enough to overcome the presumption that state and local regulation of health and safety matters can constitutionally coexist with federal regulation.” Id . at 716. Even if th at standard were to apply here (to the question of whether federal stat utes preempt a local fee or tax intended to raise revenue) it is easily met with regard to the attemp t to use the Fees to require the diversion of revenue generated at the Airport into the acco unts of a third party local government agency which is not providing any service or facilities to the Airport in ex change for the charges. There is, in short, a direct conflict between the laws and policies agai nst diversion of airport revenue, and the payment of the Fees to the City using Ai rport-generated revenues for City services that are not provided to the Airport. See Geier v. Am. Honda Motor Co., 529 U.S. 861, 874 (2000) (defective design claims against automobile ma nufacturer was preempted by federal statute

because of an actual conflict betwee n the claims and the federal law). For the reasons set forth above, imposition of the Fees at PDX violates the federal statutory prohibitions against di version of airport revenue, and nothing in the Port Answer

refutes this fact. TREATING THE OFFSITE STOR MWATER MANAGEMENT AND II. REMEDIATION FEES AS AIRPORT “O PERATING COSTS” IS CONTRARY TO THE FAA REVENUE USE POLICY. The Port’s attempt to justify the Fees as “operating costs” of the Airport also violates the FAA Revenue Use Policy, which makes it clear th at payments by an air port operator to a third20 party may only be for goods and services directly and substantially related to the air transportation of passengers or property , which the Fees clearly are not. Tracking the federal statutes against airpor t revenue diversion, the Revenue Use Policy

defines “revenue diversion” as “t he use of airport revenue for pur poses other than the capital or operating costs of the airport, the local airport system, or other lo cal facilities owned or operated by the airport owner or operator and directly and substantia lly related to the air transportation of passengers or property . . . .” 32 Under the Revenue Use Policy, prohibited uses of airport revenue include but are not limited to: “D irect or indirect payments that exceed

the fair and reasonable value of those servic es and facilities provided to the airport .” 33 This language sets forth FAA’s policy, consistent with the revenue diversion stat utes, that an airport and its airline tenants cannot be charged amounts that “exceed the fair and reasonable value of [the] services and facilities provided to airport.”

Also consistent with 49 U.S. C. § 47107(k), the Revenue Us e Policy prohibits “Marketing and promotional activities unrelated to airports or airport systems .” 34 Accordingly, the fact that an expense may provide a general benefit to the community as a whole does not justify the expense being included within the airport rates and charges. This principle is further demonstrated by FAA’s statement in the Revenue Use Policy that “[e]xpenditure of airport funds for s upport of community activities, participation on community events, or support of community-purposes uses of airport property” is only permitted

“ if such expenditures are directly and substantia lly related to the operation of the airport .”

32 Revenue Use Policy, Section VI(A), 64 Fed. Reg. at 7720 (emphasis added).

33 Section VI(B)(1), 64 Fed. Reg. at 7720 (emphasis added).

34 Section VI(B)(4), 64 Fed. Reg. at 7720 (emphasis added).21 Section V(A)(8), 64 Fed. Reg. 7718 (emphasis added). In other words, the fact that the City of Portland as a whole may bene fit from the offsite stormwat er management or Superfund remediation is irrelevant if such expenditures are not “directly and substantially related to the operation of” PDX. The Revenue Use Policy also prohibits “Imp act fees assessed by any governmental body

that exceed the value of services or facilities provided to the airport .” 35 This language reiterates the FAA position that charges imposed on the airport and its airline tenants may not exceed the value of services or fa cilities provided to the airport

. Under the Revenue Use Policy, “Airport revenue may be used for the capital or operating costs of those portions of an airport ground acce ss project that can be considered an airport capital project, or that part of a local facility that is owned or operated by the airport owner or operator and directly and substantially related to the air transportation of passengers or property , including use by airport vi sitors and employees.” 36 This language yet again reflects the fact that in order for a proj ect to be funded with airport reve nues the project must be “directly and substantially related to the air tran sportation of passenge rs or property.” See also id. at 7719 (“FAA has approved the use of airport revenue fo r the actual costs incurred for structures and equipment associated with an airport terminal building station and a rail connector between the airport station and the nearest mass transit rail line, where the structures and equipment were (1) located entirely on airport property, and (2) designed and intended exclusively for the use of airport passengers ”) (emphasis added).

35 Section VI(B)(10), 64 Fed. Re g. at 7720 (emphasis added).

36 Section V(A)(9), 64 Fed. Reg. 7718-19 (emphasis added).22 An example of a rail connector project at an airport is San Francisc o’s BART spur which serves San Francisco International Airport (“SF O”). The BART station on SFO and the spur

from the mainline were constructe d with airport revenue only becau se they serve the airport and only the airport. The same is true for airpor t connector roadways. Only that portion of the roadway which is on airport property or within right-of-way owned by the airport and which serves only the airport can be le gally funded with airport revenue. 37 On May 3, 2016, FAA proposed to modify its policy regarding use of FAA-approved passenger facility charges (“PFCs”) for airport rail projects to permit use of PFC-generated funds for some rail-related expenses even if the rail lin e does not terminate at the airport and is thereby not exclusively dedicated to the airport. 38 However, even the proposed new PFC-rail policy – pursuant to which “on-airport ra il access projects are no longer treated identically to access

roads” 39 – would still require an actual conn ection between the airport and the “ on-airport rail access line.” By contrast, the Fees are for stor mwater and environmental remediation services and facilities entirely unc onnected to the Airport. In addition, in proposing to modify its rail policy, FAA made it clea r that railroads are different from roadways and that “[g]iven the open and variable nature of road systems, it is critical for the FAA to apply stri ct eligibility criteria that tie the funding of the on-airport project to the exclusive use of the airport.” 40 FAA must also apply the same “strict eligibility criteria” with regard to funding of utility costs imposed by a municipal government. FAA stated that

37 Shaffer Decl. ¶ 36.

38 Passenger Facility Charge (PFC) Program: E ligibility of Ground Access Projects Meeting Certain Criteria , 81 Fed. Reg. 26,6111; Shaffer Decl. ¶ 37.

39 Id . at 26,612.

40 Id

.23 without use of “strict eligibility criteria” for a roadway project, “u sers of the infrastructure could benefit from federally-approve d funds designed to improve access to the national air transportation system without ever intending to visit, or actually visiting, the airport.” 41 Similarly here, without FAA applying “strict eligibility criteria” for the Offsite Stormwater Management and Superfund Remedi ation Fees, users of offsite stormwater management and Superfund remediation services throughout the City of Portland could benefit from federally-approved funds designed to impr ove access to the national air transportation system, without even visiting PDX. 42 Underlying the Revenue Use Policy is th e Congressional objec tive of having an integrated national system of safe, efficient airp orts which are financially self-sufficient to the greatest extent possible and whic h do not rely on local and state taxes to fund their operations and capital programs. A corollary to the Reve nue Use Policy is Congress’s support of safety, security, capacity, and noise mitigation capital pr ojects through grants from the federal Airport and Airway Trust Fund. These grants are measur ed in billions of dolla rs each year and are derived from federal ticket taxes, freight wayb ill taxes, and fuel taxes paid by users of the aviation system. The FAA is responsible for achieving Congress’s objectiv es and administering

the Trust Fund. 43 As the aviation industry has matured, large ai rports like PDX have become financial engines in their own right, capable of genera ting substantial amounts of revenue, funding very

41 Shaffer Decl. ¶ 38 (citing 81 Fed. Reg. at 26,612) ; see also id. (“Without a very strict exclusive use requirement, users of access roads coul d take advantage of that infrastructure, and make a choice to never pass th rough the airport itself”).

42 Shaffer Decl. ¶ 40.

43 Shaffer Decl. ¶ 5.24 substantial capital projects, a nd issuing highly rated debt. Congress has recognized that, especially in times when municipalities are faced with rising costs of pr oviding basic services or a declining tax base or both, the temptation to di vert that substantial ai rport revenue “downtown” or treat the local airport as a “cash cow” can be very stron g, even overwhelming. Thus, for decades now, Congress has passed increasingly strong prohibitions against revenue diversion

such as the Portland Fees. The FAA in response has published increasing strong policy statements and orders in support of the Congres sional requirements and re strictions on airport revenue use. The Revenue Use Policy is one example. 44 If FAA were to allow the City to impose the Offsite Stormwater Management and Superfund Remediation Fees on the Airport and its airline tenants, it would directly and substantially undermine the ai rport funding system which Congress has mandated and strengthened over many years. For example, any airport capacity projec t (e.g. runway, taxiway) in current times is a very expensive proposition normally requiring a combination of grants, debt, and local airport revenue to complete . If an airport permits (or is fo rced to permit) its revenue to be committed to non-airport projects elsewhere in the city, it will have to generate even more revenue by raising its rates and charges which are pa id by airlines and other airport users to make up the difference and remain self-sufficient. Airlines will be charged higher rates and charges, which in turn may lead to increased airfares a nd shipping charges. Pe rmitting diversion like the Portland Fees is an indirect, illegal transfer from the federal treasury to the local government. 45 Imposition of the Fees on the Airport and its airline tenants would create a dangerous precedent pursuant to which cities and othe r local governments will siphon money from their

44 Shaffer Decl. ¶ 6.

45 Shaffer Decl. ¶ 7.25 airports for municipal projects – not only for off-site stormw ater management and Superfund cleanup expenses – but also other local functi ons, such as general safety and security, commercial development, and civic pride – simply because the airport is being treated the same as other persons and entities with in the city. In short, the Port is seeking an “exception” to the prohibition against diversion of airport revenue that threatens “to swallow the rule.” 46 The only way to protect against diversion of ai rport revenue is to follow a hard-and-fast rule that revenue generated on the airport remain s on the airport. Airport generated revenues can be used for the provision of services and facilities to the airport . But the Offsite Stormwater Management and Superfund Remediation Fees are not being imposed in exchange for services and facilities being provided to PDX . This results in a classi c case of unlawful revenue

diversion. 47 The Offsite Stormwater Management and Superfund Remediation Fees do not reflect “the value of services and facilities provided to” PDX. Representatives of the City and the Port

do not even assert that facilities are provided to PDX or that the se rvices of any City facilities or non-airport Port facilities rela ted to stormwater management or Superfund cleanup are provided

to PDX. 48 The fact that the fees may promote the gene ral economic development of a city in which an airport is located, or marketing and promotional activities, is insufficient to justify the imposition of the fees for activities “unrel ated to airports or airport systems.” 49 A specific

46 Shaffer Decl. ¶ 8.

47 Shaffer Decl. ¶ 10.

48 Shaffer Decl. ¶ 22.

49 Shaffer Decl. ¶ 23.26 example of the prohibition against use of airpor t revenues for general economic development is the inability of a federally funde d airport to participate genera lly in a city-wide promotional campaign sponsored by the local chamber of comm erce. It is quite typical for a commercial service airport to be a chamber of commerce memb er, as airports are economic drivers in most communities they serve. Nonetheless, paying for promotional activities which market the city as

a whole without direct relation to the airport are prohibited as revenue divers ion, and the FAA has routinely reaffirmed this principle. 50

The Black and Veatch st udy (2014) cited by the Port states th at according to its survey of stormwater management: (1) “The charges assess ed [for stormwater services] are proportional to the property’s contribution and impact of stormw ater runoff”; and (2) “The charges assessed are ‘voluntary’ in that the user has the opportunity to limit the use of the service . . . .” Answer Attachment E at 3 (bullets 3 and 4). Yet neith er is true for the Fees imposed on PDX and its

airline tenants. Firs t, the Fees are not proportional to any contributi on by the Airport to stormwater management requirements in the City, or to the impact of a ny stormwater runoff in the City caused by the Ai rport. Second, the Fees are in no sense “voluntary” for the Airport: there is nothing it can do to avoid being charged the Fees by the City. The requirement of linkage between fees and airport-generated costs has been the policy

of the FAA at least since In the Matter of Revenue Diversion by the City of Los Angeles at Los Angeles International, Ontario, Van Nuys, and Palmdale Airport , FAA Docket 16-01-96, 1997 FAA LEXIS 1535 (1997). The record here is clear that that P DX receives no goods or services

related to the Fees. 51

50 Shaffer Decl. ¶ 24.

51 Shaffer Decl. ¶ 31.27 In its Answer, the Port contends that the Offsite Stormwater Management and Superfund Remediation Fees “are operating costs within FAA’s Revenue Use Policy” because they are “utility fees.” 52 However, merely because a charge im posed on the Airport is labeled a “utility fee” does not transform it into an operating cost of the Airport. The Offsite Stormwater Management and Superfund Remediation Fees ma y be a type of “utility fee” imposed by the City. However, they are not “utility fees” with regard to the Airport be cause no utility services are being provided to the Airpor t in exchange for the Fees. 53 The Port Answer ignores this fact. The Answer offers many definitions, concepts about allocation methodology, and discusses the ability of a municipality to impose utility fees. Over and over again, however, the Port ignores the si mple fact that PDX r eceives no services or facilities in exchange for the Fees.

The Port contends that the Revenue Use Po licy explains that “[e]xpenditures that are directly and substantially related to the operati on of the airport qualify inherently as operating costs of the airport.” 54 However, the Fees are not directly or substantially related to the operation of PDX. Rather, they are directly and substa ntially related to the management of offsite stormwater in areas of the City not within th e Airport, and to the cleanup of a river (the Willamette) having no connection to the Airport. 55

The Port also claims that in “addition to the Revenue Use Policy, FAA’s Airport Compliance Manual . . . is further support that u tility costs are Airport operating expenses for

52 Port Answer, at 28.

53 Shaffer Decl. ¶¶ 50-51.

54 Port Answer, at 28 (citing 64 Fed. Reg. at 7705).

55 Shaffer Decl. ¶ 52.28 which airport sponsors may utilize airport revenues.” 56 This is not correct in this instance because simply labeling a charge as a utility fee does not make it so where, as here, the so-called utility is not delivered to or received by the airport. FAA Airport Compliance Manual, FAA Order 5190.6B § 15.9(a) (at page 15-4) (2009) st ates that “Sponsors may use their airport revenue for the capital or operating costs of the airport, the local airport system, or other local facilities owned or operated by the airport owne r or operator and directly and substantially

related to the air tran sportation of passengers or property. ” Thus, Order 5190.6B is consistent with federal statutory prohibiti ons against diversion of airport revenue in 49 U.S.C. § 47133(a) and § 47107(b) and the Revenue Use Policy. 57 Section 15.9(a) of Order 5190.6B adds th at appropriate airport costs include

“reimbursements to a state or local agency for the costs of services actually received and

documented” by the airport . (Emphasis added) Here, PDX did not “actually receive” either stormwater or Superfund cleanup services from the City. There can be no exemption from the prohibiti on against unlawful revenue diversion for municipal utility charges where, as here, the Fees are not related to actual services or facilities provided to the Airport. The document “Legal Research Digest 2, Theo ry and Law of Airport Revenue Diversion” from the “Airport Coopera tive Research Program” (May 2008) (“ACRP Document”) (Exhibit 7 to the Complaint) states: The fiscal problems facing local governments more generally (including, for example, the needs of urban roads, water, sewage, parks, schools, hospitals, and other infrastructure, and fire and police protection ) coupled with a declini ng tax base have forced many to search for new sources of revenue. Redirecting revenue from airports to fund non-airport municipal needs appears attractive

56 Port Answer, at 29 (citing FAA Order 5190.6B, at 15-4).

57 Shaffer Decl. ¶ 53.29 to some local political leaders. Yet Congress has stepped in to promulgate laws to circumscribe the ability of federally funded airports to divert airp ort revenue “downtown.” Conflicts over locally owned and operated airports and federal funding and regulation are by no means unique to revenue-diversion issues, but they manifest themselves here as well. Id. at 3 (Emphasis added). The ACRP Document also states that “the purc hase or operation of road maintenance equipment and services or police and fire services not directly in s upport of the airport are deemed impermissible.” 58 The fact that the community as a whole may benefit from off-site stormwater treatment and environmental remediation cannot justify inclusi on of such expenses in costs allocated to the Airport and its airline tenants, as illustrated by the approach taken by FAA and DOT to law enforcement costs. FAA and DOT undertake signifi cant efforts to ensure that the general costs of law enforcement are not allocated to airports. An example is the Audit Report – FAA Oversight is Inadequate To Ensure Proper Use of Los Angeles International Airport Revenue for Police Services and Maximization of Resources , AV-2014-035, Office of Insp ector General, U.S. Department of Transportation (Apr il 8, 2014) (“2014 LAX Audit Report”). 59 The 2014 LAX Audit Report states that the Inspector General “identified about $7.87 million in unsupported charges without adequate documentation for services provided by the Los Angeles Police Department (LAPD) . . . .” 60 The LAX 2014 Aud it Report adds: “Without adequate documentation or support, it is unclear if these charges were used for the capital or operating costs of” LAX. 61 The Report further states: “In 2012, LAWA and FAA stated [that] a

58 ACRP Document, at 25; Shaffer Decl. ¶ 55.

59 Exhibit 11 to Complaint; Shaffer Decl. ¶ 56.

60 Exhibit 11 to Complaint, at 2.

61 Id.30 record-keeping system to track LAPD non-airport work time would be implemented to address allegations of unlawful revenue diversion. . . . Ho wever, because the City [of Los Angeles] has yet to fully implement such a record-keepin g system, LAWA may be incorrectly spending additional revenue on LAPD non-airport work.” 62 The same concerns apply equally to the Po rtland Fees. It would make no sense for federal authorities to ensure, on the one hand, th at an airport pays only for law enforcement

services it receives but th en, on the other hand, allow an airport to be allocated a portion of and pay the costs of utility-type services it does not receive and which have no actual relationship to the airport. 63 The Port asserts that it is “essentially im possible for anyone within Portland’s boundaries to reach PDX without traveling on city streets.” 64 Even if true this statement is irrelevant. Such supposition likely is equally true of virtually every commercial se rvice airport in the country. The fact that there are expenses involved with maintaining City streets located outside of the Airport does not mean that the Airport can be ch arged with those costs, including keeping water off the streets. And once again, the Port ignores that admitted fact that those expenses are not directly and substantially related to air transportation. If the roadway in question was dedicated to accessing the Airport, then the costs might be included w ithin the Airport cost base. Otherwise, the allocation of the roadway mainte nance costs to the Air port constitutes revenue diversion under the Revenue Use Policy. 65

62 Id.

63 Shaffer Decl. ¶ 58; see also id . at ¶¶ 26-28.

64 Port Answer, at 32-33.

65 Shaffer Decl. ¶ 59.31 It is vital that FAA enforce the prohibiti ons against revenue dive rsion. The unlawful revenue diversion at PDX is typical of effort s by local governments to look to airports and airlines to fund municipal financ ial requirements. For example, in October 2015, a Chicago city alderman proposed to impose a surcharge on air tr ansportation to “leverage the value” of O’Hare and Midway Airports to bankroll the hiring of at least 100 additional police officers to combat crime in the City of Chicago. 66 The resolution intr oduced to the Chicago C ity Council called on airlines at O’Hare and Midway to “volunt arily” impose a $1 surc harge on the 100 million passengers who flow through O’ Hare and Midway each year. 67 With regard to the laws against revenue dive rsion from U.S airports, the alderman argued that if the U.S. Senate can make an exception by directing $9.2 billion in airport revenue to the federal highway trust fund as the DRIVE Act require s, then Chicago should be free to use airport

revenue to “save lives.” 68 The alderman also sought to levy a “security fee” on airport

concession contracts. 69 These sorts of efforts to have airports and airlines pay for general city services, in violation of federal law, will continue unless the FAA is vigilant in enforcing the laws against airport revenue diversion, includi ng ruling that the Fees violat e Grant Assurance 25, and the federal statutes and policies agai nst diversion of airport revenue. 70

66 See Fran Spielman, Alderman seeks $1 surcharge on air travelers to fund police hiring ,” Chicago Sun Times (Oct. 14, 2015), http://chicago.suntimes.com/chicagopolitics/7/71/1023944/alderman-proposes-1-surchar ge-airline-passengers-bankroll-police-hiring.

67 Id.

68 Id.

69 Id.

70 Shaffer Decl. ¶ 62.32 THE NON-FINAL JULY 30, 2015 LE TTER FROM FAA DOES NOT OFFER III. ANY LAWFUL REASON FOR EXEMPTING THE FEES FROM THE PROHIBITIONS AGAINST DIVERSION OF AIRPORT REVENUE. The Port seeks to justify its position that th e Fees are not revenue diversion because of the July 30, 2015 letter from Randy Fiertz. 71 Mr. Fiertz expressly stated that his position was not the final position of the FAA. 72 Moreover, the letter does not ar ticular a reasoned explanation or rationale for treating the Fees as “operating costs” of the Airport. Instead, Mr. Fiertz concludes, without supporting analysis, that the Offsite St ormwater Management Charge is an “operating cost of the airport, because it arises as a legal obligation incident to the airport’s possessory interest in land necessary for the provision of aeronautical services .” 73 This explanation is fatally circular: According to the Fiertz letter, because the Port has a possessory interest in land within the City, the payment of the F ees by the Port to the City cannot

constitute unlawful revenue divers ion. However, merely because th e City sends a bill to the Port does not mean that the Port is justified in using Airport funds to pay the bi ll. The Fees constitute unlawful revenue diversion because they are not being imposed in connection with the provision of any service or facility at or to the Airport which is directly and substantiall y related to air transportation. Mr. Fiertz’s st atement ignores this obvious fact. 74 If fees could be imposed on an airport simply because of the airport’s possessory interest in land (as the Port asserts in its Answer), th e federal government’s policy against diversion of airport revenue would be gutted. Non-owner/ operator local governments would have virtually

71 Port Answer, at 21, at 41. The Letter is provided as Exhibit 12 to the Complaint.

72 Letter, at 2.

73 Letter at 1 (emphasis added).

74 Shaffer Decl. ¶ 41.33 unlimited ability to bill airports for charges un related to the capital or operating costs of an airport or the transportation of passengers or property by air. Moreover, every owner/operator of a federally funded airport could spin its airport off to an independent port authority or airport authority and thereby bleed the airport dry of funds under the guise of uniform ratemaking and cost allocation, all withou t providing any actual service or facility to the airport. 75

Mr. Fiertz’s conclusion also contradicts every Director’s Determination and Final Decision and Order which the FAA has published pursuant to 14 C.F.R. Part 16, Rules of Practice for Federally-Assisted Airport Enforcement Proceedings , on the subject of revenue diversion since the beginning of the Part 16 prog ram. Any attempt to change FAA policy in regard to revenue diversion was beyond Mr. Fiertz ’ former authority as Director of Compliance and Management Analysis. 76 Based on Mr. Fiertz’ reasoning, the City could demand as a “legal ob ligation” that the airport pay a city-wide fee to c onstruct a new football stadium or convention center or to hire additional police officers to keep the streets of the city crime free. But neither would relate to an “operating cost” of the airport. Yet under the Fier tz letter, the fee could be imposed by the city on the airport, charged to airlines and paid wi th airport revenues without running afoul of the

revenue diversion laws. 77

75 Shaffer Decl. ¶ 9.

76 Shaffer Decl. ¶ 41.

77 Shaffer Decl. ¶ 42.34 The Port asserts that Complainants have not “developed a ‘more robust record’” as

invited in the Fiertz letter. 78 This contention misstates Compla inants’ challenge to the Fees and unfairly seeks to require Complainants to prove a negative. The fact remains that the Fees have no connection whatever to any services or faciliti es actually provided to the Airport. Given the undisputed fact that the Fees relate entirely to projects external to the Airport, there is no other factual record to be developed. As a legal ma tter, imposition of the Fees on the Airport and its

airline tenants constitutes unlawful revenue diversion. THE OFFSITE STORMWATER MANAGEMENT AND SUPERFUND IV. REMEDIATION FEES ARE NOT AUTHO RIZED BY FEDERAL ACCOUNTING REGULATIONS OR STANDARDS. There is no merit to the Port’s assertion that the Offsite Stormwater Management and Superfund Remediation Fees constitute airport “operating costs” under Attachment B to OMB

Circular A-87. 79 The Fees are not allocable to the Airport based on the criteria described in 2 C.F.R. Part 225 (formerly OMB Circular A-87), and cannot properly be deemed to be PDX operating costs that may be funded with Airport revenues. 80 In December 2013, OMB replaced OMB Circular A-87 with 2 C.F.R. § 200.225. 81 As a result, what previously was Att achment A to A-87 is now Appendix A to 2 C.F.R. § 200.225. In addition, what was Attachment B to A-87 is now Appendix B to 2 C.F.R. § 200.225.

78 Port Answer, at 34.

79 Port Answer, at 24.

80 Jackson Decl. ¶ 3.

81 See Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards , 78 Fed. Reg. 78,589 (Dec. 26, 2013) (F inal Guidance) (OMB “is streamlining the Federal government’s guidance on Administrative Requirements, Cost Principles, and Audit Requirements for Federal awards. . . . This final guidance supersedes and streamlines requirements from OMB Circular s A-21, A-87, A-110, and A-122 (which have been placed in35 Under well-established accounting principles, the Offsite Stormwater Management and

Remediation Fees are not allocable to the Air port because they are not associated with any service or facility that is actually provided to th e Airport. Rather, the costs relate entirely to

services performed outside of the Airport pr operty for the benefit of the City , which is a separate legal entity from the Port. 82 As a general proposition, an airp ort is subject to utility bill s like other entities, provided however that the utility bills ar e for services or facilities provi ded to the airport. So, if a municipality provides water and electricity to an airport it can bill the airport a reasonable and otherwise appropriate charge based on the amount of water and electricity used by the airport. It similarly follows that if the C ity performed stormwater manageme nt services on the Airport, or even with regard to water originating at or ge nerated by the Airport, the City could charge a

reasonable fee for such services. But that is not the situation with regard to the Offsite Stormwater Management and Superfund Remediati on Fees. These charges are being imposed at the Airport despite the fact that the City provide s no services or facilitie s at the Airport. The City does not manage or dispose of the storm water ge nerated at the Airport. Further, there is no evidence that the Airport caused any of the environmental problems being addressed by the Superfund Remediation Fee. 83 The Port asserts that the Fees are “recogni zed operating costs under the [OMB] Circular A-87” and “Generally Accepted Accounting Principles.” 84 When Mr. Fiertz issued his July 30,

OMB guidances)”); 2 C.F.R. § 225.45(b) (“This pa rt supersedes OMB Circ ular A-87”); Jackson Decl. ¶ 15.

82 Jackson Decl. ¶ 21.

83 Jackson Decl. ¶ 22.

84 Port Answer, at 23-27.36 2015 letter, and the Port filed its Answer, OMB Ci rcular A-87 had been replaced by 2 C.F.R. § 200.225. Presumably, Mr. Fiertz and the Port inte nded to refer to section 200.225 rather than the superseded OMB Circular A-87. In any event, neither 2 C.F.R. § 200.225 nor its predecessor OMB Circular A-87 defines allowable “operati ng costs.” Rather, both regulatory documents

include “Selected Items of Cost ” that are allowable if they meet the allocability and reasonableness criteria. These are, essentially, a list of cost categories. OMB did not presume in Circular A-87, nor does it now presume, that th e referenced costs are allowable by virtue of

inclusion on the list of “Selected Items of Cost.” 85

The Port maintains that the Fees are Airport “operating co sts” under OMB Circular A-87 [now, 200 C.F.R. § 200.225] and GAAP as “utility charges.” 86 However, the fact that the Fees are for utility-type services is i rrelevant given the fact that the “utilities” are not being provided at or to the Airport. Inclusion on the list of “S elected Items of Cost” do es not in and of itself make the cost allowable. The overriding criteria of allocability and reasonableness must be met first. In the case of the Airpor t, the costs of the services in question are not al locable since the Airport receives no services from th e City in exchange for the Fees. 87

The Port contends that section 25 of “Attach ment B to OMB Circular A-87” (presumably a reference to section 25 of Appendix B to 2 C. F.R. § 200.225) “speaks direc tly to ‘the cost of utilities’ and finds such costs perm issible in the circumstances here.” 88 Again, it is irrelevant that the Fees relate to “utilities” where, as here , the alleged utilities are not being provided to or

85 Jackson Decl. ¶ 23.

86 Port Answer, at 22-25

87 Jackson Decl. ¶ 24.

88 Port Answer, at 24.37 at the Airport. Because the Ai rport receives no services , the costs of the Fees are not allowable since they do not meet OMB’s criteria for cost allocation. 89 Although section 25 of Appendix B to 2 C.F.R. § 200.225 refers to the “cost of utilities,” it provides that such costs are “allowable to the ex tent that they” keep the subject property “in an efficient operating condition.” However, the Of fsite Stormwater Management and Superfund Remediation Fees do not keep th e Airport “in an efficient opera ting condition.” The Fees have no connection to the Airport. The Fees may be fo r services that help to keep roads outside the Airport in “an efficient operating condition,” and help compensate the City for the environmental cleanup of a river (the Willamette) not connected to the Airport. But the charges do not keep PDX in an “efficient operating condition.” 90 The fact that 2 C.F.R. § 200.225 and other re gulations, standards a nd policies allow for

the allocation of some indirect costs is not relevant to the Fees because in order for indirect costs to be allocated they must be related to operating (o r capital) costs of the ai rport. For example, if a city owns and operates an airport, the city ma y be able to allocate a portion of its overhead expenses to the airport, given that some level of city government management will relate to operation of the airport. However, that is not the case with PDX and the Fees, because the City of Portland does not own or operate the Airport. The City does not have overhead or other indirect expenses that it can allocate to the Ai rport. As stated above, “the costs allocated must themselves be eligible for expenditure of airport revenue under section [49 U.S.C. §] 47107(b) .” 64 Fed. Reg. at 7706 (emphasis added). See also id. (“ The cost items that may be charged to airport revenue are determin ed by the requirements of section 47107(b) ”

89 Jackson Decl. ¶ 25.

90 Jackson Decl. ¶ 26.38 (emphasis added); id. (neither the airport operator nor FAA can “ rely solely on compliance with

OMB Circular A-87 to assure that the costs it ems charged to the airport in a Federally approved cost allocation plan are consistent with section 47107(b)” ). Because the costs

associated with the Fee are incurred for the benef it of the City and not the Airport, they are not allocable to the Airport. 91 The Port also asserts that “all ratepayers in the City” – “including the Airport” – benefit

from the removal of stormwater from th e City’s public rights-of-way . . . .” 92 For cost accounting purposes this is an irrelevant statement. There could be any nu mber of facilities and services provided external to the Airport which may provide some sort of indirect “benefit” to the Airport. The potential list is infinite. It includes, with out limitation, a thriving economy, reasonable taxes, a professiona l and trained police, fire a nd rescue and ambulance force throughout the City, street lightin g, public parks and attractions, a modern public transit system and various other municipal amenities. But none of these services and facilities would be deemed to keep the Airport in an “efficient operating condition;” nor do the Offsite Stormwater Fees or the Superfund Remediation Fees. 93 The Port additionally contends that “[s] upport for the treatment of utility costs under GAAP is found in the Federal Accounting Standard Advisory Board, FASAB Handbook of Federal Accounting Standards and Other Pronouncements, as Amended (June 30, 2015) (the ‘FASAB Handbook’).” 94 The Port’s reliance on the FA SAB Handbook is erroneous. Statement

91 Jackson Decl. ¶ 27.

92 Port Answer, at 25 (emphasis added).

93 Jackson Decl. ¶ 28.

94 Id. at 39 (emphasis added).39 of Federal Financial Accounting Concepts (S FFAC) 5 in the FASAB Handbook states that “[g]enerally accepted accounting principles rec ognize the importance of reporting transactions

and events in accordance with their substance .” 95 In considering whether the Fees constitute “operating costs” of the Airport, one must not ignore the “substance” of the transaction – which is that the Fees reflect expenses incurred for projects external to the Airport for the benefit of the City and not the Airport

. 96

THE OFFSITE STORMWATER MANAGEMENT AND SUPERFUND V. REMEDIATION FEES ARE NOT “OPE RATING COSTS” PURSUANT TO PORT BOND ORDINANCE 155. The Port erroneously asserts that “under the terms of” the Bond Ordinance, the Offsite Stormwater Management and Superfund Remedi ation Fees “are properly categorized as operating expenses of the Airport.” 97 Veteran public finance attorney Joan Stern opines that neither the Bond Ordinance nor custom and pr actice in the municipal bond industry supports treating the Offsite Stormwater Management and Superfund Re mediation Fees as Airport operating costs or expenses. 98 The fact that section 13.1(g) of the Bond Ordi nance includes “costs of utility services” in the definition of “Costs of Operation and Maintena nce” is irrelevant with regard to the Offsite Stormwater Management and Superfund Remediati on Fees. In order for utility charges to constitute “operating costs” or “operating expenses ” of the Airport, the utility services must be actually provided to the Airport. That is not th e case here, and the Fees are not being imposed in

95 Id. (emphasis added); http://files. fasab.gov/pdffiles/2015_fasab_handbook.pdf.

96 Jackson Decl. ¶ 29.

97 Port Answer, at 28.

98 Stern Decl. ¶ 5.40 exchange for any services actually provided to the Airport. Fo r this reason, the Fees are not “operating costs” or “operating expenses,” whether characterized as costs of “utilities” or something other cost under the Bond Ordinance. 99

The Bond Ordinance states that it was enacted November 10, 1971, and amended and restated in 1993, 1994 and 1999. 100 The Bond Ordinance provides certain covenants as to the

revenues derived from PDX “AND THE USE AND APPLICATI ON OF SUCH REVENUES.” Bond Ordinance, Title, at 1. 101 Section 2(c) of the Bond Ordi nance defines “Airport” to mean Portland International Airport. Section 2(m) stat es that “Costs of Operation and Maintenance” shall have “the meaning given to such term in Section 13 hereof.”

Section 13 of the Bond Ordinance is titled “The Airport Revenue Fund; Application of

Revenues.” It states that “the Port shall create and establish a sp ecial trust fund of the Port, to be known and designated as ‘The Port of Portland Airport Revenue Fund’ (herein defined and referred to as the ‘Airport Fund’) and to be held and administered by the Port hereunder so long as any of the Bonds are outstanding.” Section 13 adds that “the moneys deposited, or to be deposited, in the Airport Fund shall not be commi ngled with any other moneys of the Port; shall be used and applied only in the manner and for th e purposes hereinafter provi ded in this section;

and shall be withdrawn from said Fund for sa id purposes only if in accordance with such procedure as is provided by law.” 102

99 Stern Decl. ¶ 6.

100 Bond Ordinance, cover page.

101 Bond Ordinance, Title, at 1.

102 Stern Decl. ¶ 12.41 Section 13.1 of the Bond Ordinance states that the “Revenues in the Airport Fund shall be . . . first used and applied by the Port to the pa yment of the Costs of Op eration and Maintenance of the Airport.” Section 13.1 defines the term “Costs of Operation an d Maintenance” of the Airport to mean: “the reasonable a nd necessary current expe nses of the Port included as a Cost of Operation and Maintenance in the annual Ai rport budget required by Section 15 hereof for operating, maintaining a nd repairing the Airport .” (Emphasis added) The bold language makes clear that in order to be a “Cost of Op eration and Maintenance” the expense must be for the express purpose of “operating, main taining and repairing the Airport.” 103 Subsection 13.1(g) of the Bond Ordinance incl udes “costs of utility services” within the definition of “Costs of Operation and Maintenanc e.” However, reading Section 13.1 as a whole, and in the only possible reasonable manner, it is clear that in order to be included within the “Costs of Operation and Maintenanc e” of the Airport, the “costs of the utility services” must be incurred for utility serv ices received in connection with “ope rating, maintaining and repairing the Airport.” 104

There is no merit to the Port’s assertion that the Offsite Stormwater Management and Superfund Remediation Fees constitute “operating costs” or “operating e xpenses” of the Airport pursuant to the Bond Ordinance. The Port asse rts that the “Bond Ordinance” defines the term “costs of operation and maintenance” as “the re asonable and necessary current expenses of the Port included as a cost of operation and mainte nance in the annual Airport Budget,” and that under the Bond Ordinance, the “Cost of Opera tion and Maintenance” in cludes the “costs of utility services.” Port Answer, at 28 (citi ng Bond Ordinance, §§ 13.1, 13.1(g)). Although that

103 Stern Decl. ¶ 13.

104 Stern Decl. ¶ 14.42 may be a correct statement of what the Bond Ordi nance states, it does not establish that the Fees are, in fact, PDX operating expe nses and begs the question whether the Offsite Stormwater Management and Superfund Remediation Fees are imposed in connection with actual services provided to the Airport for the operation, maintenan ce or repair of PDX. Here, the Airport does

not receive actual services in ex change for the Fees, and, as stat ed above, they are not “operating costs” or “operating expenses” permissible under the Bond Ordinance as “costs of utility

services.” 105

To the extent that the Fees are considered to be “costs of utility services,” the “utility services” are being provided to the City of Por tland – and not to the Air port. The inclusion of “costs of utility services” in section 13.1(g) of the Bond Ordinance in the enumeration of “Costs of Operation and Maintenance nece ssarily implies that the utility services in question have been provided to the Airport. 106 Airport bond ordinances are carefully drafted to be precise in their meaning. Here, the drafters of the Bond Ordinance unmistakably inte nded to limit the scope of relevant “utility services” to utility services that have been provided “ for operating, maintaining and repairing the Airport .” The Offsite Stormwater Management and Superfund Remediation Fees are not based on any services relating to the ope ration, maintenance or repair of PDX. 107 The Port asserts that it “is unlikely that the Port could have successfully marketed its bonds if investors did not regard ‘the costs of utility services’ as proper airport operating expenses.” 108 However,

105 Stern Decl. ¶ 15.

106 Stern Decl. ¶ 16.

107 Stern Decl. ¶ 17.

108 Port Answer, at 28.43 the only “costs of utility services” that may be treated as Airport operati ng costs under the Bond Ordinance are utility services actually provided to the Airport. That is not the case with the

Fees. 109 The custom and practice in the United States airport bond industry is to use revenues of the airport pledged to debt serv ice on airport bonds to pay cost s and expenses actually incurred by the airport as operating expenses, not costs a nd expenses relating to services that are not provided to the airport. Airport bond ordinances or indentures do not authorize an airport to use airport revenues to pay fo r “utilities” or other expenses for se rvices not actually provided to the airport and which are unrelated to the operation, maintenance or repair of the airport. 110 Section 13.1(m) of the Bond Ordinance provid es as the final enumerated category of Costs of Operation and Maintena nce “all other costs a nd expenses of operating, maintaining and repairing the Airport arising in the routine and normal course of business (emphasis added).” The use of this phrase in this clause means that all Costs of Operation and Maintenance arise in

the routine and normal course of business of the Airport. The F ees by their nature do not fit

within this definition. 111 The Port Answer (page 27) refers to a Tr ansportation Research Board policy paper and quotes language stating that the “ bond indenture defines what may or may not be included in the definition and computation of airport revenues and expenses.” This is correct. However, for the reasons set forth above, the Bond Ordinan ce does not include the Offsite Stormwater

109 Stern Decl. ¶ 18.

110 Stern Decl. ¶ 19.

111 Stern Decl. ¶ 20.44 Management and Superfund Remediation Fees within its definition of Airport operating costs or

expenses. 112

The Port Answer also refers to the PDX 2015- 2016 budget, which is attached as Exhibit 5 to the Port Answer. Pages 72 and 104 of the Ai rport budget in Exhibit 5 (cited in the Port Answer, at 28) do not specifically reference either the Offsite Stormwater Management Fee or the Superfund Remediation Fee. However, even if the amounts of the Fees are included in the Airport budget under the general cat egory of “utilities,” they still would not be authorized by the

Bond Ordinance unless the Fees were “ reasonable and necessary current expenses of the Port included as a Cost of Operation and Mainte nance . . . for operating, maintaining and repairing the Airport .” Bond Ordinance § 13.1 (emphasis adde d). As set forth above, the Fees are not necessary for either the operation or mainte nance of the Airport. Rather, the Fees are for services provided entirely out side of the Airport property. 113

THE OFFSITE STORMWATER MANAGEMENT AND SUPERFUND VI. REMEDIATION FEES ARE UNLAWFUL TAXES RATHER THAN APPROPRIATE USER FEES. The Complaint asserts “the City’s fees, co llected and remitted by the Port, cannot be justified as a “tax” because Oregon state law prohibits the City from imposing a tax at the Airport. 114 Specifically O.R.S. § 307.090(1) states: Except as provided by law, all property of the state and all public or corporate property used or inte nded for corporate purposes of the several counties, cities, town s, school districts, irrigation districts, drainage districts, ports , water districts, housing authorities, public universities . . . and all other public or municipal corporations in this state, is exempt from taxation

.

112 Stern Decl. ¶ 21.

113 Stern Decl. ¶ 22.

114 Complaint ¶ 77.45 (Emphasis added); see Chizek v. Port of Newport , 252 Or. 570, 572, 450 P.2d 749, 751 (1969) (“Taxes could not validly be levied against the pa rcel when it was property of the Port because the Port is tax exempt”). In response, the Port asserts that the Fees are not a “tax” because they “are imposed not on a property’s owner, but on its occupant – the person ‘who has the right to possession of a property.’” 115 In support, the Port cites Knapp v. City of Jacksonville, OR , 342 Or. 268, 151 P.3d 143 (2007), where the Oregon Supreme Court ru led that a $15 public safety surcharge was not an unauthorized municipal tax because it wa s imposed solely on persons responsible for paying sewer and water bills, rather than the owners of the property where such persons resided. Knapp is inapposite because th e City imposes the Fees on the Port of Portland as the owner and operator of the Airport . And the Port’s reliance on Knapp is directly contrary to its adoption of the reasoning in the Fiertz letter – namely, that th e Fees are lawful because the Port owes them as

a result of the “ airport’s possessory interest in la nd necessary for the provision of

aeronautical services .” 116 The Port alternatively concedes that the Fees “bear indications of being a tax” because they are “imposed by a legislative body on a ll property occupants,” and “‘imposed by the legislature upon a large segment of society, a nd [are] spent to benefit the community at large.’” 117 The Port adds that the Fees “are impose d to address or remediate transportation and environmental issues that impact a broad segment of the population.” 118

115 Port Answer, at 41 n. 20.

116 Letter at 1 (emphasis added).

117 Port Answer, at 41 n. 20 (citation and internal quotation marks omitted).

118 Id.46 This concession by the Port that the Fees appear to be a tax is highly significant, as the

Fees therefore would be in ex cess of the City’s authority. See Fulton Cty. Taxpayers Ass’n v. City of Atlanta , No. 1999CV05897, 1999 WL 1102795, at *2-3 (Ga. Super. Ct. Sept. 22, 1999) (stormwater charge imposed by the City of Atlant a was an unlawful tax rather than a legal fee because it was “intended to generate revenue to be used for public or governmental purposes” rather than as “a payment for services rendered); see also id. at *3 (“If the Cour t were to find that the assessment was a fee, the fee would be unlawf ul because ‘a municipality cannot impose a fee

for services that have not b een provided. An assessment levi ed in excess of the benefit arbitrarily deprives a person of his property’”); Bolt v. City of Lansing , 459 Mich. 152, 159, 587 N.W.2d 264, 272-273 (1998) (“the storm water serv ice charges imposed by Ordinance 925 is a

tax and not a valid user fee. To conclude otherwise would perm it municipalities to supplement existing revenues by redefining various government ac tivities as ‘services’ and enacting a myriad of ‘fees’ for those services”); Cmty. Housing Mgmt. Corp. v. City of New Rochelle, 381 F. Supp. 2d 313, 320 (S.D.N.Y. 2005) (c ity user fee for refuse collection and disposal was a “tax” rather than a “user fee” where the tax was imposed “upon all owners of improved properties in the City, not just on those property owners who use the re fuse collection services provided by the City”). Because the City lacks power to tax the Airpor t, the Fees are unlawful. The Port cannot try to shirk its obligat ions under Grant Assurance 25 and fede ral statutes and policies against revenue diversion by agreeing to pay “taxes” to the City which the City is prohibited from imposing on the Port. In addition, if FAA agrees that the Fees are a “tax” rather than a “fee,” it must find that the Fees violate the Revenue Use Policy because there is no linkage be tween the amount of the charges and any services actually provided to the Airport. Section VI(B)( 5) of the Revenue Use47 Policy states that “Prohibited uses of airport reve nue include . . . Payments in lieu of taxes, or other assessments, that exceed the value of serv ices provided or are not based on a reasonable, transparent cost allocation formul a calculated consistently for other comparable units or cost centers of government.” (Emphasis added). Thus, a payment “in lieu of taxes” cannot be charged if the payment either (1) exceeds “the va lue of services provided,” or (2) is not based on a “reasonable, transparent cost allocation formula calculated consistently for other comparable units or cost centers of government.” Even assumi ng, for the sake of argument, that the Fees are applied uniformly across the City, the fact remains that there is no service provided by the City to the Airport in exchange for the Fees . Thus, as a matter of law the Fees exceed “the value of services provided” to the Airport. THE FEES ARE NOT AUTHORIZED BY THE ANTI-HEAD TAX ACT. VII. The Fees cannot be found to be lawful under the Anti-Head Tax Act (“AHTA”), 49 U.S.C. § 40116. The AHTA provides that a “State ,” and “a political subdivision of a State” “may not levy or collect a tax, fee, head charge, or other charge on – (1) an individual traveling in air commerce; (2) the transportation of an individual traveling in air commerce; (3) the sale or air transportation; or (4) the gross receipts from that air commerce or transportation.” 49 U.S.C. § 40116(b). The AHTA contains a limited exception for “a State or political subdivision of a State” to “levy or coll ect – (1) taxes (except those enumerat ed in subsection (b) . . .), including property taxes, net income taxes, franchise taxes, and sales or use taxes on the sale of goods or services; and (2) reasonable rental charges, land ing fees, and other service charges from aircraft operators for using airport facilitie s of an airport owned or operated by that State or subdivision.” 49 U.S.C. § 40116(e). The Offsite Stormwater Management and S uperfund Remediation Fees do not qualify under any provision of the AHTA. The Fees are not property taxes, net income taxes, franchise48 taxes or sale or use taxes on the sale of goods or services. They also are not reasonable rental charges, landing fees or other se rvice charges “for using airport fa cilities of an ai rport owned or operated” by the City. 119 In its Answer, the Port asserts that if the Fees are “deemed to be a tax for purposes of Federal law, they would be outside the prohibition of the Anti-Head Tax Act.” 120 To make this argument, the Port asserts that the “safe harbor provisions” in section 46110(e) of the AHTA are “illustrative, not exclusive” as to the “types of taxes permitted.” That is irrelevant. What is clear is that nothing in the AHTA authorizes a govern ment entity that does not own or operate an airport to impose purported user fees or utility charges that are not provided in exchange for services or facilities actually given to the airpor t. Moreover, because the City lacks authority to impose a tax on PDX, the characterization of the Fees as a “tax” means that they Fees are

unlawful. CONCLUSION For the reasons set forth above, and in the Complaint, Complainants respectfully request

that the FAA issue a final or der declaring that the Offsite Stormwater Management and Superfund Remediation Fees violate federal statut es against diversion of airport revenue (49 U.S.C.§§ 47133, 47107(b) and 47107( k); Grant Assurance 25; the FAA Revenue Use Policy; and FAA policy and practice relating to diversion of airport revenue.

119 See City and County of Denver v. Continental Air Lines, Inc., 712 F. Supp. 834, 840 (D. Colo. 1989) (“This Court is convinced after examining the legislative history and purpose of the AntiHead Tax Act that in order to avoid the double taxation of ai r passengers in air commerce through local and federal use taxes, Congress prohi bited the imposition of such local taxes, fees, and charges that would be pa ssed on to the flying public except where those taxes, fees, and charges are to be used to operate and mainta in the presently existing airport facilities”).

120 Port Answer, at 41 n. 20.49 Respectfully submitted,

/s/ David Berg David Berg Vice President & General Counsel Doug Mullen Assistant General Counsel Air Transport Association of America, Inc. d/b/a Airlines for America 1275 Pennsylvania Avenue, N.W. Suite 1300 Washington, D.C. 20004 (202) 626-4234 Email: dberg@airlines.org dmullen@airlines.org Dated: May 25, 2016 /s/ Roy Goldberg Roy Goldberg Steptoe & Johnson LLP 1330 Connecticut Avenue, N.W. Washington, D.C 20036 (202) 429-8028 Email: rgoldberg@steptoe.comCERTIFICATE OF SERVICE I hereby certify that on the 25th day of May, 2016, I caused the foregoing Reply of Complainants Air Transport Association of America, Inc. et al. to be serv ed electronically by or via email on the following: Pablo O. Nuesch, Esq. Spiegel & McDiarmid LLP 1875 Eye Street, N.W. Suite 700 Washington, D.C. 20006 Email: Pablo.nuessch@spiegelmcd.com Counsel for Respondent Port of Portland

Roy Goldberg Roy GoldbergAMENDED CERTIFICATE OF SERVICE I hereby certify that on the 25th day of May, 2016, I caused the foregoing Reply of Complainants Air Transport Association of America, Inc. et al. to be serv ed electronically by or via email on the following: Pablo O. Nuesch, Esq. Spiegel & McDiarmid LLP 1875 Eye Street, N.W. Suite 700 Washington, D.C. 20006 Email: Pablo.nuesch@spiegelmcd.com Counsel for Respondent Port of Portland

Roy Goldberg Roy Goldberg

## EXHIBIT 1 DECLARATION OF D. KIRK SHAFFER2 UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C.

AIR TRANSPORT ASSOCIATION OF AMERICA, INC. d/b/a AIRLINES FOR AMERICA, ALASKA AIRLINES, INC., AMERICAN AIRLINES, INC., ATLAS AIR, INC., FEDERAL EXPRESS AIRLINES, HAWAIIAN AIRLINES, INC., HORIZON AIR, JETBLUE AIRWAYS INC., SOUTHWEST AIRLINES CO., UNITED AIR LINES, INC., UNITED PARCEL SERVICE CO., and AIR CANADA, Complainants,

v. PORT OF PORTLAND, OREGON, Respondent. FAA Docket No. 16-16-04

DECLARATION OF D. KIRK SHAFFER I, D. Kirk Shaffer, hereby declare and st ate as follows, under penalty of perjury:

1. I am an aviation attorney and former Fe deral Aviation Administ ration official in Washington, D.C., with 30 years' experience in the U.S. commercial aviation industry, and particular expertise in federal policies and in dustry practice relating to airports and their relationships with airlines.

2. I have been retained as an expert by the Air Transport Association of America, Inc., d/b/a Airlines for America (“A4A”), and its member airlines, with regard to the abovereferenced Federal Aviation Administration (“ FAA”) proceeding under 14 C.F.R. Part 16 relating to “Offsite Stormwater Manageme nt Fees” and “Superfund Remediation Fees” (collectively, the “Fees”) impos ed by the City of Portland, Or egon (the “City”) at Portland3 International Airport (“PDX” or “Airport”). This Declaration is being submitted in connection with the A4A reply filed with FAA on May 25, 2016.

3. I specifically have been asked to evaluate and respond to statements relating to the Fees made by FAA official Randy Fiertz in a letter dated July 30, 2015, in his previous role as the Director of Airport Compliance for FAA, and assertions made by the Port in the Port Answer claiming that the Fees constitute “operati ng costs” of the Airport, and, therefore, do not

constitute the unlawful dive rsion of Airport revenue.

4. It is my opinion, which I hold to a reas onable degree of professional certainty, that the imposition by the City of the Off- Site Stormwater Management and Superfund Remediation Fees on the Airport and its airline te nants constitutes unlawfu l diversion of Airport revenue in violation of the FAA “Policy and Procedures Concerning the Use of Airport Revenue” 64 Fed. Reg. 7696 (Feb. 16, 1999) (“Revenue Use Policy”). I categ orically reject the Port’s assertion that the Fees constitute “operating costs” of PDX. In order to constitute an airport operating cost, a fee must be imposed in exchange for a service or facility actually provided to, or being used by, th e airport. The Fees are not operating costs of the Airport because they are not imposed in exchange for any se rvice or facility actually provided to or used by the Airport. Rather, the Fees relate to servic es and facilities that are being provided external to, and not for use by, the Airport.

5. Underlying the Revenue Use Policy is the Congressional object ive of having an integrated national system of safe, efficient airp orts which are financially self-sufficient to the greatest extent possible, and which do not rely on local and state taxes to fund their operations and capital programs. A corollary to the Reve nue Use Policy is Congress’s support of safety, security, capacity, and noise mitigation capital pr ojects through grants from the federal Airport4 and Airway Trust Fund. These grants are measur ed in billions of dolla rs each year and are derived from federal ticket taxes, freight wayb ill taxes, and fuel taxes paid by users of the aviation system. The FAA is responsible for achieving Congress’s objectiv es and administering

the Trust Fund.

6. As the aviation industry has matured, la rge airports like PDX have become financial engines in their own right, capable of generating substantial amounts of revenue, funding very substantial capital pr ojects, and issuing highly rated debt. Congress has recognized that, especially in times when municipalities are f aced with rising costs of providing basic services or a declining tax base or both, the temp tation to divert that su bstantial airport revenue

“downtown” or treat the local ai rport as a “cash cow” can be very strong, even overwhelming. Thus, for decades now, Congress has passed increasingly strong prohibitions against revenue

diversion such as the Portland Fees. The FAA in response has published increasing strong policy statements and orders in support of the Congres sional requirements and re strictions on airport revenue use. The Revenue Use Policy is one example.

7. If FAA were to allow the City to impose the Offsite Stormwater Management and Superfund Remediation Fees on the Airport and its airline tenants, it would directly and substantially undermine the ai rport funding system which Congress has mandated and strengthened over many years. For exam ple, any airport capacity project ( e.g . runway, taxiway) in current times is a very expensive proposition normally requiring a combination of grants, debt, and local airport revenue to complete . If an airport permits (or is forced to permit) its revenue to be committed to non-airport projects elsewhere in the city, it will have to generate even more revenue by raising its rates and charges, which ar e paid by airlines and other airport users, to make up the difference and remain self-sufficient (as the law requires). Airlines will be charged5 higher rates and charges, which in turn can lead to increased airfares and shipping charges. Permitting diversion like the Portland Fees is an indirect, illegal transfer from the federal treasury to the local government.

8. Imposition of the Fees on the Airport a nd its airline tenants would create a dangerous precedent pursuant to which cities and other local governments will siphon money from their airports for municipa l projects – not only for off-s ite stormwater management and Superfund cleanup expenses – but also other local f unctions, such as general safety and security, commercial development, and civic pride – simply because the airport is being treated the same as other persons and entities within the city. In short, the Port is seeking an “exception” to the prohibition against diversion of airport revenue that threatens “to swallow the rule.”

9. If fees could be imposed on an airport si mply because of the airport’s possessory interest in land (as the Port asserts in its Answer), the federal government’s policy against diversion of airport revenue w ould be gutted. Moreover, every owner/operator of a federally funded airport could spin its airpor t off to an independent port au thority or airport authority and thereby bleed the airport dry of funds under the guise of uniform ratemaking and cost allocation, all without providing any actual service or facility to the airport.

10. The only way to protect against the unlawfu l diversion of airport revenue is to follow a hard-and-fast rule that revenue generate d on the airport remains on the airport. Airport generated revenues can be used for the provision of services and facilities to the airport . But the Offsite Stormwater Management and Superf und Remediation Fees are not being imposed in exchange for services and facilities being provided to PDX . This results in a classic case of

unlawful revenue diversion.6 BACKGROUND AND EXPERIENCE

11. From January 2007 to January 2009 I served as the FAA Associate Administrator for Airports, where I was the senior federal o fficial with responsibility for policy matters affecting the nation’s system of commercial airports . In that role I was the final agency decisionmaker for airport compliance issues, includ ing airport obligations under federal Grant

Assurances.

12. For the 18 years prior to my service with the FAA I was the general counsel for the Metropolitan Nashville Airport Authority. In that position I was in ch arge of legal issues relating to the airport’s compliance with its fe deral Grant Assurance obligations resulting from its acceptance of federal funds for airport projects. 1 The Off-Site Stormwater Management and Superfund Remediation Fees

13. On September 9, 2012, the City adopted Ordinance 185610 (t he “Ordinance”), which imposes a new methodology for charging for storm water management services. Under the methodology, the Port – as the owner and opera tor of PDX – must pay a portion of the costs incurred by the City to manage “off-site” storm water drainage from non-airport rights of way (the “Offsite Stormwater Management Fees”) , and for the clean-up of a Willamette River Superfund site having no relationship to PDX (the “Superfund Remediation Fees”).

14. The Offsite Stormwater Management Fees are intended for the City to recover the costs to treat storm water on or adjacent to road ways not on Airport property and otherwise not owned by a private party. PDX has its own stormw ater treatment facility located within the airfield perimeter fence. The PDX system collects airfield storm water (including deicing

1 A statement of my relevant education and e xperience is set forth in Appendix A hereto.7 materials during the deicing season) as well as run-off stormwater from Marine Drive (on the Columbia River Levee bordering th e Airport on the north side) wh ich is owned by the City. I have been informed by counsel for A4A that no portion of the City’s offsite stormwater management service is used by the Airport or its airline tenants.

15. The Superfund Remediation Fee relates to the City’s involvement in the Portland Harbor Superfund Site. This involves the Willamette River, which has no connection to the Airport and is in a separate watershed from the Portland Harbor according the U.S. Environmental Protection Agency (the “EPA”) and the City of Portland. Documents produced by the EPA describing the pollution in the Superfund site detail the nature of the pollution and its

sources and make no mention what soever of PDX, which is on the banks of the Columbia River in another, separate waters hed, or any of its tenants.

16. As stated above, Congress has over the pa st several decades enacted increasingly strict statutes governing the us e of airport revenue and prohibi ting its diversion to non-airport purposes. The regulatory scheme by which federa lly-funded airports and th eir revenue presently operate derives from the Airport and Airway Im provement Act of 1982 which is now codified in Title 49 of the United States Code. Excerpts of th at statute and subsequent statutes bearing on Portland’s imposition of the Fees follow.

17. 49 U.S.C. § 47133(a) states that “the reve nues generated by an airport that is the subject of Federal assistance may not be expend ed for any purpose other than the capital or operating costs of – (1) the airport ; (2) the local airport system; or (3) any other local facility that is owned or operated by the person or entity that owns or operates the airport that is directly and substantially related to the air tr ansportation of passengers or property .” (Emphasis added)8 18. The Offsite Stormwater Management a nd Superfund Remediation Fees are not “operating costs” of the Airport and also are no t “directly and substantially related to the air transportation of passengers or property.” The Air port’s stormwater is treated on and adjacent to the Airport in facilities paid for by the Airport an d its airline tenants. Th e Airport pays directly for the operation of these facilities.

19. The Airport’s stormwater does not go into the City’s stormwater system. Further, no review on my part of analysis by the EPA, th e City’s Bureau of Environmental Services, or the Oregon Department of Environmental Quality nor any assertion of repres entatives of the City

or the Port of Portland i ndicates that the Airport or the airlin es serving it are responsible in any manner for the contamination in the Willamette River Superfund site. I am informed by counsel for A4A that representatives of the City of Por tland and the Port of Portland do not dispute these facts. As such, neither the City’s costs of stormwater handling and treatment, Superfund site cleanup, Offsite Stormwater Management Fees, nor Superfund Remediation Fees are related to services the Airport receives or the air transpor tation of passengers or pr operty in any manner or degree and, consequently, are not op erating costs of the Airport.

20. 49 U.S.C. § 47107(b)(1) states that “the Secretary of Transportation may approve a project grant application for an airport deve lopment project only if the Secretary receives written assurances, satisfactory to the Secretar y, that . . . the revenues generated by a public airport will be expended for the capital or operating costs of – (A) the airport ; (B) the local airport system; or (C) other local facilities ow ned or operated by the airport owner or operator

and directly and substantially related to the air transp ortation of passengers or property .” (Emphasis added.) When the Port accepts federal grant funds from FAA, it must agree to certain9 assurances which become part of the final grant and a contractual obligation 2 One of these, Grant Assurance 25, Airport Revenues, states: All revenues generated by the airport and any local taxes on aviation fuel established after December 30, 1987, will be expended by it for the capital or operating costs of the airport; the local airport system; or other local facilities which are owned or operated by the owner or operator of the airport and which are directly and substantiall y related to the actual air tr ansportation of passengers or property. Some grant assurances remain in effect for onl y twenty years. However, Grant Assurance 25 lasts as long as the airport receiving the grant conti nues to be used as an airport. Further, every time an airport such as PDX receives an FAA grant, the airport’s counsel is required to give an opinion that the grant assurances constitute a le gal and binding obligation of the airport sponsor (here, the Port). Violation of grant assurances ma y result in the airport being ineligible to receive future airport grants, being cut-off from conti nued funding on current gran ts, and recoupment by the federal government of moni es paid to the airport, along with additional penalties.

21. 49 U.S.C. § 47107(k), titled “Policies and Procedures to Ensure Enforcement Against Illegal Diversion of Ai rport Revenue,” directed the Se cretary of Transportation to “establish policies and procedures that will assure the prompt and effective enforcement” of grant assurances relating to th e prohibition against diversion of airport revenue. Section 47107(k)(1). Congress specified th at the policies and procedures against diversion of airport revenue “shall prohibit, at a minimum . . . (A) Dir ect payments or indirect payments, other than payments reflecting the value of services and facilities provided to the airport .” 49 U.S.C. § 47107(k)(2)(A) (emphasis added).

2 The federal airport Grant assura nces may be downloaded at http://www/faa/gov/airports/aip/grant_assuran ces/media/airport-spon sor-assurances-aip.pdf10 22. The Offsite Stormwater Management and Superfund Remediation Fees do not

reflect “the value of services a nd facilities provided to” PDX. Representatives of the City and the Port do not even assert that facilities are pr ovided to PDX or that the services of any City facilities or non-airport Port f acilities related to stormwater management or Superfund cleanup are provided to PDX.

23. Congress also made clear that the policie s and procedures against diversion of airport revenue also must prohib it “use of airport revenues for general economic development, marketing, and promotional activities unrelated to airports or airport systems .” 49 U.S.C. § 47107(k)(2)(B) (emphasis added). Therefore, the fact that the fees may promote the general economic development of a city in which an ai rport is located, or marketing and promotional activities, is insufficient to justif y the imposition of the fees for activ ities “unrelated to airports or airport systems.”

24. A specific example of the prohibition agai nst use of airport revenues for general economic development is the inability of a federally funded airport to participate generally in a city-wide promotional campaign spons ored by the local ch amber of commerce. It is quite typical for a commercial service airport to be a chamber of commerce member, as airports are economic drivers in most communities they serve. None theless, paying for promotional activities which market the city as a whole w ithout direct relation to the ai rport are prohibited as revenue diversion, and the FAA has routinel y reaffirmed this principle. The FAA Revenue Use Policy

25. Pursuant to 49 U.S.C. § 47107(k), the FAA in 1999 issued its “Policy and Procedures Concerning the Use of Air port Revenue” 64 Fed. Reg. 7696 (Feb. 16, 1999) (“Revenue Use Policy”). Tracking the federal st atutes against airport revenue diversion, the11 Revenue Use Policy defines “revenue diversion” as “the use of airport revenue for purposes other than the capital or operating costs of the ai rport, the local airport system, or other local facilities owned or operated by th e airport owner or operator and directly and substantially related to the air transportati on of passengers or property . . . .” Revenue Use Policy, Section VI(A), 64 Fed. Reg. at 7720 (emphasis added).

26. A clear analogy to the Fees imposed by th e City in this in stance is the longrunning dispute between the FAA and Los Ange les International Airp ort (“LAX”) over law enforcement costs unrelated to LAX. Beginni ng in the 1990s and continuing at least through 2014, LAX has made payments to the City of Los Angeles for payroll and other costs of police officers on and around the airport. Millions of do llars of such payments have repeatedly been found to be illegal by the FAA and the Insp ector General of the U.S. Department of Transportation because they have determined th at 1) the officers never performed duty on the airport, 2) they were not authorized in the fi rst place, 3) there was no documentation to justify the actual costs, 4) the city’s allocation formul a was not reasonable and/or 5) FAA oversight was inadequate to discover the illegal payments.

27. Some have argued that it was a benefit to LAX to have a well-policed community around the airport and in the C ity of Los Angeles as a whol e, but the FAA and DOT have consistently ruled that, whatev er the merits of good policing ge nerally, costs of police who do not provide service on the airpor t are not an operating cost of LAX and are not directly and substantially related to air transpor tation of passengers or property.

28. The very same result obtains with regard to the Fees bein g imposed on PDX. Whatever the merits of stormwater management in the City of Portla nd and the cleanup of the Willamette River, no goods or services are being provided to PDX, and the Fees are not directly12 and substantially related to aviation.

29. Furthermore, regarding the documentati on which has been provided to me and which I have been able to discover, and contrary to the assertions contained in the Port's Answer in these proceedings, it is not apparent that the Fees imposed on PDX are based on actual costs incurred by the City. Rather, the City’s documen tation is couched in te rms of “forecast[s]”, “estimate[s]”, “budget request[s]”, and “revenue re quirement[s].” Thus, the actual cost basis of the Fees, if any, is neither apparent nor transpar ent, and it is presentl y impossible for me to

conclude whether or to what extent the actual co sts of stormwater management and/or Superfund cleanup were utilized in formulating the Fees being imposed on PDX.

30. The requirement of linkage between fees and airport-ge nerated costs has been the policy of the FAA at least since In the Matter of Revenue Diversion by the City of Los Angeles at Los Angeles International, Ontario, Van Nuys, and Palmdale Airport, FAA Docket 16-01-96 (1996).The record here is clear th at that PDX receives no goods or se rvices related to the Fees.

31. Under the Revenue Use Policy, prohibited us es of airport reve nue include but are not limited to: “Direct or indirect payments that exceed the fair and reasonable value of those services and facilities provided to the airport .” Section VI(B)(1 ), 64 Fed. Reg. at 7720 (emphasis added). This language sets forth FAA’ s policy, consistent with the revenue diversion statutes, that an airport and it s airline tenants cannot be char ged amounts that “exceed the fair and reasonable value of [the] services and facilities provide d to airport.”

32. FAA’s policy is clearly viol ated with regard to the Fees. PDX receives no services or facilities in exchange for payment of the Fees, so it goes without saying that payment of any amount exceeds the value received.13 33. Consistent with 49 U.S.C. § 47107(k) , the Revenue Use Policy prohibits “Marketing and promotional activities unrelated to airports or airport systems .” Section VI(B)(4), 64 Fed. Reg. at 7720 (emphasis added).The fact that an expense may provide a general benefit to the community as a whole does not ju stify the expense being included within the airport rates and charges. This principle is further demonstrated by FAA’s statement in the Revenue Use Policy that “[e]xpenditure of airp ort funds for support of community activities, participation on community events, or support of community-purposes uses of airport property” is only permitted “ if such expenditures are directly and substantially related to the operation of the airport .” Section V(A)(8), 64 Fed. Reg. 7718 (emphasis added). In other words, the fact that the City of Portland as a whole may benefit from the offsite stormwater management or Superfund remediation is irreleva nt if such expenditure s are not “directly and substantially related to the operation of” PDX.

34. The Revenue Use Policy also prohibi ts “Impact fees assessed by any governmental body that exceed the value of services or facilities provided to the airport .” Section VI(B)(10), 64 Fed. Reg. at 7720 (emphasis added). This language reiterates the FAA position that charges imposed on the air port and its airlin e tenants may not exceed the value of services or facilities provided to the airport.

35. Under the Revenue Use Policy, “Airport reve nue may be used for the capital or operating costs of those portions of an airport ground ac cess project that can be considered an airport capital project, or that part of a local facility that is owned or operated by the airport owner or operator and directly and substantia lly related to the air transportation of passengers or property , including use by airport visitors and employees.” Section V(A)(9). 64 Fed. Reg. 7718-19 (emphasis added). This language refl ects the fact that in order for a project to14 be funded with airport revenues th e project must be “directly and substantially related to the air transportation of passeng ers or property.” See also id. at 7719 (“FAA has approved the use of airport revenue for the actual costs incurred for structures and equipment associated with an airport terminal building station and a rail connector be tween the airport sta tion and the nearest mass transit rail line, where the structures and equipment were (1) located entirely on airport property, and (2) designed and intended excl usively for the use of airport passengers ”) (emphasis added).

36. An example of a rail connector project at an airport is San Francisco’s BART spur

which serves San Francisco Inte rnational Airport (“SFO”). The BART station on SFO and the spur from the mainline were constructed with ai rport revenue only because they serve the airport and only the airport. The same is true for airpor t connector roadways. Only that portion of the roadway which is on airport property or within right-of-way owned by the airport and which serves only the airport can be le gally funded with airport revenue.

37. On May 3, 2016, FAA proposed to modify its policy regarding use of FAAapproved passenger facility charges (“PFCs”) for airport rail projects to permit use of PFCgenerated funds for some rail-related expenses located on airport property even if the rail line does not terminate at the airpor t and is thereby not exclusiv ely dedicated to the airport. 3 Although FAA administers the PFC program separa tely from the federal grant program (the Airport Improvement Program, or “AIP”), th e agency’s discussion in soliciting comments regarding possible changes to the PFC rules are still very relevant in connection with the agency’s consideration of th e lawfulness of the Fees at issue in this proceeding.

3 Passenger Facility Charge (PFC) Program: E ligibility of Ground Access Projects Meeting Certain Criteria , 81 Fed. Reg. 26,611.15 38. To begin with, even the proposed new PFC-rail policy – pursuant to which “onairport rail access projects are no long er treated identically to access roads” 4 – would still require

an actual connection between the airport and the “ on-airport rail access line.” By contrast, the Fees are for stormwater and environmental remediation services and facilities entirely unconnected to the Airport.

39. In its Notice and Request for Comments regarding its PFC policy, FAA discusses the origin of the exclusivity provision in airpor t road projects, nothing th at “[g]iven the open and variable nature of road systems, it is critical for the FAA to apply strict eligibility criteria that tie the funding of the on-airpor t project to the exclusive use of the airport.” 5 Without use of “strict eligibility criteria” for a roadway project, “use rs of the infrastructu re could benefit from federally-approved funds designed to improve acce ss to the national air transportation system without ever intending to visit, or actually visiting, the airport.” 6

40. Similarly here, without FAA applying “stric t eligibility criteria” for the Offsite Stormwater Management and Superfund Remedi ation Fees, users of offsite stormwater management and Superfund remediation services throughout the City of Portland could benefit from federally-approved funds designed to impr ove access to the national air transportation system, without even visiting PDX.

41. FAA’s Notice and Request for Comments stemmed from an application by the Washington Metropolitan Airpor ts Authority regarding rail se rvice to Dulles International Airport. In considering whether to permit PFCs to be used to construct rail facilities on airport

4 Id . at 26,612.

5 Id

.

6 Id.; see also id. (“Without a very strict exclusive us e requirement, users of access roads could take advantage of that infrastructure, and make a choice to never pass thro ugh the airport itself”).16 property but which do not exclusively serve the air port, FAA recites its hist orical position on the matter, including by direct implication the prohi bition against using airport revenue for such nonairport-dedicated projects. In the op ening page of the Notice, FAA states: The 2004 Notice [of Policy Regardi ng Eligibility of Ground Access Transportation Projects for Funding U nder the Passenger Facility Charge Program] restated the agency’s longstanding policy requirement from the A[irport] I[mprovement] P[rogram] Handbook, FAA Order 5100.38, that to be AIP and/or PFC eligible, an airport ground access transportation project must meet the following conditions: (1) The ro ad or facility may only extend to the nearest public highway or f acility of sufficient capaci ty to accommodate airport traffic; (2) the access road or facility must be located on the airport or within a right-of-way acquired by the public agency ; and (3) the access road or facility must exclusively serve airport traffic. 7

42. FAA added that “During the 12 years that have ensued since publication of the 2004 Notice, the FAA has consistently applied these criteria. The concept of ‘exclusive use’ has been the subject of particular interest because of the underlying principle that the stakeholders who pay excise taxes on airline passenger tickets or passenger facility charges should not have to pay the costs of facilities , except to the extent necessary to meet the needs of airport patrons and employees. ” 8

43. Second, remembering that funding for major airport projects typically requires a combination of grant (AIP) proceeds, PFCs, debt , and airport revenue, the FAA’s historical restriction against using PFCs off-airport or fo r purposes not exclusivel y serving the airport directly tracks the Revenue Use Policy. This is easy to understand from a practical perspective. Depending on the size of the airport and type of project, AIP grants will fund 75% to 95% of a project with the airport sponsor funding the difference, called a “local match,” through other revenue sources. If the bulk of the funding (the AIP grants) cannot be spent off-airport, then

7 Id. at 26,611.

8 Id. (emphasis added).17 logic would dictate the local shar e should be restricted in the same way. These complimentary restrictions also make legal sense because th e bundle of federal grant assurances required for acceptance of federal grants include restrictions on both the use of federal AIP funds as well as the use of airport revenue.

44. It is instructive, therefore, that within the past few weeks the FAA has publicly reiterated the same fundamental policy – a require ment that funds be used for airport purposes – which A4A and its member airlines seek to have FAA follow in the current proceedings. FAA’s

statements are included in th e required regulatory/policy pr ocess which is recognized as authoritative and binding on federally-oblig ated airport owners and operators like the Port. July 30, 2015 Letter from FAA Official Randy Fiertz

45. In an undated letter generated by FAA in late July 2015 that was emailed to A4A on July 30, 2015, Randy Fiertz, the then-Director of the FAA Office of Airport Compliance and Management Analysis, stated:

Based on our review of available info rmation, and reference to Generally Accepted Accounting Principles and Offi ce of Management and Budget Circular A-87, we believe that the City of Portla nd’s storm water management charge is an operating cost of the airport, beca use it arises as a legal obligation incident to the airport’s possessory interest in land necessary for the provision of aeronautical services . It further appears that the stormwater management charge is a llocated to all ra tepayers within the jurisdiction, including the Port of Portland, base d upon a transparent, uniform, and nondiscriminatory rate-setting methodology. In the absence of any indication that the airport has been disproportionately ta rgeted by the city, a non-sponsor of the airport, or that the airport has otherw ise been overcharged for these services ( e.g ., double billed), we are not prepared to find that the charge exceeds the value of services prov ided to the airport. 9 Mr. Fiertz also stated that he was “not prepared to say . . . that the airport’s payment of the

9 Letter, at 1.18 Superfund fee violates the grant assu rances or the Revenue Use Policy.” 10

46. In my official capacity as FAA Associat e Administrator for Airports, I selected Mr. Fiertz for the position of Director of th e Office of Airport Compliance and Management Analysis. Nevertheless, Mr. Fiertz ’s conclusion in the July 30 letter runs directly contrary to the statutes, regulations, and policies against airp ort revenue diversion referenced above. Mr. Fiertz’s letter also contradicts every Direct or’s Determination and Fi nal Decision and Order which the FAA has published pursuant to Title 14 Code of Federal Regulations Part 16, Rules of Practice for Federally-Assisted Airport Enforcement Proceedings, on the subject of revenue diversion since the beginning of the Part 16 prog ram. Any attempt to change FAA policy in regard to revenue diversion was beyond Mr. Fiertz ’ former authority as Director of Compliance and Management Analysis.

CONCLUSIONS

47. The Offsite Stormwater Management and Superfund Remediation Fees violate the Revenue Use Policy because they are not “operating costs” of PDX. In or der to qualify as an “operating cost” of PDX, the Fees would need to be in exchange for services or facilities provided by the City to the Airport . However, the Fees relate so lely to services being provided to municipal projects external to the Airport . Unlawful revenue diversion occurs when revenue generated at the airport is spent outside the airport on non- airport facilities or services. That is precisely what is occurring with regard to imposition of the Fees at PDX.

48. In his July 30, 2015 letter, Mr. Fiertz stated his opinion that the Offsite Stormwater Management Fee “is an operating cost of the airport, because it arises as a legal obligation incident to the airport’s possessory interest in land necessary for the provision of

10 Id . at 2 n. 1.19 aeronautical services .” (Emphasis added) This statemen t is only the opinion of Mr. Fiertz, and lacks reasoning and merit. It cannot be the case that a charge imposed on the Airport qualifies as an “operating cost” of the Airport simply becau se the governmental entity imposing the charge claims that the Port has a legal obligation to pay it. The Fees constitute unlawful revenue diversion because they are not being imposed in connection with the provis ion of any service or facility at or to the Airport wh ich is directly and s ubstantially related to air transportation. Mr. Fiertz’s statement ignores this obvious fact.

49. Mr. Fiertz’s opinion opens the door to many forms of unlawful revenue diversion. For example, based on Mr. Fiertz’ opinion, the City could demand as a “legal obligation” that the airport pay a fee to construct a new football stad ium or convention center or to hire additional police officers to keep the streets of the city crim e free. But neither would relate to an “operating cost” of the airport. Yet under the Fiertz lett er, the fee would be an “operating cost” of the airport and therefore could be charged to airlines and paid to the City without running afoul of

the revenue diversion laws.

50. In its Answer, the Port contends that the Offsite Stormwater Management and Superfund Remediation Fees “are operating cost s within FAA’s Revenue Use Policy” because they are “utility fees.” Port Answer, at 28. However, merely because a charge imposed on the Airport is labeled a “utility fee” does not transform it into an operating cost of the Airport. The Offsite Stormwater Management and Superfund Reme diation Fees may be a type of “utility fee” imposed by the City. However, they are not “utili ty fees” with regard to the Airport because no utility services are being provided to th e Airport in exchange for the Fees.

51. The Port Answer ignores this fact. The Answer offers many definitions, concepts about allocation methodology, and disc usses the ability of a municipa lity to impose utility fees.20 Over and over again, however, the Port ignores the simple fact th at PDX receives no services or facilities in exchange for the Fees.

52. The Port states that the Revenue Use Poli cy explains that “[e]xpenditures that are directly and substantially related to the operati on of the airport qualify inherently as operating costs of the airport.” Port Answer at 28 (citing 64 Fed. Reg. at 7705). However, the Fees are not directly or substantially related to the operation of PDX. Rather, they are directly and substantially related to the manage ment of offsite stormwater in areas of the City not within the Airport, and to the cleanup of a river (the Willamette) having no connection to the Airport.

53. The Port claims that in “addition to the Revenue Use Policy, FAA’s Airport Compliance Manual . . . is further support that u tility costs are Airport operating expenses for which airport sponsors may utilize airport reve nues.” Port Answer, at 29 (citing FAA Order 5190.6B, at 15-4). This is not correct in this in stance because, as noted above, simply labeling a charge as a utility fee do es not make it so where, as here, th e so-called utility is not delivered to or received by the airport. FAA Order 5190.6B § 15.9(a) (at page 15-4) states that “Sponsors may use their airport revenue for the capital or operating costs of the air port, the local airport system, or other local facilities owned or operated by the airport owner or operator and directly and substantially related to the air transporta tion of passengers or property.” Thus, Order 5190.6B is consistent with federal statutory prohib itions against diversion of airport revenue in 49 U.S.C. § 47133(a) and § 47107(b) and the Revenue Use Policy.

54. Section 15.9(a) of Order 5190.6B adds th at appropriate airport costs include

“reimbursements to a state or local agency for the costs of services actually received and

documented” by the airport . (Emphasis added) Here, PDX did not “actually receive” either stormwater or Superfund cleanup services from the City.21 55. There can be no exemption from the prohibition against unlawful revenue diversion for municipal utility charges where, as here, the Fees are not related to actual services or facilities provided to the Ai rport. The document “Legal Research Digest 2, Theory and Law of Airport Revenue Diversion” from the “A irport Cooperative Research Program” (May 2008) (“ACRP Document”) (Exhibit 7 to the Complaint) states: The fiscal problems facing local govern ments more generally (including, for example, the needs of urban roads, water, sewage, parks, schools, hospitals, and other infrastructure, and fire and police protection) coupled with a declining tax base have forced many to search for new sources of revenue. Redirecting revenue from airports to fund non-airport municipa l needs appears attract ive to some local political leaders. Yet Congress has stepped in to promulgate laws to circumscribe the ability of federally f unded airports to divert airport revenue “downtown.” Conflicts over locally owned and operated ai rports and federal funding and regulation are by no means uni que to revenue-diversion issues, but they manifest themselves here as well. Id. at 3 (Emphasis added).

The ACRP Document also states that “the purc hase or operation of road maintenance equipment and services or police and fire services not directly in s upport of the airport are deemed impermissible.” Id . at 25.

56. The fact that the community as a whole may benefit from off-site stormwater treatment and environmental remediation cannot ju stify inclusion of such expenses in costs allocated to the Airport and its airline tenants, as illustrated by the a pproach taken by FAA and

DOT to law enforcement costs. FAA and DOT unde rtake significant efforts to ensure that the general costs of law enforcement are not allocated to airports. An example is the “Audit Report – FAA Oversight is Inadequate To Ensure Proper Use of Los Angeles International Airport

Revenue for Police Services and Maximization of Resources,” AV-2014-035, Office of Inspector General, U.S. Department of Transpor tation (April 8, 2014) (“ 2014 LAX Audit Report”). 11

11 Exhibit 11 to Complaint.22 57. The Report states that the Inspector General “identified about $7.87 million in unsupported charges without adequate documentati on for services provided by the Los Angeles Police Department (LAPD) . . . .” 12 The LAX 2014 Audit Report adds: “Without adequate documentation or support, it is unclear if these charges were used for the capital or operating

costs of” LAX. 13 The Report further states: “In 2012, LAWA and FAA stated [that] a recordkeeping system to track LAPD non-airport work time would be implemented to address allegations of unlawful revenue diversion. . . . Ho wever, because the City [of Los Angeles] has yet to fully implement such a record-keepin g system, LAWA may be incorrectly spending additional revenue on LAPD non-airport work.” 14

58. The same concerns apply equally to the Portland Fees. It would make no sense

for federal authorities to ensure , on the one hand, that an airpor t pays only for law enforcement

services it receives but th en, on the other hand, allow an airport to be allocated a portion of and pay the costs of utility-type services it does not receive and which have no actual relationship to the airport.

59. The Port asserts that it is “essentially impossible for anyone within Portland’s

boundaries to reach PDX without trav eling on city streets.” Port An swer, at 32-33. Even if true

this statement is irrelevant. The fact that th ere are expenses involved with maintaining City

streets located outside of the Ai rport does not mean that the Airport can be charged with the costs of keeping water off the streets. And once again, the Port ignores that admitted fact that

12 Id . at 2.

13 Id

.

14 Id

.23 those expenses are not directly and substantially related to air transportation. If the roadway in question was dedicated to accessing the Airport, then the costs might be included within the Airport cost base. Otherwise, the allocation of the roadway maintenance costs to the Airport

constitutes revenue diversion under the Revenue Use Policy.

60. It is vital that FAA enforce the prohi bitions against revenue diversion. The unlawful revenue diversion at PDX is typical of efforts by local governments to look to airports

and airlines to fund muni cipal financial requirements. For example, in October 2015, a Chicago city alderman proposed to impos e a surcharge on air tr ansportation to “leverage the value” of O’Hare and Midway Airports to bankroll the hiring of at leas t 100 additional police officers to combat crime in the City of Chicago. 15 The resolution introduced to the Chicago City Council called on airlines at O’Hare and Midway to “voluntarily” impose a $1 surcharge on the 100 million passengers who flow through O’Hare and Midway each year. 16

61. With regard to the laws against revenue diversion from U.S airports, the alderman argued that if the U.S. Senate can make an ex ception by directing $9.2 bill ion in airport revenue to the federal highway trust fund as the DRIVE Act requires, then Chicago should be free to use airport revenue to “save lives.” 17 The alderman also sought to levy a “security fee” on airport

concession contracts. 18

15 See “Alderman seeks $1 surcharg e on air travelers to fund poli ce hiring,” Chicago Sun Times (Oct. 14, 2015) – available at http://chicago.suntimes.com/chicagopolitics/7/71/1023944/alderman-proposes-1-surchar ge-airline-passengers-bankroll-police-hiring

16 Id.

17 Id.

18 Id.1 APPENDIX A (EDUCATIONAL BACKGROUND AND EXPERIENCE)

1. I graduated from the United States Milita ry Academy with a Ba chelor of Science degree in 1973. Thereafter, I served as an Infa ntry rifle platoon leader , weapons platoon leader, and heavy mortar platoon leader in the 82d Airborne Division before being selected as one of 25 Army officers worldwide to attend law sc hool on full scholarship, pay, and allowances, graduating from The University of Texas School of Law in 1979 with a Do ctor of Jurisprudence degree. After transferring from the Infantry to the Judge Advocate Genera l's Corps, I attended the year-long Judge Advocate Officers' Advanced C ourse and graduated with the equivalent of a Master of Laws degree (LL.M) from The Judge Advocate General’s School of the U. S. Army.

2. My aviation and airport law career began in private practice as an associate, then shareholder in the law firm of Stokes, Bart holomew, Evans & Petree, P.A. (now Adams & Reese, LLP) where I was general counsel of th e Metropolitan Nashville Airport Authority for some 18 years during which time the Authority ow ned or managed as many as four airports. During this time I also represented other airports , air carrier airlines, co ncessionaires, and fixed base operators. I simultaneously served in executive management of the Authority and was at various times the Director of Properties an d Executive Assistant to the President on the Authority's staff. As such, I was responsible for the performance all departments at the Authority on a transitional basis while helpi ng manage the construction of a new 44-gate terminal; negotiate all the airline and concession agreements required to operate it; and issue the airport revenue bonds to finance it.

3. I was also directly involved, from both a legal and management perspective, in

the construction of two air carrie r runways and a major extension of a third, including all related2 land acquisition and condemnation, zoning, obstru ction evaluation, reloca tion assistance, and utility relocation. I successfully defended all state and federal litigat ion brought against the airport related to these projects . Many of the cases were dismissed before trial. The Federal Aviation Administration environmental responsibili ties and streamlining now codified in Vision 100 - Century of Aviation Reauthorization Ac t (Public Law 108-176, Vision 100) were first developed under my direction when the FAA was persuaded to be directly responsible for the production of the environmental impact statement for Runway 2R/20L at Nashville International Airport.

4. The project also led to my drafting of the nation's first Airport Improvement Program (“AIP”) Letter of Intent to provide the l ong-term financing for allowable costs. During the same period, I co-authored the Airport No ise Reduction Reimbursement Act of 1989 (Public Law 101-71), permitting the FAA for the first time to issue AIP grants to reimburse airport sponsors who advance funded FAR Part 150 noise mitigation projects. It was also my responsibility to review all of the Authority ’s federal grants, providing an independent certification to the FAA that the Authority was in compliance with applicable grant assurances and defending any assurance compliance issues which arose.

5. I played a leading role in the establishm ent of Nashville’s first international air service; likewise, I was intimately involved in the management of the Authority’s Passenger Facility Charge financing program and, upon th e passage of the Wendell H. Ford Aviation

Investment and Reform Act for the 21st Ce ntury (“AIR-21”) (Publi c Law 106-181), in the formulation of the Airport Authority’s initial competition plan mandated by AIR-21. In light of the foregoing, I am very familiar with all of the FAA Airport Sponsor Grant Assurances and specifically with Grant Assura nces 22. Economic Nondiscriminati on, 23. Exclusive Rights, and3 39. Competitive Access, each of which is part of every AIP grant agreement. Title 49 U. S. Code § 41707 et. seq. imposes upon each AIP grant recipient num erous obligations to insure that AIP trust fund proceeds are utilized in specified ways for public purposes.

6. In January 2007, President George W. Bush appointed me Associate Administrator for Airports at the FAA, and I served in that capacity through January 2009. As such, I was responsible for the en tire system of airports in th e United States, including among many other things administering the AIP trus t fund and awarding approximately $10 billion in grants from the trust fund, accompanied by the requi red grant assurances which form a contract between the federal government and each grant recipi ent, usually the airport owner and operator.

7. Additionally, I was the final agency decision-maker on all complaints filed with the FAA pursuant to Title 14 Code of Federal Regulations Part 16, most of which involved allegations of grant assurance vi olations. My decisions were di rectly appealable to a federal circuit court of appeals, and several were. A ll of my decisions which were appealed were upheld, except for one which was remanded for addi tional fact-finding a nd then dropped by the appellant. By way of context, I was told by my staff that I set a record (nine Final Decisions in one fiscal year) in ruli ng on Part 16 complaints.

8. My other responsibilities as Associate Administrator for Airports included the safety, standards, planning, financing, certifica tion, and compliance of airports throughout the United States, including oversight of the AIR- 21 competition plan program system wide. I reported directly to the FAA Administrator an d the U. S. Secretary of Transportation and routinely briefed and testified before the U. S. Congress, its professional staff, state and local elected officials, aviation indus try groups, and other Cabinet depa rtments on a wide variety of aviation policy matters. I also commissioned three air carrier r unways in one day at Washington4 Dulles, Chicago O’Hare, and Seattle Tacoma (a national first) in November 2008; implemented Safety Management Systems for U.S. airports and for the FAA Airports Organization; produced the Future Airport Capacity Task 2 (FACT2), outlining capacity needs in the national airspace system; and reinvigorated the agency’s 14 CFR Part 139 safety certification inspection program and grant assurance co mpliance program.

9. For example, I made the decisions, direct ed development of th e legal strategy, and lead the effort to challenge a municipal ordinanc e by the City of Santa Monica, California, which would have banned all Category C and D aircraft (primarily corporate jets) from the Santa Monica Airport, a principal gene ral aviation reliever airport for Los Angeles International Airport, in order to insure that the airport re mains open to all users in accordance with federal

law.

10. I have been a Certified Member of the American Association of Airport

Executives since 1993. I have been a member of the Airports Counc il International-North America's Legal Affairs Committee for 30 years, was Vice Chairman and then Chairman of the Committee in 1997-1999, and served as a memb er of the Committee’s Steering Group for several years. I am also a member of the Airc raft Owners’ and Pilots’ Association and am a licensed private pilot.

## EXHIBIT 2 DECLARATION OF NORWOOD (“WOODY”) JACKSON, JR.2 UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C.

AIR TRANSPORT ASSOCIATION OF AMERICA, INC. d/b/a AIRLINES FOR AMERICA, ALASKA AIRLINES, INC., AMERICAN AIRLINES, INC., ATLAS AIR, INC., FEDERAL EXPRESS AIRLINES, HAWAIIAN AIRLINES, INC., HORIZON AIR, JETBLUE AIRWAYS INC., SOUTHWEST AIRLINES CO., UNITED AIR LINES, INC., UNITED PARCEL SERVICE CO., and AIR CANADA, Complainants,

v. PORT OF PORTLAND, OREGON, Respondent. FAA Docket No. 16-16-04

DECLARATION OF NORWOOD J. JACKSON, JR. I, Norwood J. (“Woody”) Jackson, Jr., hereby declare and state as follows, under penalty of perjury:

1. I am a certified public accountant with 40 years of knowledge of, and experience with, generally accepted accounting principles (“GAAP”), and regulations, requirements, policies, and practices relating to federally fu nded projects and contra cts, and the accounting regulations and related documents concerning allo cation of costs referenced by the U.S. Federal Aviation Administration (“FAA”) in its “Policy and Procedures Concerni ng the Use of Airport Revenue” 64 Fed. Reg. 7696 (Feb. 16, 1999) (“Revenue Use Policy”).3 2. I have been retained as an expert by the Air Transpor t Association of America, Inc., d/b/a Airlines for America (“A4A”), and its member airlines, with regard to the abovereferenced FAA proceeding under 14 C.F.R. Part 16 relating to fees im posed by the City of Portland, Oregon (“City”) at Po rtland International Airport (“P DX” or “Airport”) for offsite stormwater management (the “Offsite Stormw ater Management Fees”) and environmental cleanup and remediation of the Willamette River (the “Superfund Remediation Fees”) (collectively, the “Fees”). This Declaratio n is being submitted in connection with the A4A reply being filed May 25, 2016.

3. The Port asserts that imposition of the Fees on the Airport and its airline tenants does not constitute unlawful diversion of airport revenue despite the undisputed fact that the Fees are used to fund City proj ects and services lo cated external to th e Airport that are unrelated to the operation or cap ital development of PDX. The Po rt contends the Fees are not being unlawfully diverted from the Airport because they constitute “operating costs” of PDX.

See Answer of Port of Portland (“ Port Answer”), at 23-27. This assertion is wrong. It is my opinion, which I hold to a reason able degree of professional certainty, that the Offsite Stormwater Management Fees and the Superfund Remediation Fees are not allocable to the Airport based on the criteria described in 2 C.F. R. Part 225 (formerly OMB Circular A-87), and cannot properly be deemed to be PDX opera ting costs that may be funded with Airport

revenues. 4. The Offsite Stormwater Management a nd Superfund Remediation Fees are not an allowable use of Airport revenues because they are not imposed in exchange for the provision of any services or facilities by the City to the Airport. The expenses incurred by the City for the management of offsite stormwater lo cated outside the Airport, and the investigation4 and remediation of a Superfund site not involving the Airport, do not represent services to the Airport for purposes of allocati ng costs under the controlling principles, policies, law and guidance materials.

EDUCATION AND EXPERIENCE

5. I am a certified public accountant and cu rrently serve as a Vice President of Federal Financial Management at AOC Solution, a position I have held since 2005. In 1971, I

received a Bachelors’ of Sc ience degree (Cum Laude) from Barton College in Wilson, North Carolina. From 1971 to 1991 I was employed by the Commonwealth of Virginia Auditor of Public Accounts, the legisla tive audit agency fo r the Commonwealth, a nd serviced as the Deputy Auditor of Public Accounts from 1985 to 1991. During this period I was responsible for the audit of State and local government entities including colleges and universities. From 1991 to 1999 I served as the Deputy Controller at the U.S. Office of Management and Budget (“OMB”), Office of Federal Fina ncial Management. I was a pa rtner at the accounting firm KPMG LLP from 1999 to 2004. A copy of my C.V. is attached as Exhibit A hereto.

6. I am a member of the American Institu te of Certified Public Accountants (“AICPA”); a member of the Association of Government Accountants (“AGA”); a former

member of the Federal Accounti ng Standards Advisory Board (fol lowing a ten year term); a former member if the AICPA Auditing Standard s Board (following a four year term); and a

former member of the U.S. Controller Gene ral’s Advisory Council on Government Auditing Standards (after an 8-year term).

BACKGROUND STATEMENT

7. PDX is located within the Portland city limits just south of the Columbia River in Multnomah County, Oregon.5 8. I have been informed by counsel for A4A that:

a. PDX has its own stormwater treatment f acility located within the airfield perimeter fence. The PDX system collects airf ield stormwater (incl uding deicing materials during the deicing season) as well as run-off st ormwater from Marine Drive (on the Columbia River Levee bordering the Airport on the nor th side) which is owned by the City; and

b. PDX lies within the Multnomah County, Oregon Drainage District (the “Drainage District”). Landside dr ainage at PDX is all contained within the Drainage District’s catchment area (roughly defined by the levee which encircles the airport, separating it from the Columbia River). PDX pays the Drainage District fees for this “on-site” service. No Airport stormwater runs into City-contr olled stormwater infrastructure . All water from PDX goes to the Columbia Slough, controlled by the Drainage Di strict or is discharg ed through the Port’s own stormwater treatment system to the Columbia River. The Offsite Stormwater Management and Superfund Remediation Fees

9. On September 9, 2012, the City adopted Ordinance 185610 (t he “Ordinance”), which imposes a new methodology for charging for storm water management services. Under the methodology, the Port – as the owner and opera tor of PDX – must pay a portion of the costs incurred by the City to manage “off-site” storm water drainage from non-airport rights of way (the “Offsite Stormwater Management Fees”) , and for the clean-up of a Willamette River Superfund site having no relationship to PDX (the “Superfund Remediation Fees”).

10. The Offsite Stormwater Management Fees are intended for the City to recover the costs to treat storm water on roadways located exte rnal to the Airport and not owned by a private party.6 11. The Superfund Remediation Fee relates to the City’s involvement in the Portland Harbor Superfund Site. This involves the Willamette River, which has no connection to the Airport. (PDX is near the Columbia River.) I am informed by counsel fo r A4A that neither the Port nor the City is claiming that Airport opera tions caused any of the pollution in the Willamette River that is the subject of the Superfund clea nup that pertains to the Superfund Remediation

Fees. The Revenue Use Policy References to OMB Circular A-87 and GAAP

12. Section V(A)(1) of the Revenue Use Policy states that air port revenue may be used for the “capital or operating costs of the ai rport, the local airport system, or other local facilities owned or operated by the airport owne r or operator and directly and substantially

related to the air tran sportation of passengers or property. ” 64 Fed. Reg. 7718. “Such costs may include reimbursements to a state or local agency for the costs of services actually received and documented, subject to the terms of this policy stat ement. Operating costs for an airport may be both direct and indirect and may include all of the expenses a nd costs that are recognized under

the generally accepted accounting principles and practices that apply to airport enterprise

funds of state and local government entities.” Id . (emphasis added).

13. With regard to “Allocation of Indirect Costs,” the Reve nue Use Policy states that

“the allocation must result in an allocation to the airport only of those costs that would otherwise be allowable under 49 U.S.C. § 47107(b) .” Section V(B)(1), 64 Fed. Reg. at 7719 (emphasis added). The Revenue Use Policy adds th at the “costs must be allocated under a cost allocation plan that meets the following requireme nts: (a) The cost is allocated under a cost allocation plan that is consistent with Att achment A to OMB Circular A-87, except that the phrase ‘airport revenue’ should be substituted for the phrase ‘grant award,’ wherever the latter7 phrase occurs in Attachment A.” Section V(B)(2)(a), 64 Fed. Reg. at 7719. In addition, “the allocation method [may] not result in a dispropo rtionate allocation of general government costs to the airport in consideration of the benefits received by the airport.” Section V(B)(2)(b), 64 Fed. Reg. at 7719 (emphasis added).

14. “The Final Policy specifies that the cost allocation plans must be consistent with

Attachment A of OMB Circular A-87. Attachment A to A-87 sets forth general principles for developing cost allocation plans. ” The Policy makes clear that it “continues to specify that the costs allocated must themselves be eligible for expenditure of airport revenue under section 47107(b). ” 64 Fed. Reg. at 7706 (emphasis added). “Attachment A to OMB Circular A-87 provides principles for co st allocation methodologies. The cost items that may be charged to airport revenue are determined by the requirements of section 47107(b) .” Id

. (emphasis added). “Therefore,” according to the Revenue Use Policy, airport “sponsors, and the FAA, cannot rely solely on compliance with OMB Circular A-87 to assure that the costs items charged to the airport in a Federally approved cost allocation plan are consistent with section 47107(b) .” Id . (emphasis added).

15. In December 2013, OMB replaced OMB Ci rcular A-87 with 2 C.F.R. 200.225. 1 As a result, what prev iously was Attachment A to A-87 is now Appendix A to 2 C.F.R. 200.225. In addition, what was Attachment B to A-87 is now Appendix B to 2 C.F.R. 200.225.

1 See “Uniform Administrative Re quirements, Cost Principles , and Audit Requirements for Federal Awards,” OMB, 78 Fed. Reg. 78,590 (Dec. 26, 2013) (Final Guidance) (OMB “is streamlining the Federal government’s guid ance on Administrative Requirements, Cost Principles, and Audit Requirements for Federal awards. . . . This final guidance supersedes and streamlines requirements from OMB Circul ars A-21, A-87, A-110, and A-122 (which have been placed in OMB guidances)”); 2 C.F.R. 225.45( b) (“This part supers edes OMB Circular A87”).8 16. 2 C.F.R. Part 225, titled “Cost Principles for State, Local, and Indian Tribal Governments (OMB Circular A- 87),” “establishes principles and standards for determining costs for Federal awards carried out through gran ts, cost reimbursement contracts, and other agreements with State and local government s and federally-recogni zed Indian tribal governments (governmental units).”

17. Section (C)(1)(g) of Appendix A to 2 C.F.R. 200.225 states to “be allowable under Federal awards,” “[e]xcept as otherwise provided for in 2 CFR part 225,” costs must “be determined in accordance with generally accepted accounting pr inciples” (“GAAP”).

18. For purposes of 2 C.F.R. Part 200, “ GAAP has the meaning specified in accounting standards issued by the Government Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB).” 2 C.F.R. 200.49.

19. Section 25 in Appendix B to 2 C.F.R. 200.225 states: Unless prohibited by law, the cost of utilities , insurance, security, janitorial services, elevator service, upkeep of grounds, necessary maintenance, normal repairs and alterations, a nd the like are allowable t o the extent that they: keep property (including Federal property, unless otherwise provided for) in an efficient operating condition , do not add to the permanent value of property or appreciably prolong its intende d life, and are not otherwise included in rental or other charges for space. Costs which add to the permanent value of property or appreciably prolong its intended life shall be treated as capital expenditures . . . . (Emphasis added) So clearly the “cost of utilities” may only be a llocated to the airport “to the extent” that the utilities in question “keep [the airport] property . . . in an efficient operating condition.”9 July 30, 2015 Letter from FAA Official Randy Fiertz

20. In an undated letter generated by FAA in late July 2015 that was emailed to A4A on July 30, 2015, Randy Fiertz, the then-Director of the FAA Office of Airport Compliance and Management Analysis, stated:

Based on our review of available info rmation, and reference to Generally Accepted Accounting Principles and Offi ce of Management and Budget Circular A-87, we believe that the City of Portland’ s storm water management charge is an operating cost of the airport, because it arises as a legal ob ligation incident to the airport’s possessory interest in land necessary for the provision of aeronautical services . It further appears that the stormwater management charge is allocated to all ratepaye rs within the juri sdiction, including th e Port of Portland, based upon a transparent, uniform, and non-discriminatory rate-setting methodology. In the absence of any indication that the airport has been disproportionately targeted by the city, a non-sponsor of the airport, or that the airport has otherwise been overcharged fo r these services (e.g ., double billed), we are not prepared to find that the charge exceeds the value of services provided to the airport. (Letter, at 1) (emphasis added) Mr. Fiertz also stated that he was “not prepared to say . . . that the airport’s payment of the Superfund fee violates the grant assura nces or the Revenue Use Policy.” Id . at 2 n. 1. CONCLUSIONS

21. Under well-established accounting prin ciples, the Offsite Stormwater Management and Remediation Fees are not allo cable to the Airport because they are not associated with any service or faci lity that is actually provided to the Airport. Rather, the costs relate entirely to services performed outside of the Airport property for the benefit of the City, which is a separate legal entity from the Port.

22. As a general proposition, an airport is subject to utility bills li ke other entities, provided however that the utility bills are for servi ces or facilities provided to the airport. So, if a municipality provides water and electricity to an airport it can bill the airport a reasonable and otherwise appropriate charge based on the amount of water and electricity used by the airport.10 It similarly follows that if the City performed stormwater management services on the Airport, or even with regard to water originating at or generated by the Airport, the City could charge a

reasonable fee for such services. But that is not the situation with regard to the Offsite Stormwater Management and Superfund Remedia tion Fees. These charges are being imposed at the Airport despite the fact that the City provides no services or facilities at the Airport. The City does not manage or dispose of the storm water generated at the Airport. Further, there is no evidence that the Airport caused any of the environmental problems being addressed by the Superfund Remediation Fee.

23. The Port asserts that the Fees are “r ecognized operating costs under the [OMB] Circular A-87” and “Generally Accepted Accoun ting Principles.” Port Answer, at 23-27.

When Mr. Fiertz issued his Ju ly 30, 2015 letter, and the Port filed its Answer, OMB Circular A87 had been replaced by 2 C.F.R. 200.225. For purpos es of this Declarati on, I shall assume that

Mr. Fiertz and the Port intende d to refer to section 200.225 rath er than the superseded OMB Circular A-87. In any event, neither 2 C.F.R. 200.225 nor its pr edecessor OMB Circular A-87 defines allowable “operating costs.” Rather , both regulatory documents include “Selected

Items of Cost” that are allowable if they meet the allocability and reasonableness criteria. These are, essentially, a list of cost categorie s. OMB did not presum e in Circular A-87, nor does it now presume, that the referenced costs ar e allowable by virtue of inclusion on the list of

“Selected Items of Cost.”

24. The Port maintains that the Fees ar e Airport “operating costs” under OMB Circular A-87 [now, 200 C.F.R. 200.225] and GAAP as “utility ch arges.” Port Answer, at 22- 25. However, the fact that the Fees are for utility-type services is irrelevant given the fact that the “utilities” are not being provided at or to th e Airport. Again, as di scussed in paragraph 2311 above, inclusion on the list of “Selected Items of Cost” does not in and of itself make the cost allowable. The overriding criteria of allocability and reasonableness must be met first. In the case of the Airport, the cost of the services in question are not allo cable since the Airport

receives no services from the C ity in exchange for the Fees.

25. The Port contends that section 25 of “Attachment B to OMB Circular A-87,”

which I will assume was intended to be a refe rence to section 25 of Appendix B to 2 C.F.R. 200.225, “speaks directly to ‘the co st of utilities’ and finds su ch costs permissible in the circumstances here.” Port Answer, at 24. Agai n, it is irrelevant that the Fees relate to “utilities” where, as here, the al leged utilities are not being provide d to or at the Airport. Since the Airport receives no services, th e costs of the Fees are not allo wable since they do not meet

OMB’s criteria for cost allocation.

26. Although section 25 of Appendix B to 2 C.F. R. (quoted in full above) refers to the “cost of utilities,” it provides that such cost s are “allowable to the extent that they” keep the subject property “in an effi cient operating condition.” Howe ver, the Offsite Stormwater Management and Superfund Remediation Fees do not keep the Airport “in an efficient operating condition.” The Fees have no connecti on to the Airport. The Fees may be for services that help to keep roads outside the Airport in “an efficient operating condition,” and help compensate the City for the environm ental cleanup of a river (the Willamette) not connected to the Airport. But the charge s do not keep PDX in an “efficient operating

condition.”

27. The fact that 2 C.F.R. 200.225 and othe r regulations, standards and policies

allow for the allocation of some indirect costs is not relevant to the Fe es because in order for indirect costs to be allocated they must be relate d to operating (or capital) costs of the airport.12 For example, if a city owns and operates an airport, the city may be able to allocate a portion of its overhead expenses to the ai rport, given that some level of city government management will relate to operation of the airport. However, th at is not the case with PDX and the Fees, because the City of Portland does not ow n or operate the Airport. The City does not have overhead or other indirect expenses that it can allocate to the Air port. As stated above, “ the costs allocated must themselves be eligible for expenditure of airport revenue under section [49 U.S.C. §] 47107(b). ” 64 Fed. Reg. at 7706 (emphasis added). See also id. (“ The cost items that may be charged to airport revenue are determin ed by the requirements of section 47107(b) ” (emphasis added); id . (neither the airport operator nor FAA can “ rely solely on compliance

with OMB Circular A-87 to assure that the costs items charged to the airport in a Federally approved cost allocation pl an are consistent with section 47107(b) ”). Because

the costs associated with the Fee are incurred fo r the benefit of the City and not the Airport, they are not allocable to the Airport.

28. The Port also asserts that “all ratepayers in the City” – “inc luding the Airport” –

benefit from the removal of stormwater from the City’s public rights-of-way . . . .” Port Answer, at 25 (emphasis added). For cost accounti ng purposes this is an irrelevant statement. There could be any number of facilities and serv ices provided external to the Airport which may provide some sort of indirect “benefit” to the Airport. The poten tial list is infinite. It includes, without limitation, a thriving economy, reasonable taxes, a professional and trained police, fire and rescue and ambulance force th roughout the City, street lighting, public parks and attractions, a modern public transit system and various other municipal amenities. But

none of these services and fac ilities would be deemed to keep the Airport in an “efficient operating condition;” nor do the Offsite Stormwater Fees or the Superfund Remediation Fees.13 29. The Port also contends that “[s]upport for the treatment of utility costs under GAAP is found in the Federal Accounting St andard Advisory Board Handbook of Federal Accounting Standards and Other Pronouncements (June 30, 2015) (the ‘FASAB Handbook’).” Port Answer, at 25-27. The Port’s reliance on the FASAB Handbook is erroneous. Statement of Federal Financial Accounting Concepts (SFFAC) 5 in the FASA B Handbook states that “[g]enerally accepted accounting principles reco gnize the importance of reporting transactions

and events in accordance with their substance .” Id . at 39 (emphasis added). In considering whether the Fees constitute “operating costs” of the Airport, one must not ignore the

“substance” of the transaction – which is that the Fees reflect expenses incurred for projects external to the Airport for the bene fit of the City and not the Airport. I declare under penalty of perjury under the laws of the District of Columbia that the foregoing is true and correct.

Executed this 24 day of May, 2016, at 8:15 PM.

____________________ Norwood J. Jackson, Jr.

## EXHIBIT 2AN ORWOOD J ACKSON | CPA | AOC S OLUTIONS , I NC . Key Qualifications Mr. Jackson has over 40 years of extensive experience in providing public and government accounting, auditing, and advisory services. He is a retired Partner from KP MG LLP (2004). In addition to his work at KPMG, Mr. Jackson served as the Deputy Controller of the Office of Federal Financial Management at the Office of Management and Budget (OMB) from 1991 through 1999. Prior to joining the Federal Government, Mr. Jackson was Deputy Auditor of Public Accounts for the Commonwealth of Virginia. In 1999, he completed an 8-year term on the US Comptroller General’s Advisory Council on Government Auditing Standards, a 4-year term on the Auditing Standards Board of the American Institute of Ce rtified Public Accountants, and a 6-year term on the Federal Accounting Standards Advisory Board (FASAB). Recently he complete d an additional 5 year term on the FASAB. Professional Experience AOC Solutions, Inc., VP Fina ncial Managemen t ......................................................................... 2 005 to Present Norwood Jackson LLC, CEO ...................................................................................................... ....... 2004 to 2005 KPMG LLP, Partner ............................................................................................................. .............. 1999 to 2004 U.S. Office of Mana gement and Budget, Office of Federal Fina ncial Mana gement ........................................................................................ .. 1991 to 1999 Commonwealth of Virginia, Auditor of Public Accounts ................................................................ 1972 to 1 991 Relevant Experience Transportation Security Administration (TSA ), Office of Financial Management (OFM). Mr. Jackson has been in charge of multiple engagements at TSA, all of wh ich were with the OFM. The engagements ranged from performing extensive analysis to resolv e complex budget issues to remediati ng difficult-to-resolve property, plant, and equipment problems involving both equipment and internal use software. Most recently, Mr. Jackson has served as subject matter expert on accounting and auditing matters to assist the OFM in resolving complex accounting and financial management issues. His efforts as a subject matter expert range from assisting TSA in resolving issues with accounting for large scale softwa re applications, e.g., Secure Flig ht; accounting for other direct costs associated with Transportation Security Equi pment; and accounting for passenger fee revenues. Federal Aviation Administration (FAA), Financial Operations Division. Mr. Jackson has directed numerous financial management improvement and review initiatives under the Financial Operations Division at the FAA. Related to the DOT IPERA work, Mr. Jackson supported the DOT work at the FAA by conducting the field work and providing the results to the DOT contractor. In ad dition, Mr. Jackson recently ma naged the FAA’s efforts to review the OIG’s ARRA audit resulting in significant reduc tions in OIG’s payment propriety findings. Mr. Jackson worked for the CFO and FAA financial management leader ship on all financial planning, corrective actions, and strategic planning. He completed a comprehensive project to resolve long-standing problems with FAA’s construction in progress accounting acc ount and related and asset capitali zation accounting processes, which resulted in a clean audit opinion from KPMG LLP, FAA’s independent auditor. He successfully developed and executed audit remediation plans for various asset and liability accounts and related revenue and expense accounts, and designed and executed test plans for determining the accuracy of proper ty plant and equipm ent accounts. In the area of property, plant and equipment, he completed a capitalization threshold study and developed asset capitalization policies within the framework of genera lly accepted accounting prin ciples to streamline FAA property operations. In addition, he directed a comprehensive review of reimbursable agreements and developed policies and procedures to ensure FA A’s compliance with OMB reimbursable agreement requirements. Finally, Mr. Jackson reviewed and developed revisions to FAA’s cost accounting (burdening) systems, which the FAA uses to allocate overhead to property, plan t, and equipment and to projects covered by reimbursable agreements. Department of Transportation, Offi ce of the Chief Financial Officer. Mr. Jackson assisted the Office of the CFO in analyzing Undelivered Orders associat ed with grant programs. This engagement was in response to the auditor’s preliminary conclusions that the UDO’s were overstated significantly. Mr. Jack son’s efforts brought the issue to a successful conclusion.N ORWOOD J ACKSON | CPA | AOC S OLUTIONS , I NC . Department of Defense, Office of the Under Secretary of Defense, Comptroller (OUSD (C)) . Mr Jackson was the KPMG LLP Audit Partner in Charge of KPMG’s component of the Department of Defense’s enterprise architecture project. IBM was the contractor and KP MG was the principal subcontractor. Department of Defense (DoD ), Office of the Under Secretary of Defe nse Acquisition, Technology and Logistics (OUSD (AT&L)), Property and Equipment (P&E) Policy Office. As the KPMG LLP Audit Partner in Charge, Mr. Jackson assisted DoD from 2000 to 2004 in the development of its internal control assessment program for weapons required by OMB Circular A-123. He was charged with implementing the accounting sta ndard on military weapons systems, including developing various policies and procedures for accounting for the “full cost” of these systems. He also led an effort to develop a methodology for valuing Inventory and Operating Materials and Supplies (OM&S). U.S. Department of Agriculture (USDA), U.S. Forest Service. Mr. Jackson served as the KPMG Audit Partner in Charge of the financial statement audit of the U.S. Forest Service. He was re sponsible for all aspects of the audit, including the personal property line item. He developed statistical-based sampling methods for conducting existence and completeness reviews and assisted the Forest Servi ce with alternative review procedures for conducting inventories and valuing equipment and property that was deployed throughout the country. He also assisted with the reviews of all corrective action plans for remedi ating material weaknesses on the property line. U.S. Department of Defense (DoD), Department of the Navy. Mr. Jackson assisted the Department of the Navy with its efforts to eliminate deficien cies in their General Property, Plan t, and Equipment (GPP&E) accounting and procurement processes. He oversaw the implementation process of the Defense Property Accountability System (DPAS), and developed policies and procedures fo r personal property acc ountability and accounting. Department of Defense (DoD ), Office of the Under Secretary of Defe nse Acquisition, Technology and Logistics (OUSD (AT&L)), Property and Equipment (P&E) Policy Office. Mr. Jackson worked with the Deputy Director to develop a risk-based property management program that included metrics and standards for inventory accuracy, property accountability, and capital asset reporting. This wo rk was later incorporated into the American Society for Testing and Materials (ASTM) Standards for property. Th is initiative utilized a risk-based performance planning methodology to develop performance metrics and accountab ility standards to evaluate property accountability and assess management processes. This effort included developing financial and non-financial performance metrics, establishing risk-based sta ndards for property acco untability, and developing a risk assessment t ool to monitor metrics. San Francisco International Airport. In 2015 Mr. Jackson completed an engagement to review SFO’s internal controls over the use of Federal grant fund. Education B.S., Accounting, Cum Laude, Barton College Professional Affiliations

• Member, American Institute of Certified Public Accountants

• Member, Virginia Society of Certified Public Accountants

• Former member, U.S. Comptroller General’s Advisory Council on Government Auditing Standards, Federal Accounting Standards Advisory Board, AICPA Auditing Standards Board Professional Certifications and Awards

• Certified Public Accountant — Commonwealth of Virginia and District of Columbia

• Award winner, 1998 Outstanding CPA in Government Award, American Institute of Certified Public Accountants

• Presidential Rank Award, Distinguished Service Executive, 1998

## EXHIBIT 3 DECLARATION OF JOAN N. STERN, ESQ.1 UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C.

AIR TRANSPORT ASSOCIATION OF AMERICA, INC. d/b/a AIRLINES FOR AMERICA, ALASKA AIRLINES, INC., AMERICAN AIRLINES, INC., ATLAS AIR, INC., FEDERAL EXPRESS AIRLINES, HAWAIIAN AIRLINES, INC., HORIZON AIR, JETBLUE AIRWAYS INC., SOUTHWEST AIRLINES CO., UNITED AIR LINES, INC., UNITED PARCEL SERVICE CO., and AIR CANADA, Complainants,

v. PORT OF PORTLAND, OREGON, Respondent. FAA Docket No. 16-16-04

DECLARATION OF JOAN N. STERN I, Joan N. Stern, hereby declare and stat e as follows, under penalty of perjury:

1. I am a public finance attorney and an e quity member of the law firm Eckert Seamans Cherin & Mellott, LLC. I am based in our firm’s Ph iladelphia, Pennsylvania office, and have 39 years of experience in the area of municipal bond issuance, general government finance, transportation finance, project finance and tax and reve nue anticipation financings. I serve clients in a full range of public fina nce matters, including acting as bond counsel, underwriter’s counsel, issuer’s c ounsel, and trustee’s counsel fo r all types of bond issues, taxexempt and taxable; drafting debt and finance le gislation for a variety of financing programs for2 governmental and corporate clie nts; derivative transactions ; and regulatory enforcement proceedings. Chambers USA has named me as one of America’s leading banking and finance lawyers based on my extensiv e experience with “bond transa ctions and related tax and corporate issues.” A copy of my C.V. is attached as Exhibit A hereto.

2. My experience includes acti ng as bond counsel, and draf ting the legislation and bond indenture creating a multi-modal transportati on authority in New Jersey, consisting of a toll road, airport, and a group of public pa rking facilities, and as bond counsel for the authority’s initial financing, provided for the ac quisition of all of the transportation assets, including the toll road and airp ort. I have also served as bond counsel and special finance counsel for a large me tropolitan airport.

3. I am a member of the National Associ ation of Bond Lawyers, Securities Law

and Disclosure Committee. I have a Bachelor of Arts degree from the University of Pennsylvania and a J.D. from Temple University Beasley School of Law.

4. I have been retained as an expert by the Air Transpor t Association of America, Inc., d/b/a Airlines for America (“A4A”), and its member airlines, with regard to the Federal Aviation Administration (“FAA”) proceeding unde r 14 C.F.R. Part 16 relating to Offsite Stormwater Management and Superfund Remediat ion Fees (“Fees”) imposed by the City of Portland, Oregon at Portla nd International Airp ort (“PDX” or “Airport”). This Declaration is being submitted in connection with the A4A reply to the Port of Portland (“Port”) April 15, 2015 Answer (“Port Answer”) being filed on Ma y 25, 2016. Specifically, I have been asked to evaluate and respond to statements in the Port Answer regarding language in Port of Portland3 Bond Ordinance No. 155 (the “Bond Ordinance”). 1

5. I disagree with the Port’s assertion that “under the terms of the Bond Ordinance” the Offsite Stormwater Management and Superfund Remediation Fees “are properly categorized as operating expenses of the Airport. ” Port Answer, at 28. It is my opinion, which I hold to a reasonable degree of professional cer tainty, that neither the Bond Ordinance nor custom and practice in the m unicipal bond industry supports tr eating the Offsite Stormwater Management and Superfund Remediation Fees as Airport operating costs or expenses.

6. The fact that section 13.1(g) of the B ond Ordinance includes “costs of utility services” in the definition of “Costs of Operation and Maintenance” is irrelevant with regard to the Offsite Stormwater Management and Superf und Remediation Fees. In order for utility charges to constitute “operating costs” or “o perating expenses” of th e Airport, the utility services must be actually provided to the Airport. That is not the case here, and the Fees are not being imposed in exchange for any services actually provided to the Airport. For this reason, the Fees are not “operating costs” or “operating expenses,” whether characterized as costs of “utilities” or something other cost under the Bond Ordinance.

BACKGROUND

7. PDX is located within the Portland city limits just south of the Columbia River in Multnomah County, Oregon. I have been informed by counsel for A4A that:

a. PDX has its own stormwater treatment f acility located within the airfield perimeter fence. The PDX system collects airf ield stormwater (incl uding deicing materials during the deicing season) as well as run-off st ormwater from Marine Drive (on the Columbia

1 The Port’s Answer attaches some excerpts from the Bond Ordinance. For the sake of being complete, I attach a full copy of the Bond Ordinance as Exhibit B hereto.4 River Levee bordering the Airport on the nor th side) which is owned by the City; and

b. PDX lies within the Multnomah County, Oregon Drainage District (the “Drainage District”). Landside dr ainage at PDX is all contained within the Drainage District’s catchment area (roughly defined by the levee which encircles the airport, separating it from the Columbia River). PDX pays the Drainage District fees for this “on-site” service. No Airport stormwater runs into City-contr olled stormwater infrastructure . All water from PDX goes to the Columbia Slough, controlled by the Drainage Di strict or is discharg ed through the Port’s own stormwater treatment system to the Columbia River. The Offsite Stormwater Management and Superfund Remediation Fees

8. On September 9, 2012, the City adopted Ordinance 185610 (t he “Ordinance”), which imposes a new methodology for charging for storm water management services. Under the methodology, the Port – as the owner and opera tor of PDX – must pay a portion of the costs incurred by the City to manage “off-site” storm water drainage from non-airport rights of way (the “Offsite Stormwater Management Fees”) , and for the clean-up of a Willamette River Superfund site having no relationship to PDX (the “Superfund Remediation Fees”).

9. The Offsite Stormwater Management Fees are intended for the City to recover the costs to treat storm water on roadways located exte rnal to the Airport and not owned by a private party. PDX has its own stormwater treatment facility located within the airfield perimeter fence. The PDX system collects airfield storm water (including deicing materi als during the deicing season) as well as run-off st ormwater from Marine Drive (on the Columbia River Levee bordering the Airport on the north side), which is owned by the City. I have been informed by counsel for A4A that no portion of the City’s offs ite storm water management service is used or received by the Airport or any of the Airline Complainants.5 10. The Superfund Remediation Fee relates to the City’s involvement in the Portland Harbor Superfund Site. This involves the Willamette River, which has no connection to the Airport. (PDX is near the Columbia River.) I am informed by counsel fo r A4A that neither the Port nor the City is claiming that Airport opera tions caused any of the pollution in the Willamette River that is the subject of the Superfund clea nup that pertains to the Superfund Remediation

Fees. The Bond Ordinance

11. The Bond Ordinance states that it was enacted November 10, 1971, and amended and restated in 1993, 1994 and 1999. 2 The Bond Ordinance provides certain

covenants as to the revenue s derived from PD X “AND THE USE AND APPLICATION OF SUCH REVENUES.” Bond Ordinance, Title, at 1. 3 Section 2(c) of the Bond Ordinance defines “Airport” to mean Portla nd International Airport. Sectio n 2(m) states that “Costs of Operation and Maintenance” shall have “the meaning given to such term in Section 13 hereof.”

12. Section 13 of the Bond Ordinance is titled “The Airport Revenue Fund; Application of Revenues.” It stat es that “the Port shall create and establish a special trust fund of the Port, to be known and designated as ‘The Port of Portland Airport Revenue Fund’ (herein

defined and referred to as th e ‘Airport Fund’) and to be held and administered by the Port hereunder so long as any of the Bonds are outst anding.” Section 13 adds that “the moneys deposited, or to be deposited, in the Airport Fund shall not be commingled with any other moneys of the Port; shall be used and applied only in th e manner and for the purposes hereinafter provided in this sec tion; and shall be withdrawn fr om said Fund for said purposes

2 Bond Ordinance, Exhibit B hereto, cover page.

3 Bond Ordinance, Title, at 1.6 only if in accordance with such procedure as is provided by law.”

13. Section 13.1 of the Bond Ordinance states that the “Revenue s in the Airport Fund shall be . . . first used and applied by the Port to the payment of the Costs of Operation

and Maintenance of the Airport.” Section 13.1 defines th e term “Costs of Operation and Maintenance” of the Airport to mean: “the reas onable and necessary current expenses of the Port included as a Cost of Operation and Ma intenance in the annual Airport budget required by

Section 15 hereof for operating, maintaining and repairing the Airport .” (Emphasis added) The bold language makes clear that in order to be a “Cost of Operation and Maintenance” the expense must be for the express purpose of “ope rating, maintaining and repa iring the Airport.”

14. Subsection 13.1(g) of the Bond Ordinan ce includes “costs of utility services” within the definition of “Costs of Operation an d Maintenance.” However, reading Section 13.1 as a whole, and in the only possible reasonable ma nner, it is clear that in order to be included within the “Costs of Operatio n and Maintenance” of the Airpor t, the “costs of the utility services” must be incurred for utility servic es received in connection with “operating, maintaining and repairing the Airport.”

CONCLUSIONS

15. There is no merit to the Port’s assertion that the Offsite Stormwater Management and Superfund Remediation Fees constitute “operating costs” or “operating expenses” of the Airport pursuant to the Bond Ordi nance. The Port asserts that the “Bond Ordinance” defines the term “costs of operation and maintenance” as “the reasonable and necessary current expenses of the Port included as a cost of operation and maintenance in the annual Airport Budget,” and that under the Bond Ordinance, the “Cost of Operation and Maintenance” includes the “costs of utility services.” Port Answer, at 28 (citing Bond Ordinance, §§ 13.1,7 13.1(g)). Although that may be a correct statem ent of what the Bond Ordinance states, it does not establish that the Fees are, in fact, PDX operating expenses and be gs the question whether the Offsite Stormwater Management and Su perfund Remediation Fees are imposed in

connection with actual se rvices provided to the Airport for the operation, maintenance or repair of PDX. Here, the Airport does not receive actual services in exchange for the Fees, and, as stated above, they are not “operating costs” or “operating expenses” permissible under the Bond Ordinance as “costs of utility services.”

16. To the extent that the Fees are considered to be “costs of utility services,” the “utility services” are being provided to the City of Portland – and not to the Airport. The

inclusion of “costs of utility services” in section 13.1(g) of the Bond Ordinance in the enumeration of “Costs of Operation and Maintenance necessarily implies that the utility services in question have been provided to the Airport.

17. Airport bond ordinances are carefully draf ted to be precise in their meaning. Here, the drafters of the Bond Ordinance unmista kably intended to limit the scope of relevant “utility services” to u tility services that have been provided “ for operating, maintaining and repairing the Airport .” The Offsite Stormwater Management and Superfund Remediation Fees are not based on any servic es relating to the operation, ma intenance or repair of PDX.

18. The Port asserts that it “is unlikely that the Port could have successfully

marketed its bonds if investors di d not regard ‘the costs of util ity services’ as proper airport operating expenses.” Port Answer, at 28. Howe ver, the only “costs of utility services” that may be treated as Airport opera ting costs under the Bond Ordinance are utility serv ices actually provided to the Airport. That is not the case with the Fees.

19. The custom and practice in the United St ates airport bond i ndustry is to use8 revenues of the airport pledged to debt serv ice on airport bonds to pay costs and expenses actually incurred by the airport as operating expenses, not cost s and expenses relating to services that are not provided to the airport. I am not aware of any instance in which an airport

bond ordinance or indenture author izes an airport to use airport revenues to pay for “utilities” or other expenses for services not actually provi ded to the airport and wh ich are unrelated to the operation, maintenance or repair of the airport.

20. I further note that Section 13.1(m) of the Bond Ordinance pr ovides as the final enumerated category of Costs of Operation and Maintenance “all other co sts and expenses of operating, maintaining and repairing the Airport arising in the routine and normal course of

business (emphasis added).” The use of this phras e in this clause mean s that all Costs of Operation and Maintenance arise in the routine a nd normal course of business of the Airport. The Fees by their nature do not fit within this definition.

21. The Port Answer (page 27) refers to a Transportation Research Board policy paper and quotes language stating that the “bo nd indenture defines what may or may not be included in the definition and comp utation of airport revenues and expenses.” This is correct. However, for the reasons set forth above, th e Bond Ordinance does not include the Offsite Stormwater Management and Superfund Remediat ion Fees within its definition of Airport operating costs or expenses.

22. The Port Answer also refers to the PDX 2015-2016 budget, which is attached as Exhibit 5 to the Port Answer. Pages 72 and 104 of the Airport budget in Exhibit 5 (cited in the Port Answer, at 28) do not spec ifically reference either the Offsite Stormwater Management Fee or the Superfund Remediation Fee. However, even if the amounts of the Fees are included in the Airport budget under the general categor y of “utilities,”, they still would not be

## EXHIBIT 3A

# Joan N. Stern MEMBER 

## OVERVIEW Joan N. Stern has established herself as one of the country’s top public finance attorneys. She concentrates her practice in the areas of general government and education, transportation and utilities, tax and revenue anticipation financing, health care and housing finance, refinancing and working capital finance, project finance, and derivatives transactions. Joan serves clients in the full range of public finance matters, including serving as bond counsel, underwriter’s counsel, issuer’s counsel, and trustee’s counsel for all types of bond issues, tax-exempt and taxable; drafting debt and finance legislation for a variety of financing programs for governmental and corporate clients; derivative transactions; and enforcement matters involving the SEC and the IRS. Chambers USA

has named Joan one of America’s leading banking and finance lawyers, noting that she has “phenomenal understanding of bond transactions and related tax and corporate issues.” Clients say that her “experience and command of the legal requirements of debt issuance are extraordinary” and she “is refreshingly direct and gets the job done.” Chambers sources also note that she is “extremely knowledgeable, well-versed in the law and easy to work with.” 

## REPRESENTATIVE MATTERS Principal drafter of the statute creating the financial oversight authority for the City of Philadelphia and has served as special counsel to the city in connection with that legislation and the bond issues of that authority. As bond counsel, drafted the legislation and bond indenture creating a multi-modal transportation authority in New Jersey, consisting of a toll road, airport, and a group of public parking facilities, and as bond counsel for the authority’s initial financing, provided for the acquisition of all of the transportation assets, including the toll road and airport. As bond counsel to the School District of Philadelphia, drafted deficit funding legislation for the school district and served as lead bond counsel for deficit funding bonds, multiple series of bonds for capital improvements and **PHILADELPHIA, PENNSYLVANIA**  Two Liberty Place 22nd Floor 50 S 16th St. Philadelphia, PA 19102 P: 215.851.8442 F: 215.851.8383 jstern@eckertseamans.com **PRACTICE AREAS:** Public Finance Municipal Law & Governance **STATE ADMISSIONS:** Pennsylvania

**EDUCATION:** J.D., Temple University Beasley School of Law B.A., University of Pennsylvaniarefunding bond issues for the district.

Served as lead bond counsel for two of the largest pension funding bond issues undertaken; one for a state and the other for a major city. For both issues, drafted the authorizing legislation as well as creating the governing instruments for the bonds. 

## PROFESSIONAL AFFILIATIONS Pennsylvania Association of Bond Lawyers National Association of Bond Lawyers, Securities Law and Disclosure Committee American Bar Foundation, Life Fellow 

## COMMUNITY INVOLVEMENT Public Employees Retirement Commission of Pennsylvania, Member Police Athletic League, Board Member Urban Tree Connection, Board Member Jewish Federation of Greater Philadelphia, Board Member Royal Academy America, Board Member The Franklin Institute, Board Member Moore College of Art and Design Board of Trustees, Vice Chair School District of Philadelphia Task Force on Regulatory Reform, Member School District of Philadelphia Task Force on Alternative Finance Strategies, Former Chair City of Philadelphia Tax Policy and Budget Advisory Committee, Former Member Philadelphia Charter Commission, Former Consulting Counsel 

## AWARDS AND RECOGNITION Selected for inclusion in Chambers USA: America’s Leading Lawyers for Business for Banking and Finance Selected for inclusion in The Best Lawyers in America Named Best Lawyers’ 2013 “Lawyer of the Year for Public Finance Law” in Philadelphia Lifetime Achievement Award (2014), The Legal Intelligencer Leading Women’s Award, Ladies First – The Mid-Atlantic Women’s Public Finance Forum Listed in Who’s Who in the World, Who’s Who in America, Who’s Who of American Women , and Who’s Who in American Law Selected for inclusion in Pennsylvania Super Lawyers

## NEWS AND INSIGHTS **Media Coverage:** “Stern, Stein, Tuteur, Haddad and Benzing — The Legal’s Top Lateral Hires of 2014,” The Legal Intelligencer , February 24, 2015.

## EXHIBIT 3BDOCSPNW1:57365.3 42936-5 BJ1/BJ1 

# T HE 

# P ORT OF 

# P ORTLAND 

# (O REGON 

# )

_________

O RDINANCE 

## N O 

## . 155 (E NACTED N OVEMBER 10, 1971, AS AMENDED AND RESTATED PURSUANT TO O RDINANCE N O . 368-B WHICH WAS ENACTED O CTOBER 13, 1993, O RDINANCE N O . 375-B WHICH WAS ENACTED A UGUST 10, 1994 AND O RDINANCE N O

. 393-B WHICH WAS ENACTED F EBRUARY 10, 1999)

A UTHORIZING PORTLAND INTERNATIONAL AIRPORT REVENUE BONDSTABLE OF CONTENTS Page

DOCSPNW1:57365.3 42936-5 BJ1/BJ1 i SECTION 1. Findings and Determinations ........................................................................... 1 SECTION 2. Definitions and Computations ......................................................................... 1 SECTION 3. Authorization of Bonds a nd Notes; Payment Thereof; Pledges and Assignments to such Payment; Series Ordinances .......................................... 6 SECTION 4. Authorization of First Se ries of Bonds and of Additional Bonds Hereunder......................................................................................................... 8 SECTION 5. Refunding Bonds ........................................................................................... 10 SECTION 6. Payment of Principal, Intere st and Premium of Bonds; Cancellation of Matured Coupons; Cancellation a nd Destruction of Bonds and Coupons ......................................................................................................... 11 SECTION 7. Redemption of Bonds .................................................................................... 11 SECTION 8. Registration, Transfer, Exchange and Ownership of Bonds.......................... 13 SECTION 9. Execution of Bonds........................................................................................ 15 SECTION 10. Forms of Bonds, Coupons and Registration and Assignment Provisions....................................................................................................... 16 SECTION 11. Mutilated, Lost, Stolen or Destroyed Bonds or Coupons .............................. 25 SECTION 12. Airport Construction Fund............................................................................. 26 SECTION 13. The Airport Revenue Fund; Application of Revenues .................................. 28 SECTION 14. The Bond Fund; Appointment of Trustee to Administer the Same................. 1 SECTION 15. Annual Airport Budget .................................................................................. 37 SECTION 16. Covenant as to Rate s, Rentals, Fees and Charges.......................................... 38 SECTION 17. Additional Covenants of The Port of Portland; Insurance Proceeds and Condemnation Awards................................................................................... 39 SECTION 18. Concerning the Tr ustee and the Paying Agents............................................. 52 SECTION 19. List of Bondholders........................................................................................ 56 SECTION 20. Amendment of This Ordinance...................................................................... 56 SECTION 21. Certain Bonds Deemed Not Outstanding Hereunder..................................... 59 SECTION 22. Ordinance to Constitute a C ontract with Bondholders; Enforcement of Same............................................................................................................... 59 SECTION 23. Events of Default ........................................................................................... 59 SECTION 24. Notice to Bondholders and Ot hers Upon Occurrence of an Event of Default............................................................................................................ 60 SECTION 25. Acceleration ................................................................................................... 61TABLE OF CONTENTS (cont’d) Page

DOCSPNW1:57365.3 42936-5 BJ1/BJ1 ii SECTION 26. Remedies Upon Occurrence of Event of Default; Powers of Trustee and Bondholders; Waivers of Event of Default; Termination of Proceedings.................................................................................................... 61 SECTION 27. Consents, etc., of Bondholders ...................................................................... 62 SECTION 28. Special Obligation Bonds and Net Rent Leases ............................................ 63 SECTION 29. Discharge of Liens and Pledges; Bonds No Longer Outstanding Hereunder....................................................................................................... 66 SECTION 30. No Personal Liability ..................................................................................... 67 SECTION 31. Limitation of Rights....................................................................................... 68 SECTION 32. Laws Governing; Severability ....................................................................... 68 SECTION 33. Notices ........................................................................................................... 68 SECTION 34. Effect of Sundays and Legal Holidays........................................................... 68 SECTION 35. Section Headi ngs; Table of Contents............................................................. 68 SECTION 36. Publication of Summary and Effectiveness of this Ordinance ...................... 68DOCSPNW1:57365.3 42936-5 BJ1/BJ1 ORDINANCE No. 155

(Amended and Restated Pursuant to Ordinance No. 368-B, Ordinance No. 375-B and Ordinance No. 393-B) AN ORDINANCE AUTHORIZING THE ISSUANCE OF REVENUE BONDS OF THE PORT OF POR TLAND TO PAY THE COSTS OF ACQUIRING AND CONSTRUCTING AIRPORT AND OTHER PORT IMPROVEMENTS; PRESCRIBING THE LIMITATIONS ON AND CONDITIONS OF ISSUANCE AND THE FORM OF SUCH BONDS; PROVIDING FOR THE DETAILS OF SUCH BONDS; COVENANTING AS TO THE REVENUES DERI VED FROM THE PORTLAND INTER-NATIONAL AIRPORT AND THE USE AND APPLICATION OF SUCH REVENUES; PLEDGING S UCH REVENUES TO THE PAYMENT OF THE PRINCIPAL AND INTEREST ON SUCH BONDS AND LIMITING SUCH P AYMENT SOLELY TO SA ID REVENUES; AND MAKING OTHER COVENANTS AND AGREEMENTS IN CONNECTION WITH THE FOREGOING. BE IT ENACTED BY THE PORT OF PORTLAND: SECTION 1. Findings and Determinations . The Board of Commissioners of The Port of Portland hereby finds and determines as set forth in this section. Under applicable laws of the State of Oregon th e object, purposes and occupation of The Port of Portland (hereinafter referred to and defined as the “Port”) are to promote the maritime, shipping, aviation, commercial and industrial interests of the Port in the manner as the Port is by law specifically authorized and empowe red. Under such laws, for the pu rpose of carrying into effect all or any of the powers granted to the Port, th e Port may from time to time issue and sell revenue bonds without the necessity of the vote rs of the Port authorizing the same, which revenue bonds shall not in any ma nner or to any extent be a gene ral obligation of the Port nor a charge upon the tax revenues of the Port nor a charge upon any ot her revenues or property of the Port not specifically pledged thereto. For many years the Port has owned and operated an airport located adjacent to the Columbia River in Multnomah County w ithin the boundaries of the Port and now known and designated as th e “Portland International Airpor t”. To promote the aviation, shipping, maritime, commercial and industrial intere sts of the Port and fo r the convenience of the public and the convenience of the air transport, shipping, maritime, commercial and industrial development of the Port, it is necessary, advisable and desi rable that certain additions, expansions and improvements be made to said airp ort and to other Port facilities, including in such additions, expansions and improvements the development and reclamation of land necessary therefor, additional terminals and buildings and other facilities a nd aids incident to the development, protection and operation of the air transport facilities and other facilities of the Port. It is also necessary, advi sable and desirable that the Port issue its revenue bonds to provide the moneys to pay the costs of such additions , expansions and improve ments, and to limit the charge of such bonds and the payment of the prin cipal and interest thereof as set forth herein. SECTION 2. Definitions and Computations . Unless the context shall indicate some other meaning, the terms defined in this section sh all, for all pur poses of this Ordinance and of any ordinance, resolution, certificate or other instrument supplemental heretoDOCSPNW1:57365.3 42936-5 BJ1/BJ1 2 and of any opinion or instrument or document he rein or therein menti oned, have the meanings herein specified, with the following definitions to be equally applicable to both the singular and plural forms of any of the terms here in defined and vice versa. The term: (a) “Accountant” means the individual accountant or firm of accountants appointed pursuant to paragr aph J of Section 17 hereof. (b) “Additional Bonds” means any additional Bonds authorized and issued pursuant to Section 4 here of at any time outstanding. (c) “Airport” means each and all of the following as de fined from time to time in master plans filed with the Federal Aviation Administration: (1) the presently existing airport owned or operated by the Port known as the “Portland International Airport” and (2) the Portland International Airport as enlarged, expanded, changed and improved, pursuant to the Airport Capital Improvement Program, as amended from time to time. Without limiting the generality of the foregoing, the term “Airport” shall include (i) any and all of the following pertaining to the Por tland International Airport: lands or water areas, rights or interests in la nd, rights-of-way, approaches, c ontract rights, air navigation facilities, terminal buildings , hangars and other buildings and facilities, runways, taxiways, paved areas, access roads, parking lots and structures, furnishings, equipment and apparatus, and all other property (real, personal, mi xed or otherwise), now or hereafter constructed or acquired, of or belonging or pertai ning to said Airport; (ii) each and every and all and singular, the properties a nd facilities belonging to or pertaining to Portland International Airport and constructed or acquired fro m the proceeds of Bonds or from the proceeds of any other bonds, notes or other evidences of indebtedness payable, or the principal or interest or both of which is reimbursa ble, from the Airport Fund or from a fund maintained therefrom, or construc ted or acquired from m oneys in the Airport Fund or from moneys in any other fund main tained therefrom, and (iii) all other additions, expansions and improvements of or belonging or pertaining to the Portland International Airport, hereafter acquired or constructed howsoever financed. The term “Airport” shall not, however, in clude: (A) properties sold, leased or otherwise disposed of or transferred pursuant to the provisions of paragrap h M of Section 17 thereof; (B) properties subject to a Net Rent Lease, defined in Section 28 hereof, except to the extent provided in said Section 28 ; and (C) General Aviation Airports. (d) “Airport Consultant” shall mean the i ndividual consultant or firm of consultants appointed pursuant to paragraph K of Section 17 hereof. (e) “Airport Fund” means the special fund of the Port created in Section 13 hereof and designated in that section as “The Port of Portland Airport Revenue Fund”. (f) “Airport Capital Improvement Program ” prior to June 30, 1986, means the capital requirements program scheduled for the Airport for the period from July 1, 1971 through June 30, 1986, as amended from time to time, as provided in the schedule attached as Exhibit 2, as amended from time to time, to the Certificated Airlines Operating Agreements, dated as of Nove mber 1, 1971, by and between the Port andDOCSPNW1:57365.3 42936-5 BJ1/BJ1 3 certain certificated air carri ers and, after June 30, 1986, mean s any capital requirements which the Port in its discretion deems necessary for the Airport. (g) “Airport Construction Fund” means the separate special fund created and established by Section 12 hereof , and designated in that secti on as “The Port of Portland Airport Construction Fund”. (h) “Bond” or “Bonds” means any Bond, some of the Bonds or all of the Bonds at any time outstanding under and pursuant to this Or dinance, including the first series of Bonds and Additional Bonds issued pursuant to Section 4 hereof at any time outstanding and Refunding Bonds issued pursuant to Secti on 5 hereof at any time outstanding and bond anticipation not es issued pursuant to Sec tion 3 hereof at any time outstanding but shall not include any Special Obligation Bonds defined in Section 28 hereof. (i) “Bondholder” or “holder of Bond” means any person who shall be the bearer of any Bond not then registered, or the registered owner or his duly authorized attorney-in-fact, representative or assigns , of any Bond which at the time shall be registered other than to bearer. (j) “Bond Fund” means the special trust f und of the Port created pursuant to Section 14 hereof, to be desi gnated as provided in that sec tion as “The Port of Portland Airport Revenue Bond Fund”. (k) “Commercial Airport” means any air port, a major portion of the revenues derived from which are realized (i) from the operations of certificated air carriers engaged in the public utility business of tr ansporting passengers or freight, or both, by air, whether such operations be on a scheduled or non-scheduled basis, and (ii) from the supplying by the owner or operator of such airport of goods and services to the customers, patrons and passengers of such carriers. (l) “Costs of Construction” shall have the meaning given to such term in Section 12 hereof. (m) “Costs of Operation and Maintenance” shall have the meaning given to such term in Section 13 hereof. (n) “Debt Service Requirement” means with respect to all the Bonds or a series of the Bonds or any particular amount of such Bonds, as the case may be, the total as of any particular date of computation and for any particular Fiscal Year, of the amounts required pursuant to the provisions of Section 14 hereof to be paid during such Fiscal Year into the Bond Fund to provide fo r the payment of interest on such Bonds, to provide for the payment at maturity of any such Bonds issued in serial form and to provide for the retirement of any such Bonds issued in term form. (o) “Fiscal Year” means the fis cal year for the Port as established from time to time by the Port, being on the date of effec tiveness of this Ordi nance the period from July 1 in any year to and in cluding the following June 30.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 4 (p) “General Aviation Airport” means an airport known in the air transport industry as a “general aviation airport”, be ing an airport, the major portion of the revenues derived from which is not realized from the operations of aircraft operated by certificated air carriers (excep t possibly air taxi or air tour operati ons) and from the supplying of goods and services to the people ut ilizing such aircraft, but is realized from the activities of private, nonpublic aircraft, flying schools, the supplying of goods and services to the foregoing and similar operati ons not normally part of a public utility business (except possibly air t our or air taxi operations). (q) “Investment Securities” means any i nvestments which are legal for the Port under the laws of the State of Oregon, provided that such investments are those typically permitted for the investment of debt service and reserve funds of revenue bonds which have credit ratings similar to the credit ratings then in effect for the Senior Lien Bonds. [This paragraph amended pursuant to Section 1.3 of Ordinance No. 393-B] (r) “Net Revenues” means for any past pe riod the aggregate of the Revenues actually paid into the Airport Fund during such past period, a nd for any future period the aggregate of the Revenues estimated to be pa id into the Airport Fund during such future period, minus for any such past period the aggregate of the Costs of Operation and Maintenance of the Airport actu ally paid or accrued during such past period, or minus for any such future period the aggregate of the Costs of Operation and Maintenance of the Airport estimated to be paid or accrued dur ing such future period, as the case may be. (s) “Ordinance” means this Ordinance, as the same may be amended and supplemented from time to time, and, unless the context shall clearly indicate otherwise, shall include all Supplemental Ordinances. “Series Ordinance” means an ordinance or resolution adopted hereunder provi ding for the issuance of a se ries of Bonds hereunder. (t) “Outstanding” when used with re spect to any Bond shall have the construction given to such word in Section 29 hereof, i.e., a Bond shall not be outstanding hereunder if such B ond is at the time not deemed to be outstanding hereunder by reason of the operation and effect of said Section 29. (u) “Paying Agent” means the Trustee as to any Bond of whatever series and whatever form, coupon or registered, and, as to Bonds in coupon form of a particular series, the additional Paying Agents, if any, fo r such Bonds of such series appointed in the Series Ordinance providing for the issuance of Bonds of such series. (v) “Port” means The Port of Portland, or any public body or agency which shall hereafter succeed to the powers, duties and functions of the Port. (w) “Revenues” means and includes all in come, receipts and moneys derived by the Port from its ownership or operati on and management of the Airport or the furnishing and supplying of the services, faci lities and commodities thereof, and without limiting the generality of the foregoing, shall in clude (1) all income, receipts and moneys derived from the rates, rental s, fees and charges fixed, impos ed and collected by the Port for the use and services of the Airport, or otherwise derived from or arising through theDOCSPNW1:57365.3 42936-5 BJ1/BJ1 5 ownership, operation and management of the Ai rport by the Port, or derived from the rental by the Port of all or part of the Airport or from the sale or rental by the Port of any commodities or goods in connection with the Ai rport; (ii) earnings on and the income from the investment of moneys held under this Ordinance, to the extent such earnings or income are deposited in the Airport Fund or the Bond Fund, but not including any such earnings or income credited to the Airport Construction Fund; and (iii) to the extent provided in Section 28 hereof ), income derived by the Port from a Net Rent Lease (defined in Section 28 hereof); provided that (1) the term “Revenue s” shall not include (a) moneys received as proceeds from the sale of Bonds or as grants or gifts, the use of which is limited by the granto r or donor to the constructi on of capital improvements, except to the extent that any such moneys shal l be received as paymen ts for the use of the Airport, or (b) passenger facility charges or similar charges that are imposed under authority of federal law and are limited by fede ral law to expenditure on specific projects or activities and/or on debt service and financing costs rela ted to specific projects or activities and (2) in no event shall the te rm “Revenues” include tax revenues or taxderived revenues. [This paragraph amended pursuant to Section 1.3 of Ordinance No. 393-B] (x) “Supplemental Ordinance” means any or dinance or resolution amending or supplementing this Ordinance as originally enacted, adopted under and pursuant to Section 20 hereof, and shall include Series Ordinances. (y) “Term Bond Principal Account Instal lment” means the principal amount of term bonds subject to mandatory redemp tion on an annual or a semi-annual date, as provided by Series Ordinance. (z) “Trustee” means the corporation appoin ted pursuant to Se ctions 14 and 18 hereof to hold and administer the Bond Fund and any successor to such corporation as Trustee hereunder. Whenever in this Ordinance any governmental unit, including the Port, or any officer, director or department of a govern mental unit, including the Port, is defined or referred to, such definition or reference shall be deemed to in clude the governmental unit or officer, board, agency, commission, body or department succeeding to or in whom or which is vested, the functions, rights, powers, duties and obligations of such governmental unit, officer, director or department, as the case may be, encompassed by this Ordinance. Unless the context shall clearly indicate othe rwise, in this Ordinance words importing persons include firms, partnershi ps, associations, corporations ( public and private) , public bodies and natural persons, and also include executors, administrators, trustees, receivers or other representatives. Unless the context shall clearly indicate otherwise, in this Ordinance (not including in such term wherever used in this paragraph an y Supplemental Ordinance): (i) references to sections and other subdivisions, wh ether by number or letter or otherwise, are to the respective or corresponding sections and subdivisi ons of this Ordinance, as such sections or subdivisions may be amended from time to time; (ii) the terms “herein”, “hereunder”, “hereby”, “hereto”, “hereof’,DOCSPNW1:57365.3 42936-5 BJ1/BJ1 6 and any similar terms, refer to this Ordinance a nd to this Ordinance as a whole and not to any particular section or subdivision hereof; and (iii) the term “heretof ore” means before the time of effectiveness of this Ordinance and the term “her eafter” means after the time of effectiveness of this Ordinance. Unless the facts shall then be otherwise, all computations required fo r the purposes of this Ordinance shall be made on the assumption that: (i) the principal of a nd interest on all Bonds shall be paid as and when the same become due; and (ii) all Bonds required by the Series Ordinance providing for their issu ance to be redeemed from mone ys credited to the Term Bond Principal Account created pursuant to Section 14 hereof in the Bond Fund shall be redeemed on the respective Term Bond Principa l Account Installment dates ther efor in the amounts and in the years as required by said Section 14 or by such Series Ordinance. SECTION 3. Authorization of Bonds and Notes; Payment Thereof; Pledges and Assignments to su ch Payment; Series Ordinances . For the purpose of carrying into effect certain of the powers granted to the Port pertaining to aviation, air transport and other enterprises, there is hereby established and created under this Ordinance an issue of revenue bonds (herein defi ned and referred to as the “Bonds ”) of the Port , to be known and designated as “Portland In ternational Airport Re venue Bonds.” The Bonds may be issued hereunder in series from time to time as hereinaf ter provided in this s ection and in Sections 4 and 5 hereof. The Bonds are here by authorized to be issued in an amount providing net proceeds not exceeding the Costs of Construction of the additions, expansions and improvements to the Airport as set forth in the Airport Capital Impr ovement Program, as amended from time to time, plus Bonds of the first series in an am ount providing net proceeds not exceeding $21,000,000, which $21,000,000 may be used by the Port for any lawful purpose, including but not limited to the Costs of Construction of such additions, exte nsions and improvements to the Airport. On or before the day of the delivery and payment for th e first Bonds issued he reunder the Port shall, from funds lawfully available to it, othe r than Bond proceeds, deposit $5,500,000 into the Airport Construction Fund. Subj ect to the aforementioned limita tion and to the provisions of Sections 4 and 5 hereof, the aggregate prin cipal amount of Bonds which may be issued hereunder and secured hereby and be outstanding at any time is not limited as to amount, except as may otherwise hereafter be provided by law. The Bonds, including principal thereof and interest and premium, if any, ther eon, shall be payable solely fr om and be secured solely by the Revenues, which Revenues shall be and hereby are pledged and charged to the Bonds and the punctual payment of the pr incipal thereof and interest and pr emium, if any, thereon and to the security thereof, in accordance with the provisi ons of this Ordinance. The Bonds shall be equally and ratably secured hereun der without priority by reason of series , number, date of adoption of the Series Ordinance providing for the issuance thereof, date of Bonds, date of sale, date of execution, date of issuan ce, date of delivery, or otherwis e, and without regard to which section hereof the Bonds are i ssued hereunder, by a co-equal li en on the Revenues, which lien and the Bonds shall constitute a prior and superior lien and charge on the Revenues, subject to the provisions of this Ordinance, over and ahead of any claims (whether in tort, contract or otherwise and irrespective of whether the parties pos sessing such claims have notice of the foregoing pledges, liens or charges), encumbran ces or obligations of any nature arising or incurred after the delivery of and payment fo r the first Bonds issued hereunder, and over and ahead of all other indebtedness payable from or secured by the Revenues which may hereafter be created or incurred. There shall be and hereby are, also pledged and assigned to the payment ofDOCSPNW1:57365.3 42936-5 BJ1/BJ1 7 the principal of and interest and premium, if an y, on the Bonds (i) all right s of the Port under any construction contracts entered into by it or assigne d to it with respect to the Airport and such other facilities as are constructe d with the proceeds of the Bonds and under any other contracts entered into by it or assigned to it for any work upon the Airport or such other facilities as are constructed with the proceeds of th e Bonds or to the benefit of whic h the Port may be entitled to with respect to the Airpor t or such other facilities , together with all righ ts of the Port under any surety or performance bonds c overing the performance of any such contracts, except for contracts relating to Section 28 sp ecial facilities; and, (ii) until us ed and applied in accordance with the provisions hereof, all moneys held hereunder by the Port, the Trustee or any Paying Agent and the securities in which such mone ys may from time to time be’ invested. The foregoing pledges and assignments shall be valid and binding from the time of the delivery of and payment for the first Bonds issued hereund er, and the moneys re presenting the Revenues shall thereupon be immediately subject to such pledge upon receipt thereof by the Port or the Trustee or a Paying Agent without any physical delivery or furthe r act. The Bonds shall not in any manner or to any extent be a general obligation of the Po rt nor a charge upon the tax revenues of the Port, nor a ch arge upon any other revenues or property of the Port not specifically pledged ther eto by this Ordinance. The covenants and agreements herein set fort h to be performed by the Port shall be for the equal and proportionate benefit, security a nd protection of all holders of the Bonds and interest coupons wit hout preference, prior ity or distinction as to paym ent or security or otherwise (except as to maturity, Term Bonds Principal A ccount Installments or other funds or accounts, which may be established for the Bonds of any se ries authorized hereunder) of any of the Bonds or interest coupons over any of the others fo r any reason or cause whatsoever, except as expressly provided therein or herein or in th e Bonds, and all Bonds shall rank pari passu and shall be secured equally and ratably without discrimination or preference whatsoever. Except as herein otherwise prov ided the issuance of the Bonds may be authorized in one or more series by a Series Ordina nce or Series Ordinances of the Port adopted subsequent hereto. Each Series Ordinance providing fo r the issuance of a series of B onds shall, in addition to the title “Portland International Airport Revenue B onds”, designate such Bonds by an appropriate series designation and shall also specify: (a) the author ized principal amount of such series of Bonds; (b) the purposes for which Bonds of such se ries are being issued; (c) the date, maturity date or dates and the first interest payment date of the Bonds of said series, which maturity date or dates shall occur on July 1 or semi-annually January 1 and Ju ly 1, and which first interest payment date shall be on or prior to one year from the date of such Bonds and shall occur on a January 1 or July 1, with interest being paya ble on said Bonds semi-annually each January 1 and July 1 after such first interest payment date; (d ) the interest rate or rates or the manner of determining such rates; (e) the denominations and manner of numbering the Bonds of such series; (f) whether such Bonds will be issued in coupon form or fully registered form or both and the privileges, if any, of conver tibility from one form to anothe r; (g) the redemption price or prices, if any, to be paid upon the redemption of th e Bonds of such series, the period or periods, if any, during which such prices shall be payabl e and the terms and conditions, if any of such redemption; (h) if any of the B onds of said series are issued in the form customarily known as “term bonds”, the amount and due dates of each Term Bond Principal Account Installment for the Bonds of such series, which due date shall be either a July 1 or both January 1 and July 1, the date or dates and redemption price or prices upon which the said Bonds may be redeemed fromDOCSPNW1:57365.3 42936-5 BJ1/BJ1 8 such installments, which redemption dates shall be either a July 1 or both July 1 and January 1, and the manner and procedure of applying such Te rm Bond Principal Account Installments to the redemption of such Bonds: (i) if the coupon Bonds of such series are to be payable at any place or places in addition to the office of the Trustee, the additional place or places of such payment; (j) the provisions for the sale or other dispositi on of the Bonds of such series and the use, application, and investment, if any, of the proceeds of such sale or other disposition, which use, application and investment shall not be inconsistent or in conf lict with the provisions hereof, (k) any other provisions which may be required to be inserted ther ein by other provisions of this Ordinance, such as by Section 12 hereof, and (l ) any other provisions not inconsistent or in conflict with the provisions of this Ordinance d eemed necessary or advisable by the Port. The Series Ordinance providing for the issuance of th e Bonds of the first se ries may authorize the sale of Bonds of the first series of Bonds in in stallments and may author ize that the matters set forth in the foregoing clauses (c) through (l) with respect to installments other than the first installment may be specified by a Supplemental Or dinance adopted with respect to each such installment. No holder of a Bond shall be re quired to see that the moneys derived from such Bond are applied to the purpose or purposes for which the B ond is issued. The validity of the Bonds shall neither be dependent upon nor affected by the validity or regularity of any proceedings or contracts relating to the acquisiti on, purchase, construc tion, reconstruction, restoration, addition, expansion, improvement, betterment, extension, rene wal or replacement of the Airport or other facilities of the Port, nor the use and a pplication of the proceeds of the Bonds. At any time and from time to time after the issuance of Bonds have been authorized hereunder, the Port may borrow money for the purpos es for which such Bonds are to be issued in anticipation of the receipt of the proceeds of the sale of su ch Bonds and within the authorized maximum amount of such Bonds, and shall issu e bond anticipation notes for all moneys so borrowed. SECTION 4. Authorization of First Series of Bonds and of Additional Bonds Hereunder . For the purpose of paying the Costs of Construction of additions, expansions and improvements to the Airport, as set forth in the Airport Capital Improvement Program, as amended from time to time, and to the extent authorized under Section 3 hereof and for the purpose of financing other Port fac ilities, there is hereby authori zed to be issue d, and shall be issued hereunder, the first series of Bonds in the aggregate principal amount of $50,000,000, which Bonds shall be issued on such terms and in such installments as ma y be set forth in the Series Ordinance and any Supplemental Ordinance providing for the issuance of such Bonds, to be adopted hereafter pursuant to and in accordan ce with the provisions of Section 3 hereof. From the proceeds of the sale of such $50,000,000 first series of Bonds, there shall be deposited by the Port into its general fund $21,000,000 which may be used by the Port for any lawful purpose, including but without limitati on the Costs of Construction of additions, expansions and improvements to the Airport. That portion of the proceeds of the sale of the first series of Bonds not so deposited into the genera l fund of the Port shall be deposited by the Port in accordance with the last paragraph of this Section 4. On or before the day of the delivery of and payment for the first Bonds issued hereunder the Port shall, from funds lawfully available to it, other than Bond proceeds, deposit $5,500,000 in to the Airport Construction Fund. If theDOCSPNW1:57365.3 42936-5 BJ1/BJ1 9 $50,000,000 first series of Bonds are sold in tw o installments of $25,000,000 each, there shall be deposited by the Port into its general fund $13,250,000 from the proceeds of sale of the first installment and $7,750,000 from the sale of the second installment. Subsequent to the issuance of th e first series of Bonds hereunder, the Port for the purpose of paying Costs of Construction of the Airport as set forth in the Airport Capital Improvement Program, as amended from time to time, may issu e hereunder at one time or from time to time an additional series or additional series of the Bo nds (herein defined and referred to as “Additional Bonds”) by means of a Series Ordinance or Se ries Ordinances, adopted pursuant to and in accordance with the provisions of Section 3 he reof, but only upon compliance with the following conditions: (1) There shall have been delivered to the Port a certificate of the Trustee that no default exists in the payment of the princi pal of or interest a nd premium (if any) on any Bond and all mandatory term bond redemptions (if any) required to have been made shall have been made. (2) The Net Revenues, as certified by the Accountant and adjusted by the Airport Consultant as hereinafter in this se ction provided, for any tw elve (12) consecutive months of the eighteen (18) months immediately preceding the date of the series of Bonds proposed to be issued shall have equaled not less th an one hundred per cent of the maximum Debt Service Requirement for any fu ture Fiscal Year on all Bonds to be outstanding upon the issuance of such Additio nal Bonds and including such Additional Bonds; and (3) The Net Revenues estimated by the Ai rport Consultant to be derived during each of the five Fiscal Years followi ng the date estimated by the Port that a substantial portion of the project or projects, the Costs of Constructio n of which are to be financed by the issuance of such Additional Bond s, are placed in continuous service or in commercial operation shall be equal to not le ss than one hundred thirty per cent of the maximum Debt Service Requirement for any fu ture Fiscal Year on all Bonds to be outstanding upon the issuance of such Additio nal Bonds and including such Additional Bonds. (4) There shall have been delivered to th e Trustee a certificate of the Airport Consultant that the additions, expansions and improvements to be financed with the proceeds of the sale of the Bonds to be so ld are additions, expansions and improvements contemplated by the Airport Capital Improve ment Program, as amended from time to time. In the event that prior to the delivery of and payment for the seri es of Additional Bonds proposed to be issued the Port has imposed increas es in its schedule of ra tes, rentals, fees and charges for the use and service of the Airpor t and the facilities and commodities furnished thereby and the certificated air carriers utilizing the services a nd facilities of th e Airport on a scheduled basis have agreed or consented to such increases in writing (whether by contract, lease, amendment to lease or otherwise), or as to any, such increases not so agreed to, such increases have been in effect and have been paid for at least three months prior to the date ofDOCSPNW1:57365.3 42936-5 BJ1/BJ1 10 delivery of and payment for such Additional Bonds, (i) if such increases were not in effect throughout the entire twelve months’ period referred to in subparagraph (2) above in this section, the Airport Consultant shall re vise the certificate of the A ccountant referred to in that subparagraph so as to reflect the results as though such increases had been in effect and had been paid throughout such enti re twelve months’ perio d, and (ii) the Airport C onsultant in making his estimates for the purposes of subparagraph (3) a bove may adjust his estimates to reflect such increases. Except as otherwise provided above in this Section 4, the proceeds of the sale of any series of Bonds issued pursuant to this section, includi ng the interest accrued thereon to the date of delivery of and payment theref or, shall be paid to the Port, which shall (i) deposit an amount of such proceeds equal to such accrued interest with the Trustee for deposit in the Bond Fund for credit to the Interest Account therein; (ii) deposit in the Major Main tenance Reserve Account, the Capital Improvement Account, the Debt Se rvice Reserve Account and the Construction Interest Reserve Account such amounts, if any, as shall be specified in the Series Ordinance providing for the issuance of such series of B onds, provided that the maximum amount of such proceeds which may be so deposited shall not exc eed the amounts required or permitted to be on deposit in such accounts as provide d herein; and (iii) de posit the remainder of such proceeds in the Airport Construction Fund created by Section 12 hereof. SECTION 5. Refunding Bonds . The Port may at any time and from time to time issue one or more series of Bonds (herein defined and referred to as “Ref unding Bonds”) hereunder by means of a Series Ordinance or Ordinances a dopted pursuant to and in accordance with the provisions of Section 3 hereof, (a) for the purpose of refunding at or prior to their maturity any of the then outstanding Bonds for th e payment of which sufficient f unds are not available, and any Refunding Bonds issued for such purpose shall mature, or be redeemable from Term Bond Principal Account Installments which shall commence, later than the latest stated maturity date of any Bond then outstanding which shall rema in outstanding after the completion of such refunding, and (b) for the purpose of refunding Bonds at any time, provided that the aggregate Debt Service Requirement in any Fiscal Year after the delivery of such Refunding Bonds shall not be greater in any Fiscal Year after such deli very in which any of the Bonds not refunded shall remain outstanding than would have been the a ggregate Debt Service Requirement of the Bonds for such Fiscal Year were such Refunding Bonds not to be issued and (c) for the purpose of refunding at or prior to their maturity all of the Bonds then outstanding. For the purposes of this paragraph, the interval between the date of delivery of such Refunding Bonds and the next ensuing July 1 shall constitute a Fiscal Year. Bonds of any one or more series may be refunded by the same series of Refunding Bonds, which Bonds to be refunded shall be speci fied in the Series Or dinance authorizing the Refunding Bonds, and the principal amount of such Refunding Bonds may include amounts necessary to pay the principal of the Bonds to be refunded, interest thereon to the date of redemption thereof and any premium payable th ereon upon such redemption. The proceeds of the Refunding Bonds shall be paid over to the Trust ee, to be applied in such manner, consistent with the provisions of Section 29 hereof, as is provide d in the Series Ordinance authorizing such Refunding Bonds, so that upon the delivery of su ch Refunding Bonds the Bonds to be refunded thereby shall no longer be deemed to be outstanding hereunder in accordance with the provisions of said Section 29.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 11 SECTION 6. Payment of Principal, Interest a nd Premium of Bonds ; Cancellation of Matured Coupons; Cancellation a nd Destruction of Bonds and Coupons . The Bonds shall be payable as to interest, principal and premium, if any, in any coin or currency of the United States of America which at the time of payment thereof is legal tender for public and private debts. Unless or except as is otherwise provided in the Series Or dinance authorizing their issuance, (i) coupon Bonds shall bear interest from the date of such Bonds, which interest prior to the maturity of such Bonds shall be paya ble only upon the presentation and surrender of the respective coupons therefor as the same severally become due; (ii) a fully registered Bond shall bear interest from the interest payment date next preceding the date thereof, unless such date is an interest payment date, in which event it shall bear interest from its date, or unless the date thereof is prior to the first interest payment da te for the series of Bonds of which such fully registered Bond is one, in which ev ent it shall bear inte rest from the date of the coupon Bonds of the series of Bonds of which it is one; provided that, all fully registered B onds shall be dated as of such date so that no gain or loss of interest shall result upon th e issuance, transf er, exchange or conversion thereof; and (iii) interest on fully re gistered Bonds shall be paid by the Trustee by check or draft mailed to the registered owner at his address as it appears on the books of registry kept pursuant to Section 8 hereof. Prior to the delivery of any coupon Bonds, al l coupons thereon then matured shall be detached and cancelled by the Port or by the Trustee. All Bonds and interest coupons upon the payment thereof shall, as directed by the Port, either be cancelled by the Paying Agents and su ch cancelled Bonds and coupons and a certificate evidencing such cancellation transmitted to the Port or be destroyed by the Paying Agents and a certificate evidencing such destruction transm itted to the Port. If any Bond or coupon is cancelled or destroyed by a Paying Agent other than the Trustee, a copy of the certificate of such Paying Agent evidencing such cancellation or destru ction shall also be deli vered to the Trustee. SECTION 7. Redemption of Bonds . In the event any of the Bonds shall be subject to redemption prior to the stated maturity ther eof, the terms and provisions of such prior redemption shall be set forth in the Series Ordi nance providing for the issuance of such Bonds. Unless or except as is otherwise provided in the Series Ordinan ce providing for the issuance of such Bonds: (1) Notice of redemption of Bonds shall state: the designation, date and maturities of the Bonds called for redemption; the redemption premium, if any, payable upon such redemption; the date of redemption; if less than all the Bonds then outstanding of the series of Bonds of wh ich the Bonds called for redemption are a part are called for redemption, the numbers of the Bonds called fo r redemption, which in the case of a fully registered Bond shall be the actual number of such Bond and not the number or numbers of the coupon Bonds reserved in accordance with Section 8 hereof upon the issuance of such fully registered Bond; that the intere st on the Bonds, or on the principal amount thereof to be redeemed, in such notice designated for redemption shall cease to accrue and be payable from and after such redemp tion date; and that on said redemption date there will become due and pa yable on each said Bond the principal amount thereof to be redeemed, the then applicable redemption prem ium, if any, and the interest accrued on such principal amount to the redemption date.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 12 (2) Each notice of redemption mailed to th e holder of a fully registered Bond to be redeemed shall, if less than the entire principal sum thereof is to be redeemed, also state the principal amount thereof to be re deemed and that such fully registered Bond must be surrendered in exchange for the payment of the principal amount thereof to be redeemed and the issuance of a new Bond or Bonds equalling in principal amount that portion of the principal sum not to be re deemed of the Bond to be surrendered. (3) Notice of redemption of Bonds shall be given by publication (except as provided below), at least thirty (30) days before the redemp tion date, of one notice of the intended redemption in one issue of a newspa per of general circulation in Multnomah County, Oregon, and of one such notice in one issue of The Daily Bond Buyer, a newspaper specializing in financial matters publ ished in the City and State of New York, or in lieu of such publication in The Daily Bond Buyer, in some other newspaper of general circulation specializing in financial matters published in the City and State of New York. (4) If any Bond called for redemption is fully registered, or is registered as to principal only, notice of the redemption thereof shall be ma iled not less than forty (40) days prior to the redemption date, by register ed mail, to each registered owner of such Bond at his address as it appears on the regist ration books or at such address that he may have filed with the Trustee fo r that purpose, and notice of redemption by publication need not be given to the holder of any fully regist ered Bond, or of any B ond registered as to principal only, if notice shall have been so mailed as aforesaid to the registered owner thereof, provided that, if notice thereof is given by publication as af oresaid, then neither failure to mail such no tice to the registered owner of a ny Bond which is registered as to principal only, nor any defect in any notice so mailed, shall affect th e sufficiency of the proceedings for the redemption of any such Bond. (5) The Port, at any time it shall call Bonds for redemption, shall mail to the Trustee at least fifty-five days prior to the redemption date a copy of the notice of redemption of the Bonds so called, or such shorter time as shall be acceptable to the Trustee. (6) The Trustee shall give notice of all redemption of Bonds in the name and on behalf of the Port, and shall promptly notify the respective Paying Agents for the Bonds of the series of Bonds called for redemp tion as to any redemptions of the Bonds of such series and as to the number s of the Bonds called for redemption. (7) For the purpose of selection and rede mption of Bonds the Trustee shall assign a separate number for each portion of th e principal sum of each fully registered Bond that is equal to the denomination of the coupon Bond or Bonds in lieu of or exchange for which such fully registered B ond was issued, which separate numbers shall be chosen from the numbers of those coupon Bonds reserved in accordance with Section 8 hereof upon the issuance of such fully registered Bond. (8) Whenever provision is made for th e selection by lot of Bonds to be redeemed, the Trustee shall select, in any manner which it deems fair, the particularDOCSPNW1:57365.3 42936-5 BJ1/BJ1 13 Bonds to be redeemed from among the Bonds th en subject to redemp tion and selection by lot for such redemption. (9) In the event that part only of the principal sum of a fully registered Bond shall be called for redemption or prepaid, payment of the amount to be redeemed or prepaid shall be made only upon surrender of such Bond to the Trustee. Upon surrender of such fully registered Bond, the Port sha ll execute, and the Trus tee shall deliver, or cause to be delivered, to the registered owne r thereof, at the expense of the Port, a new duly executed Bond or Bonds of authorized pr incipal sums equal in aggregate principal amount to, and of the same series, maturity and interest rate as, the unredeemed portion of the fully registered Bond surrendered, whic h new Bond or Bonds may, at the option of the registered owner, be either (i) a c oupon Bond or Bonds with all unmatured coupons appertaining thereto and bearing the serial number or numbers of those coupon Bonds not selected for redemption which were endorsed upon the fully register ed Bond surrendered; or (ii) a fully registered Bond or Bonds without coupons having endorsed thereon the number or numbers of thos e coupon Bonds not selected for redemption which were endorsed upon the fully regi stered Bond surrendered. If a Bond is subject by its terms to prior redemption and has been duly called for redemption and notice of the redemption thereof has been duly given as aforesaid and moneys for the payment of the principal amount thereo f to be redeemed, the applicable redemption premium, if any, which is payable upon such re demption and the interest to accrue on such principal amount to the redemption date, are held for the purpose of such payment by the Trustee or any other Paying Agent for the series of Bonds of which such Bond is one, then on the redemption date designated in such notice, su ch Bond (or the principal amount thereof to be redeemed) so called for redemption shall become due and payable at the principal amount to be redeemed and the applicable redemption premium, if any, thereon; interest on said Bond (or the principal amount thereof to be redeemed) so ca lled for redemption shall cease to accrue; and the coupons for interest thereon maturing subsequent to the redemption date shall be void. All unpaid interest installments represented by coupons which shall have matured on or prior to the date of redemption designated in such notice shall continue to be payable to the bearers thereof severally and respectively upon the pres entation and surrender of such coupons. All Bonds surrendered or redeemed pursuant to the provisions of this section and those coupon Bonds bearing serial numbers selected fo r redemption which are th en held in reserve pursuant to Section 8 hereof as a result of the issuance in lieu thereof or in exchange or substitution therefor of fully registered Bonds whic h have been redeemed in whole or in part, and the appurtenant coupons, if any, shall be cancelled. SECTION 8. Registration, Transfer, Exchange and Ownership of Bonds . The Trustee will keep or cause to be kept at its principal office su fficient books for the registration and transfer of the Bonds, which books shall at all times be open to inspection by the Port, and upon presentation thereat for such purpose the Trus tee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or tr ansferred, on said register, Bonds as hereinafter set forth.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 14 All coupon Bonds shall be transferable by delivery, unless re gistered as to principal in the manner herein provided. Unless or except as is otherwise provided in the Series Ordinance authorizing the issuance of such Bond, the hol der of any Bond in coupon form may have the ownership of the principal thereof registered on the books required to be kept pursuant to the provisions of this section a nd such registration shall be noted on the Bond. After such registration no transfer of such Bond shall be effective against the Port, the Trustee or any Paying Agent hereunder, unless made on said books at the request of the re gistered owner or by his duly authorized attorney and similarly noted on the Bond; but such Bond may be discharged from registration by being in like manner registered to bearer, such registration to be noted on said books and said Bond, and thereupon transferability by delivery shall be restored; and such Bond may again and from time to time be register ed or transferred to b earer, as before. Such registration, however, sha ll not affect the negotia bility of the coupons ap pertaining to such Bond, and every such coupon shall continue to be nego tiable and transferable merely by delivery and shall remain payable to bearer. All transfers, registrations, and discharg es from registration of coupon Bonds pursuant to this section shall be ma de under such reasonable regulations as the Trustee may prescribe and, unless or except as is otherwise pr ovided in the Series Ordinance authorizing the issuance of such Bonds, the Tr ustee shall require that any taxes or other governmental charges required to be paid with resp ect to such transfer, re gistration or discharge shall be paid by the Bondholder requesting such transfer, registration or discharge from registration, as a condition precedent to the exercise of such privilege. Unless or except as is otherwise provided in the Series Ordinance authorizing the issuance of such Bond, any fully registered Bond without coupons may, in accordance with its terms, be transferred upon the books to be kept pu rsuant to the provisions of this section by the person in whose name it is registered, in pe rson or by his duly authorized attorney, upon surrender of such fully registered Bond, accomp anied by delivery of a written instrument of transfer duly executed and in form satisfactory to the Trustee. Whenever any fully registered Bond without coupons shall be surrendered for tran sfer, the Port shall ex ecute, and the Trustee shall deliver or cause to be delivered, a ne w duly executed fully registered Bond or Bonds without coupons, of the same series , interest rate and maturity and for a like aggregate principal sum, which new Bond or Bonds shall have endorsed thereon the sa me coupon Bond serial number or numbers reserved purs uant to this section upon the i ssuance of the fully registered Bond being surrendered. Unless or except as is otherwise prov ided in the Series Ordinance authorizing the issuance of su ch Bond, the Trustee may charge a sum not exceeding the actual cost thereof for each new Bond delivered upon any such transfer and shall require the payment by the Bondholder requesting such tr ansfer of any tax or other gove rnmental charges required to be paid with respect to such tr ansfer. All fully registered Bonds surrendered pursuant to this section shall be cancelled. No transfers of fully registered Bonds shall be required to be made during the fifteen (15) days next preceding an interest payment date. Unless or except as is otherwise provided in the Series Ordinance authorizing their issuance, Bonds in coupon form may be exchanged at the principal office of the Trustee for a like aggregate principal amount of fully registered Bonds in aut horized principal sums of the same series, interest rate and maturity, and fully registered Bonds without coupons may be exchanged at the principal office of the Trust ee for a like aggregate principal amount of coupon Bonds of the same series, interest rate and matu rity (or for a like aggreg ate principal amount of fully registered Bonds in other au thorized principal sums of the same series, interest rate andDOCSPNW1:57365.3 42936-5 BJ1/BJ1 15 maturity), and the Port shall execute, and the Tr ustee shall deliver, the fully registered Bond or Bonds to be delivered upon such exchange. All coupon Bonds surrendered for exchange and delivered in exchange shall have attached thereto all unmatured coupons appertaining thereto. Unless or except as is otherwise provided in the Series Ordinanc e authorizing the issuance of such Bonds, the Trustee may charge a sum not exceeding the actual cost thereof for each new Bond delivered upon any exchange (e xcept in the case of an exch ange of temporary Bonds for definitive Bonds, the first exchange of a Bond in coupon form for a fully registered Bond, the first exchange of any fully regi stered Bond and such other free exchanges of Bonds as may be provided in the Series Ordinance authorizing their issuance, all of which exchanges shall be at the expense of the Port). The Trustee shall require the payment by the Bondholder requesting such exchange of any tax or other governmental ch arges required to be paid with respect to such exchange. No such exchange shall be required to be made during the fifteen (15) days next preceding an interest payment date All fully registered Bonds surrendered pursuant to this section shall be cancelled. Whenever there shall be issued under this Ordinance a fully registered Bond without coupons in lieu of or in exchange or substi tution for the issuance of a coupon Bond hereunder, there shall be reserved an aggregate principal amount of coupon Bonds of the same series, interest rate and maturity, equa l in principal amount to the prin cipal sum of such registered Bond, and in such case the serial number or nu mbers of the coupon Bond or Bonds so reserved, together with an appropriate statement of the rese rvation, shall be endors ed on such registered Bond. The Port, the Trustee, any Paying Agent hereunder and any other person may deem and treat the bearer of any Bond whic h shall not at the time be regist ered or shall at the time be registered to bearer, whether or not such B ond shall be overdue, the bearer of any coupon, whether or not the Bond to which such coupon appert ains shall at the time be registered as to principal and whether or not such coupon shall be overdue, and the person in whose name any Bond shall at the time be registered on the books of registry kept pursuant to this section, as the absolute owner of such Bond or coupon for all purposes whatsoever, including payment thereof, and neither the Port nor the Trustee nor any Paying Agent hereunder shall be affected by any notice to the contrary. The pa yment to bearer of any coupon, th e payment to bearer of the principal of any Bond which at the time shall not be registered or at the time shall be registered to bearer, the payment of or on account of prin cipal to or upon the order of the person in whose name a Bond shall at the time be registered on sa id books of registry and the payment of interest to or upon the order of any person in whose name any fully registered Bond shall at the time be registered on said books of registry, shall be valid and effectual fully to satisfy and discharge all liability of the Port, the Tr ustee and any Paying Agent, upon such coupon or upon such Bond to the extent of the sum or sums so paid. SECTION 9. Execution of Bonds . Unless or except as is otherwise directed in the Series Ordinance providing for their issuance, the Bonds, whether in coupon form or fully registered form, shall be signed by the President and Secretary or an Assistant Secretary of the Port, either of whose signatures thereon may be a printed, engraved or l ithographed facsimile of his manual signature so long as th e other signature thereon is a manual signature, and shall bear the printed, engraved or lithographed facsimile seal of the Port, and the coupons attached to said Bonds shall bear the printed, engraved or lithogr aphed facsimile signature s of the President andDOCSPNW1:57365.3 42936-5 BJ1/BJ1 16 the Secretary or an Assistant Secretary of the Port. Any B ond bearing thereon the facsimile signature of the President or the Secretary or an Assistant Secretary of the Port, as the case may be, holding office at the time of the reproduction of his facsimile signature upon such Bond and any coupon bearing thereon the facsimile signat ures of the President and the Secretary or Assistant Secretary of the Port , as the case may be, holding office at the time of the reproduction of their facsimile signatures upon such coupons, sh all be valid and bindi ng in accordance with the terms of this Ordinance and may be issued and delivered by the Port even though the person holding such office was not in office on the date of such Bond or not in office on the date of delivery thereof. SECTION 10. Forms of Bonds, Coupons and Re gistration and Assignment Provisions . Unless or except as may otherwise be dir ected in the Series Or dinance providing for their issuance, Bonds in coupon fo rm, the interest coupons pertai ning thereto and the provisions (if any) for registration thereof, and Bonds in fully registered form, the form of endorsement thereon and the form of assignment pertaining th ereto, shall be substantially in the respective following forms, with necessary or appropriate variations, omissions and insertions as are incidental to their series, numbers, denominations , maturities, interest ra te or rates, paying agencies, redemption provisions and other detail s thereof and their form or as otherwise permitted or required by law or by this Or dinance or such Series Ordinance: (Form of Coupon Bond) UNITED STATES OF AMERICA STATE OF OREGON THE PORT OF PORTLAND PORTLAND INTERNATIONAL AIRPORT REVENUE BOND SERIES No. $___________ KNOW ALL MEN BY THESE PRESENTS: that THE PORT OF PORTLAND, a municipal corporation of the St ate of Oregon, for value receive d hereby promises to pay to bearer, or if this Bond shall then be registered as to principal in accordance with the provisions for such registration endorsed hereon, to the then registered owner hereof, but solely out of the revenues hereinafter specified and not otherwise, the prin cipal sum of ___________ THOUSAND DOLLARS ($___________) on the first day of ___________ (subject to the right of prior redemption hereinafter mentioned), upon presentation and surrender of this Bond, and to pay interest on said principal sum, but solely ou t of said revenues herein after specified and not otherwise, from the date hereof until the payment of said princi pal sum, at the rate of ___ per centum (___%) per annum, payable on ___________, ____, and semi-annually thereafter on the first days of ___________ and ___________ in each year, bu t only, in the case of interest due on or before the maturity hereof , upon the presentation and surrende r of the respective interest coupons therefor hereto attached as the same severally become due. Both principal of and interest on this Bond are payable at the principal office of ___________, in the City ofDOCSPNW1:57365.3 42936-5 BJ1/BJ1 17 ___________, or, at the option of the holder of this Bond and said coupons, at the principal office of ___________, in the City of ___________, ___________, as Paying Agents of The Port of Portland, in such coin or currency of the Unite d States of America which on the date of such payment is legal tender for public and private debts. This Bond is one of an authorized series of Bonds of like designation herewith, aggregating ___________ Dollars ($___________) in principal amount. This Bond and the Bonds of the series of which it is one are issued under the authority of and pursuant to and in full compliance with the Constitution and laws of th e State of Oregon, including particularly ORS 778.005 to ORS 778.260, as amended, and Ordinan ce No. ___ (hereinafter called the “Bond Ordinance”) duly enacted by The Port of Port land under said Constitution and statutes on ___________, 19__, and Ordinance No. ___ (hereinafter called the “Series Ordinance”) duly enacted by The Port of Portland under said Cons titution and statutes and the Bond Ordinance on

___________, ____. This Bond and the series of Bonds of which this Bond is one constitute part of a duly authorized issue of Bonds (herei n called the “Bonds”) issued, or to be issued, by The Port of Portland under the Bond Ordinan ce for the purpose of carrying into effect powers granted to The Port of Portland pertaining to avia tion, air transport and ot her enterprises. Said issue of Bonds is unlimited as to principal amount except as provided in the Bond Ordinance and constitutes or may constitute one or more series in various principal amounts and of varying denominations, dates, maturities, interest rates and other provi sions as provided in the Bond Ordinance. All Bonds issued under the Bond Ordi nance are and will be equally secured by the liens, pledges, charges, assignments and covenants made ther ein, except as otherwise expressly provided or permitted in the Bond Ordinance. Reference is hereby made to the Bond Ordinance and the aforesaid Series Ordinance, copies of which are on file in the office of The Port of Portland and the principal office of the Trustee hereinafter men tioned and to all of the provisions of which any holder of this Bond by his acceptance hereof thereby assents, for definitions of terms; a description of and the nature and extent of the security for the B onds issued or to be issued under the Bond Ordinance, including this Bond; the revenues and other moneys pledged to the payment of the interest on and principal of the Bonds; the nature and extent and manner of enforcement of the pledge; the terms and conditions upon which this Bond and the series of which it is one are issued and upon which other Bonds may heretofore have been issued or may hereafter be issued under the Bond Ordinance payable as to principal, interest and premium on a parity with this Bond out of the aforesaid revenu es and other moneys and equally and ratably secured herewith; the conditions upon which the Bond Ordinance a nd the aforesaid Series Ordinance may be amended or supplemented with or without the cons ent of the holders of the Bonds; the rights and remedies of the holder hereof with respect hereto ; the rights, duties and obligations of The Port of Portland and the hereinafter-mentioned Trus tee thereunder; the te rms and provisions upon which the liens, pledges, charges, assignments, and covenants of The Port of Portland made therein may be discharged at or prior to the ma turity or redemption of this Bond, and this Bond will thereafter no longer be secured by the Bond Or dinance or be deemed to be outstanding thereunder, if moneys or certain specified securities shall have been deposited with said Trustee or any Paying Agent for this Bond sufficient and he ld in trust solely for the payment hereof, and for the other terms and provisions thereof.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 18 This Bond and the series of Bonds of which it is one and the issu e of Bonds of which such series is a part a nd the interest and premium, if any, th ereon are payable solely out of and secured solely by the revenues of The Port of Portland pledged to the payment thereof by the Bond Ordinance, which revenues so pledged consist of the income, receipts and other moneys derived by The Port of Portland from its owners hip or operation of Portland International Airport, specified in the Bond Or dinance. In and by the Bond Ordinance (i) a special trust fund of The Port of Portland designated “The Port of Portland Airport Revenue Bond Fund” has been created with ___________, a corporati on duly authorized to exerci se corporate trust powers having its principal place of business in the City of ___________, ___________, and said corporation has been appointed as trustee (her ein referred to as the “Trustee”) to hold and administer the same, and (ii) The Port of Portla nd is obligated to set aside and pay into said special trust fund the aforesaid revenues pledged to the payment hereof in amounts sufficient to pay the principal of and interest on this Bond and the Bonds of th e series of which it is one and the Bonds of the issue of which such series is a part as and when the same severally become due. This Bond and the Bonds of the series of which it is one and the Bonds of the issue of which such series is a part shall not in any manner or to any extent be a genera l obligation of The Port of Portland nor a charge upon the tax revenues of said Port no r a charge upon any other revenues or property of said Port not specifically pledged thereto in and by the Bond Ordinance. The Bonds of the series of Bonds of which this Bond is one maturing ___________, ____, and thereafter are subjec t to redemption at the option of Th e Port of Portland prior to their stated maturities. [The applicable redemption terms shall be inserted here.] at the principal amount thereof, the interest accrued thereon to the redemption date and the respective premium if any (expressed as a percen tage of the principal amount to be redeemed) set opposite the respective periods in the table below if such redemption occurs during such periods: Period During Which Redeemed Redemption Premium (Both Dates Inclusive) (Percentage) [The applicable redemption premiums shall be inserted here.] In the event this Bond shall be subject to pr ior redemption as aforesaid and is called for redemption, notice of such redemption stating the designation, date and maturity of this Bond, the premium (if any) payable upon such redempti on, the date of redemption, and if less than all the Bonds then outstanding of the series of B onds of which this Bond is one are called for redemption, the number of this Bond, shall be given by publication, at le ast thirty (30) days before the redemption date, of one notice of the intended redemption in on e issue of a newspaper of general circulation in Multnomah County, Ore gon, and of one such noti ce in one issue of The Daily Bond Buyer, a newspaper specializing in fi nancial matters published in the City and State of New York, or in lieu of such publication in Th e Daily Bond Buyer, in one issue of some other newspaper of general circulation specializing in financial matters published in the City and State of New York; provided that if this Bond at the time shall be registered as to principal in accordance with the provisions for such regist ration endorsed hereon, notice of the redemptionDOCSPNW1:57365.3 42936-5 BJ1/BJ1 19 hereof may be given by the mailing at least fo rty (40) days before the redemption date by registered mail of a copy of such notice to the regi stered owner hereof at his address as it appears upon the books of registry or at such other addre ss which he may have filed with the Trustee for such purpose, in which event notice of the rede mption hereof need not be given by publication; and provided further, if notice of the redemp tion hereof shall be given by publication as aforesaid, then neither the failure to mail any notice nor any defect therein shall affect the validity of any proceeding for the redemption of this Bond. If this Bond shall be called for redemption and notice of such redemption duly gi ven as aforesaid, and if on or before the redemption date there shall be deposited with th e Trustee or the Paying Agents for this Bond sufficient funds to pay this Bond and accrued interest to the date of redemption and any premium payable upon such redemption, th is Bond shall become due a nd payable upon such redemption date, interest shall cease to accrue and become payable thereon from and after the redemption date and the coupons for interest appertaining here to maturing subsequent to the redemption date shall be void. The Bonds of the series of which this Bond is one ar e issuable as coupon Bonds registrable as to principal only, in the de nomination of $___________, and as fully registered Bonds without coupons in the denominations of $___________ or any multiple thereof. Subject to the limitations and upon payment of the charge s, if any, provided in the Bond Ordinance and the Series Ordinance, coupon Bonds bearing all unmatured coupons may be exchanged for a like aggregate principal amount of registered Bonds without coupons of aut horized principal sums and of the same series, interest rate and maturi ty, and registered Bonds without coupons may be exchanged for a like aggregate principal amount of coupon Bonds of the same series, interest rate and maturity bearing all unmatured coupons or for a like aggregate principal amount of registered Bonds without coupons of other authorized principal sums and of the same series, interest rate and maturity. This Bond may be registered as to principa l only in accordance w ith the provisions for registration endorsed on the back he reof, but such registration shall not affect the ne gotiability of the coupons attached hereto, which shall continue to be payable to bearer and transferable by delivery only. It is hereby certified, recited a nd declared that all acts, cond itions and things required by the Constitution and laws of Or egon and the Bond Ordinance and th e Series Ordinance to have happened, to exist and to have been performed pr ecedent to and in the issuance of this Bond and the series of which it is a part , do exist, have happened and have been performed in regular and due time, form and manner as required by said Constitution laws and Ordinances; that this Bond and the series of which it is a part do not ex ceed any constitutional or statutory limitation of indebtedness; and that provision has been made for the payment of the principal of and interest on this Bond and the series of which it is a part as provided in the Bond Ordinance.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 20 IN WITNESS WHEREOF, The Port of Portland has caused this Bond to be signed by its President and Secretary or Assistant Secretary (o ne of whose signatures hereon may be a printed, engraved or lithographed facsimile signature) and to bear a printed, engraved or lithographed facsimile of its seal, the coupons attached hereto to bear the pr inted, engraved or lithographed facsimile signatures of said Pres ident and Secretary or Assistant Secretary and this Bond to be dated as of the ___________ day of ___________, ____. THE PORT OF PORTLAND

Secretary or Assistant Secretary of The Port of Portland President of The Port of Portland

(Form of Coupon) No. $___________ On the ___________ day of ___________, ____, unless the Bond hereinaf ter mentioned shall be subject to prior redemption and shall ha ve theretofore been du ly called for previous redemption and payment of the redemption price duly made or provided for, The Port of Portland, Oregon, will pay to the bearer upon surre nder hereof, but solely out of the revenues specified in said Bond and not otherwise, at the principal o ffice of ___________ or, at the option of the holder hereof, at the principal offi ce of___________, the sum shown hereon, in any coin or currency of the United States of America which at the time of payment hereof is legal tender for public and private debts, be ing interest then due on its Ai rport Revenue Bond, Series ____, dated and numbered

Secretary or Assistant Secretary of The Port of Portland President of The Port of Portland

(Provisions for Registration of Coupon Bonds) This Bond may be registered as to principal only in the name of the holder on the books of registry to be kept for that purpose at the principal office of the within-named Trustee, as Registrar, such registration to be noted in the registration blank be low. After such registration no transfer hereof shall be effectiv e against The Port of Portland, th e Registrar, any of the Paying Agents for said Bond or the within-named Trus tee unless made on said books by the registered holder in person or by his duly authorized attorney, such transfer to be evidenced by a written instrument of transfer in form satisfactory to the Registrar, and the ne w registration noted by the Registrar hereon; but such regist ration may be made to bearer, and thereupon this Bond shall be discharged from registration, and transferability by delivery shall be restored, after which this Bond from time to time again may be registered or may be made transf erable by delivery as before. The registration of this Bond as to princi pal only shall not affect the negotiability of the coupons hereto attached, which always shall con tinue to be payable to bearer and to be transferable by delivery only.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 21 (Notice: No writing on this Bond except by the Registrar) Date of Registration In Whose Name Registered Signature of Registrar

____________ ____________________________ ______________

____________ ____________________________ ______________

____________ ____________________________ ______________

____________ ____________________________ ______________ (Form of Fully Registered Bond) UNITED STATES OF AMERICA STATE OF OREGON THE PORT OF PORTLAND PORTLAND INTERNATIONAL AIRPORT REVENUE BOND SERIES No. $___________ KNOW ALL MEN BY THESE PRESENTS: that THE PORT OF PORTLAND, a municipal corporation of the St ate of Oregon, for value receive d hereby promises to pay to ___________, or registered assigns, but solely out of the revenues hereinafter specified and not otherwise, the principal sum of ___________ Dollars ($_ __________) on the first day of ___________ (subject to the right of prior redempti on hereinafter mentioned), upon presentation and surrender of this Bond, and to pay interest on said principal sum, but solely out of said revenues hereinafter specified and not otherwise, from the interest payment date next preceding the date hereof (unless the date hereof is prior to ___________, ____, in which event from ___________, ____, or unless the date hereof is ___________, ____, or a January 1 or July 1 thereafter, in which event from the date hereof) un til the payment of such principal sum in full, at the rate of ___ per centum (___%) per annum, such interest being payable on the first days of January and July in each year commencing with ___________, ____, by check or draft mailed to the registered owner hereof at his address as it appears on the books of regi stry kept pursuant to the Bond Ordinance hereinafter mentioned. Both principal of and interest on this Bond are payable at the principal office of ___________ in the City of ___________, the Trustee hereinafter mentioned, as Paying Agent of The Port of Portland, in such coin or currency of the United States of America which on the date of such payment is legal tender for public and private debts. This Bond is one of an authorized series of Bonds of like designation herewith, aggregating ___________ Dollars ($___________) in principal amount. This Bond and theDOCSPNW1:57365.3 42936-5 BJ1/BJ1 22 Bonds of the series of Bonds of which it is one are issued under the authority of and pursuant to and in full compliance with the Constitution and laws of the State of Oregon, including particularly ORS 778.005 to ORS 778.260, as ame nded, and Ordinance No. ___ (hereinafter called the “Bond Ordinance”) duly enacted by The Port of Portland under said Constitution and statutes on ___________, 19__ and Ordinance No. ___ (hereinafter called the “Series Ordinance”) duly enacted by The Port of Portla nd under said Constitution and statutes and the Bond Ordinance on ___________, ___. This Bond and the series of Bonds of which this Bond is one constitute part of a duly authorized issue of Bonds (herei n called the “Bonds”) issued, or to be issued, by The Port of Portland under the Bond Ordinan ce for the purpose of carrying into effect powers granted to The Port of Portland pertaining to avia tion, air transport and ot her enterprises. Said issue of Bonds is unlimited as to principal amount except as provided in the Bond Ordinance and constitutes or may constitute one or more series in various principal amounts and of varying denominations, dates, maturities, interest rates and other provi sions as provided in the Bond Ordinance. All Bonds issued and to be issued under the Bond Ordinance are a nd will be equally secured by the liens, pledges, charges, assignments and covena nts made therein, except as otherwise expressly provided or permitted in the Bond Ordinance. Re ference is hereby made to the Bond Ordinance and the aforesaid Series Ordinanc e, copies of which are on file in the office of The Port of Portland and the principal office of the Trustee he reinafter mentioned and to all of the provisions of which any holder of this Bond by his acceptan ce hereof thereby assents, for definitions of terms; a description of and the nature and extent of the security for the Bonds issued or to be issued under the Bond Ordinance, including this Bond; the reve nues and other moneys pledged to the payment of the interest on and principal of the Bonds; the nature and extent and manner of enforcement of the pledge; the terms and conditions upon which this Bond and the series of which it is one are issued and upon which other B onds may heretofore have been issued or may hereafter be issued under the Bond Ordinance payable as to princi pal, interest and premium on a parity with this Bond out of the aforesaid re venues and other moneys and equally and ratably secured herewith; the conditions upon which th e Bond Ordinance and the aforesaid Series Ordinance may be amended or supplemented with or without the consent of the holders of the Bonds; the rights and remedies of the holder here of with respect hereto; the rights, duties and obligations of The Port of Portland and the here inafter-mentioned Trustee thereunder; the terms and provisions upon which the liens, pledges, charges, assignments and covenants of The Port of Portland made therein may be discharged at or pr ior to the maturity or redemption of this Bond, and this Bond will thereafter no lo nger be secured by the Bond Ordi nance or be deemed to be outstanding thereunder, if moneys or certain specified securities shall have been deposited with said Trustee therefor sufficient and held in trust solely for the payment hereof, and for the other terms and provisions thereof. This Bond and the series of Bonds of which it is one and the issu e of Bonds of which such series is a part a nd the interest and premium, if any, th ereon are payable solely out of and secured solely by the revenues of The Port of Portland pledged to the payment thereof by the Bond Ordinance, which revenues so pledged consist of the income, receipts and other moneys derived by The Port of Portland from its owners hip or operation of Portland International Airport, specified in the Bond Or dinance. In and by the Bond Ordinance (i) a special trust fund of The Port of Portland designated “The Port of Portland Airport Revenue Bond Fund” has been created with ___________ a corporation duly authori zed to exercise corporate trust powersDOCSPNW1:57365.3 42936-5 BJ1/BJ1 23 having its principal place of business in the City of ___________, ___________, and said corporation has been appointed as trustee (her ein referred to as the “Trustee”) to hold and administer the same and (ii) The Port of Portland is obligated to set aside and pay into said special trust fund the aforesaid revenues pledged to the payment hereof in amounts sufficient to pay the principal of and interest on this Bond and the Bonds of th e series of which it is one and the Bonds of the issue of which such series is a part as and when the same severally become due. This Bond and the Bonds of the series of which it is one and the Bonds of the issue of which such series is a part shall not in any manner or to any extent be a genera l obligation of The Port of Portland nor a charge upon the tax revenues of said Port no r a charge upon any other revenues or property of said Port not specifically pledged thereto in and by the Bond Ordinance. The Bonds of the series of Bonds of which this Bond is one maturing ___________, ____, and thereafter are subjec t to redemption at the option of Th e Port of Portland prior to their stated maturities, [The applicable redemption terms shall be inserted here.] at the principal amount thereof, the interest accrued thereon to the redemption date and the respective premium (expressed as a percentage of the principal amount to be redeemed) set opposite the respective periods in the table below if such redemption occu rs during such period: Period During Which Redeemed Redemption Premium (Both Dates Inclusive) (Percentage) [The applicable redemption premiums shall be inserted here.] In the event this Bond shall be subject to pr ior redemption as aforesaid and is called for redemption, notice of such redemption shall be maile d, at least once not less than forty (40) days prior to the date fixed for the redemption thereof, to the registered hold er of this Bond at his address as shown on the books of registry. If this Bond be of a denomination in excess of $___________, portions of the principal sum here of in installments of $___________ or any multiple thereof may be redeemed, and if less than all of the principal sum hereof is to be redeemed, in such case upon the surrender of this B ond to the Trustee there sh all be issued to the registered owner hereof, without charge ther efor, for the then unredeemed balance of the principal sum hereof, at the option of the owner either coupon Bonds or registered Bonds of like series, maturity and interest rate in any of th e authorized denominations provided by the Bond Ordinance and the Series Ordinance. If this Bond (or any portion of the principal sum hereof) shall be called for redemption and notice of such redemption duly given as af oresaid, and if on or before the redemption date there shall be deposite d with the Trustee sufficient funds to pay the principal amount hereof to be redeemed and accr ued interest on such principal amount to the date of redemption and any premium payable upon such redemption, this Bond (or the portion of the principal sum hereof to be redeemed) sh all become due and payable upon such redemption date and interest shall cease to accrue and become payable from and after the redemption date on the principal amount hereof to be redeemed. The Bonds of the series of Bonds of which this Bond is one are issuable as coupon Bonds registrable as to principal only, in the de nomination of $___________, and as fully registeredDOCSPNW1:57365.3 42936-5 BJ1/BJ1 24 Bonds without coupons in the denominations of $___________ or any multiple thereof. Subject to the limitations and upon payment of the charge s, if any, provided in the Bond Ordinance and the Series Ordinance, coupon Bonds bearing all unmatured coupons may be exchanged for a like aggregate principal amount of registered Bonds without coupons of aut horized principal sums and of the same series, interest rate and maturi ty, and registered Bonds without coupons may be exchanged for a like aggregate principal amount of coupon Bonds of the same series, interest rate and maturity bearing all unmatured coupons or for a like aggregate principal amount of registered Bonds without coupons of other authorized principal sums and of the same series, interest rate and maturity. This Bond is transferable by the registered owner hereof, in person or by his attorney duly authorized in writing, at the principal office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charge s, if any, provided in the Bond Ordinance and the Series Ordinance and upon the surrender hereof for cancellation. Upon such transfer a new registered Bond or Bonds without coupons, of authorized denominations and of the same aggregate principal amount, series, interest ra te and maturity as the Bond surrendered, will be issued to the transferee in exchange therefor. It is hereby certified, recited a nd declared that all acts, cond itions and things required by the Constitution and laws of Or egon and the Bond Ordinance and th e Series Ordinance to have happened, to exist and to have been performed pr ecedent to and in the issuance of this Bond and the series of which it is a part , do exist, have happened and have been performed in regular and due time, form and manner as required by said Constitution, laws and Ordinances; that this Bond and the series of which it is a part do not ex ceed any constitutional or statutory limitation of indebtedness; and that provision has been made for the payment of the principal of and interest on this Bond and the series of which it is a part as provided in the Bond Ordinance. IN WITNESS WHEREOF, THE PORT OF PORTLAND has caused this Bond to be signed by its President and Secretary or Assistan t Secretary (one of w hose signatures hereon may be a printed, engraved or lithogr aphed facsimile of his signature) and to bear a printed, engraved or lithographed facsimile of its seal and this Bond to be dated ___________, ____. THE PORT OF PORTLAND

Secretary or Assistant Secretary of The Port of Portland President of The Port of PortlandDOCSPNW1:57365.3 42936-5 BJ1/BJ1 25 (Form of Endorsement on Fully Registered Bonds) NOTICE: No writing below except by the Registrar. This registered Bond is issued in lieu of or in exchange or substitution for coupon Bond(s) of this series, interest rate and maturity, numbered ___________, in the denomination of $___________ each, aggregating the face value hereof and not contemporaneously outstanding; and coupon Bond(s) of the same series, interest rate and maturity ag gregating the face value hereof and bearing the above serial number(s) ha s (have) been reserved and will be issued in exchange for and upon surrender of this registered Bond and upon payment of char ges, all as provided in the within-mentioned Bond Ordinance and Series Ordinance. (Form of Assignment of Fully Registered Bonds) For value received ___________ hereby sells, assigns and transfers unto ___________ the within-mentioned Bond and hereby i rrevocably constitutes and appoints ___________ attorney-in-fact, to transfer the same on the books of registry with full power of substitution in the premises.

__________________________ Dated:______________________ __________________________ Signature Guaranteed* NOTE: The signature to this Assignment must correspond with the na me as written on the face of the within Bond in every particular, without a lteration or enlargement or any change whatsoever. * Generally guaranteed by a bank, tr ust company or brokerage firm. SECTION 11. Mutilated, Lost, Stolen or Destroyed Bonds or Coupons . In the event any Bond (or coupon) is mutilated, lost, stolen or destroyed, the Port may execute and deliver a new Bond (or coupon) of like series, date, te nor, maturity and denomination as the Bond mutilated, lost, stolen or destroyed, which ne w Bond shall have attached thereto coupons corresponding in all respects to those (if any) on the Bond mutilated, lost, stolen or destroyed; provided that, in all case s there shall be first furnished to th e Port and the Trustee indemnity and evidence of ownership of such Bond and coupons (or coupon) satisfactory to them and in the case of any mutilated Bond (or coupon), such mu tilated Bond (or coupon) together with all coupons (if any) appertaining to su ch Bond shall first be surrendere d to the Port or the Trustee, and in the case of any lost, stol en or destroyed Bond, there shall be first furnished to the Port and the Trustee evidence of such loss, theft or destruction satisfactory to them. In the event any such mutilated, lost, stolen or destroyed Bond (or coupon) shall have matured, or would have matured within sixty days, or has been called for redemp tion and the redemption date has arrived or will arrive within sixty days, instead of issuing a substitute Bond (or coupon) the Port, upon being furnished with indemnity and evidence of mutilati on, loss, theft or destru ction, as aforesaid, may pay the same without surrender ther eof. The Port may charge the holder or owner of such Bond (or coupon) with its reasonable fees and expens es in this connecti on. Any Bond (or coupon)DOCSPNW1:57365.3 42936-5 BJ1/BJ1 26 issued under the provisions of this section sha ll be equally and propor tionately entitled in accordance with its terms to the s ecurity and benefits of this Ordinance with the Bonds (and coupons) then outstanding of the series of Bonds of which such mutilated, lost, stolen or destroyed Bond was one. All mutilated Bonds a nd coupons surrendered pursuant to this section shall be cancelled. SECTION 12. Airport Construction Fund . The Port shall maintain one or more funds or accounts into which the Port shall deposit th e proceeds of obligations to which the Net Revenues are pledged, and grants-in-aid from th e Federal Government if and to the extent required by paragraph H of Section 17 hereof. These funds and accounts shall be referred to collectively as the “Construction Fund.” Th e Construction Fund may contain a subaccount known as the Airport Construction Interest Re serve Account. Unless otherwise provided by ordinance of the Port, money in the Construction Fund shall be us ed for Costs of Construction, and shall be invested, to the extent reasonabl e and practicable, in Investment Securities. For the purpose of this Ordina nce: (i) the word “construc tion” or “Construction” shall include the acquisition, construction, reconstruc tion, purchase, establishment, development, expansion, adding to or improving; (ii) the word “acquisition” shall incl ude the remodeling or renovation of buildings and faciliti es acquired; and (iii) the term “Costs of Construction” shall include any and all of the followi ng pertaining to the constructio n of additions, expansions and improvements at the Airport as set forth in the Airport Capital Improvement Program, as amended from time to time: (a) the cost of acquiring by purchase or th e exercise of the power of eminent domain of any building or faci lity and the site thereof; (b) the cost, if and as determined by the Po rt, of the payment to the Port of the lesser of the depreciated value of any building or facility and the site thereof, or the cost to the Port of such building or facility and the site thereof, owned by the Port and not then constituting part of the Airport, if such building or facility and the site thereof are thereafter to be used solely for purposes of the Airport and to constitute part of the Airport; (c) costs of acquiring by purchase or th e exercise of the power of eminent domain such land rights, rights of way, leases, easements or other inte rest in land or other properties (real, personal or mi xed) as may be deemed necessary or convenient by the Port for the construction or operation of the Airport, including costs of options and partial payments, escrow deposits, preliminary and fina l awards or judgments and settlements or compromises, with respect to the foregoing; co sts of reclaiming land; costs of dredging or filling incurred in the creation of land; a nd site preparation, including the costs of demolishing, removing or relocating any building or facility and the costs of any lands to which such building or facility may be removed or relocated; (d) costs of acquiring by purchase or th e exercise of the power of eminent domain any rights, interests or franchises deemed necessary or convenient by the Port for the construction or oper ation of the Airport;DOCSPNW1:57365.3 42936-5 BJ1/BJ1 27 (e) costs of labor, services, material , supplies, machinery, equipment and apparatus, including payments to contra ctors, independent contractors, agents, employees, builders and materialmen in conn ection therewith, and of restoration of property damaged or destroyed in connection with construction work; (f) costs of installation of utility services or connections thereto or relocation thereof; (g) costs and expenses of all preliminar y work necessary or incidental to construction; (h) costs and expenses of planning, engineering and other studies, architectural drawings, surveys, tests a nd specifications, whether preliminary or otherwise; and costs of other engi neering and architectural services; (i) costs of supervision and inspection; (j) costs of builders risk insurance, li ability insurance on operations in connection with said construction, or other in surance on the buildings and facilities being constructed, or a reasonably allocated share thereof; (k) costs of indemnity and fidelity bonds and expenses of administration properly chargeable to such construction; (l) costs of expenses of financing, including Trustee’s acceptance fees; financial advisors fees; blue sky and legal investment survey expenses; Trustee’s and Paying Agent’s fees and expenses during such period, if any, as sh all be determined by the Port, but not to exceed the actual period of construction and for such period thereafter as the Port may determine; and costs and e xpenses incurred in issuing and selling the Bonds, including but not limited to printing, en graving and advertising; and other similar costs; (m) costs of the initial furnishings of any building or structure; (n) costs of publication, advertising, filing and recording, including the publication of a summary of this Ordinance and a summary of each Series Ordinance and any Supplemental Ordinance pertai ning to the issuance of Bonds; (o) taxes and assessments; (p) expenses incurred in enforcing an y remedy against a contractor or subcontractor in respect of any default; (q) costs of estimates of costs and ec onomic feasibility reports whether preliminary or otherwise; fees, costs a nd expenses of apprai sing, printing, advice, accounting and fiscal services , airport consultants and a ttorneys (incl uding bond counsel);DOCSPNW1:57365.3 42936-5 BJ1/BJ1 28 (r) the payment and discharge of the princi pal of and interest and premium, if any, on any term or temporary constructi on financing or loans, including the reimbursement to the Port of moneys advanced from its tax revenues, or any other funds not held hereunder, for such construction; (s) if and to the extent determined by the Port, interest on the Bonds issued to finance the construction of any project duri ng the actual period of construction and for such period thereafter as the Port may determine; and (t) any and all other costs and expenses necessary or desirable and pertaining or incident to construction pertaining to the implementation of the Airport Capital Improvement Program, as amended from time to time, as estimated or otherwise ascertained by the Port. [Portions of this Section 12 were amended pu rsuant to Section 2 of Ordinance No. 368-B]. SECTION 13. The Airport Revenue Fund; Application of Revenues . On or before the date of delivery of and payments for the fi rst Bonds issued hereunder , the Port shall create and establish a special trust f und of the Port, to be known and designated as “The Port of Portland Airport Revenue Fund” (h erein defined and refe rred to as the “Air port Fund”) and to be held and administered by the Port hereunder so long as any of the Bonds are outstanding. The moneys deposited, or to be deposited, in the Ai rport Fund shall not be commingled with any other moneys of the Port; shall be used and applied only in the manner and for the purposes hereinafter provided in th is section; and shall be withdraw n from said Fund for said purposes only if in accordance with such procedure as is provided by law.

So long as any Subordinate Lien Bonds (a s defined in Port Ordinance No. 323, as amended and supplemented) are Outstanding, all the Revenues shall be collected by or for the account of the Port and shall be set aside as co llected and, except as is specifically provided otherwise herein, shall be deposited in the Air port Fund. There shall also be deposited in the Airport Fund the moneys required to be deposited therein by Section 12; paragraphs M and N of Section 17; and Sections 28 and 29 hereof. The moneys in the Airport Fund shall be used and applied at the following times, in the following amounts, for the following purposes and in the following order of priority: 1. Operation and Maintenance. The Revenues credited to the Airport Fund shall be first used and applied by the Port to the paymen t of the Costs of Operation and Maintenance of the Airport. For the purposes of this Ordinance, the term “Costs of Operation and Maintenance” shall mean the reasonable and necessary current expenses of the Port included as a Cost of Operation and Maintenance in th e annual Airport budget required by Section 15 hereof for operating, maintaining and repairing the Airport. Without limiting the generality of the foregoing, the term “Costs of Operation and Maintenanc e” shall include the following items:DOCSPNW1:57365.3 42936-5 BJ1/BJ1 29 (a) costs and expenses of general administration of the Port which are reasonably and properly allo cable to the Airport; (b) costs of collecting the Revenues and from making any refunds therefrom lawfully due others; (c) engineering, audit report s, legal and other overhe ad expenses directly related to the administrati on, operation, maintenance, a nd repair of the Airport; (d) costs of salaries, wages and other co mpensation of officers and employees and payments to pension, retirement, h ealth and hospitalization funds and other insurance, including self-insurance for the foregoing; (e) costs of routine repairs, replacements , renewals and alte rations occurring in the usual course of business; (f) taxes, assessments and other government al charges, or payments in lieu thereof, imposed on the Airport or any part thereof or on the operation thereof or on the income therefrom or on any privilege in c onnection with the ownership or operation of the Airport or otherwise imposed on the Ai rport or the operation thereof or income therefrom; (g) costs of utility services; (h) costs of material and supplies used in the ordinary course of business, including ordinary and current rental s of equipment or other property; (i) contractual services and professional services, including but not limited to, legal, engineering, archit ectural, planning, financial and airport consultants; (j) costs of fidelity bonds, or a properly a llocable share of the premium of any blanket bond, pertaining to the Airport or the Revenues or any other moneys held hereunder or required hereby to be held or deposited hereunder; (k) costs of carrying out the provisions of this Ordina nce, including Trustee’s and Paying Agents’ fees and expenses; costs of insurance required hereby, or such other insurance as may be deemed necessary by the Port for the proper protection of the Airport or the Revenues, or a properly allocable share of any premium of any blanket policy pertaining to the Airport or the Revenues; fees and e xpenses of the Accountant and the Airport Consultant; legal fees and e xpenses; and costs of recording, mailing and publication; (l) costs of lease payments due under cap ital leases for items customarily used in the operation or maintenance of airport facilities or equipment; and; (m) all other costs and expenses of oper ating, maintaining and repairing the Airport arising in the routine a nd normal course of business;DOCSPNW1:57365.3 42936-5 BJ1/BJ1 30 PROVIDED, HOWEVER, that the term “Costs of Operation and Maintenance” shall not include: (1) any allowance fo r depreciation or any amounts for capital replacements, renewals, repairs and maintenance not recurr ing annually (or at s horter intervals) or reserves therefor; (2) costs of extensions, enlargements, betterments and improvements or reserves therefor, other than cost of pre liminary planning; (3) reserves for operation, maintenance and repairs occurring in the normal course of business; (4) payment (including redemption) of bonds or other ev idences of indebtedness or interest and premium thereof or reserves therefor; and (5) any operation and maintenance expenses pertaining to Special Facilities (defined in Section 28 hereof) or expenses incurred by any lessee under a Net Rent Lease (d efined in said Section 28). 2. General. There is hereby created and established a separate special account in the Airport Fund to be known and designated as the “G eneral Account.” On the first business day of each month commencing with the month which follows the month in which the first Bonds issued hereunder are delivered and paid for and in each month thereafter, the Port after paying the Costs of Operation and Maintenance required by subparagraph 1 of this section, shall credit the balance of the Revenues then held in the Ai rport Fund (and not then cr edited to any account therein) to the General Account. The moneys cr edited to the General Account may be used and applied by the Port first, to the SLB Fund as pr ovided in Sections 6 and 7 of Port Ordinance No. 323, as amended, and then, without regard to priority and as determined by and in the discretion of the Port, only to the following: (1 ) in the event the moneys credited to the Airport Construction Fund are insufficient therefor, to co mplete payment of the Costs of Construction of properties included or to be included in the Airport; (2) to co mplete the payment of the costs of major maintenance, repairs, renewals and replacements to the properties constituting the Airport; (3) in the event the proceeds of insurance are insufficient therefor, to pay the costs of reconstruction, replacement or restoration of pr operties destroyed or damaged; (4) to pay the principal of and interest and premium, if any, on any subordinate or j unior lien evidences of indebtedness issued for the Airport as permitted by paragraph L of Section 17 hereof (other than Subordinate Lien Bonds authorized by Port Ordinance No. 323, as amended); (5) (a) to reimburse the Port for advances made, after th e delivery of and payment for the first Bonds issued hereunder, by the Port fo r the principal of and interest and premium, if any, on general obligation bonds of the Port issu ed, after the delivery of and pa yment for the first Bonds issued hereunder, for the Airport; or (b) to reimburse any fund of the Port not held hereunder for advances made by the Port, after the delivery of and payment for the first Bonds issued hereunder, from such fund to any fund held hereunde r; or (c) to reimburse the Port for moneys expended, after the delivery of and payment for the first Bonds issued hereunder, by it for the Airport from sources other than the Airport or the Revenues deri ved therefrom, and other than the proceeds of general obliga tion bonds or moneys advanced from any fund not held hereunder for which reimbursement may be made pursuant to clauses (a) and (b) of this item (5), provided that any amounts paid to the Port pursuant to this item (5) may be applied by the Port to any lawful purposes of the Port; (6) to pay the Co sts of Construction of additions, expansions, improvements and betterments to the Airport, in cluding the acquisition of land in anticipation of additions, expansions, improvements and bette rments pursuant to the Airport Capital Improvement Program, as amended from time to time; (7) to any other lawful use or purpose pertaining to the Airport or the aviation or air transport interests of th e Port, including without limitation General Aviation Airports; and (8) to any other lawful use or purpose necessary toDOCSPNW1:57365.3 42936-5 BJ1/BJ1 31 carry out this Ordinance, including the making of required payments or credits for the Costs of Operation and Maintenance of the Airport and to any fund or account held hereunder. Notwithstanding the foregoing provisions of th is section, in the event that on the first business day of any month the moneys in the Ai rport Fund are insufficient to make in full the foregoing credits and payments as required by and in accordance with the provisions of subparagraphs 1 through 5 above in this section, all su ch moneys and the Re venues thereafter derived shall be applied, paid and credited in accordance with sa id provisions to the satisfaction in full of a credit or payment having a higher prio rity before being applied, paid or credited to a credit or payment having a lowe r priority, including by the making up of any deficiencies in the amounts required to satisfy a credit or payment ha ving a higher priority before being applied, paid or credited to an item having a lower prio rity. Without limiting the generality of the provisions of the preceding sentence, A. In the event that on the first bu siness day of any month the moneys in the Airport Fund and not then credited to an account therein are insufficient to make the credits and paymen ts required by subparagraphs 1 through 4 above of this section, the amount of the insufficien ces shall be made up as follows and in the following order of priority: (i) if such moneys are insufficient to make the payments of the Costs of Operation a nd Maintenance required by subparagraph 1 above of this section, the amount of such insufficiency shall be made up, first, from any moneys then credited to the General Account; seco nd, from any moneys then credited to the Capital Improvemen t Account; and third, from any moneys then credited to the Major Maintenance Reserve Account; (ii) if such moneys are insufficient to make the payments of th e Costs of Operation and Maintenance and also to make the payments to the Truste e required by paragraph 2 above of this section, the amount of such insufficiency in the payment to the Trustee shall be made up, first, from the moneys then cr edited to the General Account; second, from any moneys then credited to th e Capital Improvement Account; and third, from the moneys then credited to the Ma jor Maintenance Reserve Account; (iii) if such moneys are insufficient to make the credits and payments having a higher priority and also to make the credit to the Major Maintenance Reserve Account required by subparagraph 3 above of this section, the amount of such insufficiency in the credit to the Majo r Maintenance Reserve Account shall be made up, first from any moneys then cred ited to the General Account, and second, from the moneys then credited to the Capital Improvement Account; and (iv) if such moneys are insufficient to make the credits and payments having a higher priority and also to make the credit to the Capital Improvement Account required by subparagraph 4 above of this section, th e amount of such insufficiency in the credit to the Capital Improvement Acc ount shall be made up from any moneys then credited to the General Account; and B. If in any month the moneys th en on credit to any account are insufficient to make the payments to be made therefrom or the moneys on deposit in the Bond Fund are insuffi cient to make the payment to be made therefrom or are less than the amount then requi red to be on deposit therein, such insufficiencies shall be made up in the fo llowing order of priorities: (i) if theDOCSPNW1:57365.3 42936-5 BJ1/BJ1 32 moneys are insufficient to make the payments for the Costs of Operation and Maintenance, the amount of the insufficiency shall be made up, first, from the moneys then credited to the General Account; second, from the moneys then credited to the Capital Improvement Account; third, from any moneys then credited to the Major Maintenance Reserve Account; and fourth, from any moneys then in the Airport Fund and not yet credited to an account therein; (ii) if the moneys on deposit in the Bond Fund are insufficient to make the payments to be made therefrom or are less than the amount then required to be on deposit therein on credit to the De bt Service Reserve Account th erein, the amount of such insufficiency shall be made up first, from the moneys then credited to the General Account; second, from moneys then cr edited to the Capital Improvement Account; third, from the moneys then cred ited to the Major Maintenance Reserve Account; and fourth, from any moneys then in the Airport Fund and not then credited to an account ther ein; and (iii) if the mone ys on credit to the Major Maintenance Reserve Account are insufficient to make the payments to be made therefrom or are less than the amount then required to be on credit thereto, the amount of such insufficiency shall be made up, first, from the moneys credited to the General Account; second, from the m oneys then credited to the Capital Improvement Account; and third, from any moneys then in th e Airport Fund and not then credited to an account therein; and (iv) if the moneys on credit to the Capital Improvement Account are insufficien t to make the payments to be made therefrom or are less than the amount then required to be on credit thereto, the amount of such insufficiency shall be made up, first, from the moneys credited to the General Account; and second, from any moneys then in the Airport Fund and not then credited to an account therein; Moneys in the Airport Fund shall be invested and reinvested by the Port in Investment Securities to the extent reasonabl e and practicable so as to mature in the amounts and at the times as determined by the Port so that the respective payments and credits to be made from the Airport Fund ma y be made when due. All investments and reinvestments shall be paid from the account from which the investment was made, and the Port shall be authorized to sell any inve stment when necessary to make the payments to be made from such account. All earnings on and income from investments of moneys in the Airport Fund (regardless of the account from which the investment was made) shall be deposited in the Airport Fund, for use and application as are all other moneys deposited in that fund. Unless invested as above provided, all moneys in the Airport Fund shall be secured in the manner provide d by law for the securing of public funds. [Portions of this Section 13 were amended pursuant to Sections 5 and 8 of Ordinance No. 368-B and Section 1.3 of Ordinance No. 393-B. Pursuant to Section 10 of Ordinance No. 368-B, “all references to the Prior Lien Bond Fund, Ma jor Maintenance Account and Capital Improvement Account...shall be considered to have no further effect...”.] SECTION 14. (1) The Bond Fund; Appointment of Trustee to Administer the Same . There is hereby created and established a special trust fund of the Port to be known and designated as “The Port of Por tland Airport Revenue Bond Fund” (h erein defined and referred to as the “Bond Fund”). The Port, in the Series Ordinance providing for the issuance of the firstDOCSPNW1:57365.3 42936-5 BJ1/BJ1 33 series of Bonds hereunder, shal l appoint as trustee (herein de fined and referred to as the “Trustee”) hereunder a corporation meeting the qualif ications prescribed by Section 18 hereof to hold and administer the Bond Fund, and the Trus tee shall hold and administer the same. The Port is hereby obligated to, and shall, set aside and pay into said Bond Fund the Revenues pledged hereunder to the extent ne cessary to provide for the punctual payment of the principal of and interest and premium, if any, on the Bonds as and when the same become due, whether such due date be by reason of stated maturity or by redemption or by decl aration as hereinafter provided, or otherwise. The moneys in the Bond Fund shall be used solely for the payment of principal and interest and premiu m, if any, due upon the Bonds. Un til so used and applied, the moneys in the Bond Fund and the securities in which such mone ys may from time to time be invested shall be held in trust hereunder for th e equal and ratable benefit and security of the holders of all the Bonds and shall be subject to the liens and ple dges created by Section 3 hereof. The Trustee shall serve as the registrar, transfer agent and principal Paying Agent hereunder, and shall make whatever arrangements with the add itional Paying Agents that may be necessary so that the Bonds and coupons payabl e at the office of such Paying Agents which are presented to such Paying Agents may be paid as and when the same become due. Whenever all Bonds and expenses therefor have been paid so that no charge remains upon the Bond Fund, the Port may, by ordinance, transfer any balance remaining in the Bond Fund to its general fund, discharge the Trustee, and dissolve the Bond Fund. Supplemental to the foregoing provisions of th is section, there shall be deposited in the Bond Fund: (i) the moneys required by Section 12 and paragraphs H and M of Section 17 hereof to be paid into the Bond Fund; (ii) any amounts held hereunder which, at the option and in the discretion of the Port, may be a pplied to the purchase or redemp tion of Bonds, to the extent the Port has determined that such moneys shall be applied to such purposes and such application is permitted by the provisions hereof; and (iii) th e Revenues, in the following amounts and at the following times: (2) Interest Account. The Trustee shall create and establish a separate account in the Bond Fund to be known as the “Interest Account.” In order to provide for the payment of the interest on the Bonds, commencing with the month which follows the month in which any Bonds of the first series or in stallment of Bonds issued hereunder are delivered and paid for, and in each month thereafter so long as any of the Bonds of said series are outstanding, there shall be paid over from the Revenues and deposited in the B ond Fund and credited to the Interest Account therein an amount, less such amount th at is equal to the interest, if any, that is paid from the Airport Construction Interest Rese rve Account, such that, if the same amount were so credited to this account in each succeeding mont h thereafter prior to the next date upon which an installment of interest falls du e on the Bonds of such seri es or installment, the aggregate of such amounts on credit to this account will on each such next intere st payment date be equal to the installment of interest falling due on the Bonds of said series or installment on su ch interest payment date. In the event of the issuance of Additional Bonds hereunder or the sale of a second installment of the first series of Bonds, in like and similar fashion with re spect to the Bonds of each such series, or installment commencing with the month which follows the month in which such series or installment of Bonds are delivered and paid for, and in each month thereafter so long as any of the Bonds of such series or installment are outstanding, there shall be paid over from the Revenues and deposited in the Bond Fund and cr edited to the Interest Account therein an additional amount, less such amount th at is equal to the interest, if any, that is paid from theDOCSPNW1:57365.3 42936-5 BJ1/BJ1 34 Construction Interest Reserve A ccount, such that, if the same amount were so credited to this account in each succeeding month th ereafter prior to the next date upon which an installment of interest falls due on the Bonds of such series or installment, the aggregate of such additional amounts on credit to this account will on each such next interest payment date be equal to the installment of interest falling due on the Bonds of such series or installment on such interest payment date, so as to provide for the payment of the interest on each such series or installment of the Bonds. In making the cred its to the Interest Account in the Bond Fund required by this subparagraph, consideration shall be given to an d allowance made for accrued interest received upon the sale of a series or inst allment of Bonds deposited in th e Bond Fund, for credits to this account from moneys credited to a Construction Interest Re serve Account, and for moneys credited to this account from the invest ment of moneys held in the Bond Fund. (3) Serial Bond Principal Account . The Trustee shall create and establish a separate account in the Bond Fund to be kn own as the “Serial Bond Principa l Account.” In the event of the issuance of any of the Bonds of the first series or installmen t of Bonds hereunder maturing at times customarily known as maturing serially, in or der to provide for the payment of such Bonds of such series or installment, commencing with the month which is twelve months prior to the first principal payment of any of such Bonds matu ring serially and in each month thereafter so long as any of such Bonds so maturing are outsta nding, there shall be credited to the Serial Bond Principal Account an amount such that, if the sa me amount were so credited to this account on the first business day of each succeeding month ther eafter prior to the next date upon which the principal of any of said Bonds maturing serially becomes due and payable, the aggregate of the amounts on credit to this account will on each such next principal payment date be equal to the principal amount of said Bonds becoming due on such principal payment date. In like and similar fashion, in the event of the issuance of Additional Bonds hereunder or the sale of a second installment of the first se ries of Bonds maturing at time s customarily known as maturing serially, for the purpose of payi ng the principal of such Bonds ma turing serially and with respect to each series or installment of such Bonds so maturing, commencing with the month which is twelve months prior to the first principal paymen t date of such Bonds ma turing serially and in each month thereafter so long as any of said Bonds so maturing are out standing, there shall be credited to the Serial Bond Pr incipal Account an amount (in a ddition to the amount required to be credited thereto by the first se ntence of this subparagraph) such that if the same amount were so credited to this account on the first business day of each succeeding month thereafter prior to the next date upon which the principal of any of said Bonds maturing serially becomes due and payable, the aggregate of such increased amount s on credit to this account will on each such principal payment date be equal to the principa l amount of all such Bonds so maturing becoming due on such principal payment date. In making th e credits to the Serial Bond Principal Account required by this subparagraph, consideration shall be given to and allowance made for moneys credited to this account from the invest ment of moneys held in the Bond Fund. (4) Term Bond Principal Account. The Trust ee shall create and establish a separate account in the Bond Fund, to be kn own as the “Term Bond Principa l Account.” In the event of issuance of any Bonds hereunder in the form customarily known as “term bonds”, for the purpose of retiring such Bonds, w ith respect to each series or installment of such Bonds the Series Ordinance or Supplemental Ordinance providing for the i ssuance of such Bonds of such series or installment shall pr ovide for monthly credits to the Term Bond Principal Account commencing with the month which in the case of semi-annual Term Bond Principal AccountDOCSPNW1:57365.3 42936-5 BJ1/BJ1 35 Installment dates is six months prior to the date the first semi-annual Term Bond Principal Account Installment for such Bonds is due and in the case of annual Term Bond Principal Account Installment dates is twelve months prio r to the date the first Term Bond Principal Account Installment for such Bonds is due, so that the re tirement of any such Bonds issued in the form of term bonds will be provided for. In making the credits to this account, consideration shall be given to and allowance made for moneys cr edited to this account from the investment of moneys held in the Bond Fund. The respective amounts of moneys credited to the Term Bond Principal Account for the purpose of providing for the retirement of the term Bonds of a particular series or installment shall be applie d by the Trustee, without further authorization or direction, to the redemption of such Bonds of such series or installment on each date on which a Term Bond Principal Account In stallment for said Bonds is due in the respective principal amounts required to be credited to this account on such dates by the Series Ordinance or Supplemental Ordinance providing for the issuance of the Bonds of such series or installment, in the prospective principal amounts on credit to this account on such days for the Bonds of such series, so that the aggregate amount so applie d in each calendar year will equal the respective principal amount required to be credited to th is account on such Term Bond Principal Account Installment dates by the respective Series Ordi nance or Supplemental Ordinance providing for their issuance. The Trustee shall give notice of all such redemptions, in the name and on behalf of the Port, in accordance with the provisions of Section 7 hereof. The Trustee may also, without further authorization or direction, apply the moneys credited to this account for the retirement of Bonds of a particular series issu ed in term form to the purchas e of those Bonds, in which event the principal amount of said Bonds required to be re-deemed on the next respective ensuing Term Bond Principal Account Inst allment date shall be reduced by the principal amount of the Bonds so purchased; provided, however, that no Bonds shall be purchased during the interval between the date on which notic e of redemption of said Bonds from Term Bond Principal Account Installments is given and the date of redemption set forth in such notice, unless the Bonds so purchased are Bonds called for redemp tion in such notice or are purchased from moneys other than those credited to this accoun t; and provided further, that no purchases of Bonds shall be made if such purch ase would require the sale at a lo ss of securities credited to the Term Bond Principal Account unles s the difference between the act ual purchase price (including accrued interest and any brokerage or other char ge) paid for such Bonds and the then maximum purchase price (plus accrued interest) permitted to be paid therefor, is greater than the loss upon the sale of any such securities. Any purchase of Bonds pursuant to this paragraph may be made with or without tenders of Bonds and at either public or privat e sale, but in any event at a purchase price (including accrued interest and any brokerage or other charge) not to exceed the then applicable redemption price of such Bonds, plus accrued interest. All Bonds purchased or redeemed pursuant to this paragraph shall be cancelled and not reissued. The moneys on deposit in the Bond Fund on cred it to the Interest Ac count, Serial Bond Principal Account and the Term Bond Principal Account therein shall be transferred by the Trustee without further authorizatio n or direction of the Port to the respective Paying Agents for said Bonds and the coupons, if a ny, pertaining thereto, in such amounts and at such times as shall be necessary to pay the principal, premium, if any, and interest on said Bonds as the same become due and payable, whether upon their ma turity or upon the redemption or the purchase thereof from the moneys credited to the Term Bond Principal Account.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 36 (5) Debt Service Reserve Account. The Truste e shall create and es tablish a separate account in the Bond Fund, to be known as the “Deb t Service Reserve Account”, the moneys on credit to which shall constitute a reserve for the payment of the principal and interest and premium, if any, on the Bonds. Subject to the remaining provisions of this paragraph with respect to the cred its to be made to the De bt Service Reserve Account upon the issuance of the Bonds, the moneys on deposit in the Bond Fund fo r credit to the Debt Service Reserve Account therein shall always be maintained at an amou nt at least equal to the maximum Debt Service Requirement for any future Fiscal Year for all B onds at the time outstandi ng, and if at any time the moneys in the Bond Fund on credit to the Debt Service Reserve Account therein are less than the maximum Debt Service Requirement, the amount of the deficiency shall be restored as provided in Section 13 hereof, and if at any time and for so long as the moneys on credit to such account are at least equal to said maximum Debt Service Requirement, no further credits shall be made to this account. In the even t of the issuance of a series or installment of Bonds hereunder, unless upon the delivery of such Bonds there shall then already be on deposit in the Bond Fund on credit to the Debt Service Reserve Account therein an amount equal to the maximum Debt Service Requirement for any future Fiscal Y ear, for all Bonds to be outstanding upon the issuance of such Bonds (includi ng the Bonds of such series or installment), there shall (1) be paid into the Bond Fund for credit to the Debt Service Reserve Account therein such amount, if any, of the proceeds of the sale of such series or installment of Bonds as the Port shall have specified in the respective Series Ordinan ce or Supplemental Ordinance providing for the issuance of such Bonds, so that there shall then be on deposit in the Bond Fund on credit to the Debt Service Reserve Account therein an amount equal to the maximum Debt Service Requirement for any future Fiscal Year for all B onds to be outstanding u pon the issuance of such Bonds (including the Bonds of such series or instal lment), or (2) if and to the extent there shall not be paid into the Bond Fund for credit to th e Debt Service Reserve Account therein proceeds of the Bonds of such series or installment in an amount so that there shall then be on credit to the Debt Service Reserve Account therein an amount equal to the maximum Debt Service Requirement for any future Fiscal Year for all Bonds to be outstanding upon the issuance of the Bonds of such series or inst allment, then in each month, commencing with the month which follows the month in which the Bo nds of such series or installm ent are delivered and paid for, there shall be paid from the Re venues into the Bond Fund for credit to this account an amount at least equal to 20% of the amounts required to be deposited into the Bond Fund under paragraphs (2), (3) and (4) of th is Section 14 until there is on de posit in the Debt Service Reserve Account an amount equal to the maximum Debt Service Requirement for any future Fiscal Year for all Bonds at the time outstanding. The m oneys in the Bond Fund on credit to the Debt Service Reserve Account therein shall be used and applied solely for the purpose of paying the principal of and interest and premium, if any, on the Bonds when due, whether at their maturity or upon the redemption or purchase thereof from moneys credited to the Term Bond Principal Account in the Bond Fund, and shall be so used and applied whenever there are insufficient moneys in the Bond Fund on credit to the Intere st Account, Serial Bond Principal Account and Term Bond Principal Account therein for such purposes. (6) Investments. Moneys in the Bond Fund sh all be invested and reinvested to the extent reasonable and practicable by the Trust ee at the direction of th e Port in Investment Securities; provided, that, the Investment Securities in which such moneys are invested shall also be securities in which the State of Oregon may by law invest. Such Investments shall mature (i) in the case of moneys credit ed to the Interest A ccount, the Serial Bond Principal Account andDOCSPNW1:57365.3 42936-5 BJ1/BJ1 37 the Term Bond Principal Account, in such amounts a nd at such times so that the principal of and interest and premium, if any, on the Bonds can be paid when due, whether at the maturity thereof, or upon the redemption or the purchase thereof from moneys cr edited to the Term Bond Principal Account, and (ii) in th e case of moneys credited to th e Debt Service Reserve Account, by no later than the earlier of eight years from the date of investment or the maturity date of all Bonds then outstanding. All earn ings and income from the inve stment of moneys in the Bond Fund shall be credited, as realized and collecte d, to the Debt Service Reserve Account unless and until there is on credit to sa id account an amount equal to the maximum Debt Service Requirement for any future Fiscal Year on all Bonds then outstanding, in which event such earnings and income shall be cr edited to the Interest Account, or the Serial Bond Principal Account, or the Term Bond Princi pal Account, or any combinati on thereof, as the Port may determine. The Trustee shall notify the Port of th e availability of any such earnings and income available for credit to the In terest Account, Serial Bond Pr incipal Account and Term Bond Principal Account, so that the Port, when making the payments to the Trustee required by the second, third, fourth and fifth para graphs of this section may gi ve consideration to and make allowance for the amounts of such earnings and income so credited to said accounts. All securities in which moneys in the Bond Fund are invested shall c onstitute a part of the account from which the investment was made. The Trust ee may sell any of the securities in which such moneys may be invested whenever required so that the payments from the Bond Fund may be made when due. Whenever the total of the moneys in the Bond Fund which are not required for the payment of principal and intere st and premium, if any, whic h has theretofore become due (whether by maturity or upon redemption or by purchase or by declaration as hereinafter provided, or otherwise), but is unpaid, is sufficient to retire at maturity, or to redeem prior to maturity in accordance with their respective terms, all of the Bonds then outstanding, together with interest thereon to their maturity date or the date fixed pursuant to this paragraph by the Trustee for the redemption thereof, no further pa yments need to be made into the Bond Fund, and the Trustee, without further authorization or direction of the Port shall call all Bonds which may be redeemed by their terms, for redempti on on the next succeedi ng redemption date for which the required redemption notice may practicab ly be given, and shall apply such total to such retirement or redemption. SECTION 15. Annual Airport Budget . The Port shall prep are and file with the Trustee, at the time and in the manner prescrib ed by law or by its own ordinances, by-laws, rules or regulations, an estimated budget for each Fiscal Year of Revenues and of Costs of Operation and Maintenance; costs of renewals, repairs and replacements; Debt Service Requirements; and other expenditures for such Fiscal Year. If the Port in its sole discre tion deems any changes in its operating procedures or in its capital outlays, or any revisions in its schedul e of rates, rentals, fees and charges, or any other changes, or a ny combination of the foregoing, as being necessary to produce the Revenues required for such budge t and covenanted to be produced by said Section 16, it shall effect such changes in its opera ting procedures or in its capital outlay s or such revisions in its schedule of rates, rentals, fees and charges, or such other changes, or any combination of the foregoing, which in its opini on and sole discretion are necessary to produce such Revenues. The Port shall prepare a summary of each such budget and at the time of filing same with the Trustee as aforesaid, shall mail a copy thereof to any holder of Bonds who shall file a written request therefor with the Port.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 38 SECTION 16. Covenant as to Rates, Rentals, Fees and Charges . The Port shall impose and prescribe such schedule of rates, re ntals, fees and other charges for the use and services of and the facilities and commodities furn ished by the Airport, revise the same from time to time whenever necessar y, and collect the income, receipts and other moneys derived therefrom, so that the Airport shall be and al ways remain self-sustaining and self-supporting; provided that, in any and all events such schedule of rates, rentals, fees and charges imposed and prescribed shall be such so as to produce (i) Revenues which will be sufficient to discharge all claims, obligations and indebtedness payable from or secured by the Revenues, including without limiting the generality of the foregoing, the carrying out of all provisions and covenants of this Ordinance, and (ii) Net Revenues in each Fi scal Year at least equal to one hundred thirty per cent of the Debt Service Requirement for such Fiscal Year on all B onds then outstanding. The Port shall enact such ordinances and prescr ibe and enforce such ru les and regulations, or impose such contractual obligations, for the paymen t of said rates, rental s, fees and charges, including, without limitation, the imposition of pe nalties for any defaults; to the end that the provisions of this paragra ph shall be complied with. Within 120 days after the close of each Fiscal Year (the first such certificate to be filed with respect to the Fiscal Year in which the firs t Bonds are issued hereunder), the Port shall file with the Trustee and the Airport Consultant a signed copy of the annual report of the Accountant for the preceding Fiscal Year showing, among other things, for such year (a) Revenues and Net Revenues, and (b) the Debt Service Requirement of the Bonds. In the event that any such report so filed shows that the Revenue and Net Revenues for said preceding Fiscal Year did not equal at least the amounts covenanted to be produced by, and required for the purposes specified in, the preceding paragraphs of this section for said Fisc al Year, or that the Revenues were not sufficient to restore any deficiency in the amounts then re quired by Section 14 hereof to be credited to the Debt Service Reserve Account in the Bond Fund, and to pay or discha rge all other claims, charges and liens whatsoever against the Revenue s when due and payable, then the Port shall promptly thereafter cause the Airport Consultant to file with the Port and the Trustee a certificate stating, if deemed necessary by him, specific changes in operating procedures which may be made, or suggested revisions in the schedule of rates, rentals, fees and charges and recommendations respecting any increases thereto, or any other changes, or any combination of the foregoing, which will, in the aggregate, in his opinion, result in Re venues and Net Revenues estimated as sufficient to make up any ex isting deficiency and to produce the amounts covenanted to be produced by the preceding paragra phs of this section. The Port shall send a copy of each such certificate to the Trustee and to any holder of Bonds filing with the Port a request for the same. Thereafter, the Port, if in its sole discretion it then deems any changes in its operating procedures or a ny revisions in its schedule of rates, rentals, fees and charges, or any other changes, or any combination of the forego ing, as being necessary to produce the Revenues and Net Revenues required to make up any defici ency and produce the amount s covenanted to be produced by the preceding paragraphs of this sec tion, shall as soon as possible effect such changes in its operating procedures or such revisions in such schedul e of rates, rentals, fees and charges, or effect such other changes, or take any combination of the foregoing actions, which in its opinion and sole discretion ar e necessary for such purposes.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 39 [Portions of this Section 16 were amended pu rsuant to Section 7 of Ordinance No. 368-B] SECTION 17. Additional Covenants of The Port of Portland; Insurance Proceeds and Condemnation Awards . The Port of Portland hereby covenants and agrees with the Trustee and the holders of the Bonds from time to time and at the time outstanding hereunder that so long as any of sa id Bonds are outstanding: A. To Pay Principal, Premium and Interest of Bonds. The Port will duly and punctually pay, or cause to be paid, but solely out of the Revenues pledged to such payment in Section 3 hereof, the principal of and the inte rest and premium, if any, on each and every Bond at the place, on the dates and in the manner provided herein and in said Bonds and in the coupons thereto appertaining according to the true intent and m eaning hereof and thereof. B. Ownership of Land. The Port covenants (i) that it lawfully owns and is lawfully possessed of the Portland International Airport as presently existing, that it has good and indefeasible title and estate therein, subject to Permitted Encumbrances as defined hereinafter in this paragraph, and (ii) that it will continually defend the title to the Airport and every part thereof for the benefit of the holders and owne rs of the Bonds and the bearers of the coupons pertaining thereto against the claims and demands of all pers ons whomsoever. If any defect (other than said Permitted Encumbrances) shall be discovered in the title of the Port to the Airport, the Port shall promptly cure the same. For the purposes of this paragraph “Permitted Encumbrances” means, as of any particular time, (i) liens for ad valorem taxes, if any, not then delinquent; (ii) this Ordinance; (iii) utility, access and other easements and rights of way, restrictions and exceptions that will not interfer e with or impair the operations being conducted at the Airport; (iv) mechanic’s, materialman’s, and other liens as and to the extent permitted by and referred to in paragraph O of this section; (v) the ri ght, title and interest , if any, of the State of Oregon in and to any portion of the site of the Airport lying below the ordinary high water mark of any rivers adjacent to the Airport an d the rights of the governmental bodies and the rights of the public for navigation and fishery belo w such ordinary high water marks; (vi) such reservations, restrictions and conditions impos ed by the United States Government in the Instrument of Transfer, dated February 23, 1950, effective as of April 28, 1948, in which the Port received certain surplus property from the United States; (vii) any lease relating to the Airport in existence on the date the first Bonds issued he reunder are sold and deliv ered; and (viii) such minor defects, irregularities, encumbrances, eas ements, rights of way, and clouds on title as normally exist with respect to properties similar in character to the Airport and as do not, in the opinion of counsel (who may be of counsel to the Port) materially impair the use of the property affected thereby for the purpose for which it was acquired or is held by the Port. C. Filing and Recording of Ordinances; Instru ments of Further Assurance. The Port will enact such Supplemental Ordinances, and do , execute, acknowledge and deliver, or cause to be done, executed, acknowledged, a nd delivered, such further acts, instruments and transfers, including, without limiting the generality of th e foregoing, such filing, registration, recording, re-filing, re-registration or re-recording of this Ordinance and any Supplemental Ordinances, any financing statements and any other instruments, as may be necessary, or as the Trustee may reasonably require, for the better assuring, pled ging, charging, assigning and confirming unto the holders of the Bonds and the Trus tee the Revenues and other moneys pledged in Section 3 hereof to the payment of the principal of a nd interest and premium on the Bonds.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 40 Promptly after any filing, registration or r ecording or any re-filing, re-registration or re-recording of this Ordinance and any Supplemen tal Ordinances or any filing, registration, recording, re-filing, re-registra tion or re-recording of any fi nancing statements or other instruments of further assurance or of any s upplement to the foregoing which is required by the preceding paragraph, the Port will deliver or cause to be delivered to the Trustee an opinion of counsel (who may be of counsel for the Port) to th e effect that such filing, registration, recording, re-filing, re-registration or re-recording has been duly acco mplished and setting forth the particulars thereof. Promptly after the enactment of this Ordinance, the Port shall furnish, or shall cause to be furnished, to the Trustee an opinion of counsel (who may be of counsel for the Port) either stating that in the opinion of such counsel this Ordinance has been properly recorded and filed so as to make effective the lien and pledges intende d to be created hereby, an d reciting the details of such action, or stating that in the opinion of such counsel no such acti on is necessary to make such lien and pledges effective. On or before the July 1 which next follows the delivery of the fi rst Bonds hereunder and on or before each July 1 thereafter, so long as a ny of the Bonds shall be outstanding, the Port will deliver, or cause to be delivered, to the Trustee an opinion of counsel (who may be of counsel for the Port), addressed to th e Trustee stating that no filing, registration or reco rding and no re-filing, re-registration or re-rec ording of any instrument (including this Ordinance, all Supplemental Ordinances, all financing statemen ts and all other instruments of further assurance) is necessary during the annual period immediately succeeding the date of such opinion in order to maintain the liens, pledges and charges of this Ordinance, or if such filing, registration or recording or re-filing, re-registration or re-recording is necessary, setting fo rth the requirements with respect thereto, and the Port shall cause such requirements to be met and within thirty days thereafter shall deliver, or cause to be delivered, to the Trustee an opinion of counsel (who may be of counsel for the Port) showing that they have been met. D. To Complete Acquisitions and Constructions Promptly. Th e Port will proceed, in accordance with the Airport Capital Improvement Program, as amended from time to time, with all reasonable dispatch to complete the acq uisition, purchase, construction, improvement, betterment, extension, addition, reconstruction, restoration, equipping and furnishing of any properties, the costs of which ar e to be paid from the proceeds of Bonds, from moneys in the Airport Fund, from any other moneys held hereu nder or from the proceeds of general obligation bonds of the Port for the payment of principal or interest, or both, of which reimbursement is required to be made to the general fund of th e Port from the Airport Fund or the Revenues deposited or to be deposited therein. E. To Keep Airport in Good Repair and to Make Improvements and Betterments Thereto. The Port will maintain, preserve, ke ep and operate, or cause to be maintained, preserved, kept and operated, the properties co nstituting the Airport (including all additions, improvements and betterments thereto and extensi ons thereof and every part and parcel thereof) in good and efficient repair, working order and operating condition in conformity with standards customarily followed in the aviation industry for ai rports of like size and character. The Port from moneys lawfully available therefor or made available therefor, will from time to time make all necessary and proper repairs, renewals, replacem ents and substitutions to said properties, andDOCSPNW1:57365.3 42936-5 BJ1/BJ1 41 construct additions and improveme nts thereto and extensions and betterments thereof which are economically sound, so that at all times the busine ss carried on in connection therewith shall and can be properly and advantageously conducted in an efficient manner and at reasonable cost. F. To Operate and Maintain Airport. The Po rt shall operate and maintain the Airport as a revenue-producing enterprise and shall manage the same in the most efficient manner consistent with sound economy and public advantag e, and consistent with the protection of the holders of the Bonds. G. Governmental Approval. The Port will perform any constructions, reconstructions and restorations of, improvements, betterments and extens ions to, and equippings and furnishings of, and will operate and maintain the Portland International Airport at standards required in order that the same may be approved by the proper and competent Federal Government authority or authorities for the landing and taking off of aircraft operating in scheduled service, and as a termin al point of the Port for the r eceipt and dispatch of passengers, property and mail by aircraft. H. Compliance with Terms of Grants-in-aid; Application Thereof. The Port shall comply with the requirements of the Federal G overnment of grants-in-aid accepted by the Port. All such grants-in-aid shall be applied, if consis tent with and not in conflict with the terms and provisions of the grant-in-aid, (1) to pay the Costs of Construction of properties included or to be included in the Airport, whether such constr uction has been completed but the Costs of Construction thereof not yet paid or such construction has not b een commenced or completed, in which events the amount of such grant-in-aid to be applied to the payment of such Costs shall be credited to the Airport Construction Fund; (2) to reimburse any fund or account of the Port, whether or not held hereunder, to the extent Costs of Construction of properties included or to be included in the Airport and to which such grant-in -aid applies, were advanced from such fund or account, in which event the amount of such grant- in-aid to be applied to such reimbursement shall be deposited or credited to the proper fund or account; and (3) to redeem or purchase Bonds, such purchases to be made subject to the same conditions set forth in Section 14 hereof for the purchase of Bonds from moneys credited to the Term Bond Principal Account in the Bond Fund, in which event the amount of the grant-in-aid to be ap plied to such redemptions or purchases shall be deposi ted with the Trustee in the Bond Fund and applie d by it at the discretion of the Port to the redemption or purchase of Bonds. I. To Employ Competent Personnel; Fidelity Bonds. The Port will at all times employ competent supervisory personnel for the operation and management of the properties constituting the Airport, and will establish and enforce reasonable rules, regulations and standards governing the employ ment of operating personnel at reasonable compensation, salaries, fees and charges, and all persons employed by the Port will be qualified for their respective positions; provided, however, that the pr ovisions of this paragraph shall be subject to any civil service law or any other law of the Stat e of Oregon applicable to the appointment or employment of personnel and employees of the Port or the salary, wages or compensation thereof. The Port shall obtain a fidelity bond for each commissioner, officer or employee of the Port handling or having custody of or having in his possession Revenues or other moneys,DOCSPNW1:57365.3 42936-5 BJ1/BJ1 42 including the proceeds of Bonds, held hereunder or required hereby to be deposited or held hereunder, in an amount of not less than $500,000 per person.

J. Books and Accounts; Audits . The Port shall maintain and keep proper books, records and accounts for the Airport in accordance with generally accepted accounting principles applicable to enterprises such as the Airport. Such accounting shall show the amount of the Revenues, the amount of Net Revenues, and the amount of debt service payable from the Net Revenues.. Monthly reports of the financial operati ons of the Airport prepared by the Port for its own purposes shall be made available to the Trus tee at its request, and shall be mailed to any holder of Bonds filing with the Port a request for the same. The Port shall cause the financial statemen ts of the Airport to be audited by an independent certified public accountant or a fi rm of independent certified public accountants of recognized standing (herein define d and referred to as the “Accountant”), employed by the Port but who is in fact independent and not under the contro l of the Port, such period of appointment of employment to be from year to year. Such Accountant shall be selected with special reference to the Accountant’s general knowledge, skill a nd experience in auditi ng books and accounts. Such audit shall be made annually and shall be completed within one hundr ed twenty (120) days after the close of each Fiscal Year. Each such audit shall be conducted in accordance with generally accepted auditing standard s applicable to enterprises such as the Airport. A copy of each such annual audit shall be filed with the Tr ustee and shall be open for public inspection, and shall be mailed to the Airport Consultant and an y holder of Bonds filing w ith the Port a request for the same. Each audit report, in addition to whatev er matters may be thought proper by the accountant to be included therei n, shall include a statement as to whether the provisions of Section 16 hereof have been comp lied with during the audit period. [Portions of this Section 17.J were amended pu rsuant to Section 3 of Ordinance No. 368-B] K. Airport Consultant. The Port shall retain and appoint from time to time an airport consultant (herein defined and referred to as the “Airport Consultant”) who shall be an independent firm or corporation not in the regu lar employ or under the control of the Port and who shall have a widely known and favorable re putation for special skill, knowledge, and experience in methods of the development, ope ration and management of airports of the approximate size and character as the properties constitu ting the Airport. The Airport Consultant shall be available to advise th e Port upon request, and make such investigations, certifications and determinations as may be necessary or required from time to time under the provisions of this Ordinance. [This Section 17.K was amen ded pursuant to Section 1.3 of Ordinance No. 393-B] L. No Superior Lien Bonds; Junior Lien Obligations Permitte d. There is not outstanding at the time of the enactment of this Ordinance and the Port will not hereafter create or permit the creation of or issu e any bonds, notes, warrants or othe r obligations or evidences of indebtedness or create any additional indebtedne ss: (1) which is or will be payable as to principal or interest, or both, from the Revenu es prior to or on a pa rity with the paymentDOCSPNW1:57365.3 42936-5 BJ1/BJ1 43 therefrom of the principal of or interest on the Bo nds, or prior to or on a pa rity with the payments and credits from the Revenues to be made pursuant to the provisions of Section 13 hereof for the Costs of Operation and Maintenance, the B ond Fund, the Major Maintenance Reserve Account or the Capital Improvement Account, or which is or will be secured as to principal or interest, or both, by a lien and charge on the Revenues, superior or equal to the lien and charge of the Bonds and the interest thereon, or superior or equal to the lien and charge on the Revenues of the payments and credits therefrom to be made pursu ant to the provisions of Section 13 hereof for the Costs of Operation and Maintenance, th e Bond Fund, the Major Maintenance Reserve Account or the Capital Improveme nt Account; provided that the first series of Bonds and Additional Bonds and Refunding Bonds may be issued hereunder upon compliance with the provisions of Sections 3, 4 and 5 hereof. The Po rt shall not require any reimbursement to be made to its general fund from the Revenues for th e payment from the general fund of the Port of the principal or interest, or bot h, of bonds, notes, warrants or othe r obligations or evidences of indebtedness issued for the Airpor t, prior to or on a parity w ith the payment from the Revenues of the principal of and interest on the Bonds, or prior to or on a parity with the payment and credits from the Revenues to be made pursuant to the provisions of Section 13 hereof for the Costs of Operation and Maintenance, the B ond Fund, the Major Maintenance Reserve Account and the Capital Improvement Account, nor shall the Port secure any such reimbursement by a lien and charge on the Revenues supe rior or equal to the lien a nd charge thereon of the Bonds and interest thereon, or superior or equal to the lien and charge on the Revenues of the payments and credits therefrom to be made pursuant to the provisions of Section 13 hereof for the Costs of Operation and Maintenance, the Bond Fund, the Major Maintenance Reserve Account and the Capital Improvement Account. Nothing in this Ordinance, and particular ly nothing in the preceding paragraph, shall prevent the Port from authorizing and issuin g bonds, notes, warrants, certificates or other obligations or evidences of indebtedness for th e purposes hereafter in this subparagraph L set forth: (1) which as to principal or interest, or both, are payable from the Revenues after and subordinate to the payment from the Revenues of the principal of and interest on the Bonds and after and subordinate to the paym ents and credits from the Revenues to be made pursuant to the provisions of Section 13 hereof for the Costs of Operation and Maintenance, the Bond Fund, the Major Maintenance Reserve Account and the Capital Improvement Account, and which are secured as to principal or interest, or both, by a lien and charge on the Revenues junior and inferior to the lien and charge on the Revenues of the Bonds and in terest thereon and junior and inferior to the lien and charge on the Revenues of the payments and credits therefrom to be made pursuant to the provisions of Section 13 hereof fo r the Costs of Operation and Maintenance, the Bond Fund, the Major Maintenance Reserve Account and the Capital Improvement Account; or (2) which as to principal or interest, or both, are payable from any ot her special fund to be maintained from the Revenues or from the Airpor t Fund, if the payments into such special fund from the Revenues or from the moneys in the Ai rport Fund, shall be made after and subordinate to the payment from the Revenues and the Airpor t Fund of the principal of and interest on the Bonds and after and subordinate to the payments and credits from the Revenues to be made pursuant to the provisions of Section 13 hereof fo r the Costs of Operation and Maintenance, the Bond Fund, the Major Maintenance Reserve Account and the Capital Improvement Account, and which payments into such other special fund ar e secured by a lien and charge on the Revenues and the Airport Fund, junior and infe rior to the lien and charge th ereon of the Bonds and interest thereon and junior and inferior to the lien and charge on the Revenues of the payments andDOCSPNW1:57365.3 42936-5 BJ1/BJ1 44 credits therefrom to be made pursuant to the pr ovisions of Section 13 hereof for the Costs of Operation and Maintenance th e Bond Fund, the Major Maintena nce Reserve Account and the Capital Improvement Account. Nothing in this Ordinance, and particularly nothing in the preceding paragraph hereof, shall prevent the Port from requiring that reimbursement be made to the general fund of the Port from the Revenues fo r the payment from the general fund of the Port of the principal or intere st, or both, of bonds, notes , warrants or other obli gations or evidences of indebtedness hereafter issued for the Airport, after and subordinate to the payment from the Revenues of the principal of and interest on the Bonds and after and subordinate to the payments and credits from the Revenues to be made pursuant to the provisions of Section 13 hereof for the Costs of Operation and Maintenance, the B ond Fund, the Major Maintenance Reserve Account and the Capital Improvement Account, or from s ecuring any such reimbursement by a lien and charge on the Revenues junior and inferior to the lien and charge thereon of the Bonds and the interest thereon and junior and inferior to th e lien and charge on the Revenues of the payments and credits therefrom to be made pursuant to the provisions of Section 13 hereof for the Costs of Operation and Maintenance, the Bond Fund, the Major Maintenance Reserve Account and the Capital Improvement Account. Junior lien obligations author ized to be issued pursuant to this subparagraph L may be issued for and only for the following purposes: (1) to pay the Costs of Construction of additions, expansions and improvements at the Airport a nd (2) to pay the costs of the acquisition and construction of General Aviation Air ports. Prior to the issuance of any junior lien obligations for the purpose of financing General Av iation Airports, the Airport Consultant shall certify that the General Aviation Airport to be acquired and cons tructed from the proceeds of the junior lien obligations will relieve congestion at the Ai rport and will obviate the need for capital expenditures at the Airport. Such certificate sha ll be delivered to the Port and filed with the Trustee. M. Not To Encumber or Dispose of Airpor t Properties; Condemnation. The Port shall not create or give, or cause to be created or given, or permit to be created or given, any mortgage, lien, pledge , charge or other encumbrance up on any real or personal property constituting the Airport or upon th e Revenues and the money in th e Airport Fund, other than the liens, pledges and charges specifically created herein or specifica lly permitted hereby. The Port shall not sell, lease or otherwise di spose of all, or subs tantially all, of the properties constituting the Airport without simu ltaneously with such sale, lease or other disposition depositing with the Trustee, pursuant to and in accordance with the provisions of Section 29 hereof, cash or Governmental Securiti es (as defined in Section 29) in an amount sufficient so that no Bonds are any longer deem ed outstanding hereunder as provided by and in accordance with said Section 29. The Port may, however, execute leases, license s, easements and other agreements of or pertaining to properties constituti ng the Airport in connection w ith the operation of the Airport and in the normal and customary course of business thereof, for aviation or non-aviation purposes, according to the schedule of rates, rentals, fees and charge s of the Port, or according to commercially reasonable terms in light of the bu siness of the Airport as a whole. All amounts due the Port under such agreem ents and which will be rec ognized as Revenues, either immediately or over time in accordance with gene rally accepted accounting principles, shall beDOCSPNW1:57365.3 42936-5 BJ1/BJ1 45 deposited in the Airport Revenue Fund on receipt a nd shall be held unexpended in that fund until they become part of the Revenues, and the properties affected by the agreements shall remain part of the Airport, but any such leasing shall not be inconsiste nt with the provisions of this Ordinance, and no lease shall be entered into by which the rights of the holder of any Bond might be impaired or diminished. The Port may also enter into Net Rent Leases pursuant to and in accordance with the provisions of Section 28 hereof. The Port also may from time to time sell, leas e or otherwise dispose of any portion of the aviation properties and facilities and real and personal property co mprising a part of the Airport which the Port has determined has become unservi ceable, inadequate, obsolete, worn out or unfit to be used, or no longer required for use, in connection with the construction, operation or maintenance of the Airport or the maintenance of the Revenues or which has been replaced by other property of substantially equal revenue-p roducing capability, and any moneys received by the Port as the proceeds of any such sale, lease or any other disposition of said properties shall be deposited in the Airport Fund and be used for the purposes of making renewals and replacements or capital additions to the Airpor t, or if not used for said purposes, for any other lawful purpose of the Airport Fund. Subject to the provisions of the last paragraph of this part M, the Port, if and so long as any building or structure included in the Airp ort or any portion of any land included in the Airport is determined by it as not being necessary to the actual operations of the Airport, may use such building or structure or portion of land for a ny non-airport or non-aviation purposes of the Port, and without making any payments into the Airport Fund for such non-airport or non-aviation use from the revenues derived fro m taxes or from revenues derived from its non-airport activities. The Port shall maintain any such building or structure or portion of land while used for non-airport or non-aviation purposes. The costs of mainta ining any building or structure or portion of land while used for non- airport or non-aviation purposes, the costs of operating such building or struct ure or portion of land for such purposes, and the costs of any improvements to such building or structure or improvements made on such portion of land for such purposes, shall be paid by the Port from m oneys derived from taxes or revenues derived from activities of the Port other than from the operation of the Airport; provided that the Port may apply to any such non-airpor t or non-aviation use any moneys paid to it from the General Account in the Airport Fund in reimbursement pursu ant to item (5) of that paragraph pertaining to the application of moneys credited to the General Account set forth in Section 13 hereof. No use for non-airport or non-aviation purposes of any building or structure or portion of land included in the Airport, as permitted by the preceding paragraph hereof, shall be made, and no conveyance, lease or transfer of any proper ty, including rights or interests in property constituting part of the Airport as permitted by the next preceding paragraph hereof, as the case may be, shall be made, unless (a) the use for non-airport or non-aviation purposes of such building or structure or portion of land, or the use to be made of any property, or rights, or interests in property, so conveye d, leased or transferred is subs tantially non-competitive with the Airport; (b) the use for non-airport or non-aviati on purposes of any such building or structure or portion of land, or the use of any property so conveyed, leased or transferred after such conveyance, lease or transfer, as the case ma y be, will not provide services, facilities, commodities or supplies which then may be ade quately made available through the Airport as then existing; and (c) in the opinion of the Ai rport Consultant such use for non-airport orDOCSPNW1:57365.3 42936-5 BJ1/BJ1 46 non-aviation purposes of any such building, struct ure or portion of land, or such conveyance, lease or transfer, as the case may be, will not reduce the Revenues and Net Revenues below the amount covenanted by Section 16 he reof to be produced without any increase in the schedule of rates, rentals, fees and charges then in effect fo r the Airport, or if in the opinion of the Airport Consultant such use for non-airport or non-avia tion purposes, or such conveyance, lease or transfer, as the case may be, would reduce the Revenues and Net Revenues below the amount covenanted by Section 16 hereof to be produced , unless due and adequate provision is made for the payment of the Bonds, includi ng interest and premium (if any) thereon, or due and adequate provision is made for the payment into the Airpor t Fund in each year in which any of the Bonds remain outstanding of an amount equal to the difference between the Revenues and Net Revenues produced in each such year and the amount of Revenues and Net Revenues covenanted by Section 16 hereof to be produced in such year. In the event any Airport properties shall be ta ken by the exercise of the power of eminent domain, the amount of the award received by the Port as a result of such taking shall be held by the Port hereunder and either used for the ac quisition or constructio n of revenue-producing properties to constitute part of the Airport or be applied to th e redemption or purchase of Bonds, such purchases to be made subject to the same conditions that purchases of Bonds may be made pursuant to Section 14 hereof from moneys cred ited to the Term Bond Principal Account in the Bond Fund. [This paragraph was amended pursuant to sections 1 and 2 of Ordinance No. 375-B] N. Insurance. The Port will carry insuran ce with generally re cognized responsible insurers with policies payable to the Port agains t risks, accidents or cas ualties at least to the extent that similar insurance is usually carried by airport operators operating properties similar to the Airport. The Port shall se ek the advice and counsel not less than every three years of an independent insurance agent or co nsultant or consultants to advi se and assist the Port with respect to the insurance program of the Airport, and the Port shall take into consideration the advice of such independent insurance agent or consultant or consultants in the placement of insurance and the establishment of any self-insurance fund or funds of the Port as hereinafter provided. Without limiting the generality of the provi sions of the preceding paragraph, the Port shall obtain and maintain at least the following insurance: (a) Fire and Extended Coverage . Insurance subject to a reasonable deduction in an amount not less than ni nety per cent of the cost of repair or replacement, if available, and otherwise to the full insurable value, of the structures and equipment of a type normally covered by fire and extended c overage insurance (or such lesser amount as would be required to meet the cost of payi ng or redeeming all Bonds from time to time outstanding) as determined by a recognized ap praiser or insurer selected by the Port, against loss or damage by fire and lightni ng with uniform standard extended coverage endorsement limited only as may be provided in the standard form of extended coverage endorsement in use in Oregon at the time, and with standard va ndalism and malicious mischief endorsement; provided that such insu rance shall at all times be in such amount as will be sufficient to comply with any legal or contractual requirement which, ifDOCSPNW1:57365.3 42936-5 BJ1/BJ1 47 breached, would result in the assumption by the Port of a portion of any loss or damage as a co-insurer. Loss or damage by flood a nd earthquake shall also be insured in a reasonable amount and these peri ls may be subject to a reas onable deductible, both as determined by the Port. If any building or f acility is under construction or reconstruction, the Port’s obligation under this subparagraph as to such building or facility shall be met if the insurance required by this subparagraph with respect to such building or facility is carried by the contractor. (b) War Damage. If and when war damage insurance is obtainable from the United States Government, policies of war da mage insurance shall be obtained by the Port on the properties constituting the Ai rport. The amount of such war damage insurance to be procured and maintained shall, at the option of the Po rt be the lesser of (i) the maximum coverage obtainable, or (ii) an amount equal to the principal amount of the Bonds from time to time outstanding an d any premium payabl e upon their redemption from the proceeds of such insurance. (c) Loss of Use. Rental insurance, or use and occupancy insurance, or business interruption insurance, to cover loss, total or partial, of the use of the Airport as the result of any fire, explosion, vandalism, malicious mischief, ot her hazards normally covered by extended coverage endorsement, earthquake, tornado, hurricane and sprinkler leakage, in such amounts that, in case of a loss of the use of the Airport, or any part thereof, the proceeds of such insurance in th e event of loss will be in an amount equal to not less than the anticipated Revenues for a pe riod of twelve (12) months; provided that, (i) such insurance may exclude losses sustaine d by the Port during the first seven days of any total or partial interruption of use; (ii) consider ation shall be given to the expected, as well as past or current, amount of the Reve nues, and allowances may be made for any probable decrease in Costs of Operation and Ma intenance or other expenses while use is interrupted; and (iii) if the amount of insurance required by the foregoing provisions of this subparagraph cannot be procured, at a reasonable cost, the Port will procure the maximum amount of such insurance obtainable at a reasonable cost. (d) Public Liability. Standard comprehensive liability insurance for protection of the Port and its commissioners , officers, and employees, insuring said parties against liability for damages because of bodily injury, death or damage to property, including loss of use thereof, occurring on or in any way related to the Airport or any part thereof or occasioned by reason of the operations of the Port upon, in and around the Airport, with insurance of $25,000,000 combined single limit, each occurrence, for bodily injury or death or dama ge to property (or such greater amount as may be determined by the Port). Such polic ies shall cover the entire Airport and any elevators or boilers therein, and any sidewalks, streets or other public ways adjoining the Airport. Workmen’s compensati on insurance shall also be obtained at least to the extent required by law, or if not so required, to the extent deemed advisable by the Port. The foregoing provisions as to insurance require d to be procured and maintained shall not limit or prohibit, or be construed as limiting or prohibiting, the Port fr om obtaining any other insurance with respect to the Airport or the use and occupancy thereof that it may wish to carry or to obtain any insurance in amount s greater than t hose set out above.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 48 Any insurance carried by the Port pursuant he reto may be procured and maintained as part of or in conjunction with a ny other policy or policies carried by it. The Port may create and establish special funds for self-insurance against th e risks set out in subpara graphs (a), (c) and (d) above and may make payments into such funds fr om moneys credited to the General Account in the Airport Fund. In the event th e Port shall establish and mainta in any such special funds, the amount of insurance carried purs uant to said subparagraphs ma y be reduced by the amounts in such funds applicable and allocated to the pa rticular risk or risks referred to in said subparagraphs. Upon the delivery of the first Bonds hereunder the Port shall furnish to the Trustee certificates of the insurers showing the amount and type of the insurance th en in effect that has been procured and maintained pursuant to the fo regoing provisions and stat ing the date and term of any policy evidencing such insurance, and also a certificate of the Port setting forth the amounts of any self-insurance and the risks cove red thereby and reciting that the amounts and types of such insurance and self-insurance comply with said provisions. Certificates evidencing any renewals of the aforesaid insu rance, or evidencing that such insurance is no longer required hereby, shall be delivered to the Trustee not less than ten days prior to the expiration of any policy of insurance replaced or extended by the in surance represented by such certificate. All policies of insurance shall provide for not less than thirty (30) days’ notice to the Port and the Trustee before such policy may be canceled. All insurance required by subpara graphs (a), (b) and (c) ab ove shall be taken out and maintained in the name of the Port. All polic ies evidencing such insurance shall provide for payment of the losses to the Port; provided, that, any builder’s risk insura nce or other insurance carried by a contractor with respec t to a building or facility bei ng constructed by such contractor may provide for payment to the Port and such cont ractor as their respective interest may appear. The proceeds of all insuranc e shall be held by the Port under and subject to this Ordinance and applied as follows: (i) the proceeds of insurance carried pursuant to subparagraphs (a) and (b) above of this paragraph shall be applied to the repairing, replacing or reconstruction of the damaged or destroyed property as hereinafter provided; (ii) the proceeds of insurance carried pursuant to s ubparagraph (c) above of this para graph shall be deposited in the Airport Fund; and (iii) the proceeds of insurance carried pursuant to subparagraph (d) above shall be applied toward extinguishing or satisfying or remedying of the liability, loss or damage with respect to which such proceeds may be paid. Immediately after any loss or damage to the Airport, the Port will promptly commence, and proceed to completion, with the repair, re placement or reconstruction of the damaged or destroyed property, and apply to the costs thereof the proceeds of the insurance carried pursuant to subparagraphs (a) and (b) above of this paragr aph received with respect to such damage or destruction. If such proceeds are insufficient fo r such purpose, the amount of such insufficiency may be satisfied, first, from unencumbered mone ys credited to the General Account in the Airport Fund and then from moneys credited to the Major Maintenance Reserve Account in the Airport Fund and then from moneys credited to the Capital Improvement Account in the Airport Fund. If the proceeds of such insurance are more than sufficie nt for such purpose, the excess amount thereof shall be paid into the following funds in the following order and amounts: (1) into the Bond Fund for credit to the Debt Service Reserve Account therein, unless and untilDOCSPNW1:57365.3 42936-5 BJ1/BJ1 49 there is then on credit thereto an amount equal to the maximum Debt Service Requirement for any future Fiscal Year on all Bonds then outst anding; (2) to the Airpor t Fund for credit to the Major Maintenance Reserve Account unless and until there is then on credit thereto the full amount then required to be maintained therein; (3 ) to the Airport Fund for credit to the Capital Improvement Account unless and until there is then on credit thereto the full amount then required to be maintained therein; and (4) to th e Airport Fund for credit to the General Account. O. Payment of Taxes and Claims by the Port. The Port shall from time to time, duly pay and discharge, or cause to be paid or discharged, any taxes, assessments or other governmental charges lawfully imposed upon the Airport or any part thereof or upon the Revenues, or any required payments in lieu ther eof, as well as all lawful claims for labor, materials and supplies furnished or supplied to the Airport or any part thereof, when the same shall become due and payable, and keep the Air port and all parts thereo f and the Revenues free from judgments, mechanics’ and materialmen’ s liens, and free from all other liens, claims, demands or encumbrances of whatsoever prior natu re or character provided that the Port may, in good faith, and upon notice thereof to the Trustee, c ontest, or permit or cause to be contested, by appropriate proceedings, duly prosecuted, the appl icability or validity of any such tax, assessment or governmental charge or payment in lieu thereof, as well as any claim for labor, material or supplies for work completed or materi als or supplies furnished and in such event may permit the items so contested to remain unpai d, unsatisfied and undischarged during the period of any such contest and appeal therefrom, even though such cont est or proceeding may result in a judgment or lien against the Airpor t or any part thereof or the Revenues, if and so long as such contest or proceeding shall stay the execution or enforcement of any such tax, assessment, charge, claim, judgment or lien so that pending the determination of such contest or proceeding the Airport and all parts thereof and the Revenues are not affected thereby, and if and so long as such contest or proceeding does not impair the secu rity or the payment of the Bonds. If any such execution or enforcement is so stayed and such stay shall thereafter expire, the Port shall forthwith pay or discharge, or cause to be pa id and discharged, any such tax, assessment or governmental charge or payment in lieu thereof or claims for labor, material or supplies. Before, however, entering into any such co ntest or permitting any such cont est, the Port shall furnish to the Trustee any reasonable assura nce required by the Trustee i ndemnifying it and the holder of the Bonds against loss or liability by reason of any such contest. P. Prosecution and Defense of Suits. The Port will, and upon the request of the Trustee shall, promptly from time to time take such action as may be necessary and proper to remedy or cure any defect in or cloud upon the title to the Airport or any part thereof (except for Permitted Encumbrances as defined in paragraph B of this section), whether now existing or hereafter developing; shall prosecute and defend all such suits, actions and other proceedings as may be appropriate for such purposes, including the defense of its title to the Airport; and shall indemnify and save the Trustee and every Bondhol der harmless from all loss, cost, damage and expense, including attorneys’ fees, which they or either of them may incur by reason of any such defect, cloud, suit, action or proceeding. The Port shall defend, or cause to be defended, against every suit, acti on or proceeding at any time brought against the Trustee or any Bond holder by a person other than the Port upon any claim arising out of the receipt, application or disbursement of any of the Revenues or any other moneys received, applied or disbursed under this Ordinance, or involving the Airport or theDOCSPNW1:57365.3 42936-5 BJ1/BJ1 50 rights of the Trustee or any Bondholder under th is Ordinance and shall indemnify and save harmless the Trustee and all Bondholders against a ny and all liability clai med or asserted by any person whomsoever, arising out of such receipt, application or disburse ment or the Airport; provided, however, that the Trus tee or any Bondholder, at its or his election, may appear in and defend any suit, action or proceeding. Notwith standing any contrary provision hereof, this covenant shall remain in full force and effect , even though the Bond is no longer outstanding hereunder and all indebtedness and obligations secured hereby may have been fully paid and satisfied and the lien, pledge and charge of this Ordinance may have been released and discharged. Q. Protection of Security. The Port shall no t take any action in such manner or to such an extent as might prejudi ce the security or the payment of the Bonds ac cording to the terms thereof. The Port will maintain, preserve and renew all the rights, powers, privileges and franchises now owned by it or hereafter acquired by it with respect to the Ai rport. The Port shall not enter into any contract or lease pertaining to the Airport, or take any other action, by which the rights, payment or security of the Bonds might be impaired or diminished. R. Competitive, Non-competitive and Genera l Aviation Airports. The Port will neither construct nor, to the extent it is able to do so, permit to be c onstructed any Commercial Airport or General Aviation Airport, except as in Section 17L hereof permitted, or other facilities or structures to be operated by the Port or others separate from the Airport and competing for the Revenues otherwise available for the payment of the Bonds, but nothing herein contained shall be construed as impairing any police power wh ich the Port now or hereafter may possess. Nothing in this part shall be construed as preventing or prohibi ting the Port from acquiring, constructing or operating separate and apart from th is Ordinance any Commercial Airport or General Aviation Ai rport which is substantially non-competitive with Portland International Airport. Prior to acquiring, constr ucting or operating separate and apart from this Ordinance any Commercial Airpor t or General Aviation Airport the Airport Consultant shall deliver to the Port and file with the Trustee a certificate (such certifi cate is not required for General Aviation Airports permitted pursuant to Section 17L hereof) which states that such Commercial Airport or General Aviation Airport is substantially non-competitive with Portland International Airport. For purposes of this Ordinance, the following fa cilities and structures (which are not part of a Commercial Airport or a General Aviation Airport described in this section) shall be considered “substantially non-co mpetitive with the Airport,” and shall not be considered “competing for the Revenues otherwise available for the payment of Bonds:” (1) Facilities and structures which, at th e time they are approved by the Port, are reasonably expected to be used for purposes whic h do not benefit directly and substantially from close proximity to aircraft, passengers or ca rgo while traveling through the Airport; and (2) Facilities and structures which, at th e time they are approved by the Port, are reasonably expected to benefit directly and substantially from close proximity to aircraft, passengers or cargo while traveling through the Airport, if the Commission reasonablyDOCSPNW1:57365.3 42936-5 BJ1/BJ1 51 determines that the construction and operation of the facilities or stru ctures will not have a material, adverse effect on the Revenues. For purposes of subparagraph (2) of the preceding paragraph: (1) “material, adverse effect” means a reduction in the Revenues: (a) which would otherwise be projected for the Airport during any of the five full Fiscal Years following the projected completion of the proposed facility or structure; and, (b) which is directly attributable to the proposed facility or structure; and, (c) which is greater than or equal to five percent of the Net Revenues for the Fiscal Year immediately preceding a dete rmination of the Commission, or which would reduce the Net Revenues below the leve l required by clause (ii) of the first sentence of the first paragraph of Section 16 of this Ordinance and Section 5.e. of Ordinance No. 323 as amended and rest ated by Ordinances No. 337A and 323A. (2) a determination of the Commission sh all be conclusively presumed to be reasonable if it is made in reliance upon a pr ojection of the Airport Consultant that the construction and operation of the proposed faciliti es or structures will not have a material, adverse effect on the Revenues. [A portion of paragraph R was amended pursuant to section 3 of Ordinance No. 375 B] S. Obeying Law; Performance of All Ob ligations and Covenants under This Ordinance, Performance of Leases and Contracts. The Port sh all comply promptly, fully and faithfully with and abide by any statute, law, or dinance, order, rule or regulation, judgment, decree, direction or requirement now in force or hereafter enacted, adopted or entered by any competent governmental authority or agency app licable or with respect to or affecting the acquisition, construction or rec onstruction of the Airport or a ny part or parcel thereof or applicable or with respect to or affecting the op eration, manner of use or condition of the Airport or any part or parcel thereof or adjoining public ways; provided that the Port need not comply with any such statute, law, ordinance, rule , regulation, judgment, decree, direction or requirement if and so long as the Port in good fa ith shall be contesting or permitting or causing to be contested the applicability or validity thereof by appropriate proceedings diligently prosecuted, even though such contest may result in the imposition of a lien or charge against the Airport or the Revenues if (1) before commenci ng any such contest the Port shall notify the Trustee thereof and shall furnish to the Truste e any reasonable assuran ce required by the Trustee indemnifying it and the holders of the Bonds ag ainst loss or liability by reason of any such contest; (2) the Port shall effec tively prevent foreclosure or enforcement of any such lien or charge; and (3) the foreclosure or enforcement of a ny such lien or charge shall be stayed, and if said stay thereafter expires, the Port shall fort hwith discharge such lien or charge or cause the same to be discharged, so that pending such proceedings the Airport and the Revenues thereof shall not be affected there by, and the security of the B onds shall not be impaired. The Port shall comply with and perform, or cause to be complied with and performed, all acts, things, covenants, agreements, obligations , duties and provisions, express or implied,DOCSPNW1:57365.3 42936-5 BJ1/BJ1 52 required to be done or performe d by or on its behalf under th is Ordinance and Supplemental Ordinances and the Bonds and coupons, in acco rdance with the terms hereof and thereof. The Port shall perform all contractual obl igations undertaken by it under leases or agreements with any person. T. Paying Agents. If a Series Ordinance providing for the issuance of a series of Bonds in coupon form appoints a Paying Agent for the Bonds of such series in a city other than that in which the principal office of the Trustee is located, the Port will at all times keep in those cities in which such Paying Agent or Paying Agents are located, an office or agency (which may be the office in each such respective city of such Paying Agent in such city appointed in such Series Ordinance) at which such series of B onds in coupon form and attached coupons may be presented for payment. The Port will from time to time give written notice to the Trustee of the location of each such office or agency if the appointment thereof was made by the Port without the prior knowledge of the Trustee. U. Taking Any Further Action Required for th e Purposes of This Ordinance. The Port shall, at any and all times, adopt, make, do, execute, acknowledge, deliv er, register, file and record all such other and further ordinances, resolutions, acts, deeds, demands, conveyances, assignments, transfers, assurances and instrument s and give such further notices and give such further acts, as may be reasonably necessary, proper or desirable for the be tter assuring, pledging and assigning the Revenues and other moneys pledged, assigned or charged hereunder or intended so to be, or which the Port may hereaf ter become bound to pledge, assign or charge, or for the carrying out more effectively the purposes and intent, and the facilitating of the performance, of this Ordinance. SECTION 18. Concerning the Trustee and the Paying Agents

. A. Qualifications of Trustee; Resignation or Removal Thereof, Successor Trustee. From and after the delivery of the first Bonds hereunde r, there shall at a ll times be a trustee hereunder (herein defined and referred to as th e “Trustee”) to administer the Bond Fund created in Section 14 hereof, which Trustee shall at all times be a corporation organized and doing business under the laws of the Un ited States or of any State of the United States, which (a) is authorized under such laws to exercise corporat e trust powers, (b) is subject to supervision or examination by Federal or State au thority, and (c) shall have at al l times a combined capital and surplus of not less than fifty millio n dollars. If the Trustee publis hes reports of condition at least annually, pursuant to law or the requirements of the aforesaid supe rvising or examining authority, then for the purposes of this paragraph the combined capital and surplus of the Trustee at any time shall be deemed to be its combined capital and surplus as set forth in its most recent report of conditions so published. The Trustee may at any time resign by giving no t less than sixty (60) days’ written notice to the Port and by giving within te n (10) days after the gi ving of such notice to the Port notice to the Bondholders of such resignation by the publicati on of such notice at least once in the same newspaper or newspapers in which notice of rede mption is to be published pursuant to Section 7 hereof.DOCSPNW1:57365.3 42936-5 BJ1/BJ1 53 In case at any time any of the following shall occur: (1) the Trustee shall cease to be eligible in accordance with the provisions hereof and shall fail to resign after written request therefor by the Port or by any Bondholder who has been a bona fide holder of a Bond for at least six months; or (2) the Trustee sh all become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or cont rol of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Port may remove the Trustee by an instrument in writing authorized by resolution of its Board of Commissioners or any such Bondholder may, on behalf of himself a nd all others similarly situated, petition any court of competent jurisdiction fo r the removal of the Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and pr escribe and as may be required by law, remove the Trustee. The holders of a majority in aggregate principal amount of all the Bonds at any time out-standing may at any time remove the Truste e by an instrument in writing signed by such Bondholders. In the event of the resignation, removal, disabil ity or refusal to act of the Trustee, the Port by resolution of its Board of Commissioners sh all forthwith appoint a successor Trustee. The resigning Trustee, if within fifty days after the publication of notice of its resignation, no successor Trustee shall have b een appointed and shall have accepted such appointment, may petition any court of competent ju risdiction for the appointment of a successor Trustee, or any Bondholder who has been a bona fide holder of a Bond for at least six months may, on behalf of himself and others similarl y situated, petition a ny such court for the appointment of a successor Trustee. Such cour t may thereupon, after such notice, if any, as it may deem proper and prescribe and as may be required by law, appoint a successor Trustee having the qualifications required hereby. Any successor Trustee appointed as provided in this section shall execute, acknowledge and deliver to the Port and to its predecessor Tr ustee an instrument accepting such appointment hereunder and thereupon the resignation or rem oval of the predecessor Trustee shall become effective and such successor Trus tee, without any further act, de ed or conveyance, shall become the Trustee for the holders of th e Bonds and shall be vested with all the appointments, rights, powers, trusts, duties and obligations of its predecessor here under, with like effect as if or iginally named as Trustee herein; but, nevertheless, on the written request of the Port or the request of the successor Trustee, the Trustee ceasing to act shal l execute and deliver an instrument transferring to such successor Trustee, upon the terms, provisions and conditions hereof, all the appointments, rights, powers and trusts of the Trustee so ceasi ng to act. Upon request of any such successor Trustee, the Port shall execute any and all instruments in writing necessary or desirable for more fully and certainly vesting in and confirming to such successor Trustee all such appointments, rights, powers and trusts. Upon acceptance of appointment by a successor Tr ustee as provided in this section, the Port shall publish notice of the succession of such Trustee to the trusts hereunder at least once in the same newspaper or newspapers in which notices of redemption are to be published under Section 7 hereof. If the Port fails to publish such notice within ten da ys after acceptance ofDOCSPNW1:57365.3 42936-5 BJ1/BJ1 54 appointment by the successor Trustee, the suc cessor Trustee shall cause such notice to be published at the expense of the Port. Any corporation into which the Trustee or any Paying Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Trustee or any Paying Agent shall be a party, or any corporation succeeding to the business of the Trustee or any Paying Agent shall be the successor of the Trustee or such Paying Agent hereunder without the executi on or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwith standing; provided that such successor Trustee or Paying Agent shall be eligible under the provisions hereof. B. Duties of Trustee. Prior to an Event of Default as defined in Section 23 hereof and after the curing or waiving of all such Events of Default, the Trustee (1) shall not be liable except for the performance of such duties and obligations as are specifically set out in this Ordinance; and (2) may conclusively rely, as to the truth of any statement and the correctness of the opinions expressed therein, in the absence of bad faith on the part of the Trustee, upon certificates or opinions furnished to it pursuant to this Ordinance, but the Trustee shall examine the evidence furnished to it to determine whether or not such evidence conforms to the requirements (if any) of this Ordinance. In case of an Event of Default as defined in Section 23 hereof (which has not been cured or waived), the Trustee shall ex ercise such of the rights and powers vested in it by this Ordinance, and use th e same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Ordinance shall be cons trued to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that the Trustee shall at all times: (1) be protec ted from liability for any error of judgment made in good faith by a responsible officer (as defined in the last sentence of Section 24 hereof) of the Trustee, unless it shall be prove d that the Trustee was negligent in ascertaining the pertinent facts; and (2) be protected with respect to a ny action taken or omitted to be taken by it in good faith in accordance with the direction of the ho lders of not less than a majority in principal amount of the Bonds then outsta nding relating to the time, met hod and place of conducting any proceeding for any remedy available to the Trust ee, or exercising any trust or power conferred upon the Trustee, under this Ordinance. The Trustee shall have the right, but shall no t be required, to demand in respect of the execution and delivery of Bonds, the withdrawal of any cash, the re lease of any property, or any action whatsoever within the purview of this Ordinance, as a condition of any action by the Trustee and any showings, certificates, opinions, a ppraisals or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required, deemed desirable for the purpose of establishing the right of the Port to the execution and delivery of any Bonds, the withdrawal of any cash, or the taking of any other action by the Trustee. C. No Liability of Trustee and Paying Agents for Recitals. The recitals of facts, covenants and agreements herein and in the B onds contained shall be taken as statements, covenants and agreements of the Port, and neith er the Trustee nor any Paying Agent assumes any responsibility for the correctness of the same, or makes any representations as to the validity orDOCSPNW1:57365.3 42936-5 BJ1/BJ1 55 sufficiency of this Ordinance or of the Bonds or coupons, or shall incu r any responsibility in respect thereof, other th an in connection with the duties or obligations herein or in the Bonds assigned to or imposed upon them, respectively. D. Right of Trustee and Paying Agents to Acquire Bonds. The Trustee and the Paying Agents and its and their officers and direct ors may acquire and hold, or become pledgees of, Bonds and coupons and otherwise deal with the Port in the manner and to the same extent and with like effect as though it or they were not th e Trustee or Paying Agent, as the case may be, hereunder. E. Paying Agents to Hold Moneys in Trust. Each Paying Agent shall hold in trust for the benefit of the Bondholders or the Trust ee all sums held by such Paying Agent for the payment of the principal of and in terest on the Bonds. Anything in this paragraph to the contrary not-withstanding, the Port may, at any time, fo r the purpose of obtaini ng a satisfaction and discharge of this Ordinance, or for any other reason, cause to be pa id to the Trustee all sums held in trust by any Paying Agent hereunder as required by this section, which sums shall be held by the Trustee upon the trusts herein contained, and such Paying Agent shall thereupon be released from all further liability w ith respect to such sums. F. Compensation and Expenses of Trustee an d Paying Agents. The Trustee and the Paying Agents shall be entitled to reasonable co mpensation for all services rendered by them in the execution, exercise or performance of any of the powers and duties to be exercised or performed by them pursuant to th e provisions of this Ordinance and for the reasonable expenses, charges and other disbursements in curred in connection with the exer cise or performance of said powers and duties. The Port sh all pay such compensation and expenses from the Revenues as a Cost of Operation and Maintenance. The Trust ee shall have a first lien with right of prior payment to or on account of interest or pr incipal of any Bond upon the Revenues and other moneys pledged or charged herein for any advances made by it and for its fees, costs and expenses incurred. G. Trust May be Vested in Separate or Co-Trustee. It is the purpose of this Ordinance that there shall be no violation of any law of any juri sdiction (including particularly the law of Oregon) denying or rest ricting the right of banking corp orations or associations to transact business as trustee in su ch jurisdiction. It is recognized that in case of litigation under this Ordinance, and in particular in case of th e enforcement on default, or in case the Trustee deems that by reason of any present or future la w of any jurisdiction it ma y not exercise any of the powers, rights or remedies herein granted to th e Trustee, as herein granted, or take any other action which may be desirable or necessary in c onnection therewith, it may be necessary that the Trustee appoint an additional individual or institu tion as a separate or co-trustee. In such instance the Trustee shal l obtain and may rely upon an opinion of counsel as to the necessity of such appointment. The following provisions of this subsection G are ad opted to these ends. In the event that the Trustee appoints an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Ordinance to be exercised by or vested in or conveyed to the Trustee with re spect thereto shall be ex ercisable by and vest in such separate or co-trustee but only to the extent necessary to enable such separate or co-trusteeDOCSPNW1:57365.3 42936-5 BJ1/BJ1 56 to exercise such powers, rights and remedies, a nd every covenant and obligation necessary to the exercise thereof by such separate or co-trustee sh all run to and be enfor ceable by either of them. Should any deed, conveyance or instrument in writing from the Port be required by the separate trustee or co-trustee so appoint ed by the Trustee for more fully and certainly vesting in and confirming to him or it such properties, rights, powers, trusts, duties and obligations and any and all such deeds, conveyan ces and instruments in writing shall, on request, be executed, acknowledged and deliv ered by the Port. In case any se parate trustee or co-trustee, or a successor to either, shall die, become in capable of acting, resign or be removed, all the estates, properties, rights, power s, trusts, duties and obligations of such separate trustee or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trus tee or co-trustee. SECTION 19. List of Bondholders . Each Paying Agent (other than the Trustee) shall furnish to the Trustee semiannually in each year dur ing the periods July 15 to July 31, inclusive, and January 15 to January 31, inclusive, commenc ing with the first of such periods which follows the first interest paymen t date for the first Bonds issued hereunder, and at such other times as the Trustee may request in writing, within thirty days after the receipt by the Paying Agent of such request, a list or lists in such fo rm as the Trustee may reasonably require, of all information in the possession or control of any such Paying Agent (other than the Trustee) as to the names and addresses of the holders of Bonds obtained since the date as of which the next previous list, if any, was furnishe d. Any such list may be dated as of a date not more than fifteen days prior to the time such information is furn ished or caused to be furnished and need not include information received after such date. The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Bonds (i) contained in the most recent list furnished to it as provided in the fore going provisions of this section, (ii) received by it in the capacity of Pa ying Agent (if so acting he reunder), and (iii) filed with it within two years preceding pu rsuant to the provisions of the ne xt sentence of this section. Any holder of the bonds may file his name and a ddress with the Trustee for inclusion upon such list. The Trustee may (1) destroy any list furnished to it as provide d in the first sentence of this section upon receipt of a new list so furnished, (2) destroy any information received by it as a Paying Agent (if so acting) hereunder upon deliveri ng to itself as the Trustee not earlier than forty-five days after an interest payment date of the Bonds, a list containing the names and addresses of the holders of Bonds obtained from such information since the delivery of the next previous list, if any, (3) destroy any list deliver ed to itself as Trustee which was compiled from information received by it as a Paying Agent (i f so acting) hereunder up on receipt of a new list so delivered, and (4) destroy any information filed with it pursuant to th e provisions of the next preceding sentence of this section, but not until tw o years after such information has been filed with it. At reasonable times a nd under reasonable regula tions established by th e Trustee, said list may be inspected and copied by the Port or by the holders or owners (or a designated representative thereof) of ten per cent or more in principal am ount of Bonds then outstanding, such ownership and the authority of any such de signated representative to be evidenced to the satisfaction of the Trustee. SECTION 20. Amendment of This Ordinance . The Port, from time to time and at any time and without the consent or concurrence of the hold er of any Bond, may adopt a Supplemental Ordinance: (i) for the purpose of providing for the issuance of Bonds pursuant toDOCSPNW1:57365.3 42936-5 BJ1/BJ1 57 the provisions of Sections 3, 4 and 5 hereof, (ii) to make any cha nges or modifications hereof or amendments or additions hereto or deletions herefrom which may be required to permit this Ordinance to be qualified under th e Trust Indenture Act of 1939 of the United States of America, as amended from time to time; and (iii) if the provisions of such Supplemental Ordinance shall not adversely affect the rights of the holders of the Bonds then outstanding, for any one or more of the following purposes: 1. To make any changes or corrections in this Ordinance or any Supplemental Ordinance as to which it shall have been advi sed by its counsel that the same are verbal corrections or changes or are required for the purpose of curing or corr ecting any ambiguity or defective or inconsistent provision or omission or mistake or manifest error contained herein or in any such Supplemental Ordinanc e, or to insert such provisions clarifying matters or questions arising under this Ordinance as are necessary or desirable; 2. To add additional covenants and agreements of the Port for the purpose of further securing the payment of the Bonds; 3. To surrender any right, power or privilege reserved to or conferred upon the Port by the terms of this Ordinance or any Supplemental Ordinance; 4. To confirm as further assurance any lien, pledge or charge, or the subjection to any lien, pledge or charge, crea ted or to be created by the pr ovision of this Ordinance or any Supplemental Ordinance; 5. To grant to or confer upon the holder s of the Bonds any additional rights, remedies, powers, authority or s ecurity that lawfully may be gr anted to or conferred upon them, or to grant to or confer upon the Trustee for the benefit of the holders of the Bonds any additional rights, duties, re medies, power or authority; 6. To prescribe further limita tions and restrictions upon th e issuance of the Bonds and the incurring of indebt edness by the Port payable from the Revenues; and 7. To modify in any other respect any of th e provisions of this Ordinance, or any Supplemental Ordinances previously adopted; provi ded that such modifications shall have no adverse effect as to any Bond or Bonds which are then outstanding. With the consent of the holders of not le ss than sixty-six and two-thirds per centum (66 2⁄3 %) of the principal amount of the Bonds then outstanding, the Port, from time to time and at any time, may adopt a Supplemental Ordinance amending or supplementing the provisions of this Ordinance for the purposes of adding any provisions to, or changing in any manner or eliminating any of the provision s of, this Ordinance or of a ny Supplemental Ordinance, or modifying in any manner the rights of the hol ders of the Bonds and coupons then outstanding; provided, however, that without the specific consent of the holder of each such Bond which would be affected thereby, no such Supplemental Ordinance amending or supplementing the provisions hereof shall: (1) cha nge the fixed maturity date for the payment of the principal of any Bond or the dates for the payment of interest thereon or the terms of the redemption thereof, or reduce the principal amount of any Bond or th e rate of interest thereon or any premium payable upon the redemption or payment thereof; or (2) reduce the afor esaid percentage ofDOCSPNW1:57365.3 42936-5 BJ1/BJ1 58 Bonds, the holders of which are required to consent to any such Supplemental Ordinance amending or supplementing the provisions hereof , or (3) give to any Bond or Bonds any preference over any other Bond or Bonds secured hereby; or (4) authorize the creation of any pledge of the Revenues or any lie n thereon prior or superior or equal to the pledge and lien created herein for the payment a nd security of the Bonds; or (5) deprive any holder of the Bonds of the security afforded by this Ordinance. A modification or amendmen t of the provisions of Section 13 hereof with respect to the Airport Fund shall not be deemed a change in the terms of payment of the Bonds; provided, however, that no such modificat ion or amendment shall, except upon the consent of the holders of all Bonds then outstanding affected thereby, reduce the amount or amounts required to be deposited from the Revenues in to the Bond Fund for credit to the Interest Account, Serial Bond Principal Account, Term B ond Principal Account or Debt Service Reserve Account therein or the priority of the deposit of such am ounts. (Nothing herein contained, however, shall be construed as making necessary the approval of the holders of the Bonds of the adoption of any Supplemental Ordina nce authorized by the fi rst paragraph of this section.) The proof of the giving of any consent required by this paragraph and of the holding of Bonds for the purpose of giving consents shall be made in accordance with the provisions of Section 27 hereof, and it shall not be necessary that the consents of the holders of the Bonds approve the particular form of wording of th e proposed amendment or supplement or of the Supplemental Ordinance affecting such amendment or supplement, but it shall be sufficient if such consent approve the substance of the pr oposed amendment or supplement. After the holders of the required percentage of Bonds shal l have filed their consen ts to the amending or supplementing hereof pursuant to this paragraph, the Port shall publish at least once a notice of such amending or supplementing hereof, in an i ssue of a newspaper of general circulation in Multnomah County, Oregon and in an issue of The Daily Bond Buyer, which is published in the City and State of New York, or in lieu of such publication in Th e Daily Bond Buyer, in one issue of some other newspaper of general circulation specializing in financial matters published in the City and State of New York, and shall mail a copy of such notice, postage prepaid (1) to each registered owner of Bonds then outstanding, at his ad dress, if any, appear ing upon the registry books, and (2) to all Bondholders whose names and addresses ap pear upon the list to be maintained pursuant to Section 19 hereof at such addresses, but failure to mail copies of said notice to any of said owners or holders shall not affect th e validity of the Supplemental Ordinance effecting such amendments or supplemen ts or the consents thereto. (Nothing herein contained, however, shall be construed as requi ring the giving of notice of any amending or supplementing of this Ordinance authorized by th e first paragraph of this section.) A record, consisting of the papers required by this paragraph, shall be proof of the matters therein stated until the contrary is proved. Bonds delivered after th e effective date of any action ta ken as provided in this section may bear a notation as to such action, by endorse ment or otherwise and in form approved by the Port. In that case, upon demand of the holder of any Bond outstandi ng at such effective date and the presentation of his Bond for the purpose at the office of the Trustee or other paying agent, transfer agent or registrar here under for such Bond and at such a dditional offices as the Port may select and designate for that purpose, a suitable no tation shall be made on such Bond. If the Port shall so determine, new Bonds so modified as in the opinion of the Port to conform to the amendments or supplements so consented to by the Bondholders shall be prepared, executed and delivered, and upon demand of the holder of a ny Bond then outstanding shall be exchangedDOCSPNW1:57365.3 42936-5 BJ1/BJ1 59 without cost to such Bondholder, for Bonds th en outstanding, upon surrende r of such outstanding Bonds with all unmatured coupons appertaining thereto. Upon the adoption pursuant to this section an d of applicable law of any Supplemental Ordinance amending or supplementing the provisions of this Ordinance (including any Series Ordinance authorizing the issuance of Bonds) and the delivery ther eof to the Trustee, together with an opinion of counsel to the Port that such Supplemental Ordinance is in due form, has been duly adopted in accordance with the provisions he reof and applicable law and the provisions thereof are valid and binding upon the Port ( upon which opinion the Trustee shall be fully protected in relying), or upon such later date after delivery of su ch Supplemental Ordinance and opinion to the Trustee as may be specified in su ch Supplemental Ordinance, this Ordinance and the Bonds shall be modified and amended in accor dance with such Supplemental Ordinance, and the respective rights, limita tions of rights, obligations, duties and immunities under this Ordinance of the Port, the Trustee and of the ho lders of the Bonds and coupons shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all of the terms and conditi ons of any such Supple mental Ordinance shall be a part of the terms and conditions of the Bonds and of this Ordinance for any and all purposes. SECTION 21. Certain Bonds Deemed Not Outstanding Hereunder . In determining whether the holders of the requisi te aggregate principal amount of Bonds have consented to the amendment of this Ordinance as provided in Sec tion 20 hereof or have c oncurred in any waiver of an Event of Default as define d in Section 23 hereof, or have concurred in any other direction or consent regarding this Ordinance, Bonds which are owned or controlled directly or indirectly by the Port shall be disregarded and deemed not to be outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such waiver, direction or co nsent, only Bonds which the Trustee knows are so owned shall be so disregarded. SECTION 22. Ordinance to Constitute a Contract with Bondholders; Enforcement of Same . So long as any of the Bonds are outst anding, each of the obligations, duties, limitations and restraints imposed upon the Port by this Ordinance shall be deemed to be a covenant between the Port a nd every holder of said Bonds, and this Ordinance and every provision and covenant hereof and the provi sions of ORS 778.005 to 778.260 shall constitute a contract with every holder from time to time of said Bonds and the c oupons pertaining thereto, and shall be enforceable by any ow ner or holder of a Bond or of any of the coupons of any of the Bonds, by mandamus or other appropri ate action or proceeding at law or in equity in any court of competent jurisdiction, including, without limiting the generality of the foregoing, the bringing of a suit or suits to compel comp liance with the provisions of this Ordinance in the event the Port fails to set aside and pay the Revenues into the Bond Fund as required by Section 14 hereof. SECTION 23. Events of Default . Each of the following is hereby defined as and declared to be and shall consti tute an “Event of Default”: (a) If payment of the principal and prem ium (if any) of any Bond, whether at maturity or by proceedings for redempti on (whether by voluntary redemption or a mandatory redemption) or by declaration as he reinafter provided in Section 25 hereof or otherwise, shall not be made when the same shall become due and payable; orDOCSPNW1:57365.3 42936-5 BJ1/BJ1 60 (b) If payment of any installment of in terest on any Bond shall not be made when the same shall become due and payable; or (c) If the Port shall fail in the due and punctual perf ormance of any of the covenants, conditions, agreemen ts and provisions contained in the Bonds or in this Ordinance or in any Supplemental Ordinance on the part of the Port to be performed, and such failure shall continue for ninety (90) da ys after written notice specifying such failure and requiring the same to be remedied shall ha ve been given to the Port by the Trustee or by the holders of not less than twenty per cen t (20%) in principal amount of the Bonds then outstanding or any committee therefor; pr ovided that if any such failure shall be such that it cannot be cured or corrected within such ninety-d ay period, it shall not constitute an Event of Default hereunder if curative or corrective action is instituted within said period and diligently pursued unt il the failure of performance is cured or corrected; or (d) If any proceedings shall be instituted with the consent or acquiescence of the Port for the purpose of effecting a compos ition between the Port and its creditors and if the claim of such creditors is in any ci rcumstance payable from any of the Revenues or any other moneys pledged and charged herein or in any Supplemen tal Ordinance or for the purpose of adjusting the cl aims of such creditors, pursu ant to any Federal or State statute now or hereafter enacted; or (e) If an order or decree shall be entere d (i) with the consent or acquiescence of the Port, appointing a receiver or receivers of the Airport or any of the buildings and facilities thereof, or (ii) w ithout the consent or acquiescen ce of the Port, appointing a receiver or receivers of the Airport or any of the buildings and facilities thereof and such order or decree having been entered, shall no t be vacated or discharged or stayed on appeal within sixty (60) days after the entry thereof, or (f) If, under the provisions of any applicab le bankruptcy laws or any other law for the relief or aid of debtors, (i) any court of comp etent jurisdiction shall assume custody or control of the Airport or any of th e buildings and faciliti es thereof, and such custody or control shall not be terminated within ninety (90) days from the date of assumption or such custody or control; or (i i) any court of competent jurisdiction shall approve of any petition for the reorganiza tion of the Airport or rearrangement or readjustment of the obligations of the Port hereunder. SECTION 24. Notice to Bondholders and Others Up on Occurrence of an Event of Default . The Trustee shall give by mail to all the re gistered holders of Bonds as their names and addresses appear upon the books of registry, to all Bondholders whose names and addresses appear upon the list to be maintained pursuant to Section 19 hereof at such addresses, written notice of the occurrence of any Event of Default within thirty days after the Trustee shall have knowledge that such Event of Default has occurre d, unless the Event of De fault shall have been cured before the giving of such notice; provided th at, except in the case of default in the payment of the principal of or interest on any Bond, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or responsib le officers, of the Trustee in good fa ith determine that the withholdingDOCSPNW1:57365.3 42936-5 BJ1/BJ1 61 of such notice is in the interests of the holders of the Bonds. For the purposes of this Ordinance, the term “responsible officer” when used with resp ect to the Trustee shall mean the chairman of the board of directors, the vice-c hairman of the board of director s, the chairman of the executive committee, the vice-chairman of the executive comm ittee, the president, any vice president, the cashier, the secretary, the treasur er, any trust officer, any assist ant trust officer, any second or assistant vice president, any assistant cashier, an y assistant secretary, any assistant treasurer, or any other officer or assistant officer of the Tr ustee customarily performi ng functions similar to those performed by the persons who at the time shal l be such officers, resp ectively, or to whom any corporate trust matter is referred because of his knowledge of a nd familiarity with the particular subject. SECTION 25. Acceleration . Upon the occurrence of an Event of Default the Trustee may, and upon the written request of the holders of not less than a majority in aggregate principal amount of the Bonds then outstandi ng shall, by notice in writing deliv ered to the Port, ipso facto and without the necessity of demand or putting in default, declare the principal of all Bonds then outstanding and the interest accru ed thereon immediately due and payable, and such principal and interest shall thereupon become a nd be immediately due and payable. SECTION 26. Remedies Upon Occurrence of Event of Default; Powers of Trustee and Bondholders; Waivers of Event of Default; Termination of Proceedings

. A. Upon the occurrence of an Event of Default hereunder, the Trustee, (i) for and on behalf of the holders of the Bonds, shall have the same rights hereunde r which are possessed by any holders of the Bonds; (ii) sh all be authorized to proceed, in its own name and as Trustee of an express trust; (iii) may pursu e any available remedy by action at law or suit in equity to enforce the payment of the princi pal of and interest on the Bonds; (iv) may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of such Trustee and of the holders of the Bonds allowed in any judicial proceedings relative to the Port or the Bonds and (v) may, and upon the written request of the holders of twenty-five per cent (25 %) in aggregate principal amount of the Bonds then outstanding shall, proceed to protect and enforce all rights of the Bondholders and the Trustee under this Ordinance, by such means or appropriate judicial proceedings as shall be suitable or deemed by it most effective in the premises, including any ac tion at law or in equity or in bankruptcy or otherwise, whether for the specif ic enforcement of any covenant or agreement contained in this Ordinance or in aid of the exer cise of any power granted in th is Ordinance or to enforce any other legal or equitable ri ght vested in the holders of the Bonds or the Trustee by this Ordinance. All rights of action (including the right to file proof of claims) under this Ordinance or under any of the Bonds or coupons may be enforced by th e Trustee without the possession of any of the Bonds or coupons or the production thereof in any trial or other proceedings relating thereto and any such suit or proceeding instituted by the Trus tee shall be brought in its name and as trustee of any express trust without the ne cessity of joining as plaintiffs or defendants any holders of the Bonds, and any recovery of judg ment shall be for the equal be nefit of the holders of the outstanding Bonds and coupons. B. The holders of not less than a majority in principal amount of the Bonds at the time outstanding shall be authoriz ed and empowered (1) to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee or to the holders of theDOCSPNW1:57365.3 42936-5 BJ1/BJ1 62 Bonds, or exercising any trust or power conferred upon the Trustee here under; or (2) on behalf of the holders of the Bonds then outstanding, to consen t to the waiver of any Event of Default or its consequences, and the Trustee shall waive any Event of Default and its consequences and rescind any declaration of maturity of principa l upon the written request of the holders of such majority. No waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon. C. Notwithstanding any other prov ision of the Ordinance th e right of any holder of any Bond to receive payment of the principal of and interest on such Bond, on or after the respective due dates expressed in such Bond and the coupons pert aining thereto, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such holder. D. No remedy by the terms of this Ordina nce conferred upon or reserved to the holders of the Bonds is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder to the Trustee or to the holders of the Bonds or now or hereafter existing at la w or in equity or by statute. No delay or omission to exercise a ny right or power accruing upon any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any default or Event of Default hereunder shall extend to or sh all affect any subsequent default or Event of Default or shall impair any rights or remedies consequent thereon. E. In case the Trustee or the holders of th e Bonds shall have proceeded to enforce any right under this Ordinance and such proceed ings shall have been discontinued or abandoned for any reason, or shall have been determined adve rsely, then and in every such case the Port, the Trustee and the holders of the Bonds shall be restor ed to their former positions and rights, and all rights, remedies and powers of the Trustee shal l continue as if no such proceedings had been taken. SECTION 27. Consents, etc., of Bondholders . Any consent, request, direction, approval, objection or other instrument required by this Ordinance to be signed and executed by the Bondholders may be in any nu mber of concurrent writings of similar tenor and may be signed or executed by such Bondholde rs in person or by agent appointed in writing. Proof of the execution of any such consent, re quest, direction, appr oval, objection or othe r instrument or of the writing appointing any such agent and, subject to the provisions of S ection 8 hereof, of the ownership of Bonds, if made in th e manner hereinafter in this sec tion set forth shal l be sufficient for any of the purposes of this Ordinance and sha ll be conclusive in favor of the Port and the Trustee with regard to any action taken under such request or other instrument. The fact and date of the execution by any person of any such wr iting may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowle dgments within such jurisdiction that the person signing such writing ac knowledged before him the execution thereof, or by the affidavit of any witnes s to such execution. Th e fact of the holdi ng by any person of Bonds or coupons transferable by delivery and th e amounts and numbers of such Bonds, and the date of the holding of same, may be proved by a certificate executed by any trust company, bank or banker, wherever situated, stating that at th e date thereof the party named therein did exhibitDOCSPNW1:57365.3 42936-5 BJ1/BJ1 63 to an officer of such trust company or bank or to such banker, as the prop erty of such party, the Bonds or coupons therein mentioned, if such cer tificate shall be deemed by the Port and the Trustee to be satisfactory. The Port and the Tr ustee may, in their respec tive discretions, require evidence that such Bonds have been deposited with a bank, banker or trust company, before taking any action based on such ownership. In lieu of the foregoing the Port and the Trustee may accept other proofs of the foregoing as either of them shall deem appropriate. The fact of ownership by any person of Bonds registered as to principal (excep t to bearer) or fully registered shall be proved by the registrati on books maintained pursuant here to. For all purp oses of this Ordinance and of the proceedings for the enforcem ent hereof, such persons shall be deemed to continue to be the holder of such Bonds until th e Port and the Trustee shall have received notice in writing to the contrary. SECTION 28. Special Obligation Bonds and Net Rent Leases . Anything in this Ordinance to the contrary notwith standing, the Port may enter into contracts, leases or other agreements pursuant to which the Port will agree to construct a hangar, ove rhaul, maintenance or repair building or shop, or othe r aviation or airport or air navigation facil ity, including hotels, garages and other buildings and facilities incident or related to the Airport, on land constituting part of the Airport or will agre e to acquire or constr uct a hangar, overhaul, maintenance or repair building or shop, or other aviati on or air navigation facility, incl uding hotels, garages and other buildings and facilities incident or related to th e Airport, on land not then constituting part of the Airport (which land if not then owned by the Po rt may be acquired for such purpose), or to acquire and remodel, renovate or rehabilitate a building, structure, or other facility (including the site thereof) for aviation or airport or air navigation purposes (all said hangars, building, shops, or other structures and facilities being referred to in this secti on as the “Special Facility”), and lease such Special Facility under the following conditions: 1. No Special Facility will be construc ted or acquired and leased for use or occupancy under this section: (a ) if the Special Fac ility would provide se rvices, facilities, commodities or supplies which then may be ade quately made available through the Airport as then existing, and (b) if the use or occupancy of such Special Facil ity under the contract, lease or agreement therefor would resu lt in a reductio n of Revenues below the minimum amount of Revenues covenanted to be produced and main tained in accordance with Section 16 hereof, 2. A Net Rent Lease (hereinafter defined in this section) shall be entered into between the Port, as lessor, and the user or occu pier of such Special Facility, as lessee, pursuant to which the lessee shall agree to pay the Port in each year during the term thereof, (i) fixed rentals (referred to in this section as the “fixed rentals”) in periodic installments which will be sufficient to pay during such term as the same respectively mature s the principal of and interest on all Special Obligation Bonds to be issued pur suant to this section to pay the cost of construction or acquisition of the Special Facility, (ii) such further rentals as shall be necessary or required to provide or maintain all reserves required for such Special Obligation Bonds and to pay all trustee’s, fiscal agent’ and paying agents’ fees and expe nses in connection therewith, and (iii) unless a ground rental shall be provided for in accordance with and pursuant to the next sub-paragraph of this section, an additional rent al payable in periodic installments and free and clear of all charges under said Net Rent Lease, in an amoun t equal to a properly allocable share of the administrative costs of the Port arising out of such Net Rent Le ase and the issuance and servicing of such Special Obligation Bonds;DOCSPNW1:57365.3 42936-5 BJ1/BJ1 64 3. If the land on which the Speci al Facility is to be constr ucted constitutes a part of the Airport, the Net Rent Lease referred to in subparagraph 2 above of this section shall provide for payment to the Port of a ground rental for the ground upon which such Special Facility is or is to be located. Such ground rental shall when said Net Rent Lease is executed be in amounts not less than required according to the rates, rent als, fees, and charges of the Port then in effect, shall be free and clear of all charges under said Net Rent Lease and shall be in addition to the rentals required by subparagraph 2 above of this section; and shall constitute Revenues and be paid into the Airport Fund, to be used and a pplied as are other moneys deposited therein; and 4. If located on land included in the Airport, the Net Rent Lease shall provide that all rentals payable thereunder pursuant to subpara graph 2 above of this section which are not required to pay the Special Obligation Bonds issu ed for the Special Facility leased thereby, including reserves for such Speci al Obligation Bonds, or required to pay trustee’s, fiscal agents’ and paying agents’ fees and expens es in connection therewith, or required to pay the aforesaid administrative costs of the Port, shall be paid to the Port for its own use and purposes. To the extent permitted by law, such excess amounts shall cons titute Revenues and be paid into the Airport Fund, to be used and applied as are other moneys deposited therein. For the purposes of this section, the term “Net Rent Leas e” shall mean a lease of property to be financed with Special Obligation Bonds, unde r and pursuant to whic h the lessee agrees to pay to the Port the rentals required by subparagra phs 2 and 3 above of this section, and to pay in addition all costs connected with the ownership, operation, mainte nance, repair, renewals and rehabilitation of the leased property (including, without limitation, insurance, utilities, taxes or payments in lieu of taxes and assessments) under such conditions so that the amounts payable to the Port pursuant to said lease (exclusive of the additional rental payable pursuant to clause (iii) of said subparagraph 2 and of th e ground rental, if any, payable pur suant to said subparagraph 3) shall be certainly paid free and cl ear of all charges and whether the leased property is capable of being occupied and used by the lessee or not. A Net Rent Lease shall not be cancelable until provision has been made for the payment of the Special Obligation Bonds secured by the Net Rent Lease. Anything in this Ordinance to the contrary notwithstandin g, the Port may issue Special Obligation Bonds for the purpose of constructi ng a Special Facility on ground then constituting part of the Airport or on ground not then constitu ting part of the Airport (which ground may then be owned by the Port or acquired for that purpos e), or to acquire and re novate and rehabilitate a Special Facility (including the acquisition of necessa ry land), for lease pursuant to the provisions of this section. Such Special Obligation Bonds (i) shall be payable solely from the rentals payable pursuant to subparagraph 2 above of this section by the lessee under the Net Rent Lease entered into with respect to the Special Facility to be financed from such Special Obligation Bonds; (ii) shall not be a charge or claim agai nst or payable from the Revenues or any other moneys held hereunder; (iii ) shall mature with in the term of the Net Rent Lease entere d into with respect to such Special Facility; and (iv) sh all not be issued unle ss and until the following conditions have been met: (A) A certificate of the Airp ort Consultant has been f iled with the Port and the Trustee certifying (i) that the construction or acquisition and leasing for use or occupation of such Special Facility would not result in a reduction of Revenues below the minimumDOCSPNW1:57365.3 42936-5 BJ1/BJ1 65 amount of Revenues covenanted to be produ ced and maintained in accordance with Section 16 hereof, (ii) that the Net Rent Lease referred to in subparagraphs 2, 3 and 4 above of this section has been entered into; (iii) that the payments to be made by the lessee pursuant to the provisions of subparagrap h 2 above of this section will be sufficient to pay the principal of and interest and pr emium (if any) on the Special Obligation Bonds as the same mature and to pay all trustee’ s fiscal agents’ and pa ying agents’ fees and expenses in connection therewith; and (B) There shall have been filed with the Port and the Trustee an opinion of Counsel to the Port, that the Net Rent Lease en tered into pursuant to this section for the Special Facility to be financed from such Special Obligation Bonds is valid and binding according to its terms and complies with th e provisions of subparagraphs 2, 3 and 4 above of this section. Outstanding bonds of an issue of Special Ob ligation Bonds may be refunded by an issue of refunding Special Obligation Bonds, provided that: (1) the refunding Special Obligation Bonds shall be secured by and payable solely from the rentals for that Special Faci lity for which the Special Obligation Bonds to be refunded were payable; (2) the refunding will not d ecrease the rental, if an y, for the Special Facility payable pursuant to subparagraph 3 of the first paragraph of this section. (3) the Net Rent Lease for the Special Facility during the life of such refunding bonds shall comply with subparagraph 2, 3 and 4 of the first paragraph of this section; (4) the refunding Special Obligation Bonds sh all mature within the useful life of the Special Facility (as estimated by the Ai rport Consultant) and within the term of the new or amended Net Rent Lease entered in to with respect to such refunding; and (5) the certificate of the Airport Cons ultant and the opinion of Counsel required by the previous provisions of this s ection shall be filed with respect to such refunding Special Obligation Bonds. Special Obligation Bonds issued pursuant to the provisions of this section may also be refunded by Additional Bonds if (i) all such Special Obligation Bonds then outstanding and unpaid pertaining to the particularSpecial Facility are refunded at one time from such Additional Bonds or are then otherwise retired; (ii) the co nditions contained in Section 4 of this Ordinance are complied with upon such refunding, and, fo r the purposes of any such refunding, such refunding shall be considered as though the Port were acquiring such Special Facility by the issuance of such Additional Bonds ; and (iii) upon any such refundi ng all leases pe rtaining to the Special Facility shall be amended if and to the extent required to be in compliance with the provisions of the first para graph of Section 16 hereof. So long as any Special Obligation Bonds issued for a Special Facility are outstanding and unpaid, or until the payment thereof shall have been duly and adequately provided for, suchDOCSPNW1:57365.3 42936-5 BJ1/BJ1 66 Special Facility shall not be considered to be part of the Airport. If the Sp ecial Facility is located on land included in the Airport, upon the retirement of the indebtedness evidenced by such Special Obligation Bonds or evidenced by refund ing Special Obligation Bonds, all rentals and other income thereafter received by the Port from the Special Facility for which such Special Obligation Bonds were issued shall, to the ex tent permitted by law, constitute Revenues and be paid into the Airport Fund, to be used and appl ied as are other moneys deposited therein, and if such rentals and other income shall then constitu te Revenues, such Special Facility shall, unless contrary to law, then constitute part of the Ai rport; provided, however, that if any such Special Obligation Bonds are retired through the refu nding thereof from the proceeds of Additional Bonds, such Special Facility in a ll events (subject to the provisi ons of paragraph M of Section 17 hereof) shall thereafter constitute part of the Airport. [Portions of this Section 28 were amended pu rsuant to Section 4 of Ordinance No. 368-B] SECTION 29. Discharge of Liens and Pledges; Bonds No Longer Outstanding Hereunder . The obligations of the Port under this Ordinance, including all Supplemental Ordinances, and the liens, pledge s, charges, trusts, assignments, covenants and agreements of the Port herein or therein made or provided for, shall be fully disc harged and satisfied as to any Bond and such Bond shall no longer be deemed to be outstanding here under and thereunder, (i) when such Bond shall have been can celled, or shall have been purchased by the Trustee from moneys in the Bond F und held by it under this Ordinance, or (ii) as to any Bond not cancelled or so purchased, when payment of the principal of and the applicab le redemption premium, if a ny, on such Bond, plus interest thereon to the due date thereof (whether such due date be by reason of maturity or upon redemption or prepayment or by declaration as provided in Section 25 of this Ordinance, or otherwise), either (a) shall have been made or caused to be made in accordance with the terms thereof, or (b) shall have been provided by irrevocably depositing with the Trustee or Paying Agent for such Bond, in trust and irrevocably appropriated and set aside exclusively for such payment, (1) moneys sufficient to make such payment or (2) Governmental Obligations (as defined here inafter in this section) maturing as to principal and interest in such amount and at such times as will insure the availability of sufficient moneys to make such paymen t, and all necessary and proper fees, compensation and expenses of the Trustee and said Paying Agents pertaining to the Bond with respect to which such deposit is made sh all have been paid or the payment thereof provided for to the satisfaction of th e Trustee and said Paying Agents. At such time as a Bond shall be deemed to be no longer outstanding hereunder, as aforesaid, such Bond shall cease to draw interest from the due date thereof (whether such due date be by reason of maturity, or upon redemp tion or prepayment or by de claration as aforesaid, or otherwise) and, except for the purposes of any such payment fr om such moneys or Governmental Obligations, shall no longer be secu red by or entitled to the benefits of this Ordina nce, including all Supplemental Ordinances. Any such moneys so deposited wi th the Trustee or other Payi ng Agent as provided in this section may at the direction of the Port also be invested and reinvested in GovernmentalDOCSPNW1:57365.3 42936-5 BJ1/BJ1 67 Obligations, maturing in the amounts and times as he reinbefore set forth, a nd all income from all Governmental Obligations in the hands of the Trustee and the Paying Agents pursuant to this section which is not required for the payment of the Bonds and interest and premium thereon with respect to which such moneys shall have been so deposited, shall be paid to the Port and deposited in the Airport Fund as and when realiz ed and collected for use and application as are other moneys deposited in that fund. For the purposes of this sect ion, the term “Governmental Ob ligations” shall mean any of the following which are non-callable and which at the time are legal investments for the moneys proposed to be invested therein: (i) direct gene ral obligations of, or obligations the payment of the principal and interest of which are uncond itionally guaranteed by, the United States of America; or (ii) Public Housing Bonds, Tempor ary Notes, or Preliminary Loan Notes, fully secured by contracts with the United States. If any Bond shall not be presented for paymen t when the principal thereof shall become due, whether at maturity or at the date fixed for the redempti on thereof or upon declaration as provided in this Ordinance, or otherwise, or if any coupon shall not be presented for payment at the due date thereof, and if moneys or Government al Obligations shall at such due date be held by the Trustee, or a Paying Agent therefor, in tr ust for that purpose and sufficient and available to pay the principal and the premium if any, of su ch Bond, together with al l interest due thereon to the due date thereof or to th e date fixed for redemption thereo f, or to pay such coupon, as the case may be, all liability of the Port for such payment shall forthwith ce ase, determine and be completely discharged, and thereupon it shall be th e duty of the Trustee, or such Paying Agent, to hold said moneys or Governmental Obligat ions, without liability to such Bondholder for interest thereon, in trus t for the benefit of the holder of such Bond or of such coupon, as the case may be, who thereafter shall be restricted exclusively to sa id moneys or Governmental Obligations for any claim of whatever nature on his part on or with re spect to said Bond or coupon, including any claim for the payment thereof. Notwithstanding any provision of any other section of this Ordinance which may be contrary to the provisions of th is section, all moneys or Govern mental Obligations set aside and held in trust pursuant to the pr ovisions of this section for th e payment of Bonds (including interest and premium thereon, if any) and coupons shall be applie d to and used solely for the payment of the particular Bond (including interest and premium thereon, if any) and coupons with respect to which such moneys and Governmental Obligations have been so set aside in trust. Anything in Section 20 hereof to the contrary notwithstanding, if moneys or Governmental Obligations have been deposited or set aside with the Trustee, or a Paying Agent, pursuant to this section for the payment of B onds and coupons and such Bonds shall be deemed to have been paid and be no longer outstanding hereunder as provided in this section, but such Bonds and coupons shall not have in fact been actually paid in full, no amendment to the provisions of this section sha ll be made without the consent of the holder of each Bond or coupon affected thereby. SECTION 30. No Personal Liability . No Commissioner of the Port and no officer, director or employee thereof sha ll be individually or personally liable for the payment of the principal of or interest or pr emium on the Bonds; but nothing here in contained shall relieve anyDOCSPNW1:57365.3 42936-5 BJ1/BJ1 68 such Commissioner, officer, director or employe e from the performance of any duty provided or required by law, including this Ordinance. SECTION 31. Limitation of Rights . With the exception of ri ghts or benefits herein expressly conferred, nothing expressed or mentioned in or to be implied from this Ordinance or the Bonds is intended or shall be construed to gi ve to any person other th an the Port, the Trustee and the holders of the Bonds and coupons, any lega l or equitable right, re medy or claim under or in respect to this Ordinance or any covenants, conditi ons and provisions here in contained; this Ordinance and all of the covenants, conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the Port, the Trustee and the holders of the Bonds and coupons as herein provided. SECTION 32. Laws Governing; Severability . This Ordinance sh all be construed and enforced in accordance with the Constitu tion and laws of the State of Oregon. If any provision of this Ordinance shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as app lied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions, or in a ll cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public polic y, or for any other reason, such circumstances shall not have the effect of rendering the provisi on in question inoperative or unenforceable in any other case or circumstan ce, or of rendering any other provision or provisions herein contained inva lid, inoperative, or unenforceable to any extent whatsoever. The invalidity of any one or mo re phrases, sentences, clauses, paragraphs or sections in this Ordinance shall not affect the remaining portions of this Or dinance or any part thereof. SECTION 33. Notices . It shall be sufficient service of any notice, request, complaint, demand or other paper, if the same shall be duly mailed by registered or certified mail: (i) on the Port, if addressed to The Port of Portla nd, P.O. Box 3529, Portland, Oregon 97208, Attention: Executive Director, or to such address as the Port may from time to time file with the Trustee; and (ii) on the Trustee, if addressed to the Trustee at its principal office, A ttention: President, or to such other address as the Trustee may from time to time file with the Port. SECTION 34. Effect of Sundays and Legal Holidays . Whenever this Ordinance or a Bond or coupon require any action to be taken on a Sunday or a legal holiday, such action shall be taken on the first business day occurring thereaft er. Whenever in this Ordinance or a Bond or coupon the time within which any action is required to be taken or within which any right will lapse or expire shall terminate on a Sunday or lega l holiday, such time shall continue to run until midnight on the next succeeding business day. SECTION 35. Section Headings; Table of Contents . The headings or titles of the several sections hereof, and any ta ble of contents appended hereto or to copies hereof, shall be solely for convenience of refere nce and shall not affect the m eaning, construction, interpretation or effect of this Ordinance. SECTION 36. Publication of Summary and Eff ectiveness of this Ordinance . A concise summary of this amended and restated Ordinance including the lo cation within the Port where a complete copy of the amended and rest ated Ordinance may be obtained without charge,

### shall be published within five days after passage, once in a newspaper of general circulation within the Port; and shall, except where otherwise provided by law, become effective thirty (30) days after enacted. PASSED AND ENACTED by the Board of Commissioners of The Port of Portland at a meeting held on 

# .qa4-,.-d, 8,2006 and signed by its President on the same date.

DOCSPNWI 57365.3 42936 - 5 BJIIBJI